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TMI Blog2021 (1) TMI 1215X X X X Extracts X X X X X X X X Extracts X X X X ..... . Following the above decision, we direct exclusion of both these companies. After exclusion of the above said 2 companies, only M/s. Cyber Media Research Ltd. would remain. The TPO may determine the sufficiency or otherwise of one comparable company after considering the facts of the case and after hearing the assessee. Working capital adjustment is supported by the decision of coordinate bench in the case of Huawei Technologies India Pvt. Ltd. [ 2018 (10) TMI 1796 - ITAT BANGALORE] we direct the A.O. to allow working capital adjustment on actual basis. Disallowance u/s. 40(a)(ia) in respect of broad band connectivity charges - HELD THAT:- As decided in own case[ 2021 (7) TMI 84 - ITAT BANGALORE] we direct the A.O. to delete the disallowance of broadband charges made u/s. 40(a)(ia) as held assessee has simply obtained broadband/Internet facility from the service provider M/s. Tata Indicom. It is not a case where a service contract has been entered into. The facility is open to all and sundry and any member of the public can avail of it. In such circumstances, the view of the AO that the nature of service rendered as an element of implicit contract is struck down and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst the assessment order dated 16-03-2015 passed by the assessing officer u/s. 143(3) r.w.s 144C(13) of the Income-tax Act, 1961 ['the Act' for short] in pursuance of directions given by Ld. Dispute Resolution Panel (DRP). 2. The appeal filed by the assessee give rise to the following issues:- (a) Transfer pricing adjustment made in respect of Engineering Design Segment . (b) Transfer Pricing adjustment made in respect of Marketing Support Services (c) Disallowance u/s. 40(a)(ia) in respect of broad band connectivity charges. (d) Disallowance u/s. 40(a)(ia) of depreciation claimed on software purchases for non-deduction of tax at source. (e) In the alternative, the above disallowances will go to increase business profits eligible for deduction u/s. 10A of the Act. 3. The revenue is in appeal in respect of following issues:- (a) Granting of risk adjustment @ 1% arbitrarily without appreciating the facts of the case and its comparables. (b) Allowing deduction of expenditure 'deducted from Export turnover' from the Total turnover also while computing deduction u/s. 10A of the Act. 4. In the Cross objection, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted capitalization of software expenses by the Assessee. Since the jurisdictional Hon'ble Karnataka High Court has held in the case of Samsung Electronics Co. Ltd. (2011)(203 Taxmann 477)(Kar) that the TDS is liable to be deducted from payments made for software purchases, the Ld. DRP directed the AO to treat the software purchases as revenue expenditure and accordingly directed the AO to disallow entire software purchase expenses, even though it has been capitalised by the assessee. In respect of deduction u/s. 10A altered by the AO, the Ld. DRP directed the AO to follow the decision rendered by jurisdictional Karnataka High Court in the case of Tata Elxsi Ltd. ( (2012)349 ITR 98)(Kar) and deducted the expenses from both export turnover and total turnover while computing deduction u/s. 10A of the Act. 8. However, it appears that the TPO has given relief on account of risk adjustment. However, the AO retained the addition towards Transfer pricing adjustment made in the draft assessment order by observing that the Ld. DRP did not give any relief to the assessee. The AO also retained the addition u/s. 40(a)(ia) of the Act in respect of payment of broadband connectivity c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inate bench has taken the view that the same rate may be adopted for non-USA related transactions also in the assessee's own case relating to 2008-09 (referred supra). Accordingly, following the decision rendered by the coordinate bench in AY 2008-09, we direct the AO/TPO to adopt the margin of 15.85% to non-USA related transactions also under engineering design services segment. 12. The next issue relates to transfer pricing adjustment made in respect of marketing support services. The Ld. A.R. submitted that the TPO had made transfer pricing adjustment of ₹ 70,71,129/- instead of making adjustment of ₹ 40,71,129/-. When this mistake was pointed out, the DRP directed the A.O. to verify the claim of the assessee and take necessary action. However, the AO/TPO did not examine the claim of the assessee and accordingly retained the transfer pricing adjustment of ₹ 70,71,129/-. The Ld. A.R. explained this arithmetical error further, i.e., he submitted that the TPO had selected following comparable companies for marketing support services:- Sl.No. Name of the company OP/Cost (%) 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we direct the A.O. to allow working capital adjustment on actual basis. 18. Accordingly, this issue is restored to the file of the AO/TPO. 19. The next issue contested by the assessee relates to disallowance of broadband charges paid to M/s. BSNL amounting to ₹ 62,459/- u/s. 40(a)(ia) of the Act for non-deduction of tax at source. The Ld. A.R. submitted that an identical issue was considered by the coordinate bench in the assessee's own case in assessment year 2008-09 and the disallowance was deleted with the following observation:- 23. In respect of non-deduction of TDS u/s. 194J, we found that the CIT(A) has dealt on the disputed issue in para 3.3.2 which is as under and granted relief: 3.3.2. It is not disputed that, it was submitted before the AO, that there is no specific contract with the service provider. The AO has considered this in the assessment order. Since there is no specific contractual facility that has been obtained from M/s. Tata Indicom, the character of service contract is ruled out. It is evident that the assessee has utilised standard service ordinarily available to all and sundry and it is not a specific one. The assessee relied on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment order. 22. The Ld. A.R. submitted that the depreciation cannot be disallowed u/s. 40(a)(ia) of the Act as the same is not an item mentioned in that section. With regard to direction of Ld. DRP to treat the software expenses as revenue expenditure and disallow the same, the Ld. A.R. submitted that the Ld. DRP had followed the decision rendered by Hon'ble Karnataka High Court in the case of Samsung Electronics Company Ltd. (supra). However, the above said decision has since been reversed by Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. (TS-106-SC-2021). 23. We heard Ld. D.R. on this issue and perused the record. As submitted by Ld. A.R., depreciation is not an item included u/s. 40(a)(ia) of the Act and hence the depreciation cannot be disallowed u/s. 40(a)(ia) of the Act. We find support by this proposition on the decision rendered by the coordinate bench in the case of UKN Properties Pvt. Ltd. in ITA No. 2012/Bang/2016 dated 2.7.2021. Accordingly, the disallowance of depreciation u/s. 40(a)(ia) of the Act is liable to be deleted. The Ld. DRP however has directed the A.O. to treat software purchases as revenue expe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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