EMERSON ELECTRIC COMPANY (INDIA)PVT. LTD,MUMBAI V. DCIT 1(2) (1) JURISDICTIONAL ASSESSING OFFICER, MUMBAI

ITA 2323/MUM/2022

AI Insights

The case involves Emerson Electric Company (India) Pvt. Ltd., which appealed against the final assessment order passed by the Deputy Commissioner of Income-tax, Mumbai, concerning the assessment year 2018-19. The primary issues revolved around transfer pricing adjustments made by the TPO, which were based on the comparison of the company's financial metrics with those of selected comparable companies. The Tribunal examined the selection and exclusion of these comparables, the application of various filters, and the adjustments for capacity utilization and working capital. The Tribunal's decision led to a recalibration of the transfer pricing adjustments, impacting the final tax liability of the assessee.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 396536 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2018-2019
• Other Referred Cases: Emerson Electric Company (India) Private Limited vs ACIT, Credence Resource Management (P) Ltd. Vs ACIT, Rage Frameworks India (P) Ltd. Vs ACIT, Ariston Thermo India Ltd. Vs DCIT, DCIT Vs Kyocera CTC Precision Tools Pvt Ltd, CIT Vs Reuters India (P) Ltd., Schefenacker Motherson Ltd. Vs ITO, DCIT Vs Epcos Ferrites Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Matter Remanded
• Court: TRIBUNAL
• Department Lawyers: NEENA JEPH
• Assessee Lawyers: DHANESH BAFNA
• Keywords: Transfer pricing; International transaction; Depreciation; Period of limitation; Capital expenditure; TDS; Earning of tax free income; Wholly owned subsidiary; Rule 8D; Non-deduction of tax; Related party transaction
• Section: 143(3); 234B; 14A; 40(a)(ia)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “K” BENCH, MUMBAI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER &GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No. 2323/MUM/2022 (AY : 2018-19) (Physical hearing) Emerson Electric Company (India) Private Limited, Delphi ‘B’ Wing, 601-603, Orchard Avenue, Hiranandani Business Park, Powai, Mumbai-400076. [PAN No. AAACE1260B] Vs DCIT, Range-1(2)(1), Mumbai Aayakar Bhawan, Mumbai Appellant / Assessee Respondent / Revenue Assessee by Shri Dhanesh Bafna Advocate, Ms. Chandni Shah, Ms. Riddhi Maru & Ms. Kinjal Patel, CA’s Revenue by Ms. Neena Jeph, CIT DR Date of institution of appeal 14.09.2022 Date of hearing 05.05.2025 Date of pronouncement 28.05.2025 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by assessee is directed against the additions made in assessment order passed under section 143(3) read with section 144C(13) dated 31.07.2022, passed in pursuance of direction of Dispute Resolution Panel (DRP) dated 03.06.2022.The assessee has raised the following grounds of appeal: 1. Ground no. 1 Final Assessment order passed in the absence of jurisdiction as per the provisions of Section 144B. On the facts and in the circumstances of the case and in law, the Deputy Commissioner of Income-tax, Circle 1(2)(1), Mumbai ('Ll. AO') erred in passing the final assessment order in the absence of jurisdiction as per the provisions of Section 144B, rendering the final assessment order to be null and void. ITA No. 2323/Mum/2022 Emerson Electric Company (India) Pvt. Ltd. 2 The Appellant prays that the final assessment order is null and void being passed in violation of the law and deserves to be quashed. 2. Ground no. 2-The final assessment order passed by the Ld. AO is time barred. Without prejudice to above, on the facts and in the circumstances of the case and in law, the Final Assessment Order u/s 143(3) r.w.s 144C(13) of the Act dated 31 July 2022 is served on the Appellant on 3 August 2022 i.e. beyond the time limit prescribed u/s 144C(13) of the Act rendering the said order to be bad in law. The Appellant therefore submits and prays that the aforesaid order passed is bad in law and deserves to be quashed. 3. Ground no. 3 The final assessment order passed by the Id. AO has not been authenticated either through digital signature or physically. Without prejudice to above, on the facts and in the circumstances of the case and in law, the order passed by the Ld. AO has not been authenticated either through digital signature or physically thereby rendering the said order invalid in terms of the provisions of the Act. The Appellant therefore submits and prays that the aforesaid order passed is bad in law and deserves to be quashed. Without Prejudice to Ground No. 1 to 3, 4. Ground no. 4- General ground On the facts and in the circumstances of the case and in law, the Ld. AO based on the directions of the Hon'ble Dispute Resolution Panel (DRP), erred in making adjustments of Rs. 30,59,41,940 to the total income of the Appellant. 5. Ground no. 5-TP adjustment on account of provision of IT Support and related services (ITeS) segment - INR 7,17,53.556 On the facts and in the circumstances of the case and in law, the Lal. TPO/DRP/AO erred in making an adjustment for provision of ITeS by: a) Disregarding the TP Study maintained by the Appellant in good faith and with due diligence, b) Rejecting the search process carried out by the Appellant in the TP Study; c) Not following a structured search process while selecting the comparable companies; ITA No. 2323/Mum/2022 Emerson Electric Company (India) Pvt. Ltd. 3 d) Applying filters for selecting companies by disregarding the reasoning provided by the Appellant; e) Selection of companies which are functionally not comparable and rejection of functionally comparable companies selected by the Appellant; The Appellant therefore submits and prays that the aforesaid adjustment be deleted. 6. Ground no. 6-TP Adjustment on account of provision of facilitation support services (Marketing support services (MSS)) - INR 94,48,951 On the facts and in the circumstances of the case and in law, the Ld. TPO/DRP/AO erred in making an adjustment for provision of MSS by: a) Disregarding the TP Study maintained by the Appellant in good faith and with due diligence; b) Rejecting the search process carried out by the Appellant in the TP Study; c) Not following a structured search process and thus resorting to cherry picking of comparable companies; d) Rejection of functionally comparable companies selected by the Appellant The Appellant therefore submits and prays that the aforesaid adjustment be deleted. 