EMERSON NETWORK POWER (INDIA) PVT. LTD., THANE V. DCIT CIR. 1, THANE

ITA 2120/MUM/2016

AI Insights

The case involves M/s. Emerson Network Power (India) Pvt. Ltd., which appealed against the final assessment orders for the assessment years 2011-12 and 2012-13 concerning transfer pricing adjustments related to management services and other issues like rejection of retention money and incorrect TDS credit. The Tribunal examined the nature of the management services provided by the Associated Enterprise (AE), the benefits derived from these services, and the appropriateness of the cost allocation method used. The Tribunal found that the services were not duplicative and provided tangible benefits, thus supporting the assessee's position. However, the claim for retention money was rejected based on precedents and the nature of the transactions.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 302496 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: J
• Next Hearing Date: 17-05-2023
• Assessment Year: 2011-2012
• Appeal Filed On: 31-03-2016
• Other Referred Cases: M/s. Emerson Climate Technologies (India) Limited vs. DCIT in ITA No.2182/PUN/2013, INA Bearings India Pvt. Ltd. vs. DCIT, Chicago Pneumatic India Ltd. vs. CIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Capital expenditure; TDS; FORM 26AS
• Section: 143(3); 144C; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, ‘J‘ BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER & MS. PADMAVATHY S, ACCOUNTANT MEMBER ITA No.2120/Mum/2016 (Assessment Year :2011-12) & ITA No.2286/Mum/2017 (Assessment Year :2012-13) M/s. Emerson Network (Power (India) Private Limited Plot No.C-20, Road No.19, Wagle Industrial Estate, Thane (W) Mumbai – 400 064 Vs. Deputy/Addl.Commissioner of Income Tax, Circle-1 Thane PAN/GIR No.AAACT4033H (Appellant) .. (Respondent) Assessee by Shri Dhanesh Bafna, Shri Hardik Nirmal and Ms. Riddhi Maru Revenue by Ms Neha Thakur Date of Hearing 18/05/2023 Date of Pronouncement 14/08/2023 आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeals had been filed by the assessee against separate impugned final assessment order dated 28/01/2016 passed u/s. 143(3) r.w.s. 144C (13) for the A.Y.2011-12 in pursuance of directions given by the DRP on ITA No.2120/Mum/2016 & 2286/Mum/2017 M/s. Emerson Network Power (India) Pvt. Ltd. 2 22/12/2015; and final assessment order dated 29/03/2016 passed in pursuance of direction given by the DRP dated 28/12/2016 for the A.Y.2012-13. 2. In both the years, common issue involved is transfer pricing adjustment in relation to management services of Rs. 5,08,73,628/- for the A.Y. 2011-12 and Rs. 4,14,51,215/-for the A.Y. 2012-13. Apart from that, assessee has also raised issue of rejecting of claim of retention money of Rs. 8,50,14,696/- for A.Y.2011-12; and Rs.7,12,50,940/- for A.Y.2012-13. Assessee also raised ground that ld. AO has erred in not giving correct credit of taxes / TDS reflected in form 26AS. Since the issues involved in both the years are common arising out of identical set of facts and similar findings, therefore, same were heard together and are being disposed of by way of this consolidated order. We will take up the appeal for A.Y.2011-12 and our finding given therein will apply mutatis mutandis in the appeal for A.Y.2012-13 also. 3. The brief facts are that assessee manufactures and markets a range of power solutions including Uninterruptible Power St (UPS) systems, Climate and Environmental systems, DC power systems, Automatic Transfer Switches CA Racks and Enclosures for TT Server protection and power distribution units. The assessee also provides certain services to support its solutions, The assessee has its headquarters in Thane, Maharashtra and two plants facilities located at Thane and Nerul. ITA No.2120/Mum/2016 & 2286/Mum/2017 M/s. Emerson Network Power (India) Pvt. Ltd. 3 4. In Form 3CEB filed for A.Y.2011-12, assessee had shown following international transactions with its AE. No. Description of Transactions Value of Transactions i Import of raw material (components, accessories, etc.) 59,51,39,128 2 Export of raw material (UPS / AC parts) 2,26,48,357 3 Import of finished goods (UPS, accessories, etc.) 25,23,18,144 4 Export of finished goods (UPS, switches, etc.) 33,87,827 5 Payment of royalty 2,16,45,306 6 Receipt of agency income 38,22,967 7 Receipt of service income 47,53,464 8 Payment for procurement support 15,39,994 9 Payment for marketing research support 1,08,45,109 10 Technical support 3,77,994 11 Payment for management fees 5,27,86,128 12 Payment of procurement charges 1,91,66,537 13 Payment of networking charges 5,11,79,462 14 Recovery of expenses 28,43,476 15 Reimbursement of expenses 25,81,641 ITA No.2120/Mum/2016 & 2286/Mum/2017 M/s. Emerson Network Power (India) Pvt. Ltd. 4 5. The assessee is a part of Emerson group and the Emerson Group has various businesses across the globe and all the different business verticals are housed in different companies like Emerson Climate Technologies, Emerson Network, Emerson Process, Emerson Electric, etc. Each of these businesses /companies has operations in majority of the countries worldwide. One such business of the group i.e., manufacturing of power-driven system referred to as Network business is housed under Emerson Network' The Emerson Network business has regional headquarters worldwide. Each of these companies (part of the Network Group), operate independently, but to have some standardization in the approach or process or conduct of the business and to achieve the efficiency as desired the network business is divided into regional zones and groupings, one such, being Asia pacific region and the assessee company, being an Indian company falls under Asia Pacific region. The Emerson Network Power Asia includes affiliates in Australia, India, South East Asia and North Asi. South-east Asia and North Asia included affiliates from Singapore, Hong Kong, Malaysia, the Philippines, Korea, Vietnam, Indonesia, Thailand, Pakistan and New Zealand. 