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2020 (8) TMI 808 - AT - Income TaxTP Adjustment - correctness of determination of ALP in respect of an international transaction between the assessee and its AE of rendering software development services [SWD services] u/s. 92 - Comparable selection - HELD THAT:- The assessee rendered Software Development Services (SWD services) and marketing support services. During the previous year relevant to AY 2010-11, the assessee rendered SWD services to its Associated Enterprise [AE] thus companies functionally dissimilar with that of assessee need to be deselected from final list. Working capital adjustment - not considering the advances received from AEs while computing the average trade payables - TPO is directed to consider the advance received from AE as trade payable and considered for working capital adjustment. It was held in the said decision that advances received from AE par take the character of trade payables which is to be adjusted against future invoice. The advance received from the AE dispenses with the necessity to borrow for working capital and has direct bearing on the profitability of the concerned. The grievance of the assessee is accordingly allowed. AO is directed to compute the working capital adjustment by considering the advances received from AE as part of the average trade payable. Computation of OP/OC of the assessee - plea of the assessee is that OP/OC should be computed as done by the assessee by considering the retirement provision written back as part of operating expenditure - HELD THAT:- The assessee’s claim that for earlier AY its operating profit was considered after treating the provision for retirement benefit no longer required as part of operating expenses. This aspect was not verified either by the DRP/AO/TPO. Hence we deem it fit and appropriate to set aside the issue to TPO/AO for consideration of the claim of assessee with regard to past treatment of similar write back for computing its operating profit. The AO/TPO will afford opportunity of being heard to the assessee, before deciding the issue of determination of ALP in accordance with the directions contained in this order. TDS u/s 195 - Disallowance of Project Specific Costs u/s 40(a)(i) - AO held that the assessee is liable to deduct tax at source as there are plethora of judicial precedents supporting the fact that TDS compliance is mandatory even if the expenditure is incurred by the way of reimbursements and that the payment made for right to use computer software was in the nature of royalty and hence chargeable to tax in India in the hands of the recipient non-resident - HELD THAT:- There cannot be a retrospective obligation to deduct tax at source and therefore as on the date when the assessee made payments to the non-resident for acquiring off-the-shelf software cannot be regarded as in the nature of royalty and therefore there was no obligation on the part of assessee to deduct tax at source. The payment would be in the nature of business profits in the hands of non-resident and since admittedly the non-resident does not have a Permanent Establishment in India, the sum in question is not chargeable to tax in the hands of non-resident. Consequently, the disallowance made u/s. 40(a)(ia) of the Act has to be deleted.
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