9911796707
TMI Blog2014 (6) TMI 924X X X X Extracts X X X X X X X X Extracts X X X X ..... filed its return of income on 29.9.2008 declaring income of Rs. 11,72,47,400. The return of income was processed under section 143(1) of the Act and the case was subsequently taken up for scrutiny. 2.2 In the period under consideration, the assessee had reported the following international transactions :- (i) Software Development Services Rs. 92,47,87,026 (ii) Recovery of Expenses Rs. 3,50,05,590 In view of the above international transactions entered into by the assessee, the Assessing Officer made a reference to the Transfer Pricing Officer ('TPO') for determining the Arms Length Price ('ALP') of these international transactions, after obtaining the necessary approval of the CIT-I, Bangalore. The TPO vide order under section 92CA of the Act dt.31.10.2011 proposed a T.P. Adjustment of Rs. 10,59,69,209 to the ALP of international transactions in respect of software development services rendered by the assessee. The Assessing Officer then issued a draft assessment order on 7.12.2011 under section 143(3) r.w.s. 144C of the Act proposing the incorporation of the T.P. Adjustment of Rs. 10,59,69,209 to the ALP of international transactions in respect of software deve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in proviso to Section 92C(2) of the Act to the Appellant, while determining the arm's length price. 6. On the facts and circumstances of the case, the learned AO and the learned TPO erred in rejecting the Transfer Pricing ("TP") documentation without appreciating the contentions, arguments, and evidentiary data put forward by the Appellant during the course of the proceedings before them, and in doing so have grossly erred: 6.1 in rejecting the comparability analysis carried in the TP documentation and conducting a fresh comparability analysis for determining the arm 's length price by the learned TPO. 6.2 in adopting the arm's length mark up to be 23.65%, in respect of the international transaction pertaining to the rendering of software development services by the Appellant; 6.3 in completely relying on the unaudited data requisitioned and consequently obtained by taking recourse to the provisions of Section 133(6) of the Income-tax Act, 1961 ('the Act), which in many instances are inconsistent with the data disclosed in audited reports. In doing so the learned TPO has erred in complying with the principles of natural justice. 6.4 in considering 25 percent a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated Party Transactions exceeding 10% such as Softsol India Limited and Infosys limited. In doing so the learned AO has disregarded the Delhi ITAT ruling in case of Sony India Pvt. Ltd. (reference ITA No.1189/Del/2005); 6.13 in upholding the actions of the learned TPO in applying the export filter for selection of software comparables. In doing so, the learned TPO erred in rejecting Aarman Software Private Limited and VMF Soft Tech Limited. 6.14 in applying the onsite filter for selection of software comparables with the use of the data obtained under section 133(6) of the Act, is not economically valid. In doing so, the learned TPO erred in rejecting companies such as Akshay Software Technologies Limited, Prithvi Information Solutions Limited, Silverline Technologies Limited, Zylog Systems Limited and VJIL Consulting Limited. 6.15 in not maintaining consistency in applying the filters of rejecting companies with abnormal fluctuating margin, diminishing revenue/ persistent losses for the period under consideration, companies with peculiar economic circumstances, companies with different financial year ending, companies for which data are not available in database/ public domain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as crystalised at the time of entering into the contract itself. Hence, mere postponement of the payment to a different date cannot extinguish the liability and render it notional or contingent. (c) The learned ACIT ought to have appreciated that the main ingredient of a contingent liability is to depend upon happening or non-happening of a certain event, whereas in the instant case, the 'event', i.e. the change in the value of foreign currency in relation to Indian currency, has already taken place and accordingly the loss incurred thereof is an actual loss not a notional one. (d) The learned ACIT further ought to have appreciated that what should be certain is the incurring of the liability and it being estimated with reasonable certainty, even if the exact qualification is not feasible. (e) Notwithstanding and without prejudice to the above, should the provision for MTM losses on forward exchange contracts be disallowed in the current financial year, the same should be allowed as deduction in the financial year in which it is reversed. The Appellant craves to leave to add, alter and modify the above during the course of the appeal.' 