7. Ground no. 7-TP Adjustment on account of provision of engineering and related services (Engineering) segment - INR 14,27,48,146 On the facts and in the circumstances of the case and in law, the Ld. TPO/DRP/AO erred in making an adjustment for provision of engineering and related services by: a) Disregarding the TP Study maintained by the Appellant in good faith and with due diligence; b) Rejecting the search process carried out by the Appellant in the TP Study; c) Disregarding the aggregation approach adopted by the Appellant by segregating the three divisions of the Appellant within the engineering and related services segment and thereafter applying the same benchmarking analysis to such segregated three divisions. d) Disregarding the treatment of foreign exchange loss as non-operating expense for the purpose of computation of PLL. e) Rejection of functionally comparable companies selected by the Appellant; ITA No. 2323/Mum/2022 Emerson Electric Company (India) Pvt. Ltd. 4 f) Appellant is not privy to the source of the margins considered by the Ld. TPO/AO and working capital adjustment benefit not given. g) Not providing sufficient time to the Appellant to provide its submissions against the show cause notices issued by the Ld. TPO h) Disregarded the fact that the operating margins earned by the Appellant in this business segment is within the (+/-) 3% range available as per proviso to section 92C(2) of the Act read with Rule 10CA(7) of the Rules The Appellant therefore submits and prays that the aforesaid adjustment be deleted. 8. Ground no. 8 TP Adjustment on account of manufacturing segment INR 4,92,60,000 On the facts and in the circumstances of the case and in law, the Learned AO/TPO/DRP erred in making an adjustment for manufacturing activity by: a) Disregarding the TP Study maintained by the Appellant in good faith and with due diligence, and b) Disregarding the benchmarking approach adopted by the Appellant c) Disregarding/not accepting the economic adjustments carried out by the Appellant on account of the projections used, inventory adjustment and costs incurred due to the start-up phase. d) Not granting working capital adjustment for computation of margins of the comparable companies in line with other segments of the Appellant. The Appellant therefore submits and prays that the aforesaid adjustment be deleted. 9. Ground no. 9-Disallowance of expenses under Section 14A of the Act r.w.s. Rule 8D -INR 20,06,601 a) On the facts and in the circumstances of the case and in law, the Ld. DRP/AO erred in disallowing expenses amounting to Rs. 20,06,601 section 14A of the Act r.w. Rule 8D(2), by considering such expenses related to exempt income. b) Without prejudice to above, the Ld. DRP/AO erred in not appreciating that the Appellant has not earned any exempt income during the year and accordingly no disallowance u/s 14A of the Act is warranted. The Appellant therefore submits and prays that the aforesaid adjustment be deleted. ITA No. 2323/Mum/2022 Emerson Electric Company (India) Pvt. Ltd. 5 10. Ground no. 10 Addition under provisions of Section 36(1)(va) of the Act INR 8,47,074 On the facts and in the circumstances of the case and in law, the Ld. DRP/AO erred in making additions under section 36(1)(va) of the Act to the total income amounting to INR 8,47,074 i.e. with respect to delay in depositing contributions of the employees towards the provident fund and Employee State Insurance within the due date prescribed by respective Act as income of the Appellant. The Appellant therefore submits and prays that the aforesaid adjustment be deleted. 11. Ground no. 11 - Addition under provisions of Section 40(a)(i) r.w.s 195 of the Act -INR 4,24,46,692 c) On the facts and in the circumstances of the case and in law, the Ld. DRP/AO erred in disallowing salary paid to an Indian Resident employee under section 40(a)(i) read with Section 195 of the Act to the total income amounting to INR 4,24,46,692. d) Without prejudice to above, on the facts and in the circumstances of the case and in law, the Ld. DRP/AO erred in not appreciating that tax had been correctly deducted under section 192 of the Act on the said salary payment. The Appellant therefore submits and prays that the aforesaid adjustment be deleted. 12. Ground no. 12 - Incorrect computation of interest under Section 234B of the Act On the facts and in the circumstances of the case and in law, the Ld. AO has erred in computing and levying interest of INR 6,17,63,988 under section 234B of the Act. The Appellant prays that the Ld. AO be directed to recompute the interest under Section 234B of the Act as per law and after considering the reliefs to be granted by your Honour in your Appellate Order. 13. Ground No. 13- Incorrect computation of interest under Section 234C of the Act On the facts and in the circumstances of the case and in law, the Ld. AO has erred in computing and levying interest of INR 2,80,798 under section 234C of ITA No. 2323/Mum/2022 Emerson Electric Company (India) Pvt. Ltd. 6 the Act however the interest under section 234C of the Act as per returned of income of INR 2,61,449. The Appellant prays that the Ld. AO be directed to recompute the interest under Section 234C of the Act as per law and after considering the reliefs to be granted by your Honour in your Appellate Order. 14. Ground no. 14 - Penalty proceedings On the facts and in the circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings under section 270A of the Act. The Appellant prays that the Ld. AO be directed to drop the penalty proceedings. 2. Brief facts of the case as put before us, is that assessee is a subsidiary of Emerson Electricity (Mauritius), which is wholly owned subsidiary of Emerson Electricity Co. (USA). The assessee is engaged in the business of developing of exporting of software for providing engineering services; information technology enabled services (ITES) and manufacturing of horns and electric motors for elevators applications. The assessee filed its return of income for A.Y. 2018-19 on 30.11.2018 declaring total income of Rs. 166.49 Crore. Along with the return of income, the assessee furnished report in Form 3CEB reporting various international transactions. Consequent upon reporting of various international transactions, the assessing officer made reference to Transfer Pricing Officer (TPO) under section 92CA for determination of arm’s length price of such international transactions. The TPO in its order dated 31.07.2021 passed under section 92CA(3) made upward adjustment of Rs. 26.31 crore in certain international transaction. The assessing officer on the basis of order / report of TPO made such adjustment. The assessing officer also made disallowance under section 14A of Rs. 20,06,601/-, disallowance under section 36(1)(va) on account of delay in deposit of employee ITA No. 2323/Mum/2022 Emerson Electric Company (India) Pvt. Ltd. 7 contribution of ESIC and Provident fund (PF) and addition under section 40(a)(ia) r.w.s. 195 of Rs. 4.24 crore. All such additions were made in draft assessment order dated 28.09.2021. Copy of draft assessment order 28.09.2021 was served upon the assessee. The assessee exercised its option in filing objection before DRP. Before DRP, the assessee filed detailed written submission. The ld. DRP after considering the report of TPO various additions proposed by assessing officer and the submission of assessee, allowed part relief to the assessee in its direction dated 03.06.2022. On receipt of direction of DRP, the assessing officer passed final assessment order dated 31.07.2022, which is impugned before this Tribunal. 