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2020 (5) TMI 407 - AT - Income TaxTP Adjustment - subcontracting charges paid to 3rd - whether considered in the operating profit while computing assessee’s margin? - contention of assessee that subcontracting charges should be excluded for computing margin of software development services in the hands of assessee - HELD THAT:- As decided in own case [2020 (2) TMI 259 - ITAT BANGALORE] cost of software development services cannot be treated in this fashion as claimed by the assessee. Hence we do not find any merit or substance in the contention raised by the assessee on this issue. Comparability analysis - Assessee provides software development and support services to Applied Inc. In this regard assessee employed services of 3rd party service providers for sub contracting specific part of their work. Core activities of software development cycle are conducted in house by assessee and a part of non-core activities are subcontracted to third-party service provider, thus companies functionally dissimilar with that of assessee need to be deselected. Disallowance of depreciation @ 60% on racks, Xerox machine and accessories, batteries and stabiliser - AO disallowed the claim and granted 15% depreciation for the reason that they are not integral part of computers which has been upheld by DRP - HELD THAT:- Undoubtedly machines like racks, batteries stabilisers can function without a computer and is attachable to any other electrical appliances. Therefore these machines do not form part of computer peripherals. Insofar as the Xerox machine is concerned, it is an ascertained able at this stage whether these machines could be exclusively and independently used without being attached to a computer as such kinds of Xerox machines do exist. Assessee has also not been able to establish details of accessories that has been categorised to be forming part of computer peripherals. We set aside this issue back to Ld.AO/TPO for verifying the actual use and nature of Xerox machines and the accessories that has been considered as computer peripherals. In the event it is ascertained able that these accessories and Xerox machines could not be independently used but could only be used on being attached to computer 60% depreciation should be allowed. Insofar as racks, batteries and stabilisers are concerned these do not fall within the category of computer peripherals and we uphold the depreciation being allowed only at 15%. Not granting MAT credit - HELD THAT:- It is observed that Ld.AO has not verified the claim and has denied it to assessee. We direct Ld.AO to verify the claim of assessee and if found eligible the same should be granted to assessee in accordance with law.
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