6. In order to co-ordinate the activities of the Emerson Group involved in manufacture and sale of UPS, PAC systems and shelters, the management service fee mechanism was established in 2009. The management services are provided through regional service centers located in Australia, Hong-Kong, ITA No.2120/Mum/2016 & 2286/Mum/2017 M/s. Emerson Network Power (India) Pvt. Ltd. 5 Malaysia and Singapore. The loaded cost base of all cost centers are pooled into Emerson Network Power Australia Pty Limited CENPA/AE) and thereafter charged to various Asia Pacific entities by ENPA. 7. During the assessment year, the assessee had made payment to its AE, i.e., ENPA for receipt of management services in view of the service agreement dated 26/09/2007 entered into with its AE. The agreement provides for the provision of 9 services by ENPA to the assessee as under:- o Human Resources & Training; o Sales & Solutions, Information Technology; o Logistic, o Pricing, Marketing & Product Support; o Service, Shared Services Management, o Finance; o Telecom Management; Of the above, the assessee had availed following 5 services during the captioned assessment year: o Human Resource & Training Sales, Solutions & KAM o Information Technology o Logistic o Finance 8. In its Transfer Pricing Study Report (the TPSR) the assessee benchmarked the transaction following TNMM the most appropriate method and treating AE as tested party with mark- up of 5.8%. The TPSR also provides for the types of services rendered and benefit availed by the assessee from such services. ITA No.2120/Mum/2016 & 2286/Mum/2017 M/s. Emerson Network Power (India) Pvt. Ltd. 6 Cost-centre Cost incurred — to be allocated indirectly (USD) Total (in Rupees) Direct Indirect HR & Training 1,81,059 - 53,89,134 Finance 4,10,642 - 1,87,19,752 Logistics 23,771 - 10,84,674 Solutions and KAm 4,05,858 18,500 1,93,40,920 Information Technology - 1,18,203 53,89,134 Total 10,21,300 136,703 5,27,86,128 9. The ld. TPO and ld. DRP had rejected the benchmarking analysis, payment for aforesaid services and has made upward adjustment after making various observations, which in sum and substance are elaborated as under:-  The documentary proofs /e-mails tendered by the Appellant do not demonstrate any tangible and direct benefit is derived by the Appellant. The e-mails are general in nature and at the most can be said the Appellant derives incidental benefits.  Service rendered are in nature of stewardship services.  The certificate relied by the Appellant does not provide for how the cost is allocated to other countries of region stated therein. ITA No.2120/Mum/2016 & 2286/Mum/2017 M/s. Emerson Network Power (India) Pvt. Ltd. 7  Certificate is prepared on basis of information provided by Regional Finance director, which is based on meeting of Regional Finance Director with each cost center leader for estimation of time-spent for servicing ENP companies in Asia including India. Thus, demonstrating cost allocated is very high on estimated basis i.e., adhoc basis.  Relying on Clause of the agreement and customary disclaimer given by the auditors treating the same as qualification.  Finally, the TPO made addition on estimation Le ad-hoc basis, taking average working days per month at 22 and 8 working hours per day and man hours rate of Rs.8.500 per hour, the cost estimated is as under:- Services Man Hours Sales and solutions 50 Human resource 75 Finance 50 Logistics 50 Total 225 Rate per hour (estimated) 8,500 Arm's length Price ('ALP') as per the TPO 19,12,500 ITA No.2120/Mum/2016 & 2286/Mum/2017 M/s. Emerson Network Power (India) Pvt. Ltd. 8 The TPO proposed adjustment for the balance amount of Rs. 5,08,73,628/-. 10. The ld. Counsel submitted that assessee has provided all contemporaneous documents for each line of services received and to substantiate its claim and to prove the need and benefit test and rendition of the management services were given in form of e-mail communications, documentary presentations before the TPO. The said details were also provided to the DRP. Besides this assessee also filed an executive summary of these emails showcasing as to who provided the services to whom it was rendered along with the nature of services and the benefit derived there from. 11. In the addition to the above, Ld. Counsel submitted that the assessee has also obtained a certificate from the external consultant viz. PwC Australia certifying the allocation of costs which provides the total cost incurred by the AE, the cost allocation mechanism, the procedures and safeguards followed by the auditors, the consistent mark-up charged by the AE and finally cost allocation (service wise) charged to the assessee. The cost incurred by the AEs are allocated basis two methods, namely 'direct cost' and 'indirect cost' method.  The Direct costs (Business trips, specific project and support cost etc.) are allocated on the basis of portion of services directly attributed to the beneficiary companies.  The Indirect costs are allocated on the basis of the time- spent. ITA No.2120/Mum/2016 & 2286/Mum/2017 M/s. Emerson Network Power (India) Pvt. Ltd. 9  Time-spent -time-spent on providing the service.  For determining the time spent, Regional finance director, Asia had meetings with each cost center leader, in order, to understand the proportion of time spent for each of the ENP companies. 