3. We have heard the submission of Learned Authorised Representative (ld. AR) of the assessee and submissions of the learned Commissioner of income Tax- departmental representative (ld. CIT DR) for the Revenue. With their assistance, we have also gone through voluminous documents and findings of lower authorities. Ground no. 1 relates to jurisdiction of assessing officer, ground no. 2 relates to passing assessment order beyond period of limitation, ground no. 3 relates to passing of assessment order which is according to assessee is not authentic and ground no. 4 is general. The ld. AR of the assessee submits that he is pressing ground no. 1 to 4. Considering the submissions of ld AR of the assessee, ground no. 1 to 4 of the appeal are dismissed as not pressed. 4. Ground no. 5 relates to transfer pricing adjustment in relation to provision of information technology and related support services (ITES) segment of Rs. 7.17 Crore. The ld. AR of the assessee submits that assessee is engaged in ITA No. 2323/Mum/2022 Emerson Electric Company (India) Pvt. Ltd. 8 providing IT and related support services (ITES) for in-house use of its Associate Enterprises (AE) which has been accepted by TPO in his order. The AE of assessee undertakes software development activities whereas assessee provides ITES services as database management, administration, help desk support as per instructions specifically given by its AE which has been recorded by TPO in his order. For the impugned assessment year, the operating profit (OP)/ total cost (TC) of assessee was at 10.66%. The assessee adopted this as their profit level indicator (PLI) to benchmark the aforesaid transaction by using Transactional Net Margin Method (TNMM). The assessee in its transfer pricing report selected 19 comparable companies which had a median margin range of 9.05% to 14.16%, since operating margin of assessee was of 10.66%. Thus, the assessee’s transaction was at arm’s length price. The Transfer Pricing Study Report is placed on record. During the hearing before TPO, he introduced 5 new comparable companies by rejecting 10 comparable companies selected by assessee resulted to 14 comparable in final set of comparable. The TPO calculated a range of margin 14.31% to 23.59% and concluded that transaction is not at arm’s length. The TPO computed arm’s length median margin of 19.20% which led to an upward adjustment of Rs. 7.61 Crore. Despite objection of assessee, the ld. DRP sustained final set of 14 comparable, however directed TPO to consider updated margin submitted by assessee vide their letter dated 16.07.2021. Thus, on the basis of direction of DRP, the TPO recomputed the arm’s length median margin to 18.71%, which led to adjustment of Rs. 7.17 Crore. Accordingly, the addition in final assessment order was made to that extent. ITA No. 2323/Mum/2022 Emerson Electric Company (India) Pvt. Ltd. 9 The ld. AR of the assessee submits that he has limited submission before the Tribunal that if MPS Ltd. (MPS), Manipal Digital Systems Pvt. Ltd. (Manipal), Integra Software Services Pvt. Ltd. (Integra) and Wizard E-Marketing Pvt. Ltd. (Wizard) are excluded and Bhilwara Info technology Ltd. Medical Transcription Segment (Bhilwara) is included in final set of comparable; which are otherwise not comparables with the assessee, the mean margin of assessee would be at arm’s length. For exclusion of MPS Ltd., the ld. AR of the assessee submits that this comparable is not functionally comparable with the assessee. It is in diversified business and lack of segmental data. MPS is a leading global provider of platforms and content solutions for the digital world. It is India’s only listed pure-play publishing services company. The company provides platforms and publishing services for global publishing industries. MPS is engaged in end to end print and digital solutions to its customers which include services e.g. content production, enhancement, transformation, delivery and customer support making it a trusted partner to the biggest publishers in the world. MPS has successfully positioned itself as a leading product developer for educational, academic and medical publishers and leaning companies. MPS is engaged in developing software projects for end-to-end cloud based publishing namely ‘MPS Digicore’ ‘Digitrack’, ‘Contentstore’ etc. About 82% of total turnover of the company is from providing content solutions in the form of production, transformation, customer support and 18% of total turnover from its platform solutions such as Digicore, THINK, and Scholar Star etc. Further, the segmental information with respect to various activities of MPS is not available in the financial ITA No. 2323/Mum/2022 Emerson Electric Company (India) Pvt. Ltd. 10 statements. MPS has also incurred outsourcing cost of Rs. 1266.19 crores which is included under the head of ‘Other expenses’ which implies that MPS uses a different model of business than that of the assessee which has no such expenditure. Accordingly, MPS is not functionally comparable to the assessee’s ITES segment and hence ought to be excluded from the final set. MPS has acquired multiple products/business such as THINK Subscription and TATA Interactive Systems which is a well-established company in the field of digital learning solutions including web-based simulated learned. As a result of various acquisitions made by MPS, it has been able to report to sizable free cash with protected margins. This comparable was excluded by Tribunal in assessee’s own case in A.Y. 2013-14 and 2014-15 in ITA No. No. 6098 & 513/M/2018. 