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2019 (3) TMI 1116 - AT - Income TaxTP adjustment - Comparable selection criteria - functional similarity - company as infected by the merge - extraordinary activities - HELD THAT:- Sasken Communication Technologies Ltd. is to be rejected as comparable for the same assessment year i.e. assessment year 2007-08 on the basis that it undertook significant merger and acquisition activity. Accordingly, we direct the exclusion of this company. See GLOBAL LOGIC INDIA PVT. LTD. VERSUS ACIT, CIRCLE-12 (1) , NEW DELHI. [2015 (5) TMI 637 - ITAT DELHI] Companies functionally dissimilar with that of assessee, a captive software service provider, need to be deselected from final list. Companies showing significant related party transactions equivalent to 27.66% of sales also need to be deselected from final list. Incorrect margin computation - Operating Profit Margin computation - HELD THAT:- This issue needs verification at the stage of AO/TPO on the premise whether the royalty paid by the Geometric Software Solutions Ltd. was the routine expenditure or not. In case, it is found to be the routine expenditure of the company, the same shall be considered as an item of operating expenditure. Regarding the provision for doubtful debts, we find that it is an item of operating expenditure as held in the case of Sony India Pvt. Ltd [2008 (9) TMI 420 - ITAT DELHI-H]. Regarding provision for advances, we find that the provision for advances cannot be considered in the instant case as an item of operating expenditure, as the assessee could not prove that such advances were not made for purchase of capital asset or for any other non-business purpose. The decisions relied by the assessee do not pertain to the provision for advance. We, therefore, direct the TPO/AO to compute the Operating Profit Margin accordingly. Risk Adjustment - HELD THAT:- We reject the claim of the assessee towards risk adjustment due to lack of appropriate data and quantification of risk adjustment. Payment for License of computed software - revenue or capital expenditure - HELD THAT:- The above expenses are to be regarded as incurred on revenue field as per the test laid down by the Special Bench of Tribunal in the case of Amway India Enterprises[2008 (2) TMI 454 - ITAT DELHI-C] in as much as (i) such computer software does not have utility for long duration and hence do not result in enduring benefit and (ii) such software does not constitute a profit earning apparatus and merely enable the appellant to efficiently conduct its business. The aforesaid decision has been affirmed by the Hon’ble Delhi High Court in the case of CIT vs Asahi India Safety Glass Ltd [2011 (11) TMI 2 - DELHI HIGH COURT]. Thus as decided in assessee's own case [2011 (6) TMI 682 - ITAT DELHI] license fee paid by the appellant is to be treated as revenue in nature. Interest u/s. 234A & 234B of the Act is consequential in nature and the AO is directed to give consequential effect.
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