Rockwell Automation India Pvt. Ltd., New Delhi V. ACIT Circle-21(2), New Delhi

ITA 6093/DEL/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2737 (ITAT-DELHI)
• Duration Of Justice: 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2013-2014
• Appeal Filed On: 28-09-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; International transaction; Rule of consistency; Working capital adjustments
• Section: 92C; 143(3); 92D; 92B; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: I - 2 , NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SMT. BEENA A PILLAI, JUDICIAL MEMBER ITA NO. 6093 /DEL/201 7 AY: 20 13 - 14 ROCKWELL AUTOMATION INDIA PVT. LTD. 131, FUNCTIONAL INDUSTRIAL AREA PATPARGANJ NEW DELHI 110 092 VS . A CIT, CIRCLE 21 ( 2 ) NEW DELHI (APPELLANT) (RESPONDENT) APPELLAN T BY SH. RAVI SHARMA, ADV. RESPONDENT BY SH. HK CHOUDHARY, CIT, DR DATE OF HEARING 23.03.2018 DATE OF PRONOUNCEMENT 28.03.2018 ORDER PER BEENA A PILLAI, JUDICIAL MEMBER THE PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAINST THE FINAL ASSESSMENT ORDER DATED 31/07/17 PASSED BY ACIT , C IRCLE 21(2), NEW DELHI UNDER SECTION 144C READ WITH 143(3) OF ACT, FOR ASSESSMENT YEAR 2012 - 13. 2. BRIEF FACTS OF THE CASE ARE AS UNDER : LD.TPO OBSERVED THAT ROCKWELL AUTOMATION GROUP ('ROCKWELL GROUP') IS A LEADING GLOBAL PROVIDER OF INDUSTRIAL AUTOMATIO N POWER, CONTROL AND INFORMATION PRODUCTS AND SERVICES. THE ITA NO. 6 093/DEL/2017 A.Y. 2013 - 14 ROCKWELL AUTOMATION INDIA PVT.LTD. VS. ACIT PAGE 2 OF 30 ROCKWELL GROUP OF COMPANIES ARE ORGANIZED INTO TWO OPERATING SEGMENTS, I.E., CONTROL SYSTEMS AND POWER SYSTEMS. THE PRODUCT RANGE OF THE GROUP INCLUDES CONDITION MONITORING SWITCHES, CONDITION SEN SING SWITCHES AND CONTROLS, CONNECTION SYSTEMS, CONTROL CIRCUITS AND LOAD PROTECTIONS, INDUSTRIAL COMPUTERS AND MONITORS, LIGHTING CONTROL, LIMIT SWITCHES, PUSH BUTTONS, SENSORS, ETC. 2.1 . ASSESSEE FILED ITS RETURN OF INCOME DECLARING INCOME OF RS. 237,844 ,860/ - ON 30 /11/ 2013. C ASE WAS SELECTED FOR SCRUTINY UNDER SECTION 143 (2) OF THE INCOME - TAX ACT, 1961 , AND DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSEE SUBMITTED THE RELEVANT INFORMATION/ DOCUMENTS AS CALLED UPON BY THE LD. AO FROM TIME TO TIME. LD.AO OBSERVED THAT ASSESSEE HAS ENTERED INTO INTERNATIONAL TRANSACTION AND THEREFORE HE MADE REFERENCE U NDER SECTION 92CA(3). 2.2 . LD. TPO INITIATED THE TRANSFER PRICING ASSESSMENT PROCEEDINGS BY ISSUING A NOTICE UNDER SECTION 92CA(2) AND 92D(3) OF THE ACT, REQUIRING THE ASSESSEE TO SUBMIT THE INFORMATION/DOCUMENTS , I N RESPONSE TO WHICH AS SESSEE SUBMITTED VARIOUS INFORMATION/ DOCUMENTS. SUBSEQUENT THERETO, DURING THE COURSE OF TRANSFER PRICING PROCEEDINGS, ASSESSEE SUBMITTED RELEVANT INFORMATION/ DOC UMENTS AS CALLED UPON BY THE LD. TPO FROM TIME - TO - TIME. 2.3. LD.TPO OBSERVED THAT ASSESSEE HAS ENTERED INTO FOLLOWING INTERNATIONAL TRANSACTIONS D URING THE YEAR UNDER CONSIDERATION : ITA NO. 6 093/DEL/2017 A.Y. 2013 - 14 ROCKWELL AUTOMATION INDIA PVT.LTD. VS. ACIT PAGE 3 OF 30 SL. NO. NATURE OF TRANSACTION METHOD APPLIED AMOUNT (IN RS.) 1. IMP ORT OF PRODUCTS/COMPONENTS CPM (PLI AS GP/DIGOP) 636,985,965 2. EXPORT OF FINISHED GOODS TNMM (PLI AS OP/SALES) 2,34,81,068 3. IMPORT OF FINISHED GOODS TNMM (PLI AS OP/SALES) 1,55,06,54,823 4. IMPORT OF CAPITAL GOODS TNMM (PLI AS OP/SALES) 1,55,69,742 5. PROVISION OF SERVICES TNMM (PLI AS OP/TC) 24,32,31,515 6. RECEIPT OF SERVICES TNMM (PLI AS OP/SALES) 81,62,233 7. RECOVERY OF EXPENSES CUP 94,21,134 TOTAL 2,48,75,06,480 IT WAS OBSERVED THAT ASSESSEE BENCHMARKED ITS INTERNATIONAL TRANSACTIONS BY SEGREGATING THEM INTO SIX DIFFERENT CLASS TYPE ACTIVITIES NAMELY: A . CLASS I ASSEMBLY/MANUFACTURING B . CLASS II TRADING C . CLASS III ENGINEERING DESIGN SUPPORT D . CLASS IV CUSTOMER CARE (ITES) E . CLASS V BUSINESS SUPPORT. 2.4 . ON PERUSAL OF THE TRANSFER PRICIN G STUDY FILED BY ASSESSEE , LD.TPO OBSERVED THAT A SSESSEE IS PRIMARILY ENGAGED IN ASSEMBLING AND SELLING AUTOMATION AND INDUSTRIA L CONTROL PRODUCTS/SYSTEMS. IT WAS OBSERVED THAT THE PROCESS ESSENTIALLY ITA NO. 6 093/DEL/2017 A.Y. 2013 - 14 ROCKWELL AUTOMATION INDIA PVT.LTD. VS. ACIT PAGE 4 OF 30 ENTAILED PURCHASE OF COMPONENTS FROM GROUP COMPANIES AS WELL AS THIRD PARTIES, ASSEMBLING THEM, AND MAKING CERTAIN MODIFICATIONS THEREIN, TO MEET CUSTOMER SPECIFIC REQUIREMENTS. ERECTION, COMMISSIONING AND INSTALLATION OF THE PRODUCTS/SYSTEMS, AND PROVISION OF AFTER SALES SUPPORT THEREOF ARE AN INTEGRAL PART OF THIS ACTIVITY. 