Wipro GE Healthcare Private Limited, Bangalore V. Deputy Commissioner Of Income Tax, Circle-7(1)(1), Bangalore

ITA 291/BANG/2022

AI Insights

The case involves Wipro GE Healthcare Pvt. Ltd. appealing against the orders of the AO/TPO and the Dispute Resolution Panel (DRP) concerning transfer pricing adjustments for the assessment year 2017-18. The primary issues revolved around the adjustments made in the royalty payments, distribution segment, and software development segment, which were contested by the assessee on grounds of functional and financial dissimilarity of the comparables used by the TPO. The Tribunal considered previous rulings and the consistent application of transfer pricing principles over the years, leading to a decision to remit the matter back to the AO/TPO for a detailed re-examination in line with established precedents.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 302909 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Next Hearing Date: 12-03-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 20-04-2022
• Other Referred Cases: Texas Instruments (India) Pvt. Ltd. vs JCIT, Fulcrum Fund Services (India) Pvt Ltd vs DCIT, Optiva India Technologies Pvt Ltd vs DCIT, Informatica India Pvt Ltd vs DCIT, Sandisk India Device Design Centre Pvt Ltd vs DCIT, 3DPLM Software Solutions Ltd vs DCIT, LG Soft India (P.) Ltd. vs DCIT, M/s. Acusis Software (I) Pvt. Ltd. vs ITO, Genisys Integrating System (India) Pvt Ltd vs DCIT, JCB India Ltd vs Deputy Commissioner of Income tax Circle13(1),New Delhi, Sony Ericson Mobile Communication India Pvt. Ltd. vs DCIT, Knorr-Bremse India Pvt. Ltd. vs DCIT, M/s. Monogram Licensing International, Inc. vs Wipro GE
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Gift; Depreciation; Transfer pricing; Business expenditure; Opportunity of being heard; Principle of natural justice; International transaction; Corroborative evidences; Revenue expenditure; Capital expenditure; TDS; Set aside
• Section: 145; 37; 143(3); 40(a)(ia); 144C; 64; 43; 48; 13; 22; 92CA

Judgement Text

IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore IN THE INCOME TAX APPELLATE TRIBUNAL “C’’ BENCH: BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER IT(TP)A No.291/Bang/2022 Assessment Year: 2017-18 Wipro GE Healthcare Private Limited No.4, Kadugodi Industrial Area Whitefield, Bangalore 560 067 (Presently at Prestige Shanthiniketan, 6 th Floor, Crescent 4, ITPL, Whitefield Bangalore 560 048 PAN NO : AAACW1685J Vs. Deputy Commissioner of Income-tax Circle-7(1)(1) Bangalore APPELLANT RESPONDENT Appellant by : Shri K.R. Pradeep & Ms. Girija, A.Rs Respondent by : Ms. Neera Malhotra, D.R. Date of Hearing : 13.03.2023 Date of Pronouncement : 15.03.2023 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: This appeal by the assessee is directed against order of the NFAC dated 23.2.2022 for the assessment year 2017-18. The grounds raised by the assessee are as follows: IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 2 of 64 1. That the order of the Assessing Officer (AO), Transfer Pricing Officer (TPO), the directions of the Dispute Resolution Panel (DRP) and the order of the transfer pricing officer in so far as it is against the appellant is against the law, facts, circumstances, natural justice, equity, without jurisdiction, bad in law and all other known principles of law. 2. That the total income computed and the total tax computed is hereby disputed. 3. That the findings, reasons, conclusions of the authorities below and directions of Dispute Resolution Panel (DRP) u/s 144C in so far it is against the assessee are unsustainable in law; requires to be set aside. Consequently, the additions based on such directions also requires to be set aside. 4. The DRP erred in not considering the relevant materials, evidences, data and relevant law. The directions issued are without application of mind. 5. That the Orders of AO / TPO and the Directions of the DRP violates the principles of judicial discipline as the binding nature of the orders of the higher appellate authorities have been totally ignored. 6. That the order of the AO / TPO / DRP and the directions given therein are bad in law and not as per law requires to be cancelled. That the assessment order dated 23.02.2022 is not in conformity with the directions of the DRP. 7. That the AO/TPO/DRP erred in not providing adequate and sufficient opportunity as required under law thus violating the principle of natural justice, hence on this ground alone the orders requires to be annulled. ISSUE OF TRANSFER PRICING 8. That the order of the Transfer Pricing Officer is without jurisdiction, against the law, facts, circumstances, natural justice, equity and all other known principles of law. 9. The learned DRP erred in overlooking the fact that the entire objections filed by the appellant have not been considered by the TPO before passing order u/s 92CA. 10. The appellant denies the tax liability on the alleged surplus arising on the computation of arms length price for the impugned assessment year. 11. (a) The Learned AO erred in bringing to tax a sum of Rs.330,59,95,369/- as outlined below in the table under section 92CA of the Act as per the communication/order of the Transfer Pricing Officer and the directions of DRP. IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 3 of 64 Sl.No Description Amount 1 Arm’s Length Price difference in the royalty paid Rs. 715,808,823/- 2 Arm’s Length Price difference in distribution segment Rs. 1,744,326,236/- 3 Arm’s Length Price difference in the Software services segment Rs. 845,860,310/- (b) The learned TPO/DRP erred in disregarding the use of multiple year data and ought to have accepted the use of contemporaneous data as per the transfer pricing regulations due to non-availability of current year data in public domain at the time of preparing the report. c) The learned TPO/DRP erred in rejecting companies having different financial year ending or whose data does not fall within the 12 month period of impugned financial year. d) The learned TPO/DRP erred in not considering working capital/risk adjustments. e) The Learned AO / TPO / DRP erred in failing to rely on binding decisions of the Hon’ble ITAT in appellant’s own case for the earlier years from assessment year 2002 – 03 onwards. 12. a) The Learned AO/TPO / DRP erred in making adjustment towards the royalty for use of technology amounting Rs715,808,823/- without determining the comparable transaction in the public domain as prescribed under the Act and Rules. b) The Learned AO/TPO/DRP have failed to identify a comparable in terms of Rule 10B(3). c) The Learned AO / TPO / DRP erred in failing to rely on decision of the ITAT in appellant’s own case for the years 2002 – 03 to 2004 – 05 and subsequent orders of the ITAT for AY: 2005-06 & 2006-07. 13. a) The Learned AO / TPO / DRP erred in making adjustment towards the Arm’s Length Price difference in the distribution segment amounting to Rs. 1,744,326,236/-. b) The Learned AO / TPO / DRP erred in making adjustment on transactions beyond AE transactions, thus, the adjustment proposed includes non AE transactions. c) The Learned AO / TPO / DRP erred in wrongly adopting the financial results of the assessee. IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 4 of 64 d) The Learned AO / TPO / DRP erred in comparing the appellant’s distribution margin with comparables which are not in the business of trading/distribution. e) The Learned AO / TPO / DRP erred in not following their own orders passed for the earlier assessment years on this issue. f) The selection of the method by the Learned AO / TPO / DRP is not as per law. g) The Learned AO / TPO / DRP erred in not granting the variances deduction envisaged in the Act and Circular. h) The Learned AO / TPO / DRP erred in not carrying out the adjustments as required under law as well as the facts. i) The Learned AO/TPO/DRP have failed to identify a comparable in terms of Rule 10B(3). j) The Learned AO/TPO/DRP erred in rejecting certain comparables on unsustainable and untenable grounds/reasons while considering comparables which failed to meet the filters /criteria as required under law. k) The AO/TPO/DRP erred in considering the following comparables overlooking/rejecting the objections made by the assessee 1. Frontline Electro Medical Ltd. 2. Schiller Healthcare India Pvt. Ltd. 3. Terumo India Pvt. Ltd. 4. Everest Instruments Pvt. Ltd. 5. Confident Sales India Pvt. Ltd. 6. Indifoss Analytical Pvt. Ltd. 7. Narang Medical Ltd. l) The Learned AO / TPO / DRP erred in failing to rely on decision of the ITAT in assessee’s own case for the years 2002 – 03 to 2004 – 05 and subsequent orders of the ITAT for other assessment years. m) The Learned AO / TPO / DRP erred in adopting TNMM as the MAM ignoring the findings of ITAT in the appellant’s own case for earlier years and accepted by department on the same issue. n) The Learned AO/TPO/DRP have failed to apply the provisions of Rule 10B(4)&(5) and 10CA(2) while selecting the criteria and filters. o) The Learned AO / TPO / DRP erred in not carrying out the adjustments like risk, working capital, etc., as required under law as well as the facts. p) The learned AO/TPO/DRP erred in not considering the after sales support service segment while determining operating margin of distribution segment. IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 5 of 64 q) The learned AO/TPO/DRP erred in rejecting the corroborative analysis provided by the appellant. r) The Learned AO/TPO/DRP erred in applying the trading income threshold of 50% to sales to select comparable companies. s) The learned AO/TPO/DRP erred in applying the Related party transactions threshold of 25% to revenues to select comparable companies. t) The learned AO/TPO/DRP erred in not applying the Turnover filter as per law. 14. a) The Learned AO / TPO / DRP erred in making adjustment towards the Arm’s Length Price difference in the Software Development Segment amounting Rs. 845,860,310 /-. b) The Learned AO / TPO / DRP erred in selecting the comparables. The selection of comparables does not confirm to the I.T. Rules. Further it also does not comply with the case laws on this point. c) The Learned AO / TPO / DRP erred in not carrying out the adjustments like risk, working capital, etc., as required under law as well as the facts. d) The Learned AO / TPO / DRP erred in wrongly adopting the financial results of the assessee. e) The Learned AO/TPO/DRP have failed to identify a comparable in terms of Rule 10B(3). f) The Learned AO/TPO/DRP erred in rejecting certain comparables on unsustainable and untenable grounds/reasons while considering comparables which failed to meet the filters /criteria as required under law. g) The Learned AO / TPO / DRP erred in not granting the variances deduction envisaged in the Act and Circular. h) The Learned AO/TPO/DRP have failed to apply the provisions of Rule 10B(4)&(5) and 10CA(2) while selecting the criteria and filters. i) The learned AO/TPO/DRP erred in rejecting R & D expense more than 3% on turnover to eliminate companies engaged in R & D activities. j) The learned AO/TPO/DRP erred in applying the software development service income threshold of 75% to sales to select comparable companies. k) The learned AO/TPO/DRP erred in applying export turnover threshold of 75% to sales to select comparable companies. l) The learned AO/TPO/DRP erred in rejecting the comparable companies having ratio of employee cost to sales less than 25%. IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 6 of 64 m) The learned AO/TPO/DRP erred in applying the Related party transactions threshold of 25% to revenues to select comparable companies. n) The learned AO/TPO/DRP erred in not applying the Turnover filter as per law. o) The Learned AO/TPO/DRP erred in not considering the companies E-Zest Solutions Ltd, Nintec Systems Ltd and Sasken Technologies Ltd as comparables rejecting the submissions made by the appellant. p) The Learned AO/TPO/DRP erred in considering the following companies as comparables rejecting the submissions / objections made by the appellant. 1. Rheal Software Pvt. Ltd. 2. Harbinger Systems Pvt Ltd 3. C G-V A K Software & Exports Ltd. 4. Larsen & Toubro Infotech Ltd. 5. Great Software Laboratory Pvt. Ltd. 6. Mindtree Ltd. 7. Persistent Systems Ltd. 8. Tata Elxsi Ltd. 9. Infobeans Technologies Ltd. 10. Aptus Software Labs Pvt. Ltd. 11. Nihilent Ltd. 12. OFS Technologies Ltd. 13. Cygnet InfotechPvt. Ltd. 14. Infosys Ltd. 15. Threesixty Logica Testing Services Pvt. Ltd. 16. Cybage Software Pvt. Ltd. 17. Consilient Technologies Pvt. Ltd. OTHER ISSUES/ADDITIONS/DISALLOWANCES 15. The Learned AO/DRP erred in disallowing deduction claimed of Lease payments on financial lease of Rs. 18,69,97,941/- under section 37 of the I T Act. 16. The Learned AO erred in not giving TDS credit amounting to Rs.1,37,88,075/- and no reasons or explanations have been given for denying the credit. ISSUE OF INTEREST U/S 234A, B& C 17. The appellant denies the liabilities for interest u/s 234A, B& C of the Act. Further prays that the interest if any should be levied only on returned income. No opportunity has been given before the levy of interest u/s 234A, B & C of the Act. IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 7 of 64 18. Without prejudice to the appellant’s right of seeking waiver before appropriate authority the appellant begs for consequential relief in the levy of interest u/s 234A, B & C of the Act. 19. For the above and other grounds and reasons which may be submitted during the course of hearing of this appeal, the assessee requests that the appeal be allowed as prayed and justice be rendered. 2. Grounds Nos.1 to 7 are general grounds. Ground Nos.8 to 11 are relating Transfer pricing general grounds, which do not require adjudication. Ground No.12:- (Royalty – Rs.71,58,08,823/-) 3. Facts of the case are that the assessee has paid royalty of Rs.71,58,08,823/-. Royalty has been paid having regard to the support services by the Group company. The assessee is in the business of advanced diagnostic equipment. After sales support becomes a critical component for the equipment sold. The assessee’s group affiliates have extended a unique condition wherein the equipment is under constant monitoring through the network of satellites. The advantage of such a system is that it allows remote monitoring besides remote maintenance. The assessee is a beneficiary of such facility. It would have cost hundreds of millions of dollars to have an own exclusive facility besides the assessee also does not have such technology to put up the facility. It would not have made any economic sense to facilitate such facility independently. Thus the payment of royalty enhances the commercial value for the business of the assessee. 3.1 The ld. A.R. in his written submissions has submitted that the ITAT vide its order for AY 2005-06 & 2006-07 in IT(TP)A 40/B/11 & 1647/B/13 dt.21.04.2017 in the light of the directions of the Tribunal for the AY’s 2002-03 to 2004-05 has given specific direction which has not been followed by the lower authorities. Relevant portion extracted hereunder: IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 8 of 64 ‘’18. Since the issue was already set aside to the file of the Assessing Officer for choosing the proper comparable therefore in view of the earlier year of this Tribunal, we set aside this issue to the record of the TPO/AO for reconsideration of the same in the light of the directions of the Tribunal for the Assessment years 2002-03 to 2004-05 (supra). Further in case no comparable is found in respect of royalty payment by the assessee then the TPO/AO may consider the royalty payment as part of the international transactions under trading segment and then determine the ALP by considering the royalty as part of operating cost for the purpose of computing the margin in the trading segment.’’ 