3.2 The assessee vide letter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are raised in respect of the grant of suitable adjustments towards differences in the risk profile between the assessee and the comparable companies. This ground was argued before us by the learned Authorised Representative and this issue is separately discussed in the later part of this order. Ground No.5 : This ground raised by the assessee is in respect of being given the benefit of + / - 5% while computing the ALP. Before us this ground was not pressed. Even otherwise, the retrospective amendment to section 92C(2A) of the Act brought about by the Finance Act, 2012 has settled the issue and therefore the benefit of 5% is not allowable to the assessee. In this view of the matter, this ground raised by the assessee is dismissed. Ground No.6.1 : This ground is raised in respect of the TPO rejecting the assessee T.P. Study and conducting a fresh search for deciding the comparable companies. As the learned Authorised Representative had submitted the assessee would not press the general grounds, no separate adjudication is called for thereon. We will, however, later in this order, be dealing with the assessee's submissions / contentions raised in respect of individual compar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les. Sl.No. Name of the company Average Margin 1. Akshay Software Technologies Ltd. 5.93 % 2. Aarman Software Pvt. Ltd. 57.64 % 3. ApplabsTechnologies Pvt. Ltd. 18.25 % 4. Computech International Ltd. 5.20 % 5. Core Projects & Technologies Ltd. 38.85 % 6. I-gate Global Solutions Ltd. 5.10 % 7. Mind Tree Ltd. 15.61 % 8. Nihar Info Global Ltd. (-) 3.23 % 9. Orient Information Technology Ltd. (-) 21.85 % 10. Prithvi Information solutions Ltd. 14.09 % 11. R S Software (India) Ltd. 14.58% 12. R Systems International Ltd. 18.08 % 13. SIP Technologies & Exports Ltd. 18.10 % 14. Silverline Technologies Ltd. (-) 26.25 % 15. Sonata Software 7.38 % 16. VJIL Consulting Ltd. 8.46 % 17. VMF Soft Tech Ltd. 3.08 % 18. Zylog Systems Ltd. 18.53% Average Mean 10.98 % Since the average mean margin of the 18 comparable companies was 10.98% on cost and the assessee's average mean margin was 10.97% on cost, the assessee held its international transactions to be at Arms Leng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e companies, or are incorrectly excluded by the TPO from out of the set of comparable companies chosen by the assessee in its TP Study. The learned Authorised Representative also submitted a chart, schematically explaining the assessee's position regarding the acceptability or otherwise of each of the companies selected or rejected by the TPO as comparable companies to the assessee. We now proceed to examine and consider each of the comparable companies so highlighted by the assessee in its chart. Companies incorrectly adopted as comparables by the TPO as per the contention of the assessee. 7. Avani Cincom Technologies Ltd. 7.1 This company was selected by the TPO as a comparable. The assessee objects to the inclusion of this company as a comparable on the ground that this company is not functionally comparable to the assessee as it is into software products whereas the assessee offers software development services to its AEs. The TPO had rejected the objections of the assessee on the ground that this comparable company has categorized itself as a pure software developer, just like the assessee, and hence selected this company as a comparable. For this purpose, the TPO had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Ltd. in the final set of comparables. 7.6 We have carefully perused and considered the submissions made and the material on record. We find that the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) for Assessment Year 2008-09 has held that this company be omitted from the set of comparables by making the following observations at paras 7.6.1 and 7.6.2 of the order which are extracted hereunder :- "7.6.1 We have heard both parties and perused and carefully considered the material on record. It is seen from the record that the TPO has included this company in the final set of comparables only on the basis of information obtained under section 133(6) of the Act. In these circumstances, it was the duty of the TPO to have necessarily furnished the information so gathered to the assessee and taken its submissions thereon into consideration before deciding to include this company in its final list of comparables. Non-furnishing the information obtained under section 133(6) of the Act to the assessee has vitiated the selection of this company as a comparable. 7.6.2 We also find substantial merit in the contention of the learned Authorised Represe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany is into bio-informatics software product / services and the segmental break up is not provided. It was submitted that :- (i) This company is engaged in the development of products in the field of bio-technology, pharmaceuticals, etc. and therefore is not functionally comparable to the assessee; (ii) This company has been held to be functionally incomparable to software service providers by the decision of the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2007-08 (supra); (iii) The co-ordinate bench of this Tribunal in its order in the case of Trilogy E-Business Software India (P.) Ltd. (supra) at para 43 thereof had observed about this company that - "...As explained earlier, it is a diversified company and therefore cannot be considered as comparable functionaly with the assessee. There has been no attempt to identify eliminate and make adjustment of the profit margins so that the difference in functional comparability can be eliminated. By not resorting to such a process of making adjustments, the TPO has rendered this company as not qualifying for comparability. We therefore accept the plea of the assessee in this regard." (iv) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r year. It is evidently clear from this, that the TPO has not carried out any independent FAR analysis for this company for this year viz. Assessment Year 2008-09. To that extent, in our considered view, the selection process adopted by the TPO for inclusion of this company in the list of comparables is defective and suffers from serious infirmity. 