5. For exclusion of Manipal Digital Systems Pvt. Ltd. (Manipal), the ld AR of the assessee submits that its mean margin is 21.66%. The TPO in his order has applied in export filter while selecting comparable companies and has accepted only those companies which has exports of more than 75% out of their sales. For FY 2017-18, Manipal fails the export filter applied by the ld. TPO. The total revenue earned by Manipal during FY 2017-18 is entirely from their domestic transactions and there is no revenue from export services. Accordingly, since Manipal fails the TPO’s export filter, it ought to be rejected at the outset and be excluded from the final set. Manipal is engaged in the diversified set of services such as CGI and digital services, packaging pre- press, image, retouching, learning and publishing etc. It undertakes pre- media and e-book distribution services for its domestic customers for which it ITA No. 2323/Mum/2022 Emerson Electric Company (India) Pvt. Ltd. 11 has no segmental information. Accordingly, Manipal is not functionally comparable to the assessee’s ITES segment and hence ought to be excluded from the final set. In support of his submission, the ld. AR of the assessee relied upon the decision of Tribunal in Emerson Electric Company (India) Private Limited vs ACIT (ITA No. 6098/Mum/2018 & ITA No. 531/Mum/2018 (Mum Trib.), Credence Resource Management (P) Ltd. Vs ACIT (2022) 138 taxmann.com 543 (Pune-Trib.) and Rage Frameworks India (P) Ltd. Vs ACIT (ITA No. No. 674/Pun/2022) (Pun Trib.). 6. For exclusion of Integra Software Services Pvt. Ltd. (Integra), the ld AR of the assessee submits that its mean margin is 12.79%. Integra is primarily engaged in publishing and pre-publishing of content. It is engaged in end to end digital content solutions, digital content solutions, development solutions to emerging disruptive content technologies such as augmented reality, virtual reality, etc. Integra has developed its own products namely ‘iRight’, iPMP’ and ‘iAuthor’ for provision of effective content development and management for its users. These products aid in streamlining the project management, photo research, workflow of publishers. Integra also provides products which are powered by Natural Language Processing (NLP) and AI, that enable collaborative content authoring and editing. Accordingly, Integra is not functionally comparable to the assessee’s ITES segment and hence, ought to be excluded from the final set. The assessee wishes to place reliance on the following decisions to support the above arguments:  Emerson Electric Company (India) Private Limited Vs ACIT (ITA No. 6098/Mum/2018 & ITA No. No. 531/Mum/2018 (Mum-Trib.), ITA No. 2323/Mum/2022 Emerson Electric Company (India) Pvt. Ltd. 12  Rage Frameworks India (P) Ltd. vs ACIT (ITA No. No. 674/Pun/2022)(Pun Trib.) 7. For exclusion of Wizard E Marketing Pvt. Ltd. (Wizard), the ld AR of the assessee submits that its mean margin is 13.01%. This company is also functionally different being engaged in diversified services and lack of segmental information. The principal activity of Wizard is provision of Other Telecommunication Activities while Wizard is engaged in diversified services such as provision of telemarketing, business support services and it has also earned some commission income. It is involved in diversified services such as software publishing; supply of ready-made and customized software, business applications, computer games software etc. Wizard is engaged in made to order software based on order specific users. Further as per the website of Wizard, it is involved in provision of the various services like enterprise mobility services, financial accounting, business process outsourcing, managed services, IT solutions and consulting, people solutions and web development. This clearly shows that Wizard’s operations are completely different from the IT related support services provided by the assessee. Notably, the segmental information with respect to various activities of Wizard is not available in the financial statements. The assessee wishes to place reliance on the following decisions:  M/s. Emerson Electric Company (India) Private Limited Vs ACIT (ITA No. 6098/Mum/2018 & ITA No. No. 531/Mum/2018) (Mum-Trib.) 8. For inclusion of Bhilwara Infotechnology Ltd. the ld AR of the assessee submits that mean margin of its Medical Transcription Segment (Bhilwara), is 8.36%. This comparable satisfied the export filter adopted by TPO. For the ITA No. 2323/Mum/2022 Emerson Electric Company (India) Pvt. Ltd. 13 year under consideration, the ld. TPO in his order has applied an export filter while selecting comparable companies and has accepted only those companies which have exports of more than 75% of sales. At the outset, the assessee humbly submits that the ld. TPO has held that Bhilwara has 100% revenue for export of ITES, however, the ld. TPO erroneously excluded Bhilwara from the final set of comparable companies. The assessee humbly submits that for FY 2017-18, Bhilwara has earned 100% of its revenue from its export business, thereby satisfying the filter applied by the ld. TPO i.e., selection of companies having exports of more than 75% of sales. On the basis of aforesaid submission, the ld. AR of the assessee submits that if his submissions are accepted the final set of comparable would be 15 and their OP/TC would be in the following manner: Sr. No. Name of comparable company OP/TC margins (Pursuant to DRP directions) OP/TC (As per the appellant) 1 Access Healthcare Services Pvt. Ltd. 34.68% 34.68% 2 DKM Online Pvt. Ltd. 9.27% 9.27% 3 E Care India Pvt. Ltd. 19.28% 19.28% 4 Sundaram Business Services Ltd. 7.46% 7.46% 5 Surevin BPO Services Ltd. 18.61% 18.61% 6 Tech Mahindra Business Services Ltd. 18.80% 18.80% 7 CES Ltd. – IT Enabled Services 23.69% 23.69% 8 R Systems International Ltd. – Business process outsourcing service 8.85% 8.85% 9 Ultramarine & Pigments Ltd.-IT Enabled Services & BPO activity 35.91% 35.91% 10 Paddle Point BPO Services Pvt. Ltd. 15.79% 17.59% 11 Manipal Digital Systems Pvt. Ltd. (merged) 21.66% - 12 MPS Ltd. 59.91% - 13 Integra Software Services Pvt. Ltd. 12.79% - 14 Wizard E-Marketing Pvt. Ltd. 13.01% - 15. Bhilwara Infotechnology Ltd.-Medical Transcription Seg. - 8.36% Count 14 11 35th percentile 13.01 9.27 Median 18.71 18.61 65th percentile 21.66 19.28% Appellant’s Margin 10.66 10.66 ITA No. 2323/Mum/2022 Emerson Electric Company (India) Pvt. Ltd. 14 9. The ld. AR of assessee finally submits that though the assessee is not pressing for exclusion of any other comparable in final set of comparable. However, it should not be treated as assessee’s acceptance on those comparable companies. 10. On the other hand, ld. CIT DR for the Revenue supported the order of Assessing Officer/TPO. The ld. CIT-DR for the revenue submits that during the hearing before TPO, he has considered the transfer pricing study report (TPSR) furnished by the assessee and on the basis of detailed analysis considering the segmental data included or excluded various set of comparable and suggested upward adjustment on the ITES services rendered by the assessee to its AE. The assessee has not considered the data of FY 2017-18 in its TPSR. Further, the TPO excluded the comparable companies who were engaged in diversify bossiness activities. 11. We have considered the rival submission of both the parties and have gone through the orders of lower authorities carefully. We have also deliberated on various case laws. First we are considering the plea of ld AR of the assessee for exclusion of MPS. On careful perusal of various segmental data, functionality of MPS, we find that this comparable is not comparable with the assessee company. MPS is in diversified business and lack of segmental data. MPS is a leading global provider of platforms and content solutions for the digital world and its India’s only listed pure-play publishing services company, provides platforms and publishing services for global publishing industries. MPS is engaged in end to end print and digital solutions to its customers e.g. content production, enhancement, transformation, delivery ITA No. 2323/Mum/2022 Emerson Electric Company (India) Pvt. Ltd. 15 and customer support making it a trusted partner to the biggest publishers in the world and has successfully positioned itself as a leading product developer for educational, academic and medical publishers and leaning companies. Further, 82% of total turnover of the company is from providing content solutions in the form of production, transformation, customer support and 18% of total turnover from its platform solutions such as Digicore, THINK, and Scholar Star etc. Further, in assessee’s own case for A.Y. 2013- 14 and 2014-15, MPS was excluded. Therefore, the Assessing Officer / TPO is directed to exclude MPS from final set of comparable. Now turning to Manipal. Manipal is also engaged in diversified set of services such as CGI and digital services, packaging pre-press, image retouching, learning and publishing and has undertook pre-media and e-book distribution for its domestic customers. Thus, this comparable is not comparable with the assessee who is engaged in providing IT and related support services. Thus, Assessing Officer/TPO is directed to exclude money power from final set of comparable. For Integra, we find that this company has developed its own products namely iRight, iPMP and iAuthor for provision of development and management of its users. Its products aid in streamlining the project management, photo research, workflow of publishers. It also provides Natural Language Processing (NLP) and Artificially Intelligence (AI) that enable collaborative content authoring and editing. Thus, it is not comparable with the assessee company which is ITES and related support services. Similarly, Wizard is functionally different with the assessee. This company is also in diversified services and segmental information is not available. This ITA No. 2323/Mum/2022 Emerson Electric Company (India) Pvt. Ltd. 16 company is involved in various diversified services as recorded above. The functions of these comparable are completely different from ITES related support services provided by assessee. Thus, this comparable is also not fit for comparison with the assessee. Thus, Assessing Officer/TPO is directed to exclude this comparison. We find that TPO in his order has applied an export filter while selecting comparable companies and has accepted only those companies which have 100% Revenue for export of ITES and enable services. So far as inclusion of Bhilwara is concern, we find that TPO excluded Bhilwara from final set of comparable. We find that once this comparable qualified the filter applied by TPO thus, he was required to retain this comparable. Hence, we direct the AO/TPO to include Bhilwara as in final set of comparable and exclude MPS, Manipal, Integra and Wizard and re- compute adjustment accordingly. In the result, ground No. 5 of the appeal is allowed. 12. Ground no. 6 relates to adjustment on account of provision of facilitation support services/market support services segment. The ld. AR of the assessee submits that assessee is also provided marketing support services in relation to the products of its Associate Enterprises (AEs) for the year under consideration. Assessee’s Operating Profit (OP) / Total Cost (TC) was at 9.9.%. The assessee adopted this as their profit level indicator and benchmarked this transaction by using TNMM method. The assessee selected 15 comparable companies in its Transfer Pricing Study Report (TPSR), which had a mean margin in the range of 7.32% to 9.09%. As the operating margin ITA No. 2323/Mum/2022 Emerson Electric Company (India) Pvt. Ltd. 17 of assessee is 9.90% thus the transaction of assessee in profit market support services was held to be within arm’s length. The TPO rejected 10 comparable, out of 15 comparable and consider only 5 comparable in final set of comparable and calculated arithmetic mean margin of 17.32% and concluded that transaction is not an arm’s length, which resulted in which adjustment of Rs. 75,54,778/-. The dispute resolution panel sustained the final set of 5 comparable and directed to TPO to consider updated adjusted margins submitted by assessee vide submission dated 28.07.2021. On the basis of such direction, the TPO recomputed arm’s length median margin at 19.18% which led to adjustment of Rs. 94,48,951/- in final assessment order. The ld. AR of the assessee submits that he has limited prayer to include two comparable company in final set of company which includes UBM India Private Limited (UBM) and MCI Management India Pvt. Ltd. (MCI). The ld. AR of the assessee submits that UBM satisfied related party transaction filter. For the year under consideration, the ld. TPO in his order has applied a RPT filter while selecting comparable companies and has excluded those companies whose related party transactions are significant. The ld AR of the assessee submits that the ratio of RPT is less than 25% i.e. 15.31%, 9.78% and 12.16% for FY 2015-16 & 2016-17 and FY 2017-18 respectively. Accordingly, UBM ought to be included in the final set of comparable companies as it does not fail RPT filter applied by the ld. TPO. Accordingly, he submits that UBM ought to be included in the final set of comparable companies. 13. For MCI Management India Pvt. Ltd., the ld,. AR submits that MCI was accepted as a functionally comparable company for MSS segment in the ITA No. 2323/Mum/2022 Emerson Electric Company (India) Pvt. Ltd. 18 assessee’s own case in earlier year in AY 2017-18 by the Mumbai Tribunal and for AY 2013-14 and AY 2014-15 by the ld. TPO and the ld. DRP. Accordingly, the ld AR of the assessee submits that MCI ought to be included from the final set of comparable companies. The ld. AR submits that if these two comparables are included, the arm’s length OP/OC of the comparable company will be between 8.10% and 20.03% and operating margin of assessee is 9.90% thus it will fall within the length and no TP adjustment may be warranted. 14. On the other hand, ld. CIT DR for Revenue supports the order of TPO/DRP. 15. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We find that assessee has claimed for inclusion of UBM and MCI in final set of comparable. We find that MCI in assessee’s own case for AY 2017-18, was accepted. However, in AY 2013-14 and 2014-15 this comparable was accepted by TPO and DRP. Thus, TPO/Assessing Officer is directed to MCI. So far as inclusion of UBM is concerned, we find that TPO/AO while selecting comparable applied RPT filter and excluded those companies whose related party transactions were significant. The ratio of RPT of UBM is less than 25% in FY 2015-16, 15.31% in FY 2016-17, 9.7% in 2017-18 thus UBM should have been included in final set of comparable. Thus, we direct the Assessing Officer/TPO to include UBM in final set of comparable and recompute adjustment on account of transaction of marketing support services with its AE. In the result, ground no. 6 of the appeal is allowed. ITA No. 2323/Mum/2022 Emerson Electric Company (India) Pvt. Ltd. 19 16. Ground no. 7 relates to TP adjustment with regard to the provision of engineering and related services segment. The ld. AR of the assessee submits that this ground of appeal is squarely covered in favour of the assessee in assessee’s own case for AY 2013-14 and 2014-15 in ITA No. No. 531 & 6098/Mum/2018 and again in AY 2017-18 in ITA No. 555/Mum/2022 wherein on similar set of fact, the transaction on account of engineering and related services was considered at arm’s length. 17. On the other hand, the ld. CIT DR for the Revenue supported the order of TPO/ DRP. 18. We considered the rival submissions of both the parties and find that in assessee’s own case for A.Y. 2013-14 and 2014-15 which was followed in 2017-18, the co-ordinate bench of Tribunal in assessee’s own case on similar set of fact, we direct the Assessing Officer/TPO to follow the order of Tribunal in A.Y. 2017-18 and recompute the adjustment accordingly. In the result, ground no. 7 is allowed. 19. Ground no. 8 relates to TP adjustment in respect of manufacturing segment. The ld. AR of the assessee submits that the assessee has a manufacturing division in Nasik namely Emerson Engineering Export Centre (EEEC-Nasik), which is a 100% export oriented unit, registered with STPI, set up in 2016 and is engaged in manufacturing of electronic cabinets, panels including system cabinets, marshalling cabinets and power distribution panels, components and parts of electronics cabinets, panels. The manufacturing segment had incurred losses and capital expenditure for setting up the factory and installation of the production lines in its start-up phase i.e. during ITA No. 2323/Mum/2022 Emerson Electric Company (India) Pvt. Ltd. 20 FY 2017-18 which is also the first year of full-fledged operations. Due to the initial year, the capacity utilisation achieved by the assessee was only 30%. The assessee benchmarked the manufacturing segment by adopting Transactional Net Margin Method as the most appropriate method and after conducting certain economic adjustments as per Rule 10B(1)(e) of the Income Tax Rules, 1962, it was contended that the transaction is at arm’s length. The ld. AR of the assessee submits that TPO rejected the economic adjustments carried out by the assessee and proposed adjustment of Rs. 4.92 crore. The adjustment suggested by TPO was sustained by DRP. Accordingly, the Assessing Officer added in final assessment order. Before TPO as well as DRP, the assessee explained the detail reasons for losses. The manufacturing segment incurred losses and huge capital expenditure for setting up the factory and installation of the production lines in its start up phase i.e. during FY 2017-18 and any capital intensive manufacturer would recover such cost over a period of time. It is not feasible to expect that the assessee would make profits from the date of incorporation of the new unit. During the year, the capacity of manufacturing facility was utilised only upto 30%. This means that fixed cost incurred in setting up the infrastructure/operations was not adequately offset by corresponding sales Revenue. The under utilization of capacity is a direct consequence of the aforesaid start up challenges and should be taken into account when assessing the financial performance. The sale volume was not expected considering the initial setting up phase. The assessee has expansion plan which is supported by projections provided by the assessee in its transfer ITA No. 2323/Mum/2022 Emerson Electric Company (India) Pvt. Ltd. 21 pricing study report. The ld. AR of the assessee submits that difference in working capital between the assessee and comparable company ought to be adjusted for appropriate and comparability analysis. To support his contention, the ld. AR relied on the decision of Tribunal in assessee’s own case wherein allowed working capital adjustment across various segments of assessee. The ld. AR submits that suitable adjustment on account of capacity utilization and to be made as per Rule 10B(1)(e) to eliminate material difference on account of capacity utilisation. To support his contention, the ld. AR of the assessee relied upon the decision of Tribunal in Ariston Thermo India Ltd. Vs DCIT (2013) 36 taxmann.com 501 (Pune-trib.) and in DCIT Vs Kyocera CTC Precision Tools Pvt Ltd (ITA No. 233/Kol/2022. In without prejudice submissions, the ld AR of the assessee submits that For depreciation adjustment, the ld. AR of the assessee submits that assessee incurred huge capital expenditure which has resulted in higher depreciation cost in compassion to the comparable companies were established companies. The assessee’s cost of depreciation is 10.60% of the total cost whereas depreciation as a percentage of total cost of comparable companies is 1.90%. The ld. AR of the assessee prayed for allowing depreciation adjustment. In other alternative submissions, the ld. AR of the assessee submits that depreciation cost of assessee for its manufacturing segment is 10.60% in comparison with depreciation and cost of comparable companies at 1.90%. In order to make an appropriate comparison and eliminate material differences it would be prudent to eliminate depreciation cost and cash profit ITA No. 2323/Mum/2022 Emerson Electric Company (India) Pvt. Ltd. 22 margin of assessee and that of comparable companies used of cash profit level indicator for benchmarking transaction under dispute. The use of cash PLI would eliminate the impact of differences in respect of technology, age of assets used in production, capacity utilisation and depreciation expenses and its policies on profitability of the comparable companies and assessee to support such submission, the ld. AR relied upon the following case laws:  CIT Vs Reuters India (P) Ltd. (2016) 69 taxmann.com 187 (Bombay)  Schefenacker Motherson Ltd. Vs ITO 123 TTJ 509 (Del. Trib)  DCIT Vs Epcos Ferrites Ltd. (ITA No. 1597/Kol/2017) (Kol. Trib.) 20. On the other hand, the CIT DR for the Revenue supported the order of lower authorities. 21. We have considered the rival submissions of both the parties and gone through the orders of lower authorities carefully. We find that there is no dispute that the assessee has set up unit in Nasik namely Emerson Engineering Export Centre (EEEC-Nasik), being 100% export oriented unit, newly set up unit is engaged in manufacturing of electronic cabinets, panels including system cabinets, marshalling cabinets and power distribution panels, components and parts of electronics cabinets, panels. The TPO/AO has not disputed that manufacturing segment had incurred losses and capital expenditure for setting up the factory and installation of the production lines in its start-up phase. It is also not disputed that the capacity utilisation achieved by the assessee was only 30%. The assessee benchmarked the manufacturing segment by adopting TNMM as the most appropriate method. The assessee claimed that they have made certain economic adjustments as per Rule 10B(1)(e) and claimed that the transaction is at arm’s length. TPO ITA No. 2323/Mum/2022 Emerson Electric Company (India) Pvt. Ltd. 23 rejected the economic adjustments carried out by the assessee. We find that in AY 2013-14 & 2014-15 certain working capital adjustment was allowed by Tribunal in para 6.15 of order dated 14.06.2019 in ITA No. 6098/Mum/2018 & ITA No. 531/Mum/2018. We further find that Pune tribunal in Ariston Thermo India Ltd. Vs DCIT (supra) also held that in term of sub-clause(i) of Rule 10B(1)(e), net profit margin of tested party (assessee) drawn from its financial accounts can be suitably adjusted to facilitate its comparison with the uncontrolled entities/ transactions. Thus, we accept the submissions of ld AR of the assessee and restore the matter back to the file of TPO/AO to allow appropriate adjustment in the operating margin of the assessee for low capacity of utilisation of assessee being initial year of operation. The TPO/ AO shall allow reasonable opportunity to the assessee. The assessee is also directed to provide relevant evidence on his stand to the TPO/ AO. In the result this ground of appeal is allowed for statistical purpose. 22. Ground no. 9 relates to disallowance of expenses under section 14A of Rs. 20,06,601/-. The ld. AR of the assessee submits that during the year under consideration, the assessee has not earned any exempt income and hence no disallowance under section 14A ought to be made. The ld. AR of the assessee also invited our attention on computation of total income which is available at page no. 233 of volume I of paper book. The ld. AR submits that recently in Emerson Electrical Company (India) Ltd. Vs ACIT in ITA No. 555/Mum/2022 and Delhi High Court in PCIT Vs Era Infrastructure (India) Ltd. in ITA No. 204/2022, it was also held that when there is no exempt ITA No. 2323/Mum/2022 Emerson Electric Company (India) Pvt. Ltd. 24 income earned during the year. No disallowance under section 14A is warranted. 23. On the other hand, the ld. CIT DR supported the order of lower authorities. 24. We have considered the submissions of both the parties. Considering the fact that during the year assessee has not earned any exempt income, therefore, no disallowance under section 14A to be made as has been held in a series of decision by various High Courts including in PCIT vs Era Infrastructure (India) Ltd. (Supra). In the result, this ground of appeal is allowed. 25. Ground no. 10 relates to addition under section 36(1)(va) of Rs. 8,47,074/-. The ld. AR of the assessee fairly submits that this ground of appeal is covered against the assessee by the decision of Hon’ble Supreme Court in the case of Checkmate Services P. Ltd. Vs CIT in Civil Appeal No. 2833/2016 (SC). Considering the fairness of assessee and the decision of Hon’ble Apex Ccourt in Checkmate Services P. Ltd. (Supra). This ground of appeal of assessee is dismissed. 26. Ground no. 11 relates to addition under section 40(a)(i) of Rs. 4.24 crore. The ld. AR of the assessee submits that during F.Y. 2016-17, the assessee had appointed Mr. Giovanni Zullo on its payroll. He was designated as President of the company. His employment continued during the year under consideration. He was having ‘Employment Visa’ to visit in India. Visa was obtained for primary condition of employment in India. The immigration department registered him with the Foreigners Regional Office (FRRO), implying he is under employment in India. The assessee company has paid his salary in his bank account outside India and deducted tax under section ITA No. 2323/Mum/2022 Emerson Electric Company (India) Pvt. Ltd. 25 192 of the Act. Deduction of tax is supported by Form 16 and Form No. 12BA. As per Form 16, the gross salary paid to Mr. Zullo is Rs. 4.57 crore against which the assessee deducted tax at source (TDS) of Rs. 1.60 crore under section 192 of the Act as per applicable slab rates. The average rate of tax at which TDS is deducted by assessee comes to 35.05%. The assessing officer made disallowance under