3.2 The ld. A.R. alleged that in the impugned year the TPO has neither found a comparable nor has considered royalty as part of international transaction in the trading segment. Thus without adhering to the orders of ITAT in assessee’s own case the TPO made the Royalty adjustment in para 23.6 of the TP order extracted as under:- ‘’23.6 Regarding the taxpayer’s contention that the TPO has to follow a proper benchmarking and the ALP of Royalty cannot be held as NIL, it is stated that, the DRP in its order for the AY 2014-15, in the taxpayer’s own case has held that when the taxpayer is not eligible to pay Royalty itself, then to find a comparable as per the taxpayers contention becomes superfluous. Hence the entire amount of Rs.71,58,08,823/- is treated as adjustment u/s 92CA of the Income Tax Act 1961. ‘’ The TPO in the second round of proceedings for AY 2005-06 & 2006-07 did not follow the direction of the Hon’ble ITAT and upon appeal the tribunal in IT(TP)A 701 & 702/Bang/2021 dated 05.08.2021 (PB-III page 740) has held as extracted hereunder: ‘’3.7 We have heard the rival submissions and perused the materials available on record. In earlier occasion, assessee came in appeal before this Tribunal. The Tribunal remitted the issue with the directions in IT(TP)(A) No.40/Bang/2011 & 1647/Bang/203 dated 21.4.2017 as discussed in para 3.3 of this order. 3.8 On set aside assessment, the TPO repeated the same what he has done on earlier occasion without considering the direction of the Tribunal where the Tribunal given a direction that in case comparable is not found in respect of payment of royalty by the assessee, then the TPO/AO may consider the royalty payment on part of the international transaction under trading segment and determine the ALP by considering the royalty as part of operating cost for the purpose of computing the margin in the trading segment. Before us, Ld. A.R. submitted that if it is considered as operating cost, then the margin of the assessee is higher than the margin of comparable i.e. M/s. Advance Micronic Devices Ltd. In our opinion, the AO has to consider this royalty payment as an operating cost and has to verify whether the margin of assessee is higher than the margin declared by the comparable company IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 9 of 64 i.e. M/s. Advance Micronic Devices Ltd. and decide accordingly. In view of this, the issue in dispute is set aside to the file of AO/TPO for the limited purpose for comparison of margins with the comparable company and decide accordingly.’’ 3.3 The ld. A.R. further submitted that the Tribunal in assessee’s own case for AY 2012-13 in IT(TP)A 703/Bang/2021 dated 07.10.2022 has followed the order for AY 2005-06 & AY 2006-07 in IT(TP)A 701 & 702/Bang/2021 dated 05.08.2021. 3.4 Recently, the Tribunal in assessee’s own case for AY 2016-17 in ITA 285/Bang/2021 dated 03.02.2023 has followed the order for AY 2012-13 in IT(TP)A 703/Bang/2021 dated 07.10.2022. Relevant portion extracted hereunder: ‘’ 6. We have heard the rival submissions and perused the materials available on record. After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in assessee’s own case in assessment years 2005-06 & 2006-07 in ITA Nos.701&701/Bang/2021 dated 5.8.2021, wherein held as under: ......... 6.1 Same view was taken in assessee’s own case in A.Y. 2012-13 in IT(TP)A No.703/Bang/2021 dated 7.10.2022. 6.2 In view of the above decisions, taking a consistent view, we allow the ground taken by the assessee.’’ 3.5 In view of the above, the ld. A.R. requested that the orders of the Tribunal for AY 2005-06 & AY 2006-07 in IT(TP)A 701 & 702/Bang/2021 dated 05.08.2021, for AY 2012-13 in IT(TP)A 703/Bang/2021 dated 07.10.2022 and AY 2016-17 in ITA 285/Bang/2021 dated 03.02.2023 be followed for the impugned year as well. 4. The ld. D.R. relied on the orders of the lower authorities. 5. We have heard both the parties and perused the materials available on record. After hearing both the parties, we are of the opinion that this issue came for consideration before this Tribunal in IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 10 of 64 assessee’s own case in assessment year 2016-17 in ITA No.285/Bang/2021 dated 3.2.2.23, wherein held as under:- “Ground No.12: 4. The ground raised in ground No.12 is as follows: 12) i) The Learned AO / TPO / DRP erred in making adjustment towards the royalty for use of technology amounting Rs.20,27,37,762/- without determining the comparable transaction in the public domain as prescribed under the Act and Rules. ii) The Learned AO/TPO/DRP have failed to identify a comparable in terms of Rule 1013(3). iii) The Learned AO / TPO / DRP erred in failing to rely on decision of the ITAT in appellant's own case for the years 2002 - 03 to 2004 - 05 and subsequent orders of the ITAT for AY: 2005-06 & 2006- 07. 4.1 Facts of the case are that the assessee has paid an amount of Rs. 20,27,37,762/- to its AE, M/s. Monogram Licensing International, Inc. based at Delaware, USA. The assessee was asked to submit the details of this payment along with the agreements. The assessee submitted the agreement dated November 21, 2000 between M/s. Monogram Licensing International, Inc. based at Delaware, USA and Wipro GE. As per the agreement submitted by the assessee, General Electric Co. owns all the licenses and it has licensed the AE M/s. Monogram Licensing International Inc. to license the licensed marks. In reply to the showcause notice, the assessee has stated as follows: “The taxpayer submitted that it pays royalty at I% of net selling price of products and services . for using the licensed name of the AE in the applicable jurisdiction. The trademark is used in packaging, advertising, instruction book and other literature relating to the product. The trademark and the trade name of the GE company helps WGE add credibility and without the trademark and trade name of the GE company the products sold by WGE will be a generic product which will neither command the price it is currently sold at nor have any buyers in the highly technology driven precision industry and also in gaining demand for its product. Therefore, as Wipro GE uses the 'GE' trademark and tradename which is owned by GE Company, Wipro GE is able to sell its products in the Indian market and meet the growing demand in the medical equipment industry. The Assessee also submits that, the Assessee is able to sell its products because of the GE brand associated with the products. The customer places its order with the Assessee and the Assessee in turn places the orders with the AEs to meet the customers demand. The prices are negotiated between the Assessee and the customers and the prices are market driven. The distribution of medical equipment along with its service component will help the Assessee in the long-term business with the customers. Further, in IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 11 of 64 terms of the arrangement with the affiliates, Wipro GE is responsible for local pricing in the domestic market.” 4.2 The TPO observed that the arguments of the assessee are fallacious for the following reasons. As per the TP study report and the submissions made by the assessee, WGE identifies the customers and forecasts the demands of the customers for the products of the AEs in Indian Market. Most of the goods imported from the AEs are delivered directly to the customers. This basically means that the customer is ordering for the equipment knowing very well that it is a GE product. Moreover, once the order is placed with the AE, WGE places the order on behalf of the customer and that too for a GE product. Everyone involved knows very well what they are negotiating for. Moreover, when GE sells the product to the customer, it would have already included in its price the cost of the trademark and the trade name. Additionally, the trademark is owned by a different entity and whereas the trademark royalty is paid to a different entity. 4.3 In view of this, the assessee’s contentions were rejected by the TPO. The TPO observed that the same issue was debated at length in the previous assessment year also. Since the facts and circumstances of the case has not changed, based on the points discussed in the previous assessment year and the points mentioned in the show cause notice issued and also the points mentioned in the above paragraphs, the TPO held the ALP of the Royalty payment as NIL. The entire amount of Rs. 20,27,37,762/-(Rs.9,98,86,675/- +Rs.10,28,51,087/-) was treated as adjustment u/s 92CA of the Act. 4.4 It is further observed by the TPO that the DRP has upheld the adjustment of Royalty to Nil in the assessee's own case for the AY 2014-15. The DRP has held that “In the case of JCB India Ltd v Deputy Commissioner of Income tax Circle13(1),New Delhi ,the ITAT Delhi has held that where the assessee company engaged in manufacture of construction equipment ,paid Royalty to its AE for usage of a particular machine ,since said transaction of payment of Royalty was independent of other transactions, assessee's contention of applying TNNM on entity level could not be accepted and ALP of transaction in question was to be determined separately under CUP method. Even though in transfer pricing proceedings, aggregation of related transactions is permissible, -yet there is no rule that all related and unrelated transactions can be combined and shown at ALP under TNNM entity level.” 4.5 The ld. TPO observed that in the case of Sony Ericson Mobile Communication India Pvt. Ltd. it has been held that 'it would not be proper and appropriate to apply the TNMM method in case of Indian assessed is engaged in manufacturing activities and distribution and marketing of imported and manufactured products as interconnected transactions. Import of raw material for manufacture would possibly be an independent transaction viz., marketing and distribution activities or functions. 'A careful perusal of the judgment of the Hon'ble jurisdictional High Court divulges that though a number of closely linked transactions can be aggregated, but, the IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 12 of 64 transactions which are not closely related to each other would require determination in a segregated manner. 4.6 Further, the ld. TPO observed that the Punjab & .. Haryana High Court in knorr-Bremse India Pvt. Ltd. held that “It further laid down emphatically tit: 'the contention that as the services and goods are utilized by the assessee for the manufacture of the final product they must be aggregated and considered to be a single transaction and the value thereof ought to be computed by the TNMM is acceptable. Merely because the purchase of each item and the acceptance of each service is a component leading to the manufacture/production of the final product sold or service provided by the assessee, it does not follow that they are not independent transactions for the sale of goods or provision of services. When 'we consider more than one separate transaction under the combined umbrella of TNMM on an entity level, it is quite possible that a probable addition on account of transfer pricing adjustment arising from one international transaction may be usurped by the income from the other international transaction giving higher income on transacted value. That is the reason for which the legislature has provided for determining the ALP of each international transaction separately, from the others. As the international transactions of payment of royalty and fees for technical services are separate transactions and not closely linked with the other transactions with which the assessee has merged them, we cannot permit such merger or aggregation for the purpose of the determining their ALP on entity level under TNMM.” 4.7 The ld. TPO observed that although closely related transactions can be aggregated, but, unrelated transactions cannot be clubbed for determining ALP on a combined basis. The relevant criteria to determine whether certain transactions be considered as one international transaction or not is to see if such transactions were entered into a package deal or were intended to be simultaneously accepted or these are so closely linked that one cannot at all stand without the other. If the above criteria is satisfied, then, two or more related transactions can be considered as one international transaction for the purpose of determining their ALP. On the contrary, if the above criteria is not satisfied, then, these transactions are to be viewed separate from each other and, accordingly, their ALP should also be determined in a distinct manner as if these are two separate independent transactions. The ld. TPO finally concluded that mere fact that both the intra-group services and goods are utilized by the assessee for the manufacture of the final product, cannot be treated decisive to consider such separate transactions as a single transaction. 5. The ld. DRP confirmed the findings of the ld. TPO. Against this assessee is in appeal before us. 6. We have heard the rival submissions and perused the materials available on record. After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in assessee’s own IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 13 of 64 case in assessment years 2005-06 & 2006-07 in ITA Nos.701&701/Bang/2021 dated 5.8.2021, wherein held as under: 3. Ground No.5 & 6 are with regard to TP adjustment of Rs.1,74,04,730/- towards royalty payment. 3.1 This issue was considered by this Tribunal on earlier occasion in assessee’s own case and this Tribunal in IT(TP)A No.40/Bang/2011 for the assessment 2005- 2006 2and the Tribunal vide order dated 21.4.2017 set aside this issue to the file of AO/TPO for fresh consideration, of which the TPO/AO sustained addition of Rs.1,74,04,730/-. Against this assessee is in appeal before us. 3.2 The assessee has paid royalty of Rs.1,74,04,730/-. Royalty has been paid having regard to the support services by the Group company. The assessee is in the business of advanced diagnostic equipment. After sales support becomes a critical component for the equipment sold. The assessee’s group affiliates have extended a unique condition wherein the equipment is under constant monitoring through the network of satellites. The advantage of such a system is that it allows remote monitoring besides remote maintenance. The assessee is a beneficiary of such facility. It would have cost hundreds of millions of dollars to have an own exclusive facility besides the assessee also does not have such technology to put up the facility. It would not have made any economic sense to facilitate such facility independently. Thus, the payment of royalty enhances the commercial value for the business of the assessee. 3.3 The Tribunal for AY 2005-06 and 2006-07 in IT(TP)A 40/B/11 & 1647/B/13 dt.21.04.2017 has set aside the issue of royalty to the file of the TPO/AO for reconsideration in the light of the directions of the Tribunal for the AY’s 2002-03 to 2004-05. The Tribunal has dealt with the issue in para 16 to 18 of the order. Relevant portion is extracted as under: ‘’18. Since the issue was already set aside to the file of the Assessing Officer for choosing the proper comparable therefore in view of the earlier year of this Tribunal, we set aside this issue to the record of the TPO/AO for reconsideration of the same in the light of the directions of the Tribunal for the Assessment years 2002-03 to 2004-05 (supra). Further in case no comparable is found in respect of royalty payment by the assessee then the TPO/AO may consider the royalty payment as part of the international transactions under trading segment and then determine the ALP by considering the royalty as part of operating cost for the purpose of computing the margin in the trading segment.’’ 