TaxTMI 
TaxTMI 
2016 (9) TMI 1546
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..... Also, during the year the assessee had incurred an expenditure of Rs. 7,61,738/- towards the purchase of software, which was capitalized and depreciation claimed thereon. 4. The TPO, however, made a total adjustment for Rs. 8,50,32,504/- towards the aforesaid international transaction. The Assessing Officer ('the AO' for short) passed a draft assessment order dated 28.03.2014 after incorporating the aforesaid TP adjustment. Apart from the said TP adjustment, the AO also made a disallowance under Section 40(a)(ia) of the Act of the depreciation claimed on the ground that no tax had been deducted at source by the assessee on payments made towards the purchase of software. The AO also made a disallowance under Section 14A of Rs. 15,26,315/- as expenditure incurred in relation to exempt income, despite there being no exempt income having been earned by the Assessee in the previous year. 5. The Assessee filed its objections before the DRP which, vide its directions dated 23.12.2014, reduced the TP adjustment made by the TPO by granting an adjustment towards depreciation as prayed for by the Assessee. The disallowance made under Section 40(a)(ia) was confirmed while the disallowanc....
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....order], and hence no interference is called for. The assessee makes the following submissions in support of its claim for depreciation adjustment. * Rationale for making depreciation adjustment Rule 10B of the Income-tax Rules, 1962 ('the Rules' for short),provides the method in which the comparability analysis is to be conducted under the Transactional Net Margin Method. Under sub clause (i) of Rule 10B(1)(e), the net profit margin realized by the taxpayer from an international transaction is computed having regard to a relevant base e.g costs incurred, sales effected, etc. Under sub-clause (ii) of Rule 10BH(1)(e), the net profit margin realized by an unrelated enterprise/comparable company is computed having regard to the same relevant base as was selected in sub clause (i). Sub-clause (iii) of the said Rule specifies that before a comparison of the net margins realized under sub-clauses (i) and (ii) is done, the net margin realized under sub-clause (ii) must be adjusted to take into account the differences which could materially affect the net profit margin in the open market. Relevant extract of Rule 10B(1)(e)(iii) is reproduced as under:- "(iii) the net profi....
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....the profit and loss account. Most other companies provide for depreciation at the rates specified in the Companies Act, 1956. * Decisions of this Hon'ble Tribunal Reliance is placed on the decision of the Bangalore Bench of this Hon'ble Tribunal in the Assessee's own case for the assessment year 2005-06 in ITA No.1047/Bang/2011. However, unlike in the aforesaid case for AY 2005-06 when this Hon'ble Tribunal had remanded the matter to the TPO for consideration of the assessee's request for a deprecation adjustment, it is submitted that there is no requirement fro4r such an order of remand by this Hon'ble Tribunal as the TPO has already looked into the detailed workings and submissions of eh assessee filed before the DRP and granted the deprecation adjustment pursuant to which the final assessment order too has been passed. Also, in the assessee's own case for the assessment year 2002-03, the CIT(A) in his order dated 9.8.2012, allowed the adjustment for depreciation (Para 4.7 at pages 27 and 28 of the order). Likewise, in the assessee's own case for AY 2011-12, the DRP vide its directions dated 27.11.2015 directed that an adjustment for depreciation be allowe....
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....on on software expenses should not be disallowed u/s 40(a)(ia) of the Act." 15. The ld counsel submitted that regarding ground 1 in the assessee's cross-objection, the DRP did not adjudicate upon the assessee's grounds to exclude certain companies chosen by the TPO as comparables and include certain companies from its TP study as comparables. The accept-reject matrix of the TPO's 11 comparables based on the assessee's submissions would be as follows: ---- space intentionally left blank ------- S N Name of the Company Sales (Rs. In crores) Markup on costs (unadj) % Mark-up on costs (depreciation Adj) % Mark-up on costs (WC and depreciation - adj % Assessee's remarks Grounds for Rejection Functionally dissimilar 1 LGC Global Ltd. 240.74 11.95 13.70 9.10 Accept 2 Infosys Ltd.,* 21140 45.01 53.51% 52.51% Reject 3 Kals Information Systems Ltd. (Seg)* 2.17 38.37 47.69 43.13 Reject 4 Larsen & Toubro Infotech Ltd. 1176.76 19.33 23.33 23.22 Reject 5 Mindtree Ltd. (seg) 698.02 14.83 21.75 19.04 Accept 6 ....
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....eding assessment year, Akshay Software Technologies Ltd. ('Akshay' for short) has been accepted by the TPO and confirmed by the CIT(A) as being comparable to the Assessee. In addition, Akshay is consistently figuring in the final list of comparables in the cases of several other similarly placed assesses for the same assessment year in question. Further, in Arowana Consulting Ltd. v.ITO in IT(TP)A No.235/Bang/2015, this Hon'ble Tribunal vide its order dated 29.06.2015 for AY 2010-11 directed that Akshay be included in the final list of comparables. 19. We find that the Coordinating Bench of the Tribunal in the case of Arowana Consulting Ltd., Vs ITO in IT(TP)A No.235/ Bang2015 has directed that Akshay Software Technologies Ltd is to be included as comparable. 20. Hence we direct the TPO to include the same in the list of comparables. * Evoke technologies Pvt. Ltd.: The TPO in his notice dated 19.11.2013 proposed to reject the company on the ground that its data for FY 2009-10 was unavailable (Page 269 of the paper book). However, in its submissions dated 18.12.2013 (at page 307 of the paperbook) the assessee submitted that the annual report of the company was available in....
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....diture of Rs. 7,61,738/- on software. Out of the said expenditure, the assessee had written off Rs. 6,88,872/- was treated as an inadmissible expenditure and book depreciation on capitalized software expenses of Rs. 72,866/- was added back. For income tax purposes, the assessee had capitalized software expenses of Rs. 7,61,738/- and appropriate income tax depreciation of Rs. 3,69,858/- was claimed under Section 32. 27. The Assessing Officer, however, held that the payment for purchase of software was in the nature of 'royalty' in terms of Explanation 2 to Section 9(1)(vi) of the Act and held that the assessee ought to have deducted tax at source under Section 194J of the Act. Since such deduction was not made, a disallowance of Rs. 6,88,872/- under Section 40(a)(ia) was made, although the depreciation claimed was Rs. 3,69,858/-. 28. The assessee submits that the provisions of Section 40(a)(ia) do not apply to depreciation allowance under Section 32 of the Act. The disallowance under the said provision applies to amounts in the nature of interest, commission, brokerage, rent, royalty etc. A plain reading of the provision shows that the disallowance under the provision is only in....