Asst.C.I.T., Bangalore V. M/s Ametek Instruments India Private Limited, Bangalore

ITA 398/BANG/2016

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 4909 (ITAT-BANGALORE)
• Duration Of Justice: 5 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2021
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 20-09-2021
• Assessment Year: 2011-2012
• Appeal Filed On: 08-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Related party transaction; Capital asset; Depreciation; Transfer pricing; International transaction; Working capital adjustments; Wholly owned subsidiary; Tax effect; Set aside
• Section: 92C; 92B; 133(6); 143(1); 201; 274; 13; 22; 154

Judgement Text

IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER IT (TP)A NO .398 /BANG/20 16 ASSESSMENT YEAR : 2011 - 12 ACIT CIRCLE-1(1)(1) BANGALORE VS. M/S. AMETEK INSTRUMENTS INDIA PVT. LTD. 1 ST FLOOR LEFT WING PRESTIGE, FEATHERLITE TECH PARK PLOT NO.148, EPIP 2 ND PHASE WHITEFIELD, BANGALORE 560 066 PAN NO : AAHCA2869B APPELLANT RESPONDENT C.O. NO.78/BANG/2016 (ARISING OUT OF IT(TP)A NO.398/BANG/2016) ASSESSMENT YEAR : 2011 - 12 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD. WHITEFIELD, BANGALORE 560 066 VS. ACIT CIRCLE-1(1)(1) BANGALORE APPELLANT RESPONDENT IT (TP)A NO .499 /BANG/20 16 ASSESSMENT YEAR : 2011 - 12 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD. BANGALORE 560 066 VS. ACIT CIRCLE - 1(1)(1) BANGALORE APPELLANT RESPONDENT IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 2 APPELLANT BY : SHRI SHARATH RAO, A.R. RESPONDENT BY : MS. NEERA MALHOTRA, D.R. DATE OF HEARING : 20 . 09 .20 21 DATE OF PRONOUNCEMENT : 29 . 09 .20 21 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE REVENUE AND THE CROSS APPE AL FILED BY THE ASSESSEE ALONG WITH A C.O. AND AN APPEAL AGAINST ORDER PASSE D BY THE LD. DISPUTE RESOLUTION PANEL-1, BANGALORE FOR THE ASSESSMENT YE AR 2011-12. 2. FIRST WE TAKE UP THE REVENUES APPEAL FOR ADJUDI CATION. WHEN THIS APPEAL IS TAKEN UP FOR HEARING, THE LD. COUNSEL FOR THE AS SESSEE HAS SUBMITTED THAT THE TAX EFFECT INVOLVED IN THIS APPEAL IS BELOW RS.10 L AKHS. AS PER THE LATEST CIRCULAR NO.21/2015 DATED 10.12.2015 OF CBDT BEING RETROSPEC TIVE IN NATURE, THE APPEAL FILED BY THE REVENUE IS NOT MAINTAINABLE. THE LD. D.R. HAS NOT RAISED ANY OBJECTION. IN VIEW OF THE ABOVE, THE APPEAL FILED BY THE REVENUE IS NOT MAINTAINABLE. HENCE, THE SAME IS DISMISSED. 3. SINCE THE APPEAL FILED BY THE REVENUE IS DISMISS ED THE C.O. FILED BY THE ASSESSEE BECOMES INFRUCTUOUS AND HENCE DISMISSED. 4. NOW WE TAKE UP THE APPEAL FILED BY THE ASSESSEE FOR THE A.Y. 2011-12 AGAINST THE ORDER PASSED BY THE LD. DRP-1, BANGALOR E DATED 29.12.2015 U/S 144C(5) OF THE INCOME-TAX ACT,1961 ['THE ACT' FOR S HORT]. GROUND NOS.1 TO 3 ARE AS FOLLOWS: IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 3 1. THE LEARNED ASSESSING OFFICER ('LD. AO') AND THE H ONOURABLE DISPUTE RESOLUTION PANEL ('DRP') GROSSLY ERRED IN DETERMINI NG TRANSFER PRICING ('TP') ADJUSTMENT OF RS 2,246,727/- TO THE ARM'S LE NGTH PRICE ('ALP') OF THE APPELLANT'S INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES ('AES') IN THE SOFTWARE DEVELOPMENT SER VICES SEGMENT; 2. THE LD. AO AND THE DRP GROSSLY ERRED IN DETERMINING TP ADJUSTMENT OF RS 33,591,178/-TO THE ALP OF THE APPELLANT'S INTERNATI ONAL TRANSACTIONS WITH ITS AE IN THE MARKETING SUPPORT SERVICES ('MSS') SEGMEN T; 3. THE LD. AO / LEARNED TRANSFER PRICING OFFICER ('LD. TPO') ERRED IN REJECTING THE TRANSFER PRICING ('TP') DOCUMENTATION MAINTAINED BY THE APPELLANT BY INVOKING PROVISIONS OF SUB-SECTION (3) OF 92C OF THE INCOME-TAX ACT, 1961 ('ACT'). THE DRP ERRED IN UPHO LDING THE SAME. 5. THE ABOVE GROUNDS ARE DISMISSED AS NOT PRESSED. 6. GROUND NOS.4, 5, 6 & 7 ARE AS FOLLOWS ARE INTER- RELATED GROUNDS: 4. THE LD. AO/DRP ERRED IN LAW AND ON FACTS IN UPH OLDING THE ORDER OF THE LD. TPO AND AGGREGATING THE NON-AE TRANSACTIONS WITH TH E INTERNATIONAL TRANSACTION ENTERED INTO BY THE AE IN THE MSS SEGMENT; 5. THE LD. AO/DRP ERRED IN FACTS IN FAILING TO NOTE THAT THE ANNUAL MAINTENANCE CONTRACT (AMC) SERVICES PROVIDED BY THE APPELLANT TO NON-AES IN INDIA WERE DIFFERENT FROM THE MSS PROVIDED TO THE AE; 6. WITHOUT PREJUDICE TO THE ABOVE, THE LD. AO/DRP E RRED ON FACTS AND IN LAW IN NOT RESTRICTING THE TP ADJUSTMENT ONLY TO THE INTER NATIONAL TRANSACTIONS OF THE APPELLANT WITHOUT APPRECIATING THAT TRANSACTION BETWEEN THE A PPELLANT AND AN UNRELATED PARTY WILL NOT COME WITHIN THE PURVIEW OF SECTION 92B OF THE ACT FOR DETERMINING THE ALP. 7. THE LD. AO/DRP ERRED IN FACTS IN NOT APPRECIATI NG THAT THE TERMS AND CONDITIONS FOR RENDERING SERVICES TO THE AES VIS-- VIS NON-AES ARE COMPLETELY DIFFERENT AND HENCE THE FUNCTIONS, ASSETS AND RISKS OF THE AE SEGMENT IS NOTABLY DIFFERENT FROM THE NON-AE SEGMENT. 7. AMETEK INDIA IS A WHOLLY OWNED SUBSIDIARY OF AME TEK INC. IN INDIA. AMETEK INDIA IS ENGAGED IN THE PROVISION OF SALES S UPPORT AND SOFTWARE DESIGN SERVICES TO AMETEK GROUP COMPANIES IN RESPEC T OF THEIR PRODUCTS. IN ADDITION, AMETEK INDIA IS ALSO ENGAGED IN THE PR OVISION OF INSTALLATION, IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 4 WARRANTY AND POST- WARRANTY SERVICING OF AMETEK PRO DUCTS IN INDIA. FOR THE FINANCIAL YEAR ('FY') 2010-11 RELEVANT TO THE AY 20 11-12, THE ASSESSEE FILED ITS RETURN OF INCOME ON 29 NOVEMBER 2013, DECLARING TAX ABLE INCOME OF RS 3,92,74,880/- UNDER THE PROVISIONS OF THE INCOME TA X ACT, 1961 ('ACT'). THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE AC T AND THE CASE WAS SELECTED FOR SCRUTINY. THE ASSESSING OFFICER ('AO') MADE A R EFERENCE TO THE TRANSFER PRICING OFFICER ('TPO') TO DETERMINE THE ARM'S LENG TH PRICE ('ALP') OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES ('AE'). 7.1. AS PER TRANSFER PRICING ('TP') STUDY: FOR THE SUBJECT AY 2011-12, THE ASSESSEE HAD ENTERE D INTO FOLLOWING INTERNATIONAL TRANSACTIONS: INTERNATIONAL TRANSACTION AMOUNT (IN PURCHASE OF INSTRUMENTS SPARE PARTS 1,29,47,876 PROVISION FOR MARKETING SERVICES 18,28,61,849 ENGINEERING IT SERVICES 2,46,04,938 TOTAL 22,04,14,66 7.2. AS PER TOP: THE TPO VIDE HIS ORDER DATED 22 JANUARY 2015 MADE THE FOLLOWING TRANSFER PRICING ADJUSTMENTS PARTICULARS AMOUNT (RS) SOFTWARE DEVELOPMENT SERVICES 25,82,366 MARKETING SUPPORT SERVICES 4,07,87,928 TOTAL 4,33,73,294 IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 5 7.3. AS PER DRAFT ASSESSMENT ORDER (DAO): THE AO HAS PASSED THE DAO ON 13 MARCH 2015 PROPOSI NG TO MAKE THE FOLLOWING ADJUSTMENTS TO THE RETURNED INCOME OF THE ASSESSEE: PARTICULARS AMOUNT (RS) TP ADJUSTMENT 4,33,73,294 DISALLOWANCE OF PROVISION MADE FOR SLOW MOVING STOCK 14,73,296 TOTAL 4,48,46,590 THE ASSESSEE BEING AGGRIEVED BY THE ADDITIONS PROP OSED IN THE DAO, FILED ITS OBJECTIONS BEFORE THE HONBLE DISPUTE RES OLUTION PANEL (DRP). 7.4. AS PER DRP: THE HON'BLE DRP DISPOSED OF THE OBJECTIONS FILED BY THE ASSESSEE VIDE DIRECTIONS DATED 29 DECEMBER 2015 PROVIDING PARTIAL RELIEF TO THE ASSESSEE. 7.5 AS PER FINAL ASSESSMENT ORDER ('FAO'):. THE AO PASSED THE FAO DATED 18 JANUARY 2016 GIVING EFFECT TO THE DIRECTIONS OF THE DRP. ACCORDINGLY, THE TP ADJUSTME NT OF RS 4,33,73,294/- PROPOSED IN THE DAD WAS REDUCED TO RS 3,58,37,905/- IN THE FAO (RELIEF OF RS 75,35,389/-). THE DRP PROVIDED RELIEF OF RS 3 ,38,639/-AND RS 71,96,750/- IN THE SOFTWARE DEVELOPMENTS SEGMENT AN D SALES & MARKETING SUPPORT SERVICES RESPECTIVELY. FURTHER, FULL RELIEF HAS BEEN PROVIDED BY THE DRP W ITH RESPECT TO PROVISION FOR SLOW MOVING/ NON-MOVING INVENTORY. THE AO ACCORDINGLY DETERMINED THE TOTAL INCOME OF T HE ASSESSEE AT RS 7,51,12,785/- IN THE FAO AS AGAINST TOTAL INCOME OF RS 3,92,74,880/- DECLARED IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 6 BY ASSESSEE IN THE RETURN OF INCOME FILED FOR THE S UBJECT AY 2011-12. THE ADJUSTMENTS MADE BY THE AO IN THE FAO ARE CAPTURED BELOW: PARTICULARS AMOUNT (RS) RETURNED INCOME 3,92,74,880 ADD: TRANSFER PRICING ADJUSTMENT 3,58,37,905 TOTAL 7,51,12,785 8. THE CONTENTION OF THE A.R. IS THAT MARKETING SU PPORT SERVICES PROVIDED TO THE AE ARE DIFFERENT FROM THE AMC SERVI CES PROVIDED TO THIRD PARTY CUSTOMERS. HE DREW OUR ATTENTION TO THE SEGMENT REVENUE & COSTS FROM PAGE 9 TO 12 OF THE WRITTEN SUBMISSIONS AS FOLLOWS: 9.1 FACTS : IN RELATION TO THE 'SALES SUPPORT SERVICES', THE AS SESSEE IS ENGAGED IN THE PROVISION OF MARKETING SUPPORT SERVICES TO ITS AE O UTSIDE INDIA. FURTHER, IN RELATION TO THE SALES TO THIRD PARTY CUSTOMERS, THE ASSESSEE ENTERS INTO A SEPARATE ANNUAL MAINTENANCE CONTRACT ('AMC') OR SERVICE CONT RACTS FOR PRODUCTS, WHICH ARE