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2019 (9) TMI 727 - AT - Income TaxDisallowance of excess deduction claimed u/s 10AA r.w.s 80IA(10) - AO observed that the Appellant earned more than 'ordinary profits' to its associated enterprise ('AE') - HELD THAT:- AO was of the view that the assessee by showing such high OP/OC had earned super normal profits when compared with the margins of comparable companies. We find no merit in the observations of AO in this regard as the concept of PLI i.e. OP/OC which has been adopted by AO was relevant for comparability for transfer pricing analysis. The same cannot be used for holding the assessee to have earned super normal profits in carrying on its business for that. He has to look at net profits shown by assessee, which in the present year is 63% only. The learned Authorized Representative for the assessee pointed out that similar net profit range has been shown both in preceding and succeeding years. Coming to the issue at hand as to whether any disallowance is merited under section 10AA of the Act. The basic condition for application of the said provisions of the Act are an arrangement between the parties, which is so arranged as to enable the assessee to earn super normal profits. The TPO/Assessing Officer/DRP has not pointed out any such arrangement whatsoever between the assessee and the comparable companies selected. In the absence of the same, provisions of section 10AA(9) r.w.s. 80IA(10) of the Act are not attracted. This issue has been elaborated upon by us in various decisions, as also in the case of sister concern i.e. Eaton Industries Pvt. Ltd [2017 (10) TMI 1384 - ITAT PUNE] There is no merit in invoking provisions of section 10AA(9) r.w.s. 80IA(10)of the Act in the case of assessee. The TPO having accepted the transactions to be at arm's length and where the assessee was raising invoices on man hour basis, in line with the third party agreement and where net profit was shown by the assessee at 63%, there is no merit in applying the concept of OP/OC, which cannot be the basis for benchmarking the profits of any business. Hence, we direct the Assessing Officer to allow the deduction claimed under section 10AA of the Act in entirety Disallowance u/s 40(a)(i) - payment of software on the ground that the assessee had purchased copyright in the said software - HELD THAT:- We hold that the payment made by assessee for purchase of off-the-shelf software is not in the realm of royalty and in any case as the definition of royalty has not been amended under DTAA, provisions of DTAA being beneficial are to be applied and there was no requirement to deduct tax at source out of such payment. See JOHN DEERE INDIA PVT. LTD., (JOHN DEERE EQUIPMENT MERGED WITH JOHN DEERE INDIA PVT. LTD.) [2019 (3) TMI 458 - ITAT PUNE] TP Adjustment - benchmarking of ITES segment - comparable selection - HELD THAT:- The assessee before us has filed tabulated details in respect of preceding and succeeding years. In all the years under consideration, the OP/OC on segmental level is positive and it is not loss making concern. The Assessing Officer / TPO in such circumstances, directed to include the segmental results of Microgenetics Systems Ltd. for benchmarking the transactions of assessee in ITES segment. Universal Print Systems Ltd., wherein the plea of assessee before us is that it is functionally not comparable. The learned Authorized Representative for the assessee has pointed out that the segment which was held to be comparable to the assessee’s ITES segment was pre-pressed services. So, he explained that pre-pressed services include procedure between creation of content and final printing, whereas the assessee under ITES segment undertakes back office accounting in HR services, which in no manner can be equated with pre-pressed services. Just because, it was an outsourced business source, we find merit in the plea of assessee in this regard and accordingly, hold that the said concern Universal Print Systems Ltd. was not functionally comparable to the assessee and hence, could not be included in the final set of comparables. AO/TPO is thus, directed to exclude the same. Incorrect computation of margins of comparables - HELD THAT:- DRP had given certain directions to the Assessing Officer/TPO, but have failed to carry out the same. The assessee has also moved rectification application which is pending adjudication. Assessing Officer/TPO is directed to correctly compute the margins of comparables after verifying stand of assessee in this regard and after allowing reasonable opportunity of hearing to the assessee. The ground of appeal allowed.
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