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2016 (9) TMI 405 - ITAT DELHI

2016 (9) TMI 405 - ITAT DELHI - TMI - Computation of deduction under section 10 A/10 B - brought forward business losses as well as unabsorbed depreciation - Held that:- In the present case before us the assessee has brought forward business losses as well as unobserved depreciation. The act specifies the sequence in which these allowances can be set off. Section 72 (3) implies that, the set off of unobserved depreciation as per section 32 (2) against business income shall be given effect to onl .....

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B of the Income tax Act is allowed. - Allowability of expenses under section 37 (1) - Held that:- CIT (A) was right in allowing the claim of the assessee to treat the stamp duty and registration expenses as revenue expenditure. - I.T.A. No.1892/Del/2013 - Dated:- 25-7-2016 - SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER For The Appellant : Shri S.P. Singh, AR, Shri Vishnu Goel, Adv., Ms. Somya Seth, CA For The Respondent : Shri Amrendra Kumar, CIT DR ORDER P .....

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requisite details / information sought by the Assessing Officer. 2.2 During the assessment proceeding, Ld. A.O. observed that the assessee is engaged in the business of rendering software development to its Associated Enterprises (AE) i.e. Intuit Inc. USA. The assessee company mainly provides software development services which include design, research, development and production of software for F.Y. and deliver the same to its AE. The Assessing Officer observed that the assessee had entered int .....

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and is a software development centre to provide software development services to its AEs. The business of the assessee is to provide application development services to the Intuit group. During the financial year under consideration, the assessee had entered into the following international transactions as per 3CEB report: S.N. Nature of the International Transaction Amount in Rs. 1 Software development services 420,395,071 2 Provision of Support services 3,219,059 3 Expenses reimbursed 8,901,64 .....

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d for eliminating companies based on qualitative analysis instead of applying quantitative filters. The Ld. TPO conducted independent search for the comparables by using quantitative filters like turnover filter, software development service filter, export earning filter, different financial year filter, employee cost filter, diminishing revenue filter, persistent loss filter, related party filter and onsite revenue filter. Further, the Ld. TPO rejected the additional filters used by the taxpaye .....

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tated to file an appeal before Ld. CIT(A) u/s 246A of the Act. Accordingly, Ld. A.O. passed the final assessment order on 22.02.2012 on the basis of the order passed by Ld. TPO. 2.8 Aggrieved by the assessment order passed by the A.O., the assessee preferred appeal before Ld. CIT(A). Before Ld. CIT(A), it was submitted that there is no dispute in respect of MAM adopted, i.e. TNMM and the assessee had agreed upon OP/OC to be the PLI. The Ld. TPO agreed for an entity level analysis that was carrie .....

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ssee being; (i) Sasken Communication Technologies Ltd., (ii) KALS Information Systems Ltd. and (iii) Softsol India Ltd. The Ld. TPO in his remand report dated 08.10.2012 stated that the calculation of OP/OC of these companies were 13.44%, 41.94% and 25.59% respectively. He submitted that these figures are before the working capital adjustments. The assessee did not accept the calculation made by the Ld. TPO in the remand report in the case of Sasken Communication Technologies Ltd. KALS Informati .....

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mpany. It has to be stated that the appellant challenged this company on the basis of functions performed by this company also. The assessee has also pointed out that in the AY 2009-10, the TPO himself has rejected this company because of segmentals are not drawn correctly. However, the correct calculation of margin of the company is given below after allocating the unallocated expenses on the ratio of revenue of each segment. The revised calculation is given in the Table-3 below: KALS Segmental .....

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5,603 OP/OC% G=F/E 30.60% -53.47% 16.767% Total cost as per P & L after excluding interest on car loan A 18,826,986 Page 14 and 17 of annual report Total cost as per segmental accounts B 17,482,073 Please see above Remaining cost not calculated to segmental accounts C=A- B 1,344,913 Allocated in the proportion of Revenue D=E4- G4 1,256,696 3.7 The appellant had also submitted that Dispute Resolution Panel (DRP), in many cases, has taken the margin of this Company at 30.92%. In view of the ab .....

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ected by the TPO being Celestial Biolabs, Ld. CIT(A) upheld the objections raised by the assessee and rejected this company from the final set of comparables. 2.11 The assessee had raised issue regarding disallowance of registration fee and stamp duty expenses of the lease deed before Ld. CIT(A). Ld. CIT(A) relied upon the decision of various High Courts more particularly, list in para 4.4 of his order and held that the expenditure should be treated as revenue in nature and should be allowed as .....

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lease deed. 3.1 In respect of Ground No.1, raised, the only issue for consideration is relating to the margin upheld by the Ld. CIT(A) in respect of comparables which are as under: Comparables selected by the assessee: i) KALS Information System ii) Sasken Communication Technologies Ltd. iii) Softsol India Ltd. 3.2 Basically, the assessee is disputing the incorrect margins taken by the Ld. TPO in these comparables and thus, Ld. TPO has not considered the working capital adjustment in respect of .....

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hip with the 3rd parties call centers located in India. The main business of the assessee is to provide application development services to the Intuite group. 3.4 Profile of the Group: The Intuit group, founded in 1983, has nearly 8,200 employees with major offices in 16 states across the U.S., and offices in Canada. It is a leading provider of business and financial management solutions for small businesses, accounting professionals and consumers primarily in the USA. It offers financial softwa .....

