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2021 (1) TMI 208 - AT - Income TaxTP Adjustment - adjustment relates to the Software development segment of the assessee - Comparable selection - HELD THAT:- M/s Acropetal Technologies Ltd. - Tribunal chose to exclude this M/s Acropetal Technologies Ltd (seg.) applying revenue filter, even though the assessee has advanced arguments both on employee filter and revenue filter. We also notice that the TPO has considered segmental details only. Admittedly, this company fails on revenue filter. Accordingly, we direct exclusion of M/s Acropetal Technologies Ltd. E-Zest Solutions Ltd. - Comparability of this company requires fresh examination as held in the case of Applied Materials India (P) Ltd [2016 (9) TMI 1458 - ITAT BANGALORE]. Accordingly, we restore this company to the file of AO/TPO for examining it afresh. E-infochips Ltd - There is no segmental information available as regards the revenue from sale of products and revenue from software development segment. As the assessee is simply engaged in rendering software development services and there is no sale of any software products, this company, in our considered opinion, ceases to be comparable. See SAXO INDIA PVT. LTD VERSUS. ACIT, [2016 (2) TMI 604 - ITAT DELHI] ICRA Techno Analytics Ltd - When this company is engaged in diversified activities of software development and consultancy, engineering services, web development & hosting and substantially diversified itself into domain of business analysis and business process outsourcing, then the same cannot be regarded as functionally comparable with that of the assessee who is rendering software development services to its AE. M/s Persistent Systems and Solutions Ltd - No separate segment has been given in respect of software services. Accordingly, the composite data of revenue as well as margins of this company pertaining to the sale of software services and products cannot be considered as comparable with the software development services segment of the assessee. In view of the above facts and circumstances, we do not find any error or illegality in the directions of the DRP in excluding this company from the list of comparables. ALP of the transactions relating to Software segment requires to be re- determined. Accordingly, we restore this issue to the file of AO/TPO with the direction to re-compute the ALP of Software development Services segment. Disallowance of interest paid on ECB loans - Interest claimed by the assessee on the ECB loan has been disallowed by the AO on the ground that the loan has been taken for purchase of an immovable property and the interest has to be capitalized till the asset is put to use as per the proviso to section 36(iii) - HELD THAT:- We hold that the interest disallowance made by the AO is not justified because the funds were borrowed for continuation / expansion of existing business and not for extension of existing business and therefore, the proviso to section 36(1)(iii) is not applicable in the present case because the amendment in this proviso was made by the Finance Act, 2015 w.e.f. 01.04.2016 as per which the words "for extension of" were omitted and therefore in our considered opinion, up to Assessment Year 2015-16, the proviso is applicable only in those cases where borrowed funds was used for acquisition of asset for extension of existing business. In the present case, the Assessment Year involved is Assessment Year 2009-10 and therefore, in the facts of present case, in the present year, this proviso is not applicable and hence, we delete this disallowance by respectfully following this Tribunal order rendered in the case of AT & T Global Network Services (India) Pvt. Ltd. [2017 (9) TMI 1257 - ITAT DELHI]. Re-computation of deduction u/s 10A - HELD THAT:- We notice that the addition relating to Transfer pricing adjustment is not eligible for deduction u/s 10A of the Act, in view of the bar provided in the proviso to sec. 92C(4) of the Act. Other disallowances made by the AO would go to increase the Profits derived from the undertaking. Since the prayer of the assessee is supported by Circular no.37/2016 dated 2.11.2016 issued by CBDT, we direct the AO to re-compute the deduction accordingly.
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