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2020 (9) TMI 1197 - ITAT BANGALORETPA - comparable selection - comparability of 7 companies with a SWD service provider such as the Assessee - HELD THAT:- Assessee in engaged in the business of provision of Software Development Services (SWD services), to its wholly owned holding company. In terms of the provisions of Sec.92-A - Companies functionally dissimilar with that of assessee need to be deselected from final list. Risk adjustment while determining ALP - A perusal of the order of the DRP in this regard shows that the DRP has not directed the AO to allow risk adjustment @ 1%, but has only directed the AO to decide the percentage of risk adjustment to be calculated and to take guidance from the decision of the ITAT Bangalore in the case of Hellosoft Pvt. Ltd. [2013 (10) TMI 747 - ITAT HYDERABAD]. Nevertheless there is no basis or discussion on what are the risks and its quantification. Hence, we are of the view that the said direction is not in accordance with law and hence Gr.No.2 raised by the revenue is allowed, in the facts and circumstances of the present case. Negative working capital adjustment - HELD THAT:- The grievance that advances received from AE should be considered as part of payables for computing working capital requirement is also a settled proposition. Since the issue has not been dealt with in proper perspective and there are factual contradictions, we deem it fit and appropriate to remand the issue of working capital adjustment to the TPO/AO for a consideration afresh after opportunity to the Assessee and in the light of the observations made in this order on working capital adjustment. The grievance that advances received from AE should be considered as part of payables for computing working capital requirement is also a settled proposition. Since the issue has not been dealt with in proper perspective and there are factual contradictions, we deem it fit and appropriate to remand the issue of working capital adjustment to the TPO/AO for a consideration afresh after opportunity to the Assessee and in the light of the observations made in this order on working capital adjustment. Computation of deduction u/s 10A - exclusion of telecommunication expenses, insurance charges and foreign exchange loss both from the export turnover and total turnover for the purpose of computation of deduction u/s. 10A - HELD THAT:- It is not in dispute before us that the Hon’ble High Court of Karnataka in the case of CIT v. Tata Elxsi Ltd [2011 (8) TMI 782 - KARNATAKA HIGH COURT] has held that charges/expenses relating to telecommunication, insurance charges and foreign exchange loss should be excluded both from export turnover and total turnover while computing deduction u/s.10A of the Act i.e., whatever is removed from the numerator should also be excluded from the denominator while working total turnover and export turnover for allowing deduction u/s.10A of the Act. The aforesaid decision of the jurisdictional High Court has been upheld by the Hon’ble Supreme Court in the case of CIT v. HCL Technologies Ltd [2018 (5) TMI 357 - SUPREME COURT] Depreciation on the Written Down Value [WDV] of the lease rentals capitalized in AY 2010-11 in respect of which DRP for AY 2010-11 directed the AO to allow depreciation - premise on lease and paid lease rent - HELD THAT: - AO in his draft assessment order dated 30.3.2015 did not disallow the claim of the Assessee for deduction on account of depreciation. On objections by the Assessee before DRP, the DRP directed the AO to give effect to directions of DRP for AY 2010-11 and allow depreciation. AO in his final assessment order which is subject matter of this appeal disallowed a sum of ₹ 1,49,65,386 instead of allowing depreciation on WDV of the sum of ₹ 1,64,45,484/- as directed by the DRP. The sum of ₹ 1,49,65,386 was arrived at by the AO by reducing a sum of ₹ 14,80,094 from the opening WDV of lease rentals of ₹ 1,64,45,484/-. The approach of the AO in the final order of assessment is not accordance with law and in compliance with the directions of the DRP. As per directions of DRP, the AO should have allowed deduction on account of depreciation of ₹ 14,80,094 - We hold and direct accordingly and allow ground.
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