3.4 During the set aside proceedings, the assessee vide reply dt.05.06.2019 submitted that by considering royalty payment as part of the international transaction under trading segment, the margin of the assessee is higher than that of the comparable company. However, the TPO in para 4.5 & 4.6 has stated as follows: ‘’4.5 During the set aside proceedings, the taxpayer has not identified any comparable in respect of the royalty payment. Since the TPO has chosen the company, M/s Advanced Micronic Devices IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 14 of 64 Ltd., as a comparable to the taxpayer, in the trading segment, the same is considered as comparable for the royalty transaction also. 4.6 The R&D expenses of the comparable & royalty over net sale is considered as per the annual report for the current year is: Sl No Company name R&D Exp Royalty/ trademar k Net sale Margin over sale 1 Advanced Micronic Devices Ltd. 0 0 2684.75 lakhs 0% Average 0% The computation of ALP of the royalty payment is made using CUP/CUT method using the above-mentioned comparable as follows:’’ 3.5 From the above, it can be seen that the AO has chosen M/s Advanced Micronic Devices Ltd as a comparable which has not incurred any royalty payment as the company has no trademark licensed to it. Due to lack of comparable transaction, ex-facie the company cannot be considered as a comparable with the assessee. The adoption of CUP method is also not as per law in the absence of comparable transaction. Hence in the impugned case, there is no comparable identified as required in law by the TPO. In the absence of comparable transaction, the Tribunal has held as extracted supra that the royalty payment be considered as operating cost in the trading segment. The TPO has adopted M/s Advanced Micronic Devices Ltd as a comparable in the trading segment. By applying the same, the assessee in its reply dt.05.06.2019 has worked out the margin by considering royalty as part of the trading segment. The margin of the assessee in the trading segment works out to 39.49% after considering royalty as operating cost as against the margin of the comparable M/s Advanced Micronic Devices Ltd being 28.06%. Since the margin of the assessee is higher than that of the comparable, the transaction is at arm’s length and consequently the addition requires to be deleted. 3.6. The Ld. D.R. submitted that there is no proof of any services having actually been rendered by the A.E. The facts of issue shows that the services, even if any, rendered by the A.E. were mere duplication of the functions being carried out by the tax payer on its own and independently. The assessee did not get any economic value from the alleged trade mark/trade name fee paid. The ALP of the so-called trade mark/trade name for charges so paid by the assessee was determined as nil and he prayed that the same to be confirmed. 3.7 We have heard the rival submissions and perused the materials available on record. In earlier occasion, assessee came in appeal before this Tribunal. The Tribunal remitted the issue with the directions in IT(TP)(A) No.40/Bang/2011 & 1647/Bang/203 dated 21.4.2017 as discussed in para 3.3 of this order. IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 15 of 64 3.8 On set aside assessment, the TPO repeated the same what he has done on earlier occasion without considering the direction of the Tribunal where the Tribunal given a direction that in case comparable is not found in respect of payment of royalty by the assessee, then the TPO/AO may consider the royalty payment on part of the international transaction under trading segment and determine the ALP by considering the royalty as part of operating cost for the purpose of computing the margin in the trading segment. Before us, Ld. A.R. submitted that if it is considered as operating cost, then the margin of the assessee is higher than the margin of comparable i.e. M/s. Advance Micronic Devices Ltd. In our opinion, the AO has to consider this royalty payment as an operating cost and has to verify whether the margin of assessee is higher than the margin declared by the comparable company i.e. M/s. Advance Micronic Devices Ltd. and decide accordingly. In view of this, the issue in dispute is set aside to the file of AO/TPO for the limited purpose for comparison of margins with the comparable company and decide accordingly. 4. Next ground No.8 is with regard to sustaining addition of Rs.2,42,33,641/- u/s 37 of the Act by holding that it was wholly and exclusively incurred for the purpose of business. Facts of this case are that this issue has been set aside by the Tribunal vide order cited (supra) for reconsideration by the AO/TPO. On set aside assessment the addition has been sustained by AO. Since the assessee has not substantiated those expenses as incurred wholly and exclusively for the purpose of business. Hence, the assessee once again in appeal before us. 4.1. The Ld. A.R. submitted that the impugned issue was set aside by the Tribunal in IT(TP)A 40/B/11 dt.21.04.2017 to the AO for reconsideration and adjudication. The AO vide his notice dt.11.11.2019 sought details of dealer commission. The assessee vide replies dt.27.11.2019 & 11.12.2019 submitted the party wise details of provision and payments along with the details of deduction of TDS and prayed that the same should be allowed as business expenditure. However, rejecting the details and information provided and the practice consistently followed by the assessee, the AO has disallowed the dealer commission as not incurred wholly and exclusively for the purposes of business and disallowed the same u/s 37 of the Act. 4.2 The assessee disagrees with the findings of the AO as he has erred in wrongly interpreting the facts, submissions, method of accounting and the practice consistently followed by the assessee. The sales are booked by various dealers appointed by the assessee and commission is paid on the sales made by them, however, the actual payment is made upon realization of the sales proceeds and on fulfilling other concomitant services / obligations. At the time of booking sales, the quantification of commission to each dealer is uncertain in nature, hence the amount of dealer commission expense is not booked against particular dealer account, but carried in the books under "Other Liabilities" account. Once the dealer fulfils the conditions related to the sales, he becomes eligible to claim the commission. Then, the commission will be moved from "Other liabilities" account to respective dealer account, and paid immediately after deducting TDS on the same. This practice is followed consistently and TDS is deducted where ever applicable. Hence it is prayed that the dealer commission incurred be allowed in the interests of justice as the same has been wholly and exclusively incurred for the purposes of its business. IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 16 of 64 4.3. The Ld. D.R. submitted that Ld. DRP in his order observed that the assessee is not in a position to furnish the particulars (name, address, evidence of deduction of TDS, etc.) in respect of persons to whom commission amounting to Rs.2,42,33,641/- have been paid pertaining to AY 2005-06. Therefore, he is not in a position to prove identity of the payee, genuineness of expenses incurred and substantiate that expenses are incurred wholly and exclusively for the purpose of business. The assessee’s claim of following the practice of accounting also could not be substantiated as the assessee is unable to discharge the primary onus of establishing the identity and the genuineness of the transaction. In view of the circumstances, Ld. DRP held that the assessing officer has correctly held that the dealer commission amounting to Rs.2,42,33,641/- has not been incurred wholly and exclusively for the purpose of business. 4.4. We have heard the rival submissions and perused the materials available on record. The assessee claimed that it has paid a sum of Rs.2,42,33,641/- towards commission to dealers and according to the assessee, it is wholly and exclusively incurred for the purpose of business. Further, assessee submitted the list of payments made to various parties and also furnished the details of deductions of TDS at the time of payment of commission to various dealers. It was also noted that in the case of receipt of this commission by those parties, the department has accepted it. However, in the hands of assessee it was treated as not incurred by the assessee, which is incorrect. Further, the books of accounts of the assessee is not rejected by challenging the entries in the books of accounts. On this point also, we are of the opinion that the claim of assessee is to be allowed as genuine. Accordingly, we allow this ground of appeal taken by the assessee. 4.5 In the result, the appeal of the assessee in ITA No.701/Bang/2021 is partly allowed for statistical purposes. 6.1 Same view was taken in assessee’s own case in A.Y. 2012-13 in IT(TP)A No.703/Bang/2021 dated 7.10.2022. 6.2 In view of the above decisions, taking a consistent view, we allow the ground taken by the assessee.” 5.1 In view of the above decision of the Tribunal in assessee’s own case, we allow the ground taken by the assessee. This ground of assessee is allowed. Ground No.13 (Distribution Segment – Rs.174,43,26,236/-) 6. The ld. A.R. submitted that Wipro GE markets, distributes and services the complete range of GE’s medical diagnostic imaging and therapy equipment in the Indian market. Based upon customer requirements, Wipro GE imports medical systems from other GE Healthcare global entities. Wipro GE also caters to the after sales IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 17 of 64 market segment by way of supply of spare parts and service of equipment. Based on the functional analysis, Wipro GE is classified as a Distributor of medical products which provides after sales services on diagnostic and therapy equipment. Margin of the Appellant as computed by the TPO in the TP Order: Comparables selected by Appellant in TP report and their arithmetic mean: Sl. No. Name of the company Wt. Avg OP/OR ( %) 1 Trivitron Healthcare Pvt. Ltd -5.46 2 Suyog Diagnostics Ltd. -1.12 3 Frontline Electro Medical Ltd. 2.14 4 Hicks Thermometers (India) Ltd. 3.92 5 Iris Healthcare Technologies Pvt. Ltd. 4.38 6 A D S Diagnostic Ltd. 8.48 7 Schiller Healthcare India Pvt. Ltd. 32.70 35 th Percentile 1.72% Median 4.37% 65 th Percentile 4.56% Out of the 7 comparables selected by the Appellant, the TPO has rejected 5 of them. Final Comparables selected by TPO; Particulars Rs. Operating Revenue 22,45,27,33,074/- Operating Expenses 21,75,64,47,225/- Operating Profit 69,62,85,849/- OP/OR 3.10% OP/OC 3.20% Sl No Company Name Wt. PLI (OP/OR)% 1 Frontline Electro Medical Ltd 3.66 2 Hicks Thermometers (India) Ltd. 3.92 IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 18 of 64 Computation of arm’s length price by the TPO and the adjustment made: Operating Revenue (OR) Rs.22,45,27,33,074/- Operating Cost (OC) Rs.21,75,64,47,225/- Median Margin of Comparable set (M) 10.87% Arm’s Length Price (ALP) = (1-M)*OR Rs.20,01,21,20,989/- Price Paid Rs.21,75,64,47,225/- Adjustment u/s 92CA Rs.1,74,43,26,236/- 6.1 The ld. A.R. submitted that the adjustment made by the TPO of Rs.1,74,43,26,236/- in the Distribution Segment has been adopted by the AO in the Draft assessment order u/s 143(3) rws 144C of the Act dated 20.04.2021. The appellant filed objections before DRP on 22.06.2021. The appellant filed its written submissions before DRP on 06.01.2022 emphasizing on the binding decisions of the tribunal in assessee’s own case for earlier years. Without appreciating the submissions of the assessee, the DRP passed its directions u/s 144C(5) on 25.01.2022 rejecting the grounds. The AO passed the final assessment order u/s 143(3) rws 144C(13) rws 144(B) of the Act dated 23.02.2022 retaining the TP adjustment in Equipment segment of Rs.174,43,26,236/- as per draft assessment order. 3 Schiller Healthcare India Pvt. Ltd 7.57 4 Terumo India Pvt. Ltd. 10.70 5 Everest Instruments Pvt. Ltd. 11.03 6 Confident Sales India Pvt. Ltd. 12.51 7 Indifoss Analytical Pvt. Ltd. 13.22 8 Narang Medical Ltd. 13.81 35 th Percentile 7.57 Median 10.87 65 th Percentile 12.51 IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 19 of 64 6.2 The ld. A.R. submitted that the AO/TPO/DRP has erred in not relying on decision of the CIT (A) / ITAT in assessee’s own case for the years 2002–03 to 2004–05, 2005-06, 2006-07 and subsequent orders of the ITAT for other assessment years. The direction of the ITAT to restrict the adjustment to the international transaction i.e, AE purchases of Rs.875,98,67,002/- has not been adhered to by the TPO. The TPO yet again has made the adjustment on domestic sales of Rs.22,45,27,33,074/- which is not an international transaction. The TPO/DRP have adopted TNMM as the MAM to benchmark the transaction. The assessee submitted to the TPO/DRP that the ITAT in ITA 810 to 812/Bang/2007 dated 16.05.2008 for the AY’s 2002- 03 to 2004-05 has held Resale Price Method as the MAM to benchmark the transaction. Relevant portion is reproduced as under: “Accordingly, he has held Resale Price Method as explained in Rule 10B(1)(b) will be the MAM since the trading segment involves purchases of goods which is resale. In my view resale price method offers a solution for the issue on hand. Accordingly TPO is directed to adopt resale price method of ALP determination. In doing so gross margin being the difference between the purchase price paid to AE and sale price realized offers a simple and reliable basis. Accordingly, TPO will do so. This decision takes care of the guidance offered in rule 10(c) of the rules.” 6.3 The ld. A.R. stated that the said ruling by the ITAT has been accepted by the department and no further appeal has been made to the High Court. The Order giving effect to ITAT order passed by the TPO dt.09.07.2013 for AY 2002-03 to 2004-05 wherein the TPO accepted the margin computation/results of the assessee and deleted the TP adjustment. The issue stands concluded in this manner. The same is extracted hereunder: IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 20 of 64 IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 21 of 64 IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 22 of 64 6.4 The ld. A.R. submitted that similarly, the Tribunal in assessee’s own case for the AY 2005-06 vide order dt.21.04.2017 in IT(TP)A 40/Bang/11 and 1647/Bang/2013 held that the adjustment on account of transfer pricing can be made only in respect of the international transaction and in this case to be confined to the purchases made from AE. Relevant portion is extracted hereunder: ‘’15. Having considered the rival submissions as well as the relevant material on record, we find that the TPO while computing the ALP has apparently taken the gross profit margin of the AMDL at entity level by assuming that the entire activity of AMDL is only trading in the medical equipments. So far as the issue of considering the segmental details of the comparable companies, on principle we do not find any error on this point as the comparability of the assessee's trading segment in medical equipment has to be determined by considering the same segment of the comparable companies in the same activity. Therefore if the comparable company is having more than one segment as considered by the CIT (Appeals) then only the trading segment of the said company has to be compared with the assessee. Further the CIT (Appeals) has also recomputed the gross margin of the assessee and again held that the adjustment is required to be made only in respect of purchases made from the AE and not on the entire transaction in the trading segment. There is no quarrel on this issue that the adjustment on account of transfer pricing can be made only in respect of the international transactions. In the case on hand, the international transactions in trading segment is confined only to the purchases made from the AE. Since there are other transactions of import and procurement from domestic market therefore the adjustment cannot be made by considering the entire trading segment of the assessee. Thus on principle, we do not find any error on these points however, the CIT (Appeals) has undertaken to recompute the margins of the comparable as well as assessee by considering the fresh material which was not available with the TPO/A.O. which it is not permissible to the CIT (Appeals) to do this exercise of recomputation without giving an opportunity to the TPO/A.O. The proper course of action on the part of CIT (Appeals) would have been to ask the TPO/A.O. for remand report by considering all the relevant material. However, the CIT (Appeals) did not choose to issue any remand order but undertaken the entire exercise on his own. Thus it is clear that the TPO/A.O. was not given an opportunity in this process of recomputing the margins of the comparable as well as assessee. Accordingly in view of the IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 23 of 64 above facts and circumstances of the case, we set aside this issue to the record of the TPO/A.O. to consider and verify relevant record and then determine the ALP in the light of our above observations.’’ 