Tata Technologies Limited, Pune V. Deputy Commissioner of Income-tax, Circle - 7, Pune

ITA 168/PUN/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 6316 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 17-01-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NANDITA KANCHAN
• Keywords: Business income; Transfer pricing; International transaction; Rule of consistency; Earning of tax free income; Additional evidence; Initiation of penalty proceedings; Revenue expenditure; Rule 8D
• Section: 271(1)(c); 92C; 143(3); 10AA; 234B; 14A; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO S . 168 & 1708 /P U N/20 1 8 / ASSESSMENT YEAR S : 2013 - 14 & 20 1 4 - 1 5 TATA TECHNOLOGIES LIMITED, PLOT NO.25, RAJIV GANDHI INFOTECH PARK, HINJEWADI, PUNE 4110 57 . / APPELLANT PAN: AA ACT3092N VS. THE ASST . COMMISSIONE R OF INCOME TAX , CIRCLE 7 , PUNE . / RESPONDENT ASSESSEE BY : S HRI DHANESH BAFNA REVENUE BY : MS NANDITA KANCHAN / DATE OF HEARING : 13 . 0 2 . 201 9 / DATE OF PRONOUNCEMENT: 03 . 0 5 .201 9 / ORDER PER SUSHMA CHOWLA, J M : BOTH T HE APPEAL S FILED BY ASSESSEE ARE AGAINST SEPARATE ORDER S OF D CIT , CIRCLE - 7 , PUNE , DATED 17.11.2017 AND 26.09.2018 RELATING TO ASSESSMENT YEAR S 2013 - 14 AND 20 1 4 - 1 5 PASSED UNDER SECTION 143(3) R.W.S. 144C(1 3 ) OF THE INC OME - TAX ACT , 1961 (IN SHORT THE ACT) . 2. BOTH THE APPEALS OF SAME ASSESSEE ON SIMILAR ISSUE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 168/PUN/2018 ITA NO. 1708 /P U N/20 1 8 M/S. TATA TECHNOLOGIES LTD. 2 3. FIRST, WE SHALL TAKE UP THE APPEAL IN ITA NO.168/PUN/20 18, RELATING TO ASSESSMENT YEAR 2013 - 14, WHEREIN THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - THE GROUNDS STATED HEREUNDER ARE INDEPENDENT OF, AND WITHOUT PREJUDICE TO ONE ANOTHER: TRANSFER PRICING GROUNDS GROUND NO.1 1 . ON THE FACTS AND IN TH E CIRCUMSTANCES OF THE CASE, AND IN LAW, THE HONORABLE DISPUTE RESOLUTION PANEL ('HON'BLE DRP'), AND THE LEARNED ASSESSING OFFICER ('LD. AO') PURSUANT TO THE DIRECTIONS OF THE HON'BLE DRP, ERRED IN MAKING A TP ADJUSTMENT OF RS.4,65,17,750 TO THE INCOME OF THE APPELLANT BY HOLDING THAT THE APPELLANT'S INTERNATIONAL TRANSACTION PERTAINING TO PAYMENT OF COMMISSION DOES NOT SATISFY THE ARM'S LENGTH PRINCIPLE ENVISAGED UNDER THE INCOME - TAX ACT, 1961 ('THE ACT'). THE APPELLANT PRAYS THAT THE ADDITION PERTAINING TO PAYMENT FOR COMMISSION OUGHT TO BE DELETED. GROUND NO.2 2 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE HON'BLE DRP / LD. AO, ERRED IN REJECTING THE ECONOMIC ANALYSIS CONDUCTED BY THE APPELLANT FOR DEMONSTRATING THE ARM'S LENGTH NAT URE OF THE COMMISSION PAID TO ASSOCIATED ENTERPRISES ('AES'). THE APPELLANT PRAYS THAT THE ECONOMIC ANALYSIS CONDUCTED BY THE APPELLANT OUGHT TO BE UPHELD. GROUND NO.3 3 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, T H E HON'BLE DRP / LD. AO, ERRED IN RE - COMPUTING THE ARM'S LENGTH PRICE ('ALP') OF THE APPELLANT'S INTERNATIONAL TRANSACTION PERTAINING TO PAYMENT OF COMMISSION TO AE AT 'NIL'. THE APPELLANT PRAYS THAT THE SAID RE - COMPUTATION OUGHT TO BE DELETED. GROUND NO.4 4 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE HON'BLE DRP / LD. AO, ERRED IN CONTRAVENING THE PRINCIPLE OF CONSISTENCY IN CONNECTION WITH DETERMINING THE ALP OF THE APPELLANT'S INTERNATIONAL TRANSACTION PERTAINING TO PAYMENT OF COMMISSION TO AE. THE A PPELLANT PRAYS THAT THE PRINCIPLE OF CONSISTENCY BE UPHELD AND THE ADJUSTMENT MADE BY THE HON'BLE DRP / LD, AO OUGHT TO BE DELETED. 168/PUN/2018 ITA NO. 1708 /P U N/20 1 8 M/S. TATA TECHNOLOGIES LTD. 3 GROUND NO.5 5 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE HON'BLE DRP / LD. AO, ERRED IN REJECTING THE COMPARABLE UNCONTROLLED DATA SUBMITTED BY THE APPELLANT TO DEMONSTRATE THE ALP OF INTERNATIONAL TRANSACTION PERTAINING TO PAYMENT OF COMMISSION TO AE. THE APPELLANT PRAYS THAT THE COMPARABLE DATA SUBMITTED BY THE APPELLANT OUGHT TO BE ACCEPTED AND CON SEQUENTLY THE TRANSFER PRICING ADJUSTMENT MADE BE DELETED. CORPORATE TAX GROUNDS GROUND NO.6 6 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE HON'BLE DRP / LD. AO, HAS ERRED IN DISALLOWING THE CLAIM OF THE APPELLANT IN RESPECT OF AMORT IZATION OF PREMIUM ON LEASEHOLD LAND AMOUNTING TO RS . 4,30,886. THE APPELLANT PRAYS THAT THE ADDITION PERTAINING TO AMORTIZATION OF PREMIUM ON LEASEHOLD LAND OUGHT TO BE DELETED AND SHOULD BE ALLOWED AS REVENUE EXPENDITURE. GROUND NO.7 7 . ON THE FACTS AND I N THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE HON'BLE DRP/LD. AO, HAS ERRED IN DISALLOWING THE PROVISION FOR EXPENDITURE OF RS.21,70,000 IN RESPECT OF PROVISION UNDER BHAVISHYA KALYAN YOJANA ('BKY'), AN EMPLOYEE WELFARE SCHEME. THE APPELLANT PRAYS THAT DEDUCTION IN RESPECT OF THE PROVISION MADE FOR BKY EXPENSES SHOULD BE ALLOWED AS AN ASCERTAINED LIABILITY. GROUND NO.8 8 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE HON'BLE DRP/ LD.AO, HAS ERRED IN INVOKING RULE 8D OF THE INCOME - TAX RULES,1962 AND THEREBY DISALLOWING EXPENSES AMOUNTING TO RS.1,55,69,154 UNDER SECTION 14A BY APPLYING RULE 8D OF THE ACT. THE APPELLANT PRAYS THAT ADDITION MADE UNDER SECTION 14A OF THE ACT BY APPLYING RULE 8D SHOULD BE DELETED AS THE APPELLANT HAS SUO - M OTO DISALLOWED EXPENSES OF RS . 