2.5 . IT WAS OBSERVED BY LD.TPO THAT; MANUFACTURING SEGMENT ASSESSEE APPLIED COST PLUS METHOD(CPM) AS MOST APPROPRIATE METHOD USING PLI AS GP/DICOP(GROSS PROFIT/DIRECT INDIRECT COST OF PRODUCTION), TO BENCHMARK INTERNATIONAL TRANSACTIONS , PERTAINING TO MANUFACTURING/ASSEMBLY SEGMENT. THE COMPANY REPORTED A MARGIN OF 43.65% IN THE SAID SEGMENT. LD.TPO OBSERVED IN TP ASSESSMENT FOR EARLIER YEARS, THAT ASSESSEE HAD APPLIED TNMM AS MOST APPROPRIATE METHOD FOR DETERMINING ALP IN RESPECT OF THI S SEGMENT . THEREFORE LD.TPO REJECTED THE METHOD ADOPTED BY ASSESSEE AND APPLIED TNMM AND ARRIVED AT A MARGIN OF - 2.61% BY USING PLI AS OP/OR(OPERATING PROFIT/OPERATING REVENUE) THEREFORE IN CONFIRMATION WITH THE PRINCIPLE OF CONSISTENCY LD.TPO PROCEED ED TO TAKE TNMM AS THE M OST APPROPRIATE METHOD AND CPM WAS REJECTED. ASSESSEE ARRIVED AT THE LIST OF COMPARABLES AS UNDER: SL.NO. COMPANY NAME 1. CENTUM ELECTRONICS LTD. 2. EASUN REYROLLE LTD. 3. KAYCEE INDUSTRIES LTD. 4. SCHNEIDER ELECTRIC INFRASTRUCTURE LTD. 5. INDOSOLAR LTD. 6. VMC SYSTEMS LTD. ITA NO. 6 093/DEL/2017 A.Y. 2013 - 14 ROCKWELL AUTOMATION INDIA PVT.LTD. VS. ACIT PAGE 5 OF 30 LD.TPO FURTHER REJECTED CERTAIN COMPARABLES BY APPLYING VARIOUS FILTERS. LD.TPO CONDUCTED FRESH SEARCH AND ARRIVED AT SOME COMPARABLES WHICH WERE INCLUDED. THE FINAL LIST OF COMPARABLES DETERMINED BY LD.TPO IS AS UNDER: NAME OF COMPANY OP/OR CENTRUM ELECTRONICS LTD. (ASSESSEE S COMPARABLE) 2.81% EASUN REYROLLE LTD . (ASSESSEE S COMPARABLE) 0.22% KAYCEE INDUSTRIES LTD . ( ASSESSEE S COMPARABLE) 4.35% SCHNEIDER ELECTRIC INFRASTRUCTURE LTD. ( ASSESSEE S COMPARAB LE) 5.82% AUTOMATIC ELECTRIC LTD. 4.59% CHEMTROLS INDUSTRIES LTD. 6.08% HIND RECTIFIERS LTD. 8.54% KARNATAKA HYBRID MICRO DEVICES LTD. 4.48% RUTTONSHA INTERNATIONAL LTD. 9.81% AVERAGE 5.14% 2.6 . THE MARGIN OF THESE C OMPARABLES USING PLI AS OP/OR CAME TO 5.14% VIS - A - VIS THE MARGIN OF ASSESSEE AT - 2 . 61 % . ACCORDINGLY, LD.TPO MADE ADJUSTMENT OF RS. 17,27,93,000/ - BY USING PLI AS OP/OR IN THE HANDS OF ASSESSEE IN RESPECT OF CLASS I ACTIVITY BEING MANUFACTURING AND ASSEMBLY , AS UNDER: ITA NO. 6 093/DEL/2017 A.Y. 2013 - 14 ROCKWELL AUTOMATION INDIA PVT.LTD. VS. ACIT PAGE 6 OF 30 PARTICULARS AMOUNT IN RUPEES PRICE RECEIVED BY THE ASSESSEE 22291,24,775 ARM S LENGTH MARGIN OP/OR (%) 5.14% ARM S LENGTH PROFIT 1154,77,013 ARM S LENGTH COST 21145,47,762 COST SHOWN BY THE ASSESSEE 22873,40,762 PROPOSED ADJUSTMENT 1 7,27,93,000 ASSESSEE S CLAIM REGARDING WORKING CAPITAL ADJUSTMENT IN THE COMPARABLES WAS ALSO REJECTED BY LD.TPO AGGRIEVED BY T HE ADJUSTMENT PROPOSED BY LD.TPO, ASSESSEE RAISED OBJECTION BEFORE DRP. AS ASSESSEE OBJECTED LD. TPO S CHOICE OF CERTAIN COMPA RABLES, DRP DIRECTED TO VERIFY THE COMPUTATION OF MARGINS IN CASE OF COMPARABLES AND TO USE CORRECT MARGINS. ASSESSEE ALSO SOUGHT FOR ADJUSTMENT ON ACCOUNT OF CAPACITY UTILISATION , AS SALE OF ASSESSEE HAD REDUCED DURING THE YEAR UNDER CONSIDERATION. 2.7 . L D .AO WHILE PASSING THE FINAL ASSESSMENT ORDER, REVISED THE MARGINS AS UNDER: SL. NO. NAME OF COMPANY AS PER TPO ORDER OP/OR AFTER HON BLE DRP S DIRECTION 1. AUTOMATIC ELECTRIC LTD. 4.59% 2.76% 2. CENTRUM ELECTRONICS LTD. 2.81% 1.96% 3. CHEMTROLS IND USTRIES LTD. 6.08% 4.97% 4. EASUN REYROLLE LTD 0.22% 4.24% 5. HIND RECTIFIERS LTD. 8.54% 6.28% 6. KARNATAKA HYBRID MICRO DEVICES LTD. 4.48% 5.66% 7. KEYCEE INDUSTRIES LTD. 4.35% 3.86% ITA NO. 6 093/DEL/2017 A.Y. 2013 - 14 ROCKWELL AUTOMATION INDIA PVT.LTD. VS. ACIT PAGE 7 OF 30 8. RUTTONSHA INTERNATIONAL RECTIFIER LTD. 9.81% 7.51% 9. SCHEIND ER ELECTRIC INFRASTRUCTURE LTD. 5.82% 6.59% HE THEN COMPUTED ALP AS UNDER : PARTICULARS AMOUNT IN RUPEES PRICE RECEIVED BY THE ASSESSEE 22291,24,775 ARM S LENGTH MARGIN OP/OR (%) 3.93% ARM S LENGTH PROFIT 876,04,604 ARM S LENGTH COST 21415,20,171 C OST SHOWN BY THE ASSESSEE 22873,40,762 A DJUSTMENT 1458,20,591 VALUE OF INTERNATIONAL TRANSACTION 636985965 % OF INTERNATIONAL TRANSACTION 27.85% FINAL ADJUSTMENT AMOUNT 4,06,08,584 2.8. ENGINEERING AND DESIGN SUPPORT SEGMENT: AS PER TP REPORT SUBMI TTED, YOU HAVE USED TNMM TO BENCHMARK INTERNATIONAL TRANSACTION UNDER THIS SEGMENT . ON THE BASIS OF BUSINESS DESCRIPTION OF COMPARABLES OF ASSESSEE , CERTAIN COMPARABLES WERE PROPOSED TO BE ACCEPTED/REJECTED BY LD. TPO. LD.TPO RECALCULATED AND VERIFIED THE MARGINS OF THE CONCERNED SEGMENT OF THE TESTED PARTY FROM THE SEGMENTED FINANCIALS PROVIDED. THE OP / OC OF THE SAID SEGMENT WAS COMPUTED AT 13.49%. 2.9. THE COMPARABLE SELECTED BY ASSESSEE ARE AS UNDER, WHICH WERE ACCEPTED BY LD.TPO: ITA NO. 6 093/DEL/2017 A.Y. 2013 - 14 ROCKWELL AUTOMATION INDIA PVT.LTD. VS. ACIT PAGE 8 OF 30 SL.NO. COMPANY NAME OP/OC 1. NEILSOFT LTD. 14.45% 2. HOLTECH CONSULTING LTD. 72.45% 3. CERTIFICATION ENGINEERING INTERNATIONAL LTD. 37.73% LD.TPO INCLUDED FRESH COMPARABLES AND FINAL LIST CONSIDERED ARE AS GIVEN BELOW. S.NO. NAME OF COMPANY OP/O C 1. CADES DIGITECH P LT D. 6.03% 2. ACROPETAL TECHNOLOIGES LTD. 37.79% 3. NEILSOFT LTD. 14.45% 4. HOLTECH CONSULTING LTD 72.45% 5. CERTIFICATION ENGINEERING INTERNATIONAL LTD. 37.73% AVERAGE 33.69% 2.10. THE MARGIN OF COMPARABLES USING PLI AS OP/OC CAME TO BE 33 .69%, AND M ARGIN OF TESTED PARTY WAS , 13.49%. ACCORDINGLY, THE ARM S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION RELATED TO ENGINEERING DESIGN SUPPORT WAS PROP O SED TO BE AS UNDER: PARTICULARS AMOUNT IN RUPEES TOTAL COST (A) 1303,77,919 ARM S LENGTH M ARGIN OP/OC (%) (B) 33.69% ARM S LENGTH PROFIT (C ) )=A*B) 439,24,321 ARM S LENGTH PRICE(D ) =A+C) 1743,02,240 PRICE RECEIVED BY THE ASSESSEE (E) 1479,65,934 PROPOSED ADJUSTMENT (D - E) 2,63,36,306 LD.TPO THUS PROPOSED ADJUSTMENT TO THE EXTENT OF RS. 2,63, 36,306 / - IN THE HANDS OF ASSESSEE UNDER THIS SEGMENT. LD.TPO ALSO DENIED WORKING CAPITAL AND RISK ADJUSTMENTS CLAIMED BY ASSESSEE. ITA NO. 6 093/DEL/2017 A.Y. 2013 - 14 ROCKWELL AUTOMATION INDIA PVT.LTD. VS. ACIT PAGE 9 OF 30 2.11 . AGGRIEVED BY THE ADDITION MADE, ASSESSEE RAISED OBJECTION BEFORE DRP. BEFORE DRP, ASSESSEE CONTENDED EXCLUSION OF FO LLOWING COMPARABLES: CERTIFICATION ENGINEERING INTERNATIONAL LTD ; AND HOLTEC CONSULTING PVT.LTD. DRP DIRECTED LD.TPO TO VERIFY AND USE CORRECT MARGIN AND FIGURES. HOWEVER DRP TOO REJECTED THE CLAIM OF RISK ADJUSTMENT. IN SO FAR AS WORKING CAPITAL ADJUST MENT WAS CONCERNED, DRP DIRECTED LD.TPO TO VERIFY THE CORRECTNESS OF CONTENTIONS RAISED BY ASSESSEE AND ADJUSTMENT WAS DIRECTED TO BE RESTRICTED ONLY IN RESPECT OF INTERNATIONAL TRANSACTION AND NOT AT ENTITY LEVEL. LD.TPO WAS ALSO DIRECTED TO ALLOW BENEFIT OF +/ - 3% UNDER SECTION 92C. LD.A O WHILE PASSING FINAL ASSESSMENT ORDER PROVIDED WORKING ADJUSTMENT AS PER DRP DIRECTION AS UNDER: SL. NO. NAME OF COMPANY AS PER TPO ORDER OP/OC AFTER HON BLE DRP S DIRECTION 1. A E ROPETAL TECHNOLOGIES LTD. 37.79% 27.08% 2. CADES DIGITECH P LTD. 6.03% 2.71% 3. CERTIFICATION ENGINEERING INTERNATIONAL LTD. 37.73% 31.30% 4. HOLTECH CONSULTING LTD 72.45% 67.93% 5. NEILSOFT LTD. 14.45% 13.06% AVERAGE 33.69% 28.42% LD.AO THUS RECOMPUTED ALP FOR THIS SEGMENT AS UNDER: ITA NO. 6 093/DEL/2017 A.Y. 2013 - 14 ROCKWELL AUTOMATION INDIA PVT.LTD. VS. ACIT PAGE 10 OF 30 PART ICULARS AMOUNT IN RUPEES TOTAL COST (A) 1303,77,919 ARM S LENGTH MARGIN OP/OC (%) (B) 28.42% ARM S LENGTH PROFIT (C = A*B) 370,53,405 ARM S LENGTH PRICE(D=A+C) 1674,31,324 PRICE RECEIVED BY THE ASSESSEE (E) 1479,65,934 103% OF PRICE RECEIVED 194,65,390 2.12. CUSTOMER CARE SUPPORT SEGMENT FOR INTERNATIONAL TRANSACTION PERTAINING TO PROVISION OF CUSTOMER CARE SERVICES ASSESSEE APPLIED TRANSACTIONAL NET MARGIN METHOD ( TNMM') AS THE MOST APPROPRIATE METHOD, USING PLI AS OP/OC IN ITS TP STUDY FOR THE DET ERMINATION OF ARM'S LENGTH PRICE (,ALP') FOR SUBJECT INTERNATIONAL TRANSACTION. ASSESSEE REPORTED A MARGIN OF 9.96% FOR THIS SEGMENT. LD.TPO RECALCULATED AND VERIFIED THE MARGINS OF THE CONCERNED SEGMENT OF THE TESTED PARTY FROM THE SEGMENTED FINANCIALS P ROVIDED. THE OP / OC OF THE SAID SEGMENT IS 13.49%. ASSESSEE IN THE TP REPO R T ARRIVED AT FOLLOWING SET OF COMPARABLES, AMONGST WHICH , SOME WERE REJECT ED BY LD.TP O BY APPLYING VARIOUS FILTERS AS UNDER: SL. NO. NAME OF THE COMPARABLE COMMENTS OF THE TPO 1. ACE BPO SERVICES P.LTD. ACCEPTED AS A COMPARABLE. 2. CALTEC SERVICES P LTD. THE ANNUAL REPORT OF THIS COMPANY IS NOT AVAILABLE IN PUBLIC DOMAIN. THUS IT IS NOT BEING CONSIDERED AS A COMPARABLE. THEREFORE, IT IS BEING REJECTED AS A COMPARABLE. 3. CAMEO C ORPORATE SERVICES LTD. ACCEPTED AS A COMPARABLE ITA NO. 6 093/DEL/2017 A.Y. 2013 - 14 ROCKWELL AUTOMATION INDIA PVT.LTD. VS. ACIT PAGE 11 OF 30 4. JINDAL INTELLICOM LTD. - DO - 5. TSR DARASHAW LTD. - DO - 6. CALIBER POINT BUSINESS SOLUTIONS - DO - 7. IDBI INTECH LTD. - DO - LD.TPO CONDUCTED FRESH SEARCH AND ARRIVED AT NEW LIST OF COMPARABLES WHICH ARE AS UNDER: SL. NO. NAME OF COMPARABLE AS PER TPO ORDER OP/OR(%) 1. ACCENTIA TECHNOLOGIES LTD. 13.92% 2. ECLERX SERVICES LTD. 58.78% 3. INFORMED TECHNOLOGIES INDIA LTD. 3.28% 4. MICROGENETE SYSTEMS LTD. 16.25% 5. INFOSYS BPO LTD. 29.46% 6. AEROPETAL T ECHNOLOGIES (SEG. HEALTHCARE) 14.98% 7. E 4E HEALTHCARE LTD. 17.11% 8. DATAMATICS GLOBAL SERVICES LTD. 17.11% 9. R SYSTEMS INTERNATIONAL LTD. 15.34% 10. TECH MAHINDRA LTD. 21.33% 11. HARTRON COMMUNICATIONS (SEG.) 33.43% 12. ACE BPO SERVICES P LTD. 1.90% 13. CAMEO CORPORATE SERVICES LTD. (GIVEN BY THE ASSESSEE) 4.61% 14. IDBI INTECH LTD. (GIVEN BY ASSESSEE) 32.26% 15. JINDAL INTELLICOM LTD. (GIVEN BY ASSESSEE) 2.00% 16. CALIBER POINT BUSINESS SOLUTION (GIVEN BY THE 7.40% ITA NO. 6 093/DEL/2017 A.Y. 2013 - 14 ROCKWELL AUTOMATION INDIA PVT.LTD. VS. ACIT PAGE 12 OF 30 ASSESSEE) 17. TSR DARS HAW LTD. (GIVEN BY ASSESSEE) 57.00% AVERAGE 20.36% THE MARGIN OF THESE COMPARABLES WAS CALCULATED AT 20.36%, BY USING PLI AS OP/OC. THIS LED TO ADJUSTMENT OF RS.10,11,403/ - IN THE HANDS OF ASSESSEE FOR THIS SEGMENT AS UNDER: PARTICULARS AMOUNT IN RS. TOTAL COST (A) 97,27,490 ARM S LENGTH MARGIN OP/OC (%)(B) 20.36% ARM S LENGTH PROFIT (C=A*B) 19,80,517 ARM S LENGTH PRICE(D=A+C) 1,17,08,007 PRICE RECEIVED BY THE ASSESSEE (E) 106,96,604 ADJUSTMENT U/S 92CA(D - E) 1,011,403 3. AGGRIEVED BY THE ADJUS TMENT PROPOSED, ASSESSEE RAISED OBJECTION BEFORE DRP. BEF O RE DRP, ASSESSEE OBJECTED VARIOUS FILTERS APPLIED BY LD.TPO TO INCLUDE AND EXCLUDE CERTAIN COMPARABLES. DRP AFTER ANALYSING THE SUBMISSIONS OF ASSESSEE, DIRECTED LD.TPO TO VERIFY THE RPT IN CASE OF TECH MAHINDRA LTD. DRP FURTHER DI RECTED THAT IN CASE RPT OF TECH MAHINDRA EXCEEDS 25%, IT SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. IN SO FAR AS WORKING CAPITAL ADJUSTMENT WAS CONCERNED, DRP DIRECTED LD.TPO TO VERIFY THE CORRECTNESS OF CONTENTIONS R AISED BY ASSESSEE AND ADJUSTMENT SHALL BE RESTRICTED ONLY IN RESPECT OF INTERNATIONAL TRANSACTION AND NOT AT ENTITY LEVEL. ITA NO. 6 093/DEL/2017 A.Y. 2013 - 14 ROCKWELL AUTOMATION INDIA PVT.LTD. VS. ACIT PAGE 13 OF 30 LD.TPO WAS ALSO DIRECTED TO ALLOW BENEFIT OF +/ - 3% UNDER SECTION 92C. LD.AO WHILE PASSING THE FINAL ASSESSMENT ORDER REMOVED TECH MA HINDRA FROM FINAL LIST OF COMPARABLES, THE LIST IS AS UNDER: SL. NO. NAME OF COMPARABLE AS PER TPO ORDER OP/OR(%) AFTER HON BLE DRP S DIRECTION 1. ACCENTIA TECHNOLOGIES LTD. 13.92% 10.67% 2. AEROPETAL TECHNOLOGIES LTD. 14.98% 4.24% 3. CALIBER POINT BUSI NESS SOLUTIONS LTD. (MERGED) 7.40% 6.40% 4. CAMEO CORPORATE