6.6 He further submitted that the TPO for the AY 2005-06 while passing the order giving effect vide order dt.28.10.2019 has followed the direction of the ITAT of applying RPM method and restricting the adjustment only in respect of the international transactions and thus held that no adjustment was required. Relevant portion is extracted hereunder: IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 24 of 64 6.6 The ld. A.R. submitted that for AY 2006-07, similar computation considering RPM method, AE purchases and AMDL as comparable was made in line with the direction of ITAT for earlier years and the Learned CIT-A vide order dated 18.09.2013 deleted the TP adjustment in trading segment as the margin of the assessee was higher compared to that of the comparable. There has been no appeal by the department against the CIT-A order on this issue and thus stands concluded. Thus for the earlier years the lower authorities have followed the binding decision of the Tribunal in assessee’s own case. 6.7 In the impugned year the AE purchases are Rs.875,98,67,002/- in the trading segment. The assessee’s margin for the impugned year as calculated by applying RPM method and considering AE purchases as the international transaction in the manner directed/accepted by the Tribunal and lower authorities in earlier years is hereunder: 6.8 The ld. A.R. submitted that in line with the treatment given to AY’s 2002-03 to 2004-05, AY 2005-06 & 2006-07 the margin of the assessee has been calculated at 124.92%. As mentioned supra, the IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 25 of 64 TPO for the impugned year has considered 8 comparables at a median margin of 10.87%. Since the assessee’s margin is higher than that of the comparables chosen by the TPO, no adjustment is required in the trading segment. 6.9 The ld. A.R. submitted that the Tribunal in assessee’s own case for AY 2012-13 in IT(TP)A 703/Bang/2021 dated 07.10.2022 (PB-II page 791 to 801, para 28 to 30) has dealt with this issue and the operative portion is extracted hereunder: ‘’30. We have heard both the parties and perused the materials available on record. The main grievance of the Ld. A.R. on this issue is that AO/TPO/DRP has not considered the earlier decision of Tribunal in A.Y. 2002-03 to 2004-05, 2005-06, 2006-07, as such order passed by the lower authorities is bad in law. The Judicial discipline requires consistency in its proceedings. The AO/TPO what criteria followed in earlier year for determining the ALP, the same to be followed in next assessment year unless and until there is a change in facts of the case. In the present case, the Ld. D.R. not brought on record any change in circumstances to deviate from earlier order of the Tribunal for the assessment year especially 2005-06 and 2006-07 in IT(TP)A No.40/Bang/2011 & 1647/Bang/2013 dated 21.4.2017 wherein the Tribunal followed the earlier order of the Tribunal for the AY 2002-03 and 2004- 05, which has been reproduced in earlier para of this order. Being so, we direct the AO/TPO to pass fresh order in the light of above observation of the Tribunal in AY 2005-06 and 2006-07. Once the AO/TPO pass the order in conformity with earlier order of the Tribunal, other issue raised by the assessee with regard to comparables is infructuous. This ground of assessee is partly allowed for statistical purposes.’’ 6.10 He submitted that the Tribunal in assessee’s own case for AY 2016-17 in ITA 285/Bang/2021 dated 03.02.2023 has followed the order for AY 2012-13 in IT(TP)A 703/Bang/2021 dated 07.10.2022. Relevant portion is extracted hereunder: ‘’ 10. We have heard the rival submissions and perused the materials available on record. After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in assessee’s own case in assessment years 2012-13 in ITA No.703/Bang/2021 dated 7.10.2022, wherein held as under: ............ 10.1 Same view was taken in assessee’s own case in A.Y. 2012-13 in IT(TP)A No.703/Bang/2021 dated 7.10.2022. 10.2 In view of the above order of the Tribunal this ground is remitted to the file of AO/TPO on similar lines. This ground of appeal is partly allowed for statistical purposes.’’ IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 26 of 64 6.11 In view of the above, the ld. A.R. submitted that since the facts and law are the same, on the parity of reasoning the TP adjustment in the trading segment is to be deleted. Alternatively, the direction given by the Tribunal for AY 2012-13 in IT(TP)A 703/Bang/2021 and AY 2016-17 in ITA 285/Bang/2021 dated 03.02.2023 extracted supra may be followed for the impugned year as well. 7. The ld. D.R. relied on the orders of the lower authorities. 8. We have heard the rival submissions and perused the materials available on record. After hearing both the parties, we are of the opinion that same issue came for consideration before this Tribunal in assessee’s own case in AY 2016-17 in IT(TP)A No.285/Bang/2021 dated 3.2.2023 wherein held as under: “7. Ground No.13 of the assessee’s appeal is reproduced as under: 13. i) The Learned AO / TPO / DRP erred in making adjustment towards the Arm's Length Price difference in the distributor segment amounting 253,10,21,733/-. ii) The Learned AO / TPO / DRP erred in making adjustment on transactions beyond AE transactions, thus, the adjustment proposed includes non AE transactions. iii) The Learned AO / TPO / DRP erred in wrongly adopting the financial results of the assessee. iv) The Learned AO / TPO / DRP erred in comparing the appellant's distribution margin with comparables which are not in the business of trading/distribution. v) The Learned AO / TPO / DRP erred in not following their own orders passed for the earlier assessment years on this issue. vi) The selection of the method by the Learned AO / TPO / DRP is not as per law. vii) The Learned AO / TPO / DRP erred in not granting the variances deduction envisaged in the Act and Circular. viii) The Learned AO / TPO / DRP erred in not carrying out the adjustments as required under law as well as the facts. ix) The Learned AO/TPO/DRP have failed to identify a comparable in terms of Rule 1.013(3). IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 27 of 64 x) The Learned AO/TPO/DRP erred in rejecting certain comparables on unsustainable and untenable grounds/reasons while considering comparables which failed to meet the filters /criteria as required under law. xii) The AO/TPO/DRP erred in considering the following comparables overlooking/rejecting the objections made by the assessee 1) Deccan Dental Depot Pvt Ltd 2) Covidien Healthcare India Pvt Ltd 3) Vinod Medical Systems Pvt Ltd 4) Indian Hospitex Systems Pvt Ltd 5) India Medtronic Pvt Ltd 6) Sandor Medicaids Pvt Ltd 7) Iris Healthcare Technologies Pvt: Ltd 8) Medicept Dental India Pvt Ltd 9) IDS Denmed Pvt Ltd 10) Affiance Medi Tech Pvt Ltd 11) Olympus Medical Systems India Pvt Ltd 12) Weldon Biotech (India) Pvt Ltd 13) Pinnacle Biomed Pvt Ltd 14) Schiller Healthcare India Pvt Ltd 15) Stryker India Pvt Ltd 16) Everest Instruments Pvt Ltd 17) Confident Sales India Pvt Ltd 18) Narang Medical Ltd 19) Indifoss Analytical Pvt Ltd xiii) The Learned AO / TPO / DRP erred in failing to rely on decision of the ITAT in assessee's own case for the years 2002 - 03 to 2004 - 05 and subsequent orders of the ITAT for other assessment years. xiv) The Learned AO / TPO / DRP erred in adopting TNMM as the MAM ignoring the findings of ITAT in the appellant's own case for earlier years and accepted by department on the same issue. xv) The Learned AO/TPO/DRP have failed to apply the provisions of Rule 10B(4)&,(5) and 10CA(2) while selecting the criteria and filters. xvi) The Learned AO / TPO / DRP erred in not carrying out the adjustments like risk, working capital, et:c., as required under law as well as the facts. xvii) The learned AO/TPO/DRP erred in rejecting the price per unit adjustment carried out by the appellant xviii) The learned AO/TPO/DRP erred in rejecting the import duty adjustment carried out by the appellant. IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 28 of 64 xix) The learned AO/TPO/DRP erred in not considering the after sales support service segment while determining operating margin of distribution segment. xxi) The learned AO/TPO/DRP erred in rejecting the corroborative analysis provided by the appellant. xxii) The Learned AO/TPO/DRP erred in applying the trading income threshold of 75% to sales to select comparable companies. - xxiii) The learned AO/TPO/DRP erred in applying the Related party transactions threshold of 25% to revenues to select comparable companies. xiv) The learned AO/TPO/DRP erred in not applying the Turnover filter as per law. 7.1 Facts of the issue are that Wipro GE markets, distributes and services the complete range of GE’s medical diagnostic imaging and therapy equipment in the Indian market. Based upon customer requirements, Wipro GE imports medical systems from other GE Healthcare global entities. Wipro GE also caters to the after sales market segment by way of supply of spare parts and service of equipment. Based on the functional analysis, Wipro GE is classified as a Distributor of medical products which provides after sales services on diagnostic and therapy equipment. Margin of the assessee as computed by the TPO in the TP Order is as under:- Comparables selected by Appellant in TP report and their arithmetic mean: Sl. No. Name of the company Wt. Avg ( %) 1 Advanced Micronic Devices Ltd -103.43 2 Thakral Services (India) Ltd -11.98 3 Max Medical Services Ltd -3.56 4 Usart Technologies India Pvt Ltd -0.50 5 Zicom Electronic Security Systems Ltd 1.71 6 Ind-Agiv Commerce Ltd 3.51 7 Lyka Exports Ltd 9.38 8 Keith Electronics Pvt Ltd 9.25 Median 3.59% Out of the 8 comparables selected by the assessee, the TPO has rejected all of them. Final Comparables selected by TPO: Particulars Rs. Operating Revenue 2535,87,21,072/- Operating Expenses 2302,03,25,347/- Operating Profit 233,83,95,725/- OP/OR 9.22% OP/OC 10.16% IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 29 of 64 Computation of arm’s length price by the TPO and the adjustment made: Operating Revenue (OR) Rs.1769,15,48,168/- Operating Cost (OC) Rs.1902,13,13,780/- Adjusted Arm’s length Margin 6.79% of operating revenue Arm’s Length Price (ALP) (100%-6.79% = 93.21%) of operating revenue Rs.1649,02,92,047/- Price Received Rs.1902,13,13,780/- Adjustment u/s 92CA Rs.253,10,21,733/- 7.2 The adjustment made by the TPO of Rs.253,10,21,733/- in the Distribution Segment has been adopted by the AO in the Draft assessment order u/s 143(3) rws 144C(1) of the Act dated 30.12.2019. The assessee filed objections before DRP on 27.01.2020. The assessee filed its written submissions before DRP on 29.01.2021 emphasizing on the binding decisions of the Tribunal in assessee’s own case for earlier years. Without appreciating the submissions of the assessee, the DRP passed its directions u/s 144C(5) on 11.02.2021 rejecting the grounds. The AO passed the final assessment order u/s 143(3) rws 144C(13) and 144C(13) rws 143(3A) & 143(3B) of the Act dated 30.03.2021 retaining the TP adjustment in Equipment segment of Rs.253,10,21,733/- as per draft assessment order. Sl No Company Name Wt. PLI (OP/OC)% 1 Deccan Dental Depot Pvt Ltd 0.65 2 Covidien Healthcare India Pvt Ltd 2.85 3 Vinod Medical Systems Pvt Ltd 3.88 4 Indian Hospitex Systems Pvt Ltd 3.89 5 India Medtronic Pvt Ltd 4.62 6 Sandor Medicaids Pvt Ltd 4.88 7 Iris Healthcare Technologies Pvt Ltd 4.93 8 Medicept Dental India Pvt Ltd 5.31 9 I D S Denmed Pvt Ltd 6.07 10 Affiance Medi Tech Pvt Ltd 6.79 11 Olympus Medical Systems India Pvt Ltd 6.86 12 Weldon Biotech (India) Pvt Ltd 7.14 13 Pinnacle Biomed Pvt Ltd 7.41 14 Schiller Healthcare India Pvt Ltd 8.00 15 Stryker India Pvt Ltd 9.17 16 Everest Instruments Pvt Ltd 12.55 17 Confident Sales India Pvt Ltd 15.40 18 Narang Medical Ltd 15.63 19 Indifoss Analytical Pvt Ltd 18.17 35 th Percentile 4.93 Median 6.79 65 th Percentile 7.41 IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 30 of 64 7.3 The AO/TPO/DRP has erred in not relying on decision of the CIT (A) / ITAT in assessee’s own case for the years 2002 – 03 to 2004 – 05, 2005-06, 2006-07 and subsequent orders of the ITAT for other assessment years. The direction of the ITAT to restrict the adjustment to the international transaction i.e, AE purchases of Rs.964,72,92,298/- has not been adhered to by the TPO. The TPO yet again has made the adjustment on domestic sales of Rs.1769,15,48,148/- which is not an international transaction. 8. The ld. A.R. requested to delete the TP adjustment in the trading segment by placing reliance on the order of the Tribunal in assessee’s own case in IT(TP)A No.703/Bang/2021 dated 7.10.2022 for the assessment year 2012-13. 9. The ld. D.R. relied on the orders of the lower authorities. 10. We have heard the rival submissions and perused the materials available on record. After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in assessee’s own case in assessment years 2012-13 in ITA No.703/Bang/2021 dated 7.10.2022, wherein held as under: “28. Wipro GE markets, distributes and services the complete range of GE’s medical diagnostic imaging and therapy equipment in the Indian market. Based upon customer requirements, Wipro GE imports medical systems from other GE Healthcare global entities. Wipro GE also caters to the after sales market segment by way of supply of spare parts and service of equipment. Based on the functional analysis, Wipro GE is classified as a Distributor of medical products which provides after sales services on diagnostic and therapy equipment. 28.1 The ITAT in IT(TP)A 340/Bang/2017 dated 31.08.2017 has restored the matter for re-adjudication of all the issues in the light of the findings given in earlier years. However, the order of the lower authorities violates the principles of judicial discipline as the binding nature of the orders of the higher appellate authorities have been totally ignored. Margin of the Assessee as computed by the TPO in the TP Order: 28.2 Comparables selected by Assessee in TP report and their arithmetic mean: Sl. No. Name of the company ( %) 1 ADS Diagnostic Limited 8.41 2 Advanced Micronic Devices Ltd 2.07 3 Central Scientific Supplies Co. Ltd -0.15 Particulars Rs. Revenue 1388,87,76,432 Cost 1341,57,47,576 Profit 47,30,28,856 OP/OC 3.52% OP/OR 3.41% IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 31 of 64 4 Frontline Electro Medical Ltd 0.01 5 Kusum Electrical Inds Ltd 9.84 6 Softouch Hygiene Products Ltd 10.41 Arithmetical Mean 5.10 28.3 Out of the 6 comparables selected by the Assessee, the TPO accepted the 1 highlighted above, viz. Advanced Micronic Devices Ltd and rejected the other 5 comparables. 28.4 Final Comparables selected by TPO and their arithmetic mean: Computation of arm’s length price by the TPO and the adjustment made: PLI Margin 18.43 OR 1388,87,76,432 ALP* 81.57% 1132,90,74,935 OC 1341,57,47,576 Shortfall 208,66,72,641 Value of International Transaction (to be benchmarked) 791,22,27,227 Percentage to Total Cost 43.80% Proportionate adjustment 91,39,62,617 28.5 The adjustment made by the TPO of Rs.91,39,62,617/- in the Distribution Segment has been adopted by the AO in the Draft assessment order u/s 143(3) rws 254 rws 144C(1) of the Act dated 30.12.2019. The assessee filed objections before DRP on 27.01.2020. The assessee filed its written submissions before DRP on 11.01.2021 emphasizing on the binding decisions of the Tribunal in assessee’s own case for earlier years. Without appreciating the submissions of the assessee, the DRP passed its directions u/s 144C(5) on 11.02.2021 rejecting the grounds. The AO passed the final assessment order u/s 143(3) rws 254 rws 144C(13) of the Act dated 30.03.2021 retaining the TP adjustment in Equipment segment of Rs.91,39,62,617/- as per draft assessment order. 28.6 The AO/TPO/DRP has erred in not relying on decision of the CIT (A) / ITAT in assessee’s own case for the years 2002 – 03 to 2004 – 05, 2005-06, 2006-07 and subsequent orders of the ITAT for other assessment years. The direction of the ITAT to restrict the adjustment to the international transaction i.e, AE purchases has not been adhered to by the TPO. The TPO yet again as was made in the original Sl No Company Name (OP/OR) (in%) 1 Maestors Medline Systems Ltd (seg) 29.57 2 Advanced Micronic Devices Ltd (seg) 7.29 Average 18.43 IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 32 of 64 proceeding has made the adjustment on domestic sales which is not an international transaction. 28.7 The TPO/DRP have adopted TNMM as the MAM to benchmark the transaction. It was submitted to the TPO/DRP that the Tribunal in ITA 810 to 812/Bang/2007 dated 16.05.2008 for the AY’s 2002-03 to 2004-05 has held Resale Price Method as the MAM to benchmark the transaction. Relevant portion is reproduced as under: “Accordingly, he has held Resale Price Method as explained in Rule 10B(1)(b) will be the MAM since the trading segment involves purchases of goods which is resale. In my view resale price method offers a solution for the issue on hand. Accordingly TPO is directed to adopt resale price method of ALP determination. In doing so gross margin being the difference between the purchase price paid to AE and sale price realized offers a simple and reliable basis. Accordingly, TPO will do so. This decision takes care of the guidance offered in rule 10(c) of the rules.” 28.8 The said ruling by the ITAT has been accepted by the department and no further appeal has been made to the High Court. The Order giving effect to ITAT order passed by the TPO dt.09.07.2013 for AY 2002-03 to 2004-05 wherein the TPO accepted the margin computation/results of the assessee and deleted the TP adjustment. The issue stands concluded in this manner. The same is extracted hereunder: IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 33 of 64 IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 34 of 64 IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 35 of 64 28.9 Similarly, the Tribunal in assessee’s own case for the AY 2005-06 vide order dt.21.04.2017 in IT(TP)A 40/Bang/11 and 1647/Bang/2013 held that the adjustment on account of transfer pricing can be made only in respect of the international transaction and in this case to be confined to the purchases made from AE. Relevant portion is extracted hereunder: ‘’15. Having considered the rival submissions as well as the relevant material on record, we find that the TPO while computing the ALP has apparently taken the gross profit margin of the AMDL at entity level by assuming that the entire activity of AMDL is only trading in the medical equipments. So far as the issue of considering the segmental details of the comparable companies, on principle we do not find any error on this point as the comparability of the assessee's trading segment in medical equipment has to be determined by considering the same segment of the comparable companies in the same activity. Therefore if the comparable company is having more than one segment as considered by the CIT (Appeals) then only the trading segment of the said company has to be compared with the assessee. Further the CIT (Appeals) has also recomputed the gross margin of the assessee and again held that the adjustment is required to be made only in respect of purchases made from the AE and not on the entire transaction in the trading segment. There is no quarrel on this issue that the adjustment on account of transfer pricing can be made only in respect of the international transactions. In the case on hand, the international transactions in trading segment is confined only to the purchases made from the AE. Since there are other transactions of import and procurement from domestic market therefore the adjustment cannot be made by considering the entire trading segment of the assessee. Thus on principle, we do not find any error on these points however, the CIT (Appeals) has undertaken to recompute the margins of the comparable as well as assessee by considering the fresh material which was not available with the TPO/A.O. which it is not permissible to the CIT (Appeals) to do this exercise of re- computation without giving an opportunity to the TPO/A.O. The proper course of action on the part of CIT (Appeals) would have been to ask the TPO/A.O. for remand report by considering all the relevant material. However, the CIT (Appeals) did not choose to issue any remand order but undertaken the entire exercise on his own. Thus it is clear that the TPO/A.O. was not given an opportunity in this process of recomputing the margins of the comparable as well as assessee. Accordingly in view of the above facts and circumstances of the case, we set aside this issue to the record of the TPO/A.O. to consider and verify relevant record and then determine the ALP in the light of our above observations.’’ 28.10 The TPO for the AY 2005-06 while passing the order giving effect vide order dt.28.10.2019 has followed the direction of the ITAT of applying RPM method and restricting the adjustment only in respect of the international transactions and thus held that no adjustment was required. Relevant portion is extracted hereunder: IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 36 of 64 28.11 For AY 2006-07, similar computation considering RPM method, AE purchases and AMDL as comparable was made in line with the direction of ITAT for earlier years and the Learned CIT-A vide order dated 18.09.2013 deleted the TP adjustment in trading segment as the margin of the assessee was higher compared to that of the comparable. There has been no appeal by the department against the CIT-A order on this issue and thus stands concluded. Thus, for the earlier years the lower authorities have followed the binding decision of the Tribunal in assessee’s own case. 28.12 It may be noted that the same TPO i.e, DCIT, TP-2(2)(1), Bangalore passed the Order giving effect for both AY 2005-06 and AY 2012-13 on the same day 28.10.2019. Though TPO followed the specific direction of the ITAT for AY 2005- 06, the same was not followed for the AY 2012-13. Thus the TPO has been inconsistent in her own approach. The TPO is in error in not following the orders of the Tribunal in assessee’s own case which is a binding precedent. The TPO has tried to take a contrary position on an issue which has been overwhelmingly settled in the earlier years. There being no change in fact or law it was imperative for the TPO to follow the same method of computation as done earlier. Not doing so amounts to violation of law as explained by Hon’ble Madras High Court in L.G. Ramamurthi 110 ITR 453. Relevant portion extracted hereunder: IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 37 of 64 ‘’Appeal(Tribunal)—Precedent—Tribunal coming to conclusion that gifts were sham—In subsequent assessment year a differently constituted Tribunal came to a different conclusion, viz., gifts were real Tribunals is not right in taking an altogether different view in later year on same set of facts when there was no fresh material before it.’’ 28.13 In the impugned year the AE purchases are Rs.541,23,20,773/- in the trading segment. The assessee’s margin for the impugned year as calculated by applying RPM method and considering AE purchases as the international transaction in the manner directed/accepted by the Tribunal and lower authorities in earlier years is hereunder: 28.14 In line with the treatment given to AY’s 2002-03 to 2004-05, AY 2005- 06 & 2006-07 the margin of the assessee has been calculated at 50.11%. As mentioned supra, the TPO for the impugned year has considered M/s.Maestro Mediline Systems Ltd (seg) at a margin of 29.57% and M/s. Advanced Micronic Devices Ltd at a margin of 7.29%, thus average being 18.43%. It may be seen in all the earlier years that M/s. Advanced Micronic Devices Ltd (7.29%) has been consistently considered as a comparable and thus the margin of the assessee at 50.11% being higher than that of M/s. Advanced Micronic Devices Ltd, the adjustment requires to be deleted. 28.15 The assessee has objected to M/s. Maestro Mediline Systems Ltd (seg) being considered as a comparable on various grounds. Without going into the merits of the said company being considered as a comparable and assuming without admitting that M/s. Maestro Mediline Systems Ltd (seg) is considered as a comparable for this year, the margin of the comparables as arrived at by TPO is 18.43%. Thus, the margin of the assessee at 50.11% is more than the margin of the comparables calculated by the TPO at 18.43%; therefore, no adjustment is required in the trading segment. IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 38 of 64 28.16 In view of the above, since the facts and law are the same and on the parity of reasoning the TP adjustment in the trading segment is to be deleted. 29. The Ld. D.R. relied on the order of the lower authorities. 30. We have heard both the parties and perused the materials available on record. The main grievance of the Ld. A.R. on this issue is that AO/TPO/DRP has not considered the earlier decision of Tribunal in A.Y. 2002-03 to 2004-05, 2005- 06, 2006-07, as such order passed by the lower authorities is bad in law. The Judicial discipline requires consistency in its proceedings. The AO/TPO what criteria followed in earlier year for determining the ALP, the same to be followed in next assessment year unless and until there is a change in facts of the case. In the present case, the Ld. D.R. not brought on record any change in circumstances to deviate from earlier order of the Tribunal for the assessment year especially 2005- 06 and 2006-07 in IT(TP)A No.40/Bang/2011 & 1647/Bang/2013 dated 21.4.2017 wherein the Tribunal followed the earlier order of the Tribunal for the AY 2002-03 and 2004-05, which has been reproduced in earlier para of this order. Being so, we direct the AO/TPO to pass fresh order in the light of above observation of the Tribunal in AY 2005-06 and 2006-07. Once the AO/TPO pass the order in conformity with earlier order of the Tribunal, other issue raised by the assessee with regard to comparables is infructuous. This ground of assessee is partly allowed for statistical purposes.” 10.1 Same view was taken in assessee’s own case in A.Y. 2012-13 in IT(TP)A No.703/Bang/2021 dated 7.10.2022. 10.2 In view of the above order of the Tribunal this ground is remitted to the file of AO/TPO on similar lines. This ground of appeal is partly allowed for statistical purposes.” 8.1 In view of the above order of the Tribunal, the issue is remitted to AO/TPO on similar directions. The ground of appeal is partly allowed for statistical purposes. Ground No.14 (Software segment – Rs.84,58,60,310/-):- 9. The ld. A.R. submitted that the assessee is engaged in providing software services and technology solutions to its parent for products manufactured worldwide. 9.1 The ld. A.R. further submitted that Wipro GE has entered into a master development agreement with GE Healthcare (GEHC), whereby Wipro GE provides software services. The software services are part of the GEHC Global Technology Operations. The services IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 39 of 64 pertain to the development of software, which is vital in terms of the functionality of the medical products manufactured by GEHC. The services rendered are in the nature of coding to sub-system work and providing image solutions as well as IT service solutions including base support, business, product and infrastructure software across all technologies and home grown or purchased software. It also includes expertise in various technologies, implementation, monitoring and support of IT infrastructure and software solutions. Wipro GE also carries on operations by way of providing online support and developing support platforms. 9.2 The ld. A.R. further submitted that Wipro GE provides engineering services including value-engineering services for Wipro GE product design and solving Wipro GE global’s customer related design problems and issues. The services are in the nature of providing engineering drawing/designs (both 2D and 3D models) by using software like CAD, CAM etc. Wipro GE does not create any engineering software but utilizes the engineering software to generate designs/drawings. The Margin of the Appellant as computed by the TPO in the TP Order Particulars Rs. Operating revenue 8,70,35,80,565 Operating Cost 7,56,81,09,744 Operating profit 1,13,54,70,821 OP/OC 15.00% The Comparables selected by Appellant and their margins are as under: IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 40 of 64 Sl No Name of the Company Wt. Avg (%) Remarks of the TPO 1 Axiscades Engineering Technologies Ltd. 16.74 No data available, hence rejected 2 C G-V A K Software and Exports Limited 11.97 Accepted 3 E-Zest Solutions Ltd. 8.48 No data available, hence rejected 4 Harbinger systems Pvt. Ltd 9.28 Accepted 5 Larsen and Toubro Technology 18.09 Accepted 6 Mindtree Ltd. 19.41 Accepted 7 Nintec Systems Ltd. 19.00 Functionally different: hence rejected 8 O F S Technologies Ltd. 24.86 Accepted 9 RS Software Limited 19.25 Failed Export filter, hence rejected 10 R Systems International Limited (Segmental) 26.56 Accepted 11 Rheal Software Ltd. 2.66 Accepted 12 Sagarsoft (Inda) Ltd 3.22 Functionally different: hence rejected 13 Sasken Technologies Ltd 0.04 Fails export income filter and also functionally different. Hence rejected 14 Tata Elxsi Limited 25.16 Accepted Out of the 14 comparables selected by the appellant, the TPO accepted 8 comparables and rejected 6 other comparables. The final list of Comparables selected by TPO and their margins are as under: Sl No. Name of the comparable OP/OC (%) Weighted Average IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 41 of 64 1 Rheal Software Pvt. Ltd. -1.85 2 Kals Information Systems Ltd 3.62 3 Infomile Technologies Ltd. 10.43 4 Harbinger Systems Pvt Ltd 14.1 5 C G-V A K Software & Exports Ltd. 15.09 6 Larsen & Toubro Infotech Ltd. 21.14 7 Great Software Laboratory Pvt. Ltd. 21.24 8 Mindtree Ltd. 24.17 9 R Systems International Ltd. 24.4 10 Persistent Systems Ltd. 26.17 11 Tata Elxsi Ltd. 26.19 12 Infobeans Technologies Ltd. 26.44 13 Aptus Software Labs Pvt. Ltd. 26.46 14 Nihilent Ltd. 29.82 15 OFS Technologies Ltd. 29.93 16 Cygnet Infotech Pvt. Ltd. 30.19 17 Infosys Ltd. 39.5 18 Threesixty Logica Testing Services Pvt. Ltd. 41.94 19 Cybage Software Pvt. Ltd. 57.82 20 Consilient Technologies Pvt. Ltd. 65.14 35thPercentile 21.24 Median 26.18 65thPercentile 26.46 The Computation of arm’s length price by the TPO and the adjustment made is as under: Particulars Rs. Arm’s length price 9,54,94,40,875/- Price received 8,70,35,80,565/- Shortfall 84,58,60,310/- 9.3 The ld. A.R. submitted that the adjustment made by the TPO of Rs. 84,58,60,310/- in the Software Development Segment has IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 42 of 64 been adopted by the AO in the Draft assessment order u/s 143(3) rws 144C of the Act dated 20.04.2021. The appellant filed objections before DRP on 22.06.2021. The appellant filed its written submissions before DRP on 06.01.2022 seeking inclusion and exclusion of comparables interalia on various filters. The DRP passed its directions u/s 144C(5) on 25.01.2022 and directed exclusion of Kals Information Systems Ltd, Infomile Technologies Ltd. and R systems International Ltd. and inclusion of Axiscades Engineering Technologies Limited and Sagarsoft India Ltd as comparables. The AO passed the final assessment order u/s 143(3) rws 144C(13) rws 144B of the Act dated 23.02.2022 without giving effect to the directions of the DRP and retained the TP adjustment in Software Development segment at Rs.84,58,60,310 /- as per draft assessment order. 9.4 Before the Tribunal the appellant has filed a chart seeking exclusion/inclusion of comparables on various grounds. 