9.4.2 Apart from relying on the afore cited judicial decisions in the matter (supra), the assessee has brought on record substantial factual evidence to establish that this company is functionally dis-similar and different from the assessee in the case on hand and is therefore not comparable and also that the findings rendered in the cited decisions for the earlier years i.e. Assessment Year 2007-08 is applicable for this year also. We agree with the submissions of the assessee that this company is functionally different from the assessee. It has also been so held by co-ordinate benches of this Tribunal in the assessee's own case for Assessment Year 2007-08 (supra) as well as in the case of Triology E-Business Software India Pvt. Ltd. (supra) In view of the fact that the functional profile of and other parameters of this company hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. (supra) (iv) The facts pertaining to this company has not changed from Assessment Year 2007-08 to Assessment Year 2008-09 and therefore this company cannot be considered for the purpose of comparability in the case on hand and hence ought to be excluded from the list of comparables. In support of this contention, the learned Authorised Representative drew our attention to various parts of the Annual Report of this company. (v) This company is engaged not only in the development of software products but also in the provision of training services as can be seen from the website and the Annual Report of the company for the year ended 31.3.2008. (vi) This company has two segments; namely, (a) Application Software Segment which includes software product revenues from two products i.e. 'Virtual Insure' and 'La-Vision' and (b) The Training segment which does not have any product revenues. (vii) The learned Authorised Representative submitted that the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) has held that this company is to be omitted from the list of comparables. 9.3 Per contra, the learned Departmental Representativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of comparable companies. It is ordered accordingly." 9.5 Respectfully following the aforesaid decision of the co-ordinate bench in the case of 3DPLM Software Solutions Ltd. (supra), we direct the Assessing Officer/TPO to omit this company from the list of comparables. 10. Infosys Technologies Ltd. 10.1 This was a comparable selected by the TPO. Before the TPO, the assessee objected to the inclusion of the company in the set of comparables, on the grounds of turnover and brand attributable profit margin. The TPO, however, rejected these objections raised by the assessee on the grounds that turnover and brand aspects were not materially relevant in the software development segment. 10.2 Before us, the learned Authorised Representative contended that this company is not functionally comparable to the assessee in the case on hand. The learned Authorised Representative drew our attention to various parts of the Annual Report of this company to submit that this company commands substantial brand value, owns intellelctual property rights and is a market leader in software development activities, whereas the assessee is merely a software service provider operating its business in In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rival submissions and perused and carefully considered the material on record. We find that the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) for Assessment Year 2008-09 has held that this company be omitted from the list of comparables by holding as under in para 11.4 of its order :- "11.4 We have heard the rival submissions and perused and carefully considered the material on record. We find that the assessee has brought on record sufficient evidence to establish that this company is functionally dis-similar and different from the assessee and hence is not comparable and the finding rendered in the case of Trilogy E-Business Software India Pvt. Ltd. (supra) for Assessment Year 2007-08 is applicable to this year also. We are inclined to concur with the argument put forth by the assessee that Infosys Technologies Ltd is not functionally comparable since it owns significant intangible and has huge revenues from software products. It is also seen that the break up of revenue from software services and software products is not available. In this view of the matter, we hold that this company ought to be omitted from the set of comparable com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f comparables. 11.3 Per contra, the learned Departmental Representative supported the action of the TPO in including this company in the list of comparables. 