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2019 (9) TMI 1313 - AT - Income TaxTransfer pricing adjustment in the segment of provision of software development services by the assessee to its associated enterprises - HELD THAT - Referring to software development services companies functionally dissimilar with that of assessee need to be deselected from final list. Payment of managerial fees disallowed - HELD THAT - In series of decisions already decided similar issue of payment on account of managerial services availed by assessee from its associated enterprises and have held that the TPO or the Assessing Officer cannot sit in judgment of the decision of businessman to avail services and to make payments for that. Further, the assessee has filed documents justifying not only the need of the services but also the availment of services. The TPO has failed to take into cognizance those documents / evidences and we find no merit in the same. In any case, the said agreement between the parties is in force w.e.f. 01.04.2006 and in none of the earlier years any addition has been made by the TPO/Assessing Officer. In the absence of same and following the rule of consistency we find no merit in the orders of TPO/Assessing Officer and the same is reversed. Deduction allowed u/s 10A/10B of two units operated by assessee - whether the said deduction is to be allowed before adjustment of brought forward losses / depreciation or after it - HELD THAT - The issue to be covered in favour of assessee by the decision of Hon ble Bombay High Court in Hindustan Unilever Ltd. Vs. DCIT 2010 (4) TMI 206 - BOMBAY HIGH COURT . Revenue has failed to controvert the said reliance placed upon by the CIT(A). Accordingly, we hold that the issue stands covered in favour of assessee by the decision of Hon ble Bombay High Court in Hindustan Unilever Ltd. Vs. DCIT(supra). The ground of appeal No.1 raised by Revenue is thus, dismissed. Deduction on account of write off of obsolete stock - HELD THAT - Where the evidences are available and the assessee has written off the obsolete stock, then the claim of assessee merits to be allowed. Consequently, we dismiss the ground of appeal No.2 raised by Revenue. The grounds of appeal raised by Revenue are thus, dismissed.
Issues Involved:
1. Transfer pricing adjustment in respect of software development services. 2. Transfer pricing adjustment in respect of availing of management services. 3. Deduction under section 10A and 10B of the Income Tax Act before setting off brought forward business loss and depreciation loss. 4. Deduction on account of write-off of obsolete stock. Detailed Analysis: 1. Transfer Pricing Adjustment in Respect of Software Development Services: The assessee challenged the addition of ?32,63,569 made by the TPO/AO regarding software development services provided to its associated enterprises. The TPO had disregarded comparable companies selected by the assessee and included companies such as Bodhtree Consulting Ltd. and FCS Software Solutions Ltd., which were claimed to be functionally non-comparable. The Tribunal found merit in the assessee's argument, citing previous decisions in the assessee's own case and similar cases, and excluded these companies from the final list of comparables. The Tribunal also included SIP Technologies Ltd., which was previously excluded on the grounds of being a persistent loss-making concern. The Tribunal ruled in favor of the assessee, deleting the addition made on this account. 2. Transfer Pricing Adjustment in Respect of Availing of Management Services: The TPO had determined the arm's length price of the management services availed by the assessee from its associated enterprise at Nil, leading to an upward adjustment of ?2.18 crores. The assessee provided evidence of the services received, including details of personnel, man-hours, and costs. The Tribunal noted that in previous years, the TPO had accepted the arm's length price of these services, and no disallowance was made under section 37(1) of the Act. The Tribunal emphasized that the TPO cannot question the commercial expediency of the assessee's decision to avail services and found no merit in the TPO's rejection of the evidence provided. The Tribunal ruled in favor of the assessee, allowing the claimed deduction for management services. 3. Deduction Under Section 10A and 10B Before Setting Off Brought Forward Business Loss and Depreciation Loss: The Revenue's appeal contested the CIT(A)'s decision to allow deductions under sections 10A and 10B before adjusting brought forward business and depreciation losses. The Tribunal upheld the CIT(A)'s decision, referencing the Bombay High Court's ruling in Hindustan Unilever Ltd. Vs. DCIT, which supported the assessee's position. The Tribunal dismissed the Revenue's ground of appeal on this issue. 4. Deduction on Account of Write-Off of Obsolete Stock: The Revenue argued that the assessee failed to provide details of the obsolete stock write-off to the Assessing Officer. However, the CIT(A) had allowed the deduction based on evidence provided by the assessee. The Tribunal reviewed the evidence and upheld the CIT(A)'s decision, allowing the deduction for the write-off of obsolete stock. The Tribunal dismissed the Revenue's appeal on this ground. Conclusion: The Tribunal allowed the appeal of the assessee, deleting the transfer pricing adjustments related to software development services and management services. The Tribunal also upheld the CIT(A)'s decisions on deductions under sections 10A and 10B and the write-off of obsolete stock, dismissing the Revenue's appeal. The consolidated order provided a comprehensive resolution of the issues raised by both the assessee and the Revenue.
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