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Autodesk India Pvt. Ltd. Versus The Deputy Commissioner of Income Tax, Circle 11 (1) , Bangalore

2015 (11) TMI 1279 - ITAT BANGALORE

Transfer pricing adjustment - selection of comprables - Held that:- In acceptance of the 7 comparables selected by the assessee, arithmetic mean of 10.37% would place the assessee in a situation where the TP adjustment would become NIL. Since we find that the comparables worked out by the assessee are acceptable and the rejection of comparables made by the assessee from out of comparables selected by the TPO are justified, we direct the TPO to pass an order accordingly taking arithmetic mean of .....

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Priya International Ltd. and Empire Industries Ltd. is at 14.54%. 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 busine .....

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licable 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 the course of business and is clearly a revenue expenditure - Decided in favour of assessee. - IT(TP)A No.912/Bang/2011 - Dated:- 30-9-2015 - SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER .....

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is engaged in designing software and producing digital content for architectural design and land development, manufacturing, utilities, telecommunications and media and entertainment. Autodesk Singapore is engaged in the business of developing, distributing and supporting software and hardware products and support services in Asia, Australia and the south Pacific. Being a captive service provider, Autodesk India assumes less than normal risks and all significant business and entrepreneurial risk .....

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₹ 80,73,695/- on account of advances written off which was debited to the Profit and Loss Account. The AO has made a disallowance of the said amount on the ground that it was a capital expenditure not allowable under Section 37 of the Act. 4. Originally, a draft assessment order was passed on 23.11.2010 challenging which, the assessee filed its objections before the Dispute Resolution Panel (DRP). 5. The DRP upheld the order passed by the AO. Consequently, the AO passed the final order dat .....

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bles 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 .....

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tand rejected in view of its related party transaction exceeding 15% of its sales in view of decision of this Tribunal in the case of 24/7 Customer Com Pvt. Ltd., ITA No.227/Bang/2010 (para 13). 9 comparables selected by the TPO at Sl.Nos. 1, 2, 3, 5, 8, 12, 14, 19 & 25 have to be rejected as functionally dissimilar in view of the decision of this Tribunal in the case of NXP Semiconductors India P. Ltd., ITA No.1174/Bang/2011 (paras 18 to 20 and 26 to 28 of the decision). 4 companies at Sl.N .....

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as 24 to 26], as also applying the upper limit of ₹ 200 crores to the turnover as held in Trilogy E-Business Software India Pvt. Ltd. (supra). Ishir Infotech Ltd. at Sl.No.11 fails the TPO s own filter of 25% employee cost as held in NXP Semiconductors India P. Ltd. (supra) [paras 20 to 21] as also in view of its RPT exceeding 15% of sales as held in 24/7 Customer Com Pvt. Ltd. (supra). Hence the assessee submitted that remaining 7 comparables would be as follows:- 12. It was further submi .....

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omparables worked out by the assessee are acceptable and the rejection of comparables made by the assessee from out of comparables selected by the TPO are justified, we direct 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 .....

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ng comparables:- 16. The arithmetic mean of the assessee was at 8.39%, whereas that of the TPO was at 30.57%. The assessee submitted that the comparable, ICC International Agencies Ltd. should be rejected as functionally dissimilar and relied on the decision of this Tribunal in the case of Logica Pvt. Ltd. It was submitted that on exclusion of this comparable, the final set of comparables will be as follows:- 17. The ld. counsel for the assessee submitted that assessee s NCP margin of 10% would .....

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ld 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. 18. The next issue is with regard to the disallowance of deduction claimed on advances written off. The brief facts are that the assessee had entered into a lease deed dated 19.04.2006 with M/s Habitat India for lease of a premises situated in New Delhi for a lease period of 3 years extendable by 3+3 years by mutual conse .....

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nvisaged concepts at the premises. 19. During the financial year 2006-07, based on the work done in the premises, Space Matrix had raised several invoices aggregating to ₹ 80,73,695/- which was duly paid by the assessee. Pending completion of the work, the assessee had recorded the payments 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 .....

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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 expenditure. Further .....

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ty, the lease being for a short period of three years, no asset can be said to have come into existence. It was thus submitted that the advances written off of ₹ 80,73,695/- ought to be allowed as a deduction under Section 37 of the Act. 22. Without prejudice, and in the alternative, it was submitted that the assessee was remunerated on a cost plus 10% basis by its associated enterprise during the assessment year in question. The cost base included the amount of advances written off and th .....

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is capital expenditure, then the same ought to stand excluded from the cost base while computing the profit margin of the assessee for transfer pricing purposes. 23. The ld. counsel for the assessee further relied on the decision of Hon ble High Court of Karnataka in the case of CIT v. Infosys Technologies Ltd. (No.2),, 349 ITR 588 (Karn) and pointed out that the lease is only for three years with no certainty of further extension and the assessee did not occupy the premises for the expenditure .....

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ears 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 pu .....

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ty 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 the course of business and is clearly a revenue expenditure. Therefore this issue raised by the assessee is allowed. 27. The Hon ble Apex Court in the case of Empire Jute Co. Ltd. v. CIT, 124 ITR 1 (SC) has held as .....

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