12. The direct service cost allocation - cost-centre (service) wise is tabulated as under: Cost-centre Cost incurred — to be allocated indirectly (USD) FY2O1O FY20H IT 111,168 1,12,278 Key Account management ('KAM') 16,068 18,904 Total Cost base directly allocated to the Appellant 1,27,236 131,182 Total 2,58,418 12.1 The indirect service cost allocation - Source country wise was tabulated as under: Source Country Cost incurred — to be allocated indirectly (USD) FY 2O1O FY2O11 Australia 1844,442 20,25,662 ITA No.2120/Mum/2016 & 2286/Mum/2017 M/s. Emerson Network Power (India) Pvt. Ltd. 10 Hong Kong 27,84,056 - Malaysia - - Singapore 74,295 30,33,302 Total Cost base for indirect allocation 47,02,793 50,58,964 Total 97,61,757 12.2 The indirect service cost allocation - cost-centre (service) wise was tabulated as under: Cost-centre Cost incurred — to be allocated indirectly (USD) FY201O FY 2011 HR & Training 13,29,073 15,22.802 Finance 15,07,640 15,54,384 Logistics 3,33,557 4,76,300 Solutions 15,32,523 15,05,4/8 Total Cost base for indirect allocation 47,02,793 50,58,964 Total 97,61,757 12.3 The above cost (direct and indirect) is further allocated based on estimate of time-spent by each business function which are tabulated below ITA No.2120/Mum/2016 & 2286/Mum/2017 M/s. Emerson Network Power (India) Pvt. Ltd. 11 Cost-centre Cost incurred — to be allocated indirectly (USD) FY 2010 FY 2011 HR & Training 12.4% n.6% Finance 25.4% 25-3% Logistics 7.2% 4.4% Solutions 24.3% 26.2% 13. Ld. Counsel submitted that, In his certificate, the external consultant has in detail analyzed the cost-base, the audited financials of the AE, financial processes, allocation methodology, review of TP policies, meetings with the regional finance director regarding intercompany support and processing service in respect of management fees in detail. Subsequently, after adhering to all the recognized auditing procedures and TP guidelines, certificate was provided only in relation to 'calculation of management service fees charged from AE to the assessee for 01/04/2010 to 31/03/2011. 14. Besides this, ld. Counsel also submitted that similar addition of Intragroup services paid to its AE has been evaluated in assessee’s group concern case M/s. Emerson Climate Technologies (India) Limited vs. DCIT in ITA No.2182/PUN/2013 wherein similar mark-up of cost plus 5.8% has been upheld. ITA No.2120/Mum/2016 & 2286/Mum/2017 M/s. Emerson Network Power (India) Pvt. Ltd. 12 15. Apart from that Ld. Counsel has also given point-wise rebuttal of ld. TPO’s allegations alongwith benefits derived from services which was already given in the TP study report. Further, he also drew our attention to e-mail communications presentation and highlighting of nature of services received in relation to Solutions & KAM, Finance, Human Resource and training, IT services and supply chain & logistics. It was also filed before the ld. TPO and ld. DRP. In short, the illustrative services rendered by the AE and the key benefits derived by the assessee has been tabulated in the following manner:- Sr No. Nature of Service Clause under the Agreement Benefit derived from services 1. Solution's & KAM - Key Account relationship maintenance and by event planning and customer meetings. - Formulation of Business agreement with Global customer Executive meeting between Emerson & IBM: Emerson Singapore had meeting with IBM to discuss future potential to expand market in Asia Pacific. This has resulted in bringing in project IBM - Daksh in India. The benefit in terms of increase in revenue is received over years. 2. Solution's & KAM Design tools to configure required Network infrastructure, including racks, power, cooling, monitoring and accessories HP Internal Requirement -Pritech Park Guidance from group in relation to projects planned in India by HP. Accordingly, was in position to provide competitive pricing ITA No.2120/Mum/2016 & 2286/Mum/2017 M/s. Emerson Network Power (India) Pvt. Ltd. 13 3- Solution's & KAM Design tools to configure required Network infrastructure, including racks, power, cooling, monitoring and accessories Smart Solutions: Presentation provided for building of smart aisle concept in respect to ! creating a global identity and positioning for the family of Emerson Network 4. Human Resource Selection and training of top management, middle management and other employees Candidate for HR position: The candidate biodata was accessed by Katie Chui from the search agency data which was made available to India. Subsequently, 3 employees were recruited 5. Human Resource Selection and training of top management, middle management and other employees To reduce the attrition rates, the corporate approval was required for granting retention bonus. 6. Human Resource Advisory services concerning personnel practices, policies, administration and industrial relations matters. Mail correspondence requesting the management team of Emerson India to customize the headcount and attrition report as per the organizational structure 7. Human Resource Establishment of incentive and pension plans for top management, middle management and other employees. Mail correspondence on providing guidelines to update the Asia, ANZ and India management leaders about the news that the annual review will be effective since January i, 2011 effecting the new salaries of the employees. ITA No.2120/Mum/2016 & 2286/Mum/2017 M/s. Emerson Network Power (India) Pvt. Ltd. 14 8. Finance Organizational planning Capex Target: Revised capex target fixed for Emerson India. Daniel from corporate finance team revised the capex target based on the review of the capital of Emerson India. The capex targets are revised based on review of actual numbers and forecasts and accordingly advice is provided to bridge the variance. 9. Finance - Analyses the return on investment by business and sets direction - Provides assistance on the analysis of Data - Drives the 5-year profit review plan to assist to improve profit, provide direction Helps in guiding in the profit review to drive the market unit towards the profit plans as defined in the proft review. It helps to set up cost improvement programs and measure effectiveness of the programs earlier set through actual achievements. 