9.5 The ld. A.R. submitted that the appellant is seeking exclusion of all the comparables chosen by the TPO. The appellant is seeking inclusion of Axiscades Engineering Technologies Limited, Sagarsoft (India) Ltd and Sasken Technologies Ltd as comparables. 9.4 On the issue of turnover filter, the ld. A.R. submitted that the TPO has excluded companies having turnover of less than Rs.1crore. It is the view of the TPO in para 16 of the TP order that the exclusion of comparables on the basis of size and turnover of the companies is not justified in view of the decisions in Societe Generale Global Solution Centre P Ltd vs DCIT in IT(TP)A 1188/B/2011 and Capgemini India Pvt Ltd vs ACIT in ITA 7861/Mum2011. The DRP has held that comparables cannot be excluded on the ground of size and level of operations. IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 43 of 64 9.5 The ld. A.R. submitted that the ITAT Bangalore in the case of Fulcrum Fund Services (India) Pvt Ltd vs ITO in IT(TP)A 2521/B/2017 dt.12.04.2019 by considering wide range of decisions on this issue including that of Chryscapital Investment Advisors India (P) Ltd vs DCIT (held as obiter dicta) and the other decisions mentioned supra has held that the law laid down in Genisys Integrating System (India) Pvt Ltd. V. DCIT, ITA No.1231/Bang/2010 dt.05.08.2011 [152 TTJ 215/53 SOT 159] is the correct law on the application of turnover filter. In the case of Genisys the Tribunal has held that companies having turnover in the range of Rs.1crore to Rs.200 crores cannot be compared with companies having turnover above Rs.200 crores. The relevant observations of the Tribunal in the case of Fulcrum is extracted as hereunder: ‘’7.3. We have given a careful consideration to the rival submissions. The Bangalore Bench of the ITAT had an occasion to deal with an identical issue in the case of DCIT Vs. M/s. Northern Operating Services (supra), wherein the Tribunal came to the conclusion that – turnover was relevant criteria in choosing comparable companies and that a company, whose turnover is more than Rs. 200 Crores, cannot be compared with the company, whose turnover is less then Rs. 200 Crores. In Coming to the aforesaid conclusion, the Tribunal relied on the decision rendered by the ITAT, Bangalore Bench in the case of Autodesk India P. Ltd., Vs. DCIT (2018) [96 taxmann.com 263] (Bangalore-Trib) reviewing all the conflicting decisions on the point, and concluding that the application of turnover filter still holds good and has not been in any manner diluted by the decision of Hon'ble Karnataka High Court in the case of M/s. Acusis Software (I) Pvt. Ltd., Vs. ITO in ITA No. 223/2017, dt. 14-08-2018, following the relevant observations of the Tribunal, held as under:..’’ 9.6 Applying the said decision, the companies having turnover less than Rs.200 crores and more than Rs.2000 crores should be eliminated from the list of comparables as the assessee’s turnover is Rs.870.35crores. 9.7 The ld. A.R. submitted that the appellant is seeking exclusion of the following 15 comparables on account of turnover filter. IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 44 of 64 Sl no Company name Turnover (in Crores) 1 Rheal Software Pvt Ltd 5.22 2 Kals Information Systems Pvt 2.95 3 Infomile Technologies Ltd. 2.23 4 Harbinger Systems Pvt. Ltd. 63.94 5 C G-V A K Software & Exports Ltd 11.62 6 Larsen & Toubro Infotech Ltd. 6182.9 7 Great Software Laboratory Pvt. Ltd. 132.98 8 Mindtree Ltd. 4752.6 9 InfoBeans Technologies Limited 67.46 10 Aptus Software Labs Pvt. Ltd. 3.86 11 OFS Technologies Ltd 4.59 12 Cygnet Infotech Pvt. Ltd. 51.65 13 Infosys Limited 59840 14 Threesixty Logica Testing Services Pvt. Ltd. 32.11 15 Consilient Technologies Pvt. Ltd. 4.15 9.8 The turnover of the above companies are far higher/lower than that of the assessee company. Since the appellant falls under category of companies having turnover between Rs.200crores to Rs.2000crores, the above comparables needs to be excluded. 9.9 The ld. A.R. submitted that regarding the company R System International Ltd, the DRP had rejected it as comparable as it fails the different financial year ending filter. However, the AO/TPO did not give effect to the same while passing the final assessment order. The DRP direction is extracted hereunder: IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 45 of 64 Hence the ld. A.R. requested that R System be removed from the list of comparables. 9.10 Regarding the comparables Persistent Systems Ltd and Nihilent Ltd. the assessee had objected before the TPO and DRP that the same are not functionally comparable, however the DRP rejected the objections of the assessee. The ld. A.R. submitted that the Bangalore Tribunal in the case of SanDisk India Device Design Centre Pvt. Ltd in IT(TP)A 288/Bang/2021 dt.30.06.2022 has directed to exclude both the comparables Persistent Systems Pvt. Ltd. and Nihilent Ltd from the list on the ground of functional dissimilarity. Relevant portion is extracted hereunder: ‘’17.7 He placed reliance on the decision of Coordinate Bench of this Tribunal in case of OLF (India) Software Pvt. Ltd. vs. ACIT (supra) wherein this Tribunal following its decision in case of LSI India research development (P.) Ltd. vs. DCIT reported in [2021] 124 taxmann.com 83, excluded Persistent Systems Ltd., L&T Infotech Ltd., Thirdware Solutions and Infosys Ltd. by observing as under: “3.2 This Tribunal in LSI India research development (P.) Ltd. v. DCIT (supra) observed in respect of persistent systems, L & T Infotech, Thirdware Solutions, Infosys Ltd. as under: 16. As far as the challenge by the assessee on exclusion of aforesaid 5 companies in ground No. 2(f), the ld. counsel for the assessee has brought to our notice a decision of Bangalore Bench of ITAT for the very same Assessment Year 2014-15 in the case of LG Soft India (P.) Ltd. v. DCIT [IT(TP) Appeal No. 3122 (Bang.) of 2018, dated 28-5-2019]. In this order rendered in a case of assessee rendering SWD services such as the assessee, the Tribunal excluded 3 out of 5 companies referred to in the earlier paragraph and remanded 1 company for fresh consideration with the following observations:- IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 46 of 64 "5. The Ld A.R submitted that M/s Infosys Ltd, M/s Persistent Systems Ltd and M/s Thirdware Solutions Ltd have been excluded by the co-ordinate bench in the assessee's own case in AY 2008-09 in IT(TP)A No. 1673/Bang/2012. ................. 7. In AY 2008-09, the co-ordinate bench has excluded M/s Persistent Systems Ltd also by following the decision rendered in the case of 3DPLM Software Solutions Ltd (supra), where in it was held that M/s Persistent Systems Ltd is engaged in product development and product design services while the assessee is a software development service provider. Further, the segmental details were not available. 7.1 It was stated that there is no change in facts. Accordingly, following the decision rendered in the assessee's own case in AY 2008-09, we direct exclusion of M/s Persistent Systems Ltd. ...... 17.8 Before us, the Ld.DR has not been able to place anything on record contrary to the above observation. We therefore respectfully following the above view, direct the Ld.AO/TPO to exclude Persistent Systems Ltd., L& T Infotech Ltd., Thirdware Solutions and Infosys Ltd. from the final list. 17.9 In respect of Nihilent Ltd., Infobeans Technologies Ltd. and Aspire Systems (India) Pvt. Ltd., Hon’ble Mumbai Tribunal in case of Red Hat India Pvt. Ltd. vs. Addl. CIT (supra) observed as under: “Comparable Sought to be excluded by the assessee Aspire System India Pvt. Ltd. (Aspire) ...... “Nihilent Analytics Ltd. (Nihilent) 44. The assessee sought exclusion of Nihilent on ground of its functional dissimilarity vis-à-vis assessee. We have examined the website information of Nihilent, made available by the assessee at page No.405 of the paper book, wherein it is mentioned that it is engaged in providing advanced analytics, artificial intelligence, blockchain, business intelligence, data science, cloud services etc. 45. Perusal of the disclosure of enterprise’s reportable segment explanatory available at page No.A406 of the paper book shows that Nihilent is engaged in software development and consultancy, engineering services, web development and hosting and subsequently diversified itself into the domain of business analytics and business process outsourcing and financials of Nihilent available at page No.A304, A405-A406 of the paper book shows that Nihilent has only one business segment and in the absence of segmental financials, as it is into diversified business, this company cannot be a valid comparable visà-vis assessee, who is a low risk entity working on cost + markup model. Hence, Nihilent is ordered to be excluded as a comparable. Nihilent Ltd. 46. The assessee sought exclusion of Nihilent Ltd. as a comparable on the ground that it is functionally dissimilar vis-à-vis assessee. This objection was also raised before the Ld. DRP but rejected. The assessee relied upon website of the company which is made available at page A412 of the paper book wherein Nihilent Ltd. is shown to be engaged in providing advanced analytics, artificial intelligence, blockchain, business intelligence, data IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 47 of 64 signs, cloud services etc. The annual financials of this company available at page A412 & A413 of the paper book shows that it is rendering Enterprise transformation and change management, Digital transformation services and Enterprise IT services but segmental financials are not available as is apparent from its financials available at page A305, A412 & A413 of the paper book. When this company is into various segments but segmental financials are not available it cannot be a valid comparable vis-à-vis assessee which is a routine software development service provider working on cost + markup model, hence ordered to be excluded.....” 17.10 Perusal of the annual report, filed before us in respect of the above two comparables, we note that the segmental financials are not available in respect of Nihilent and Infobeans and the RPT in respect of Aspire Systems India Pvt. Ltd. is more than 25% being the threshold limit considered by the Ld.TPO. Nothing has been placed before us by the Ld.DR in order to take a different view. Respectfully following the Hon’ble Mumbai Tribunal, we direct the Ld.TPO to exclude Nihilent, Infobeans and Aspire Systems from the final set.’’ 9.11 The ld. A.R. further submitted that the Tribunal in assessee's own case for AY 2016-17 in ITA 285/Bang/2021 dated 03.02.2023 considering the above decision in Sandisk has rejected Persistent Systems Ltd. and Nihilent Ltd as comparables. In consideration of the same, the ld. A.R. requested that the companies Persistent Systems Ltd. and Nihilent Ltd. be removed from the list of comparables for the impugned year as well. 9.12 Regarding the comparable Tata Elxsi Ltd., the assessee had objected before the TPO and DRP that the same is not functionally comparable. However, the TPO and DRP rejected the objections of the assessee. The ld. A.R. submitted that the TPO in assessee’s own case for earlier assessment years 2013-14 and 2016-17 has rejected Tata Elxsi as functionally dissimilar to that of the assessee. He submitted that the company Tata Elxsi has been rejected as functionally dissimilar in a catena of decisions till date for all the assessment years. Recently, the Hyderabad Tribunal in the case of ADP Pvt Ltd vs DCIT - ITA 227 & 228/Hyd/2021 dt.03.02.2022 for AY 2016-17 has rejected Tata Elxsi as a comparable. Relevant portion is extracted hereunder: IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 48 of 64 ‘’5. Tata Elxsi Ltd. (Segmental): The ld. AR of the assessee submitted that this company renders high-end KPO services i.e. digital content creation, technology and product engineering, chip design, embedded production design, visual computing lab, AI design services. He further submitted that this company earns revenue from sale of trades goods of Rs. 33.74 crore and the same corroborated by existence of inventory in P&L statement about Rs. 2.89. He, therefore, submitted that this company may be excluded as comparable in the comparable list for determining ALP. He relied on various decisions of ITAT including the decision in ITA No. 2233/Hyd/2018 for the assessment year 2014-1515 wherein this company is excluded as comparable. 5.1 The ld. DR, on the other hand, besides relying on the orders of revenue authorities, submitted that this company Tata Elxsi is engaged in rendering of software services and, hence, functionally comparable to the assessee company. 5.2 We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. The coordinate bench of this Tribunal in assessee's own case in ITA No. 2233/Hyd/2018, for AY 2014-15, directed the AO/TPO to exclude this company from the list of comparables for determining ALP by observing as under: "27. As regards Persistent Systems Ltd, the objections of the assessee are as under: a) The Company is functionally not comparable. It is engaged in selling of the following: i. Software products (IP); ii. Platforms (Solutions & Integration); and iii.services (product engineering) b.There are no segmental details between software products and services. 28. In the case of Tata Elxsi, the assessee has taken the following objections: a) It is not functionally comparable to the assessee. In the financial statements of the company, the nature of business carried out by Tata Elxsi is given below: i) Corpoprate Information "Tata Elxsi Ltd was incorporated in 1989. The Company provides product design and engineering services to the consumer electronics, communications and transportation industries and systems integration and support services for enterprise customers. It also provides digital content creation for media and entertainment industry" 29. We find that in the case of Infor (India) (P) Ltd vs. ACIT in ITA No.2307/Hyd/2018, the Coordinate Bench of the Tribunal has considered IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 49 of 64 similar objections of the assessee therein and has held that these two companies along with Thirdware Solutions Ltd is not comparable to the software development company like the assessee before us. The relevant portions has been reproduced by us in the above paras. Respectfully following the same, these two companies are also directed to be excluded from the final list of ITA No 2233 of 2018 ADP Private Ltd Hyderabad comparables. Thus, assessee's ground of appeal No.2 is partly allowed." 5.3 In the said decision, it has been held that the company is functionally different and engaged in diversified activities and since the revenue could not controvert the said decision nor brought any contrary decision, following the same, we direct the AO/TPO to exclude this company from the final list of comparables.’’ 9.13 In view of the above, the ld. A.R. requested that Tata Elxsi Ltd. be removed from the list of comparables 9.14 Regarding the comparable Cybage Software Pvt. Ltd., the assessee had objected before the TPO and DRP that the same is not functionally comparable, lacks segmental information and has extraordinary high margins. However, the TPO and DRP rejected the objections of the assessee. The ld. A.R. submitted that the Pune Tribunal in the case of Optiva India Technologies Pvt Ltd in ITA 194/Pun/2021 dt.21.07.2022 has directed to exclude comparable Cybage Software Pvt. Ltd on the ground of functional dissimilarity. Relevant portion is extracted hereunder: ‘’ Cybage Software 17.1 The assessee contends that this company is mainly Onsite service provider whereas the assessee is offsite service provider and therefore, functionally different. Further, there is incorrect reporting figures which are unreliable. This company is product development as well as R & D Intensive Company. The arguments of the assessee were not accepted by the A.O/T.P.O and the company was held to be comparable. The ld. A.R demonstrated through Annual Report at page 1804, as per the description of the business of this company that it is onsite service provider. Furthermore at page 1796 of the Annual Report this company is doing other computer related activities but nowhere software services are mentioned. On the other hand, the assessee is offsite provider and thus functionally different. We direct the A.O/T.P.O to exclude this company from the list of comparables.’’ 