39,32,077 DIRECTLY ATTRIBUTABLE TO THE EXEMPT INCOME. GROUND NO.9 9 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE DRP/ LD. AO HAS ERRED IN NOT GRANTING ENHANCED DEDUCTION UNDER SECTION 10A OF THE AC T BASED ON THE DISALLOWANCES MADE IN THE ASSESSMENT ORDER. THE ASSESSEE PRAYS THAT ENHANCED DEDUCTION UNDER SECTION 10A OF THE ACT ON THE DISALLOWANCES MADE BY THE LD. AO SHOULD BE GRANTED TO THE APPELLANT. 168/PUN/2018 ITA NO. 1708 /P U N/20 1 8 M/S. TATA TECHNOLOGIES LTD. 4 COMMON GROUNDS GROUND NO.10 10 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HAS ERRED IN CHARGING INTEREST UNDER SECTION 234B OF THE ACT. THE APPELLANT PRAYS THAT THE CHARGE OF INTEREST UNDER SECTION 234B OF THE ACT SHOULD NOT DELETED. GROUND NO.11 11 . ON THE FACTS AND T HE CIRCUMSTANCES OF THE CASE, THE LD. AO HAS ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. THE APPELLANT PRAYS THAT THE PENALTY PROCEEDINGS OUGHT TO BE DROPPED. 4. THE GROUND OF APPEAL NOS.1 TO 5 RAISED BY ASSESSEE ARE AGAIN ST TRANSFER PRICING ADJUSTMENT MADE ON ACCOUNT OF PAYMENT OF COMMISSION. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ISSUE IS SQUARELY COVERED BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2012 - 13. 5. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE W AS ENGAGED IN PROVIDING SERVICES OF CAD/CAM ENGINEERING AND DESIGN CONSULTANCY, SAP IMPLEMENTATION AND MAINTENANCE, IT CONSULTANCY AND PROVIDING NETWORKING SOLUTIONS. THE TRANSFER PRICING OFFICER (TPO) NOTE D THAT THE ASSESSEE WAS RESPONDING TO ITS CUSTOMERS NEEDS THROUGH ITS SUBSIDIARY IN THREE CONTINENTS AND THROUGH ITS OFFSHORE DEVELOPMENT CENTRE IN INDIA. THE ASSESSEES CUSTOMERS WERE WORLD PREMIUM AUTOMOTIVE AEROSPACE AND CONSUMER DURABLE MANUFACTURERS. THE ASSESSEE HA D ENTERED INTO VARIOUS INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATE ENTERPRISES INCLUDING PAYMENT OF COMMISSION TO ITS ASSOCIATE ENTERPRISES. THE TPO NOTES T HE NATURE OF PAYMENTS ON COMMISSION OF 4.65 CRORES TO ASSOCIATE ENTERPRISE TATA TECHNOLOGIES PTE. LTD. (IN SHORT TTPL). THE CASE OF ASSESSEE WAS THAT IT WAS PAYING SAID 168/PUN/2018 ITA NO. 1708 /P U N/20 1 8 M/S. TATA TECHNOLOGIES LTD. 5 COMMISSION FOR THE PRECEDING YEARS ALSO. THE TPO ALSO NOTES THAT THE COMMISSION P AID TO TTPL WAS PRIMARILY IN RESPECT OF SOFTWARE LICENSE PROCURED FROM DASSAULT. THE ASSESSEE HAD ENTERED INTO COMMISSION AGREEMENT WITH TTPL. HOWEVER, THE TPO NOTES THAT THE ASSESSEE WAS PROCURING DASS AULT TRADEMARK LICENSE FROM IBM, EVEN BEFORE ENTERIN G INTO SUCH AN AGREEMENT FOR PAYMENT OF COMMISSION. THE ASSESSEE WAS THUS, ASKED TO JUSTIFY AND SUBSTANTIATE WITH DOCUMENTARY EVIDENCE THE SERVICES RENDERED BY TTPL. THE ASSESSEE FURNISHED COMPLETE REPLY, WHICH IS REPRODUCED BY THE TPO AND PLEADED THAT T TPL HAD CHARGED COMMISSION TO THIRD PARTIES @ 15% ON SALES FOR MARKETING SUPPORT SERVICES. HOWEVER, TTPL HAD CHARGED THE ASSESSEE COMMISSION @ 6% ON SALES FOR SIMILAR SERVICES. THE CONTENTION OF ASSESSEE WAS THAT SINCE THE RATE CHARGED TO ASSESSEE WAS LO WER THAN RATE CHARGED TO THIRD PARTY, THE TRANSACTION SHOULD BE CONSIDERED AT ARM'S LENGTH. THE ASSESSEE ALSO SUBMITTED DOCUMENTS EVIDENCING SERVICES RENDERED BY TTPL. THE TPO DID NOT ACCEPT THE EXPLANATION OF ASSESSEE AND EVEN QUESTIONED THE RECEIPT OF SERVICES AND COMPUTED THE ARM'S LENGTH PRICE OF SAID TRANSACTION AT NIL. THE ASSESSING OFFICER ISSUED DRAFT ASSESSMENT ORDER, AGAINST WHICH THE ASSESSEE FILED OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL (DRP), WHICH WERE DISMISSED. THE ASSESSING OFFIC ER THUS, IN THE FINAL ASSESSMENT ORDER MADE AN UPWARD ADJUSTMENT OF 4.65 CRORES. 6. WE FIND THAT SIMILAR ISSUE OF PAYMENT OF COMMISSION @ 6% ON ITS SALES AROSE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.723/PUN/2017, RELATING TO ASSESSMENT YEAR 2 012 - 13. THE TRIBUNAL VIDE ORDER DATED 01.02.2019 HAS NOTED THE RENDERING OF SERVICES BY TTPL AND HAS HELD THAT COMMISSION AGREEMENT DATED 01.12.2007 EXISTED BETWEEN THE ASSESSEE AND TTPL AND AS PER CLAUSES OF THE SAID AGREEMENT, IT WAS CLEAR THAT TTPL WAS 168/PUN/2018 ITA NO. 1708 /P U N/20 1 8 M/S. TATA TECHNOLOGIES LTD. 6 FACILITATING PURCHASES IN RESPECT OF ASSESSEE FROM DASSAULT, UK. FURTHER, IT WAS RESPONSIBILITY OF TTPL TO UNDERTAKE MARKETING EFFORTS TO TELEMARKETING AND INBOUND ENQUIRIES THROUGH ITS DEDICATED SUPPORT. THE ASSESSEE HAD FURTHER FURNISHED EVIDENCES DEM ONSTRATING THAT THE PURCHASE OF SOFTWARE LICENSE WAS DONE BY THE ASSESSEE FROM DASSAULT, UK AND TTPL WAS FACILITATING THE ENTIRE PROCESS IN ENSURING SMOOTHING SELLING OF TRANSACTIONS. IN VIEW OF