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2021 (2) TMI 777 - AT - Income TaxTP Adjustment - comparable selection - HELD THAT:- Assessee provides software development services [‘SWD services’ for short], Information Technology Enabled Services [‘ITES’ for short] and marketing support services [‘MSS services’ for short] to VMware group companies, as a captive service provider. For all the above services, the Assessee is compensated by the Associate Enterprise (AE) on a cost plus mark up basis - Companies functionally dissimilar with that of services provided by the Assessee need to be deselected from final list. Addition u/s 40(a)(ia) - non deduction of tds - CIT(A) confirmed the action of the AO by holding that the necessary evidence of having deducted tax at source had not been produced by the assessee - HELD THAT:- Assessee brought to our notice Form No.27A which is a statement of deduction of tax at source for the period 01.10.2009 to 31.12.2009. It was brought to our notice that the necessary evidence was filed before the CIT(A) but the CIT(A) has overlooked the same. We are of the view that it would be just and appropriate to direct the AO to verify the claim of the assessee regarding tax deduction at source, in the light of the evidence produced before the CIT(A) after affording the assessee opportunity of being heard. TDS u/s 195 - Disallowance u/s 40(a)(ia) - disallowing the expenses grouped by the Appellant under ‘Repairs and maintenance’ towards purchase of application software on the premise that it constitutes “royalty” - HELD THAT:- Prior to the decision in the case of Samsung Electronics [2011 (10) TMI 195 - KARNATAKA HIGH COURT] rendered by the Hon’ble Karnataka High Court on 15.10.2011, the law as interpreted by various judicial forums was that payments for purchase of software were not in the nature of royalty but were in the nature of business profits and if the recipient non-resident did not have a Permanent Establishment in India, there was no obligation to deduct tax at source. Therefore payments to non-resident for purchase of software prior to 15.10.2011 cannot be disallowed u/s.40(a)(ia) of the Act for non deduction of tax at source as on the date of payment to non-resident, there was no such obligation. In view of the above said decisions, we hold that the disallowance under section 40(a)(ia) of the Act has to be deleted. We hold and direct accordingly. Suppressed income - audit adjustments made in the Appellant’s financial statements and adding back the same to the taxable income - HELD THAT:-The issue has to be remanded to the AO for fresh consideration. The assessee works on a cost + mark-up as its margin. The revenue that the assessee shows in the financial statements is dependent on cost and if due to an incorrect estimation of cost or other reasons as submitted by the learned counsel for the Assessee before us, there is change in the revenue shown by the assessee then the corresponding cost which was wrongly estimated also needs to be identified. It is only when there is reconciliation of the incorrect estimate of the cost can it be said that the audit adjustment suggested would be correct. In other words, the restatement of revenue has to be matched by corresponding reduction in the estimated cost only then can it be said that the audit adjustment suggested will not have any effect on the income of the assessee. The submissions made before us as well as the revenue authorities are general and do not give one to one tally or reconciliation of the differences and the reasons for such differences. The assessee is, therefore, directed to give a complete breakup of the difference between the revenue recorded in financial statements and as per the invoices and correlate the same with the cost estimates and as to how both are reflected in the financial statements.
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