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2016 (5) TMI 1180 - AT - Income TaxTransfer pricing adjustment - Held that:- We agree with the contention of the Ld. Counsel that adjustment if at all is required to be made then the same should be made in respect of transactions with the AE only accordingly, the TPO is directed to make the adjustment only with respect to transaction with the AE and not for the entire revenue as costs. Whatever disallowances which has been made by the AO under various heads should be reduced from the operating cost as it will amount to double addition. Disallowances of software and license - alternatively, as claimed by assessee that if the same is treated as capital expenses, then depreciation under section 32 should be directed to be allowed - Held that:- It can be seen that, some of the expenditures are periodical and recurring in nature, which cannot be held to be capital in nature. Because these expenditures are part and parcel for running of and maintenance of computer programmes essential for business. However, all these details and bills and vouchers along with the nature of expenditures have not been examined properly by the AO as well as by the DRP, therefore, in the interest of justice, we feel that the issue of software expenses should be remitted back to the file of the AO and should be decided afresh after considering these bills and vouchers and also the nature of expenses. It is clarified that if payment is recurring in nature purely for software then same cannot be disallowed as capital. In case some of the expenditures are treated as capital then, needless to say that AO will allow deprecation of such expenditure. Disallowance of travelling expenses being 50% claim - Held that:- Even before us, the entire details have not been furnished. However, looking to the fact that foreign travelling expenses has been recurring expenditure in all the assessment years and in this year, the percentage is only 3% of the total turnover, therefore, in the interest of justice, we feel that the disallowance made should be restricted to 25% of the total expenditure debited on account of travelling expenses. Thus, the assessee gets part relief on this score. Similarly, on ad-hoc disallowance of telephone and communication, the same was made 50% on total expenditure claimed at ₹ 14,76,748/- on the ground that relevant details have not been furnished. Since similar position is continuing at the stage of the Tribunal also, therefore, like in the travelling expenses, we direct the AO to disallow 25% of the total expenditure debited on this head. Thus, assessee gets part relief on this score also.
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