9.15 Similarly, the ld. A.R. submitted that the Hyderabad Tribunal in the case of Infor (India) Pvt Ltd - IT(TP)A 198/Hyd/2021 IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 50 of 64 dt.06.10.2021 has directed exclusion of Cybage Software. Relevant portion is extracted hereunder: ‘’4.3. Next come M/s.Thirdware Solution Limited and M/s.Cybage Software Private Limited which have already have been ordered to be excluded by the tribunal after holding the same to be functionally different than software development services and having abnormally average high margin; respectively.’’ 9.16 The ld. A.R. submitted that the Tribunal in assessee's own case for AY 2016-17 in ITA 285/Bang/2021 dated 03.02.2023 considering the above decisions in Optiva and Infor has rejected Cybage Software Pvt Ltd as comparable. In consideration of the same, he requested that Cybage Software Pvt Ltd. be removed from the list of comparables for the impugned year as well. The assessee has sought for inclusion of the following companies: 9.17 Regarding the comparables Axiscades Engineering Technologies Ltd and Sagarsoft (India) Ltd., the DRP has directed the TPO to adopt these as comparables. However, the AO/TPO did not give effect to the same while passing the final assessment order. The DRP directions in this regard is extracted hereunder: IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 51 of 64 Hence the ld. A.R. requested that the above two companies be included in the list of comparables. 9.18 Regarding Sasken Communication Technologies Ltd. – the ld. A.R. submitted that this company has been considered as a comparable in the TP report by the assessee. The TPO rejected this as a comparable on the basis of functional dissimilarity. The assessee prayed for inclusion of the company before the DRP. The DRP vide its directions dated 25.01.2022 rejected the company as functionally dissimilar and upheld the action of the TPO. Howsoever the DRP vide its directions dated 11.02.2021 for AY 2016 -17 in para 3.9.2 directed the AO/TPO to include the software services segment margin for the purpose of comparability. Relevant portion is extracted hereunder: ‘’ 3.9.2.1 Panel: Having considered the submissions, and on perusal of the annual report, we note that this company is engaged in providing Software services including network engineering services and is functionally comparable to the assessee. As per information in the annual report, the company has R&D activities & patents of its own which give rise to revenue stream for the company. However, the company has provided segmental information for its revenue from software services & products. Accordingly, we consider it appropriate to direct the TPO to include the software services segment margin for the purpose of comparability. AO is directed accordingly.’’ IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 52 of 64 9.19 The ld. A.R. submitted that this direction of the DRP was upheld by the Tribunal in assessee's own case for AY 2016-17 in ITA 285/Bang/2021 dated 03.02.2023. Taking into consideration a consistent view he requested that the margins of software services segment alone be adopted for comparability. 9.20 The ld. A.R. submitted the final list of comparables after considering the above arguments which are as hereunder: Sl. No Name of the Comparable company (OP/OC) before WC Adjustment 1 Axiscades Engineering Technologies Ltd 16.74% 2 Sagarsoft (India) Ltd. 3.22% 3 Sasken Technologies Ltd. 0.04% ARITHMETIC MEAN 6.67% 9.21 From the above it can be seen that assessee’s margin for the SWD segment is 15% which is higher than the aforementioned adjusted margins of the comparable companies i.e, 6.67%. In view of the above submissions, the ld. A.R. submitted that the transaction is at arm’s length and therefore the TP adjustment made requires to be deleted in the interest of justice. 10. We have heard the rival submissions and perused the materials available on record. The contention of the ld. A.R. is that assessee’s margin is higher than the margins of the comparables and he drew our attention to the following chart: W Page 53 of 64 WIPRO GE HEALTHCARE PVT LTD ITA 291/B/2022; ASSESSMENT YEAR 2017-18 Assessee's Turnover - Rs.870,35,80,565/- FINAL LIST OF COMPANIES SELECTED BY TPO AS COMPARABLE IN SOFTWARE SEGMENT(PAGE 69 OF TP ORDER, PB-I page 199)Assessee's OP/OC Sl. No. Name of company Comparable of Turnover (in crs) Operating Revenue OP/OC % Comparable margin Rejected as comparable On Grounds Rejected as comparable in 1Rheal Software Pvt. Ltd. TPO & Assessee 5.22 -1.85% Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd 2521/B/2017 dt.12.04.2019 2 Kals Information Systems Ltd. TPO 2.95 3.62% Functionally different Rejected by the DRP on the ground of functional dissmilarity but no effect given in FAO by AO Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd 2521/B/2017 dt.12.04.2019 3 Infomile Technologies Ltd. TPO 2.23 10.43 No RPT Information Rejected by the DRP on the ground of non disclosure of RPT information but no effect given Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd 2521/B/2017 dt.12.04.2019 4 Harbinger Systems Pvt Ltd TPO & Assessee 62.41 14.10 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd 2521/B/2017 dt.12.04.2019 5 C G- V AK Software & Exports Ltd. TPO & Assessee 11.62 15.09 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd 2521/B/2017 dt.12.04.2019 6Larsen & Toubro Infotech Ltd. TPO & Assessee 6,182.90 21.10 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd 2521/B/2017 dt.12.04.2019 7 Great Software Laboratory Pvt. TPO 132.98 21.24 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd 2521/B/2017 dt.12.04.2019 8Mindtree Ltd. TPO & Assessee 4,752.60 24.17 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd 2521/B/2017 dt.12.04.2019 9 R Systems International Ltd. TPO & Assessee 215.32 24.40 Different financial year Rejected by the DRP on the ground of different financial year ending filter but no effect given in FAO by AO 10 Persistent Systems Ltd. TPO 1,760.64 26.17 Functionally different Rejected by the Hon'ble ITAT in assessee's own case for AY 2016-17 in ITA 285/B/2021 vide order dated 03.02.2023 based on the decision in SanDisk India Device 11 Tata Elxsi Ltd. TPO & Assessee 1,166.45 26.19 Functionally different ADP Pvt Ltd vs DCIT - ITA 227 & 228/Hyd/2021 dt.03.02.2022. Excluded as comparable by the TPO in own case for AY 2016-17 as functionally dissimilar IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Sl. No. Name of company Compara ble of Turnover (in crs) Operating Revenue OP/OC % Comparable margin Rejected as comparab le On Grounds Rejected as comparable in Page/ Para 12 Infobeans Technologies Ltd. TPO 67.46 26.44 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II, page 595, para 7.3.1 13 Aptus Software Labs Pvt. Ltd. TPO 3.87 26.46 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II, page 595, para 7.3.1 14 Nihilent Ltd. TPO 259.37 29.82 Functionally different and lack of segmental details Rejected by the Hon'ble ITAT in assessee's own case for AY 2016-17 in ITA 285/B/2021 vide order dated 03.02.2023 based on the decision in SanDisk India Device Design Centre Pvt. Ltd - IT(TP)A 288/Bang/2021 dt.30.06.2022 PB-III, page 874 to 883, para 11.16 to 13.1 15 OFS Technologies Ltd TPO & Assessee 4.59 29.93 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II, page 595, para 7.3.1 16 Cygnet Infotech Pvt. Ltd. TPO 51.65 30.19 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II, page 595, para 7.3.1 17 Infosys Ltd. TPO 59,840.00 39.50 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II, page 595, para 7.3.1 18 ThreesixtyLogica Testing Services Pvt. Ltd. TPO 32.11 41.94 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II, page 595, para 7.3.1 19 Cybage Software Pvt. Ltd. TPO 758.86 57.82 Functionally different and Abnormal High Margins Rejected by the Hon'ble ITAT in assessee's own case for AY 201617 in ITA 285/B/2021 vide order dated 03.02.2023 based on the decisions in Optiva India Technologies Pvt Ltd - ITA 194/Pun/2021 dt.21.07.2022 and Infor (India) Pvt PB-III, page 20 Consilient Technologies Pvt Ltd. TPO 4.15 65.14 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II, page 595, para 7.3.1 LIST OF COMPANIES SEEKING INCLUSION AS COMPARABLE I N SOFTWARE SEGMENT 35th Percentile 21.24 Median 26.18 65th Percentile 26.46 IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 55 of 64 Sl. No. Name of company Compar- able of Turnover (in crs) Operating Revenue OP/OC % Comparable margin Included as comparable On Grounds Included as comparable in Page/ Para 1 Axiscades Engineering Assessee 231.97 16.74 16.74 Functionally comparable DRP has directed the TPO to adopt this as a comparable, but no effect has been given in the Final assessment order by the AO/TPO PB -I page 34, para 4.10 2 E - Zest Solutions Ltd. Assessee 8.48 Not pressed 3 Nintec Systems Ltd. Assessee 19 Not pressed 4 Sagarsoft (India) Ltd. Assessee 3.22 3.22 Functionally comparable DRP has directed the TPO to adopt this as a comparable, but no effect has been given in the Final assessment order by the AO/TPO PB -I page 35-36, para 4.10 5 Sasken Technologies Ltd. Assessee 388.39 0.04 0.04 Functionally comparable DRP in assessee's own case for AY 2016-17 has directed the TPO to adopt only software services segment for the purpose of comparability which has been confirmed by tribunal PB-III, page 874 to 883, para 11.16 to 13.1 Arm’s Length mean margin 6.67 IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore 10.1 In view of the above, we remit the issue to the file of AO/TPO to verify whether the margins declared by the assessee is higher than the margin of the above comparables and if the margin of above comparables is lower than the assessee’s, then there is no requirement of any TP adjustment to be made. Directed accordingly. Ground No.15: Lease payment on financial lease–Rs.18,69,97,941/-: 11. The ld. A.R. submitted that during the course of assessment proceedings the AO vide his show cause notice dt.03.02.2021 asked to substantiate the payment of Rs. 18,69,97,941/- towards lease payment on financial lease. The assessee vide reply dt.08.03.2021 provided the explanation. However, the AO disallowed the sum of Rs.18,69,97,941/- u/s 37 of the Act holding the expenditure as capital in nature which was confirmed by the DRP. 11.1 The assessee explained that it has claimed deduction of Rs.18,69,97,941/- towards lease payment on assets taken on lease whose life is short tenure in nature. The entire lease payment has been claimed as allowable expenditure in the computation of income. In the books of accounts, the assessee has followed the Accounting Standard -19-Leases issued by the ICAI. The assessee has disallowed the sum of Rs.16.78 crores in the computation of income, the break-up of which is as under: 11.2 Interest on finance lease - Rs. 3,49,11,983 /- (debited as finance cost in note 2.28 of the financial statements) Depreciation on assets taken on finance lease - Rs. 13.29 crores (Rs.13.26 crores on Vehicles + Rs. 0.03 crores on Office Equipment debited in the books of accounts, note 2.1 Fixed Assets of the financial statements). Thus in total assessee has disallowed Rs.16.78 crores (Rs.3.49 crores +Rs.13.29 crores). As against such a disallowance it has claimed Rs. 18,69,97,941/- as allowable. 11.3 The ld. A.R. submitted that the disallowance made by the AO is unsustainable being double in nature. The difference in approach IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 57 of 64 between the accounting of lease transaction and claim for lease rentals in the income tax assessment is consistent with the past years and the same has been accepted by the department. The ld. A.R. prayed that since the method of allowance of rent is a part of method of accounting consistently followed, no departure is called for unless the circumstances mentioned in section 145 of the Act warrants the same. 11.4 He further submitted that the ITAT Bangalore under similar facts and circumstances in the case of Texas Instruments (India) Pvt Ltd vs JCIT in ITA 852 & 831/B/2017 dt.29.06.2022 has allowed the lease payment on finance lease as revenue expenditure and negated the contention of the department of considering the payment as capital expenditure. Relevant portion is extracted hereunder: ‘’ 46. We have heard the rival submissions. We have also perused copies of the lease agreement entered into between the assessee and the lessor. It is clear from the terms of the agreement that the assessee was only a lessee and the lessor was the owner of the equipment as well as the vehicles. The AO in the order of assessment has culled out certain clauses of the agreement and came to the conclusion that the assessee is the owner of the assets and the lease rentals paid was nothing but an expenditure paid for acquiring an asset which was to be regarded as a capital expenditure. This conclusion of the AO, in our view, is clearly erroneous. Even assuming that the expenditure has to be regarded as a capital expenditure, the AO ought to have allowed depreciation to the assessee. In this regard, we find that in the computation of total income which is at page 52 of the assessee’s PB that the assessee has added to the profit as per the P&L A/c the finance charges on lease and reduced lease rentals paid. Therefore, whatever be the position with regard to the books of account in compliance with AS-19; as far as computation of the total income for the purpose of the Act is concerned, the assessee has made claim only for deduction on account of lease rentals paid. There is no basis for the Revenue authorities to come to a conclusion that the assessee has adopted a colourable device with a view to gain tax advantage. In this regard, we find that the AO as well as the CIT(A) have quoted various clauses of the lease agreement out of context, ignoring the main clause in the agreement which clearly lays down that the assessee is only a lessee and the lessor is the owner of the assets leased. In such a scenario, the conclusion of the Revenue authorities cannot be sustained. The assessee is entitled to claim deduction on account of lease rentals paid as it is a Revenue expenditure.’’ 11.5 The ld. A.R. further submitted that the issue has been dealt by the ITAT in assessee's own case for AY 2016-17 in ITA 285/Bang/2021 dated 03.02.2023 in para 14 & 15. Relevant portion extracted hereunder: IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 58 of 64 ‘’15. We have heard the rival submissions and perused the materials available on record. After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in the case of Texas Instruments (India) Pvt. Ltd. Vs. JCIT in ITA Nos.852 & 831/Bang/2017 dated 29.6.2022, , wherein held as under: --------- 15.1 In view of the above, taking a consistent view, we remit this issue to the file of AO/TPO on similar lines. This ground of appeal is partly allowed.’’ 11.6 In view of the above, the ld. A.R. prayed that the disallowance u/s 37 of the Act Rs.18,69,97,941/- be deleted in the interest of justice. 12. The ld. D.R. relied on the orders of the lower authorities. 13. After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in ITA No.285/Bang/2021 dated 3.2.2023 for the AY 2016-17, wherein held as under: “14. Ground No.15 of the assessee’s appeal is reproduced as under: The Learned AO/DRP erred in disallowing deduction claimed of Lease payments on financial lease of Rs. 26,12,77,130/- under section 37 of the I T Act. 14.1 Facts of the case are that during the course of assessment proceedings the assessing officer noticed claim of deduction of its. 26,12,77,130/- under the head lease payments on financial lease. The assessee was asked to provide details of such payments made and why it should be allowed as a deduction. The assessee didn't furnish any reply before the AO. The assessing officer treated the transaction as a financial lease which involved purchasing of an asset with the help of a loan and treated it as a capital expense. Accordingly, the claim of deduction of Rs.26,12,77,103/- was disallowed. Before the ld. DRP, the assessee has submitted that the details sought were voluminous in nature and time given to comply notice was very short, therefore the assessee sought time vide its reply dated 26.12.2019 before the ld. DRP, which is as under: 'The above dated notice has been served on the assessee on the same day at 13.19.33 IST seeking compliance by 26.12.2019 at 4.00pm, thus giving hardly any time for the assessee to comply with the notice as 25 th being Christmas holiday and 26 th is the only working day available for the assessee to comply with the voluminous data and information sought by your good selves. The assessee submits that sufficient and reasonable opportunity and time be given as required under law so as to enable it to comply with notice as the required information is voluminous : not available in the required format and not readily available as the the same has to be sourced / assimilated from various departments, within the organisation. Hence the assessee request your goodselves IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 59 of 64 to kindly grant three weeks time to . furnish the same in the interests of justice and oblige." 14.2 The assessee has claimed before the panel that deduction of Rs.26,12,77,130/- is towards lease payment on assets taken on lease whose life is short tenure in nature. The entire lease payment has been claimed as allowable expenditure in the computation of income. Such claim is consistent with the past practice for the earlier years which has been accepted by the department. The assessee claimed that it has followed the Accounting Standard -19-Leases issued by the ICAI. The assesses has submitted before the ld. DRP that the amount of Rs.26,12,77,130/- consists of Rs.22,10,20,121/- towards principal repayment of lease and Rs.4,02,57,009/- towards interest paid on finance lease. The assessee has disallowed the sum of Rs.4,02,57,009/- paid towards interest on finance lease. The assessee is aggrieved as neither lease rental is allowed nor the payment of interest and depreciation on the assets, 14.3 The ld. DRP observed that the contention of the assessee is that the AO has not given sufficient time to file the details and the details are voluminous in nature. However, the assessee has not filed these details before the panel as well. If the assessee claims that it was not given sufficient time by the AO to file the voluminous details., it should have filed the details at least before the panel to substantiate it's argument. Nothing prevented the assessee from filing before the panel. As relevant details have not been filed before the ld DRP, the submission made by the assessee remained unsubstantiated. Although sufficient time has lapsed since filing of objection before the panel and the matter was heard several times by the ld. DRP, yet the assessee has filed nothing beyond written submission which remained unsubstantiated for want of supporting documents. As the assessee has not produced details such as lease agreements and other supporting evidences, the ld. DRP was not in a position to agree with the arguments of the assessee and accordingly, rejected the claim of the assessee that the action of the AO is contrary to the law and the addition required to be vacated and accordingly the ld. DRP rejected this ground of appeal. 15. We have heard the rival submissions and perused the materials available on record. After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in the case of Texas Instruments (India) Pvt. Ltd. Vs. JCIT in ITA Nos.852 & 831/Bang/2017 dated 29.6.2022, , wherein held as under: 39. Ground No.6 is regarding disallowance of lease rentals paid on equipment and motor cars. The grounds raised by the assessee in this regard are as follows:- “6.1 The learned CIT(A) and the AO have erred in law and on facts in disallowing an amount of Rs 25,500,765 and Rs 77,520,788 pertaining to lease rentals paid by the Appellant on account of assets taken on lease being equipment and motor car respectively by treating the same as capital in nature. IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 60 of 64 6.2. Without prejudice to the above, the learned AO has erred on facts in disallowing an amount of Rs 25,500,765 pertaining to lease rentals on equipment as against the amount of Rs 23,059,332 claimed by the Appellant in the computation of income. 6.3. The learned CIT(A) and the AO have erred in law and on facts in disregarding the reliance placed by the Appellant on the decision of the Honourable Supreme Court in the case of M/s ICDS Limited Vs CIT (350 ITR 527). 6.4. Without prejudice to the above, the CIT(A) and the AO have erred in law and on facts in failing to allow depreciation in respect of such assets even though it has been held that lease rentals are capital expenditure in nature. 6.5. The learned AO has erred in law and on facts in proposing to disallow the lease rentals under section 40(a)(ia) of the Act by concluding that the lease rentals, if treated to be as revenue expenses would be liable to Tax Deduction at Source ("TDS") under section 1941 of the Act, without appreciating the fact that the expense does not warrant tax withholding under the provisions of section 1941 of the Act.” 40. As far as this ground is concerned, the material facts are that the assessee entered into a lease agreement with IBM Global Services India Pvt. Ltd., whereby it took certain equipment on lease. This agreement is dated 29.08.2005. A copy of the lease agreement is available on pages 181 to 189 of the assessee’s PB. The assessee also entered into a lease agreement in respect of certain vehicles with GE Capital Transportation Financial Services Ltd. This agreement is dated 28.12.2004 , which is placed at page Nos.568 to 585 of the assessee’s PB. Another lease agreement for vehicles dated 21.03.2007 was entered into by the assessee with GE Mani Financial Services Ltd., which is at pages 586 to 603 of the assessee’s PB. Under this agreement also, the assessee took certain vehicles on lease. The assessee paid lease rentals amounting to Rs.2,30,59,332 towards lease rentals for lease of equipment and a sum of Rs.7,75,20,,788 towards lease of motor cars. 41. In view of Accounting Standards AS-19 issued under the Companies (Accounting Standards) Rules, 2006, the assessee in its books of accounts treated itself as the owner of the asset and capitalized the value of the equipment as well as the vehicles in its books of accounts. Depreciation was computed and debited in the P&L A/c. The following accounting treatment was adopted by the assessee as per AS 19, in the case of finance lease, the lessee (to whom significant risks and rewards have been transferred) would for all practical purposes be treated as the owner of the asset and expenditure on the same shall be capitalised in his books, while the lessor would not be considered as the owner, but the lease rentals received by the lessor shall be recorded as revenue in its books of accounts. In summary, the accounting treatment prescribed for finance leases for a lessee is as follows:- IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 61 of 64 - The assets taken on finance lease are capitalised in the books of accounts of the lessee and depreciation is computed in the books of accounts. However, the value at which the purchase is recorded does not contain margin on sale of the lessor; - This margin is accounted by way of interest in the books of the lessee (ie finance lease): - The monthly instalments paid by the lessee are towards principal and interest charges components – - The interest component is booked as finance charges in the books of accounts; and The principal amount is reduced from the lessor's account in the books of the lessee; - Any profit / loss on account of disposal of the leased asset are to be charged to the profit and loss account. 42. As far as Tax treatment of finance lease for income tax purposes is concerned, as per Circular No. 2 dated February 9, 2001 ("the Circular") issued by the Central Board of Direct Taxes ("CBDT"), pertaining to finance lease arrangements, it has been clarified that the provisions of AS 19 shall not be applicable for tax purposes. This Circular seeks to confirm that the introduction of AS-19 will not have any impact on the tax treatment for finance leased assets in as much as the depreciation allowance will be available to the lessor, if he is the owner of the asset (in accordance with the contract between the lessor and the lessee) and if he satisfies the provisions of section 32 of the Act. The Circular therefore, essentially confirms that the tax treatment for leased assets will not get affected by accounting treatment prescribed by AS-19. The above tax treatment has also been upheld by the Supreme Court in its decision in the case of ICDS Limited Vs CIT (350 ITR 527) wherein Hon’ble Supreme Court has held that in a leasing transaction, the lessor would be entitled to claim depreciation under section 32 of the Act on the leased assets and the lessee would be entitled to deduction with respect to the lease rentals. Given the above, the tax treatment of the assets taken on finance lease (both equipment and car lease) in the case of lessee was as summarised below. • The depreciation on the leased assets which are capitalised in the books is added back to the taxable income; • Interest component which is already debited in the books as finance charges is added back to the taxable income; • The entire monthly instalments (which includes the interest charges) is claimed as deduction from the taxable income; • Any profit / loss arising on account of disposal of the leased asset which is charged to the profit and loss account are to reduced / added back respectively to the taxable income. IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 62 of 64 43. In light of the above, the Assessee submitted that the Assessee has made the following adjustments (on account of the leased assets) to its net profits to arrive at its taxable profits:- • The depreciation on assets acquired under finance lease is added back to net profits; • The finance charges of Rs 15,250,304 have been added back to the net profits; • The profit of Rs 5,570,701 on account of the foreclosure of the lease has been excluded from the net profits; and • The aggregate amounts of monthly instalments amounting to Rs 77,520,788 towards vehicles and Rs 23,059,332 towards equipment have been claimed as a deduction. 44. The AO however, disallowed the claim of the assessee for deduction on account of lease rentals for the following reasons:- > The Assessee is the owner of the assets acquired under finance lease. Therefore, Assessee is only eligible to claim depreciation on the assets acquired under finance lease and not the lease rental paid towards acquisition of these assets; > If the Assessee claims the lease rentals as revenue expenditure, the Assessee ought to have debited the same to profit and loss account. An expenditure not debited to profit and loss account cannot be claimed as revenue expenditure; > The assessee has not deducted tax on the lease rental paid under section 1941 of the Act. Therefore, lease rentals are disallowed under section 40(a)(ia) of the Act; > The Assessee and the lessor have collided with each other, wherein both the parties have made undue claims with an intention to suppress their profits. 45. On appeal by the assessee, the CIT(A) upheld the order of the AO. Aggrieved by the order of the CIT(A), the assessee has preferred ground No.6 before the Tribunal. 46. We have heard the rival submissions. We have also perused copies of the lease agreement entered into between the assessee and the lessor. It is clear from the terms of the agreement that the assessee was only a lessee and the lessor was the owner of the equipment as well as the vehicles. The AO in the order of assessment has culled out certain clauses of the agreement and came to the conclusion that the assessee is the owner of the assets and the lease rentals paid was nothing but an expenditure paid for acquiring an asset which was to be regarded as a capital expenditure. This conclusion of the AO, in our view, is IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 63 of 64 clearly erroneous. Even assuming that the expenditure has to be regarded as a capital expenditure, the AO ought to have allowed depreciation to the assessee. In this regard, we find that in the computation of total income which is at page 52 of the assessee’s PB that the assessee has added to the profit as per the P&L A/c the finance charges on lease and reduced lease rentals paid. Therefore, whatever be the position with regard to the books of account in compliance with AS-19; as far as computation of the total income for the purpose of the Act is concerned, the assessee has made claim only for deduction on account of lease rentals paid. There is no basis for the Revenue authorities to come to a conclusion that the assessee has adopted a colourable device with a view to gain tax advantage. In this regard, we find that the AO as well as the CIT(A) have quoted various clauses of the lease agreement out of context, ignoring the main clause in the agreement which clearly lays down that the assessee is only a lessee and the lessor is the owner of the assets leased. In such a scenario, the conclusion of the Revenue authorities cannot be sustained. The assessee is entitled to claim deduction on account of lease rentals paid as it is a Revenue expenditure. 47. In so far as the applicability of the provisions of section 40(a)(ia) of the Act is concerned, the Hon’ble High Court of Karnataka in assessee’s own case on an identical issue for Assessment Year 2008-09 in the decision reported in [2021] 127 taxmann.com 59 (Karnataka) held that neither provisions of 194I nor 194C of the Act are attracted to lease financing of motor vehicles and therefore there could be no disallowance under section 40(a)(ia) of the Act. In so far as the applicability of provisions of section 40(a)(ia) of the Act in respect of lease rentals paid for lease of equipment is concerned, it is seen from the submission made by the Assessee before the CIT(A) at page 672 of the Assessee’s PB that the Assessee has duly deducted tax at source on payment of lease rentals. On a perusal of the order of the Revenue authorities, we do not find any specific discussion on this issue. In these circumstances, we deem it fit and proper to remand the question whether the lease rentals were subjected to TDS by the Assessee. The AO will afford due opportunity of being heard being to the Assessee. Thus, ground No.6 is partly allowed. 15.1 In view of the above, taking a consistent view, we remit this issue to the file of AO/TPO on similar lines. This ground of appeal is partly allowed.” 13.1 In view of the above order of the Tribunal, taking a consistent view, we remit this issue to the file of AO/TPO on similar directions. This ground of appeal is partly allowed. Ground No.16 (TDS credit): IT(TP)A No.291/Bang/2022 Wipro GE Healthcare Pvt. Ltd., Bangalore Page 64 of 64 14. The ld. A.R. submitted that the AO has not given TDS credit amounting to Rs.1,37,88,075/-. The ld. A.R. requested that the eligible TDS credit as claimed in the return of income may be given. 15. The ld. D.R. relied on the orders of the lower authorities. 16. After hearing both the parties, we remit this issue to give correct TDS credit after due verification of the records. Ground No 17, 18 – 234A, B, C interest 17. The above grounds are regarding interest u/s 234A, 234B, 234C of the Act which are consequential and mandatory in nature and to be computed accordingly. 18. In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 15 th Mar, 2023. Sd/- (N.V. Vasudevan) Vice President Sd/- (Chandra Poojari) Accountant Member Bangalore, Dated 15 th Mar, 2023. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore.