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2014 (10) TMI 1025 - ITAT DELHINature of expenditure - replacement of software - revenue or capital expenditure - HELD THAT:- Uncontroverted position that the impugned payments were made for the purpose of upgrading the software that the assessee was using and that no new asset came into existence. It is also well settled legal position that the expenses incurred on upgrading the software are to be treated as revenue expenditure. DR did not bring on record any material to dislodge the findings of the CIT(A) or seriously dispute the same. - Decided against revenue. Addition on account of software development charges paid to Partha Development Corporation - HELD THAT:- This ground is clearly ill conceived inasmuch as the amount of ₹ 2,00,000 for financial accounting software was paid to Partha Development Corporation in two instalments – one of ₹ 1,40,000 and the other of ₹ 60,000. While the Assessing Officer took the entire amount of ₹ 2,00,000 for disallowance, he also made a separate addition of ₹ 60,000. This aspect of the matter has been highlighted in the CIT(A)’s order and no defects are pointed out in the said finding. In view of this uncontroverted factual finding, revenue’s this ground of appeal is based on a simple misconception of facts. We need not deal with this matter in any more detail and dismiss the same as based on misconception of facts. Addition on account of difference in arm’s length price - assessee used Resale Price Method for benchmarking its international transactions so far as purchase of books is concerned - as per TPO comparison of profit earned on imported books with profit earned on other books is incorrect because the latter is an entirely uncomparable activity on the facts of this case - CIT- deleted addition - HELD THAT:- All the details were before the TPO, yet has proceeded to compute the hypothetical sale price of the books in the hands of the distributor on the basis that it will be equivalent to 402.414869% (i.e. 100/ 24.85 X 100) of the purchases in the hands of the assessee. This approach, including the presumption underlying therein, is clearly erroneous. The computation of profit margins of the wholesale distributor, as computed by the AO, are, therefore, are also incorrect. TPO has not adopted the profit margin by the wholesale distributors on the basis of actual figures or the undisputed discount policies on cover prices but based on certain hypothesis which turns out to be based on misconception of facts and is, in any case, unsubstantiated by material on record. We are, therefore, of the view that the very foundation of impugned ALP adjustment is unsustainable in law. Our reasoning may have been different but our conclusion is the same as arrived at by the CIT(A). TP study may be erroneous but it is not open to us to enlarge the scope of issue before us. In the present case, the TPO has disputed only the margin of the wholesaler on the basis of certain calculations which turned out to be erroneous. He, however, does not dispute the fact that the margins of the wholesale distributor can be compared with the margins of the assessee. It is a matter of record that the assessee’s margin from this segment are over 38% whereas going by the business model adopted by the assessee, maximum permissible margin for the wholesale distributor is 30%. In these circumstances, and within the limitations that we have, there is no good reason to disturb the relief given by the CIT(A). It is not for us to supplement the work done at the assessment level or to step into the shoes of the AO and TPO for deciding what more could have been done in a particular case. We have also noted that right from 2004-05 to 2012-13 the ALP benchmarking on this basis has been accepted by the revenue and even though a reference was made to TPO in the assessment year 2010-11, the TPO did not disturb this ALP determination either - we approve the conclusions arrived at by the CIT(A) on this issue - Decided against revenue.
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