10. Information Technology Guidance and implementing common Asia Pacific IT initiatives/Projects Laptop Approval (other than standard) For purchasing of laptops, the costing of the laptop will have to be reveiwed since a corporate listing in the APAC region had been prepared to compare the prices in different market units and help in leveraging of investment done on the units. Hence, Nalakumar from APAC Phillipines highlighted the challenges if a different laptop model had to be purchased. Further, troubleshooting ITA No.2120/Mum/2016 & 2286/Mum/2017 M/s. Emerson Network Power (India) Pvt. Ltd. 15 regarding hardware happens from overseas office laptop model which may not be possible in case of a difference. 11. Information Technology Guidance and implementing common Asia Pacific IT initiatives/Projects CRM discussion Bulk purchase of Oracle license as an entire group, will reduce cost of license and sharing of implementation cost between group. Training by group compatriot (for K2 Training) 12. Information Technology Guidance and Implementing common Asia Pacific IT Initiatives /Projects Mail correspondence on discussion with respect to the laptop models issued to the employees 13. Logistics Coordination of supply chain process within Asia Pacific Mail correspondence stating the summary of the weekly report of the procurement of various products. 14. Logistics Provides central procurement and purchasing for all market units in Asia Pacific Global Forecast tool: The Group has developed a Global Forecast tool which would help all the entities to upload their forecast in the tool on a timely manner and to update it based on the changes, if any. Training was organised by the Emerson Global Materials Data Centre to familiarize the procurement personnel with the use of the tool. The global forecast tool ITA No.2120/Mum/2016 & 2286/Mum/2017 M/s. Emerson Network Power (India) Pvt. Ltd. 16 helped in Emerson India's inventory management - through liquidating of obsolete stock and minimizing of procurement shortage of materials in times of high market demand. 15. Logistics Provides central procurement and purchasing for all market units in Asia Pacific ABCD Analysis: Training materials and help was provided to generate ABCD analysis report in the new system implemented by Emerson India. This report provided the inventory data on raw materials and finished goods. Since there was a migration to the new ERP system, which Emerson India personnel were not well equipped to understand the functionality, a training was organised to facilitate understanding of generation of the inventory reports so as to have a better inventory management control. 16. Ld. Counsel further submitted that the above-mentioned services are rendered in pursuance to the agreement /arrangement of the assessee with its AE. The TPO has alleged that the nature of service rendered is duplicative services. On the contrary, the assessee submited that the whole purpose of entering into the service agreement was to avoid duplication of efforts and to make the arrangement administratively convenient ITA No.2120/Mum/2016 & 2286/Mum/2017 M/s. Emerson Network Power (India) Pvt. Ltd. 17 and cost effective. He pointed out that on perusal of the emails referred above, it can be noticed that the services provided by the AE are primarily in the nature of supervisory or review of work done by the employees of the assessee. The role of ENPA is to ensure that the work done by the assessee is in line with the policies of Emerson Network Group at group level and there is no deviation. This is to ensure that the policies and guidelines formulated by the brand- Emerson Network arc applied properly and correctly. 17. Illustratively, ld. TPO in Para No.6.2 at Page 12 has inter alia held that the mail is regarding approval of bonus, reduce attrition which is services duplicative in nature. To which the assessee drew our attention to Page No. 311-313 of paper book wherein the assessee had requested concerned person of the AE to seek approval for additional increment over the approved budgeted The said request was to factor in the booming talent and upsurge of salaries across Indian market. Basis above, the he submitted that there is difference in the services rendered by the AE and work done by the employees of the assessee in India and hence there is no duplication of service. 18. Further, the determination of the ALP by the TPO (even if on ad-hoc basis) clearly supports assessee's stand and the need, benefit and rendition of the services cannot be doubted. In so far as ld. TPO’s allegation is that services are in the nature of stewardship, ld. Counsel submitted that regular and routine operation activities cannot fall within the domain of stewardship ITA No.2120/Mum/2016 & 2286/Mum/2017 M/s. Emerson Network Power (India) Pvt. Ltd. 18 / shareholder activities. In support, he relied upon the decision of the Hon’ble Pune Tribunal in the case of INA Bearings India Pvt. Ltd. vs. DCIT. In so far as allegation is that certificate relied by the assessee does not provide how the cost is allocated to the other countries of region. Ld. Counsel submitted that ld. TPO has failed to take cognizance of the fact that the certificate of the external consultant is in relation to the management service fees charged to Emerson Network Power (India) Pvt. Ltd. i.e. the assessee by Emerson Australia Pty Ltd. for the period under review. The certificate is specifically for the costs to be allocated to the Indian entity i.e. the assessee. He further pointed out that the auditor in its certificate has evaluated the special purpose financial report of the AE, obtained the data of the ENPA to verify the management service fee with its breakup cost centre wise. The auditor had also had meeting with the regional director of Asia of each cost centre regarding the intercompany support/processing services so as to arrive the cost-base to be allocated. This fact is also clearly spelled out by the auditor in its certificate as 'Procedures performed and findings. 