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2016 (8) TMI 1243 - AT - Income TaxTransfer Pricing Adjustment on account of provision of contract research and testing services - comparability analysis - Held that:- It is true that under the TNMM broad parameters of transactions and functions are to be seen, but the scrutiny on FAR analysis has to be done vis-à-vis the comparable companies. We find that the Tribunal in assessee’s own case in the AY 2007-08, so far as three comparables are concerned which are subject matter of dispute before us, viz., Celestial Labs Ltd., IDC (India) Ltd. and Mindtree Ltd. (Segmental), has threadbare analyzed the functions and other comparability parameters of the assessee vis-a-vis the comparable companies and has given a concrete conclusion for exclusion. The Tribunal first of all has analyzed the services and functions carried out by the assessee and, thereafter have analyzed the various comparables for accepting and rejecting the same. So far as the inclusion of M/s Transgene Biotek Limited, we are not entering into merits of the said comparable because no strong reasons have been given by the assessee as to why same was included in the comparability list in the assessment year 2007-08 and why it has been excluded in this year. Since the Ld. Counsel has submitted that, if the three comparables are excluded then the arithmetic mean of the final comparable would be 20.82% and in that case, the resultant arithmetic mean will fall ± 5% range, therefore, we direct the TPO/AO to examine the working of ± 5% margin range, after excluding the three comparables from the final list of comparables. Disallowance of ‘Microsoft License fee’ - revenue v/s capital expenditure - Held that:- Without these software, it is difficult to carry out the functioning of the business properly and efficiently, specifically in the case of the assessee whose entire operation of business is carried out through computers. The test of enduring benefit cannot be conclusive test which should be applied in each and every case. What is required to be examined or seen is the real intent and purpose of expenditure and whether such expenditure results in creation of a fixed capital for the assessee. Before us, the Ld. Counsel had brought out that, the computers were already bought and used in the business and the licensed software were installed to make the running of the computers more efficiently. Thus, this expenditure has enabled the operation of the assessee’s business effectively and properly, that is, the profit making apparatus to work more efficiently. It does not have any impact on the sources of the business. If certain expenses are incurred which may have enduring benefit of 2 to 3 years, for smooth running of the business operation leaving the fixed assets untouched then, same has to be reckoned as revenue expenditure. - Decided in favour of assessee.
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