11.4 We have heard the rival submissions and perused and considered the material on record. We find that the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) for Assessment Year 2008-09 has held that this company is to be omitted from the list of comparables holding as under at paras 12.4.1 and 12.4.2 of its order :- "12.4.1 We have heard both parties and carefully perused and considered the material on record. We find merit in the contentions of the assessee for exclusion of this company from the set of comparables. It is seen that this company is engaged both in software development and product development services. There is no information on the segmental bifurcation of revenue from sale of product and software services. The TPO appears to have adopted this company as a comparable without demonstrating how the company satisfies the software development sales 75% of the total revenue filter adopted by him. Another major flaw in the comparability analysis carried out by the TPO is tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . have not changed from the earlier year i.e. Assessment Year 2007-08 to the period under consideration i.e. Assessment Year 2008-09 and therefore this company cannot be considered as a comparable to the assessee in the case on hand. (iii) Tata Elxsi Ltd. is predominantly engaged in product designing services and is not purely a software development service provider. In the Annual Report of this company the description of the segment 'software development services' relates to design services and are not to software services provided by the assessee. (iv) Tata Elxsi Ltd. invests substantial funds in research and development activities which has resulted in the 'Embedded Product Design Services Segment' of the company to create a portfolio of reusable software components, ready to deploy frameworks, licensable IPs and products. (v) This company performs a variety of functions under the software development services segment, namely - (a) product design; (b) innovation design engineering and (c) visual computing lab as is reflected in the annual report of the company; (vi) The learned Authorised Representative submitted that the co-ordinate bench of this Tribunal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n be seen from the extracts of the Annual Report of this company produced before us, the facts pertaining to Tata Elxsi have not changed from Assessment Year 2007-08 to Assessment Year 2008-09. We, therefore, hold that this company is not to be considered for inclusion in the set of comparables in the case on hand. It is ordered accordingly." 12.5 Respectfully following the aforesaid decision of the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra), we direct the A.O./T.P.O. to exclude this company from the list of comparable companies. 13. E-Zest Solutions Ltd. 13.1 This company was selected by the TPO as a comparable. Before the TPO, the assessee had objected to the inclusion of this company as a comparable on the ground that it was functionally different from the assessee. The TPO had rejected the objections raised by the assessee on the ground that as per the information received in response to notice under section 133(6) of the Act, this company is engaged in software development services and satisfies all the filters. 13.2 Before us, the learned Authorised Representative contended that this company ought to be excluded from the list o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It appears that the TPO has not examined the services rendered by the company to give a finding whether the services performed by this company are similar to the software development services performed by the assessee. From the details on record, we find that while the assessee is into software development services, this company i.e. e-Zest Solutions Ltd., is rendering product development services and high end technical services which come under the category of KPO services. It has been held by the co-ordinate bench of this Tribunal in the case of Capital I-Q Information Systems (India) (P) Ltd. (Supra) that KPO services are not comparable to software development services and are therefore not comparable. Following the aforesaid decision of the co-ordinate bench of the Hyderabad Tribunal in the aforesaid case, we hold that this company, i.e. e-Zest Solutions Ltd. be omitted from the set of comparables for the period under consideration in the case on hand. The A.O. / TPO is accordingly directed." 13.5 Respectfully following the aforesaid decision of the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra), we direct the A.O./T.P.O. to exclude th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and subscription. However, the segmental profit and loss accounts for software development services and product development are not given separately. Further, as pointed out by the learned Authorised Representative, the Pune Bench of the Tribunal in the case of E-Gain Communications Pvt. Ltd. (supra) has directed that since the income of this company includes income from sale of licenses, it ought to be rejected as a comparable for software development services. In the case on hand, the assessee is rendering software development services. In this factual view of the matter and following the afore cited decision of the Pune Tribunal (supra), we direct that this company be omitted from the list of comparables for the period under consideration in the case on hand." 14.4 Respectfully following the aforesaid decision of the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra), we direct the A.O./T.P.O. to exclude this company from the list of comparable companies. 15. Lucid Software Ltd. 15.1 This company was selected as a comparable by the TPO. Before us, the assessee has objected to the inclusion of this company as a comparable on the grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utions Ltd. (supra) for Assessment Year 2008-09 has held that this company is to be excluded from the list of comparables, by holding as under at para 16.3 thereof :- "16.3 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details on record that the company i.e. Lucid Software Ltd., is engaged in the development of software products whereas the assessee, in the case on hand, is in the business of providing software development services. We also find that, co-ordinate benches of the Tribunal in the assessee's own case for Assessment Year 2007-08 (IT(TP)A No.845/Bang/2011), LG Soft India Pvt. Ltd. (supra), CSR India Pvt. Ltd. (supra); the ITAT, Mumbai Bench in the case of Telecordia Technologies India Pvt. Ltd. (supra) and the Delhi ITAT in the case of Transwitch India Pvt. Ltd. (supra) have held, that since this company, is engaged in the software product development and not software development services, it is functionally different and dis-similar and is therefore to be omitted from the list of comparables for software development service providers. The assessee has also brought on record details to demonstrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n services. (iv) The ITAT, Mumbai Bench in the case of Telcordia Technologies India (P.) Ltd. (supra) while discussing the comparability of another company, namely Lucid Software Ltd. had rendered a finding that in the absence of segmental information, a company be taken into account for comparability analysis. This principle is squarely applicable to the company presently under consideration, which is into product development and product design services and for which the segmental data is not available. (v) The learned Authorised Representative submitted that the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) has held that this company is to be excluded from the list of comparables. The learned Authorised Representative prays that in view of the above, this company i.e. Persistent Systems Ltd. be omitted from the list of comparables. 16.3 Per contra, the learned Departmental Representative support the action of the TPO in including this company in the list of comparables. 16.4 We have carefully considered the submissions made and the material on record. We find that the co-ordinate bench of this Tribunal in the case of 3DPLM Software S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paratory software products and is therefore not similar to the assessee in the case on hand. (ii) In its Annual Report, the services rendered by the company are described as under : "Leveraging its proven global model, Quintegra provides a full range of custom IT solutions (such as development, testing, maintenance, SAP, product engineering and infrastructure management services), proprietary software products and consultancy services in IT on various platforms and technologies." (iii) This company is also engaged in research and development activities which resulted in the creation of Intellectual Proprietary Rights (IPRs) as can be evidenced from the statements made in the Annual Report of the company for the period under consideration, which is as under : "Quintegra has taken various measures to preserve its intellectual property. Accordingly, some of the products developed by the company.........have been covered by the patent rights. The company has also applied for trade mark registration for one of its products, viz. Investor Protection Index Fund (IPIF). These measures will help the company enhance its products value and also mitigate risks." (iv) The TPO has applied t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parables, as in the case on hand. 18.3.2 We also find from the Annual Report of Quintegra Solutions Ltd. that there have been acquisitions made by it in the period under consideration. It is settled principle that where extraordinary events have taken place, which has an effect on the performance of the company, then that company shall be removed from the list of comparables. 18.3.3 Respectfully following the decision of the co-ordinate bench of the Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. (supra), we direct that this company i.e. Quintegra Solutions Ltd. be excluded from the list of comparables in the case on hand since it is engaged in proprietary software products and owns its own intangibles unlike the assessee in the case on hand who is a software service provider." 17.5 Respectfully following the aforesaid decision of the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra), we direct the A.O./T.P.O. to exclude this company from the list of comparable companies. 18. Softsol India Ltd. 18.1 This company was selected by the TPO as a comparable. The assessee objected to the inclusion of this company as a comparable on the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a), we hold that this company is to be omitted from the list of comparables to the assessee in the case on hand." 18.4 Respectfully following the aforesaid decision of the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra), we direct the A.O./T.P.O. to exclude this company from the list of comparable companies. 