19. Further allegation is that certificate is prepared on basis of information provided by Regional Finance Director, which is based on meeting of Regional Finance Director with each cost center leader for estimation of time-spent for servicing ENP companies in Asia including India. He submitted that the conclusion reached by the TPO is without any cogent evidence. The auditor has considered various allocation keys and, in his ITA No.2120/Mum/2016 & 2286/Mum/2017 M/s. Emerson Network Power (India) Pvt. Ltd. 19 wisdom, has arrived at allocation key basis the time spent by the concerned employees. 20. He further drew our attention to the Page 182-184 of paper book wherein, the auditor has also justified that the time spent' allocation key is an appropriate key. The auditor has also justified that the time spent allocation key is appropriate key by stating that value of each service recipient can be seen as proportional to the amount of time spent providing assistance and value received is consistent across all countries i.e., an hour of service time will provide an equal benefit regardless to country to which it is provided. The other alternate allocation of head count key was also considered but was regarded as not appropriate for the reason that time spent may be considered as more direct measure of the level of efforts required to provide the services and thereby a better indicator of benefit provided. Further, it also accounts for different circumstances of each market unit which may not be factored by head count charge. This is also explained with illustration by the auditor. The alternate allocation on the basis of head count was considered by the external consultant, on perusal of the same it can be seen that of the Total employee strength of 2,091 employees, 1,331 employees devoted time to Indian entity as against the 760 employees to other ENP countries. If the head-count key was to be considered as an appropriate key, it would have resulted into allocation of much higher amount to the assessee. ITA No.2120/Mum/2016 & 2286/Mum/2017 M/s. Emerson Network Power (India) Pvt. Ltd. 20 21. To support its stand, the auditor in its certificate has also relied on communication of European commission which provides guidelines for low value adding of intra group services. In view of the above, the assessee submitted that the allocation key used in certificate is rightly defined and considered by the Auditor in his wisdom and cannot be doubted. 22. Further in so far as reliance placed by the ld. TPO on the agreement that the disclaimer had been made by the Auditors that assessee was entitled to obtain details from AE, he clarified that the Clause 5 of the agreement which provides for records and reports, AE has kept record of service cost incurred and the agreement provided that if request was to make copy of details etc. would be provided. Once, independent Auditor have certified the cost charged by the AE with the details provided by the AE attributing any doubt about the said charging of cost is uncalled for and such a disclaimer by the Auditor is only customary and therefore, its reliability cannot be questioned. 23. Lastly, he submitted that adjustment of estimated and adhoc basis determined by the ld. TPO cannot be upheld. 24. On the other hand, ld. DR strongly relied upon the various observations of the ld. TPO based on analysis of the documents filed by the assessee and submitted that ld. TPO after detailed analysis and analyzing the documents have not accepted the rendition of services as well as benefits of services and therefore, adjustment has rightly been made. ITA No.2120/Mum/2016 & 2286/Mum/2017 M/s. Emerson Network Power (India) Pvt. Ltd. 21 25. We have heard both the parties and also perused the relevant finding given in the impugned orders as well as material referred to before us. What is required to be seen while analyzing the arm’s length analysis of intra-group services that it needs to satisfy prima facie following tests mainly, need test; rendition test; benefit test; duplicative services test; and shareholders activity test. From the perusal of the documents we find that assessee has proved rendition of services by filing various documents before the authorities below as well as before us. Assessee has also demonstrated prima facie need and benefit test which has been highlighted in the foregoing paragraphs against various services. Thus, there cannot be any further critical analysis for measuring benefit unless certain contrary records are found that all these documents do not lead to conclusion of any kind of benefit. If services have been rendered by the AE for the activities carried out by the assessee and assessee has provided the details of benefits of these services and analysed the same qua all the services, then how much need was there and benefit has been derived cannot be measured, TPO/AO cannot decide this was needed and there is less or no benefit. Entities operating globally at various countries in order to have global standard practice and uniformity of services and quality control do maintain centralized service centers to provide the services. Revenue has to see, whether there was prima facie need and benefits from such services which assessee has to show with proper documentation and objective analysis of each of services in its TPSR with some quantitative and qualitative benefit which ITA No.2120/Mum/2016 & 2286/Mum/2017 M/s. Emerson Network Power (India) Pvt. Ltd. 22 are required for the business of the assessee, which although can’t be measured accurately, but what should be the extent of the benefit cannot be the measured nor can it be questioned by the revenue. 