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2020 (6) TMI 584 - ITAT BANGALORETP Adjustment - international transaction of provision of software development services [SWD services] to the assessee’s Associated Enterprises [AE] - Comparable selection - HELD THAT:- Assessee provided software research & development services and marketing & technical support services to its AEs, thus companies functionally dissimilar with that of assessee need to be deselected, thus companies functional dissimilar with that of assessee need to be deselected from final list. Non-grant of working capital adjustment (WCA) and risk adjustment - HELD THAT:- It is now a settled proposition of law that necessary adjustments are to be made to the margins of comparables to give effect to the differences in the working capital positions of the tested party and of the comparables. The TPO ought to have given the assessee the benefit of the same. We hold and direct the TPO to allow working capital adjustment after verification of the assessee’s computation and after affording opportunity of being heard to the assessee. Risk adjustment - HELD THAT:- Reliance in this regard was placed on the decision of the Hon’ble Delhi Bench of the Tribunal in the case of Honeywell Turbo Technologies (India) (P.) Ltd. v. DCIT [2017 (3) TMI 1533 - ITAT PUNE]wherein the Tribunal granted an adjustment to be granted for differences in risk assumed by the tested party and the comparable entities. We are of the view that the question of allowing risk adjustment should be considered by the TPO afresh in the light of the submissions and after examining the computation of risk adjustment and affording opportunity of being heard to the assessee. Mistakes in computation of PLI - HELD THAT:- We are of the view that in the light of the decision of the Tribunal in the case of Rolls- Royce India (P.) Ltd. [2015 (12) TMI 516 - ITAT DELHI] the PLI should directed to be reworked by considering the provision for doubtful debts as operating expenditure. We hold and direct accordingly. Unexplained investment - Tax value of certain assets received by it free of cost from its AEs - Additions u/s 28(iv) - HELD THAT:- The provisions of section 69 are not attracted because there is nothing brought on record to show that the assessee was the owner of these assets. From the fact that invoices were in the name of assessee, it cannot be said that assessee was the owner of the assets, especially in the light of the affirmation by Brocade Communication LLC that they are given all the assets free of cost to the assessee. Therefore, the addition u/s. 69 of the Act cannot be sustained. The entire value of assets has to be regarded as an addition made u/s. 28(1)(iv) of the Act, as was done by the AO in the order of assessment.. Deduction u/s. 10A - Addition made u/s. 28(1)(iv) will go to enhance its profits and that profit is eligible for claim of deduction u/s. 10A and therefore, the addition, even if sustained, will not have any impact on the tax liability - The plea of the assessee in this regard is supported by the decision of the Hon’ble High Court of Karnataka in the case of Mpact Technology Services Pvt. Ltd. [2018 (8) TMI 202 - KARNATAKA HIGH COURT]. The CBDT in Circular No.37/2016 dated 02.11.2016 has also taken the view that any disallowance of expenses which go to enhance the profits of eligible business, would be eligible for deduction on enhanced profits. In view of the above, we direct the AO to allow deduction u/s. 10A of the Act on the enhanced profits.
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