2013 (9) TMI 191 - ITAT BANGALORE

Transfer pricing adjustments - ALP - Selection of comparables with functional dissimilarities - Turnover filter - Purchase of software, a revenue or capital expenditure – Held that:- Assessing Officer/TPO directed to exclude, after due verification, those comparables from the list with the related party transactions or controlled transactions in excess of 15% of the total revenue for the financial year 2006-07. It is to be mentioned here, Geometric Ltd. is also to be removed from the comparable list, since that company was having RPT at 19.98% (going by assessee's own calculation), however, no argument was raised for its exclusion by the assessee, probably, on account of low margin of Geometric Ltd.

Reimbursement of expenses - Held that:- these reimbursements were not received against any specific services rendered by the assessee to its AEs. These were pure cost reimbursements (travel expenses, hotel stay expenses and other related expenditures) which the assessee had incurred on behalf of its AE for administrative convenience and later got reimbursed at cost. Therefore, the DRP has erred in including the reimbursements received for the purpose of calculating the adjustment under section 92CA. - Decided in favor of assessee.

Software produce is an enduring benefit to the assessee in the sense that it would accelerate to enhance the income due to its usage in its usage in software programme which was ultimately developed and sold by the assessee - Software produce is a part of profit making apparatus of the assessee which had, subsequently, helped the assessee in conducting its business more proficiently - The assessee had not brought any evidence to controvert the findings of the Revenue that software produce expense is a capital in nature - AO was justified in treating the expenditure on purchase of computer software as capital in nature – Depreciation on it will be provided. - Decided against the assessee.

Disallowance of rental deposits written off - Since the assessee had difficulty in recovering the deposit from the landlord, it had filed a suit before the Hon'ble High Court of Karnataka, which was dismissed on the ground that the lease deed was not duly registered. Hence, the assessee wrote off the rental deposit in its books and claimed as deduction while computing business profits of the assessee. The AO has disallowed the same with the contention that the same is not revenue in nature and, hence, not deductible under the Act – Held that:- Relying upon the Mumbai Bench of the Hon’ble Tribunal in the case of United Motors (India) Ltd. v. ITO [2010 (4) TMI 726 - ITAT, MUMBAI], it has been held that the write off of the interest free deposit made by the assessee to the licensor against rental properties was a loss incidental to the business and, hence, the assessee was entitled to claim the same as allowable deduction – Decided in favor of Assessee.