SERVICES LTD. 4.61% 2.59% 5. DATAMATICS GLOBAL SERVICES LTD. 17.11% 15.82% 6. E 4 E HEALTH C ARE BUSINESS SERVICES PVT.LTD. 17.11% 15.82% 7. ECLERX SERVICES LTD. 58.78% 58.92% 8. HARTRON COMMU NICATION LTD. 33.43% 30.14% 9. IDBI INTECH LTD. 32.26% 33.07% 10. INFORMED TECHNOLOGIES INDIA LTD. 3.28% 2.51% 11. INFOSYS BPO LTD. 29.46% 27.39% 12. JINDAL INTELLICOM LTD. 2.00% 0.76% 13. MICROGENETE SYSTEMS LTD. 16.25% 15.65% 14. R SYSTEMS INTERNAT IONAL LTD. 15.34% 13.14% 15. TSR DARASHAW LTD. 37.00% 55.21% 16. TECH MAHINDRA LTD. 21.33% DELETED 17. ACE BPO SERVICES P LTD. 1.90% ( - )0.96% AVERAGE 20.36% 19.52% LD. TPO THUS CORRECTED THE ALP AS UNDER: ITA NO. 6 093/DEL/2017 A.Y. 2013 - 14 ROCKWELL AUTOMATION INDIA PVT.LTD. VS. ACIT PAGE 14 OF 30 PARTICULARS AMOUNT IN RS. TOTAL COST (A) 97 ,27,490 ARM S LENGTH MARGIN OP/OC (%)(B) 19.52% ARM S LENGTH PROFIT (C=A*B) 18,98,806 ARM S LENGTH PRICE(D=A+C) 116,26,296 PRICE RECEIVED BY THE ASSESSEE (E) 106,96,604 103% OF PRICE RECEIVED 110,17,502 ADJUSTMENT U/S 92CA(D - E) 9,29,692 4. INTERES T ON OUTSTANDING RECEIVABLES: LD.TPO CALLED UPON ASSESSEE TO SUBMIT DETAILS REGARDING OUTSTANDING RECEIVABLES. EVEN A F TER PROVIDING VARIOUS OPPORTUNIT IES , ASSESSEE DID NOT FILE ANY INVOICE WISE DETAILS. THIS CALLED FOR AN ADJUSTMENT. LD.TPO ESTIMATED AVERA GE OF OUTSTANDING RECEIVABLES OF SIX MONTHS, AND INTEREST WAS CALCULATED FOR 182 DAYS AT 4.4569 % BEING LIBOR +400 BASIS POINTS). LD.TPO COMPUTED THE INTEREST ON RECEIVABLES AS UNDER: SL. NO. PARTICULARS VALUE OF INTERNATIONAL TRANSACTIONS DELAY IN NO. OF DAYS INTEREST @ 4.4569% 1. EXPORT OF FINISHED GOODS 23481068 182 521830.3 2. PROVISION OF SERVICES 243231515 182 5405443 3. RECOVERY OF EXPENSES 9421134 61,36,643 ITA NO. 6 093/DEL/2017 A.Y. 2013 - 14 ROCKWELL AUTOMATION INDIA PVT.LTD. VS. ACIT PAGE 15 OF 30 AGGRIEVED BY THE ADDITION MADE, ASSESSEE RAISED OBJECTION BEFORE DRP. DRP AFTER CONSIDE RING THE SUBMISSIONS OF ASSESSEE, DIRECTED LD.TPO TO EXAMINE THE DETAILS OF PAYABLES AND RECEIVABLES ENTITY WISE AND INVOKE SECTION 92 B ONLY O N THE NET RECEIVABLES. LD.AO WHILE GIVING EFFECT TO THE DIRECTIONS OF DRP CALLED FOR DETAILS. ASSESSEE VIDE SUBMI SSION DATED 05/07/17, SUBMITTED ENTITY WISE RECEIVABLES/PAYABLES BUT DID NOT SUBMIT ANY INVOICE AS CALLED FOR DURING TP PROCEEDINGS. LD.AO THUS COMPUTED THE INTEREST ON OUTS T ANDING RECEIVABLES AS UNDER: PARTICULARS AMOUNT IN RS. ASSEMBLY SEGMENT (MANUFACT URING) 4,06,08,584 ENGINEERING DESIGN SERVICES 194,65,390 IT ENABLED SERVICES 9,29,692 INTEREST ON OUTSTANDING RECEIVABLES 61,36,643 TOTAL: 6,71,40,309 T HE CUMULATIVE ADJUSTMENTS PROPOSED BY LD. TPO FOR YEAR UNDER CONSIDERATION WAS AS UNDER: PARTICULA RS AMOUNT IN RS. ASSEMBLY SEGMENT (MANUFACTURING) 17,27,93,000 ENGINEERING DESIGN SERVICES 2,63,36,306 IT ENABLED SERVICES 10,11,403 INTEREST ON OUTSTANDING RECEIVABLES 61,36,643 TOTAL: 20,62,77,352 ITA NO. 6 093/DEL/2017 A.Y. 2013 - 14 ROCKWELL AUTOMATION INDIA PVT.LTD. VS. ACIT PAGE 16 OF 30 LD.AO COMPUTED TOTAL INCOME OF ASSESSEE AS UNDER: NET INCOME AS DECLARED IN INCOME TAX RETURN RS.23,78,44,860/ - ADDITION: ADDITION AS SUGGESTED BY THE TPO AFTER GIVING EFFECT TO THE DRP S DIRECTIONS RS. 6,71,40,309/ - NET INCOME RS. 30,49,85,169/ - ROUNDED OFF RS. 30,49,85,170/ - 5 . AGGRIEVED BY THE F INAL ASSESSMENT ORDER PASSED, ASSESSEE IS IN APPEAL BEFORE US ON FOLLOWING GROUNDS : THE FOLLOWING GROUNDS OF APPEAL ARE INDEPENDENT OF, AND WITHOUT PREJUDICE TO EACH OTHER: 1 . THE ASSESSMENT ORDER PASSED BY THE LD. ASSESSING OFFICER ('LD. AO') IN PURSUANCE OF THE DIRECTIONS ISSUED BY THE HON'BLE DISPUTE RESOLUTION PANEL ('HON'BLE DRP') IS A VITIATED ORDER AS THE LD. DRP ERRED IN CONFIRMING THE ARBITRARY TRANSFER PRICING ADJUSTMENT MADE BY THE LD. AO/LD. TRANSFER PRICING OFFICER ('LD. TPO') TO THE INTERNATION AL TRANSACTION ENTERED INTO BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRISE ('AE'). 2 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. TPO/ LD. AO AND HON'BLE DRP ERRED IN ENHANCING THE INCOME OF THE APPELLANT BY RS.4, 0 6, 0 8,584 HOLDING THAT THE INTERNATIONAL TRANSACTION PERTAINING TO ITS ASSEMBLY 1 MANUFACTURING SEGMENT DOES NOT SATISFY THE ARM'S LENGTH PRINCIPLE ENVISAGED UNDER THE ACT AND IN DOING SO HAVE GROSSLY ERRED IN: 2.1. DISREGARDING THE ALP AS DETERMINED BY THE APPELLANT IN THE TRANSF ER PRICING ('TP') DOCUMENTATION (ALSO REFERRED TO AS 'TP STUDY' OR 'TP REPORT') MAINTAINED BY IT IN TERMS OF SECTION 92D OF THE ACT READ WITH RULE 10D OF THE INCOME - TAX RULES,1962 ('RULES'); 2.2. REJECTING THE TRANSFER PRICING METHOD (COST PLUS METHOD) A ND ANALYSIS PERFORMED BY THE APPELLANT AND SELECTING ITA NO. 6 093/DEL/2017 A.Y. 2013 - 14 ROCKWELL AUTOMATION INDIA PVT.LTD. VS. ACIT PAGE 17 OF 30 TRANSACTIONAL NET MARGIN METHOD AS THE MOST APPROPRIATE METHOD WITHOUT UNDERTAKING THE BEST METHOD ANALYSIS FOR SELECTION OF MOST APPROPRIATE METHOD FOR THE PURPOSE OF BENCH MARKING ANALYSIS. 