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M/s. Progility technologies Private Limited (Formerly Unify Enterprise Communications Private Limited) Versus ACIT – 7 (2) , Mumbai

2015 (11) TMI 1365 - ITAT MUMBAI

Transfer pricing adjustment - selection of comparable - Held that:- Perusing the said para 10 of the DRP”s order for the AY 2009-2010 find merit in the argument of the Ld Counsels for the assessee that the AO should consider the said comparable (Arraycom Ltd) without any adjustments. Accordingly, this part of the ground is allowed in favour of the assessee.

We have perused the calculations furnished in Annexures 1A and 2A for the proposition that assessee is within the allowed margin .....

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remand this issue to the file of the AO for verification considering the above discussion.

Granting of the depreciation u/s 32 on the goodwill being an intangible asset - Held that:- The additional ground is legal in nature and the same is required to be adjudicated as per the ratio of Supreme Court laid down in the case of Smifs Securities Limited [2012 (8) TMI 713 - SUPREME COURT (SC)] wherein it was held that the Goodwill constitutes an “asset” under Explanation 3(b) to section 32( .....

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icial Member For the Appellant : Shri M.P. Lohia and Mr. Nimesh Vora For the Respondent : Shri K. B. Shukla, CIT-DR ORDER Per D. Karunakara Rao, AM This appeal filed by the assessee on 13.12.2012 is against the order of the DRP / TPO / AO for the assessment year2008-2009. 2. Before us, at the outset, Ld Counsel for the assessee submitted that Ground nos.1 and 2 are general in nature. Considering the general nature of the said ground nos.1 and 2, they are dismissed. Further, Ld Counsel submitted .....

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operating profit margin of the appellant. 5. the Ld DRP /AO / TPO erred in not considering the total depreciation while calculating the operating margin of one of the comparables ie Arraycom (India) Ltd while at the same time considering depreciation on commercial rights as an operating expense in case of an appellant. 6. The Ld DRP erred in not considering the correct profit level indicator of Profits Before Depreciation interest and taxes (PBDIT) / Operating Revenue (OR) (PBDIT / OR) for margi .....

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also filed additional Grounds (Ground no.11 and 12) and the same read as under: 11. On the facts and circumstances of the case and in law, the Ld AO erred in not granting depreciation under section 32 of the Act on goodwill being an intangible asset. 12. Without prejudice to Ground no.9, in case software expenditure is treated as capital expenditure, the Ld AO shall be directed to grant depreciation on the same. 4. Briefly stated relevant facts of the case are that the assessee was originally na .....

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(-) 5%. Accordingly, assessee filed the return of income. During the proceedings before the TPO, assessee attempted to justify the 8.07% as ALP. The TPO rejected a couple of comparables ie Shyam Telecom Ltd and Spanco Telesystems of the assessee. Further, TPO noticed that Arraycom India Ltd, a comparable of the assessee, was to be adjusted to exclude the depreciation of plant and machinery. After adjustments, arithmetic mean of the rest of the 4 comparables with the said adjustment to Arraycom I .....

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ordingly. Further, on the 2nd comparable, it is argued before the DRP that M/s. Shyam Telecom Ltd should be included as it is not a case of persistent losses. Earlier, TPO rejected the same stating that it is a case of losses and therefore, it is not a good comparable. 5. Before us, Shri M.P. Lohia and Shri Nimesh Vora, Ld Counsels for the assessee submitted that Arraycom Ltd should be considered as a good comparable including the claim of depreciation in the financial statements. If the same is .....

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he AY 2009-2010, dated 27.12.2013. The said order of the DRP was not available before the DRP s order dated 14.9.2012 for the AY 2008-2009. If the same is followed, in view of the principles of consistency, the Arraycom Ltd without adjustments by the TPO should be considered as a good comparable in favour of the assessee. 6. After hearing the Ld DR, we have perused the said para 10 of the DRP s order for the AY 2009-2010 (supra) and find merit in the argument of the Ld Counsels for the assessee. .....

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opt the consistent stand regarding depreciation. As the TPO has held that the depreciation in the assessee s case is an operating expenditure, same view has to be adopted in the case of comparables including Arraycom. If no depreciation has been provided in that case, the TPO is directed to take the depreciation into account for the purpose of calculation. 7. Considering the above, we are of the opinion that the AO should consider the said comparable (Arraycom Ltd) without any adjustments. Accor .....

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on as to decide if this comparable constitutes good comparable. In this regard, Ld Counsel for the assessee brought our attention to the financial statements relating to the Shyam Telecom Limited. Bringing our attention to page 281, 283 and 285 of the paper book, Ld Counsels for the assessee demonstrated that the OP/OR for the AYs 2006-07, 2007-08 and 2008-09 of the said company are (-) 2.89%; (+) 6.73% and (-) 1.53% respectively. With these parameters, the said company cannot be considered as t .....

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order of the Tribunal in the case of Goldman Sachs (India) Securities Private Limited vs. ACIT in ITA No.7724/M/2011 (AY 2007-2008), dated 23.1.2013 for the above said proposition relating to what constitutes a case of persistent losses. On perusal of the relevant paras of the said orders of the Tribunal (supra), we find, Shyam Telecom Limited cannot be rejected for the reason that it is having persistent losses or loss in the year under consideration. For the sake of completeness, relevant extr .....

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two years i.e., 2005-06 and 2006-07, the comparables recorded the profits and therefore, the comparable constitutes good comparable. Ld Counsel also mentioned that for considering the comparable as a persistent loss making company, minimum 3 years including the current year should register loss in succession. For this, Ld Counsel relied on various decisions of the Tribunal........ 9. We have also perused the calculations furnished in Annexures 1A and 2A for the proposition that assessee is withi .....

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For this purpose, we remand this issue to the file of the AO for verification considering the above discussion. 10. Considering the relief granted by us to the assessee, we are of the opinion that the adjudication of the rest of the grounds relating to the TP adjustments becomes academic exercise. Accordingly, they are dismissed as academic. Corporate issues 11. Ground nos.11 and 12 raised by the assessee are relates to the Corporate Issues. Ground no.11 relates to the granting of the depreciati .....

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Supreme Court judgment reads as under: 8. The Assessing Officer held that goodwill was not an asset falling under Explanation 3 to section 32(1) of the Income Tax Act, 1961 ( the Act , for short). 9. We quote hereinbelow Explanation 3 to section 32(1) of the Act: Explanation 3- For the purposes of this sub-section, the expressions asset and block of assets shall mean- (a) tangible assets, being buildings, machinery, plant or furniture; (b) intangible assets, being know-how patents, copyrights, t .....

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