26. Another point which needs to be analysed is, whether there was any rendering of duplicative services. The service agreement here in this case was to avoid duplication of service and to make the arrangement administratively cost effective. The services provided by the AE are primarily in the nature of supervisory or review of work done to ensure that work done by the assessee is in line with the policies of Emerson Network group at a group level and there is no deviation. This was to ensure that the policies and guidelines formatted by the brand Emerson Network are applied properly and correctly. Further, it has not been demonstrated or brought on record by the ld. TPO that the services which rendered by the employees of the assessee are exactly the same service which have been provided by the AE nor it was found that there was any kind of duplicative services. Further, these services cannot be held to be in the nature of stewardship or shareholders activity which are generally undertaken by the companies to protect their own interest. Regular and routine operational activities cannot fall within the domain of stewardship or shareholder activity which is evident from various kinds of services which has been highlighted in the earlier part of paragraphs. These activities relate to day to day management and not any kind of protection of capital ITA No.2120/Mum/2016 & 2286/Mum/2017 M/s. Emerson Network Power (India) Pvt. Ltd. 23 investment. The descriptions of services are normally business services performed with a view to enable assessee to carry out its business operation in line with global standards of the brand and also for its day to day operations. Thus, these activities cannot be reckoned to be in the nature of shareholder activity. 27. Coming to the cost of allocation, the assessee has heavily relied upon certificate of external consultant in relation to the management services fee charged. The certificate specifically provides how the cost has been allocated to the assessee. The Auditor has evaluated the special purpose financial report of the AE, has obtained the data of the AE to verify the management service fee with its break-up cost center-wise. He also had a meeting with Regional Director of Asia of each cost centre regarding the inter company support / services so as to arrive the cost base to be located. Apart from that, Auditor also justified ‘time-spent’ allocation key for valuing each and every services which is not only a very logical basis to find out the correct and appropriate allocation of the cost because it has to be seen proportionately to the amount of ‘time-spent’ and providing assistance and value received is whether the consistent across all the countries. Thus, there is no infirmity in the cost allocation and it cannot be held that there is any fault in the allocation key. 28. Thus, apart from that ld. Counsel before us, vis-à-vis every services has given the relevant clause under the agreement, the documentary evidences furnished, benefit derived in its voluminous chart which we have gone through and found that ITA No.2120/Mum/2016 & 2286/Mum/2017 M/s. Emerson Network Power (India) Pvt. Ltd. 24 assessee has been able to establish the need and the benefit test for each and every services. Thus, we hold that no adjustment can be made on account of said services. 29. Another important thing is that the Tribunal on exactly similar facts in the case of group concern with same intra-group services related to the same AE has analysed this issue in detail and has given following findings:- Findings of the Tribunal: Findings on whether TPO can question the commercial wisdom for entering into transaction: The first aspect which arises in the present appeal is whether the TPO while ascertaining whether price paid for the services is at arm's length price or not, can enter the field of businessman, who is the best judge as to whether it needs to avail the said services. The answer to the same is No In any case, the perusal of various evidences filed by the assessee i.e. contemporaneous data available on record shows that it is highly technical and the same has been used by the assessee for carrying on its business activities, such evidence cannot be brushed aside being not upto the mark. The TPO had referred to part of the data and drew conclusion, which is not warranted in any case. Findings on maintenance of brand value and standardization: "20. Another aspect of the issue which needs to be kept in mind is the developing scenario of carrying on the business in the country. The said business is carried on by the entities which have presence outside India and have certain standards, which are attached to its brand name. In order to maintain its brand value, arrangements are made with different entities across the globe by holding companies, so that different entities operating in ITA No.2120/Mum/2016 & 2286/Mum/2017 M/s. Emerson Network Power (India) Pvt. Ltd. 25 different parts of the world adhere to specific rules and regulations while carrying on business under the said brand." Findings on allocation of costs The terms of the agreement are similar for providing services, wherein a particular formula is designed by the person providing the services Le, the basis for remuneration is the cost incurred by way of man hours charged to the entity with mark up of 5.8% Such method of charging and remunerating was identical in the case of all the entities which were availing the services from Copeland Corporation through Emerson HK and Emerson TH. The assessee had also furnished on record the basis for charging cost by the two entities from the assessee. No doubt, the complete details of operations of the said concerns worldwide had not been filed, but that had no relevance to the octivities or services availed by the assessor. There is no merit in the order of TPO in rejecting the segmental details of AEs filed by the assesseest a-vis services quailed by it. What is to be considered in the hands of assessee is the services it had availed from Emerson HK and Emerson TH and not the whole activities undertaken by the said two concerns worldunde. The assessee had put on record that not only the assessee but many other concerns were availing same services from the nuo entities and even the basis for remuneration to the said concerns was the same in respect of all the countries. In such circumstances, there is no merit in the order of TPO in holding that as to whether the said