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2018 (4) TMI 638 - AT - Income TaxTransfer pricing addition - comparable selection criteria - functional similarity - Held that:- The assessee company is engaged in the design, development and maintenance of software for its group companies which essentially includes software architecture, coding, software testing, digital integration, software maintenance etc. It also provides some software activity to Indian Customers under independent domestic contracts, thus companies functionally dissimilar with that of assessee need to be deselected from final list. Directions to compute ALP of the international transaction by treating foreign exchange fluctuation as an item of operating nature both for the assessee company and comparable companies. Recruitment and Training employees for upgrading their skills - nature of receipt - Held that:- 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 attribution rate in software industry is highest, recruitment of employees and imparting of training to them cannot be considered as of enduring benefit. So, by following the law laid down by the Hon’ble Calcutta High Court Hindustan Aluminium Corporation Ltd. vs. CIT (1988 (3) TMI 5 - CALCUTTA High Court) and Hon’ble jurisdictional High Court in CIT vs. Munjal Showa Ltd [2012 (4) TMI 239 - DELHI HIGH COURT] - Decided in favour of the assessee. Payment of retention bonus - allowable busniss expenditure - Held that:- As decided in assessee's own case payment of retention bonus made by the assessee company partakes character of salary payable to its employee for the business purposes and has to be treated as revenue expenditure. Had the employees of erstwhile company not been retained by the assessee company its business would have adversely affected and this fact goes to prove that the retention bonus was paid as an incentive to the employee, which is salary as per Explanation 2 to section 15 of the Act, and is a business expenditure not creating any enduring benefit. - Decided in favour of the assessee.
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