TANGIBLE EVIDENCE FILED BY ASSESSEE, THE TRIBUNAL HELD THAT PAYMENT OF COMMISSION WAS JUSTIFIED. FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT NO UPWARD ADJUSTMENT MERITS TO BE MADE IN THE HANDS OF ASSESSEE, WHERE THE COMMISSION RATE OF 6% HAS BEEN FOUND BY THE TRIBUNAL TO BE APPROPRIATE AND THE LEARNED DEP ARTMENTAL REPRESENTATIVE FOR THE REVENUE HAS FAILED TO BRING ON RECORD ANY EVIDENCE TO THE CONTRARY. APPLYING THE SAID PARITY OF REASONING TO THE FACTS OF PRESENT CASE, WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION MADE ON ACCOUNT OF ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE. 7. NOW, COMING TO THE NEXT ISSUE WHICH IS RAISED VIDE GROUND OF APPEAL NO.6 I.E. DISALLOWANCE OF AMORTIZATION OF PREMIUM PAID ON LEASEHOLD LAND. 8. THE LEARNED AUTHORIZED REPRESENTATIVE F OR THE ASSESSEE POINTED OUT THAT THE SAID ISSUE STANDS COVERED BY THE ORDER OF TRIBUNAL IN ASSESSMENT YEARS 2001 - 02 AND 2003 - 04, WHICH HAS BEEN APPLIED IN ASSESSMENT YEAR 2012 - 13. THE SAID ISSUE RAISED OF DISALLOWANCE OF AMORTIZATION OF PREMIUM PAID ON LE ASEHOLD HAS BEEN DECIDED BY THE TRIBUNAL WITH LEAD ORDER IN ITA NO.1345/PN/2011, RELATING TO ASSESSMENT YEAR 2001 - 02 VIDE PARAS 43 TO 46 AT PAGES 14 AND 15 OF THE SAID ORDER AND FOLLOWING THE SAME PARITY OF REASONING, 168/PUN/2018 ITA NO. 1708 /P U N/20 1 8 M/S. TATA TECHNOLOGIES LTD. 7 WE HOLD THAT THE SAID EXPENDITURE IS N OT ALLOWABLE IN THE HANDS OF ASSESSEE. HENCE, GROUND OF APPEAL NO.6 RAISED BY ASSESSEE IS DISMISSED. 9. SIMILARLY, THE NEXT ISSUE RAISED VIDE GROUND OF APPEAL NO.7 OF DISALLOWANCE OF PROVISION MADE FOR EXPENDITURE IN RESPECT OF BHAVISHYA KALYAN YOJANA HA S ALSO BEEN DECIDED BY THE TRIBUNAL IN ITA NO.1346/PN/2011, RELATING TO ASSESSMENT YEAR 2003 - 04, VIDE PARAS 70 TO 87 AT PAGES 24 TO 34 OF THE SAID ORDER. THE SAID ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE. FOLLOWING THE SAME PARITY OF REASONING, WE FIN D NO MERIT IN THE GROUND OF APPEAL NO.7 RAISED BY THE ASSESSEE AND THE SAME IS DISMISSED. 10. NOW, COMING TO THE NEXT ISSUE I.E. DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 (IN SHORT THE RULES). 11. TH E LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD REFERRED TO THE ORDER OF ASSESSING OFFICER AT PAGE 5 AND POINTED OUT THAT THE ASSESSING OFFICER HAS FAILED TO RECORD ANY SATISFACTION BEFORE INVOKING PROVISIONS OF SECTION 14A OF THE ACT. IN THIS REGARD, RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE SUPREME COURT IN GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. DCIT (2017) 394 ITR 449 (SC) AND H.T. MEDIA LTD. VS. PR.CIT IN ITA NOS.548 & 549/2015, JUDGMENT DATED 23.08.2017. HE REFERRE D TO PARAS 39 AND 52 OF THE SAID DECISION. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE ON WITHOUT PREJUDICE BASIS ALSO POINTED OUT THAT SINCE OWN FUNDS WERE MORE THAN INVESTMENTS MADE, THEN THERE WAS NO MERIT IN MAKING ANY DISALLOWANCE UNDER RU LE 8D(2)(II) OF THE RULES. IN RESPECT OF APPLICATION OF RULE 8D(2)(III) OF THE RULES, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE 168/PUN/2018 ITA NO. 1708 /P U N/20 1 8 M/S. TATA TECHNOLOGIES LTD. 8 ASSESSEE POINTED OUT THAT ONLY 0.5% OF INVESTMENTS NEED TO BE DISALLOWED I.E. ONLY THOSE INVESTMENTS WHICH HAVE YIELDED DIV IDEND. 12. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE IN THIS REGARD POINTED OUT THAT AS FAR AS RECORDING OF SATISFACTION BY THE ASSESSING OFFICER IS CONCERNED, THERE IS NO PROPER FORMAT PROVIDED AND FACTS OF EACH CASE NEED TO BE SEEN. OUR A TTENTION WAS DRAWN TO PARA 4.4 AT PAGE 5 OF THE DRAFT ASSESSMENT ORDER. 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSING OFFICER WHILE PASSING DRAFT ASSESSMENT ORDER NOTES THAT THE ASSESSEE HAD SHOWN DIVIDEND INCOME OF 14,3 4,29,601/ - AND ALSO 16,81,61,491/ - ON ACCOUNT OF CLAIM OF EXEMPTION OF 10AA OF THE ACT. THE ASSESSING OFFICER FURTHER NOTES THE ASSESSEE TO HAVE CLAIMED INTEREST EXPENDITURE OF 1.61 CRORES AND HE FURTHER NOTED THAT THE ASSESSEES AVERAGE INVESTMENTS IN EXEMPT EARNING INSTRUMENTS WERE 230 CRORES. THE ASSESSING OFFICER FURTHER NOTES THE ASSESSEE TO HAVE DISALLOWED ONLY 39,32,077/ - UNDER SECTION 14A OF THE ACT. THE ASSESSING OFFICER THUS, RECORDED SATISFACTION THAT LOOKING AT THE FINANCIALS OF THE ASSESSEE, THE DISALLOWANCE U/S 14A MADE BY THE ASSESSEE SUO - MOTO IS INADEQUATE. THEREFORE, VIDE ORDER SHEET ENTRY, SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE WHY THE DISALLOWANCE OF INTEREST EXPENSES RELATABLE TO EXEMPT INVESTMENT SHOULD NOT BE MADE U/ S 14A READ WITH RULE 8D . IN REPLY, THE ASSESSEE EXPLAINED ITS CASE. HOWEVER, THE SAME WERE FOUND TO BE NOT ACCEPTABLE. THE SUBMISSION OF ASSESSEE WAS THAT IT HAD HUGE INTEREST FUNDS FOR INVESTMENTS AND IT ALSO EARNED INTEREST, SO NO DISALLOWANCE WAS WAR RANTED. THE ASSESSING OFFICER NOTES THAT IT WAS UNDENIABLE THAT THE ASSESSEE HAD 168/PUN/2018 ITA NO. 1708 /P U N/20 1 8 M/S. TATA TECHNOLOGIES LTD. 9 CLAIM ED INTEREST COST ON BORROWED FUNDS AND THE DISALLOWANCE MADE BY IT DID NOT COMMENSURATE WITH THE EXEMPT INCOME EARNED BY THE ASSESSEE. THUS, HE HELD THAT PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES WERE CLEARLY ATTRACTED AND MADE DISALLO WANCE OF 1,95,01,231/ - . SINCE THE ASSESSEE HAD ALREADY DISALLOWED SUM OF 39,32,077/ - , THE ASSESSING OFFICER MADE BALANCE DISALLOWANCE AT 1,55,69,154/ - . 