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2018 (11) TMI 1120 - AT - Income TaxDetermination of arm’s length price (ALP) in respect of an international transaction of rendering software development services by the assessee to its AE - comparable selection - Held that:- We uphold the order of the CIT(A) excluding companies by application of turnover filter. We also observe that the TPO has himself applied lower turnover filter of excluding companies with turnover of less than ₹ 1 Crore and in such circumstances, there is no reason as to why he should not apply the higher turnover limit. For the reasons given above, we uphold the order of the CIT(A). Indus Networks Ltd. cannot be regarded as a comparable as it fails the employee cost filter. The reasons given by the CIT(A) for not applying this filter are general and no instances of specific distortion of real employee cost in the comparable companies have been brought out. As already held that employee cost filter of more than 25% of the revenue is a valid filter. Following all we are of the view that inclusion of company should be directed to be considered afresh by the CIT(Appeals) and if the assessee satisfies this filter and otherwise found to be functionally comparable and not excludible on applying other filters, then company be adopted as a comparable. Deduction u/s. 10A - Held that:- The decision of the Hon’ble High Court of Karnataka in the case of Tata Elxsi Ltd. (2011 (8) TMI 782 - KARNATAKA HIGH COURT) on this issue holding that whatever is excluded from the total turnover while computing deduction u/s. 10A. Disallowance of software expenses on the ground that while making payment for use of software, no tax was deducted at source - Held that:- No merits in this ground raised by the assessee in view of the decision in the case of CIT Vs. Samsung Electronics Ltd. (2009 (9) TMI 526 - KARNATAKA HIGH COURT) wherein it was held that payments made for right to use software was payment in the nature of royalty and therefore there was obligation to deduct tax at source while making payment for such use and that the disallowance u/s.40(a)(ia) of the act for non deduction of tax at source was proper. Consequently the disallowance of expenses is upheld.
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