19. Risk Adjustment 19.1 In the grounds of appeal at S.Nos.3 & 4, the assessee has submitted that it has a limited risk profile vis-à-vis the 20 comparable companies selected by the TPO and therefore the TPO ought to have allowed appropriate adjustments to account for differences between the risk profile of the assessee and the companies identified by the TPO as comparables. The learned Authorised Representative submitted that it is essential for appropriate risk adjustments to be made to bridge the disparities in the risk profile between a risk free entity like the assessee and risk bearing entities among the comparables selected by the TPO. 19.1.1 The learned Authorised Representative submitted that in similar factual positions, different co-ordinate benches of this Tribunal in the case of Intellinet Technologies India (P.) L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inadvertently missed out in the grounds of appeal filed along with Form No.36. It is prayed that since this is a ground related to legal principles, it may kindly be admitted. On due consideration thereof, we admit this additional ground for adjudication. 20.2 It is submitted by the learned Authorised Representative that in the T.P. Order under section 92C of the Act, while computing the ALP, the TPO added the reimbursement of expenses amounting to Rs. 3,50,05,590 to the price charged in international transactions while working out the shortfall, without explaining or assigning any reasons for including the same. It is submitted that on appeal, the DRP had confirmed the action of the TPO following the decision of the DRP in the preceding year on the same issue in the case on hand. Before us, the learned Authorised Representative further submitted that the co-ordinate bench of this Tribunal, in the assessee's own case for Assessment Year 2007-08, in IT(TP)A No.1121/Bang/2011 dt.22.3.2013 has decided this issue in favour of the assessee. A copy of this decision was placed on record. 20.3 We have heard both the learned Authorised Representative and the learned Departmental Repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for the subsequent year, the additional ground be admitted and allowed. 21.2 We have considered the submissions made and the material on record. While computing the ALP, the TPO has considered the total operating expenditure, including the foreign exchange loss due to forward contracts. The DRP, in the year under consideration, has held these losses to be part of operating expenditure while deciding on the disallowance made by the Assessing Officer in the draft assessment order. The assessee had not raised this ground separately before the DRP for computing ALP. In the subsequent year, the DRP has held these losses to be part of non-operating expenditure. It appears that a consequence thereof the assessee has raised this issue before us as an additional ground. 21.3 Admittedly, this issue has not been examined earlier by the TPO or the DRP. Since the DRP, in the subsequent year, has rendered a finding that the foreign exchange loss due to forward contracts is a non-operating expenditure while dealing with the order of the Assessing Officer, we are of the view that it would be in the interest of equity and justice that this additional ground be admitted for adjudication and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken place. Therefore, the loss incurred as a result of the fluctuation of foreign exchange rates is a fiat accompli and not a notional one. (ii) In computing the income chargeable under the head 'profits and gains' of business or profession, the Act allows a deduction of any expenditure, not being in the nature of a capital expenditure or personal expenses of the assessee, laid out wholly and exclusively for the purpose of the business or profession of the assessee. This implies that the allowability of losses on foreign exchange forward contracts is dependent, in part, on whether it is incurred on revenue account or on capital account. (iii) The exchange loss was on revenue account arising out of a contractual obligation and hence qualifies for a deduction in computation of taxable income. (iv) The above losses have accrued as at the year-end in accordance with the method of accounting regularly adopted by the assessee and such losses are not notional or contingent in nature. (v) The impugned losses have arisen out of a contractual obligation existing as of the reporting date. It is further submitted that the value of the contract is as per a valuation document given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenses, we are of the opinion that it will be in the fitness of things to remit this issue back to the DRP to examine the issue afresh by considering its findings in the subsequent year. It is ordered accordingly. 23. Capital Expenditure-Disallowance of Software Expenses-Ground Nos.9(a) to (c). 23.1 In the course of assessment proceedings, the Assessing Officer observed that the assessee had claimed deduction of Rs. 91,46,921 towards "software additions." The Assessing Officer also observed that these expenses were claimed as revenue expenditure for income tax purposes, but had reflected the software as intangible and claimed depreciation in the books of accounts. The Assessing Officer did not agree with the contentions, of the assessee that these software purchased was revenue in nature; being application software and held them to be capital expenditure since he was of the opinion that they result in giving the assessee an enduring benefit. While disallowing the same, the Assessing Officer allowed depreciation @ 60% on these amounts, as per the directions of the DRP. 23.2 It is the contention of the learned Authorised Representative of the assessee that the impugned expen ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