concerns have given services or whether they are qualified to give the services and the cost incurred by AEs. First of all, this is outside the domain of TPO. Under the Transfer Pricing Regulations what the TPO has to determine is whether the services which have been provided by associated enterprises are at arm's length price. Accordingly, we find no merit in this part of the order of TPO." > Findings on the need and benefits of the services 23. The next stand of the TPO is two-fold; as to what benefits have been received by the assessee against the said support services and intricacy value of services given by the associated ITA No.2120/Mum/2016 & 2286/Mum/2017 M/s. Emerson Network Power (India) Pvt. Ltd. 26 enterprises. The said aspect is linked to the issue of whether there is any need for services and in the absence of its establishing the same, whether the TPO/ Assessing Officer is correct in determining the arm's length price of transactions at Nil. The assessee had entered into an agreement with its associated enterprises for availing the services because of business benefits arising from such an understanding. Law does not require the assessee to demonstrate the need for availing the services. The assessee is best person to arrange its affairs to conduct the business in the manner it wants and Revenue cannot step into the shoes of businessman to decide what is necessary for the businessman and what is not. The TPO is not empowered to question the decision of assessee to avail support services from the associated enterprises. The decision taken by the assessee in the course of carrying on its business is commercial decision and the TPO cannot question such commercial wisdom of assessee's decision. The second linked issue which has been raised is that the assessee did not benefit from such support services where the assessee has shown losses during the year...... Findings on rendition of services: First of all, where the TPO has referred to the services provided and pointed out defects in the services provided, the first step that services have been provided stands established. Once the same is established by way of assessee producing several evidences before the TPO which were in the form of contemporaneous data, then the TPO is precluded from commenting upon the same and holding that the assessee had not received any services and also there was no need for making any payments for such services, as the services provided not upto the mark. In any case, the perusal of various evidences filed by the assessee i.e. contemporaneous data available on record shows that it is highly technical and the same has used by the assessee for carrying on its business activities, such evidence cannot be held aside being not upto the mark. The TPO had referred to part of the data and drew confusion, which is not warranted in any case." ITA No.2120/Mum/2016 & 2286/Mum/2017 M/s. Emerson Network Power (India) Pvt. Ltd. 27 Findings on TNMM: The assessee has applied TNMM method and made comparison with the margins of concerns selected from foreign data base and had shown that the margins shown by the assessee were higher than the margins shown by comparable companies. In such scenario, we find no merit in the order of the TPO in applying CUP method as the most appropriate method. The findings of TPO in this regard are thus reversed. Accordingly, we hold that the TNMM method is most appropriate method appropriate method to be applied to benchmark the international transactions undertaken by the assessee. The assessee had selected the foreign AES as the tested party and the same may be taken as the tested party. The international transactions of fees paid for advisory and another services is thus to be benchmarked by comparing the margins of the tested party i.e. the foreign AE with the margins of external comparables selected by the assessee. The assessee points out that the said foreign comparables were also engaged in providing similar advisory and related services to its entities and the financial details were filed before TPO. Accordingly, we are in conformity with the exercise undertaken by the assessee in this regard. However, for the limited purpose of verification that the margins shown by the tested party ie. the foreign AE is at arm's length to the margins shown by the comparables, which were selected by the assessee, the AO/TPO is directed to verify the claim of assessee in this regard and decide the issue, accordingly. Reasonable opportunity of hearing shall be given to assessee by the AO/TPO." 30. Thus, the aforesaid judgment of the Tribunal also supports our view taken above. Accordingly, the grounds raised by the assessee are allowed. 31. Lastly, coming to the issue of rejection of the claim of retention of money, it has been admitted that this issue has been decided against the assessee by the Tribunal in its own case in ITA No.2120/Mum/2016 & 2286/Mum/2017 M/s. Emerson Network Power (India) Pvt. Ltd. 28 various years’ right from A.Y.1994-95 to 2001-02. The relevant observation of the Tribunal reads as under:- “13.1 Whatever has been stated by us hereinbefore is also supported by the AS-9, relating to revenu recognition, issued by ICAI wherein it has been provided that in respect of a transaction involving sale of goods, the revenue should be recognized when the seller has transferred the property in goods to the buyer for a consideration and the transfer of property in goods, in most cases, results in or coincides with the transfer of significant risks and rewards of ownership to the buyer. In the present case, we have already held that when the goods have been delivered to the buyer by the assessee, the property in goods has been transferred to the buyer in terms of provisions of Sales of Goods Act, 1930, hence, the revenue has to be recognized in the period when such delivery has been made. In the Accounting Standard, it has also been provided that the recognition of revenue can be postponed