14. THE ASSESSEE IS IN APPEAL AGAINST AFORESAID DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES. 15. THE PERUSAL OF DRAFT ASSESSMENT ORDER CLEARLY REFLECTS THAT SATISFACTION WAS DULY RECORDED BY THE ASSESSING OFFICER, WHEREIN HE NOTED NOT ONLY THE INVESTMENTS MADE BY ASSESSEE BUT ALSO NOTED THE INTEREST EXPENDITURE IN CURRED BY ASSESSEE AND ALSO SUO - MOTU DISALLOWANCE MADE BY ASSESSEE UNDER SECTION 14A OF THE ACT. THE ASSESSING OFFICER AFTER CONSIDERING ALL THESE ASPECTS OF INVESTMENTS MADE BY ASSESSEE AND TAX FREE INCOME EARNED BY ASSESSEE FROM DIVIDENDS AND UNDER SECT ION 10AA OF THE ACT HAD COME TO A FINDING THAT SUO - MOTU DISALLOWANCE MADE BY ASSESSEE WAS NOT APPROPRIATE AND HENCE, ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE. IN SUCH SCENARIO, WHERE PROPER SATISFACTION HAS BEEN RECORDED BY THE ASSESSING OFFICER, WE FIND NO MERIT IN THE PLEA OF ASSESSEE IN THIS REGARD. 16. NOW, COMING TO EXPLANATION OF ASSESSEE VIS - A - VIS THE DISALLOWANCE BEING NOT WARRANTED IN THE HANDS OF ASSESSEE, WHICH WAS ON WITHOUT PREJUDICE BASIS. THE FIRST PLEA OF ASSESSEE IS THAT IT HAD OWN FUNDS WHICH WERE MORE THAN ITS INVESTMENTS AND HENCE, NO DISALLOWANCE UNDER RULE 8D(2)(II) OF THE RULES. THIS ARGUMENT OF ASSESSEE NEEDS VERIFICATION AT THE END OF ASSESSING OFFICER. 168/PUN/2018 ITA NO. 1708 /P U N/20 1 8 M/S. TATA TECHNOLOGIES LTD. 10 ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO VERIFY THE CLAIM OF ASSESSEE IN THIS REGARD AND IN CASE OWN FUNDS OF ASSESSEE ARE MORE THAN INVESTMENTS, THEN NO DISALLOWANCE IS WARRANTED UNDER RULE 8D(2)(II) OF THE RULES ON ACCOUNT OF DICTATE OF THE HONBLE BOMBAY HIGH COURT IN CIT VS. HDFC BANK LTD. (2014) 366 ITR 505 (BOM). 17. NOW, COMING TO SECOND DISALLOWANCE MADE I.E. UNDER RULE 8D(2)(III) OF THE RULES. THE ASSESSING OFFICER IS AGAIN DIRECTED TO WORK OUT THE DISALLOWANCE BY CONSIDERING INVESTMENTS WHICH HAVE YIELDED DIVIDEND INCOME. THE ASSESSING OFFICER SHALL AFFORD REASO NABLE OPPORTUNITY OF HEARING TO THE ASSESSEE IN THIS REGARD. THE GROUND OF APPEAL NO.8 IS THUS, ALLOWED FOR STATISTICAL PURPOSES. 18. THE LAST ISSUE RAISED VIDE GROUND OF APPEAL NO.9 IS THE CLAIM OF ENHANCED DEDUCTION UNDER SECTION 10A OF THE ACT. 19. T HE PLEA OF ASSESSEE IN THIS REGARD IS THAT ENHANCED DEDUCTION SHOULD BE GRANTED IN CASE ANY CORPORATE TAX ADDITION IS MADE IN THE HANDS OF ASSESSEE EXCLUDING TRANSFER PRICING ADDITIONS. IN THIS REGARD, RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE HON BLE BOMBAY HIGH COURT IN CIT VS. GEM PLUS JEWELLERY INDIA LTD. REPORTED IN 330 ITR 175 (BOM). 20. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE FAIRLY ADMITTED THAT THE SAID COMPUTATION OF DEDUCTION UNDER SECTION 10A OF THE ACT WAS COVERED. 168/PUN/2018 ITA NO. 1708 /P U N/20 1 8 M/S. TATA TECHNOLOGIES LTD. 11 21 . WE FIND THAT THE ISSUE RAISED VIDE GROUND OF APPEAL NO.9 IS SQUARELY COVERED BY THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. GEM PLUS JEWELLERY INDIA LTD. (SUPRA) . ACCORDINGLY, WE HOLD THAT THE ASSESSEE IS ENTITLED TO ENHANCED DEDUCTI ON UNDER SECTION 10A OF THE ACT ON ACCOUNT OF CORPORATE TAX ADDITIONS MADE IN ITS HANDS. WE DIRECT THE ASSESSING OFFICER TO RE - COMPUTE THE AFORESAID DEDUCTION UNDER SECTION 10A OF THE ACT. ACCORDINGLY, GROUND OF APPEAL NO.9 IS ALLOWED. 22. NOW, COMING T O APPEAL OF ASSESSEE IN ITA NO.1708/PUN/2018 , RELATING TO ASSESSMENT YEAR 2014 - 15 , WHEREIN THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - TRANSFER PRICING GROUNDS DESIGN ENGINEERING SEGMENT (DES) 1 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, AND IN LAW, THE LEARNED ASSESSING OFFICER ( LD AO'), FOLLOWING THE DIRECTIONS OF THE LEARNED DISPUTE RESOLUTION PANEL ('LD DRP') ERRED IN CONFIRMING THE ACTION OF THE LEARNED TRANSFER PRICING OFFICER ( LD. TPO') IN REJECTING THE ARM'S LENGTH PRICE ('AL P') COMPUTATION UNDERTAKEN BY THE APPELLANT FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS PERTAINING TO DESIGN ENGINEERING SERVICES ('DES') SEGMENT, THEREBY MAKING A TRANSFER PRICING ('TP') ADJUSTMENT OF INR 25,88,00,000. THE APPELLANT PRAYS THAT THE TP ANALYSIS CONDUCTED BY THE APPELLANT OUGHT TO BE ACCEPTED AND CONSEQUENTLY THE TP ADJUSTMENT OUGHT TO BE DELETED. 2 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD. AO /LD DRP ERRED IN REJECTING THE AUDITED SEGMENTAL INFORMATION SUBMIT TED FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS PERTAINING TO DES SEGMENT. THE APPELLANT PRAYS THAT THE AUDITED SEGMENTAL PROFITABILITY SUBMITTED BY THE APPELLANT OUGHT TO BE ACCEPTED FOR ALP DETERMINATION OF INTERNATIONAL TRANSACTIONS PERTAINING TO T HE DES SEGMENT. 