TMI Blog2015 (11) TMI 1279X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee’s NCP margin being 10%, would be within the +/- 5% range. Hence, we are of the opinion that the claim of the assessee has to be allowed. We therefore direct the TPO/AO to redo the assessment accordingly. Disallowance of deduction claimed on advances written off - Held that:- We find that the premises has been taken on lease by the assessee and interior design works were carried out for the purpose of business to create ambience. The very fact that the premises was taken on lease for 9 years with a renewal clause would not itself make it a capital expenditure, when the fact remains that the assessee had prematurely stopped the designing work of the premises and terminated the contract with M/s. Space Matrix Design Consultants P. Ltd. It was brought to our notice that the premises was sealed by the Court pursuant to the order of the Delhi High Court as the premises was not in conformity with the applicable land use laws. It is a fact that the advances were written off as the assessee was not able to operate out of the premises and hence the same is allowable as a deduction u/s. 37 of the Act. The expenditure has been incurred for the purpose of the business and in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee entered into international transaction in respect of software development services of ₹ 2,19,38,411 and marketing support services of ₹ 33,50,29,288. With respect to software development services, the net margin of the assessee was at 10%. The comparables selected by the assessee were as follows:- 7. The Transfer Pricing Officer (TPO) accepted 10 comparables out of 55 comparables selected by the assessee. The TPO applied Prowess Database, Capitaline Plus Database as filters and selected the following comparables:- 8. The arithmetic mean arrived by the assessee was at 14.64, whereas the arithmetic mean arrived by the TPO was at 23.59. 9. The assessee has raised additional grounds of appeal under Rule 11 of the I.T. Rules, which read as follows:- 4.14 That, Geometric Software Solutions Co. Ltd. ought to stand rejected in view of its related party transactions exceeding 15% of its sales. 4.15 That, Accel Transmatics Ltd., Helios Matheson Information Technology Ltd. and Thirdware Solutions Ltd. ought to stand rejected in view of them being functionally dissimilar to the Appellant. 10. Before us, the ld. counsel for the assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect the TPO to pass an order accordingly taking arithmetic mean of the assessee at 10.37%. The issue on TP adjustment with respect to software development services is set aside for statistical purposes. TP adjustment in respect of marketing support services 14. The operating income was at ₹ 33,50,29,288 and the operating profit was at ₹ 3,04,57,209 with Operating/Net margin of 10% declared by the assessee. The assessee selected the following comparables for marketing support services:- Sl. No. Name of the Company Mark up on cost (Weighted Average) 1 Empire Industries Ltd. 9.24% 2 IL FS Academy for Insurance Finance Ltd. 2.92% 3 Indiacom Ltd. 12.94% 4 MCS Ltd. 13.65% 5 NSIC Ltd. - 3.78% 6 TSR Darashaw Ltd. 15.38% Arithmetic Mean 8.39% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yments as advances paid to Space Matrix . In November 2006, before the work could be completed by Space Matrix, the premises in question was sealed by the Government pursuant to the Order of the Hon ble Delhi High Court as the premises was not in conformity with the applicable land-use laws. Accordingly, even though the Space Matrix has completed a significant part of its work, the assessee had to prematurely stop the designing of the premises and terminate the contract with Space Matrix. Accordingly, it wrote off the advances in its books of account. 20. For the assessment year in question, the assessee claimed a deduction of the said amount of ₹ 80,73,695/- being advances written off debited to the P L Account. The Assessing Officer in the assessment order has disallowed the said deduction on the ground that the payments were towards creation of a capital asset providing enduring benefit to the assessee and therefore the expenses were capital in nature. 21. The ld. counsel for the assessee submitted that the payments made to Space Matrix represents expenditure incurred wholly and exclusively in the course of the business, not being in the nature of capital expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. DR vehemently opposed the claim of expenditure as revenue expenditure and stated that the number of years were totally 9 years and the very nature of expenditure is capital and therefore it could only be treated as capital loss. 25. In the rejoinder, the ld. counsel for the assessee pointed out to the lease deed at page 934 of the Paperbook and submitted that there was only an option for renewal of the lease and the assessee had not occupied the premises at all. 26. We have heard both the parties. We find that the premises has been taken on lease by the assessee and interior design works were carried out for the purpose of business to create ambience. The very fact that the premises was taken on lease for 9 years with a renewal clause would not itself make it a capital expenditure, when the fact remains that the assessee had prematurely stopped the designing work of the premises and terminated the contract with M/s. Space Matrix Design Consultants P. Ltd. It was brought to our notice that the premises was sealed by the Court pursuant to the order of the Delhi High Court as the premises was not in conformity with the applicable land use laws. It is a fact that the advance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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