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nd its tax preparation offerings, providing powerful and easy-to-use products and services to taxpayers and accounting professionals. For individual taxpayers, Intuit offers TurboTaX® software and TurboTax for the WebsM, for online tax preparation and filing service. 3.5 The assessee received cost + remuneration form Intuite group in lieu of services rendered as per the agreement entered with the AE. The assessee operates as capital service provider and is not exposed to market competition. .....

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ging; vi) bridging gap and vii) rectifying errors and remove defects. 3.6 Thus, the assessee is a technology diversion company, providing application development and support services. The sale and profitability growth of the assessee depends upon demand of IT industry. It is further observed from the TP study that assessee does not face upon risk in respect of credit / marketing of the products. Since it receives the payments in US$, it bear the risk and it involves in employment of qualified pe .....

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list of comparables. Before the Ld. TPO, the assessee had objected to the inclusion of this comparable for the reason that it is functionally different from the assessee. The Ld. TPO however, brushed aside the objections raised by the assessee by stating that the objections of functional dissimilarity has been dealt with in detail in the T.P. order for Assessment year 2007-08. As regards the objection raised in respect of the employee cost filter issue, the TPO Ld. rejected the objections raised .....

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o the assessee (ii) This company has been held to be functionally incomparable to software service providers by the decision of the co-ordinate bench of this Tribunal in following cases for Assessment Year 2007-08: (a) 3DPLM Software Solutions Ltd. (Successor of Delmia Solutions Private Ltd.) IT (TP) A No.1303/Bang/2012 (b) M/s. AT&T Global Business Services India Pvt. Ltd. IT(TP)A No.1604/Bang/2012 (c) Interwoven Software Services India (P) Ltd. IT (T) A No.1669/Bang/2012 (d) Mercedes-Benz .....

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, cannot be considered as comparable functionally with the assessee. There has been no attempt to identify, eliminate and make adjustment of the profit margins so that the difference in functional comparability can be eliminated. By not resorting to such a process of making adjustments, the TPO has rendered this company as not qualifying for comparability. We, therefore, accept the plea of the assessee in this regard. (iv) Ld. A.R. submitted that the facts pertaining to this company has not chan .....

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od under consideration i.e. Assessment Year 2008-09. 6. We have heard both the parties and perused and carefully considered the material on record, While it is true that the decisions cited and relied on by the Ld. A.R. were with respect to the immediately previous assessment year and there cannot be on assumption that it would continue to be applicable for this year as well. The same parity of reasoning is applicable to the Ld. TPO who seems to have selected this company as a comparable based o .....

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see has brought on record substantial factual evidence to establish that this company is functionally dissimilar and different from the assessee before us. Even the Ld. CIT(A) has discussed at para 3.8.2 6.2 We do not find any infirmity in the findings of Ld. CIT(A). We thus direct the Ld. TPO to exclude this comparable form the list of comparables. 6.3 In respect of the margins calculated in respect of Sasken Communication Technologies Ltd., KALAS Information Systems Ltd. And Softsol India Ltd. .....

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shall be set off. The relevant provisions of the Act are as under: section 32 (2): Where in the assessment of the assessee, full effect cannot be given to any elements under subsection (1) in any previous year, owing to there being no profits or gains chargeable for the previous year, or owing to the profits or gains chargeable being less than the elements, then, subject to the provisions of subsection (2) of section 72 and section (3) of section 73, the allowance or the part of the elements to .....

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effect shall first be given to the provisions of this section. 6.6 A combined reading of the above sections it is clear that while computing total income of an assessee, carry forward unabsorbed depreciation can be set off in future years only after setting off the brought forward business losses. Further the provision is clear that carry forward unabsorbed depreciation can be set off not only against income from profits and gains from business and profession, but also against income from any o .....

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e Ld.AO has adjusted the amount of unobserved depreciation from the business income before making adjustment for brought forward business losses. The circular relied upon by the Ld.AR is not applicable to the present case under consideration as it is applicable where the set off each to be made against the profits of a STP/EOU/SEZ unit, before the deduction under section 10 A/10 B of the Income tax Act is allowed. 6.8 We accordingly direct the Ld.AO to allow the set off as per law. Accordingly t .....

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and registration expenses of the lease deed should not be capitalised. The assessee relied upon various judicial pronouncements in support of its contention that the expenses incurred towards stamp duty and registration of the lease deed east to be considered as revenue expenditure. 7.1 The Ld. AO disagreeing with the submissions made by the assessee held that since the premises were taken on lease for 6 to 9 years which will give enduring benefits to the assessee is the expenses incurred towar .....

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ecisions relied upon by the assessee allowed the claim of claim of expenses incurred by the assessee by way of stamp duty and registration charges on the lease deed to be revenue in nature. 7.3 Aggrieved by the order of the Ld. CIT (A) the revenue is in appeal before us now. 7.4 The ld. DR placed his reliance upon the order passed by the Ld.AO and Ld.AR placed is reliance upon the order passed by the Ld. CIT (A). 7.5 We have perused the orders passed by the authorities below and the judgments re .....

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