3 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD AO /LD DRP/LD TPO ERRED IN MODIFYING/ INTRODUCING ADDITIONAL QUANTITATIVE FILTERS AND CONDUCTING A FRESH BENCHMARKING ANALYSIS WITHOUT SHARING A DETAILED STEP BY STEP SE ARCH STRATEGY AND THE FUNCTIONAL, ASSETS AND RISK ('FAR') ANALYSIS CONDUCTED. THE APPELLANT PRAYS THAT THE ALP DETERMINED BY THE APPELLANT IN THE TP STUDY REPORT FOR INTERNATIONAL TRANSACTIONS PERTAINING TO DES SEGMENT OUGHT TO BE ACCEPTED. 168/PUN/2018 ITA NO. 1708 /P U N/20 1 8 M/S. TATA TECHNOLOGIES LTD. 12 4 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD. AO/LD DRP/LD TPO ERRED IN APPLYING A TURNOVER FILTER AT 1/10 TH TO 10 TIMES OF THE APPELLANT'S TOTAL TURNOVER IN DES SEGMENT AND THEREBY REJECTING FUNCTIONALLY COMPARABLE COMPANIES SELECTED BY THE AP PELLANT IN THE TP STUDY REPORT. THE APPELLANT PRAYS THAT THE TURNOVER FILTER APPLIED AT 1/10TH TO 10 TIMES OF THE APPELLANT'S TURNOVER IN DES SEGMENT OUGHT TO BE REJECTED. 5 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE DRP/ LD. AO/LD. TPO ERRED IN APPLYING EXPORT SALES TO TOTAL SALES LESS THAN 75 % AS A FILTER IN THE BENCHMARKING ANALYSIS AND THEREBY REJECTING FUNCTIONALLY COMPARABLE COMPANIES SELECTED BY THE APPELLANT IN THE TP STUDY REPORT. THE APPELLANT PRAYS THAT THE FILTER OF EXPO RT SALES TO TOTAL SALES LESS THAN 75 % OUGHT TO BE REJECTED SINCE THE APPELLANT'S EXPORT SALES TO TOTAL SALES IS ONLY 28.93 % . 6 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD. AO/ LD. DRP/ LD. TPO ERRED IN CONSIDERING ECLERX SERVICES L IMITED AS A COMPARABLE COMPANY BY - - NOT APPRECIATING THE FUNCTIONAL DIFFERENCES OF THE SAID COMPANY VIS - A - VIS THE APPELLANT; AND - NOT APPRECIATING THAT THE SAID COMPANY HAS EARNED AN ABNORMAL / VOLATILE MARGIN DURING THE CURRENT FINANCIAL YEAR. THE APPEL LANT PRAYS THAT ECLERX SERVICES LIMITED OUGHT TO BE REJECTED AS A COMPARABLE COMPANY FROM THE BENCHMARKING SET. 7 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD. AO/ LD. DRP/LD. TPO ERRED IN CONSIDERING OPERATING PROFIT / OPERATING CO ST ('OP/OC') AS THE PROFIT LEVEL INDICATOR ('PLI') AS AGAINST OPERATING PROFIT/OPERATING INCOME ('OP/SALES') CONSIDERED BY THE APPELLANT IN ITS TP STUDY REPORT. THE APPELLANT PRAYS THAT OP/SALES CONSIDERED BY THE APPELLANT IN ITS TP STUDY OUGHT TO BE CONS IDERED AS THE APPROPRIATE PLI FOR BENCHMARKING THE DES SEGMENT OF THE APPELLANT ON AN ENTITY LEVEL. 8 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD. AO/LD. DRP/LD. TPO ERRED IN CONSIDERING THE SINGLE YEAR DATA OF COMPARABLE COMPANIES I.E. DATA FOR FY 2013 - 14 FOR BENCHMARKING PURPOSES. THE APPELLANT PRAYS THAT MULTIPLE YEAR DATA OF COMPARABLE COMPANIES OUGHT TO BE CONSIDERED FOR BENCHMARKING PURPOSES. SOFTWARE DISTRIBUTION SEGMENT 9 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, A ND IN LAW, THE LD. AO, FOLLOWING THE DIRECTIONS OF THE LD. DRP, ERRED IN CONFIRMING THE ACTION OF THE LD. TPO IN REJECTING THE ALP COMPUTATION UNDERTAKEN BY THE APPELLANT FOR BENCHMARKING THE INTERNATIONAL TRANSACTION PERTAINING TO PAYMENT OF COMMISSION, T HEREBY MAKING A TP ADJUSTMENT OF INR 5,24,24,881 IN THE SOFTWARE DISTRIBUTION SEGMENT. THE APPELLANT PRAYS THAT THE TP ANALYSIS CONDUCTED BY THE APPELLANT OUGHT TO BE ACCEPTED AND CONSEQUENTLY THE TP ADJUSTMENT OUGHT TO BE DELETED. 168/PUN/2018 ITA NO. 1708 /P U N/20 1 8 M/S. TATA TECHNOLOGIES LTD. 13 10 . ON THE FACTS AND IN TH E CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD. AO/LD. DRP/LD. TPO ERRED IN COMPUTING THE ALP OF THE INTERNATIONAL TRANSACTION OF PAYMENT OF COMMISSION AS NIL INSTEAD OF INR 5,24,24,881 AS DETERMINED BY THE APPELLANT. THE APPELLANT PRAYS THAT THE TP ANAL YSIS CONDUCTED BY THE APPELLANT OUGHT TO BE ACCEPTED AND CONSEQUENTLY THE TP ADJUSTMENT OUGHT TO BE DELETED . 11 . WHILE DOING SO, THE LD. AO/LD. DRP/LD. TPO GROSSLY ERRED IN: A ) IGNORING THAT THE APPELLANT HAD SUPPORTED THE CLAIMS WITH APPROPRIATE EVIDENCES; B ) CHA LLENGING THE COMMERCIAL RATIONALE AND EXPEDIENCY OF AVAILING SERVICES BY THE APPELLANT; C ) IGNORING THAT THE APPELLANT IS NOT REQUIRED TO ESTABLISH THE BENEFIT ARISING OUT OF THE SAID SERVICES; D ) REJECTING THE COMPARABILITY ANALYSIS CARRIED OUT BY THE APPELLA NT TO DEMONSTRATE ARM'S LENGTH PRICE ('ALP') WITHOUT GIVING ANY FINDING ON THE COMPARABLE COMPANIES ADOPTED; AND E ) NOT APPLYING ANY OF THE PRESCRIBED METHODS FOR BENCHMARKING THE TRANSACTION AND NOT PROVIDING ANY VALID COMPARABLE UNCONTROLLED TRANSACTION TO DETERMINE THE ALP. THE APPELLANT PRAYS THAT THE TP ANALYSIS CONDUCTED BY THE APPELLANT OUGHT TO BE ACCEPTED AND CONSEQUENTLY THE TP ADJUSTMENT OUGHT TO BE DELETED. CORPORATE TAX GROUNDS 12 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD. AO/LD. DRP ERRED IN DISALLOWING THE CLAIM OF THE APPELLANT IN RESPECT OF AMORTIZATION OF PREMIUM ON LEASEHOLD LAND AMOUNTING TO INR 4,30,886. THE APPELLANT PRAYS THAT THE ADDITION OF AMORTIZATION OF PREMIUM ON LEASEHOLD LAND OUGHT TO BE DELETED AND T HE SAME OUGHT TO BE ALLOWED AS REVENUE EXPENDITURE. 13 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD. AO/LD. DRP ERRED IN DISALLOWING THE PROVISION FOR EXPENDITURE IN RESPECT OF BHAVISHYA KALYAN YOJANA ('BKY'), AN EMPLOYEE WELFARE SCH EME AMOUNTING TO INR 41,27,000. THE APPELLANT PRAYS THAT DEDUCTION IN RESPECT OF THE PROVISION MADE FOR BKY EXPENSES SHOULD BE ALLOWED AS AN ASCERTAINED LIABILITY. 14 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD. AO/LD. DRP ERRED IN INVOKING SECTION 14A AND COMPUTING A DISALLOWANCE OF INR 2,44,42,331 BY APPLYING RULE 8D OF THE INCOME TAX RULES, 1962 IGNORING THE SUO - MOTO DISALLOWANCE OFFERED BY THE APPELLANT AMOUNTING TO INR 41,51,114 DIRECTLY ATTRIBUTABLE TO THE EXEMPT INCOME. THE APPELLANT PRAYS THAT THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT BY APPLYING RULE 8D OUGHT TO BE DELETED. 168/PUN/2018 ITA NO. 1708 /P U N/20 1 8 M/S. TATA TECHNOLOGIES LTD. 14 15 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD. AO/LD. DRP ERRED IN DISALLOWING THE PROVISION DEBITED TO PROFIT AND LOS S ACCOUNT FOR MEDICARE EXPENSES AMOUNTING TO INR 86,48,000. THE APPELLANT PRAYS THAT THE DISALLOWANCE ON ACCOUNT OF PROVISION FOR MEDICARE EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT OUGHT TO BE DELETED. 16 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD. AO/LD. DRP ERRED IN NOT GRANTING AN ENHANCED DEDUCTION UNDER SECTION 10AA OF THE ACT BASED ON THE DISALLOWANCES MADE IN THE ASSESSMENT ORDER. THE APPELLANT PRAYS THAT AN ENHANCED DEDUCTION UNDER SECTION 10AA OF THE ACT ON THE DISALLOW ANCES MADE BY THE LD. AO OUGHT TO BE GRANTED TO THE APPELLANT. 17 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD. AO/LD. DRP ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. THE APPELLANT PRAYS THAT THE PENA LTY PROCEEDINGS OUGHT TO BE DROPPED. 23. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT EXCEPT FOR THE ISSUES RAISED VIDE GROUND OF APPEAL NOS.1 TO 8 AGAINST TRANSFER PRICING ADJUSTMENT MADE IN MANUFACTURING SEGMENT, ALL THE OTHER GROUNDS OF APPEAL ARE SIMILAR TO THE GROUNDS OF APPEAL RAISED IN ASSESSMENT YEAR 2013 - 14. HE THEN, TOOK US THROUGH THE INDIVIDUAL GROUNDS OF APPEAL. 24. WE FIND THAT GROUND OF APPEAL NOS.9 TO 11 RAISED BY ASSESSEE ARE ON ACCOUNT OF TRANSFER PRICING ADJU STMENT MADE FOR PAYMENT TO COMMISSION TO ASSOCIATE ENTERPRISE. WE HAVE ALREADY ADJUDICATED THIS ISSUE WHILE DECIDING GROUND OF APPEAL NOS.1 TO 5 IN ASSESSMENT YEAR 2013 - 14 AND FOLLOWING THE SAME PARITY OF REASONING, THE ISSUE IS ALLOWED IN THE HANDS OF AS SESSEE. 25. THE ISSUE RAISED IN GROUND OF APPEAL NOS.12 AND 13 IS ON ACCOUNT OF CLAIM OF AMORTIZATION OF PREMIUM PAID ON LEASEHOLD LAND AND ALLOWANCE OF PROVISION MADE FOR EXPENDITURE IN RESPECT OF BHAVISHYA KALYAN YOJANA HAS ALSO BEEN ADDRESSED WHILE DEC IDING GROUND OF APPEAL NOS.6 AND 7 IN ASSESSMENT 168/PUN/2018 ITA NO. 1708 /P U N/20 1 8 M/S. TATA TECHNOLOGIES LTD. 15 YEAR 2013 - 14. BOTH THESE ISSUES STAND DECIDED AGAINST ASSESSEE. HENCE, GROUND OF APPEAL NOS.12 AND 13 ARE DISMISSED. 26. THE ISSUE IN GROUND OF APPEAL NO.14 IS DISALLOWANCE MADE UNDER SECTION 14A OF THE A CT READ WITH RULE 8D OF THE RULES. WE HAVE ALREADY ADJUDICATED THIS ISSUE RAISED VIDE GROUND OF APPEAL NO.8 IN ASSESSMENT YEAR 2013 - 14. FOLLOWING THE SAME PARITY OF REASONING, WE DIRECT THE ASSESSING OFFICER TO FOLLOW OUR DIRECTIONS AND RE - COMPUTE DISALL OWANCE UNDER SECTION 14A OF THE ACT, IF ANY, AFTER AFFORDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 27. THE GROUND OF APPEAL NO.15 IS AGAINST DISALLOWANCE OF PROVISION MADE FOR EXPENDITURE IN RESPECT OF MEDICAL INSURANCE SCHEME FOR EMPLOYEES A T 86,48,000/ - . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FAIRLY POINTED OUT THAT THE ISSUE STANDS COVERED AGAINST ASSESSEE BY THE ORDER OF TRI BUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2003 - 04 (SUPRA). 28. WE FIND THAT THE TRIBUNAL VIDE PARAS 70 TO 87 AT PAGES 24 TO 34 OF ORDER HAD DECIDED THE SAID ISSUE IN ASSESSMENT YEAR 2003 - 04 AGAINST THE ASSESSEE. FOLLOWING THE SAME PARITY OF REASONING, WE UPHOLD THE ORDER OF ASSESSING OFFICER / DRP AND DISMISS GROUND OF APPEAL NO.15. 29. THE ISSUE RAISED VIDE GROUND OF APPEAL NO.16 IS AGAINST ENHANCED DEDUCTION UNDER SECTION 10AA OF THE ACT. WE HAVE ALREADY ADJUDICATED THIS ISSUE IN ASSESSMENT YEAR 2013 - 14 VIDE GROUND OF APPEAL NO.9 AND FOLLOWING THE SAME PARITY OF REASONING, WE DIRECT THE AS SESSING OFFICER TO APPLY THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. GEM PLUS JEWELLERY INDIA LTD. (SUPRA). 168/PUN/2018 ITA NO. 1708 /P U N/20 1 8 M/S. TATA TECHNOLOGIES LTD. 16 30. THE ISSUE RAISED VIDE GROUND OF APPEAL NO.17 IS AGAINST INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE AC T IS PREMATURE AND THE SAME IS DISMISSED. 31. NOW, COMING TO GROUND OF APPEAL NOS.1 TO 8 RAISED BY ASSESSEE AGAINST TRANSFER PRICING ADJUSTMENT. 32. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD POINTED OUT THAT IN CASE GROUND OF APPEAL NO.2 RAISED BY ASSESSEE IS ADJUDICATED IN FAVOUR OF ASSESSEE, THEN THE OTHER ISSUES WOULD BECOME ACADEMIC IN NATURE. 33. T HE ASSESSEE WAS ENGAGED IN PROVIDING DESIGN ENGINEERING SERVICES TO ITS ASSOCIATE ENTERPRISE. THE REVENUE IN AE SEGMENT WAS 295 CRORES AND IN NON - AE SEGMENT WAS 467 CRORES; HENCE, TOTAL REVENUE EARNED BY ASSESSEE WAS 764 CRORES. IN THE TP STUDY REPORT THE ASSESSEE HAD BENCHMARKED THE SAID TRANSACTIONS ON ENTITY BASIS, WHEREIN THE MARGINS OF ASSESSEE WERE 27.99%. THE ASSE SSEE HAD SELECTED FIVE CONCERNS AS COMPARABLES AND HAD DECLARED ITS INTERNATIONAL TRANSACTIONS TO BE AT ARM'S LENGTH PRICE. HOWEVER, THE TPO REJECTED ALL FIVE CONCERNS PICKED UP BY THE ASSESSEE AND SELECTED TWO CONCERNS AS COMPARABLES I.E. ECLERX SERVICES LTD. AND TATA ELXSI LTD., WHOSE MEAN MARGINS WORKED OUT TO 45.19%. THE ASSESSEE BEFORE THE TPO FILED SEGMENTAL DETAILS OF AE SEGMENT. HOWEVER, THE TPO REJECTS THE SAME SINCE THE ACCOUNTS WERE NOT AUDITED. THE DRP ALSO REJECTED THE SAME AS THE ASSESSEE HIMSELF IN THE TP STUDY REPORT HAD TAKEN ENTITY LEVEL RESULTS. 168/PUN/2018 ITA NO. 1708 /P U N/20 1 8 M/S. TATA TECHNOLOGIES LTD. 17 34. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THOUGH BEFORE THE DRP, AUDITED SEGMENTAL ACCOUNTS WERE FILED BUT DRP REJECTS THE CLAIM OF ASSESSEE. IN THIS REGAR D, HE STATED THAT THE LAW DOES NOT REQUIRE DATA OF SEGMENTAL DETAILS TO BE AUDITED, HOWEVER, BEFORE THE DRP, IT FILED SEGMENTAL DETAILS AND AS PER THE SEGMENTAL DETAILS, THE MARGINS OF ASSESSEE FOR AE SEGMENT WORKED OUT TO 44.44%. OUR ATTENTION WAS DRAWN TO PAGE 287 OF PAPER BOOK, UNDER WHICH SEGMENTAL DETAILS ARE PROVIDED. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE STRESSED THAT DRP / TPO SHOULD HAVE ACCEPTED SEGMENTAL DETAILS. HE THEN, REFERRED TO PROVISIONS OF SECTION 92 OF THE ACT AND POI NTED OUT THAT REQUIREMENT IS TO BENCHMARK INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISE AND THEN MAY MAKE OR DELETE ADDITION. HE STRESSED THAT SEGMENTAL ACCOUNTS ARE TO BE ADOPTED AND MARGINS OF SEGMENTAL TO BE COMPARED WITH MARGINS OF CONCERNS PIC KED UP AS COMPARABLES. HE THEN STRESSED THAT VIDE GROUND OF APPEAL NO.6, THE ASSESSEE HAS RAISED THE ISSUE THAT ECLERX SERVICES LTD. IS ENGAGED IN DIVERSIFIED FIELDS AND THE SAID CONCERN SHOULD BE EXCLUDED BUT SINCE THE ISSUE WOULD BE ACADEMIC IF ISSUE OF SEGMENTAL DETAILS ARE CONSIDERED, THEN THIS ISSUE DOES NOT NEED ADJUDICATION. 35. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, RELIED ON THE ORDERS OF ASSESSING OFFICER / DRP. 36. WE HAVE HEARD THE RIVAL CONTENTIONS AND PER USED THE RECORD. BRIEFLY, IN THE FACTS OF THE CASE THE ASSESSEE HAD SEGREGATED ITS OPERATIONS INTO TWO SEGMENTS I.E. DESIGN ENGINEERING AND SOFTWARE DISTRIBUTION. THE ASSESSEE HAD SUBMITTED SEGMENTAL FINANCIAL INFORMATION FOR THE TWO SEGMENTS. THE 168/PUN/2018 ITA NO. 1708 /P U N/20 1 8 M/S. TATA TECHNOLOGIES LTD. 18 SOFTW ARE DISTRIBUTION SEGMENT INCLUDED THE COMMISSION PAYMENT TO ASSOCIATE ENTERPRISE, WHICH WE HAVE ALREADY DECIDED IN THE PARAS HEREINABOVE. 37. NOW, COMING TO SECOND SEGMENT OF DESIGN ENGINEERING SERVICES, THE ASSESSEE HAS SHOWN PLI AT 27.99% . THE ASSESSEE HAD APPLIED DATA OF THREE YEARS OF COMPARABLES AND HAD DECLARED THAT ITS INTERNATIONAL TRANSACTIONS WERE AT ARM'S LENGTH. THE TPO HOWEVER, ASKED THE ASSESSEE TO APPLY DATA OF CONTEMPORANEOUS PERIOD. HOWEVER, THE TPO ALSO CAME TO THE CONCLUSION THAT NONE OF CONCERNS SELECTED BY ASSESSEE WERE FUNCTIONALLY COMPARABLE. THE TPO THUS, CARRIED OUT FRESH SEARCH AND SELECTED TWO CONCERNS I.E. ECLERX SERVICES LTD. AND TATA ELXSI LTD. AS COMPARABLES WHOSE MEAN MARGINS WORKED OUT TO 45.19%. ANOTHER ASPECT NOTED BY THE TPO WAS THE SEGMENTAL INFORMATION SUBMITTED BY ASSESSEE, AS PER WHICH THE ASSESSEE HAD DECLARED PLI AT 54.39%. HOWEVER, SUBMISSIONS OF ASSESSEE WERE NOT FOUND ACCEPTABLE, SINCE THE ASSESSEE HAD SUBMITTED SEGMENTAL DETAILS, ONLY IN RESPONSE TO FINAL S HOW CAUSE NOTICE ISSUED. ACCORDINGLY, THE ASSESSING OFFICER COMPUTED ADJUSTMENT IN RESPECT OF DESIGN ENGINEERING SERVICES AND MADE AN UPWARD ADJUSTMENT AT 25.88 CRORES . THE ASSESSING OFFICER ISSUED DRAFT ASSESSMENT ORDER, AGAINST WHICH THE ASSESSEE FIL ED OBJECTIONS BEFORE THE DRP. THE DRP NOTED MODIFIED FILTERS APPLIED BY THE TPO AND FUNCTIONAL COMPARABILITY OF COMPARABLES FINALLY SELECTED AND ALSO REFERRED TO VARIOUS DECISIONS ON THE POINT AND IN FINAL ANALYSIS HELD THE CONCERN ECLERX SERVICES LTD. TO BE COMPARABLE. FURTHER, THE DRP NOTED THAT THE ASSESSEE HAD FURNISHED ADDITIONAL EVIDENCE IN THE FORM OF CERTIFICATE FOR SEGMENTAL BREAKUP, FROM WHICH IT WAS CLEAR THAT SERVICES TO