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2016 (8) TMI 79 - AT - Income TaxDisallowance of recruitment expenses and training expenses - Held that:- When the assessee has come up with specific pleas that he has made payment of ₹ 37,89.007/- to the third party recruitment agency, access fee to various job sites like naukari.com etc. and ₹ 16,01,153/- for imparting training to the new employees who have recently joined and on job training to existing employees, which have otherwise been not disputed by the AO/DRP, recruitment of employees for efficient profit earning through a recruitment agency is recurring process and such expenditure cannot be avoided / deferred. At the same time, in the globalised set up, sudden upgradation of knowledge and skill of the IT engineers / technicians for providing IT Software Development Services particularly to foreign AE is also necessary for earning profit by a company. Moreover, when undisputedly there is no memorandum of understanding between the assessee company and its employees that the employee will work for specific period, as the attrition rate in software industry is highest, recruitment of employees and imparting of training to them cannot be considered as of enduring benefit. Addition being expenditure on quality audit by treating the same as capital expenditure being in the nature of enduring benefit to the company - Held that:- Keeping in view the fact that the expenditure on account of quality audit incurred by the assessee even if treated to be of enduring nature, it is to be treated as expenditure in the nature of revenue field as the test of benefit of enduring nature breaks down in this case. Because quality audit creates positive image of the product of the assessee; it fulfills the requirement of certain clients which contracts with the assessee company only with such certification; that by making such expenditure, assets of the assessee company has not been enhanced in any manner. So, we are of the opinion that DRP has erred in deciding this issue against assessee TDS u/s 195 - AO treating the payment for acquisition of software as fee for technical services / royalty - Held that:- Judgment cited as DIT vs. Infrasoft Ltd. [2013 (11) TMI 1382 - DELHI HIGH COURT] is applicable to the facts and circumstances of the case in which undisputedly no licence has been issued by the AEs in favour of the assessee for transfer of copyrights but assessee has merely paid the consideration for transfer of copyrighted article in the form of PTC software and as such, exclusive right has not been transferred in favour of the assessee qua the software purchased by it rather assessee’s right was restricted to use the copyrighted product for internal business purpose. Thus we are of the considered view that AO/DRP have erred in treating the acquisition of software under the head ‘fee for technical services/royalty’ requiring the assessee to pay the tax on the same. Transfer pricing adjustment - working capital adjustment disallowed - Held that:- As assessee in this case is engaged in providing software development services to its group companies and to arrive at ALP of the international transactions, the ld. TPO / DRP resorted to comparability by selecting different sets of comparable companies and after applying the various filters, the ld. TPO selected 10 comparable companies as mentioned in para 8.7 of his order, the appropriate transfer pricing adjustment can only to be made qua the international transaction undertaken by the assessee company during the year under assessment on the basis of its comparability vis-à-vis comparable companies, by providing working capital adjustment to the assessee in view of the provisions contained under Rule 10B(1)(e) also. So, we are of the considered view that the matter is required to be restored to the TPO to provide the assessee company the benefit of working capital adjustment for transfer pricing adjustment.
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