2.3. WITH OUT PREJUDICE TO THE OTHER GROUNDS, NOT CONSIDERING THE CORRECT COMPUTATION OF THE OPERATING MARGINS OF THE APPELLANT IN ASSEMBLY/MANUFACTURING SEGMENTS WHILE APPLYING THE TNMM FOR THE PURPOSE OF BENCH MARKING ANALYSIS.; 2.4. ERRONEOUSLY INCLUDING CERTAI N FUNCTIONALLY DISSIMILAR COMPANIES THAT ARE NOT COMPARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED AND EXCLUDING CERTAIN COMPARABLE COMPANIES ON ARBITRARY/FRIVOLOUS GROUNDS; 2.5. WITHOUT PREJUDICE TO OTHER GRO UNDS, NOT CONSIDERING THE CORRECT COMPUTATION OF THE OPERATING MARGINS OF CERTAIN COMPANIES USED AS COMPARABLE IN ASSEMBLY/MANUFACTURING SEGMENTS OF THE APPELLANT; 2.6. NOT APPRECIATING THE DIFFERENCE IN CAPACITY UTILISATION OF THE APPELLANT AND COMPARAB LE COMPANIES FOR THE PURPOSE OF BENCH MARKING ANALYSIS 2.7. CHERRY PICKING OF COMPARABLE BY PROPOSING A FRESH SET OF COMPARABLE COMPANIES IN THE TP ORDER WITHOUT PROVIDING ANY SEARCH METHODOLOGY; 2.8. ERRED IN NOT PROVIDING THE BENEFIT OF +1 - 3% UNDER PROVISO TO SECTION 92C OF THE ACT FOR PURPOSES OF COMPUTING THE ALP IN RESPECT OF INTERNATIONAL TRANSACTION. 3 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. TPO/ LD. AO AND HON'BLE DRP ERRED IN ENHANCING THE INCOME OF THE APPELLANT BY RS.2,03 ,95,082/ - HOLDING THAT THE INTERNATIONAL TRANSACTION PERTAINING TO PROVISION OF ENGINEERING DESIGN SERVICES SEGMENT AND PROVISION OF CUSTOMER SUPPORT SERVICES SEGMENT DOES NOT SATISFY THE ARM'S LENGTH PRINCIPLE ENVISAGED UNDER THE ACT AND IN DOING SO HAV E GROSSLY ERRED IN: 3.1. DISREGARDING THE ALP AS DETERMINED BY THE APPELLANT IN THE TRANSFER PRICING ('TP') DOCUMENTATION (ALSO REFERRED TO AS 'TP ITA NO. 6 093/DEL/2017 A.Y. 2013 - 14 ROCKWELL AUTOMATION INDIA PVT.LTD. VS. ACIT PAGE 18 OF 30 STUDY' OR 'TP REPORT') MAINTAINED BY IT IN TERMS OF SECTION 92D OF THE ACT READ WITH RULE 10D OF THE INCOME - TAX RULES,1962 ('RULES'); 3.2. REJECTING, WITHOUT REASON, THE QUANTITATIVE AND QUALITATIVE SCREENS/FILTERS APPLIED AND SET OF COMPARABLES ARRIVED AT BY THE APPELLANT, FOLLOWING A DETAILED AND ROBU S T SEARCH METHODOLOGY CARRIED OUT IN THE TP STUDY, AND PR OCEEDING TO ARRIVE AT THE FRESH COMPARABLES SET BY APPLYING CERTAIN ARBITRARILY SELECTED FILTERS AND ARRIVING AT HIS OWN COMPARABLES SET INSTEAD, 3.3. CHERRY PICKING OF COMPARABLE BY PROPOSING A FRESH SET OF COMPARABLE COMPANIES IN THE TP ORDER WITHOUT PRO VIDING ANY SEARCH METHODOLOGY; 3.4. INCLUDING CERTAIN FUNCTIONALLY DISSIMILAR COMPANIES THAT ARE NOT COMPARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED AND EXCLUDING CERTAIN COMPARABLE COMPANIES ON ARBITRARY/FRI VOLOUS GROUNDS; 3.5. NOT CONSIDERING THE CORRECT COMPUTATION OF THE OPERATING MARGINS OF CERTAIN COMPANIES USED AS COMPARABLE IN ASSEMBLY/MANUFACTURING SEGMENTS OF THE APPELLANT; 3.6. IGNORING THE BUSINESS/COMMERCIAL REALITY THAT SINCE THE APPELLANT IS REMUNERATED ON AN ARM S LENGTH COST PLUS BASIS, I.E. IT IS COMPENSATED FOR ALL ITS OPERATING COSTS PLUS A PRE - AGREED MARK - UP BASED ON A BENCH MARKING ANALYSIS, THE APPELLANT UNDERTAKES MINIMAL BUSINESS RISKS AS AGAINST COMPARABLE COMPANIES THAT ARE FULL FL EDGED RISK TAKING ENTREPRENEURS, AND BY NOT ALLOWING A RISK ADJUSTMENT TO THE APPELLANT ON ACCOUNT OF THIS FACT; AND 3.7. ERRED IN NOT PROVIDING THE BENEFIT OF +1 - 3% UNDER PROVISO TO SECTION 92C OF THE ACT FOR PURPOSES OF COMPUTING THE ALP IN RESPECT OF I NTERNATIONAL TRANSACTION. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. TPO/ LD. AO AND HON'BLE DRP ERRED IN MAKING AN ADJUSTMENT OF INR 61,36,643/ - BY IMPUTING INTEREST ON OUTSTANDING INTER - COMPANY RECEIVABLES AND IN DOING SO HAVE GROSSL Y ERRED IN: 4.1. THE FACTS AND IN LAW, IN TREATING OUTSTANDING RECEIVABLES FROM AES AS A SEPARATE INTERNATIONAL TRANSACTION REQUIRING SEPARATE COMPENSATION; 4.2. THE FACTS AND IN LAW, IN ARBITRARILY WITHOUT APPLYING ANY METHOD SPECIFIED UNDER TRANSFER PR ICING REGULATIONS; ITA NO. 6 093/DEL/2017 A.Y. 2013 - 14 ROCKWELL AUTOMATION INDIA PVT.LTD. VS. ACIT PAGE 19 OF 30 4.3. WITHOUT PREJUDICE, THE LD. AO/TPO ERRED ON FACTS AND IN LAW IN IGNORING THE FACT THAT THE EFFECT, IF ANY, OF OUTSTANDING INTER - COMPANY RECEIVABLES HAS TO BE CONSIDERED BY MAKING A WORKING CAPITAL ADJUSTMENT. 4.4. WI THOUT PREJUDIC E, NOT CONSIDERING THE EFFECT OF OUTSTANDING PAYABLES FOR THE PURPOSE OF THE ADJUSTMENT . 4.5. WITHOUT PREJUDICE TO OTHER CONTENTIONS , IN CASE THE I NTEREST IS CHARGED ON DELAYED RECEIVABL ES A S PER THE METHODOLOGY ADOPTED BY LD. TPO, CORRECT COMPUTATION O F INTEREST ON DELAYED RECEIVABL ES C OULD BE CONSIDERED. 4.5. WITHOUT PREJUDICE TO OTHER CONTENTIONS, THE LD. TPO / LD. AO ERRED IN NOT CONSIDERING THE HON BLE DRP DIRECTIONS FOR EXAMINING THE DETAILS OF PAYABLES AND RECEIVABLES ENTITY WISE AND INVOKE SECTI ON 92B ONLY ON NET RECEIVABLE ON AN ENTITY WISE BASIS AND ACCORDINGLY DETERMINE THE ADJUSTMENT ( IF ANY). 5. THE LD. AO/HON'BLE DRP HAS ERRED BOTH ON FACTS AND IN LAW IN CHARGING INTEREST UNDER SECTION 234A, 234B, 234C AND 234D OF THE ACT. THE ABOVE GROUN DS ARE INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER. THAT THE APPELLANT PRAYS THAT IT KINDLY MAY BE ALLOWED TO ADD, AMEND, ALTER AND DELETE THE ABOVE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE OF HEARING. 5.1. IT HAS BEEN SUBMITTED BY LD.COUNSEL THAT GROUND NO.1 IS GENERAL IN NATURE, AND THEREFORE DOES NOT REQUIRE ANY ADJUDICATION INDEPENDENTLY. 