OUT OF WARRANTY PERIOD. THE ASSESSEE DECIDES TH E SERVICE CHARGES, AND TERMS AND CONDITIONS OF SUCH AMC. 9.2 PROCEEDINGS BEFORE THE TPO IN THE ORDER PASSED BY THE LD. TPO, THE NON-AE TRAN SACTIONS (AMC SERVICES) WERE AGGREGATED WITH THE INTERNATIONAL TRANSACTION ENTERED INTO BY THE ASSESSEE WITH THE AE FOR PROVISION OF MARKETING SUP PORT SERVICES. THE TPO OBSERVED THIRD PARTY SEGMENT OF THE ASSESSEE OF AMC & OTHERS SERVICES IS NOTHING DIFFERENT FROM SALES SUPPORT / MARKET SUPPO RT SERVICES RENDERED BY THE ASSESSEE TO ITS ASSESSEE. ACCORDINGLY, THE A O CONSIDERED THE AMC IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 7 SERVICES AND SALES SUPPORT SERVICES AS ONE SINGLE S EGMENT FOR COMPARABILITY PURPOSE UNDER TNMM. 9.3 PROCEEDINGS BEFORE THE DRP THE DRP CONFIRMED THE ORDER OF THE TPO HOLDING THAT AMC SERVICES RENDERED TO NON-AE IS FUNCTIONALLY SIMILAR TO THE MARKET SUP PORT SERVICE RENDERED TO THE AE EXCEPT THE TERMINOLOGY AND THE DESCRIPTION. FURTHER, IT HAS BEEN OBSERVED THAT WHERE SEGMENTAL INFORMATION HAS BEEN ALLOCATED BASED ON ALLOCATION INSTEAD OF ACTUALS, THE CORRECT SEGMENTA L MARGIN CANNOT BE ASCERTAINED AND HENCE, UPHELD THE ORDER OF THE TPO. ACCORDINGLY, THE LD. AO PASSED THE FINAL ASSESSMENT ORDER ('FAO') GIVING EFFECT TO THE DIRECTIONS OF THE DRP. 9.4 SUBMISSION OF A.R.: AT THE OUTSET, IT IS SUBMITTED THAT THE MARKETING S UPPORT SERVICES PROVIDED TO THE AE ARE DIFFERENT FROM THE AMC SERVICES PROVI DED TO THIRD PARTY CUSTOMERS. THE DRP HOWEVER, REJECTED THE OBJECTIONS FILED BY ASSESSEE AND UPHELD THE FINDINGS OF THE TPO. THE ASSESSEE SUBMITS THAT WITH RESPECT TO THE TRANS ACTION BETWEEN ASSESSEE AND THE THIRD PARTY, THE ASSESSEE ENTERS INTO AMC W ITH THE THIRD PARTY CUSTOMERS DIRECTLY TO RENDER OUT OF PERIOD WARRANTY SERVICES FOR THE PRODUCTS OF AE SOLD TO THE CUSTOMERS IN INDIA. IN THIS CASE, THE AGREEMENT IS IN BETWEEN THE ASSESSEE AND THE THIRD PARTY. FURTHER, ALL THE COSTS INCURRED IN PROVIDING THE SERVICES UNDER AMC ARE BORNE BY ASSES SEE ITSELF. THEREFORE, IT IS SUBMITTED THAT THE A. THE ASSESSEE INDEPENDENTLY ENTERS INTO AMC WITH THE THIRD PARTY CUSTOMERS WITHOUT THE INVOLVEMENT OF THE AES; IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 8 B. ALL THE TERMS AND CONDITIONS FOR THE AMC SERVICES A RE DECIDED BY THE ASSESSEE WITH ITS THIRD PARTIES; C. THE SERVICE IS RELATING TO WARRANTY SERVICES FOR TH E PRODUCTS SOLD D. THE SERVICES ARE PROVIDED IN INDIA E. THERE IS NO CONTRACT BETWEEN THE THIRD PARTY CUSTOM ERS AND THE AES. THE SUPPLIERS DIRECTLY CONTACT THE ASSESSEE FOR THE REQ UIRED SERVICE TO BE RENDERED; F. THE PRICE TO BE CHARGED FOR THE AMC SERVICES ARE DE TERMINED BY THE ASSESSEE AND THE AES DO NOT HAVE ANY CONTROL ON THE SAME. G. THE REVENUE FROM THE SERVICE ACTIVITY ENTIRELY DEPE NDENT ON THE CUSTOMER REQUIREMENT, HENCE THE ASSESSEE BEARS RISKS SUCH AS MARKET RISK, DEBTORS/CREDIT RISK ETC. ON THE OTHER HAND, WITH RESPECT TO THE TRANSACTION WITH THE AE, THE ASSESSEE RENDERS MARKETING SUPPORT SERVICES TO AE WHICH INCL UDES WARRANTY SERVICES WITHIN WARRANTY PERIOD FOR THE PRODUCTS OF AE SOLD TO THE CUSTOMERS. IN THIS CASE, THE AGREEMENT IS IN BETWEEN ASSESSEE AND AE A ND WARRANTY COST IS BORNE BY AE. GENERALLY, WARRANTY FOR PRODUCTS IS PR OVIDED FOR ONE YEAR AND IN CASE OF REPAIRS THE PRODUCTS ARE BEING SHIPPED B ACK TO THE AE BY ASSESSEE UNDER AES SPECIFIC INSTRUCTIONS ONLY. THE COST/ EXP ENSES RELATING TO POST SALE (WITHIN WARRANTY) AND WARRANTY SERVICES ARE CH ARGED BACK TO THE AE'S, ON COST PLUS MARK-UP BASIS WITH SERVICE TAX. ANY RE PAIR SERVICES PROVIDED POST WARRANTY PERIOD ARE COVERED BY SEPARATE CONTRA CT BETWEEN CUSTOMERS AND ASSESSEE. ASSESSEE ALSO SEPARATELY ENTERS INTO AMC CONTRACTS WITH CUSTOMERS. THE TP STUDY CLEARLY CAPTURES THIS ASPEC T (REFER PAGE 110 OF PAPER BOOK- VOL I). THE ASSESSEE HAD ALSO FURNISHED SAMPLE INVOICES RAI SED ON AE FOR THE MARKETING SERVICES AT A COST PLUS MARK-UP OF 15% (REFER PAGES 599-602 OF PAPER BOOK-VOL I) AND SAMPLE INVOICES RAISED ON THIRD PARTY CUSTOMERS FOR IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 9 REPAIR SERVICES RENDERED DIRECTLY (REFER PAGES 603-607 OF PAPER BOOK-VOL I). THEREFORE, THE FOLLOWING FACTORS DEMONSTRATE THE DI FFERENCE IN THE NATURE OF TRANSACTION WITH THE AE (REFER MARKETING SUPPORT AGREEMENT AT PAGES 275- 285 OF PAPER BOOK -VOL 1): A. THE ASSESSEE PROVIDES MARKET SUPPORT SERVICES WH ICH INCLUDES PRE- SALES AND POST SALES (WITHIN WARRANTY PERIOD) SERVI CES TO THE CUSTOMERS UNDER THE INSTRUCTIONS AND CONTROL OF THE AES B. ALL THE COST INCURRED BY THE ASSESSEE IN PROVIDING MARKET SUPPORT SERVICES ARE CHARGED BACK TO THE AES ALONG WITH A MARK-UP; A ND C. THE ASSESSEE DOES NOT BEAR ANY KIND OF MARKET RISK, DEBTORS/CREDIT RISK AS IT IS COMPENSATED ON A COST PLUS BASIS. D. THE AGREEMENT IS WITH AE OUTSIDE INDIA FROM THE ABOVE, IT IS ABUNDANTLY CLEAR THAT THE ACT IVITIES UNDERTAKEN AND THE COMPENSATION MODEL ARE DISTINCT FROM THE MARKET ING SERVICE PROVIDED TO THE ASSESSEE AND HENCE, THE SAME SHOULD BE LOOKED AS SEPARATE SEGMENTS. WITHOUT APPR ECIATING THE ABOVE FACT AND CIRCUMSTANCES OF THE CASE, THE DRP CONFIRM ED THE ORDER OF THE TPO AND HAVE PROCEEDED TO AGGREGATE THE THIRD PARTY TRANSACTION ALONG WITH THE INTERNATIONAL TRANSACTION ON THE GROUND TH AT CORRECT SEGMENTAL DETAILS CANNOT BE ASCERTAINED. ALLOCATION OF SEGMENT REVENUE AND COSTS: THE ASSESSEE WISHES TO PRODUCE THE SEGMENT PROFIT A ND LOSS ACCOUNT OF THE ASSESSEE WHICH HAS BEEN SUBMITTED DURING THE ASSESS MENT PROCEEDINGS (REFER PAGE 274 AND 308 OF PAPER BOOK-VOL 1): IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 10 PARTICULARS REVENUE REFERENCE BASIS OF ALLOCATION SALES SUPPORT IT SERVICES SERVICE TRADING OF INSTRUMENT, SPARE PARTS THIRD PARTY (AMC AND OTHERS) TOTAL SERVICE REVENUE ACT..LI: 182,861,849 24,604,938 42,292,626 249.759,413 SALES OF GOODS - 8,540.094 8,540,094 TOTAL REVENUE A 182,861,849 24,604,938 8,540,094 42,292,626 258,299,507 COSTS COST OF GOODS SOLD B - 5,730.380 - 5.730,380 PERSONNEL EXPENDITURE ACTUALS 74,818,691 8,117,359 - 24,396.477 107,332,527 OTHER OPERATING COSTS IT & MSS - ACTUALS TRADING AND THIRD PARTY . REVENUE RATIO 72,533,785 13.451,976 130,658 10.863,627 97,267,873 DEPRECIATION MSS - ACTUALS TRADING AND THIRD PARTY REVENUE RATIO 9,397,720 386,845 32.883,186 42,667,751 FINANCE EXPENSES (BANK CHARGES) ACTUALS 4,952 - - 4,952 TOTAL OPERATING COSTS C 156,755,148 21,569,335 6,247,883 68,143.290 253.003,483 GROSS PROFIT D=A-B 2.809.714 OPERATING PROFITS (OP) E=A-C 26,106.701 3.035.603 2,292.211 -25,850,664 5.296.024 GP/SALES F=D/A 32.90% OPERATING MARGIN (OP/TC) (IN %) G=E/C _ _ 16.65% 14.07% RECONCILIATION OF PBT OPERATING PROFIT (LOSS) ADD: OTHER INCOME 4,320,020 LESS: NON-OPERATING EXPENSES FINANCE COSTS 8,020,715 PROFIT BEFORE TAXES (PBT) 1,595,329 10. THE LD. D.R. SUBMITTED THAT ASSESSEE IS RENDERI NG AMC TO NON-AES IN INDIA, WHICH IS FUNCTIONALLY SIMILAR TO THE SO CALL ED MARKET SUPPORT SERVICES RENDERED TO THE A.E. IN INDIA EXCEPT THE TERMINOLOG Y AND THE DESCRIPTION. THE SEGMENTAL INFORMATION PROVIDED AS CERTAIN ALLOCATIO N BASED ON REVENUE, INSTEAD OF THE ACTUAL EXPENDITURE, IN SUCH CIRCUMSTANCES, I T IS NOT POSSIBLE TO ARRIVE AT CORRECT SEGMENTAL MARGIN AND THEREFORE TPO APPROACH HAS TO BE UPHELD. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. IN THIS CASE, TPO AGGREGATED MAINTENANCE SERVICES TO NON AE WITH SIMILAR SERVICES RENDERED TO AE AS A SINGLE SEGMENT FOR COMPARABILITY PURPOSE AS UNDER TNMM METHOD IN THE CASE OF MSS SEGMENT. IN OUR OPINION, THIS IS N OT POSSIBLE. HOWEVER, ASSESSEE HAS TO FURNISH COMPLETE SEGMENTAL INFORMATION ON AC TUAL BASIS WHICH THE IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 11 ASSESSEE NOT PROVIDED BEFORE THE LOWER AUTHORITIES. ACCORDINGLY, WE REMIT THE ISSUE TO THE FILE OF TPO/AO WITH THE DIRECTION TO A SSESSEE TO FURNISH ACTUAL SEGMENTED DETAILS OF MARKET SUPPORT SERVICES RENDER ED TO THE AE IN INDIA. THEREAFTER, THE AO/TPO HAS TO CONSIDER THIS DATA TO DETERMINE THE ALP OF THIS SEGMENT ONLY. WITH THIS OBSERVATION, THE ISSUE REM ITTED TO THE FILE OF AO/TPO FOR FRESH CONSIDERATION. 