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2019 (6) TMI 1090 - AT - Income TaxNature of expenditure - software license fees paid to AE - AO rejected contentions of assessee and disallowed expenditure claimed. However, Ld.AO granted depreciation at 25% - HELD THAT:- As decided in assessee's own case [2017 (8) TMI 281 - ITAT DELHI] assessee made payment for software licenses purchased from parent entity. Ld.AO disallowed, considering it to be capital expenditure, and provided corresponding depreciation at 25%. On perusal of order for assessment year 2007-08, it is observed that similar disallowance was made by AO on license expenses, and factual matrices of this issue as submitted by both parties are similar with that of assessment year 2007-08. DRP has also recorded that this Tribunal in assessee’s own case for assessment year 2007-08 and 2008-09 deleted such disallowance made by AO, against which revenue has not filed any appeal before Hon’ble High Court. Thus the issue has attained finality. Addition of advance and debts - HELD THAT:- It is observed that details has been furnished, however, Ld.AO has not verified same. While taking a look at details of advances to venders, it is observed that these are small payments all made on one single day in the month of May, 2012 totalling to ₹ 1,75,895/-, which is difficult for AO to verify. Upon a query being raised to Ld.Counsel regarding same, he submitted that, what is necessary to be verified is details of bad debts for which invoices have been placed. There is no dispute that sum of ₹ 8,03,982/- has been written off by assessee in its books of accounts. From invoices placed at page 90-94, it is apparent that they pertain to preceding assessment years. Thus assessee satisfies requirements specified under section 36 (1) (vii) of the Act. TP adjustment - comparable selection - HELD THAT:- Referring to functions performed, assets involved and risk assumed by assessee under software development service segment companies functionally dissimilar with that of assessee need to deselected from final list. Infosys Ltd. company was owning brand and having substantial intangible assets which cannot be held to be suitable comparable for assessee who was only providing software deployment services - this company is not functionally comparable to assessee inasmuch as, it is also engaged in software development services and generate substantial revenue from the sale of its own products. Larsen and Toubro Infotech Ltd. to de rejected for nonavailability of segmental data. See SAXO INDIA PVT. LTD VERSUS. ACIT, [2016 (2) TMI 604 - ITAT DELHI] Comparable having extraordinary event during year should be excluded. Under software deployment service segment, assessee is rendering deployment services of its skilled employees to the AE, is or their customers, which is remunerated on cost plus basis. It is also peculiar to note that the cost is determined to be salary earned by such employee who is put on the project. The working module of assessee need to matched with comparable selected. No benefit from services for which payments has been made, - TPO determined ALP of the international transaction at Nil Assessee could not establish whether such services were needed by assessee (i.e. Need Test) - HELD THAT:- It is pertinent to note that requirement of services should be judged from viewpoint of assessee as a businessman. Therefore in this regard we are of view that assessee has to substantiate that these services are required by it. Since assessee, as service receiver received certain services as per agreement dated 23/10/2008, proves that such services were required by assessee. Further, assessee belongs to MNE organization and that Aircom UK provided service to its group companies across the globe. It is observed that all companies are situated in different countries, operating in different geographies have also received and used these services which is evident from allocation list submitted by assessee reproduced hereinabove. Therefore this itself proves that, for assessee to remain competitive in its business such services are required. Therefore, in our considered opinion, assessee stands satisfied need test, which is alleged by ld.TPO to have not been satisfied by assessee. Whether such services are rendered to assesse by AE ( i.e. Rendition test) - Whether assessee has derived any economic or commercial benefit from these services ( i.e. Benefit test) - these services, assessee has to demonstrate and satisfy Evidence Test or rendition test and benefit test, as envisaged u/s 92 (2) of the Act, and that, services provided by AE are neither duplicative nor shareholder’s activity. Ld. AO/ TPO is then directed to determine Arm’s length price of these services based on documents submitted by assessee by determining “most appropriate method‟ and Comparability analysis.
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