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TMI Blog2016 (5) TMI 1180X X X X Extracts X X X X X X X X Extracts X X X X ..... e details and bills and vouchers along with the nature of expenditures have not been examined properly by the AO as well as by the DRP, therefore, in the interest of justice, we feel that the issue of software expenses should be remitted back to the file of the AO and should be decided afresh after considering these bills and vouchers and also the nature of expenses. It is clarified that if payment is recurring in nature purely for software then same cannot be disallowed as capital. In case some of the expenditures are treated as capital then, needless to say that AO will allow deprecation of such expenditure. Disallowance of travelling expenses being 50% claim - Held that:- Even before us, the entire details have not been furnished. However, looking to the fact that foreign travelling expenses has been recurring expenditure in all the assessment years and in this year, the percentage is only 3% of the total turnover, therefore, in the interest of justice, we feel that the disallowance made should be restricted to 25% of the total expenditure debited on account of travelling expenses. Thus, the assessee gets part relief on this score. Similarly, on ad-hoc disallowance of telepho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Act, 1961, and the order of the Transfer Pricing Officer u/s. 92CA(3), in applying the margin of 31.06% on the total cost without excluding from the total cost-expenses already disallowed by the learned Assessing Officer. 4. Without prejudice to Ground no.1, 2 and 3 above, on the facts and in the circumstances of the case, and in law, the learned Assessing Officer has erred, in conformity with the directions of Hon'ble Dispute Resolution Panel ('DRP'), Mumbai under section 1 44C( 13) of the Income-tax Act, 1961, and the order of the Transfer Pricing Officer u/s. 92CA(3), in determining the proportionate Arm's Length Price of international transactions entered into by appellant at Rs,10,12,64,747/- as against the actual revenue received ₹ 5,49,70,581/- and thereby making an addition of ₹ 4,62,94,166/-. 5. On the facts and in the circumstances of the case, and in law, learned Assessing Officer ACIT (OSD) - 10(1), Mumbai, has erred in disallowing Software and Licensing expenses ₹ 10,91,131/- by treating them as capital expenditure. 6. Without prejudice to Ground no 5, on the facts and in the circumstances of the case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that, grounds no. 1, 2, 7, 8, 9 13 are not pressed, accordingly, these grounds are treated as dismissed as not pressed. 3. Ground no. 3 4, relates to transfer pricing adjustment made by the TPO for sum of ₹ 4,62,94,166/-. 4. The brief facts qua the Transfer Pricing adjustment are that, the assessee company is engaged in providing the clinical research, centralized laboratory services to its Subsidiary companies. During the year under consideration the assessee has entered into the following international transactions with its Associated Enterprises:- Sl. No. Name of the Associate Enterprise Nature of Transaction (Fees received for) Amount INR Method used 1 IGate Clinical Research International Inc. Centralized Research Diagnostics Fees 1,44,23,982 CUP 2 IGate Clinical Research International Inc. Data Analysis and Management Fees 61,99,643 CUP 3 IGate Clinical Research Int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that transfer pricing adjustment should be restricted to the value of international transactions only and it could not be made on the entire turnover. The list of such decision are as under:- He submitted that, if adjustment is made only in respect of transaction with the AE then aggregate proportionate working would be in the following manner: Total Operating Costs Rs.9,68,85,789/- Revenue from Associated Enterprises Rs.5,49,70,581/- Total Revenue Rs.8,06,84,349/- Therefore, Proportionate Operating Cost in respect of revenue from Associated Enterprises (A*B/C) Rs.6,60,08,689/- Add: Arm s Length Margin (@ 10.99% of above) Rs.72,54,355/- Arm s Length Price of revenue From Associated Enterprises (D + E) Rs.7,32,63,044/- Adjustment t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been rejected by the TPO and after carrying out the comparability analysis with the external comparables, he has arrived at an Arm s Length Margin of 36.01% and, thereby the resultant adjustment by way of Arm s length margin was computed at 10.99%. This arm s length margin of 10.99% has not been disputed before us, therefore, to this extent the TPO s determination of positive margin of 10.99% has attained finality qua this year. The sole issue which has been raised before us by the assessee is that, the Transfer Pricing adjustment under section 92 should have been made in respect of the transaction made with the AE only and not in respect of the entire transaction including Non-AE also. The total operating revenue of the assessee was ₹ 8,06,84,349/- and total operating cost was ₹ 9,68,85,789/-. As against this, the revenue from AE is ₹ 5,49,70,581/-. The proportionate operating cost in respect of a revenue from the AE was thus, ₹ 6,60,08,689/-. If Arm s Length Margin of 10.99% is applied to this sum then same would be ₹ 72,54,355/-. If such an ALP of ₹ 72,54,355/- is applied to revenue from AE, then it would be worked out to ₹ 7,32,63, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not for its entire transaction with non-related parties also. Therefore, ALP has to be seen only with regard to international transaction with A. Es and not o n the entire turnover/sales. 8. As regards contentions raised by the Ld. CIT DR that there is no segmental information with regard to the AE and non-AE transaction, therefore such an adjustment cannot be restricted to AE transaction only, we are unable to appreciate his argument firstly, there has been consistent view that the adjustment if at all, should be made on the international transactions and not at the entity level i.e. with the non-AE transactions also; and Secondly, the international transactions with the AE if have been duly reported, then what is required to be seen, whether such a transactions with the related party are at arm s length price or not and same cannot be benchmarked on the basis of the entire transaction at entity level. The deeming fiction created in the transfer pricing provision has to be restricted to the transactions with the related party, because only such transaction has to be judged on the arm s length principle. Thus, we agree with the contention of the Ld. Counsel that the benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in below:- Sr. no. Vendor Name Purpose Amount Remarks 1. Dataformatics Consultancy Pvt Ltd Lisence 17,522 Win server Lisence 2. Antraweb Technologies Pvt Ltd AMC for Tally support 19,656 Tally software 3. Fiona Infosystems Ltd. Renewal Charges 36,208 Yearly Antivirus Renewal 4. S A A Software-Yearly Subscription Charges Total 609898 Less Prepaid 312000 3,12,000 Renewal software subs-Cription Agreement and invoice Attached Agreement and invoice Attached Reversal of prepaid of FY 2006-07 6,50,525 5. Tax Print Corporation TDS software For AY 2008-09 2,080 TDS Other ETDS Software upgrade 6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,349 Foreign Travel Expenses 3,356,896 1,557,593 4,125,682 2,333,502 % of foreign travel To 30% 3% 9% 3% 18. After considering the relevant finding given in the impugned orders, we find that AO has disallowed 50% of various expenditures debited in the profit and loss account on the ground that, assessee could not furnish the break-up and the necessary supporting evidences. Accordingly, he disallowed 50% of the entire expenditure. Even before us, the entire details have not been furnished. However, looking to the fact that foreign travelling expenses has been recurring expenditure in all the assessment years and in this year, the percentage is only 3% of the total turnover, therefore, in the interest of justice, we feel that the disallowance made should be restricted to 25% of the total expenditure debited on account of travelling expenses. Thus, the assessee gets part relief on this score. Similarly, on ad-hoc disallowance of telephone and communication, the same was made 50% on total expen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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