5.2. GROUND NO.2 THIS GROUND HAS BEEN RAISED BY ASSESSEE CONTESTING THE FOLLOWING: REJECTION OF CPM AND USING TNMM AS MOST APPROPRIATE METHOD FOR BENCH MARKING ANALYSIS INCLUSION OF RUTTONSHA INTERNATIONAL LTD., AND HIND RECTIFIERS LTD., ITA NO. 6 093/DEL/2017 A.Y. 2013 - 14 ROCKWELL AUTOMATION INDIA PVT.LTD. VS. ACIT PAGE 20 OF 30 NOT CONSIDERING THE CORRECT COMPUTATION OF OPERATING MARGIN OF ASSESSEE; NOT CONSIDERING CORRECT COMPUTATION OF OPERATING MARGINS OF COMPARABLES ; NOT FOLLOWING THE DIRECT ION OF DRP IN GRANTING BENEFIT OF +/ - 3% 5.3 . LD. COUNSEL SUBMITTED THAT LD. TPO HAS REJECTED CPM AS THE MOST APPROPRIATE METHOD ONLY ON THE BASIS THAT IN THE EARLIER YEARS ASSESSEE USED TNMM AS THE MOST APPROPRIATE METHOD. HE SUBMITTED THAT CPM IS CONSI DERED TO BE APPROPRIATE INTO SITUATIONS BEING; I . THE PROVISION OF SERVICES; AND II . THE MANUFACTURE OF TANGIBLE GOODS. 5.4. ON THE OTHER HAND TNMM COMPARED THE NET PROFIT MARGIN OF A TAXPAYER ARISING FROM THE TRANSACTION WITH THE PROFIT MARGINS REALISED BY IND EPENDENT 3 RD PARTIES FROM SIMILAR TRANSACTIONS AND EXAMINES THE NET PROFIT MARGINS RELATED TO AN APPROPRIATE BASE SUCH AS COST, SALES OR AS SETS. HE SUBMITTED THAT IN THE EVENT TNMM IS CHOSEN AS THE MOST APPROPRIATE METHOD THEN IN ORDER TO CORRECT NET MARGI NS OF ASSESSEE CERTAIN ADJUSTMENTS WOULD HAVE TO BE FACTORED LIKE; I . EFFECT OF CHANGING DEPRECIATION POLICY : - LD. COUNSEL SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION ASSESSEE RECEIVED ITS NEW DEPOSITION POLICY AND HAD CHANGED THE USEFUL LIFE OF ASSET S RESULTING INTO AN EXCESS DEPRECIATION CHARGE TO PROFIT AND LOSS ACCOUNT. HE SUBMITTED THAT THIS HAD SIGNIFICANT IMPACT ON THE NET PROFIT OF THE ASSESSEE. ITA NO. 6 093/DEL/2017 A.Y. 2013 - 14 ROCKWELL AUTOMATION INDIA PVT.LTD. VS. ACIT PAGE 21 OF 30 II . EFFECT OF SIGNIFICANT AMOUNT OF NON - OPERATING EXPENSES: - LD. COUNSEL SUBMITTED THAT THE ASSESSEE DURI NG THE YEAR HAD ACQUIRED BUSINESS OF LEKTRONICS INDIA PVT.LTD FOR A LUMP SUM CONSIDERATION AS A RESULT OF WHICH IT HAD TO CREATE THE PROVISION FOR IMPAIRMENT OF GOODWILL. 5.5 . FURTHER LD.COUNSEL OBJECTED FOR THE INCLUSION OF TWO COMPARABLES BEING; RUTTONS HA I NTERNATIONAL LTD., & HIND RECTIFIERS LTD. F OR ASSEMBLY/MANUFACTURER SEGMENT , DUE TO FUNCTIONAL DISSIMILARITIES. LD.C OUNSEL FURTHER SUBMITTED THAT UNDER MANUFACTURING/ASSEMBLY SEGMENT , THE COMPARABLES SELECTED BY LD. TPO ARE FUNCTIONALLY DISSIMILAR. IT WAS SUBMITTED THAT RUTTONSHA INTERNATIONAL LTD., IS INVOLVED IN MANUFACTURING OF SEMICONDUCTOR DEVICES AND THE MANUFACTURING ACTIVITY IS CARRIED ON BY THIS COMPANY THROUGH EXTERNAL CONTRACT MANUFACTURERS WHEREAS ASSESSEE IS INTO MANUFACTURING OF ELECTRONI C DEVICES WHICH ARE USED FOR INDUSTRIAL APPLICATION WHICH HELPS SENSE POSITION, VIBRATIONS, TEMPERATURES , SPEED ETC ., SOME OF THESE SENSORS INCLUDE PHOTOELECTRIC SENSORS, LIMIT SWITCHES INDUCTIVE CAPACITIVE, ULTRASONIC PROXIMITY SENSORS ETC. SO FAR AS HI ND RECTIFIER LTD., I S CONCERNED, LD. COUNSEL SUBMITTED THAT THIS COMPARABLE HOLDS SIGNIFICANT INTANGIBLES AND THEREFORE SHOULD BE REJECTED. HE FURTH ER SUBMITTED THAT IN THE EVENT THIS COMPARABLE IS SELECTED, THEN ONLY THE ELECTRONIC COMPONENTS SEGMENT SHOU LD BE CONSIDERED. 5.6 . LD . COUNSEL FURTHER SUBMITTED THAT IN THE EVENT TNMM IS UPHELD AS A MOST APPROPRIATE METHOD THEN THE COMPUTATION OF OPERATING MARGINS OF ASSESSEE IN THIS SEGMENT WOULD BE REQUIRED ITA NO. 6 093/DEL/2017 A.Y. 2013 - 14 ROCKWELL AUTOMATION INDIA PVT.LTD. VS. ACIT PAGE 22 OF 30 TO BE CORRECTED AS LD. TPO HAS ERRONEOUSLY CONSIDERED THE MARGIN OF TESTED PARTY INSTEAD OF COMPARABLE COMPANIES. ON THE CONTRARY LD. CIT DR SUBMITTED THAT ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING TNMM AS THE MOST APPROPRIATE METHOD IN THE PRIOR ASSESSMENT YEARS. HE SUBMITTED THAT ASSESSEE HAS NOT PROVIDED A NY PARTICULAR REASON FOR CHANGE ADOPTED BY IT IN RESPECT OF MOST APPROPRIATE METHOD TO CPM. HE SUBMITTED THAT GOODWILL OF THE BUSINESS CANNOT BE RESTRICTED TO A PARTICULAR SEGMENT AS IT IS ASSOCIATED WITH THE ENTIRE BUSINESS ACTIVITY CARRIED ON BY ASSESSEE AS A WHOLE. ACCORDINGLY HE OPPOSED VEHEMENTLY THE ARGUMENT OF LD. COUNSEL REGARDING THE EXTRAORDINARY EVENT OF ACQUIRING BUSINESS OF ANOTHER COMPANY THEREBY ADDING ONTO THE GOODWILL UNDER THIS SEGMENT. 5.7 . LD. CIT , DR SUBMITTED THAT AS PER THE DIRECTION S OF DRP TNMM MUST BE UPHELD. HE FURTHER SUBMITTED THAT NO DETAILS HAVE BEEN SUBMITTED BY ASSESSEE REGARDING DEPRECIATION BEFORE AUTHORITIES BELOW AND THAT, IN THE PLI COMPUTED BY ASSESSEE THERE DOES NOT ARISE THE QUESTION OF DEPRECIATION BEING CONSIDERED. PLI IS OP/OC AND THEREFORE THERE CANNOT BE ANY IMPACT OF DEPRECIATION. FURTHER IN TNMM ALL THE ADJUSTMENTS RELATING TO PROFITABILITY GETS SUBSUMED . 6. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH THE SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE U S. WE DO NOT AGREE WITH THE CONTENTIONS ADVANCED BY LD. COUNSEL REGARDING THE SUDDEN CHANGE IN THE MOST APPROPRIATE METHOD ADOPTED FOR THE YEAR UNDER CONSIDERATION FROM TNMM TO CPM. ADMITTEDLY ASSESSEE HAS BEEN BENCHMARKING THE TRANSACTION IN THE SUBSEQUEN T AS WELL AS PRECEDING ASSESSMENT YEARS BY USING ITA NO. 6 093/DEL/2017 A.Y. 2013 - 14 ROCKWELL AUTOMATION INDIA PVT.LTD. VS. ACIT PAGE 23 OF 30 TNMM AS THE MOST APPROPRIATE METHOD. THERE IS NO SPECIAL CIRCUMSTANCES WHICH HAS COME INTO EXISTENCE FOR THE YEAR UNDER CONSIDERATION IN ORDER TO CALL FOR A SHIFT FROM THE REGULAR AND CONSISTENT APPROACH AD OPTED BY ASSESSEE. ACCORDINGLY WE UPHOLD TNMM AS THE MOST APPROPRIATE METHOD FOR THE PURPOSES OF BENCHMARKING THE TRANSACTION UNDER THIS SEGMENT. WE ARE IN AGREEMENT WITH THE SUBMISSIONS OF LD.CIT DR REGARDING NOT GRANTING OF WORKING CAPITAL ADJUSTMENT DUE TO DEPRECIATION SCHEME , NEWLY LAUNCHED DURING THE YEAR UNDER CONSIDERATION. IT IS ALSO OBSERVED THAT A SSESSEE HAS NOT PROVID ED ANY COMPUTATION /DETAILS IN RESPEC T OF THE SAME BEFORE US TO ANALYSE THE IMPACT THE SCHEME MIGHT HAVE ON PLI. THEREFORE, IN THE LIGHT OF JUSTICE, WE SET ASIDE THIS ISSUE TO LD. T .P.O. ASSESSEE IS DIRECTED TO SUBMIT ALL RELEVANT DETAILS TO ESTABLISH THE IMPACT OF DEPRECIATION ON THE WORKING OF PLI. ASSESSEE IS DIRECTED TO PROVIDE COMPUTATION IN REGARD TO THE SAME. LD.T.P.O . SHALL THEN VERIFY THE SUBMISSIONS OF ASSESSEE IN THE LIGHT OF EVIDENCE/DOCUMENTS/COMPUTATION FILED BY ASSESSEE AS PER LAW. IN THE EVENT ASSESSEE FAILS TO SUBMIT RELEVANT DETAILS REGARDING DEPRECIATION AND THE SPECIAL CIRCUMSTANCE, WHICH COULD AFFECT PLI , NO WORKING CAPITAL ADJUST MENT SHALL BE GRANTED. ACCORDINGLY GROUND NO. 2 OF ASSESSEE S APPEAL STANDS ALLOWED FOR STATISTICAL PURPOSES. 7. G ROUND NO. 3 IS IN RESPECT OF ENGINEERING DESIGN SERVICE SEGMENT AND CUSTOMER SUPPORT SERVICE SEGMENT. THE MAIN ISS UE AGITATED BY LD. COUNSEL IS IN RESPECT OF SELECTION OF COMPARABLES. ASSESSEE HAS ALSO ALLEGED THAT THE LD. AO/TPO HAS NOT GRANTED PROPER WORKING CAPITAL ADJUSTMENTS AND HAS CONSIDERED WRONG COMPUTATION OF THE RETURN ON TOTAL OPERATING COST OF CERTAIN COM PANIES USED AS COMPARABLE IN ENGINEERING DESIGN SERVICE SEGMENT AND CUSTOMER SUPPORT SERVICE SEGMENT. THE ONLY COMPARABLE THAT HAS BEEN AGITATED BY LD. COUNSEL IS ITA NO. 6 093/DEL/2017 A.Y. 2013 - 14 ROCKWELL AUTOMATION INDIA PVT.LTD. VS. ACIT PAGE 24 OF 30 CERTIFICATION ENGINEERS INTERNATIONAL LTD., ON THE BASIS THAT IT IS FUNCTIONALLY DISSIMILAR U NDER ENGINEERING DESIGN SUPPORT SEGMENT . LD. COUNSEL SUBMITTED THAT IN THIS SEGMENT MULTIPLE YEAR DATA SHOULD BE ALLOWED TO BE USED. ON THE CO NTRARY LD. CIT DR PLACES RELIANCE UPON THE ORDERS OF THE AUTHORITIES BELOW. 7.1. WE HAVE PERUSED THE SUBMISSION S ADVANCED BY BOTH THE SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US. 7.2. FROM THE ANNUAL REPORT SUBMITTED BY ASSESSEE IN RESPECT OF CERTIFICATION ENGINEERS INTERNATIONAL LTD., PLACED AT PAGE 165 - 215 OF PAPER BOOK, IT I S OBSERVED THAT THIS COMPANY R ENDERS SERVICES IN RELATION TO CERTIFICATION OF STRUCTURES, CARRYING OUT QUALITY CHECKS OF EQUIPMENT AND INSTALLATION PROCESS. THE RISK ASSUMED BY THIS COMPANY IS VERY LARGE AS IT HAS GOT AN ENTIRE SCHEME OF RISK MANAGEMENT. 7.3 . U NDER ENGINEERING DESIGN SUPPORT SEGMENT, ASSESSE BEFORE US PROVIDES ENGINEERING SUPPORT SERVICE WHICH COMPRISES OF ASSISTANCE IN EXECUTING GROUP DESIGNS AND CARRYING OUT TESTING USING COMPUTER AIDED DESIGN TECHNIQUES. THE RISKS ASSUMED AND ASSETS EMPLOYED BY ASSESSEE UNDER THIS SEGMENT IS LIMITED RISK SERVICE PROVIDER WHICH ASSUMES LESS THAN NORMAL RISK ASSOCIATED WITH CARRYING OUT SUCH BUSINESS AND EMPLOYS ROUTINE TANGIBLE ASSETS. IT DOES NOT RENDER THESE SERVICES TO ANY 3 RD PARTIES OTHER THAN ITS AE S. 7.4. BOTH ASSESSEE AND THE COMPARABLE ARE CARRYING OUT SIMILAR FUNCTIONS, I.E. CARRYING OUT ACTIVITIES RELATING TO ENGINEERING DESIGNS AND TESTING. IN OUR CONSIDERED OPINION SINCE TNMM IS APPLIED FOR DETERMINING ALP, MOST OF THE BROAD & ITA NO. 6 093/DEL/2017 A.Y. 2013 - 14 ROCKWELL AUTOMATION INDIA PVT.LTD. VS. ACIT PAGE 25 OF 30 GENERAL DIFFERENCES GETS ADJUSTED AUTOM ATICALLY. UNDER SUCH CIRCUMSTANCES WE DO NOT FIND ANY REASON TO REJECT CERTIFICATION ENGINEERS LTD. WE THEREFORE DIRECT THIS C OMPANY TO BE INCLUDED IN THE LIST OF COMPARABLES FOR BENCHMARKING INTERNATIONAL TRANSACTION UNDER ENGINEERING DESIGN SUPPORT SEGM ENT . 8. CUSTOMER CARE SUPPORT UNDER THIS SEGMENT LD.C OUNSEL HAS AGGRIEVED WITH THE COMPARABLES SELECTED BY TPO WHICH ARE AS UNDER: 1 . ACCENTIA TECHNOLOGIES LTD., 2 . ECLERX SERVICES LTD., 3 . HARTTON COMMUNICATIONS LTD., 4 . INFOSYS BPO LTD., 5 . ACROPETAL TECHNOLOGIES LTD. BEFORE DECIDING UPON THE COMPATIBILITY OF THESE COMPANIES WITH THAT OF ASSESSEE IT IS SINE QUA NON TO DISCUSS THE FUNCTIONS PERFORMED BY ASSESSEE UNDER THIS SEGMENT. 8.1. FROM THE TP STUDY PLACED IN THE PAPER BOOK AT PAGE 53 - 178, THE FUNCTIONS PERFORME D BY ASSESSEE UNDER THIS SEGMENT HAS BEEN DISCUSSED AT PAGE 121. IT HAS BEEN CATEGORISED AS PERFORMING TYPICAL FUNCTIONS RELATING TO TROUBLESHOOTING WHICH MAINLY INVOLVES MANUAL CHECKING AND ORDER MATCHING. IT HAS BEEN SUBMITTED THAT THE PROCESS STARTS WIT H THE DISTRIBUTOR (CUSTOMER) PLACING AN ORDER ON THE ASSESSEE GROUPS SERVERS/SYSTEMS VIA THE SAP ACCESS PROVIDED TO IT. THE ORDER PROCESSING SUPPORT IS A SAP - BASED PLATFORM, WHICH HAS 2 INTERFACES, ECS (RA INTERNAL INTERFACE) AND CRM (CUSTOMER INTERFACE). IN THE RA INTERNAL INTERFACE, THE KEY FUNCTIONS ITA NO. 6 093/DEL/2017 A.Y. 2013 - 14 ROCKWELL AUTOMATION INDIA PVT.LTD. VS. ACIT PAGE 26 OF 30 PERFORMED ARE IN RESPECT OF PULLING OUT ERRORS AND FIXING THEM AND PUTTING THEM BACK IN THE SYSTEM AND IN THE CUSTOMER INTERFACE ANY ISSUES RELATING TO MISMATCH OF ORDERS ARE RECTIFIED. THE EMPLOYEES PERFORMI NG THESE FUNCTIONS RANGE FROM DIPLOMA HOLDERS TO B - TECH. ENGINEERS. 8.2. THE RISKS ASSUMED AND ASSETS EMPLOYED BY ASSESSEE UNDER THIS SEGMENT IS LIMITED RISK SERVICE PROVIDER WHICH ASSUMES LESS THAN NORMAL RISK ASSOCIATED WITH CARRYING OUT SUCH BUSINESS AND EMPLOYS ROUTINE TANGIBLE ASSETS. 8.3. LD. CIT DR AT THE OUTSET SUBMITTED THAT NEITHER THE FUNCTIONS HAVE BEEN VERIFIED NO R HA VE BEEN DISCUSSED BY LD. TPO IN RESPECT OF THE SE COMPARABLES THAT HA VE BEEN SELECTED AND FINALLY LISTED. HE PLACED REFER ENCE TO THE DRP OBSERVATION AT PAGE 13 OF THE ORDER. HE THUS SUBMITTED THAT ALL THE ALLEGED COMPARABLES MUST BE SENT BACK TO L D. TPO/AO FOR THE VERIFICATION. 8.4. LD. C OUNSEL D ID NOT OBJECT TO THE SAME. ON PER USAL OF THE ORDER PASSED BY LD. TPO WE AGREE W ITH THE SUBMISSIONS ADVANCED BY LD.CIT , DR. IT IS OBSERVED THAT LD.TPO HAS NOT DEMONSTRATED THE FUNCTIONAL SIMILARITIES/DISSIMILARITIES IN RESPECT OF THE COMPARABLES ADOPTED UNDER THE SEGMENT. 8.5. WE THEREFORE DIRECT LD. TPO/AO TO VERIFY FUNCTIONAL SIMI LARITY/ DISSIMILARITY ON THE BASIS OF FUNCTIONS PERFORMED BY ASSESSEE VIS - A - VIS ALLEGED COMPARABLES AS PER LAW. ACCORDINGLY GROUND NO. 3 RAISED BY ASSESSEE STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES . 9. GROUND NO.4 IS IN RESPECT OF THE ADJUSTMENT ON A CCOUNT OF INTEREST ON OUTSTANDING RECEIVABLES. ITA NO. 6 093/DEL/2017 A.Y. 2013 - 14 ROCKWELL AUTOMATION INDIA PVT.LTD. VS. ACIT PAGE 27 OF 30 9.1 . LD. C OUNSEL SUBMITTED THAT THE AMOUNTS OF THE OUTSTANDIN G PAYABLES BY ASSESSEE TO THE AE S ARE MUCH MORE THAN THAT OF THE OUTSTANDING RECEIVABLES FROM THE AE. AS HE PLACED RELIANCE UPON THE DECISION OF HON BLE DELHI HIGH COURT IN THE CASE OF DCIT V S. KUSUM H EALTHCARE IN ITA NO. 765 OF 2016 WHEREIN HON BLE C OURT HAS HELD THAT WHEN ASSESSEE HAVING ALREADY FACTORED IN THE IMPACT OF RECEIVABLES ON THE WORKING CAPITAL AND THEREBY ON ITS PRICING/PROFITABILITY VIZ - A - VIZ THAT OF ITS COMPARABLES, ANY FURTHER ADJUSTMENTS ONLY ON THE BASIS OF OUTSTANDING RECEIVABLES WOULD HAVE DISTORTED THE PICTURE AND RE - CASTED THE TRANSACTION. 9.2 . WHEREAS LD. CIT DR PLACED RELIANCE UPON DECISION OF COORDINATE BENCH IN CASE OF AME RIPRISE VS. DIT REPORTED IN 66 TAXMANN.COM 243(DELHI) . 10. W E HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH THE SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US . 11. IT IS OBSERVED FROM THE ORDER OF LD. TPO/DRP THAT ASSESSEE HAD NOT PROVIDED THE INVO ICES FOR VERIFICATION. HOWEVER VIDE SUBMISSIONS DATED 4 TH JANUARY , 2017, ASSESSEE HAD SUBMITTED A LIST OF INTRA COMPANY ACCOUNTS OF RECEIVABLES WHICH IS PLACED AT PAGE 817 - 818 OF PAPER BOOK. FURTHER FROM THE TP STUDY AT PAGE 94 ASSESSEE HAS PROVIDED ALLOWA BLE CREDIT PERIOD IN RESPECT OF OUTSTANDING RECEIVABLES AS WELL AS THE OUTSTANDING PAYABLES , WHICH IS REPRODUCED FOR THE SAKE OF CONVENIENCE AS UNDER: WORKING CAPITAL MANAGEMENT ROCKWELL INDIA IS RESPONSIBLE FOR MANAGING ITS WORKING CAPITAL SO THAT ITS INVESTMENT IN WORKING CAPITAL IS MINIMUM. INVENTORY IS MANAGED THROUGH ITS MATERIAL RESOURCE PLANNING SOFTWARE. ROCKWELL INDIA IMPORTS COMPONENTS FROM GROUP COMPANIES AND ALSO PURCHASES FROM LOCAL THIRD PARTY SUPPLIERS. MOST COMPONENTS ARE SUCH THAT TH EY CAN BE USED IN A WIDE RANGE OF ITA NO. 6 093/DEL/2017 A.Y. 2013 - 14 ROCKWELL AUTOMATION INDIA PVT.LTD. VS. ACIT PAGE 28 OF 30 PRODUCTS/SYSTEMS, BEING MANUFACTURED/ASSEMBLED BY ROCKWELL INDIA. APPROXIMATELY 70% ARE STANDARD GOODS, WHILE THE REMAINING 30% WOULD BE CUSTOMISED TO MEET SPECIFIC CUSTOMER REQUIREMENTS. IT RECEIVES A CREDIT OF 30 TO 60 DAYS FROM GROUP COMPANIES IN RESPECT OF ITS IMPORTS. FOR PURCHASES MADE FROM LOCAL SUPPLIERS, CREDIT RECEIVED VARIES FROM VENDOR TO VENDOR. ROCKWELL INDIA PROVIDES A CREDIT OF 60 DAYS TO MOST OF ITS THIRD PARTY CUSTOMERS FOR THE SALES MADE BY IT. FOR E XPORT SALES MADE TO GROUP COMPANIES, ROCKWELL INDIA OFFERS A CREDIT OF 45 DAYS. 11.1. T HUS FROM THE ABOVE EXTRACT IT IS AMPLY CLEAR THAT THERE IS A SPECIFIC CREDIT PERIOD THAT HAS BEEN AGREED UPON BETWEEN ASSESSEE AND ITS AE. AS THEY ARE DIFFERENT, N ETTING OFF ALSO CANNOT BE APPLIED AS HAS BEEN ARGUED BY LD.COUNSEL. 12. WE THEREFORE DIRECT ASSESSE TO PRODUCE THE NECESSARY INVOICE WISE DETAILS BEFORE THE LD . TPO TO SHOW THAT THERE IS NO OVERDUE AMOUNT OUTSTANDING MORE THAN THE AGREED PERIOD. THE L D . TPO IS DIRECTED TO VERIFY THE DETAILS AND TO WORK OUT INTEREST COMPONENT FROM RECEIVABLE S AND PAYABLES ONLY IF THEY EXCEED THE AGREED PERIOD. ACCORDINGLY THIS GROUND STANDS ALLOWED FOR STATISTICAL PURPOSES. 13. IN THE RESULT APPEAL FILED BY ASSESSEE ST ANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 2 8.03.2018. SD/ - SD/ - (N.K.SAINI) (BEENA A PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 28.03.2018 * MV ITA NO. 6 093/DEL/2017 A.Y. 2013 - 14 ROCKWELL AUTOMATION INDIA PVT.LTD. VS. ACIT PAGE 29 OF 30 COPY FORWARDED TO: - 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR, ITAT - TRUE COPY - BY ORDER, ASSISTANT REGISTRAR ITAT DELHI BENCHES ITA NO. 6 093/DEL/2017 A.Y. 2013 - 14 ROCKWELL AUTOMATION INDIA PVT.LTD. VS. ACIT PAGE 30 OF 30 S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON DRAGON SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT CO MES TO THE SR. PS/PS SR. PS/PS 6 KEPT FOR PRONOUNCEMENT SR. PS/PS 7 FILE SENT TO BENCH CLERK SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER