9911796707
TMI Blog2016 (9) TMI 405X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee company mainly provides software development services which include design, research, development and production of software for F.Y. and deliver the same to its AE. The Assessing Officer observed that the assessee had entered into international transaction during the year under consideration and reference was made to the TPO-I (2), New Delhi for determination of Arm's Length Price (ALP) of such transaction u/s 92CA(1) of the Act and accordingly, the assessee filed all necessary details in terms of Section 92B before the Ld. TPO. 2.3 Ld. TPO observed that the Intuit Technology Services Ltd. ("assessee") is a wholly owned subsidiary of M/s. Intuit Inc. USA. The assessee had started its operation in the since October 2004 and is a software development centre to provide software development services to its AEs. The business of the assessee is to provide application development services to the Intuit group. During the financial year under consideration, the assessee had entered into the following international transactions as per 3CEB report: S.N. Nature of the International Transaction Amount in Rs. 1 Software development services 420,395,071 2 Provision of Support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parables were not correct. Therefore, Ld. CIT(A) remanded the issue and asked the Ld. TPO to calculate the same in respect of the comparables selected by the assessee being; (i) Sasken Communication Technologies Ltd., (ii) KALS Information Systems Ltd. and (iii) Softsol India Ltd. The Ld. TPO in his remand report dated 08.10.2012 stated that the calculation of OP/OC of these companies were 13.44%, 41.94% and 25.59% respectively. He submitted that these figures are before the working capital adjustments. The assessee did not accept the calculation made by the Ld. TPO in the remand report in the case of Sasken Communication Technologies Ltd. KALS Information System and Softsol India Ltd. the assessee objected to the use of Celestial Biolabs as a comparable in this case. The three comparables have been discussed and decided by the Ld. CIT(A) in paras 3.6 to 3.7 of his order, which are as under: "3.6 The appellant has stated that the TPO has used segmental information in this case. While drawing the segmental, an amount of Rs. 13,44,913/ - remains unallocated when the segmental accounts are reconciled with the Profit & Loss account of the company. It has to be stated that the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty expenses of the lease deed before Ld. CIT(A). Ld. CIT(A) relied upon the decision of various High Courts more particularly, list in para 4.4 of his order and held that the expenditure should be treated as revenue in nature and should be allowed as deduction u/s 37(1) of the Act. 3. Aggrieved by the order of Ld. CIT(A), the Revenue is in appeal before us now on the following grounds of appeal: "1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting addition of Rs. 3,39,43,014/- made on account of ALP by the TPO. 2. On the facts and circumstances of the case and in law, the Ld CIT(A) has erred in deleting addition of Rs. 23,54,580/- made on account of registration fees an stamp duty expense for lease deed." 3.1 In respect of Ground No.1, raised, the only issue for consideration is relating to the margin upheld by the Ld. CIT(A) in respect of comparables which are as under: Comparables selected by the assessee: i) KALS Information System ii) Sasken Communication Technologies Ltd. iii) Softsol India Ltd. 3.2 Basically, the assessee is disputing the incorrect margins taken by the Ld. TPO in these comparables and thus, Ld. TPO has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es i) development of new version; ii) enhancement and realize AE's sustenance product; iii) development of new products; iv) technical consultancy of AE; v) debugging; vi) bridging gap and vii) rectifying errors and remove defects. 3.6 Thus, the assessee is a technology diversion company, providing application development and support services. The sale and profitability growth of the assessee depends upon demand of IT industry. It is further observed from the TP study that assessee does not face upon risk in respect of credit / marketing of the products. Since it receives the payments in US$, it bear the risk and it involves in employment of qualified personnel as well as assessee is exposed to employee risk. There is no intangible assets which is owned by the assessee except for computer software worth Rs. 84,56,451/-. Thus, assessee is a low risk bearing company in respect f international transaction entered into with its AEs. 3.7 On the basis of above functional profile of the assessee, we shall now discuss the comparable disputed by the Revenue due to its exclusion. These comparables were selected by the TPO to be included in the final list of comparables. Before the Ld. TPO, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.R. submitted that the facts pertaining to this company has not changed from Assessment Year 2007-08 to Asstt Year 2OO8-09 and therefore this company cannot be considered for the purpose of Comparability in the instant case and hence ought to be rejected. 5. On the contrary, the Ld. D.R. supported the inclusion of this company in the list of comparable companies. Ld. D.R. submitted that the decisions cited and relied on by the assessee are for Assessment Year 2007-08 and therefore there cannot be an assumption that it would continue to be applicable for the period under consideration i.e. Assessment Year 2008-09. 6. We have heard both the parties and perused and carefully considered the material on record, While it is true that the decisions cited and relied on by the Ld. A.R. were with respect to the immediately previous assessment year and there cannot be on assumption that it would continue to be applicable for this year as well. The same parity of reasoning is applicable to the Ld. TPO who seems to have selected this company as a comparable based on the reasoning given in the TPO's order for the earlier assessment year in assessee's own case. It is evidently clear that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irst be given to the provisions of this section." 6.6 A combined reading of the above sections it is clear that while computing total income of an assessee, carry forward unabsorbed depreciation can be set off in future years only after setting off the brought forward business losses. Further the provision is clear that carry forward unabsorbed depreciation can be set off not only against income from profits and gains from business and profession, but also against income from any other head including income from other sources. 6.7 In the present case before us the assessee has brought forward business losses as well as unobserved depreciation. The act specifies the sequence in which these allowances can be set off. Section 72 (3) implies that, the set off of unobserved depreciation as per section 32 (2) against business income shall be given effect to only after setting off the brought forward business losses. From the calculation made by the Ld.AO, it is observed that the Ld.AO has adjusted the amount of unobserved depreciation from the business income before making adjustment for brought forward business losses. The circular relied upon by the Ld.AR is not applicable to the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being in the nature of capital expenditure or personal expenses of the assessee, laid out on expended wholly and exclusively for the purposes of business or profession of the assessee. It is observed that the Ld. CIT (A) has placed his reliance upon the decision of Honble Bombay High Court in the case of CIT vs. Cincetia Pvt. Ltd reported in 137 ITR 652, which has been followed subsequently by Honble Madras High Court in the case of Shree Krishna Tiles and Potteries Madras Pvt. Ltd. Vs. CIT reported in 173 ITR 311. Hon'ble Madras High Court in Srikrishna Tiles (supra), has disagreed with the decision of Hon'ble Karnataka High Court in the case of Hotel Raj Mahal vs. CIT reported in 152 ITR 218. It has been held by Hon'ble Madras High Court that Hon'ble Karnataka High Court while dealing the issue has really not discuss the matter in detail but held that went for the 1st time the assessee enters into a lease deed securing lease holding rights for a long period, the expenditure incurred on stamp duty, registration and legal fees etc should be treated as expenditure of capital nature. The Hon'ble Bombay High Court and Hon'ble Madras High Court has held that: ".... the period of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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