13. GROUND NO.8 OF THE ASSESSEE IS AS FOLLOWS: WITHOUT PREJUDICE TO THE CONTENTION THAT AE AND NO N-AE SEGMENT SHOULD NOT BE CLUBBED, THE DRP HAS ERRED IN LAW AND ON FACTS IN C ONSIDERING THE GOODWILL AMORTIZATION AMOUNT OF RS.30,967,437 AS OPERATING C OST FOR DETERMINING THE PROFIT LEVEL INDICATOR (PLI) OF THE APPELLANT FOR AY 201 1-12 13.1 THE ASSESSEE WISHES TO SUBMIT THAT THE EMPLOYE ES WORKING UNDER EACH BUSINESS SEGMENT ARE IDENTIFIED BASED ON SPECIFIC A E (ALSO CALLED AS BUSINESS UNITS) AND THE DEPARTMENTS (EG., MARKET SUPPORT SER VICES/SOFTWARE DESIGN/SERVICE (TRADING/AMC)). NO COMMON EMPLOYEES ARE SHARED BETWEEN THE DEPARTMENTS. THE COST INCURRED BY EVERY EMPLOYE E IN PROVIDING THE SERVICE IS IDENTIFIED ON ACTUALS. ALL COMMON COSTS SUCH AS RENTAL EXPENSES, POWER, STATIONARY, HR AND ADMINISTRATIVE EXPENSES A RE ALLOCATED TO THE MARKET SUPPORT SERVICE SEGMENTS WHICH ARE IN TURN C HARGED TO THE AES WITH A MARK-UP. 13.2 FROM THE ABOVE, THE ASSESSEE WISHES TO SUBMIT THAT AS THERE IS NO CORRELATION BETWEEN THE SERVICE PROVIDED UNDER MARK ET SUPPORT SERVICE SEGMENT AND AMC SEGMENT. HENCE, IT IS SUBMITTED THA T AMC AND MSS SEGMENT CANNOT BE AGGREGATED FOR PURPOSE OF DETERMI NATION OF PLI OF THE ASSESSEE. IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 12 AMORTIZATION OF GOODWILL TO BE CONSIDERED AS NON-OP ERATING IN NATURE:- 13.3 WITHOUT PREJUDICE TO THE ABOVE SUBMISSION, IT IS SUBMITTED THAT THE ASSESSEE SUBMITS THAT ON SEPTEMBER 25, 2009, THE AS SESSEE ENTERED INTO AN ASSET PURCHASE AGREEMENT ('APA') WITH THELSA TECHNI CAL SERVICES PRIVATE LIMITED ('THELSA') AND UNISPEC MARKETING SERVICES P RIVATE ('UNISPEC') FOR THE PURCHASE OF SPECIFIED ASSETS AND LIABILITIES. A S PER THE ASSET PURCHASE AGREEMENT, THE ASSESSEE TOOK OVER NET ASSETS OF RS 2,535,505/- FROM UNISPEC AGAINST A PURCHASE CONSIDERATION OF RS 88,5 47,009/-, AND NET ASSETS OF RS 5,15,037/- FROM THELSA AGAINST A PURCH ASE CONSIDERATION OF RS 38,373,282. 13.4 THE EXCESS OF THE PURCHASE CONSIDERATION OVER THE NET ASSET OF UNISPEC OF RS 86,011,504/- AND THAT OF THELSA AMOUNTING TO RS 37,858,245/- WAS RECOGNIZED AS GOODWILL IN THE FINANCIAL STATEMENTS (REFER PAGE 9 OF PAPER BOOK-VOL I). FURTHER, THE MANAGEMENT OF ASSESSEE HAS ESTIMATED T HE USEFUL LIFE OF THE ASSET TO BE 4 YEARS AND ACCORDINGLY, AM ORTIZATION OF THE SAME HAS BEEN DONE. ACCORDINGLY, GOODWILL AMOUNTING TO RS 3,09,67,437 WAS WRITTEN OFF DURING THE FINANCIAL YEAR ('FY') 2010-11 RELEVA NT TO THE SUBJECT AY 2011- 12 (REFER PAGES 9 AND 21 OF PAPER BOOK-VOL I). FURTHER, THE ASSESSEE SUBMITS THAT THE SAID AMOUNT OF RS 30,967,437 WAS SUO MOTO DISALLOWED BY THE ASSESSEE IN THE RETURN OF INCOME FILED FOR THE AY 2011-12 (REFER INCOME- TAX RETURN, COMPUTATION OF TOTAL INCOME AND TAX AUD IT REPORT IN PAGES 35, 45 AND 61 OF PAPER BOOKVOL I RESPECTIVELY). 13.5 THE ASSESSEE HAD INCLUDED THE AMORTISATION OF GOODWILL COST IN THE THIRD PARTY (AMC/OTHERS) SEGMENTS (REFER PAGE 269 OF PAPER BOOK- VOL 1). 13.6 THE TPO IN HIS ORDER HAS AGGREGATED THE AE AND NON-AE TRANSACTION OF THE ASSESSEE IN THE 'MARKETING SUPPORT SERVICES' SEGMENT AND DETERMINED THE PROFIT LEVEL INDICATOR ('PLI') AT 0.11 PERCENT BEING THE RATIO OF OPERATING IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 13 PROFIT OVER OPERATING COST. THE LD. TPO HAS INCLUDE D THE AMORTIZATION AMOUNT OF RS 30,967,437 FOR COMPUTING THE PLI OF TH E ASSESSEE HOLDING THE SAME TO BE OPERATING IN NATURE. 13.7 THE DRP WHILE UPHOLDING THE ORDER OF THE LD. T PO FAILED TO TAKE NOTE OF THE INCLUSION OF THE EXTRA-ORDINARY ITEM OF WRIT E-OFF OF GOODWILL IN THE OPERATING COST FOR DETERMINING THE PLI OF THE ASSES SEE. GIVEN THE SAME, THE ASSESSEE FILED A RECTIFICATION PETITION UNDER SECTI ON 154 OF THE ACT ON MARCH 10, 2016 BEFORE THE DRP SEEKING RECTIFICATION OF TH E DRP DIRECTIONS DATED DECEMBER 29, 2015(REFER PAGES 612-614 OF PAPER BOOK-VOL I). IT IS HUMBLY SUBMITTED THAT THAT THE DRP HAS NOT ADJUDICA TED THE SAID APPLICATION FILED BY THE ASSESSEE FILED ON MARCH 10 , 2016 TILL DATE. 13.8 THE ASSESSEE WISHES TO SUBMIT THAT, ASSUMING W ITHOUT ADMITTING THAT THE MARKETING SUPPORT SERVICES PROVIDED TO THE AE A ND THE AMC SERVICES PROVIDED TO THE THIRD PARTY CUSTOMERS ARE CLUBBED, THE EXTRAORDINARY/NON- OPERATING ITEM (I.E.) AMORTIZATION OF ACQUIRED GOOD WILL AMOUNTING TO RS 30,967,437 SHOULD NOT BE CONSIDERED FOR DETERMINING THE PLI. ASSESSEE RELIES ON THE DECISION OF THE DELHI TRIBUNAL IN THE CASE OF ST ERICSSSON INDIA PRIVATE LIMITED (ITA NO. 609/DEL/2015) WHEREIN THE TRIBUNAL HAS HELD THAT AMORTIZATION OF GOODWILL IS AN EXTRA ORDI NARY ITEM AND IS NOT PERTAINING TO THE REGULAR OPERATION OF THE ASSESSEE , AND HENCE NON- OPERATING IN NATURE. HENCE, IT IS SUBMITTED THAT THE REVISED COMPUTATION ARE AS FOLLOWS: SERVICE REVENUE 225,154,475 225,154,475 TOTAL REVENUE 225,154,475 225,154,475 OPERATING COSTS PERSONNEL EXPENDITURE 99,215,168 99,215,168 OTHER OPERATING COSTS 83,397,412 83,397,412 IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 14 DEPRECIATION AND AMORTIZATION 42,280,906 42,280,906 LESS: AMORTIZATION OF GOODWILL (30,967,437) 11,313,469 _ FINANCE EXPENSES 4,952 4,952 TOTAL OPERATING COSTS ('OC') 224,898,438 19,39,31,001 OPERATING PROFIT ('OP') 256,037 3,12,23,474 OPERATING MARGIN OP / OC (P_ERCENTL 0.11 16.10 13.9 THE ASSESSEE WISHES TO SUBMIT THAT WITH THE AB OVE PLI OF THE ASSESSEE OF 16.10%, THE AVERAGE MARGINS OF THE COMPARABLE CO MPANIES WOULD BE WITHIN +/- 5 PERCENT FROM THE MARGIN OF THE ASSESSE E AFTER EXCLUSION OF THE EXTRAORDINARY ITEM. 14. THE LD. D.R. SUBMITTED THAT THE ISSUE MAY BE RE MITTED TO THE LD. DRP WHEREIN THE PETITION FILED U/S 154 OF THE ACT DATED 10.3.2016 IS PENDING BEFORE THE DRP. 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. IN PRINCIPLE, WE ARE OF THE OPINION THAT AMORTIZATION OF GOODWILL IS AN EXTRAORDINARY ITEM AND IS NOT PERTINENT TO THE REGULAR OPERATION OF THE AS SESSEE AND HENCE NON-OPERATING IN NATURE. HOWEVER, THIS ISSUE IS NOT EMANATED FRO M THE ORDER OF THE DRP. WE ARE REFRAINED FROM COMMENTING ON THIS ISSUE. THE R EMEDY LIES WITH THE ASSESSEE BEFORE THE DRP ON ACCOUNT OF BIDING PROCEEDINGS U/S 154 OF THE ACT, WHICH MAY BE PURSUED BY THE ASSESSEE. THIS GROUND OF ASSESSE E IS DISMISSED. 16. GROUND NOS.9 & 10 ARE DISMISSED AS NOT PRESSED. 17. GROUND NO.11 RELATED TO SOFTWARE DEVELOPMENT SE RVICES WHICH IS REPRODUCED BELOW: IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 15 THE DRP ERRED IN REJECTING THE FOLLOWING COMPANIES DESPITE THE SAME BEING FUNCTIONALLY COMPARABLE TO THE APPELLANT AND QUALIF Y THE FILTERS APPLIED BY THE LD. TPO. THE COMPARABLES THEREFORE OUGHT TO HAVE BEEN ACCEPTED AS COMPARABLE: A) SYNFOSYS BUSINESS SOLUTIONS LTD. B) CG-VAK SOFTWARE & EXPORTS LTD. C) EVOKE TECHNOLOGIES LTD. D) R.S. SOFTWARE (INDIA) LTD. 17.1 OUT OF 4 COMPARABLES, R.S. SOFTWARE INDIA LTD. COMPARABLE (D) IS NOT PRESSED BY A.R. AND DISMISSED ACCORDINGLY. 17.2 NOW COMING TO FIRST COMPARABLE (A) SYNFOSYS BU SINESS SOLUTIONS LTD. THE LD. A.R. SUBMITTED THAT SYNFOSYS BUSINESS SOLUTIONS LTD. IS ONLY ENGAGED IN SOFTWARE DEVELOPMENT. IT IS SEEN FROM ITS FINANCIA LS PLACED AT PAGE NO.986 OF THE PAPER BOOK AS FOLLOWS: 01.04.2010 TO 31.03.2011 DETAILS PRINCIPAL PRODUCTS AND SERVICES UNLESS OTHERWISE SPECIFIED, ALL MONETARY VALUES ARE IN INR 1 ITC NUMBER OF PRODUCE NIL DESCRIPTION OF PRODUCT OR SERVICES SOFTWARE DEVELOPMENT IT SOLUTIONS UNIT OF MEASUREMENT OF PRINCIPAL PRODUCT OR SERVICES NIL TURNOVER OF PRINCIPAL PRODUCT OR SERVICES 9,69,08,245 QUANTITY OF PRINCIPAL PRODUCT OR SERVICES (IN UOM) [PURE]0 THERE IS NO REASON TO REJECT THIS COMPARABLE AS A C OMPARABLE BY OBSERVING BY THE DRP NO SEGMENTAL INFORMATION AVAILABLE IN TH IS CASE. THE LD. D.R. RELIED ON THE ORDER OF DRP. 18. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE DRP OBSERVED THAT SYNFOSYS BUSINESS SOLUTIONS LTD. IS ENGAGED IN BOTH SWD & ITS IN NATURE AND ALSO BUILDING AND M ANAGING ENTERPRISE IT IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 16 INFRASTRUCTURE COMPRISING LIFE CYCLE SERVICES IN DA TA CENTRE MANAGEMENT DESK, TOP MANAGEMENT, DATA BASED ADMINISTRATION AND WEB O BSERVATION AND ALSO NO SEGMENTAL DATA BUT WE FIND FROM THE FINANCIALS OF T HIS COMPANY FILED FOR THE YEAR ENDING 31.3.2011 AND THIS COMPANY IS ONLY ENGAGED I N SOFTWARE DEVELOPMENT SERVICES AND ITES SOLUTIONS AND TURNOVER IS RS.96,9 0,08,245/-. THE SAME WAS REFLECTED IN P&L ACCOUNT. BEING SO, WE REMIT THIS ISSUE TO THE FILE OF TPO/AO FOR HIS RECONSIDERATION. 19. CG-VAK SOFTWARE AND EXPORTS LTD. THIS WAS REJE CTED BY THE DRP BY OBSERVING AS UNDER: 2.21 WE EXAMINED THE ANNUAL REPORT, FROM WHICH IT IS EVIDENT THAT THE COMPANY IS ENGAGED IN THE SOFTWARE DEVELOPMENT, SERVICES AN D PRODUCTS. IN THE SCHEDULE TO THE ACCOUNT, NO DETAILS OF EMPLOYEES COST HAVE BEEN GIVEN AND THEREFORE, IT IS NOT POSSIBLE TO ASCERTAIN, AS TO WHETHER THE COMPANY PA SSES THE EMPLOYEES COST FILTER APPLIED BY THE TPO, AS IN THE PROFIT AND LOSS ACCOU NT, THE EXPENSES HAVE BEEN DEBITED UNDER THE HEAD COST TO SERVICES, SUCH COMPANIES C ANNOT BE RETAINED AS COMPARABLE, THIS VIEW ALSO FINDS SUPPORT FROM THE DECISION OF T HE HONBLE DELHI HIGH COURT IN THE CASE OF RAMPGREEN SOLUTIONS PVT. LTD. (ITA 102/2015 ) IN WHICH IN PARAGRAPH 38 IT IS HELD THAT PLAINLY, A BUSINESS MODEL WHERE SERVICES ARE RENDERED BY EMPLOYEE OWN EMPLOYEES AND USING ONES OWN INFRASTRUCTURE WOULD HAVE A DIFFERENT COST STRUCTURE AS COMPARED TO A BUSINESS MODEL WHERE SERVICES ARE OUTSOURCED. THERE WAS NO MATERIAL FOR THE TRIBUNAL TO CONCLUDE THAT THE OUTS OURCING SERVICES BY .. WOULD HAVE NO BEARING ON THE PROFITABILITY OF THE SAID ENTITY . IN VIEW OF THE ABOVE, WE DO NOT FIND ANY INFIRMITY IN EXCLUSIVE OF THE ABOVE COMPANY FRO M COMPARABLES, THE EMPLOYEES COST FILTER OF 25% APPLIED BY THE TPO WHICH FINDS S UPPORT FROM THE DECISION OF THE HONBLE DELHI BENCH OF ITAT IN THE CASE OF NAVISITE INDIA PVT. LTD. IN ITA NO.5329/2012. 20. THE CONTENTION OF THE AR IS THAT THE ISSUE MAY BE REMITTED TO THE TPO/AO TO CONSIDER THE RELEVANT EMPLOYEES DATA AND DECIDE AFRESH. RELEVANT COST MAY BE OBTAINED BY AO/TPO BY ISSUING NOTICE U/S 133(6) OF THE ACT. 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. WE FIND FORCE IN THE ARGUMENT OF LD. A.R. IF THE RELEVANT D ATA RELATING TO EMPLOYEES COST IS NOT AVAILABLE IN RESPECT CG VAK SOFTWARE AND EXP ORTS LTD., IT OUGHT TO HAVE IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 17 BEEN COLLECTED BY THE TPO BY EXERCISING POWER U/S 1 33(6) OF THE ACT. ACCORDINGLY, THE ISSUE REMITTED TO THE AO FOR FRESH CONSIDERATIO N. 22. EVOKE TECHNOLOGIES: THE LD. A.R. SUBMITTED THAT THIS COMPARABLE WAS SUO MOTO EXCLUDED BY THE DRP BY OBSERVING THAT ITS ANNUAL REPORT STATES THAT CONSULTANCY CHARGES WAS INCREASED FROM RS.9,57,480 TOP RS.1,07,17,303/- WHI CH WORKED OUT TO 1118%, WHICH FACT THE MARGIN OF COMPANY AS SUCH IT CANNOT BE A COMPARABLE. 23. THE LD. D.R. SUBMITTED THAT IN TNMM METHOD ONLY MARGINS TO BE COMPARED AND NOT THE INCREASE/DECREASE IN THE HEAD OF EXPENDITURE SHOWN IN THE P&L ACCOUNT. FOR THIS PURPOSE, HE RELIED ON TH E ORDER OF THE TRIBUNAL IN THE CASE OF DEPUTY COMMISSIONER OF INCOME-TAX VS. SUMI MOTHERSON INNOVATIVE ENGINEERING LTD. 42 TAXMANN.COM 242 (DEL) TRIBUNAL. BE THAT AS IT MAY, IT IS NOT ALLOWED TO COMPARE EA CH AND EVERY ITEM OF THE OPERATING COST INCURRED BY THE ASSESSEE WITH SIMILAR COST IN THE CASE OF COMPA RABLES TO ASK FOR ADJUSTMENT RATHER IT IS THE OVERA LL EFFECT OF ALL SUCH INDIVIDUAL ITEMS CULMINATING INT O OPERATING PROFIT, WHICH IS CONSIDERED FOR BENCHMARKING THE ASSESSEE'S INTERNATIONAL TRANSACTI ON. IT IS QUITE NATURAL THAT IF ASSET IS PURCHASED, THE AMOUNT OF DEPRECIATION ON A WRITTEN DOWN VALUE METH OD WILL BE HIGHER BUT THE REPAIR COST WILL BE LOW. IN CONTRAST TO THAT, WHEN THE ASSET GROWS OLD, THOUGH THE AMOUNT OF DEPRECIATION WILL MARCH SOUTHWARDS, BUT THE EXPENSES ON REPAIRS WILL ASSUME SOJOURN TO THE NORTH COUPLED WITH THE HIGHER WASTA GE AND LOWER OUTPUT DUE TO FREQUENT BREAKDOWNS. IF THE AMOUNT OF DEPRECIATION IS DISTINCTLY COMPARED WITH COMPARABLES LEAVING ASIDE OTHER RELATED AND CONSEQU ENTIAL ITEMS, SUCH AS REPAIR COSTS ETC., THE RESULT S ARE LIKELY TO BE DISTORTED. IT SHOWS THAT INCREASE IN ONE EXPENSE CANNOT BE VIEWED IN ISOLATION. IT IS REQUIRED TO BE EXAMINED WITH ITS CORRESPONDING EFFE CT ON RELATED ITEMS. SUCH INCREASE OR DECREASE IN INDIVIDUAL ITEMS OF EXPENSES MAY BE DUE TO A PAR TICULAR BUSINESS MODEL ADOPTED BY THE ASSESSEE. TO CITE AN EXAMPLE, AN INCREASED AMOUNT OF SALARIES MAY BE DUE TO THE POLICY OF THE ASSESSEE IN COMPARATIVELY MORE OUTSOURCING OF ITEMS. IN SUCH A SITUATION, THOUGH THE EXPENSE UNDER THE HEAD 'SALARY' WILL BE LESS, BUT THERE WILL BE MORE 'JOB WORK CHARGES' ETC. A COMPANY WHICH OUTSOURCES LESS AND STICKS TO MORE OWN PRODUCTION REGIME, MAY NEED TO HAVE MORE ASSETS, WHICH MAY RESULT IN HIGHER AMOUNT OF DEPRECIATION. IN SUCH A CASE, CLAIMING AD JUSTMENT ON ACCOUNT OF HIGHER DEPRECIATION WILL BE ABSURD. SIMILARLY, AN ENTITY MAY BOOK ENTIRE SALARY EXPENSE UNDER ONE HEAD, WHILE ANOTHER MAY BIFURCATE IT INTO DIFFERENT PARTS AND INCLUDE SOME PART IN MARKETING EXPENSES OR FACTORY OVERHEADS ETC . IN SUCH A CASE ALSO, THE COMPARISON OF 'SALARY' EXP ENSE IN SEPARATION WILL BE MEANINGLESS. IN THE LIKE MANNER, ONE COMPANY MAY USE MORE RENTED PREMISES OR VEHICLES IN COMPARISON WITH THE OTHER, WHICH HAS ITS OWN PREMISES AND VEHICLES. WHEREAS IN THE C ASE OF THE FORMER, THE AMOUNT OF RENT OR VEHICLE MAINTENANCE CHARGES WILL BE HIGHER, BUT THE AMOUNT OF DEPRECIATION IN THE CASE OF THE LATER WILL BE MO RE BECAUSE OF USE OF MORE ASSETS OF ITS OWN RATHER THA N TAKING THE FACILITY OF HIRED ONES. THE CRUX OF TH E MATTER IS THAT A HIGHER AMOUNT OF A PARTICULAR EXPE NDITURE PER SE CAN BE NO REASON TO CLAIM ADJUSTMENT IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 18 IN PROFIT RATIO. THAT IS THE REASON FOR WHICH THE L EGISLATURE HAS PROVIDED FOR COMPARING COMPOSITE FIG URE OF OPERATING PROFIT WHICH ENVELOPES THE OVERALL EFF ECT OF ALL THE ITEMS OF OPERATING EXPENSES AND REVENUES. ONE IS NOT LAYING DOWN THE PROPOSITION TH AT ONCE THE OPERATING PROFIT IS ' AVAILABLE, THEN NO ADJUSTMENT IS POSSIBLE. SUB-CLAUSE (III) TO RULE 10B(1)(E) CLEARLY PROVIDES THAT THE NORMAL GROSS PROFIT MARK-UP OF COMPARABLES IS ADJUSTED TO TAKE I NTO ACCOUNT THE FUNCTIONAL AND OTHER DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION AND T HE COMPARABLE UNCONTROLLED TRANSACTIONS ETC. TO ASK FOR ADJUSTMENT, IT IS SINE QUA NON THAT THERE S HOULD BE SOME INDEPENDENT AND SUBSTANTIAL REASON FOR CLAIMING ADJUSTMENT IN PROFIT RATE OF COMPARABL ES. THE SINGULAR EFFECT OF HIGHER QUANTUM OF AN ITEM OF EXPENDITURE DE HORS THE OTHER RELEVANT FACT ORS, IS NOT PERMISSIBLE. IN THE CONTEXT OF DEPRECIATION, ONE CAN RIGHTLY APPRECIATE THE NEED T O MAKE ADJUSTMENT, IF RATE OF DEPRECIATION CHARGED BY THE ASSESSEE VIS-A-VIS ITS COMPARABLES I S DIFFERENT, BUT SIMPLICITOR DIFFERENCE IN THE AMOUNT OF DEPRECIATION IS IN CONSEQUENTIAL. AS THER E IS NOTHING TO SHOW IN THE EXTANT CASE THAT THE ASSESSEE DID CHARGE DEPRECIATION AT HIGHER RATES IN COMPARISON WITH ITS COMPARABLES, EVEN THE ALTERNATIVE PRAYER OF THE ASSESSEE CANNOT BE ACCEPT ED. [PARA 6.1]. 24. THE LD. D.R. SUBMITTED THAT THERE IS A SUBSTANT IAL INCREASE IN THE CONSULTATION CHARGES AS SEEN FROM THE FINANCIALS OF EVOKE TECHNOLOGIES LTD., WHICH WAS EXCLUDED BY THE DRP FROM THE LIST OF COMP ARABLES. 25. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. AS RIGHTLY POINTED OUT BY THE LD. A.R. IN DETERMINING THE ALP UNDER TNMM METHOD IS ONLY UNDER MARGINS TO BE CONSIDERED AND NOT THE INCREASE /DECREASE IN THE INDIVIDUAL ITEM OF EXPENDITURE OF THE RELEVANT COMPARABLE. HO WEVER, IN THE PRESENT CASE, THERE IS A SUBSTANTIAL INCREASE IN THE REVENUE OF E VOKE TO THE TUNE OF 30% AS COMPARED TO EARLIER YEARS, WHICH IS USUALLY ABNORMA L. ON THAT REASON, IT WAS EXCLUDED AND IT IS NOT ONLY THE REASON OF INCREASE IN THE CONSULTATION CHARGES. BEING SO, THE ASSESSEE NOT OFFERED ANY EXPLANATION FOR SUBSTANTIAL INCREASE IN THE PROFIT OF EVOKE TECHNOLOGIES LTD. BY 30% IN THE IMM EDIATE EARLIER YEAR. BEING SO, DRP JUSTIFIED IN REJECTING THIS AS COMPARABLE. 26. GROUND NO.12 OF THE ASSESSEE IS ON THE FOLLOWIN G COMPARABLES: THE DRP ERRED IN UPHOLDING THE ORDER OF THE LD. TP O CONSIDERING THE FOLLOWING COMPARABLES DESPITE THE SAME BEING FUNCTIONALLY DIF FERENT TO THE APPELLANT OR FAILS TO MEET THE LEGALLY ACCEPTABLE CRITERIA FOR COMPARA BILITY. THE FOLLOWING COMPARABLES THEREFORE OUGHT TO HAVE BEEN REJECTED A S COMPARABLE: PERSISTENT SYSTEMS LTD.; SASKEN COMMUNICATION TECHNOLOGIES LTD. IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 19 27. THE CONTENTION OF THE A.R. IS THAT ON ACCOUNT O F TURNOVER FILTER AND RELATED PARTY TRANSACTION FILTER, THIS COMPARABLE HAS TO BE EXCLUDED. FURTHER, REGARDING PERSISTENT SYSTEMS IT WAS SUBMITTED THAT IT HAS DIV ERSIFIED ACTIVITIES AND FUNCTIONALLY NOT COMPARABLE ON THE REASON THAT IT H AS PRODUCT REVENUE, ON SITE OPERATIONS AND HAVING TURNOVER GREATER THAN RS.500 CRORES AND ALSO HAVING RELATED PARTY TRANSACTIONS. FURTHER, REGARDING SAS KEN COMMUNICATIONS, IT WAS SUBMITTED THAT THAT COMPANY FUNCTIONALLY DIFFERENT AND HAVING DIVERSIFIED ACTIVITIES AND HUGE TURNOVER. 28. THE LD. D.R. SUBMITTED THAT THIS COMPANY SPECIA LIZED IN SOFTWARE PRODUCT DEVELOPMENT SERVICES AND ITS PARTNER CLOSELY WITH T HE WORLDS LARGEST TECHNOLOGY BRANCH INNOVATIVE ENTERPRISES AND PIONEERING START UPS TO PROVIDE END TO END PRODUCT DEVELOPMENT SERVICES. THE COMPANY HAS 297 CUSTOMERS WITH WHOM THE COMPANY HAS LONG TERM CONTACT FOR SOFTWARE DEVELOPM ENT. IT IS ALSO EVIDENT THAT COMPANY IS PREDOMINANTLY ENGAGED IN OUTSOURCING SOF TWARE PRODUCT DEVELOPMENT SERVICES. THE COMPANY IS COMPARABLE WI TH THE ASSESSEES FUNCTIONS BEING THE ACTIVITIES OF THIS COMPANY IS COMPARABLE WITH THE ASSESSEE COMPANY AND IT HAS TO BE UPHELD. 29. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THIS COMPANY PERSISTENT SYSTEMS LTD. IS NOT COMPARABLE IN THE CASE OF ELECTRONIC IMAGING INDIA PVT. LTD. IN IT(TP)A NO .1506/BANG/2016 DATED 14.7.2017. PERSISTENT SYSTEMS LTD. 8. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS THE RELEVANT MATERIAL ON RECORD, FIRST WE WILL DEAL WITH THE FUNCTIONAL COMPARABILITY OF T HE SIX COMPANIES NAMELY ACROPETAL TECHNOLOGIES LIMITED (SEG.), E-ZEST SOLUTIONS LTD., L&T INFOTECH LTD., PERSISTENT SYSTEM & SOLUTION LTD., PERSISTENT SYSTEMS LTD. AND TATA ELX SI LIMITED. THE BUSINESS ACTIVITIES OF THESE SIX COMPANIES HAVE BEEN EXAMINED ON THE POINT OF FU NCTIONAL COMPARABILITY IN THE SOFTWARE DEVELOPMENT SERVICES PROVIDER BY THE CO-ORDINATE BE NCH OF THIS TRIBUNAL VIDE DECISION DT. IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 20 21.9.2016 IN THE CASE OF APPLIED MATERIALS INDIA (P .) LTD. (SUPRA) IN PARAS 9.1.1 TO 9.2.4; 16.1 TO 16.4 AND 19 TO 20 AS UNDER: ' (I) E-JEST SOLUTIONS LTD. 9.1.1 THE LEARNED AUTHORISED REPRESENTATIVE HAS SUB MITTED THAT THE ASSESSEE RAISED THE OBJECTION BEFORE THE DRP FOR EXCLUSION OF THIS COMP ANY FROM THE SET OF COMPARABLES BUT THE DRP HAS NOT ADJUDICATED THE OBJECTIONS OF THE A SSESSEE. HE HAS REFERRED THE OBJECTIONS RAISED BEFORE THE DRP AT PAGE NO. 1373 O F THE PAPER BOOK AS WELL AS REFERRED THE RELEVANT PART OF THE ANNUAL REPORT OF THIS COMP ANY AT PAGE NOS. 39, 42 & 50 OF THE ANNUAL REPORT. THE LEARNED AUTHORISED REPRESENTATIV E HAS SUBMITTED THAT THIS COMPANY IS ENGAGED IN THE DIVERSIFIED ACTIVITY AND REPORTED THE INCOME UNDER ONLY ONE SEGMENT. THEREFORE IT CANNOT BE CONSIDERED AS A COMPARABLE O F THE ASSESSEE'S SOFTWARE DEVELOPMENT SERVICES SEGMENT. HE HAS RELIED UPON TH E DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL DT.22.4.2016 IN THE CASE OF ELECTR ONICS FOR IMAGING INDIA (P.) LTD V. DCIT IN IT (TP) A NOS. 227 & 285/DEL/2013. 9.1.2 ON THE OTHER HAND, THE LEARNED DEPARTMENTAL R EPRESENTATIVE HAS SUBMITTED THAT THE MAIN ACTIVITY OF THIS COMPANY IS SOFTWARE DEVELOPME NT SERVICES. THEREFORE THE INSIGNIFICANT VARIATION IN ACTIVITY IF ANY CANNOT B E A DETERMINATIVE FACTOR WHILE COMPUTING THE ALP UNDER TRANSACTIONAL NET MARGIN METHOD (TNMM ). HE HAS RELIED UPON THE DECISION OF THE DELHI BENCH OF ITAT IN THE CASE OF TOLUNA INDIA (P.) LTD V. ACIT (2014) 151 ITD 177. 9.1.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS W ELL AS THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE HAS RAISED OBJECTIONS AGA INST THIS COMPANY BEFORE THE DRP. HOWEVER THE DRP DID NOT ADJUDICATE THE OBJECTIONS R AISED BY THE ASSESSEE. THE DECISION OF THIS TRINTINAL IN THE CASE OF M/S. ELECTRONICS F OR IMAGING INDIA (P.) LTD. V. DCIT (SUPRA) RELIED UPON BY THE LEARNED AUTHORISED REPRESENTATIV E IS BASED ON TWO ASPECTS (I) THE INFORMATION RECEIVED UNDER SECTION 133(6) OF THE AC T WAS CONSIDERED BY THE TPO WITHOUT SHARING WITH THE ASSESSEE AND (II) NATURE OF THE AC TIVITY IS KPO. IT IS PERTINENT TO NOTE THAT THE QUESTION OF BPO AND KPO IS RELEVANT ONLY IN ITE S SEGMENT AND NOT FOR SOFTWARE DEVELOPMENT SERVICES SEGMENT. ON THE CONTRARY, THE DECISION IN THE CASE OF TOLUNA INDIA (P.) LTD V. ACIT (SUPRA), PERTAINS TO THE ASSESSMEN T YEAR 2007-08, THEREFORE THE FACTS OF THE DIFFERENT YEAR CANNOT BE APPLIED WITHOUT VERIFI CATION. ACCORDINGLY, WE SET ASIDE THIS ISSUE OF COMPARABILITY OF E-JEST SOLUTIONS LTD. TO THE RECORD OF THE ASSESSIN G OFFICER/TPO FOR DECIDING THE SAME AFTER VERIFICATION OF THE RELEVANT FACTS AS WELL AS CONSIDERING THE OBJECTIONS OF THE ASSESSEE. (II) PERSISTENT SYSTEMS AND SOLUTIONS LTD. (III) PERSISTENT SYSTEMS LTD. 9.2.1 THESE TWO COMPANIES WERE PART OF THE TP STUDY ANALYSIS HOWEVER THE ASSESSEE RAISED OBJECTIONS AGAINST THESE COMPANIES BEFORE TH E TPO AS WELL AS DRP. IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 21 9.2.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTAT IVE OF THE ASSESSEE HAS SUBMITTED THAT THESE COMPANIES ARE FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE AS THESE ARE ENGAGED IN DIVERSIFIED ACTIVITY I.E. RENDERING OF SOFTWARE DEV ELOPMENT SERVICES AND LICENSING, ROYALTY OF SOFTWARE PRODUCTS. THUS WITHOUT HAVING THE SEPAR ATE SEGMENTAL DETAILS AND DATA THESE DIVERSIFIED ACTIVITIES CANNOT BE COMPARED WITH THE ASSESSEE. HE HAS FURTHER POINTED OUT THAT THE COMPANY PERSISTENT SYSTEMS LTD. ALSO ENGAG ED IN DEVELOPING PRODUCTS AND THEREFORE THE ACTIVITIES ARE NOT COMPARABLE WITH TH AT OF THE ASSESSEE. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE DECISION OF THIS TRIBUNAL DT. 24.2.2016 IN THE CASE OF DCIT V. ELECTRONICS FOR IMAGING INDIA (P.) LTD. (SU PRA) AND SUBMITTED THAT THIS COMPANY WAS FOUND TO BE NOT COMPARABLE WITH THE SOFTWARE DE VELOPMENT SERVICES PROVIDER. HE HAS FURTHER POINTED OUT THAT IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2010-11, THE DRP VIDE ITS ORDER DT. 24.11.2014 HAS EXCLUDED PERSISTE NT SYSTEMS AND SOLUTIONS LTD. FROM THE LIST OF COMPARABLES BY HOLDING THAT THIS COMPANY IS NOT COMPARABLE TO THE ASSESSEE. 9.2.3 ON THE OTHER HAND, THE LD. DR HAS SUBMITTED T HAT THE TPO AS WELL AS DRP HAS EXAMINED THE FUNCTIONAL COMPARABILITY OF THESE COMP ANIES AND FOUND THAT THESE COMPANIES ARE COMPARABLE WITH THE ASSESSEE. THESE TWO COMPANI ES HAVE SATISFIED ALL THE FILTERS APPLIED BY THE TPO AND DRP THEREFORE THE MINOR VARI ATION IN THE ACTIVITY WOULD NOT RENDER THESE COMPANIES NON-COMPARABLE WHEN A COMPARABLE PR ICE IS CONSIDERED UNDER TNMM. 9.2.4 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS W ELL AS THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THE FUNCTIONAL COMPARABI LITY OF THESE TWO COMPANIES HAVE EXAMINED BY THE COORDINATE BENCH OF THIS TRIBUNAL I N THE CASE OF DCIT V. ELECTRONICS FOR IMAGING INDIA (P) LTD (SUPRA) IN PARAS 60 AND 61 & PARAS 24 TO 26 AS UNDER: ' PERSISTENT SYSTEMS & SOLUTIONS LTD 60. THE ASSESSEE HAS THE GRIEVANCE AGAINST REJECTION OF THIS COMPANY BY THE DRP. THE LD. AR HAS SUBMITTED THAT ASSESSEE DID NOT RAISE ANY OB JECTION AGAINST THIS COMPANY, HOWEVER, THE DRP HAS REJECTED THE SAID COMPANY. THEREFORE, T HE SAID COMPANY SHOULD BE RETAINED IN THE LIST OF COMPARABLES. 61. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD, AT THE OUTSET, WE NOTE THAT THE DRP HAS EXAMINED THE FUNCT IONAL COMPARABILITY OF THIS COMPANY BY CONSIDERING THE RELEVANT DETAILS AS GIVEN IN THE ANNUAL REPORT OF THIS COMPANY. THE DRP HAS GIVEN THE FINDING THAT THE ENTIRE REVENUE HAS B EEN EARNED BY THIS COMPANY FROM THE SALE OF SOFTWARE SERVICES AND PRODUCTS AND IN THE A BSENCE OF SEGMENTAL DETAILS, IT CANNOT BE CONSIDERED AS COMPARABLE WITH SOFTWARE SERVICES SEGMENT. WE FIND THAT THIS COMPANY HAS SHOWN THE INCOME FROM SALE OF SOFTWARE SERVICES AND PRODUCTS TO THE TUNE OF RS.6.67 CRORES. WE FURTHER NOTE THAT AS PER SCHEDULE 11, TH E ENTIRE REVENUE HAS BEEN SHOWN UNDER ONE SEGMENT I.E., SALE OF SOFTWARE SERVICES AND PRO DUCTS. THEREFORE, NO SEPARATE SEGMENT HAS BEEN GIVEN IN RESPECT OF SOFTWARE SERVICES. ACC ORDINGLY, THE COMPOSITE DATA OF REVENUE AS WELL AS MARGINS OF THIS COMPANY PERTAINING TO TH E SALE OF SOFTWARE SERVICES AND PRODUCTS CANNOT BE CONSIDERED AS COMPARABLE WITH THE SOFTWAR E DEVELOPMENT SERVICES SEGMENT OF THE ASSESSEE. IN VIEW OF THE ABOVE FACTS AND CIRCUM STANCES, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE DIRECTIONS OF THE DRP IN EXCLUDIN G THIS COMPANY FROM THE LIST OF COMPARABLES. THIS GROUND OF CO IS DISMISSED. IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 22 (4) PERSISTENT SYSTEMS LTD 24. WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE RAISED OBJECTIONS AGAINST SELE CTION OF THIS COMPANY ON THE GROUND THAT THIS COMPANY IS FUNCTIONALLY NOT COMPARABLE AS ENGAGED IN THE PRODUCT DEVELOPMENT THE SEGMENTAL INFORMATION FOR SERVICES AND PRODUCT IS NOT AVAILABLE. FURTHER, THE ASSESSEE HAS ALSO, POINTED OUT THAT THERE WAS AN ACQUISITION AND RESTRUCTURING DURING THE YEAR UNDER CONSIDERATION. 25. THE DRP HAS NOTED THE FACT THAT THIS COMPANY HAS RE PORTED THE ENTIRE RECEIPT FROM SALES AND SOFTWARE SERVICES AND PRODUCT. THEREFORE, NO SEGMENTAL INFORMATION WAS FOUND TO BE AVAILABLE FOR SALE OF SOFTWARE SERVICES AND PRODUCT. FURTHER, THE DRP HAS NOTED THAT AS PER NOTE 1 OF SCHEDULE 15, THIS COMPA NY IS PREDOMINANTLY ENGAGED IN OUTSOURCE SOFTWARE DEVELOPMENT SERVICE. APART FROM THE REVENUE FROM SOFTWARE SERVICES, IT ALSO EARNS INCOME FROM LICENCE OF PROD UCTS, ROYALTY ON SALE OF PRODUCTS, INCOME FROM MAINTENANCE CONTRACT, ETC. THESE FACTS RECORDED BY THE DRP HAS NOT BEEN DISPUTED BEFORE US. 26. THEREFORE, WHEN THIS COMPANY IS ENGAGED IN DIVERSIF IED ACTIVITIES AND EARNING REVENUE FROM VARIOUS ACTIVITIES INCLUDING LICENCING OF PRODUCTS, ROYALTY ON SALE OF PRODUCTS AS WELL AS INCOME FROM MAINTENANCE CONTRAC T, ETC., THE SAME CANNOT BE CONSIDERED AS FUNCTIONALLY COMPARABLE WITH THE ASSE SSEE. FURTHER, THIS COMPANY ALSO EARNS INCOME FROM OUTSOURCE PRODUCT DEVELOPMENT. IN THE ABSENCE OF ANY SEGMENTAL DATA OF THIS COMPANY, WE DO NOT FIND ANY ERROR OR ILLEGA LITY IN THE FINDINGS OF THE DRP THAT THIS COMPANY CANNOT BE COMPARED WITH THE ASSESSEE A ND THE SAME IS DIRECTED TO BE EXCLUDED FROM THE SET OF COMPARABLES.' WE FURTHER FIND FROM THE ANNUAL REPORT THAT THERE I S NO CHANGE IN THE ACTIVITY AND FUNCTIONS OF THESE COMPANIES DURING THE YEAR UNDER CONSIDERATION IN COMPARISON TO THE ASSESSMENT YEAR 2010-11. ACCORDINGLY, FOLLOWING THE DECISIONS OF THE CO-ORDINATE BENCHES OF THIS TRIBUNAL (SUPRA), WE DIRECT THE AO/ TPO TO EXCLUDE THESE TWO COMPANIES FROM THE SET OF COMPARABLES.' '16.1 THE DRP REJECTED THIS COMPANY ON THE GROUND O F EMPLOYEE COST FILTER. THE ID. DR HAS SUBMITTED THAT THE TPO HAS APPLIED THE EMPLOYEE COS T FILTER AND THIS COMPANY SATISFIES THE SAME. 16.2 ON THE OTHER HAND, THE LEARNED AUTHORISED REPR ESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE TOTAL EMPLOYEE COST OF THIS COMP ANY IS 11.51 OF THE TOTAL OPERATING REVENUE THEREFORE IT FAILS THE EMPLOYEE COST FILTER OF 25%. FURTHER HE HAS POINTED OUT THAT THIS COMPANY ALSO FAILS THE SOFTWARE DEVELOPMENT SE RVICES REVENUE FILTER OF 75%. HE HAS REFERRED THE DETAILS AT PAGE NOS. 39 AND 53 OF THE ANNUAL REPORT AND SUBMITTED THAT THE INCOME FROM SOFTWARE DEVELOPMENT IS RS.81.40 CRORES OUT OF TOTAL REVENUE OF RS.141 CRORES. THEREFORE THIS COMPANY FAILS THIS FILTER. 16.3 IN A REJOINDER THE ID. DR HAS SUBMITTED THAT T HE TPO HAS CONSIDERED ONLY INFORMATION TECHNOLOGY TRANSACTIONS SEGMENT AND THE REFORE IT SATISFIES SOFTWARE DEVELOPMENT SERVICES INCOME FILTER AS WELL AS EMPLO YEE COST FILTER. IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 23 16.4 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WE LL AS THE RELEVANT MATERIAL ON RECORD. AS PER THE SEGMENTAL REPORTING AT PAGE 53 OF THE AN NUAL REPORT THE INCOME FROM INFORMATION TECHNOLOGY SERVICES IS RS. 81.40 CRORES OUT OF THE TOTAL INCOME OF RS. 141 CRORES. THEREFORE THE REVENUE FROM INFORMATION TECH NOLOGY TRANSACTIONS SERVICES IS LESS THAN 75% AND CONSEQUENTLY THIS COMPANY DOES NOT SAT ISFY THE FILTER OF INFORMATION TECHNOLOGY REVENUE APPLIED BY THE TPO ITSELF. ACCOR DINGLY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE DRP FOR THIS ISSUE. ' ' (IV) L&T INFOTECH LTD. 19. WE HAVE HEARD THE LEARNED DR AS WELL AS LEARNED DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE DRP REJECTED THIS COMPANY B Y RECORDING THE FACTS AT PAGE 15 AS UNDER: ON PERUSAL OF SCHEDULE TO THE NOTES OF THE ACCOUN TS, IT IS NOTICED BY US THAT EXPENSES INCURRED IN FOREIGN CURRENCY ARE 938.94 CR ORE (48.84%), OUT OF THE TOTAL EXPENSES OF RS.1920.46 CRORE DEBITED IN PROFIT AND LOSS ACCOUNT, THESE EXPENSES INCLUDE THE SUB-CONTRACTING EXPENSES TO THE EXTENT OF RS.11 8.01 CRORE, WHICH INDICATES THAT THE COMPANY HAS THE ON-SITE REVENUE OF ABOUT 50%, IT IS ALSO NOTICED BY US THAT IN THE PROFIT AND LOSS ACCOUNT, THE REVENUE HAS BEEN SHOWN FROM S OFTWARE DEVELOPMENT SERVICES AND PRODUCTS, IN THE SEGMENTING ACCOUNT IT IS MENTIONED THAT THE SEGMENT REVENUE INCLUDE SALES DIRECTLY IDENTIFIABLE WITH/ALLOCABLE TO THE S EGMENT, IN SCHEDULE 18, THE REVENUE HAVE BEEN SHOWN FROM 3 SEGMENTS, I.E. FINANCIAL SERVICES , MANUFACTURING AND TELECOM. HOWEVER, IN PARAGRAPH 23, IT IS MENTIONED THAT THE COMPANY IS MAINLY ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT. THE ASSESSING OF FICER HAS CONSIDERED ENTIRE REVENUE FROM 3 SEGMENTS FROM THE SOFTWARE DEVELOPMENT SERVI CES. OUT OF THE SOFTWARE DEVELOPMENT EXPENSES OF RS.1,488.30 CRORE DEBITED I N PROFIT AND LOSS ACCOUNT, SALARY TO OVERSEAS STAFF IS RS.1200.28 CRORE WHICH ALSO INDIC ATES THAT THE COMPANY IS PREDOMINANTLY ENGAGED IN DEVELOPMENT, OF SOFTWARE ON-SITE. IN VI EW OF THE ABOVE DIFFERENCES, IN OUR VIEW THE ABOVE COMPANY CANNOT BE RETAINED AS COMPARABLE, THE ASSESSING OFFICER IS ACCORDINGLY DIRECTED TO EXCLUDE THE ABOVE COMPANY F ROM COMPARABLE. WE FURTHER FIND THAT THE COMPARABILITY OF THIS COMP ANY HAS BEEN CONSIDERED BY THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT V. ELECTRONICS FOR IMAGING INDIA (P) LTD (SUPRA) IN PARAS 62 TO 65 AS UNDER : ' 62. THE ASSESSEE HAS RAISED OBJECTION AGAINST THI S COMPANY ON THE BASIS OF HIGH TURNOVER IN COMPARISON TO THE ASSESSEE. IT WAS ALSO CONTENDED THAT RELATED PARTY TRANSACTION (RPT) OF THIS COMPANY IS 18.66%. THE DR P REJECTED OBJECTIONS OF THE ASSESSEE ON THE GROUND THAT TPO HAS APPLIED 25% FIL TER OF RPT AND ANNUAL REPORT OF THE COMPANY DOES NOT SHOW ANY OTHER SERVICES RENDERED O THER THAN SOFTWARE DEVELOPMENT SERVICES PROVIDED BY THIS COMPANY. THUS THE DRP HEL D THAT SOFTWARE DEVELOPMENT SEGMENT IS COMPARABLE TO THE ASSESSEE AND THEREFORE THIS COMPANY HAS TO BE RETAINED AS COMPARABLE. 63. WE HAVE HEARD THE ID. AR AS WELL AS ID. DR AND CONS IDERED THE RELEVANT MATERIAL ON RECORD. THE ID. AR HAS SUBMITTED THAT THIS COMPANY IS HAVING 18.66% RPT AND FURTHER THIS COMPANY EARNS REVENUE FROM BOTH SERVICES AND P RODUCTS. THUS, THE ID. AR SUBMITTED IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 24 THIS COMPANY IS ALSO IN THE SOFTWARE PRODUCTS AND T HEREFORE CANNOT BE CONSIDERED AS GOOD COMPARABLE. HE HAS FURTHER CONTENDED THAT IN A SERI ES OF DECISIONS, THE TRIBUNAL HAS APPLIED 15% RPT FILTER AND SINCE THIS COMPANY IS HA VING MORE THAN 15% RPT, THE SAME CANNOT BE CONSIDERED AS A GOOD COMPARABLE. 64. ON THE OTHER HAND, THE ID. DR HAS SUBMITTED THAT TP O HAS APPLIED RPT FILTER OF 25% AND THEREFORE ONLY FOR THIS COMPANY, THE RPT CANNOT BE REDUCED TO 15%. FURTHER, THE DRP HAS EXAMINED ANNUAL REPORT OF THIS COMPANY AND FOUND THAT THIS COMPANY EARNS REVENUE FROM SOFTWARE DEVELOPMENT SERVICES AND ACCO RDINGLY IS COMPARABLE. 65. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND RELEVA NT MATERIAL ON RECORD. WE FIND THAT IN THE NORMAL CIRCUMSTANCES THE TOLERANCE RANG E OF RPT SHOULD NOT BE MORE THAN 15%. IN THE CASE OF THE ASSESSEE, THE AVAILABILITY OF THE COMPARABLE IS NOT AN ISSUE AND THEREFORE WE DO AGREE WITH THE VIEW TAKEN BY THE CO ORDINATE BENCHES OF THE TRIBUNAL THAT THE THRESHOLD LIMIT OF TOLERANCE RANGE SHOULD NOT E XCEED 15% AS FAR AS RPT REVENUE IS CONCERNED. THEREFORE, WE DIRECT THE AO/TPO TO APPLY 15% RPT FILTER IN RESPECT OF ALL THE COMPARABLES.' IN VIEW OF THE FACTS RECORDED BY THE DRP AS WELL AS THE DECISION OF THE CO-ORDINATE BENCH, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE DIR ECTIONS OF THE DRP. (V) TATA ELXSI LTD (SEG.) : 20. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESEN TATIVE AS WELL AS LEARNED AUTHORISED REPRESENTATIVE AND CONSIDERED THE RELEVA NT MATERIAL ON RECORD. THE DRP HAS REJECTED THIS COMPANY BY DISCUSSING THE FACT AT PAG E 16 AS UNDER: DIRECTED TO EXCLUDE AS PER PARAGRAPH 2.7 OF THE ORD ER, FURTHER, ON PERUSAL OF ANNUAL REPORT, IT IS NOTICED BY US FROM PAGE 14 THAT SOFTW ARE DEVELOPMENT AND SERVICES CONSIST OF EMBEDDED PRODUCT DESIGN, INDUSTRIAL DESIGN AND V ISUAL COMPUTING LABS WHICH ARE NOT COMPARABLE TO THE SOFTWARE DEVELOPMENT SERVICES PRO VIDED BY THE ASSESSEE AND THEREFORE, WE DIRECT THE ASSESSING OFFICER TO EXCLU DE THE ABOVE COMPANY FROM THE COMPARABLES. WE FURTHER NOTE THAT THE DRP HAS ALSO RECORDED THE FACT THAT EXPORT REVENUE OF THIS COMPANY IS 73.30% WHICH IS LESS THAN 75% APPLIED BY THE TPO. THEREFORE THIS COMPAR% DOES NOT QUALIFY THE EXPORT EARNING FILTER APPLIED BY THE TPO. FURTHER THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT V. ELECTRONICS FOR IMAGING INDIA PVT. LTD (SUPRA) HAS CONSIDERED THIS ISSUE IN PARAS 30 TO 33 AS UNDER : 30. THE ASSESSEE HAS RAISED OBJECTIONS AGAINST THIS COMPANY ON THE GROUND THAT THE COMPANY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE . THOUGH THE TPO HAS CONSIDERED THE SOFTWARE DEVELOPMENT AND SERVICES SEGMENT OF THIS C OMPANY AS COMPARABLE TO THAT OF ASSESSEE, HOWEVER, THE ASSESSEE CONTENDED THAT EVEN WITHIN THE SOFTWARE SEGMENT, THIS COMPANY IS ENGAGED IN DIVERSE ACTIVITIES. THE ASSES SEE PLACED RELIANCE ON THE INFORMATION IN THE ANNUAL REPORT UNDER THE DIRECTOR S REPORT AND SUBMITTED BEFORE THE DRP THAT EVEN UNDER THE SOFTWARE DEVELOPMENT SERVIC ES SEGMENT, THIS COMPANY IS ENGAGED IN VARIOUS DIVERSIFIED ACTIVITIES INCLUD ING PRODUCT DESIGN SERVICE, INNOVATION DESIGN, ENGINEERING SERVICE, VISUAL COMP UTING LABS, ETC. THE ASSESSEE IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 25 ALSO PLACED RELIANCE ON THE DECISION OF MUMBAI BENC H OF THE TRIBUNAL IN THE CASE OF TELCORDIA TECHNOLOGIES PVT. LTD V. ALIT, 137 ITD I (MUM). 31. THE DRP FOUND THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE WITH ASSESSEE COMPANY AS IT IS ENGAGED IN DIVERSIFIED ACTIVITIES EVEN IN THE SOFTWARE DEVELOPMENT SERVICES. THE DRP HAS FOLLOWED THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF TELCORDIA TECHNOLOGIES (P) LTD. (SUP RA). 32. WE HAVE HEARD THE ID. DR AS WELL AS ID. AR AND CONS IDERED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THIS COMPANY EVEN IN THE SO FTWARE DEVELOPMENT SEGMENT IS ENGAGED IN DIVERSIFIED ACTIVITIES OF PRODUCT DESIGN SERVICES, INNOVATION DESIGN, ENGINEERING SERVICES, VISUAL COMPUTING LABS, ETC. W E FURTHER NOTE THAT IN THE CASE OF TELCORDIA TECHNOLOGIES (P.) LTD. (SUPRA), THE MUMBA I BENCH OF THE TRIBUNAL VIDE ITS ORDER DATED 11.5.2012 IN PARA 9.7 HAS HELD AS UNDER : '7.7 FROM THE FACTS AND MATERIAL ON RECORD AND SUBM ISSIONS MADE BY THE LEARNED AR, IT IS SEEN THAT THE TATA ELXSI IS ENGAGED IN DE VELOPMENT OF NICHE PRODUCT AND DEVELOPMENT SERVICES WHICH IS ENTIRELY DIFFERENT FR OM THE ASSESSEE COMPANY. WE AGREE WITH THE CONTENTION OF THE LEARNED AR THAT TH E NATURE OF PRODUCT DEVELOPED AND SERVICES PROVIDED BY THIS COMPANY ARE DIFFERENT FROM THE ASSESSEE AS HAVE BEEN NARRATED IN PARA 6.6 ABOVE. EVEN THE SEGMENTAL DETA ILS FOR REVENUE SALES HAVE NOT BEEN PROVIDED BY THE TPO SO AS TO CONSIDER IT AS A COMPARABLE PARTY FOR COMPARING THE PROFIT RATIO FROM PRODUCT AND SERVICES. THUS, O N THESE FACTS, WE ARE UNABLE TO TREAT THIS COMPANY AS FIT FOR COMPARABILITY ANALYSI S FOR DETERMINING THE ARM'S LENGTH PRICE FOR THE ASSESSEE, HENCE, SHOULD BE EXCLUDED F ROM THE LIST OF COMPARABLE PARTIES.' 33. NO CONTRARY VIEW HAS BEEN BROUGHT TO OUR NOTICE REG ARDING COMPARABILITY OF THIS COMPANY WITH THAT OF A PURE SOFTWARE DEVELOPMENT SE RVICE PROVIDER. ACCORDINGLY, IN VIEW OF THE DECISION OF THE MUMBAI BENCH OF THE TRI BUNAL IN THE CASE OF TELCORDIA TECHNOLOGIES PVT. LTD. (SUPRA), WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDING OF THE DRP. ' IN VIEW OF THE FACTS RECORDED BY THE DRP AS WELL AS THE DECISION OF THE TRIBUNAL IN THE CASE OF DCIT V. ELECTRONICS FOR IMAGING INDIA ( P) LTD. (SUPRA), WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE DIRECTIONS OF THE DR P TO EXCLUDE THIS COMPANY FORM THE SET OF COMPARABLES.' WE FURTHER NOTE THAT THE TRIBUNAL IN THE CASE OF AM D INDIA (P.) LTD (SUPRA) HAS AGAIN TAKEN SIMILAR VIEW IN RESPECT OF THESE SIX COMPANIES. FOL LOWING THE EARLIER ORDER OF THE TRIBUNAL, WE DIRECT THE TPO/AO TO EXCLUDE THESE SIX COMPANIES FROM THE SET OF COMPARABLES. 30. ACCORDINGLY, WE DIRECT THE A.O. TO EXCLUDE THIS COMPARABLE FROM THE LIST OF COMPARABLES. IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 26 31. SASKEN COMMUNICATION TECHNOLOGIES LTD. THE CONTENTION OF THE A.R. IS THAT THE COMPANY IS ENGAGED IN DIFFERENT FUNCTION AND IS TO BE REJECTED. EVEN OTHERWISE, IT WAS PLEADED THAT ON THE BASIS OF TURNOVER FILTER, IT HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLES. THE LD. D.R. SUBMITTED THAT THIS COMPARABLE PASSES A 7.5% R EVENUE FROM THE SOFTWARE SERVICES. AS SUCH IT HAS TO BE COMPARABLE TO THE A SSESSEE CASE. 32. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. THIS COMPARABLE IS CONSIDERED AS NOT COMPARABLE IN THE C ASE OF ELECTRONIC IMAGING INDIA PVT. LTD. IN IT (TP)A NO.1506/BANG/2016, WHER E IN IT WAS HELD AS UNDER: 9. THE FUNCTIONAL COMPARABILITY OF THESE TWO COMPA NIES HAVE BEEN EXAMINED BY THE DELHI BENCH OF ITAT IN THE CASE OF SAXO INDIA (P.) LTD (S UPRA) IN PARAS 10.1 TO 10.2 AND 15.1 TO 15.2 AS UNDER: ' (I) E-INFOCHIPS LIMITED: 10.1 THE TRANSFER PRICING OFFICER INCLUDED THIS COM PANY IN THE LIST OF COMPARABLES. ON BEING CALLED UPON TO EXPLAIN AS TO WHY IT SHOULD NO T BE CONSIDERED AS A COMPARABLE, THE ASSESSEE CONTENDED THAT THERE WAS FUNCTIONAL DISSIM ILARITY INASMUCH AS THIS COMPANY WAS ENGAGED IN SOFTWARE DEVELOPMENT AND IT ENABLED SERV ICES AND ALSO PRODUCTS. THE TRANSFER PRICING OFFICER OBSERVED THAT THE REVENUES OF THIS COMPANY FROM PRODUCTS WAS ONLY 15% OF TOTAL REVENUE AND HENCE THE SAME QUALIFIED TO BE ELIGIBLE FOR COMPARISON. THE DRP DID NOT ALLOW ANY RELIEF. 10.2 AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PE RUSING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE ANNUAL REPORT OF THIS COMP ANY IS AVAILABLE IN THE PAPER BOOK WITH ITS PROFIT AND LOSS ACCOUNT AT PAGE 1025. SCHEDULE OF INCOME INDICATES ITS OPERATING REVENUE FROM SOFTWARE DEVELOPMENT, HARDWARE MAINTEN ANCE, INFORMATION TECHNOLOGY, CONSULTANCY ETC. REVENUE FROM HARDWARE MAINTENANCE STANDS AT RS. 3.92 CRORE, WHICH HAS BEEN CONSIDERED BY THE TRANSFER PRICING OFFICER HIMSELF AS SALE OF PRODUCTS. SUCH SALE OF PRODUCTS CONSTITUTES 15% OF TOTAL REVENUE. THERE IS NO SEGMENTAL INFORMATION AVAILABLE AS REGARDS THE REVENUE FROM SALE OF PRODU CTS AND REVENUE FROM SOFTWARE DEVELOPMENT SEGMENT. AS THE ASSESSEE IS SIMPLY ENGA GED IN RENDERING SOFTWARE DEVELOPMENT SERVICES AND THERE IS NO SALE OF ANY SO FTWARE PRODUCTS, THIS COMPANY, IN OUR CONSIDERED OPINION, CEASES TO BE COMPARABLE. IT IS OBVIOUS THAT FROM THE COMMON POOL OF INCOME FROM BOTH THE STREAMS OF SOFTWARE PRODUCTS A ND SOFTWARE SERVICES, ONE CANNOT DEDUCE THE REVENUE FROM SOFTWARE SERVICES AND NO ON E KNOWS THE IMPACT OF REVENUE FROM PRODUCTS ON THE OVERALL KITTY OF PROFIT, WHICH MAY BE SIGNIFICANT. SINCE NO SEGMENTAL DATA OF THIS COMPANY IS AVAILABLE INDICATING OPERATING P ROFIT FROM SOFTWARE DEVELOPMENT SERVICES, WE ORDER TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES.' IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 27 ' (VI) SASKEN COMMUNICATIONS TECHNOLOGIES LTD 15.1 THE TPO INCLUDED THIS COMPANY IN THE SET OF CO MPARABLES DESPITE THE ASSESSEE'S OBJECTION THAT IT WAS FUNCTIONALLY DIFFERENT AND AL SO HAD PRODUCT PORTFOLIO. 15.2 AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FI ND FROM PAGE 58 OF THE TPO'S ORDER THAT HE HAS RECOGNIZED SALE OF SOFTWARE PRODUCTS TO THE TUNE OF RS. 37 CRORE AND ODD. THOUGH THE BREAK-UP OF REVENUE FROM SOFTWARE SERVICES AND SOFTWARE PRODUCTS IS AVAILABLE, BUT, THE BREAK-UP OF OPERATING COSTS AND NET OPERATING R EVENUES FROM THESE TWO SEGMENTS HAVE NOT BEEN GIVEN. IT IS FURTHER OBSERVED THAT THE TPO HAS TAKEN ENTITY LEVEL FIGURES FOR THE PURPOSES OF MAKING COMPARISON. SINCE SUCH ENTITY LE VEL FIGURES CONTAIN REVENUE FROM BOTH SOFTWARE SERVICES AND SOFTWARE PRODUCTS, AS AGAINST THE ASSESSEE ONLY PROVIDING SOFTWARE SERVICES, WE ARE DISINCLINED TO TREAT THIS COMPANY AS COMPARABLE. THE ASSESSEE'S CONTENTION IS ACCEPTED ON THIS ISSUE.' WE FURTHER NOTE THAT THE HON'BLE HIGH COURT VIDE IT S DECISION DT.28.09.2016 HAS CONFIRMED THE DECISION OF THE DELHI BENCH OF ITAT. WE ARE AWA RE THAT THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF APPLIED MATERIALS INDIA (P. ) LTD. (SUPRA) HAS REMITTED THE ISSUE OF FUNCTIONAL COMPARABILITY OF SASKEN COMMUNICATION TE CHNOLOGIES LTD. THAT IN THE SAID CASE THE DRP DID NOT ADJUDICATE THE OBJECTIONS OF THE AS SESSEE. THEREFORE IN VIEW OF THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF S AXO INDIA (P) LTD (SUPRA) WHICH HAS BEEN CONFIRMED BY THE HON'BLE DELHI HIGH COURT, WE DIREC T THE TPO/AO TO EXCLUDE THESE TWO COMPANIES FROM THE SET OF COMPARABLES. 33. TAKING A CONSISTENT VIEW, WE ARE INCLINED TO DI RECT THE AO/TPO TO EXCLUDE THIS COMPARABLE FROM THE LIST OF COMPARABLES TO DET ERMINE THE ALP OF INTERNATIONAL TRANSACTION. 34. GROUND NOS.13 & 14 ARE AS UNDER: 13. THE LD. AO/DRP HAS ERRED IN THE COMPUTING THE N EGATIVE WORKING CAPITAL ADJUSTMENT WITHOUT CONSIDERING THE FACT THAT THE AP PELLANT DOES NOT HAVE ANY WORKING CAPITAL RISK; 14. THE LD. AO/DRP ERRED IN PROPOSING A RESTRICTION TO THE WORKING CAPITAL ADJUSTMENT WITHOUT GIVING ANY COGENT REASON. 35. THE LD. A.R. SUBMITTED AS FOLLOWS: THE TPO AFTER ARRIVING AT AVERAGE MARGIN OF THE COM PARABLE COMPANIES AT OF 24.82 PERCENT%, WORKED OUT A NEGATIVE WORKING CA PITAL ADJUSTMENT OF 1.24% PERCENT, THEREBY MAKING DETERMINING THE ALP A T 26.06%. IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 28 THE ASSESSEE SUBMITS THAT WORKING CAPITAL ADJUSTMEN T IS MADE FOR THE TIME VALUE OF MONEY LOST WHEN CREDIT TIME IS GIVEN TO TH E CUSTOMERS. THE ASSESSEE HOWEVER IS NOT AN ENTREPRENEUR BUT A CAPTI VE SERVICE PROVIDER. UNDER THE CIRCUMSTANCES, THE ASSESSEE DOES NOT STAN D TO LOSE ANYTHING AS IT IS COMPENSATED ON A TOTAL COST PLUS BASIS ON THE INTERNATIONAL TRANSACTION ENTERED INTO WITH THE AE. HENCE, IT IS HUMBLY SUBMI TTED THAT THE ASSESSEE IS RUNNING ITS BUSINESS WITHOUT ANY WORKING CAPITAL RISK WHILE COMPARABLE COMPANIES HAVE SUCH A RISK FOR THEM. IT IS FURTHER SUBMITTED THAT IF ANY WORKING CAPITAL ADJUSTMENT IS TO BE MADE TO THIS SI TUATION, ONLY A POSITIVE ADJUSTMENT HAS TO BE MADE TO THE COMPARABLE COMPANY SO THAT THEY ARE BROUGHT ON PAR WITH THE ASSESSEE. THE ASSESSEE WISHES TO PLACE RELIANCE ON THE FOLLOW ING CASE LAWS, WHEREIN THE VARIOUS TRIBUNALS INCLUDING THE JURISDICTIONAL HAVE HELD THAT NEGATIVE WORKING CAPITAL ADJUSTMENT SHALL NOT BE MADE IN CAS E OF A CAPTIVE SERVICE PROVIDER AS THERE IS NO RISK AND IT IS COMPENSATED ON A TOTAL COST PLUS BASIS: O TIVO TECH (P) LIMITED (2020) 117 TAXMANN.COM 259 (B ANGALORE-TRIB) DIGITAL JUICE ANIMATION PRIVATE LIMITED IT(TP) A NO . 215/BANG/2017 FNF INDIA PRIVATE LIMITED (2020) 116 TAXMANN. CORN 976 (BANGALORE- TRIB) LAM RESEARCH INDIA PRIVATE LIMITED IT(TP) A NO. 143 7/BANG/2014 (BANGALORE ITAT) ADAPTEC (INDIA) PRIVATE LIMITED (2015) 57 TAXMANN.C OM 307 (HYDERABAD-TRIB) IPASS INDIA PRIVATE LIMITED (IT(TP)A NO. 677/BANG/2 016) IPASS INDIA PRIVATE LIMITED (IT(TP)A NO. 2533/BANG/ 2017) CORE ONE TECHNOLOGIES PRIVATE LIMITED (ITA NO. 257/ BANG/2015) LAM RESEARCH (INDIA) PVT. LTD.(I T(TP)A NO.2490/BAN G/2017) IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 29 HENCE IN THE LIGHT OF THE ABOVE FACTUAL MATRIX AND LEGAL POSITION, THE ASSESSEE PRAYS THAT NO NEGATIVE WORKING CAPITAL CAN BE MADE IN THE SUBJECT CASE. 36. ON THE OTHER HAND, LD. D.R. SUBMITTED THAT THER E IS NO MERIT IN THE ARGUMENT OF THE LD. A.R. WITH REGARD O THE METHODOL OGY OF COMPUTING WORKING CAPITAL ADJUSTMENT AND IT WAS REMITTED BY THE DRP T O COMPUTE THE MEAN OF THE WORKING CAPITAL ADJUSTMENT IN RESPECT OF COMPAR ABLES RETAINED AFTER GIVING EFFECT TO THE DIRECTION OF THE DRP. SHE REL IED ON THE ORDER OF THE DRP. 37. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. ADMITTEDLY, SIMILAR ISSUE CAME UP FOR HEARING BEFOR E THIS TRIBUNAL IN THE CASE OF E4E BUSINESS SOLUTIONS INDIA PVT. LTD. (ITA NO.2 900/BANG/2018 DATED 8.12.2020), WHEREIN IT WAS HELD AS FOLLOWS: 12.THE THIRD ISSUE IS WITH REGARD TO GRANT OF NEGA TIVE WORKING CAPITAL ADJUSTMENT. WORKING CAPITAL ADJUSTMENT IS MADE FOR THE TIME VAL UE OF MONEY LOST WHEN CREDIT PERIOD IS GIVEN TO CUSTOMERS. IT IS THE SUBMISSION OF THE ID. COUNSEL FOR THE ASSESSEE IN THIS CASE THAT THE ASSESSEE IS A CAPTIV E UNIT WHICH IS ENTIRELY FUNDED BY THE AE. THE ASSESSEE HAS NO BORROWINGS AND IS FU LLY COMPENSATED BY THE PARENT ON A TOTAL COST PLUS. THE ASSESSEE HAS NO WO RKING CAPITAL RISK - IN OTHER WORDS, IT IS A RISK-INSULATED SERVICE PROVIDER TO T HE PARENT. THE ONLY CUSTOMER OF THE COMPANY IS ITS PARENT COMPANY. THE ID. COUNSEL FOR THE ASSESSEE HAS RELIED ON A HOST OF ITAT DECISIONS, THE MAIN DECISION BEIN G THAT OF M/S. SOFTWARE AG BANGALORE TECHNOLOGIES PVT. LTD.(SUPRA) WHICH IN TU RN HAS RELIED ON THE DECISION OF ITAT HYDERABAD IN THE CASE OF ADAPTEC ( INDIA) PRIVATE LIMITED AND CONTENDED THAT NO NEGATIVE WORKING CAPITAL ADJUSTME NT IS CALLED FOR. THE ID.DR'S RELIANCE IS ON THE DECISION IN THE CASE OF TECHNOTREE CONVERGENCE P. LTD. (SUPRA) WHEREIN IT WAS HELD THAT NEGATIVE W ORKING CAPITAL ADJUSTMENT HAS TO BE ALLOWED. 13.COMPARABLES CHOSEN OPERATE UNDER VARIED ECONOMIC CONDITIONS. THEREFORE, WHILE COMPARING A COMPANY TO THAT OF SIMILAR COMPAN IES, IT IS NECESSARY TO UNDERTAKE COMPARABILITY ADJUSTMENTS.BALANCE SHEE T ADJUSTMENTS ARE INTENDED TO ACCOUNT FOR DIFFERENT LEVELS OF INVENTO RIES, RECEIVABLES, PAYABLES, INTEREST RATES ETC. THE MOST COMMON BALAN CE SHEET ADJUSTMENTS MADE TO REFLECT DIFFERENT LEVELS OF ACCOUNTS RECEIV ABLE, ACCOUNT PAYABLE AND INVENTORY ARE KNOWN AS WORKING CAPITAL ADJUSTME NTS. AS MENTIONED IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 30 BY THE OECD, COMPARABILITY ADJUSTMENTS SHOULD NOT B E PERFORMED ON A ROUTINE OR MANDATORY BASIS BUT RATHER ON A CASE BY CASE BASIS DEPENDING ON THE FACTS AND CIRCUMSTANCES. ECONOMIC RATIONALE OF WORKING CAPITAL OF A BUSINESS IS THE CAPITAL USED IN ITS DAY-TO-DAY TRADING OPERATIONS. WORKING CAPITAL IS AFFECTED BY NUMEROUS BUSINESS IN CIDENCES. IT IS VERY COMMON FOR TESTED PARTY AND EACH OF THE POTENTIAL C OMPARABLES TO DIFFER MATERIALLY IN THE AMOUNT OF WORKING CAPITAL (INVENT ORY, ACCOUNTS RECEIVABLES AND PAYABLE). SUCH DIFFERENCES ARE MAIN LY CAUSED DUE TO DIFFERENCES IN THE TERMS OF PURCHASE AND SALE, LEVE LS OF INVENTORY ETC. FOR EXAMPLE: IF THE BUSINESS ADVANCES A TRADE CREDIT OF (SAY) 60 DAYS, ITS CASH GETS LOCKED UP FOR 60 DAYS AND REDUCES THE WORKING CAPITAL. IT WILL HAVE TO BORROW FROM OPEN MARKET TO MEET ITS WORKING CAPI TAL REQUIREMENT, AND HENCE INCUR EXPENSES. SIMILARLY, IF IT AVAILS OF TR ADE CREDIT OF 60 DAYS, IT HAS SURPLUS CASH AT ITS DISPOSAL. IT WILL NEED TO B ORROW LESS MONEY TO FUND OPERATIONAL REQUIREMENTS. HENCE, WORKING CAPITAL PO SITION AFFECTS THE ADDITIONAL COST INCURRED BY A BUSINESS BY WAY OF IN TEREST ON BORROWING FROM THE OPEN MARKET. WORKING CAPITAL ADJUSTMENTS S EEKS TO ADJUST FOR THE DIFFERENCES IN TIME VALUE OF MONEY BETWEEN TESTED PARTIES AND POTENTIAL COMPARABLES WITH AN ASSUMPTION THAT DIFFE RENCES SHOULD BE REFLECTED IN PROFITS WORKING CAPITAL ADJUSTMENT HAS A STRONG RATIONALE IN ECONOMIC THEORY. IT FACILITATES TO INCREASE THE COMPARABILITY BETWEE N THE TESTED PARTY AND COMPARABLES WORKING IN AN INDUSTRY WHICH IS COMPETI TIVE. WORKING CAPITAL ADJUSTMENT CAN WORK OUT TO BE POSITIVE OR NEGATIVE. A POSITIVE WORKING CAPITAL ADJUSTMENT (WCA) WILL TEND TO REDUCE THE ARM'S LENG TH PLI WHILE A NEGATIVE WCA WILL TEND TO INCREASE THE ARM'S LENGTH PLI. 14.WE FIND THAT THE FACTS OF THE ASSESSEE'S CASE AR E SIMILAR TO THAT OF THE CASE OF THE BANGALORE ITAT IN THE CASE OF M/S.SOFTWARE AG BANGA LORE TECHNOLOGIES PVT.LTD. AND THEREFORE WE ARE INCLINED TO DELETE TH E NEGATIVE WORKING CAPITAL ADJUSTMENT. IN DETERMINING ALP UNDER TNMM, THE CORR ECT APPROACH WOULD BE TO LOOK AT THE COSTS INCURRED BY THE ASSESSEE ONLY AND SHOULD NOT IMPUTE ANY ADDITIONAL COST AS DONE BY TPO, WHICH INDIRECTLY EN HANCES THE ALP ARTIFICIALLY. THE CONTRARY VIEW EXPRESSED IN DECISION CITED BY TH E LEARNED DR TAKES THE VIEW THAT WORKING CAPITAL ADJUSTMENT IS REQUIRED IN ALL CASES AS ANY CREDIT EXTENDED TO CUSTOMERS WILL RESULT IN CASH LOCKED UP AND WILL RESULT IN THE ASSESSEE BORROWING MONEY FROM THE BANKS AND INCUR ADDITIONAL COST TOWARDS INTEREST ON THESE BORROWINGS WHICH COST WILL HAVE EFFECT ON THE PRICE CHARGED. IT IS THE REASONING IN THESE DECISIONS THAT UNDER TNM METHOD THAT EVERY INGREDIENT OF PROFIT MARGINS OF COMPARABLE COMPANIES ARE ANALYSED , WHETHER IT IS POSITIVE OR NEGATIVE. THE DECISION PROCEEDS ON THE BASIS OF EFF ECT ON PRICE OWING TO WORKING CAPITAL REQUIREMENT. WE ARE OF THE VIEW THAT WORKIN G CAPITAL ADJUSTMENT ITSELF IS COMPUTED ON THE BASIS OF OUTSTANDING CURRENT ASS ETS AND LIABILITIES AT THE YEAR END. IT MEANS THAT OTHER THINGS BEING EQUAL, AN ENT ITY HAVING HIGHER WORKING CAPITAL WILL INCUR MORE INTEREST COST WHICH WILL RE DUCE PROFITABILITY. HENCE NO IMPORTANCE SHALL BE GIVEN TO PRICING ASPECT. SINCE THE ASSESSEE DOES NOT HAVE IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 31 ANY WORKING CAPITAL RISK, THE QUESTION OF NEGATIVE WORKING CAPITAL DOES NOT ARISE. 38. IN VIEW OF THE ABOVE, TAKING A CONSISTENT VIEW, WE DIRECT THE AO/TPO TO NOT TO MAKE ANY NEGATIVE WORKING CAPITAL ADJUSTM ENT ON THIS ISSUE. THIS GROUND OF ASSESSEE IS ALLOWED. DIRECT ACCORDINGLY. 39. GROUND NOS.15 & 16 ARE WITH REGARD TO LEVY OF I NTEREST U/S 234B&C OF THE ACT, WHICH IS CONSEQUENTIAL AND REQUIRE NO A DJUDICATION. 40. THE ADDITIONAL GROUNDS ARE ONLY ACADEMIC IN NAT URE, WHICH DOES NOT REQUIRE ADJUDICATION. WE HAVE DECIDED ON THIS ISSU E IN MAIN GROUND ITSELF. 41. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED, THE REVENUE APPEAL IS DISMISSED AND C.O. BY ASSESSEE IS DISMISSED AS INFRUCTUOUS. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH SEPT, 2021 SD/- (GEORGE GEORGE K. ) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER BANGALORE, DATED 29 TH SEPT, 2021. VG/SPS IT(TP)A NO.398/BANG/2016 & CO 78/BANG/2016 & IT(TP)A NO.499/BANG/2016 M/S. AMETEK INSTRUMENTS INDIA PVT. LTD., BANGALORE 32 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.