ASSOCIATED ENTERPRISE WERE AT 295 CRORES VIS - A - VIS THIRD PARTY AT 467 CRORES. THE ASSESSEE THUS, PROPOSED THAT OPERATING MARGINS USING SEGMENTAL DETAILS SHOULD BE ADOPTED. THE DRP DID NOT FIND ANY MERIT IN 168/PUN/2018 ITA NO. 1708 /P U N/20 1 8 M/S. TATA TECHNOLOGIES LTD. 19 ACCEPTING ANY ADDITIONAL EVIDENCE CONTRA RY TO THE BASI C STUDY CONDUCTED IN THE STATUTORY REQUIREMENT UNDER FORM NO.3CEB AUDIT REPORT. THE CLAIM OF ASSESSEE OF PROPORTIONATE ADJUSTMENT FOR COMPUTING ARM'S LENGTH PRICE WAS ALSO REJECTED. THE ASSESSING OFFICER PASSED FINAL ASSESSMENT ORDER, AGAIN ST WHICH THE ASSESSEE IS IN APPEAL. THE ASSESSEE HAS RAISED SEVERAL ISSUES AGAINST TRANSFER PRICING IN ITS HANDS, BUT AT THE OUTSET, IT HAS BEEN POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT IN CASE GROUND OF APPEAL NO.2 IS ALLOWED I.E. AUDITED SEGMENTAL INFORMATION IS APPLIED FOR BENCHMARKING INTERNATIONAL TRANSACTIONS, THEN NO ADJUSTMENT REMAINS TO BE MADE IN THE CASE OF ASSESSEE. BUT AS POINTED OUT EARLIER, THE ASSESSEE IN THIS SEGMENT HAD TRANSACTIONS WITH AE TO THE EXT ENT OF 295 CRORES AND WITH NON AE TO THE EXTENT OF 467 CRORES . INITIALLY, IN THE TP STUDY REPORT THE ASSESSEE HAD NOT FURNISHED SEGMENTAL DETAILS AND HAD BENCHMARKED THE TRANSACTIONS BY ADOPTING DATA AT THE ENTITY LEVEL. HOWEVER, SEGMENTAL INFORMATIO N IN THIS REGARD WERE FILED BEFORE THE ASSESSING OFFICER AND AUDITED SEGMENTAL INFORMATION WAS FILED BEFORE THE DRP AND BOTH THE AUTHORITIES HAVE NOT ACCEPTED THE SAME. 38. THE QUESTION WHICH ARISES IS WHETHER WHERE THE ASSESSEE IS CARRYING ON ITS BUSINES S ACTIVITIES WITH AES AND NON AES, IN ORDER TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS WITH AES, THE INFORMATION IS TO BE APPLIED ON ENTITY LEVEL OR WHERE SEGMENTAL INFORMATION IS AVAILABLE, WHETHER THE SAME IS TO BE APPLIED TO WORK OUT THE MARGINS IN THE HANDS OF ASSESSEE. 39. UNDER THE PROVISIONS OF SECTION 92C OF THE ACT FOR COMPUTATION OF ARM'S LENGTH PRICE, BENCHMARKING HAS TO BE DONE OF ALL THE INTERNATIONAL TRANSACTIONS OF ASSESSEE WITH ITS AES AND CONSEQUENTLY, SEGMENTAL DETAILS OF AE SEGMENT I S TO BE APPLIED AND NOT RESULTS AT ENTITY LEVEL. WHERE THE ASSESSEE HAS PROVIDED 168/PUN/2018 ITA NO. 1708 /P U N/20 1 8 M/S. TATA TECHNOLOGIES LTD. 20 SEGMENTAL INFORMATION WHICH IS ALSO AUDITED IN THE CASE OF ASSESSEE , THOUGH FILED DURING TP PROCEEDINGS / DRP PROCEEDINGS BUT THE SAME CANNOT BE BRUSHED ASIDE ON THE GROUND T HAT THE ASSESSEE IN THE TP STUDY REPORT HAS WORKED OUT THE MARGINS AT ENTITY LEVEL. IN THIS DEVELOPING SCENARIO OF TRANSFER PRICING, IT IS NECESSARY TO IMPLEMENT AND APPLY THE LAW AS IT DEVELOPS. MERELY BECAUSE THE ASSESSEE HAD IN THE TP STUDY REPORT APP LIED MARGINS AT THE ENTITY LEVEL, IT CANNOT BE PRECLUDED FROM FURNISHING SEGMENTAL DETAILS DURING TP PROCEEDINGS OR DRP PROCEEDINGS I N ORDER TO BENCHMARK THE MARGINS OF ITS INTERNATIONAL TRANSACTIONS ON THE BASIS OF SEGMENTAL PROFITABILITY OF AE SEGMENT. THE FACT WHICH NEEDS TO BE KEPT IN MIND IS THE TURNOVER OF ASSESSEE, WHICH IN THE AE SEGMENT WA S 295 CRORES AND IN NON AE SEGMENT WA S 467 CRORES I.E. OUT OF TOTAL REVENUE OF 764 CRORES, ONLY 295 CRORES WAS ATTRIBUTABLE TO AE SEGMENT. WE FIND NO ME RIT IN THE ORDERS OF AUTHORITIES BELOW IN BENCHMARKING INTERNATIONAL TRANSACTIONS ON ENTITY LEVEL. ACCORDINGLY, WE ACCEPT THE PLEA OF ASSESSEE THAT SEGMENTAL DETAILS ARE TO BE ADOPTED AND MARGINS OF SEGMENT OF AE TRANSACTIONS ARE TO BE COMPARED WITH MARGI NS OF COMPARABLES SELECTED. IN THIS REGARD, THE ASSESSEE HAS EXPLAINED THAT EVEN IF THE MARGINS OF ECLERX SERVICES ARE APPLIED, WHICH THOUGH HE CLAIMS TO BE NOT FUNCTIONALLY COMPARABLE , BUT STILL MARGINS SHOWN BY THE ASSESSEE WOULD BE WITHIN +/ - 5% RANGE AND NO ADJUSTMENT NEEDS TO BE MADE IN THE HANDS OF ASSESSEE ON ACCOUNT OF SAID SEGMENT OF DESIGN ENGINEERING SERVICES. 40. THE PUNE BENCH OF TRIBUNAL IN TIETO IT SERVICES INDIA (P.) LTD. VS. DCIT (2018) 92 TAXMANN.COM 8 (PUNE - TRIB.) HAD ALSO IN SIMILAR CI RCUMSTANCES DIRECTED THE APPLICATION OF SEGMENTAL PROFITABILITY WHILE BENCHMARKING ITS INTERNATIONAL TRANSACTIONS WITH AES. ACCORDINGLY, THE GROUND OF APPEAL NO.2 RAISED BY ASSESSEE IS ALLOWED AND THE OTHER LINKED ISSUES RAISED VIDE GROUND OF 168/PUN/2018 ITA NO. 1708 /P U N/20 1 8 M/S. TATA TECHNOLOGIES LTD. 21 APPEAL NOS.1 TO 8 EXCEPT GROUND OF APPEAL NO.2, AS ADMITTED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE BECOME ACADEMIC IN NATURE AND THE SAME ARE DISMISSED. 4 1 . IN THE RESULT, BOTH THE APPEALS OF ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 3 RD DAY OF MAY , 201 9 . SD/ - SD/ - (ANIL CHATURVEDI) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 3 RD MAY , 201 9 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT ; 2. THE RESPONDENT; 3. THE DRP - 3 (WZ) , MUMBAI ; 4. THE CONCERNED CIT, PUNE ; 5. THE DR B , ITAT, PUNE; 6. GUARD FILE. / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE