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2015 (1) TMI 870 - AT - Income TaxTransfer pricing adjustments - payment of Account Management charges by the assessee to 12A and 12B - CIT(A) deleted the addition proposed by TPO, holding that risk factors involved in transactions carried out on the basis of contracts either by assessee himself or through subsidiaries are same and no transfer pricing adjustment is to be made - Held that:- In case of the assessee, there is an inherent transfer of risk by 12A / 12B to the assessee vide the MSA in relation to cases where the customer contacts directly with these. AEs and there are financial claims relating to the quality of deliverables. Such a transfer of risk through contractual arrangement is a common risk management practice in commercial world and should be duly recognized. The TPO made adjustment by determining a different revenue split [15% or 13% as the case may be] from the one followed by the respondent and 12A / 12B. Such an adjustment made by the TPO was without any basis or analysis. Assessee also calculated the effect of adjustment on profitability of ITC Infotech Group taking into consideration the risk adjustment envisaged by TPO for the AY 2006-07 and submitted that both 12A and 12B would make losses at net level if the risk adjusted pricing model, as proposed by the TPO were put in actual practice. Thus the risk adjusted business model as proposed by the TPO would result in an absurd situation from 12A / 12B’s perspectives defeating the concept of stable positive return for a low risk tested party. TPO totally erred in making transfer pricing adjustments in the case of assessee in both the AYs. - Decided in favour of assessee. Disallowance of software expenses - Held that:- The application software, being the subject matter of appeal, assist the already set-up business vide enhancing its efficiency and hence can be reliably related to being on revenue account. List of software purchased are enclosed in assessee’s paper book for AYs 2005-06 & AY 2006-07. On perusal of the same, we find that the parties from whom the software was acquired were Interwoven, Mercury Interactive (Singapore) Pvt. Limited, Sonata Information Technology and Tata Consultancy Services. All these companies specialize in application software which helps in increasing the efficiency of client deliverable. The details of payments made to M/s Interwoven clears that these are towards payment for renewal of software which the assessee was using for client deliverables. In view of these facts, we are of the view that software expenses are revenue in nature and allowable u/s 37 of the Act. - Decided in favour of assessee.
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