section 40(a)(i) by erroneously holding that assessee was required to deduct tax under section 195 for the impugned payments as in the nature of fees for technical services. The assessing officer arrived on his conclusion by taking view that Mr. Zullo was providing services in the nature of fee for technical services (FTS) on behalf of Emerson Group hence, the payments to overseas entities. Accordingly, the assessing officer made disallowance of Rs. 4.24 crore (which is actual payments to him) under section 40(a)(i) for non-deduction of tax under section 195. The ld. AR of the assessee submits that provisions of section 40(a)(i) have no application in the present case, since tax has been duly deducted and paid by the assessee, hence no disallowance was to be made on this ground itself. Disallowance as per section 40(a)(i) is warranted in cases where assessee fails to deduct tax under Chapter XVII-B of the Act. However, in the present case, the assessee duly deducted tax at source under Chapter XVII-B as per section 192 and deposited with the with the treasury of Government. The ld. AR of the assessee by inviting our attention on section 40, stress that disallowance under this section can only be made if the tax is not deducted as per Chapter XVII-B. The assessing officer exceeded his jurisdiction and changed the characterisation of the payments to Mr. Zullo by erroneously ITA No. 2323/Mum/2022 Emerson Electric Company (India) Pvt. Ltd. 26 alleging that there exists no employer relationship between Mr. Zullo and assessee and that he was providing services in the nature of fees for technical services on behalf of the assessee group. It is settled position in law that in absence of any material or evidence, the assessing officer cannot said on the chair of assessee. The assessing officer has not brought any material on record to show that conduct of assessee is contrary to the submission made. Action of assessing officer is in contravention of law and hence disallowance made by him is unwarranted and liable to be deleted. 27. On the other hand, ld. CIT DR for the Revenue supported the order of lower authorities. The ld. CIT DR for the revenue submits that TDS applicable for payment made to such employee was at higher rate. 28. We have considered the rival submissions of both the parties and have gone through the lower authorities. We find that assessing officer made addition under section 40(a)(i) by taking view that section 190 & 195 have separate and independent expenses and operation. Wrong deduction of tax under one section does not obviate the need to deduct correct and appropriate section. The assessee made payment by way of salary to Mr. Zullo is treated as for technical services and disallowed under section 40(a)(i) r.w.s. 195. The DRP in its direction held that Mr. Zullo was working at senior level and is an important employee of holding company. The assessing officer has noted he was not permanent employee of assessee. The assessee company has not right to terminate his employment from assessee group. It was held that DRP is of the view that he was managing the business of Indian subsidiary at the behest hence the consideration paid by the assessee for getting the services ITA No. 2323/Mum/2022 Emerson Electric Company (India) Pvt. Ltd. 27 should be fees for technical services paid to Emerson Group best overseas. Payment made directly to him are in fact FTS/FIS which in normal course should have been paid to overseas entity of Emerson Group taxable under section 9(1)(vii) and attract provisions of section 195. It was also held that employment visa cannot be considered as authentic information for concluding that he is a permanent employee. The assessee has not provided any documentary evidence to satisfactorily prove that he was a permanent employee of Assessee Company. On the basis of such additional observation, the DRP rejected the objection of assessee. Consequently, the assessing officer made addition in term of direction of DRP in final assessment order. We find that assessing officer as well as DRP has not disputed that assessee made deduction of tax under section 192. The ratio of deduction of tax under section 192 is higher than the deduction under section 195. The assessee has paid salary to said employee directly in his bank account. Form 16 was issued to him. The assessing officer or DRP has not brought any adverse material on record to show that during the employment, he has rendered his services which can be classified as technical services. No supporting or adverse material brought on record. The Assessing Officer and DRP made general observation. Further, salary payment made outside India is not covered by the provisions of section 40(a)(i) and is covered by the provisions of section 40(a)(iii). Thus, the disallowance under section 40(a)(i) r.w.s. 195 is not justified. Further, there is no violation of Chapter XVII-B. Rather, the assessee has deducted from tax under section 195 at higher rate. In the result, this ground of appeal is allowed. ITA No. 2323/Mum/2022 Emerson Electric Company (India) Pvt. Ltd. 28 29. Ground no. 12 relates to interest under section 234B. This ground of appeal is consequential and need no adjudication. 30. Ground no. 13 relates to interest under section 234C. The ld AR of the assessee submits that interest under section 234C and to be computed on the return income and not on the assessee’s income. So it should be restricted to Rs. 2,61,449/- as computed on the return income. This issue is also covered in favour of the assessee in assessee’s own case for A.Y. 2017- 18 in ITA No. No. 555/M/2022. 31. On the other hand, ld. DR for the Revenue submits that Assessing Officer may be accordingly. 32. We have considered the rival submissions of both the parties and find that interest under section 234C is to be computed on returned income. Therefore, assessing officer is directed accordingly. The assessing officer is directed to recompute the interest under section 234C as per direction of Tribunal in assessee’s own case for AY 2017-18 in ITA No. No. 555/M/2022. In the result this ground of appeal is allowed. 33. In the result, the appeal of assessee is partly allowed. Order pronounced in the open Court on 28/05/2025. S Sd/- S/- GIRISH AGRAWAL ACCOUNTANT MEMBER - S/- Sd/- PAWAN SINGH JUDICIAL MEMBER MUMBAI, Dated: 28/05/2025 Biswajit ITA No. 2323/Mum/2022 Emerson Electric Company (India) Pvt. Ltd. 29 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. By Order Assistant Registrar ITAT, Mumbai "