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2015 (11) TMI 1719 - AT - Income TaxTPA - comparable selection criteria - Held that:- The assessee company is a subsidiary of Moog Inc., USA and provides software development services to its Associated Enterprise (AE) thus companies functionally dissimilar with that of assessee need to be deselected from final list of comparable. Working of adjustment - Held that:- AO/TPO is directed to allow the actual adjustment towards the differences in the working capital position between the assessee and the entrepreneurial companies selected as comparable. Disallowance of software expenses - assessee has incurred expenses towards purchase of application software (i.e. obtaining or renewing the licenses for use of certain application software) and has deducted tax at source in respect of such payment towards application software - Held that:- The license fee paid represents usage charges of leased licenses. Further, the use of license does not give any ownership of the software to the assessee and thereby does not lead to creation of any capital asset. The license used by the assessee is application software designed to perform various business processes. The application software enables the assessee to carry out its business operations efficiently and smoothly and does not provide any enduring benefit. Such software enhances the efficiency of the operations. It is an aid in the manufacturing process. Considering the above facts and the judicial precedents relied upon by the assessee company, we hold that the said license fees and maintenance fees is to be allowed as revenue expenditure. Since we have allowed the assessee’s claim of software expenditure to be treated as revenue expenditure, the alternate ground for non-grant of additional deduction u/s. 10B on account of capitalisation of software expenditure is not considered for adjudication.
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