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2014 (11) TMI 551 - ITAT DELHITransfer pricing adjustment – Selection of comparables - Accel Transmatic Limited (Software Services segment) - Determination of ALP on international transaction - Design and development support services for online courseware to its parent company provided – Held that:- Assessee is a wholly owned subsidiary of Element K Corporation, USA - It provides content design and development support services for online coursesware under a service agreement with its parent company - Assessee is remunerated on cost plus 15% markup for the services rendered - assessee is a low risk captive service provided – following the decision in Toluna India Pvt. Ltd. Versus ACIT, Circle 12(1), New Delhi [2014 (10) TMI 424 - ITAT DELHI] - the assessee itself considered this company as functionally comparable by including it in the accept/reject matrix, but, rejected it on the ground that advertisement expenses were more than 3% - the TPO has taken the figures of this company's Software services segment alone, which is akin to that of the assessee and that the Advertisement, marketing and distribution spend in this segment is less than 3%, being the filter applied by the assessee - the inclusion of the Software service segment of Accel Transmatic Limited in the list of comparables is upheld. Celestial Labs limited –Functionally different company - Held that:- From the annual accounts it has been found that it is engaged mainly in the developing the software products in the shape of tools etc., which are protected using the patent. -This company developed a tool, "CELSUITE" to drug discovery in finding the lead molecules for drug discovery - As this company is engaged in developing software tools after enough research and development activity and the tools so produced by it are its intellectual property, it cannot be considered as comparable to the assessee which is, also albeit in software development, but is doing it on contract basis without having any I.P. rights in the software developed by it – the DRP is directed to exclude the company from the list of comparables. E-Zest Solutions Limited - Held that:- The comparability of a company is tested on various parameters and a view is taken as to its comparability or otherwise by considering the entirety of the facts and circumstances - Simply because the nature of software development services provided by a company is different from those provided by the assessee, the same does not become incomparable - this company is also providing software development services as is done by the assessee on contract basis for others without having any intellectual property rights in them - A small variation in the nature of services does not make a company incomparable - Merely because the nature of service rendered by this company within the overall software development services, is not identical, will not make it incomparable, when it is otherwise similar to that of the assessee on all other scores - the company was rightly included by the TPO in the list of comparables. Ishir Infotech Limited – Held that:- This company to be comparable to that of the assessee - the company has included Professional fees along with Director’s salary, etc., under the head ‘Administrative expenses’ - When the objection was taken by the assessee before the TPO that the employee cost was only 4% viewing only the ‘Establishment expenses’ in isolation without considering the employee cost included under the head ‘Administrative expenses’, the TPO corrected the position by observing that the employee cost was more than 25% by impliedly including the personnel cost included under the head ‘Administrative expenses’ - The assessee did not challenge the TPO’s calculation before the DRP on this issue - filter of 25% of RPT is good enough to make a controlled transaction and thus expunging it from the list of comparables, which can only be uncontrolled transactions - the view taken by the TPO is upheld in including this case in the list of comparables. KALS Information Systems Limited – Held that:- The company was engaged in Software development and training - the TPO adopted Software development segment of this company by noticing that this segment also included revenues from software products and training - the assessee is not engaged in imparting any training on commercial basis or selling its software products, the financials of the company under this segment cannot be compared with the assessee - The contribution by the sale of software products or training to the overall revenue of this segment cannot be precisely ascertained to determine the question of its comparability – Decided partly in favour of assessee. Disallowance u/s 40(a)(ia) – TDS not deducted as per rates applicable – Held that:- As decided in COMMISSIONER OF INCOME TAX, KOLKATA-XI Versus M/s SK. TEKRIWAL [2012 (12) TMI 873 - CALCUTTA HIGH COURT] - short deduction of TDS cannot be the basis for disallowance u/s 40(a)(ia) of the Act – the disallowance is to be deleted – Decided in favour of assessee.
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