if there exists uncertainties regarding the ultimate collection, however, in the present case the assessee has already received the amount of sole consideration though it has provided the bank guarantee for satisfactory performance and compliance with the terms and conditions of the contract and which cannot be said to have resulted into any uncertainty as regards the timing of recognition of revenue, hence, the total revenue from the sale transaction has to be recognized at the time of delivery of goods. As regards the case law relied on by the assessee are concerned, we find that the decision of the Tribunal in the case of Associated Cables (P) Ltd. (supra) which has been approved by the Hon'ble jurisdictional High Court, the assessee was billing only for 90 per cent of the value of the goods manufactured, despatched and delivered with the exception that 100 per cent of excise and sales tax were charged at that time and the balance 10 per cent was payable to the assessee only subsequently and if the assessee required its customer to pay this 10 per cent amount before, then, it could receive the same only on receipt and acceptance of goods at purchaser's site, submission of all final technical documentation, submission of performance and workmanship bank guarantee, hence, in that case, if the assessee required the payment of 10 per cent ITA No.2120/Mum/2016 & 2286/Mum/2017 M/s. Emerson Network Power (India) Pvt. Ltd. 29 amount before the agreed period, then, it had to comply with certain terms and conditions and also to exclude some more activities and in that situation, it was held that there were attached certain additional conditions for getting that sum, hence, it could not be said that the retention money had accrued to the assessee before compliance of those conditions. Whereas in the present case, as stated earlier, goods have already been delivered and accepted and other obligations are only of the nature of warranty which do not in any way effect the right of the assessee to receive the amount, hence, the decision of the Hon'ble Bombay High Court and the Tribunal in that case are not applicable on the facts of this case. It is also noted that in that case the assessee was manufacturing only against specific orders whereas in the present case the assessee is dealing in standard products as a manufacturer as well as trader, hence, facts of both cases are different in this manner also. Similarly, the facts of the case of Simplex Concrete Piles (India) (P) Ltd. (supra) are also different inasmuch as in that case the assessee was a contractor and not a supplier which is a predominant situation in the case on hand and payment in that case was based upon different milestones, hence, the ratio of that decision is also not applicable to the present case. As regards the reliance placed by the assessee on the decision of Hon'ble Gujarat High Court in the case of Anup Engineering Ltd. (supra), we find that there was a dispute between the suppher and the customer as regards to quality/configuration of product/material supplied and which is not the case here, hence, the ratio of that decision is also not applicable. Thus, on merits, the assessee does not have any case. As far as the technical ground of rejection is concerned, which is involved only in one year, the same stands covered in favour of the assessee by the decision of the Tribunal in the case of Chicago Pneumatic India Ltd. (supra), hence, we hold that the order of the learned CIT(A) is not correct to that extent. 14. Before parting with this issue, we consider it pertinent to deal with the other aspect of the issue involved Le, once the assessee is postponing the revenue recognition in such situations, in spite of following the mercantile system of accounting, the assessee is not following the principle of ITA No.2120/Mum/2016 & 2286/Mum/2017 M/s. Emerson Network Power (India) Pvt. Ltd. 30 matching which requires the assessee to match cost with revenue and vice versa. Further, there is accounting concept of periodicity which requires the financial statement to be prepared for a definite accounting period and which is also recognized under the provisions of the IT Act as the assessees are required to file return of income for a previous year. There is a concept of accrual which is the basis of mercantile system of accounting wherein the effect of transaction and other events are recognized when those occur and those are recorded in the account records, and reported in the financial statements of the period to which those relate and not when the money received or paid. All these accounting concepts/principles i.e., periodicity, accrual and matching work together for income measurement and recognition of the assets and liabilities and profit and this can be depicted as follows: Periodic Profit = Periodic revenue (-) matched expenses. 32. Since this issue has been decided against assessee and therefore, following the same precedence both these grounds of the assessee are dismissed. 33. In so far as short grant of TDS credit, we direct the ld. AO to verify and give benefit of TDS as reflected in Form 26AS. 34. In so far as appeal for A.Y.2012-13 as stated above, the issues and findings given by the lower authorities are exactly same, therefore, finding given above will apply mutatis mutandis and accordingly, the issue of TP adjustment is deleted and the issue of rejection claim of retention money is decided against assessee. Lastly, regarding short grant of TDS credit, we direct the ld. AO to verify Form 26AS and allow the credit of TDS. ITA No.2120/Mum/2016 & 2286/Mum/2017 M/s. Emerson Network Power (India) Pvt. Ltd. 31 35. In the result, both the appeals of the assessee are partly allowed. Order pronounced on 14 th August, 2023. Sd/- (PADMAVATHY S) Sd/- (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 14/08/2023 KARUNA, sr.ps Copy of the Order forwarded to : BY ORDER, (Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy//