Appeal Details
Counselvise Citation
[2019] 117 COUNSELVISE.COM (IT) 2812 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
7 month(s) 20 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
14-06-2019
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
K
Assessment Year
2014-2015
Appeal Filed On
25-10-2018
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL K , BENCH MUMBAI BEFORE SHRI M. BALAGANESH , AM & SHRI RAVISH SOOD , JM ITA NO. 6098 / MUM/20 1 8 & ITA NO.531/MUM/2018 ( ASSESSMENT YEAR : 2014 - 15 & 2013 - 14 ) M/S. EMERSON ELECTRIC COMPANY (INDIA) PRIVATE LIMITED 60 4, DELPHI, B WING, 6 TH FLOOR, HIRANANDANI BUSINESS PARK, HIRANANDANI GARDENS, POWAI, MUMBAI - 400 076 VS. ASST. COMMISSIONER OF INCOME TAX - 9(2)(2), ROOM NO.203, AAYKAR BHAVAN, M.K.ROAD MUMBAI 400 020 PAN/GIR NO. AAACE1260B ( APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY SHRI DHANESH BAFNA / SHRI PRATIK SHAH & SHRI NISHANT SHAH REVENUE BY SHRI MANJUNATH K DATE OF HEARING 08 / 05 /201 9 DATE OF PRONOUNCEMENT 14 / 06 /201 9 / O R D E R PER M. BALAGANESH (A.M) : TH ESE APPEAL S IN ITA NO S . 6 098/MUM/2018 & 531/MUM/2018 FOR A.Y. 2014 - 15 & 2013 - 14 RESPECTIVELY ARISE OUT OF THE ORDER BY THE LD. JOINT COMMISSIONER OF INCOME TAX ( TP ) - 2(1), MUMBAI IN APPEAL DATED 27/10/2017 & JOINT COMMISSIONER OF INCOME - TAX (TP) - 2(1), MUMBAI (LD. CIT(A) IN SHORT) A GAINST THE ORDER OF ASSESSMENT PASSED U/S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS ACT) DATED 27/09/2018 BY THE LD. ASST. COMMISSIONER OF INCOME TAX 9(2)(2), MUMBAI (HEREINAFTER REFERRED TO AS LD. AO). SINCE IDENTICAL ISSUES ARE INV OLVED IN ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 2 THESE APPEALS, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLIDATE ORDER, FOR THE SAKE OF CONVENIENCE. WITH THE CONSENT OF BOTH THE PARTIES, THE APPEAL IN ITA NO.6098/MUM/2018 FOR A.Y.2014 - 15 IS TAKEN UP FOR ADJUDICATION FIR ST. 2. THE GROUND NO.1 RAISED BY THE ASSESSEE IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 3. THE BRIEF FACTS OF THE ASSESSEE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y.2014 - 15 ON 30/11/2014 DECLARING TOTAL INCOME OF RS.155,49,76,710/ - . THE ASSESSEE COMPANY I.E EMERSON ELECTRIC COMPANY (INDIA) PRIVATE LIMITED ('EMERSON') IS IN THE BUSINESS OF PROVIDING ENGINEERING SUPPORT SERVICES INCLUDING CONFIGURATION ENGINEERING, FRAMEWORK DESIGN AND GRAPHICAL DESIGN, LARGELY IN C ONNECTION WITH INDUSTRIAL AUTOMATION PROJECTS UNDERTAKEN BY OTHER EMERSON GROUP MEMBERS. EMERSON ALSO PROVIDES IT SERVICES INCLUDING DATABASE ADMINISTRATION AND HELP DESK SUPPORT TO VARIOUS MEMBERS OF THE EMERSON GROUP. EMERSON ALSO MAINTAINS MANUFACTURING AND DISTRIBUTIONS OPERATIONS. EMERSON CONDUCTS ITS BUSINESS THROUGH FOLLOWING SEGMENTS: A) MANUFACTURING SEGMENT - THIS SEGMENT IS ENGAGED IN TRADING OF TOOLS WHICH ARE USED IN ELEVATOR APPLICATIONS. B) DISTRIBUTION SEGMENT - THIS SEGMENT IS ENGAGED IN IMPORTING ULTRASONIC WELDING AND CLEANING EQUIPMENT AND ACCESSORIES FROM GROUP COMPANIES AND SELLING THEM IN LOCAL MARKET. ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 3 C) ENGINEERING AND RELATED SERVICES SEGMENT - THIS SEGMENT IS ENGAGED IN RENDERING DESIGNING AND OTHER ENGINEERING DEVELOPMENT NEEDS WITH RESPECT TO PRODUCTS SOLD BY THE EMERSON GROUP. D) IT AND RELATED SERVICES SEGMENT (ITES SEGMENT) - THIS SEGMENT IS ENGAGED IN RENDERING SERVICES RELATED TO IT HELP DESK AND DATABASE ADMINISTRATION RELATED SERVICES. E) SOFTWARE DEVELOPMENT AND RELATED SERVICE SEGMENT (IT SEGMENT) - THIS SEGMENT IS ENGAGED IN SOFTWARE DEVELOPMENT RELATED SERVICES WHICH ARE USED FOR MANUFACTURING MICROPROCESSORS BY EMERSON GROUP. F) FACILITATION SUPPORT SERVICE SEGMENT (MSS SEGMENT) - THIS SEGMENT IS ENGA GED IN RENDERING MARKETING SUPPORT SERVICES IN RESPECT OF PRODUCTS OF THE EMERSON GROUP 3.1. PURSUANT TO THE DIRECTIONS OF LD. DRP, THE LD. AO PASSED THE FINAL ASSESSMENT ORDER BY MAKING ADJUSTMENT TO ARMS LENGTH PRICE (ALP) ON ACCOUNT OF THE FOLLOWING I TEMS TO THE TUNE OF RS.20,62,58,915/ - AS UNDER: - S.NO. DESCRIPTION AMOUNT IN RS. 1 ADJUSTMENT ON ACCOUNT OF PROVISION OF ENGINEERING AND RELATED SERVICES 12,36,14,584 2 ADJUSTMENT ON ACCOUNT OF PROVISION OF ITES 6,03,56,767 3 ADJUSTMENT ON A CCOUNT OF PROVISION OF IT SERVICES 1,86,10,485 4 ADJUSTMENT ON ACCOUNT OF PROVISION OF MARKETING SUPPORT SERVICES 36,77,079 TOTAL 20,62,58,915 3.2. NOW LET US ADDRESS THE TRANSFER PRICING ADJUSTMENT MADE IN RESPECT OF EACH OF THE AFORESAID SEG MENTS. ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 4 4. E NGINEERING AND RELATED SERVICES - RS.12,36,14,584/ - GROUND NO.2 RAISED BY THE ASSESSEE: - 4.1. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSESSEE PROVIDES ENGINEERING RELATED SUPPORT SERVICES TO ITS AES THROUGH 3 BUSINESS DIVISIONS VIZ. (I) FISH ER CHENNAI ENGINEERING CENTRE (FCEC) DIVISION; (II) EMERSON EXPORT ENGINEERING CENTRE (EEEC ) DIVISION AND (III) EMERSON INNOVATION CENTRE (EIC) DIVISION. IN ORDER TO BENCHMARK THE INTERNATIONAL TRANSACTIONS OF ENGINEERING AND RELATED SERVICES, TRANSACTIONA L METHOD (TNMM) WAS SELECTED AS THE MOST APPROPRIATE METHOD. WHILE ASCERTAINING THE PROFITABILITY OF THE SEGMENT AND GIVEN THE RANGE OF TRANSACTIONS INVOLVED, ALL THE TRANSACTIONS FROM THE THREE DIVISIONS WERE AGGREGATED TOGETHER. THUS, ASSESSEE EARNED OPE RATING P ROFIT MARGIN OF 32.40% IN RESPECT OF ENGINEERING AND RELATED SERVICES SEGMENT. THE ARITHMETIC MEAN OF THE MARGINS OF THE COMPARABLE COMPANIES SELECTED BY THE ASSESSEE IN TRANSFER PRICING STUDY REPORT ('TPSR') IS AS FOLLOWS: SR. NO. NAME OF THE CO MPANY OP/TC (%) I AXIS - IT&T LTD. 12.48 2 CADES DIGITECH PVT. LTD. 0.98 3 COWI INDIA PVT. LTD. 15 . 24 4 HEPATICA TECHNOLOGIES PVT. LTD. - 5 . 33 5 ACROPETAL TECHNOLOGIES LTD. - EDS ( SEG MENTAL) 22.50 MEAN MARGIN 9 . 17 4.1.1. ACCORDINGL Y, IT WAS CONCLUDED THAT THE INTERNATIONAL TRANSACTION OF ENGINEERING AND RELATED SERVICE SEGMENT WERE AT ARM'S LENGTH. ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 5 4.2. THE LD. TPO ASKED THE ASSESSEE TO FURNISH THE PROFITABILITY OF EACH OF THE THREE DIVISIONS IN RESPECT OF ENGINEERING AND RELATED S ERVICES SEGMENT. THE ASSESSEE FURNISHED THE SEGMENTED STATEMENT BEFORE THE LD. TPO VIDE ITS SUBMISSION DATED 14/06/2017 AS UNDER: - ENGINEERING AND RELATED SERVICES - BUSINESS DIVISION WISE PROFITABILITY PARTICULARS FCEC EEEC EIC TOTAL AMOUNT (IN INR) SEGMENT REVENUE(A) REVENUE FROM OPERATIONS 28,51,93,726 3,25,90,93,366 1,48,38,23,394 5,02,81,10,486 28,51,93,726 3,25,90,93,366 1,48,38,23,394 5,02,81,10,486 SEGMENT EXPENSES (B) PERSONNEL COST 14,68,49,349 1,46,21, 13,437 79,82,19,593 2,40,71,82,379 DEPRECIATION AND AMORTISATION 1,43,47,517 5,75,26,620 8,78,52,188 15,97,26,325 ADMINISTRATIVE AND SELLING EXPENSES 5,48,40,421 63,26,78,426 49,59,82,840 1,18,35,01,687 ADMINISTRATIVE AND SELLING EXPENSES 4,63,96,705 21,60,37,287 2,15,23,18,483 1,38,20,54,621 3,79,68,07,047 OPERATING PROFIT (C)=(A) - (B) 6,91,56,439 1,10,67,74,883 10,17,68,773 1,23,13,03,989 OP/TC%(D) = (C)/(B) 32.01% 51.42% 7.36% 32.43% RECONCILIATION WITH PROFITABILITY AS PER NOTE 18 OF THE FINANCIAL STATEMENTS PARTICULARS AMOUNT AMOUNT AMOUNT OPERATING PROFIT AS DETERMINED 6,91,56,439 1,10,67,74,883 10,17,68,773 ABOVE ADD: NON OPERATING INCOME OTHER INCOME 70,39,865 7,12,03,687 7,12 ,324 LESS: NON OPERATING EXPENSE LOSS ON THE SALE OF ASSETS 16,16,399 28,25,866 REVISED PROFITABILITY AS PER FINANCIAL STATEMENTS 7,61,96,304 1,17,63,62,171 9,96,55,231 ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 6 4.3. THE LD. TPO DISREGARDED THE AGGREGATION APPROACH ADOPTED BY THE ASSESSEE. THE LD. TPO OBSERVED THAT THE TRANSFER PRICING CHARGE FOR ALL THREE DIVISIONS BEING DIFFERENT CLEARLY PROVES THAT FUNCTIONS PERFORMED FOR ALL THE THREE DIVISIONS I.E., EIC, EEEC AND FCEC ARE NOT THE SAME AND HENCE , AGGREG ATED APPROACH CANNOT BE FOLLOWED. ACCORDINGLY, HE CONCLUDED THAT THE ARMS LENGTH PRICE OF PROVISION OF ENGINEERING SERVICES IS TO BE BENCHMARKED SEPARATELY. HE ALSO OBSERVED THAT THERE IS NO INTERLINKING OF TRANSACTIONS BETWEEN THESE THREE DIVISIONS AND P RICE SETTING MECHANISM FOR EACH DIVISION IS NOT DEPENDING ON OTHER DIVISIONS. THEREFORE, THE AGGREGATION APPROACH IS NOT ALLOWED. THE LD. TPO BASED ON THE DIVISIONWISE PROFITABILITY STATEMENT FURNISHED BY THE ASSESSEE AS ABOVE OBSERVED THAT THE ASSESSEE EA RNED ONLY 7.36% IN EIC DIVISION AS IT S OPERATING PROFIT AS COMPARED TO 32.01% AND 51.42% UNDER FCEC AND EEEC DIVISION RESPECTIVELY. THE LD. TPO ACCEPTED THE MARGIN REFLECTED UNDER FCEC AND EEEC DIVISIONS. THE LD. TPO HOWEVER, SOUGHT TO MAKE ADJUSTMENT TO ALP ONLY IN RESPECT OF EIC DIVISION FOR WHICH PURPOSE , HE SELECTED THE FOLLOWING TWO COMPARABLES WITH ITS MARGINS AND ARRIVED AT THE ARMS LENGTH MEAN MARGIN AT 16.31% AS UNDER: - PARTICULARS OP/TC PERCENTAGE(%) AXIZ IT & T LIMITED 7.15% CERTIFICATION ENGINEERS INTERNATIONAL LTD., 24.82% ARMS LENGTH MEAN MARGIN 16.31% 4.4. BASED ON THE ABOVE, THE LD. TPO WORKED OUT THE ADJUSTMENT IN EIC DIVISION TO ALP AS UNDER: - ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 7 PARTICULARS AMOUNT (RS.) OPERATING REVENUE (A) 148,38,23,394 OPERATING COST (B) 138,20,54,621 ARMS LENGTH MEAN MARGIN (C) 16.31% ALP OF INTERNATIONAL TRANSACTION (D) 16,07,37,978 ADJUSTMENT OVER OPERATING INCOME (D - A) 12,36,14,584 4.5. THE LD. DRP UPHELD THE ACTION OF THE LD. AO IN DISREGARDING AGGREGATION APPROACH O F ALL THE THREE DIVISIONS UNDER ENGINEERING SEGMENT BY OBSERVING AS UNDER: - 'IT IS NOTED THAT THE SIMILAR DISALLOWANCES MADE BY TPO IN AY 2013 - 2014 (AS DISCUSSED ABOVE) HAD BEEN UPHELD BY THE DRP .FURTHER IT IS SEEN THAT ASSESS E E HAS BEEN NOT BE ABLE TO F ILE THE EVIDENCE TO PROVE THAT THE THREE DIVISIONS OF THE ASSESS E E ARE ENGAGED IN THE SIMILAR ACTIVITY SO AS TO FORM THE UNIFIED SERIES OF TRANSACTIONS OR THAT THEY CHARGE THE SAME PRICE OR INCUR SAME COSTS. THOUGH THE DIVISIONS ARE ENGAGED IN PROVIDING EN GINEERING DESIGN AND THE RELATED SERVICES ,THE ACTUAL WORK DONE/FUNCTIONS PERFORMED BY THE THREE DIVISIONS ARE DISSIMILAR AND THE SAME CARRIES DIFFERENT RISKS. THE VARIATIONS OF THE LEVEL OF RETURN RECEIVED BY THE ASSESSEE IN THESE THREE AREAS CLEARLY REVE ALS THE VARIATION IN FUNCTIONS AND RISKS. IT IS SEEN THAT WHILE FCEC DIVISION PREPARES THE CONFIGURATION ENGINEERING DESIGN OF THE PRODUCT SOUGHT BY THE ULTIMATE CUSTOMER, THE MANUFACTURING IS LEFT TO THE AE AND THE AE THEREAFTER SUPPLIES THE PRODUCT TO CU STOMERS AND ALSO UNDERTAKES INSTALLATION AND COMMISSIONING OF THE SAME. IN THIS DIVISION, THE RISK OF AE IS MAXIMUM. IN EEEC DIVISION THE WORK RELATES TO DEALING IN PRODUCTS IN WHICH AES DO NOT DEAL WITH .IN THIS DIVISION THE AE SOURCES/BUYS THE BASE PRODU CT FROM OUTSIDE SOURCE AND ONLY THE MODIFICATION REQUIRED ARE DONE BY THE EEEC DIVISION. IN THIS DIVISION ALSO THE ASSESS E E HAS VERY LOW RISK AS THE PURCHASE OF THE PRODUCT AND SELLING OF THE SAME IS THE RESPONSIBILITY OF THE AE. HOWEVER, IN EIC DIVISION A SSESSEE NOT ONLY DEVELOPS DESIGN FOR THE PRODUCT BUT ALSO DEVELOPS PROTOTYPE FOR TESTING THE SAME. FOR THE PURPOSE OF TESTING THE EIC DIVISION ENGAGES THE THIRD PARTY VENDORS AND IT ALSO HAS THE TESTING LAB. THE ASSESSEE ALSO SHARES WORKING PROTOTYPE WITH THE AES. THE ASSESSEE ALSO SHARE THE TEST REPORTS WITH CUSTOMERS FOR THEIR APPROVALS. THEREFORE, IN THE EIC DIVISION THE ASSESSEE IS DOING MUCH MORE THAN MERELY PROVIDING ENGINEERING DESIGN. THEREFORE THE RISK ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 8 OF THE ASSESSEE IN THE EIC DIVISION IS MUCH HI GHER. THE INVOLVEMENT OF THE THIRD PARTY VENDORS ALSO INVOLVES A HIGHER RISK ON THE PART OF THE EIC DIVISION. THE TPO WAS ALSO GUIDED FOR THE ORDER FOR AY 2013 - 14 WHERE THE ABOVE FACTS WERE ANALYSED IN DETAIL. IN THE VIEW OF THE ABOVE, IT IS HELD THAT THE TPO WAS CORRECT IN SEGREGATING THE THREE DIVISIONS OF THE ASSESSEE FOR THE PURPOSE OF BENCHMARKING .THE ASSESSEE HAS FAILED TO EXPLAIN THE LOW OP/TC MARGIN OF THE EIC DIVISION AND THEREFORE, THIS PART OF THE OBJECTION OF THE ASSESSEE IS DISMISSED.' 5 . AGG RIEVED, ASSESSEE IS IN APPEAL BEFORE US. 6 . WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET, WE FIND THAT THE FOLLOWING FACTS ARE UNDISPUTED: - A. ADOPTION OF TRANSACTION NET MARGIN METHOD (TNMM) AS MOST APPROPRI ATE METHOD (MAM) B. ADOPTION OF PROFIT LEVEL INDICATOR (PLI) AS OPERATING PROFIT (OP) TOTAL COST (TC). C. MARGIN OF ASSESSEE WAS 32.43% 6.1 . WE FIND THAT THE PRIMARY ARGUMENT OF THE LD. AR WAS THAT IN THE CASE OF THE ASSESSEE, THE SEGMENTAL DATA OF EACH OF THE DIV ISIONS I.E., EIC, EEEC, AND FCEC WERE AVAILABLE, WHEREAS THE VERY SAME DATA IS NOT AVAILABLE WITH THE COMPARABLE COMPANIES. HENCE, THE ASSESSEE WAS JUSTIFIED IN ADOPTING AGGREGATED OR BUNDLED APPROACH IN RESPECT OF AFORESAID THREE DIVISIONS IN IT S ENGINEERING AND RELATED SERVICES SEGMENT. THE LD. AR ALSO ARGUED THAT THE ASSESSEE HAD FOLLOWED A SIMILAR APPROACH OF DETERMINING ALP OF INTERNATIONAL TRANSACTIONS PERTAINING TO ENGINEERING AND RELATED SERVICES SEGMENT ON AN AGGREGATED BASIS FROM A.YRS. 2006 - 07 TO 2012 - 13 AND THE SAME HAS BEEN ACCEPTED BY THE LD. TPO IN EARLIER YEARS AFTER DUE EXAMINATION OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE. IT WAS PLEADED THAT THERE IS NO CHANGE I N THE FUNCTIONS PERFORMED, ASSE TS EMPLOYED AND THE R ISKS ASSU MED BY THE ASSESSEE IN A.Y.2014 - 15 I.E. THE YEAR UNDER APPEAL VIS - - VIS THE PREVIOUS ASSESSMENT ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 9 YEARS. HENCE, IT WAS PLEADED THAT THE LD. TPO WAS NOT JUSTIFIED IN TAKING THE DIVERGENT VIEW DURING THE YEAR UNDER APPEAL ALONE. 6 .2. IT WAS PLEADED THAT THE LD . TPO HAD TAKEN CONFLICTING VIEWS, AS ON ONE HAND, HE ALLEGED THAT THE SERVICES UNDER THREE DIVISIONS OF ENGINEERING AND RELATED SERVICES SEGMENT ARE DIFFERENT AND THE BENCHMARKING APPROACH OF THE ASSESSEE IS FLAWED, BUT AT THE SAME TIME, THE LD. TPO SELE CTED THE ASSESSEES OWN COMPARABLE COMPANY I.E. AXIS IT & T LTD., IN THE FINAL SET OF COMPARABLES SELECTED BY HIM. THUS, THE LD. TPO HIMSELF HAD TAKEN COMPARABLES CHOSEN BY THE ASSESSEE AND COMPARED EACH DIVISION WITH THE SAME SET OF COMPARABLES WHICH ARE INTO ENGINEERING AND RELATED SERVICES SEGMENT. IN THIS REGARD, THE BUSINESS DIVISIONWISE OVERVIEW ON ENGINEERING AND RELATED SERVICES SEGMENT WOULD BE RELEVANT TO NOTE TOGETHER WITH THE DETAILED NATURE OF SERVICES RENDERED UNDER EACH OF THE SAID BUSINESS D IVISIONS FALLING UNDER THE COMMON UMBRELLA WHICH IS ENGINEERING AND RELATED SERVICES SEGMENT AS UNDER: - FCEC EEEC EIC CUSTOMER APPROACHES THE AES FOR SUPPLY OF PRODUCTS AE COMMUNICATES REQUEST TO DIVISION. ONCE REQUEST FOR A PRODUCT RECEIVED FROM THE C USTOMER IS SHARED BY THE AES TO THE DIVISION, CONFIGURATION ENGINEERING OF THE PRODUCT IS UNDERTAKEN B Y THE DIVISION BASED ON SPECIFICATIONS PROVIDED BY THE AES AES EVALUATE DESIGN/ CONFIGURATION F RAMEWORK AND PROVIDE INPUTS FOR MODIFICATIONS POST AES AP PROVAL, BASED ON THE CONFIGURATION FRAMEWORK CUSTOMER APPROACHES AES FOR SUPPLY OF PRODUCTS AES SOURCE THE BASE PRODUCT AND ENGINEERING ACTIVITIES REQUIRED TO CUSTOMISE THE PRODUCT TO MEET THE CUSTOMER'S REQUIREMENT IS OUTSOURCED TO THE DIVISION THE SERVICES RENDERED BY THE DIVISION INCLUDES GRAPHICAL DESIGNING AND RELATED ENGINEERING SERVICES. THESE SERVICES ARE CARRIED OUT BASED ON THE SPECIFICATIONS PROVIDED BY THE AES. THE DESIGNS DEVELOPED CUSTOMER APPROACHES THE AES FOR SUPPLY OF CERTAIN PRODUCTS. THE ENGINEERING SERVICES IN RELATION TO THE PRODUCTS ARE OUTSOURCED TO THE DIVISION. BASED ON SPECIFICATION RECEIVED FROM THE AES, DESIGNS ARE DEVELOPED FOR THE PRODUCT AND SHARED WITH T HE AES FOR THEIR INPUTS AND APPROVALS. THE DIVISION CARRIES OUT MODIFICATIONS IF ANY BASED ON INPUTS PROVIDED BY THE AES. POST AES APPROVAL, A PROTOTYPE FOR TESTING ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 10 AND STANDARD PRICE LIST SHARED BY THE AES, THE DIVISION DRAWS UP THE QUOTATION WHICH IS SHARED WITH THE AES. ONCE CUSTOMER FINALISES THE QUOTATION, THE DIVISION IS INVOLVED IN ANALYSING THE ORDER VIS - A - VIS THE QUOTATION TO VERIFY CONSISTENCY. THE DIVISION THEN DEVELOPS DIMENSIONAL DRAWINGS AND SHARES IT WITH THE AES. DIMENSIONAL DRAWINGS AND CONFIGURATION FRAMEWORKS ARE SHARED BY AES WITH CUSTOMERS FOR APPROVALS. POST APPROVALS FROM CUSTOMERS, THE AES MANUFACTURE AND SUPPLY PRODUCTS TO THE CUSTOMERS BY THE DIVISION IS SHAR ED WITH AES FOR THEIR APPROVALS THE DIVISION CARRIES OUT MODIFICATIONS IF ANY BASED ON INPUTS PROVIDED BY THE AES THE AES THEN SHARE THE DESIGNS WITH CUSTOMERS FOR APPROVAL. POST CUSTOMER APPROVAL, THE AES DEVELOPS THE PRODUCT AND CONDUCTS ACCEPTANCE TE STS AT THE CUSTOMER LOCATION THE DIVISION PROVIDES ASSISTANCE TO THE AES IN RELATION TO FINANCIAL ANALYSIS AND BUY OUT ASSISTANCE. THESE SERVICES ARE NOT UNDERTAKEN ON STANDALONE BASIS AND ARE ANCILLARY TO THE ENGINEERING DESIGN SERVICES RENDERED BY THE D IVISION. PURPOSES IS DEVELOPED. THIRD PARTY VENDORS IDENTIFIED BY THE AES ARE ENGAGED TO MANUFACTU RE THE PROTOTYPE AND THE PROTOTYPES ARE TESTED BY THE DIVISION. THE DESIGNS AND TEST REPORTS ARE SHARED WITH THE AES . AES SHARE THE DESIGNS WITH CUSTOMERS FOR APPROVALS. POST CUSTOMER APPROVALS, THE AES MANUFACTURES AND SUPPLIES THE PRODUCTS TO THE CUSTOME RS 6 .3. THE LD. AR PLEADED THAT THE EMERSON GROUP IS STRUCTURED IN A MANNER THAT GENERALLY EACH ENTITY FOCUSES ON ONE BUSINESS PLATFORM. THE AES RECEIVE ORDERS FROM CUSTOMERS FOR PRODUCTS IN THE BUSINESS PLATFORMS THEY DEAL WITH. IN RELATION TO THIS, THE AES THEREAFTER OUTSOURCE THE ENGINEERING AND RELATED SERVICES TO THE ASSESSEE'S BUSINESS DIVISIONS. DURING FY 2013 - 14, THE AES HAVE AVAILED ENGINEERING AND RELATED SERVICES. IN MANY INSTANCES, THE SERVICES ARE PROVIDED TO ONE AE FROM DIFFERENT DIVISIONS OF THE ASSESSEE. FOR INSTANCE, ASCO POWER TECHNOLOGIES LP, AN AE OF THE ASSESSEE ENGAGED IN MANUFACTURE AND SALE OF SWITCHES, ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 11 POWER CONTROL SYSTEMS SUCH AS UPS, DCS ETC., AVAILED SERVICES FROM BOTH EEEC AND EIC DIVISIONS DURING FY 2013 - 14. THUS, THE SERVIC ES RENDERED BY THESE BUSINESS DIVISIONS OF THE ASSESSEE WERE UTILIZED BY ASCO POWER TECHNOLOGIES LP FOR DESIGNING, MANUFACTURING AND SUPPLYING PRODUCTS IN THE POWER CONTROL SEGMENT TO THE CUSTOMERS. SIMILARLY, IN CASE OF EMERSON PROCESS MANAGEMENT VALVE AU TOMATION INC, AN AE OF THE ASSESSEE , ENGAGED IN MANUFACTURE AND SALE OF VALVE AUTOMATION PRODUCTS , AVAILED SERVICES FROM BOTH EIC AND FCEC DIVISIONS DURING FY 2013 - 14. THUS, THE SERVICES RENDERED BY THESE BUSINESS DIVISIONS OF THE ASSESSEE WERE UTILIZED BY EMERSON PROCESS MANAGEMENT VALVE AUTOMATION INC. FOR DESIGNING, MANUFACTURING AND SUPPLYING PRODUCTS IN THE INDUSTRIAL AUTOMATION PRODUCT SEGMENT TO THE CUSTOMERS. THUS, THE ABOVE CLEARLY SUBSTANTIATES THAT THE ENGINEERING AND RELATED SERVICES RENDERED B Y THE BUSINESS DIVISIONS ARE TOWARDS A COMMON END USE/ APPLICATION. 6 .4. YET ANOTHER IMPORTANT POINT WHICH WAS PLEADED BEFORE US BY THE LD. AR WAS THAT COMMON POOL OF FUNDS WERE USED FOR ALL THE THREE DIVISIONS AND THAT THE FUNDS OF ALL THE THREE DIVISIONS UNDER THE ENGINEERING SERVICES SEGMENT WERE INTERLACED AS THEY ARE DRAWN FROM A COMMON POOL OF FUNDS MAINTAINED BY THE ASSESSEE COMPANY. THE EVIDENCES WERE ALSO FURNISHED BY THE LD. AR BY SPECIFIC REFERENCE TO THE BANK STATEMENT OF THE ASSESSEE MAINTAINED WITH CITI BANK WHICH ARE ENCLOSED IN PAGES 406 & 407 OF THE PAPER BOOK INDICATING FUND TRANSFER FROM EACH OF THE DIVISIONS AS ABOVE. 6 .5. WE FIND THAT IN ALL THE AFORESAID THREE DIV ISIONS , MANUFACTURING ACTIVITY WERE ONLY DONE BY THE AE AND ASSESSEE COMPA NY MERELY PROVIDES ENGINEERING AND RELATED SERVICES TO ITS AE THEREON. HENCE, THE INDIAN COMPANY I.E., ASSESSEE ASSUMES LESSER R ISKS IN ALL THE THREE DIVISIONS. HENCE, WE HOLD THAT THE LD. DRP HAD PROCEEDED ON AN INCORRECT ASSUMPTION OF FACT THAT ASSESSEE IN EIC DIVISION IS ENGAGED IN MANUFACTURING ACTIVITY. FROM THE TABLE REPRODUCED ABOVE, IT IS VERY CLEAR ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 12 THAT ASSESSEE IN EIC DIVISION SUBSEQUENT TO AES APPROVAL, DEVELOPS PROTO TYPE FOR TESTING PURPOSES. THE ASSESSEE DOES NOT MANUFACTURE THE PROTO TYPE. TH E THIRD PARTY DIVISIONS IDENTIFIED BY THE AES ARE ENGAGED TO MANUFACTURE THE PROTO TYPE AND THE PROTO TYPES ARE TESTED BY THE ASSESSEE IN ITS EIC DIVISION FALLING UNDER ENGINEERING AND RELATED SERVICES SEGMENT. LATER THESE DESIGNS AND TEST REPORTS ARE SHAR ED WITH THE AES AND THE AE IN TURN SHARES THE SAME WITH THE CUSTOMERS FOR APPROVALS. POST CUSTOMER APPROVALS, THE AES MANUFACTURE AND SUPPLY THE PRODUCTS TO THE ULTIMATE CUSTOMERS. HENCE, THE OBSERVATION MADE BY THE LD. DRP THAT ASSESSEE IN EIC DIVISION IS ENGAGED IN MANUFACTURING ACTIVITY IS INCORRECT AND NOT EMANATING FROM THE FACTS AVAILABLE ON RECORD. IN ANY CASE, WE FIND THAT EVEN IF THE OBSERVATION OF THE LD. DRP THAT EIC DIVISION IS COMPLETELY DIFFERENT FROM ECEC AND EEC DIVISION IS TO BE ACCEPTED, S TILL WE HOLD THAT THERE IS N O SEGMENTAL DATA AVAILABLE FOR COMPARABLES HAVING EIC DIVISION ALONE FOR THE PURPOSE OF BENCHMARKING. HENCE, THE COMPARISON MADE BY THE LD. TPO AND UPHELD BY THE LD. DRP IGNORING THE AG GREGATED APPROACH DESERVES TO FAIL ON THIS ACCOUNT ITSELF. 6 .6. FROM THE READING OF PROVISIONS OF SECTION 92C(1) OF THE ACT, WE FIND THAT THE EXPRESSION CLA SS OF TRANSACTION IS MENTIONED THEREON. WE HOLD THAT THE ASSESSEE IN THE INSTANT CASE HAD AGGREGATED CLA SS OF TRANSACTIONS FALLING IN ENGIN EERING AND DESIGN SERVICES. FROM THE READING OF PROVISIONS OF SECTION 92C(1) OF THE ACT, WE FIND THAT THE SECTION USES THE EXPRESSION CLA SS OF ASSOCIATED PERSONS. FROM THE BACKGROUND OF THE ASSESSEE AND THE AES REFLECTED IN THE TP STUDY REPORT, VARIOUS D OCUMENTS AVAILABLE ON RECORD WHICH ARE NOT DISPUTED, WE FIND THAT ALL THE AES ARE ENGAGED IN MANUFACTURING OF INDUSTRIAL AUTOMATED PRODUCTS. 6 .7. FROM THE BANK STATEMENT OF THE ASSESSEE WHICH ARE ENCLOSED ON SAMPLE BASIS IN PAGES 406 AND 407 OF THE PAPER B OOK, WE FIND THAT THE FUNDS FOR ALL THE THREE DIVISIONS IN THE ENGINEERING SERVICES SEGMENT ARE INTERLACED AS THEY ARE DRAWN FROM A COMMON POOL OF FUNDS MAINTAINED BY ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 13 THE ASSESSEE COMPANY. WE FIND THAT ALL THE THREE DIVISIONS UNDER THE ENGINEERING SERVICES SEGMENT ARE ENGAGED IN RENDERING DESIGN AND ENGINEERING SERVICES FALLING UNDER THE COMMON ADMINISTRATION AND MANAGEMENT CONTROL OF THE COMPANY AND FUNDS FOR THE THREE DIVISIONS ARE INTERLACED AS THEY ARE DRAWN FROM A COMMON POOL OF FUNDS MAINTAINED BY THE COMPANY. IN THESE CIRCUMSTANCES, ADOPTION OF AGGREGATED APPROACH FOR BENCHMARKING THE INTERNATIONAL TRANSACTION SHOULD BE ACCEPTED. WE ALSO FIND THAT THE CO - ORDINATE BENCH OF DELHI TRIBUNAL HAD ENDORSED OUR VIEW IN THE CASE OF BIRLA SOFT INDIA LTD., IN IT A NO.4001/DEL/2009 AND 4713/DEL/2011 DATED 06/05/2014 WHEREIN IT WAS HELD AS UNDER: THE ASSESSEE WAS ENGAGED IN RENDERING SOFTWARE DEVELOPMENT AND RELATED SERVICES WITH OPERATIONS IN THREE STPI UNITS IN DIFFERENT LOCATIONS. THE ASSESSEE HAD AGGREGATED THE SERVICES RENDERED UNDER ALL THE THREE SEGMENTS WHILE DETERMINING ALP CONSIDERING THAT THE SERVICES RENDERED WERE IDENTICAL AND THERE WERE NO SIGNIFICANT FUNCTIONAL DIFFERENCES. THE TPO, WHILE EVALUATING THE TRANSACTIONS, CHOSE TO SEGREGATE AND BENCHMARK E ACH OF THE UNITS SEPARATELY BY ASSUMING THAT THE FUNCTIONS, ASSETS AND RISKS UNDERTAKEN BY EACH OF THE STPI UNITS WERE DISTINCT FROM EACH OTHER. THE DELHI TRIBUNAL, OBSERVED THAT THE TPO TOTALLY DISREGARDED THE UNITY OF BUSINESS, ADMINISTRATIVE CONTROL, AN D UNITY OF FUNDS FOR THE THREE UNITS. THE TRIBUNAL ALSO STATED THAT INDEPENDENT FAR ANALYSIS OF EACH UNIT WITH EXISTING COMPARABLES IS PRACTICALLY NOT POSSIBLE DUE TO THE COMMON MANAGEMENT AND INTERLACING OF FUNDS. ' 6 .8. WE ALSO FIND THAT WHEN THE TRANSA CTIONS ARE CLOSELY L INKED TO EACH OTHER , AS IN THE CASE OF THE ASSESSEE BEFORE US , UNDER THE ENGINEERING AND RELATED SERVICES SEGMENT, IT WOULD BE RELEVANT IN THIS REGARD TO GO INTO PROVISIONS OF INDIAN TRANSFER PRICING REGULATIONS AND OTHER REGULATIONS AS UNDER: - INDIAN TP REGULATIONS RULE 10 A OF THE INCOME TAX RULES, 1962 ('THE RULES') DEFINES TRANSACTIONS AS - 'INCLUDES NUMBER OF CLOSELY LINKED TRANSACTION' 17. OTHER GUIDELINES AND REGULATIONS ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 14 FURTHER, WE REFERRED TO OTHER GUIDELINES AND REGULA TIONS FOR GUIDANCE ON AGGREGATION OF THE INTERNATIONAL TRANSACTIONS AND THE RELEVANT PARAS ARE REPRODUCED BELOW FOR YOUR REFERENCE. A) ORGANISATION FOR ECONOMIC CO - OPERATION AND DEVELOPMENT TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES A ND TAX ADMINISTRATIONS (OECD GUIDELINES) PARA 3.9 OF THE OECD GUIDELINES STATE THAT 'IDEALLY, IN ORDER TO ARRIVE AT THE MOST PRECISE APPROXIMATION OF FAIR MARKET VALUE, THE ARM'S LENGTH PRINCIPLE SHOULD BE APPLIED ON A TRANSACTION - BY - TRANSACTION BASIS. HO WEVER, THERE ARE OFTEN SITUATIONS WHERE SEPARATE TRANSACTIONS ARE SO CLOSELY LINKED OR CONTINUOUS THAT THEY CANNOT BE EVALUATED ADEQUATELY ON A SEPARATE BASIS' B) GUIDANCE NOTE ISSUED BY INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA THE GUIDANCE NOTE ON R EPORT UNDER SECTION 92E OF THE INCOME TAX ACT, 1961, ISSUED BY ICAI (AUGUST 2013 VERSION), ALSO SUPPORTS THE VIEW ON AGGREGATION OF TRANSACTIONS, WHEREIN IT HAS BEEN MENTIONED AS FOLLOWS: 'PARA 3.8 IT MAY BE NOTED THAT IN ORDER TO BE CLOSELY LINKED TRANSAC TIONS, IT IS NOT NECESSARY THAT THESE TRANSACTIONS NEED BE IDENTICAL OR EVEN SIMILAR. FOR EXAMPLE, A COLLABORATION AGREEMENT MAY PROVIDE FOR IMPORT OF RAW MATERIALS, SALE OF FINISHED GOODS, PROVISION OF TECHNICAL SERVICES AND PAYMENT OF ROYALTY. DIFFERENT METHODS MAY BE CHOSEN AS THE MOST APPROPRIATE METHODS FOR EACH OF THE ABOVE TRANSACTIONS WHEN CONSIDERED ON A STANDALONE BASIS. HOWEVER, UNDER PARTICULAR CIRCUMSTANCES., ONE SINGLE METHOD MAY BE CHOSEN AS THE MOST APPROPRIATE METHOD COVERING ALL THE ABOVE TRANSACTIONS AS THE SAME ARE CLOSELY LINKED.' C) US TP REGULATIONS IN RESPECT OF THE AGGREGATION OF TRANSACTIONS, REFERENCE IS ALSO INVITED TO THE US TP REGULATIONS. THE RELEVANT EXTRACT FROM THE US TP REGULATION IS PROVIDED BELOW: '(I) AGGREGATION O F TRANSACTIONS - (A) IN GENERAL THE COMBINED EFFECT OF TWO OR MORE SEPARATE TRANSACTIONS (WHETHER BEFORE, DURING, OR AFTER THE TAXABLE YEAR UNDER REVIEW) MAY BE CONSIDERED, IF SUCH TRANSACTIONS, TAKEN AS A WHOLE, ARE SO INTERRELATED THAT CONSIDERATION OF M ULTIPLE TRANSACTIONS IS THE MOST RELIABLE MEANS OF DETERMINING THE ARM'S LENGTH CONSIDERATION FOR THE CONTROLLED TRANSACTIONS. GENERALLY, TRANSACTIONS WILL BE AGGREGATED ONLY WHEN THAT INVOLVE REL A TED PRODUCTS OR SERVICES, AS DEFINED IN 1.603A - 3(C)(7)(VII) . 6 .9. WE HOLD THAT THE TRANSACTIONS UNDER ALL THE THREE DIVISIONS PERTAIN TO SAME CLA SS FALLING UNDER ENGINEERING AND RELATED SERVICES SEGMENT. IN ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 15 THIS REGARD, THE RELEVANT LEGAL PROVISIONS ARE TO BE LOOKED INTO WHICH ARE AS UNDER: - RULE 10 C (2) OF THE R ULES READS AS FOLLOWS: '(2) IN SELECTING THE MOST APPROPRIATE METHOD AS SPECIFIED IN SUB - RULE (I), THE FOLLOWING FACTORS SHALL BE TAKEN INTO ACCOUNT, NAMELY: (A) THE NATURE AND CLASS OF THE INTERNATIONAL TRANSACTION; (B) THE CLASS OR CLASSES OF ASSOCIATED ENTERPRISES ENTERING INTO THE TRANSACTION AND THE FUNCTIONS PERFORMED BY THEM TAKING INTO ACCOUNT ASSETS EMPLOYED OR TO BE EMPLOYED AND RISKS ASSUMED BY SUCH ENTERPRISES; RULE 10 D OF THE RULES INTER - ALIA STATES AS FOLLOWS: ' 10 D (I) EVERY PERSO N WHO HAS ENTERED INTO AN INTERNATIONAL TRANSACTION SHALL KEEP AND MAINTAIN THE FOLLOWING INFORMATION AND DOCUMENTS, NAMELY: (A).... (B).... (I) A DESCRIPTION OF THE METHODS CONSIDERED FOR DETERMINING THE ARM'S LENGTH PRICE IN RELATION TO EACH INTERNATION AL TRANSACTION OR CLASS OF TRANSACTION, THE METHOD SELECTED AS THE MOST APPROPRIATE METHOD ALONG WITH EXPLANATIONS AS TO WHY SUCH METHOD WAS SO SELECTED, AND HOW SUCH METHOD WAS APPLIED IN EACH CASE;' SECTION 92C OF THE ACT READS AS FOLLOWS: '92C. (I) THE ARM'S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION SHALL BE DETERMINED BY ANY OF THE FOLLOWING METHODS, BEING THE MOST APPROPRIATE METHOD, HAVING REGARD TO THE NATURE OF TRANSACTION OR CLASS OF TRANSACTION OR CLASS OF ASSOCIATED PERSONS OR FUN CTIONS PERFORMED BY SUCH PERSONS OR SUCH OTHER RELEVANT FACTORS AS THE BOARD MAY PRESCRIBE NAMELY . ' 6.10. BASED ON ABOVE EXTRACTS FROM THE RULES AND THE ACT, IT CAN BE CONCLUDED THAT INTERNATIONAL TRANSACTIONS CAN BE AGGREGATED WHEN THE TRANSACTIONS PERT AIN TO THE SAME CLASS. FURTHER, SECTION 92C AND RULE 10C STATE THAT FOR SELECTING THE MOST APPROPRIATE METHOD TO DETERMINE ARM'S LENGTH PRICE (ALP) AMONG OTHER FACTORS, THE NATURE AND CLASS OF TRANSACTION AND FUNCTIONS PERFORMED IN RESPECT OF THE TRANSACTI ONS ARE CRITICAL. WHERE (I) THE NATURE AND CLASS OF THE INTERNATIONAL TRANSACTIONS; (II) THE CLASS OR CLASSES OF AES ENTERING INTO THE INTERNATIONAL TRANSACTIONS; AS WELL AS (III) THE FAR ANALYSIS IN RELATION TO THE TRANSACTIONS ARE SIMILAR, ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 16 IT WOULD BE PR UDENT TO AGGREGATE THE INTERNATIONAL TRANSACTIONS WHILE DETERMINING THE MOST APPROPRIATE METHOD AS PER THE INDIAN TP REGULATIONS. 6 .1 1 . HENCE, WE HOLD THAT THE PROVISIONS OF THE ACT AND THE RULES PERMIT AGGREGATION O F SIMILAR CLA SS OF TRANSACTIONS IF THE FAR IS THE SAME WHEN THE SERVICES ARE RENDERED TO A CLA SS OR CLA S SES OF AES WHILE DETERMINING MAM. THEREFORE, WE HOLD THAT IT WOULD BE RATIONAL TO APPLY THIS AGGREGATED APPROACH OF CONSIDERING THE THREE BUSINESS DIVISIONS TOGETHER FOR DETERMINING THE ALP. 6 .1 2 . THE LD. AR ALSO MADE AN ALTERNATIVE ARGUMENT IN SUPPORT OF GROUND NO.2.1.7. RAISED BY IT WHEREIN HE STATED THAT EVEN ONE OF THE COMPARABLES CONSIDERED BY THE LD. TPO I.E., CERTIFICATION ENGINEERS INTERNATIONAL LTD. IS EXCLUDED , THEN THE ASSESSEE WOU LD BE THROUGH WITH ITS MARGIN. IN THIS REGARD , THE ASSESSEE ALSO PLEADED BEFORE THE LD. TPO TO EXCLUDE THIS COMPARABLE ON THE GROUND THAT THE SAID COMPARABLE IS A GOVERNMENT COMPANY AS IT IS ONLY WHOLLY OWNED SUBSIDIARY OF ENGINEERS INDIA LTD., WHICH IS A GOVERNMENT OF INDIA UNDERTAKING. THE ASSESSEE ALSO PLEADED BEFORE THE LD. TPO FOR EXCLUDING THIS COMPARABLE ON THE GROUND THAT THE SAID COMPARABLE FAILS EXPORT EARNINGS FILTER OF MORE THAN 75% OF TOTAL REVENUE (FILER APPLIED BY THE LD. TPO) AS THIS COMPAN Y HAS INSIGNIFICANT EXPORT EARNINGS. THE ASSESSEE ALSO PLEADED BEFORE THE LD. TPO TO EXCLUDE THIS COMPARABLE ON THE GROUND THAT THE SAID COMPARABLE IS ENGAGED IN PROVISION OF CERTIFICATION, RECERTIFICATION, SAFETY AUDIT, HSE MANAGEMENT SYSTEM AND THIRD PAR TY INSPECTION OF EQUIPMENT AND INSTALLATION SERVICES. THE LD. TPO IGNORED ALL THE CONTENTIONS OF THE ASSESSEE AND CONSIDERED THE SAID COMPANY AS A GOOD COMPARABLE WITH THAT OF THE ASSESSEE. WE FIND THAT ONE OF THE FILTERS APPLIED BY THE LD. TPO WAS THAT TH E EXPORT EARNINGS SHOULD BE MORE THAN 75% OF THE TOTAL REVENUE TO FALL WITHIN THE AMBIT OF A COMPARABLE COMPANY. IN THIS REGARD, FROM THE PERUSAL OF THE ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 17 ANNUAL REPORT OF THE SAID COMPARABLE , WE FIND FROM PAGE 468 OF THE PAPER BOOK , THAT THE TOTAL EXPORT EA RNINGS IN FOREIGN EXCHANGE TOWARDS PROFESSIONAL FEES FOR 31/03/2014 I.E. A.Y.2014 - 15 WAS ONLY RS.50.21 LAKHS WHEREAS THE TOTAL REVENUE OF THE SAID COMPARABLE WAS RS.27.63 CRORES WHICH WORKS OUT TO 1.81% OF TOTAL REVENUE. WE FIND THAT FILTERS APPLIED BY THE TPO AND MENTIONE D IN PAGES 5 TO 9 OF HIS ORDER, HENCE, THIS COMPARABLE DESERVES TO BE REJECTED ON THIS COUNT ITSELF. 6 .1 3 . WE ALSO FIND THAT THIS COMPARABLE I.E., CERTIFICATION ENGINEERS INTERNATIONAL LTD., IS A WHOLLY OWNED SUBSIDIARY OF ENGINEERS INDIA LTD., WHICH IS NOT IN DISPUTE BEFORE US. WE FIND THAT THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. THYSSEN KRUPP INDUSTRIES INDIA PVT. LTD., IN ITA NO.2218 /2013 REPORTED IN 385 ITR 612 (BOM) HAD ACCEPTED THE FINDING OF THE TRIBUNAL FOR ENGI NEERS INDIA LTD., IS A GOVERNMENT COMPANY. THE RELEVANT OPERATIVE PORTION OF THE SAID DECISION OF HONBLE BOMBAY HIGH COURT SUPRA IS AS UNDER: - RE QUESTION (B) :- ( A ) THE GRIEVANCE OF THE RESPONDENT ASSESSEE BEFORE THE TRIBUNAL WAS THAT M/S. ENGINEERS INDIA L TD. HAS BEEN ERRONEOUSLY INTRODUCED AS A COMPARABLE BY THE TPO FOR DETERMINING THE ALP OF THE RESPONDENT ASSESSEE'S INTERNATIONAL TRANSACTIONS. THE IMPUGNED ORDER OF THE TRIBUNAL RECORDS THE FACT THAT THE ENGINEERING INDIA LTD. IS A GOVERNMENT COMPANY AND ITS ANNUAL REPORT INDICATES THAT A SUBSTANTIAL PART OF ITS REVENUE IN EXECUTION OF TURNKEY PROJECTS AROSE OUT OF EXECUTING PROJECTS OF PUBLIC SECTOR UNDERTAKINGS. IN THE CIRCUMSTANCES, THE IMPUGNED ORDER OF THE TRIBUNAL HOLDS THAT THE ENGINEERS INDIA LTD. COULD NOT BE CONSIDERED TO BE COMPARABLE FOR THE REASON THAT CONTRACTS BETWEEN PUBLIC SECTOR UNDERTAKINGS ARE NOT DRIVEN BY PROFIT MOTIVE ALONE BUT OTHER CONSIDERATION ALSO WEIGH IN SUCH AS DISCHARGE OF SOCIAL OBLIGATIONS ETC. THUS, IT IS NOT COMPARABLE. M OREOVER, FROM THE ANNUAL REPORT, IT IS CLEAR THAT THE REVENUE EARNED IN EXECUTING TURNKEY PROJECT FOR OTHER PUBLIC SECTOR UNDERTAKINGS WAS MUCH MORE THAN THE FILTER OF 25%, WHICH HAS BEEN APPLIED BY THE TPO IN HIS ORDER UNDER SECTION 92CA(3) OF THE ACT, WH ILE TAKING TRF LTD. AS A COMPARABLE ON THE GROUND THAT ITS RELATED PARTY TRANSACTION WAS NOT IN EXCESS OF 25% OF ITS TOTAL TURNOVER. THUS, APPLYING CONSISTENT FILTER OF 25% OR LESS OF RELATED PARTY TRANSACTION ALONE TO BE CONSIDERED COMPARABLE, ENGINEERS I NDIA LTD. COULD NOT BE CONSIDERED TO BE COMPARABLE. ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 18 ( B ) WE FIND THAT THE VIEW TAKEN BY THE TRIBUNAL IN THE IMPUGNED ORDER IS A REASONABLE AND POSSIBLE VIEW. NOTHING HAS BEEN SHOWN WHICH WOULD JUSTIFY OUR INTERFERENCE IN THE IMPUGNED ORDER OF THE TRIBUNAL EXCL UDING ENGINEERS INDIA LTD. FROM THE LIST OF COMPARABLES. ( C ) IN THE ABOVE VIEW, QUESTION (B) AS FRAMED ALSO DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. THUS, NOT ENTERTAINED. 6 .1 4 . IN VIEW OF THE AFORESAID FINDINGS AND RESPECTFULLY FOLLOWING THE D ECISION OF THE HONBLE JURISDICTIONAL HIGH COURT SUPRA, WE DIRECT THE LD. TPO TO EXCLUDE THE CERTIFICATION ENGINEERS INTERNATIONAL LTD., FROM THE LIST OF COMPARABLES. 6 .1 5 . WE ALSO FIND THAT ASSESSEE HAS PROVIDED WORKINGS FOR WORKING CAPITAL ADJUSTMENTS B EFORE THE LD. TPO WHICH IS ENCLOSED IN PAGE 402 OF THE PAPER BOOK. NOW IT IS WELL SETTLED THAT WORKING CAPITAL ADJUSTMENT IS TO BE GIVEN TO THE ASSESSEE WHILE TAKING THE MARGIN OF COMPARABLE COMPANIES FOR THE PURPOSE OF BENCHMARKING THE INTERNATIONAL TRANS ACTIONS OF THE ASSESSEE. WE DIRECT THE LD. TPO ACCORDINGLY. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE IN GROUND NO.2 UNDER ENGINEERING AND RELATED SERVICES SEGMENT ARE DISPOSED OFF AS PER THE AFORESAID FINDINGS AND DIRECTIONS. 7. PROVISION OF IT SUP PORT AND RELATED SERVICES: - GROUND NO.3 OF THE ASSESSEE APPEAL: - 7.1. THE BRIEF FACTS OF THIS ISSUE ARE THAT ASSESSEE IS ENGAGED IN PROVIDING ITES SERVICES FOR THE IN - HOUSE CONSUMPTION OF THE AES, PRIMARILY IN THE NATURE OF DATABASE MANAGEMENT, ADMINISTRA TION AND HELP DESK SUPPORT SERVICES. IN ORDER TO BENCHMARK THE INTERNATIONAL TRANSACTIONS OF ITES, TNMM WAS SELECTED AS THE MOST APPROPRIATE METHOD. THE MARGIN OF THE ASSESSEE UNDER ITES SEGMENT IS DETERMINED AS FOLLOW S : ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 19 PARTICULARS AMOUNT (RS.) OP ERATING REVENUE 60,45,06,948 ADD: VOLUNTARY ADJUSTMENT BY APPELLANT 2,60,95,326 TOTAL OPERATING REVENUE 63,06,02,274 OPERATING COST 55,63,52,032 OPERATING PROFIT 7,42,50,242 ASSESSEE'S MARGIN 13 . 35% 7.1.1. THE ARITHMETIC MEAN OF THE MARGINS OF THE 11 COMPARABLE COMPANIES SELECTED BY THE ASSESSEE IN TPSR IS 13.85% AND ACCORDINGLY, IT WAS CONCLUDED THAT THE INTERNATIONAL TRANSACTION OF ITES WERE AT ARM'S LENGTH. 7. 2 . THE LD. TPO MADE A TP ADJUSTMENT IN IT E S DIVISION TO THE TUNE OF RS.6,03,56,767/ - AS UNDER: - PARTICULARS AMOUNT (RS.) OPERATING REVENUE (AFTER VOLUNTARY ADJUSTMENT) (A) 63,06,02,274 OPERATING COST (B) 55,63,52,032 ARMS LENGTH MEAN MARGIN (C) 24.19% ALP OF INTERNATIONAL TRANSACTION (D) 6 9,09,59,040 ADJUSTMENT OVER OPERATING INCOME (D - A) 6,03,56,767 7.3 . THE ACTION OF THE LD. TPO WAS UPHELD BY THE LD. DRP. 8. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 9. WE HAVE HEARD RIVAL SUBMISSIONS. WE FIND THAT THE LD. AR BEFORE US DID NO T CONTEST ALL THE COMPARABLES OF THE ASSESSEE WHICH W ERE REJECTED ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 20 BY THE LD. TPO. THE LD. AR ONLY PRAYED FOR EXCLUSION OF TWO OF THE COMPARABLES SELECTED BY THE LD. TPO I.E., MPS LTD., HAVING MARGIN OF 48.56% AND EXCEL INFOWAYS LTD., HAVING MARGIN OF 12.10 %. NOW, LET US EXAMINE AS TO WHETHER THE ASSESSEE IS ENTITLED FOR SEEKING EXCLUSION OF THESE TWO COMPARABLES INDIVIDUALLY. 9.1. EXCLUSION OF MPS LIMITED WE FIND FROM THE ANNUAL REPORT OF MPS LTD., FOR THE YEAR ENDING 31/03/2014, THE SAID COMPARABLE PROV IDES END TO END PRINT AND DIGITAL PUBLISHING SOLUTIONS TO ITS PARTNERS ACROSS THE ENTIRE VALUE CHAIN FROM CONTAINED PROVISION, ENHANCEMENT AND TRANSFORMATION TO DELIVERY AND CUSTOMER SUPPORT, MAKING IT A TRUSTED PARTNER TO THE BIGGEST PUBLISHERS IN THE WOR LD. THE DIRECTORS REPORT UNDER THE HEADING MANAGEMENT DISCUSSION AND ANALYSIS REFLECT THAT MPS LTD., HAS DEVELOPED END TO END CLOUD BASED PUBLISHING PLATFORM, MPS DIGICORE, WHICH ADDRESSES THE NEED FOR A N INTEGRATED WORK FLOW THAT PUBLISHERS HAVE STARTE D TO ASK FOR. AS SUCH, MPS LTD., HAS A FIRST MOVER ADVANTAGE IN EXPLOITING THE MARKET AND ESTABLISHING IT AS A PREMIER TECHNOLOGY SOLUTIONS PROVIDER FOR PUBLISHERS. THE SAME MARKET FORCES HAVE ALSO CREATED IMMENSE OPPORTUNITIES FOR MPS DIGITRAK, THE PRODUC TION TARGETING SYSTEM DEVELOPED BY MPS LTD., AND MPS DIGICAMP, AUTOMATED COMPOSITION. SIMILAR OTHER SOLUTIONS ARE BEING DEVELOPED AT MPS LTD., AS RESEARCH AND DEVELOPMENT (R&D) CONTINUES BASED ON THE MARKET REQUIREMENT. THE ASSESSEE STATED BEFORE THE LD. T PO THAT MPS LTD., IS FUNCTIONALLY NOT COMPARABLE BY STATING VARIOUS FUNCTIONS PERFORMED BY MPS LTD., AS UNDER: - A ) AS PER THE CORPORATE INFORMATION DISCLOSED IN THE FINANCIAL STATEMENTS FOR THE YEAR ENDING 31/03/2013, MPS LTD., THE COMPANY IS ENGAGED IN THE B USINESS OF PROVIDING PUBLISHING SOLUTIONS VIZ., TYPESETTING AND DATA DIGITIZATION SERVICES FOR ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 21 OVERSEAS PUBLISHERS. THE COMPANY HAS A 100% EXPORT ORIENTED UNIT IN BENGALURU, AND UNITS REGISTERED UNDER THE SOFTWARE TECHNOLOGY PARK OF INDIA (STPL) SCHEME THA T ARE LOCATED IN CHENNAI, DELHI, GURGAON AND DEHRADUN. THE COMPANY ALSO OPERATES THROUGH ITS BRANCH IN UNITED STATE S OF AMERICA. THE COMPANY PROVIDES PUBLISHING SERVICES RELATING TO TYPESETTING OF BOOKS AND JOURNALS, COMPOSING OF YELLOW PAGE ADVERTISEMENTS AND CATALOGUES, DATA CODING, CONVERSION, INDEXING, EDITING, COPY EDITING, EDITORIAL SERVICES, SOFTWARE DEVELOPMENT, MAINTENANCE AND SUPPORT TO GLOBAL PUBLISHERS. B ) MPS LTD. IS E NGAGED IN DEVELOPING OF SOFTWARE PROJECTS SUCH AS DIGICORE AND DIGITRAK. C ) MPS L TD. HAS INCURRED OUTSOURCING COSTS WHICH INDICATE THAT IT FOLLOWS DIFFERENT BUSINESS MODEL. D ) FROM THE ANNUAL REPORT OF THE SAID COMPARABLE IT IS NOTED AS UNDER: - MPS LTD., PROVIDES CONTENT CREATION PRODUCTION, TRANSFORMATION AND TECHNOL OGY SERVICES TO GL OBAL ACADEMIC, SCIENTIFIC AND EDUCATIONAL PUBLISHERS. THE COMPANY HAS A TEAM OF MORE THAN 2,860 EMPLOYEES BASED IN OFFICES IN BENGALURU, CHENNAI, GURGAON, NOIDA AND DEHRADUN IN INDIA AND AT PORTLAND, OREGON, ORLANDO, FLORIDA, DURHAM, NORTH CAROLINA AND EFF INGHAM, ITTINOS IN THE UNITED STATES. ESTABLISHED AS AN INDIAN SUBSIDIARY OF MACMILLAN (HOLDINGS)LTD., IN 1979, THE COMPANY HAD EVOLVED OVER ITS FORTY FIVE YEAR HISTORY TO BECOME ONE OF THE MOST EXPERIENCED AND DOMINANT PLAYERS IN THE PUBLISHING SERVICES OUTSOURCING SPACE. 9.2. WE FIND THAT THE LD. TPO HOWEVER DID NOT APPRECIATE THE CONTENTIONS OF THE ASSESSEE AND HELD THAT THIS COMPARABLE IS FUNCTIONALLY COMPARABLE WITH THAT OF THE ASSESSEE IN ITE S SEGMENT. THE LD. DRP ON ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 22 PERUSAL OF THE ANNUAL REPORT O F THE MPS OBSERVED THAT THE SAID COMPARABLE OPERATES IN ONLY ONE SEGMENT OF PROVIDING PUBLISHING SOLUTIONS AND IT DOES NOT S ELL ANY SOFTWARE BASED SERVICES TO ITS CUSTOMERS. THE LD. DRP FURTHER OBSERVED THAT SOFTWARE FORMS PART OF ITS INTANGIBLE ASSETS AND I T IS MORE OF A TOOL TO OFFER ITE S TO CUSTOMERS. 9.3. FROM THE PERUSAL OF THE ANNUAL REPORT FOR THE YEAR ENDED 31/03/2014 OF THE SAID COMPARABLE, WE FIND FROM PAGE 707 OF THE PAPER BOOK THAT THE SAID COMPARABLE HAD INCURRED OUTSOURCING COST OF RS.1078.76 CRORES WHICH IS INCLUDED UNDER THE HEAD MISCELLANEOUS EXPENSES WHICH GOES TO PROVE THAT IT HAS GOT A DIFFERENT BUSINESS MODEL. FROM THE VARIOUS FUNCTIONS PERFORMED BY MPS LTD., WE FIND THAT THE SAID COMPARABLE IS PREDOMINANTLY IN THE BUSINESS OF DIGITAL PUBLISHING WHICH CANNOT BE TREATED AT P AR WITH ITE S WHICH IS THE CASE OF THE ASSESSEE IN ITE S SEGMENT. IN THIS REGARD, WE FIND THAT THE RELIANCE PLACED BY THE LD. AR ON THE CO - ORDINATE BENCH DECISION OF BANGALORE TRIBUNAL IN THE CASE OF M/S. GOOGLE (INDIA ) PVT. LTD., VS. DCIT IN ITA NO.1368/BANG/2010 FOR A.Y.2006 - 07 DATED 19/10/2012 IS WELL FOUNDED WHEREIN IT WAS HELD AS UNDER: - 16. AS FAR AS (4) APEX KNOWLEDGE SOLUTIONS PVT. LTD., IS CONCERNED, WE FIND THAT THE ASSESSEE HAD TAKEN OBJECTIONS BEFORE THE TP O THAT IT IS FUNCTIONALLY DIFFERENT, AS IT IS PROVIDES SERVICES SUCH AS E - PUBLISHING KNOWLEDGE BASED SERVICES ETC. BUT TPO HAS REJECTED THE OBJECTION ON THE GROUND THE ASSESSEE HAS NOT CONSIDERED THE VERTICALS OR FUNCTIONAL LINES DURING THE SEARCH PROCESS CONDUCTED BY IT AND, THEREFORE, IT IS NOT PROPER TO MAKE ANY OBJECTION ON THIS BASIS NOW. WE ARE NOT ABLE TO AGREE WITH THE FINDING OF THE TPO AS CONFIRMED BY THE DRP ON THIS ISSUE. MERELY BECAUSE, THE ASSESSEE ITSELF HAS NOT CONSIDERED THE SAID FILTER WHI LE MAKING ITS TP STUDY; IT CANNOT BE SAID THAT IT CANNOT RAISE SUCH AN OBJECTION BEFORE THE TPO. IT IS THE TPO WHO HAS ADOPTED THIS COMPANY AS COMPARABLE. ON SUCH ADOPTION, THE ASSESSEE HAS EVERY RIGHT TO RAISE THE OBJECTIONS AS REGARDS THE FUNCTIONAL DIFF ERENCES BETWEEN THE ASSESSEE AND COMPARABLE. IT IS THE BOUNDEN DUTY OF THE TPO TO CONSIDER THE SAID OBJECTIONS IN ACCORDANCE WITH LAW. AS BROUGHT OUT BY THE ASSESSEE, THE ASSESSEE IS IN THE TT ENABLED SERVICES, WHEREAS THE SAID COMPANY APEX KNOWLEDGE SALUT ATION PVT. LTD., IS IN THE BUSINESS OF E - PUBLISHING WHICH CANNOT BE ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 23 SAID TO BE IN THE SAME LINE OF BUSINESS. THE FUNCTIONAL DIFFERENCES ARE LIKELY TO AFFECT THE PROFIT MARKING CAPACITY OF BOTH THE COMPANIES. IN VIEW OF THE SAME, WE ARE OF THE OPINION THAT THIS COMPANY IS ALSO TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 9.3. IN VIEW OF THE ABOVE, WE HOLD THAT THE COMPARABLE CHOSEN BY THE LD. TPO, M/S. MPS LTD., IS FUNCTIONALLY NOT COMPARABLE WITH THAT OF THE ASSESSEE AND ACCORDINGLY, WE DIRECT THE LD. TPO TO EXCLUDE THE SAME FROM THE LIST OF COMPARABLES. 10. EXCLUSION OF EXCEL INFOWAYS LTD., WE FIND THAT THE ASSESSEE HAS PLEADED BEFORE THE LD. TPO THAT THIS COMPARABLE WAS INDEED CONSIDERED BY THE ASSESSEE IN ITS ACCEPT / REJECT MATRIX AND WAS ULTIMATELY REJECTED BY THE ASSESSEE SINCE THIS COMPARABLE WAS DISCLOSING ABNORMAL MARGINS. IT WAS ALSO PLEADED BEFORE THE LD. TPO THAT SINCE THE TURNOVER FILTER APPLIED BY THE LD. TPO RANGES FROM RS.6.05 CRORES TO 604.80 CRORES , THE TURNOVER OF EXCEL INFOWAYS IN IT E S / BPO SEGMENT WAS ONLY RS.5.28 CRORES AND HENCE, THE SAME DOES NOT FALL WITHIN THE RANGE OF TURNOVER FILTER APPLIED BY THE LD. TPO , THEREBY ELIGIBLE TO GET EXCLUDED FROM THE LIST OF COMPARABLES. APART FROM THIS, IT WAS ALSO PLEADED THAT THE SAID COMPA NY HAD CONSIDERED IT REASONABLE TO CLOSE DOWN ITS IT E S / BPO SEGMENT IN THE F.Y.2011 - 12 ON ACCOUNT OF GLOBAL RECESSION AND HAD PLA NNED TO DIVERSIFY ITS BUSINESS INTO NEW AREAS LIKE CONSTRUCTION, DEVELOPMENT OF PROPERTY, REAL ESTATE ETC., IT WAS ALSO PLEADED B EFORE THE LD. TPO BY MAKING SPECIFIC REFERENCE IN THIS REGARD TO THE ANNUAL REPORT OF THE SAID COMPARABLE FOR F.Y.2011 - 12 WHEREIN THE SAID COMPANY HAD INVESTED RS.28.71 LAKHS FOR PURCHASE OF PROPERTIES. IT WAS ALSO STATED THAT THE SAID COMPANY HAD CHANGED ITS NAME IN THE F.Y.2014 - 15 FROM EXCEL INFOWAYS LTD., TO EXCEL REAL INFRA LTD., CLEARLY INDICATING ITS INTENTION OF DIVERSIFYING ITS ACTIVITIES INTO REAL ESTATE AND ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 24 INFRASTRUCTURAL DEVELOPMENT BUSINESS AND GETTING OUT FROM IT E S SEGMENT. THE ASSESSEE ALSO D REW ATTENTION TO THE LD. TPO TO THE E XPLANATORY S TATEMENT GIVEN IN THIS REGARD FOR POSTAL BALL O T NOTICE FOR F.Y.2014 - 15 U/S.102 OF THE COMPANIES ACT, 2013. APART FROM THIS, THE ASSESSEE ALSO FURNISHED THE FOLLOWING TABLE TO DRIVE HOME ITS POINT THAT THE SA ID COMPARABLE HAD PRACTICALLY DECIDED TO CLOSE DOWN ITS IT ES / BP O SEGMENT DUE TO ITS DIMINISHING REVENUE AND PROFITABILITY THEREON AS UNDER: ( ALL AMOUNTS ARE IN RS, CR O RE S ) PARTICULARS FY 15 - 16 FY 14 - 15 FY 13 - 14 FYU - 13 FY 11 - 12 FY 10 - 11 SEGMENT REVENUE (A) 1.18 2.30 5.28 7.61 7.91 20.35 SEGMENT EXPENSES (C) SEGMENT RESULT (B) 1.43 2.83 4.71 4.77 5.61 5.98 (0.25) (0.53) 0.57 2.84 2.30 14.37 OP/TC% (B)/(C) (17.92)% (18.87)% 12.10% 59.50% 41.07% 239.39% 10.1. BASED ON THE AFORESAID FACTORS, THE ASSESSEE PLEADED THAT THE SAID COMPARABLE IS FUNCTIONALLY DIFFERENT FROM THAT OF THE ASSESSEE AND ACCORDINGLY , DESERVES TO BE EX CLUDED. THE LD. TPO HOWEVER, HELD THAT THE SAID COMPARABLE IS ENGAGED IN IT SERVICES AND BPO SERVICES PROVIDING VOICE BASED SERVICES, CUSTOMER SERVICES WHICH INCLUDE OUT BOUND SALES, MARKETING, VOICE, EMAIL RESPONSE, REAL TIME CHART, KNOWLEDGE MANAGEMENT AND OTHER VALUE ADDED SERVICES. 10.2. THE LD. DRP WHILE UPHOLDING THE ACTION OF THE LD. TPO OBSERVED AS UNDER: - THE CLAIM OF THE ASSESSEE THAT THIS COMPANY IS SHIFTING FOCUS FORM BPO/ITES TO INFRA ACTIVITY IS NOT RELEVANT BECAUSE ASSESSEE IS RELYING UPON THE CERTAIN ACTIVITIES WHICH HAVE TRANSPIRED IN THE COMPANY DURING FY 2014 - 15 AND NO T FY 2013 - 14; (II) SO FAR AS THE SEGMENTAL ACCOUNTS OF THE COMPANY ARE NOT RELIABLE IS CONCERNED, THE ASSESSEE HAS NOT BROUGHT OUT ANY TANGIBLE MATERIAL IN THIS REGARD; (III) PROFITABILITY OF THE COMPANY CANNOT BE SOLE CRITERIA FOR SELECTION OF REJECTION O F THE COMPANY. ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 25 10.3. WE FIND THAT THE AFORESAID FACTS AND FIGURES REMAIN UNDISPUTED BEFORE US AND WE FIND THAT THE TURNOVER OF THE SAID COMPARABLE FROM ITS IT E S / BPO SEGMENT WAS RS.5.28 CRORES FOR THE A.Y.2014 - 15 , WHEREAS THE TURNOVER OF THE ASSESSEE U NDER ITE S SEGMENT WAS RS.60.45 CRORES. THIS ADMITTEDLY DOES NOT FALL WITHIN THE TURNOVER FILTER RANGE FIXED BY THE LD. TPO ITSELF WHICH IS RS.6.45 CRORES TO 604.50 CRORES. HENCE, WE HOLD THAT THE SAID COMPARABLE FAILS ON THE TURNOVER FILTER APPLIED BY THE LD. TPO AND ACCORDINGLY DESERVES TO BE EXCLUDED FROM THE LIST OF COMPARABLES AND WE DIRECT ACCORDINGLY. 10.4. IN EFFECT, WE DIRECT THE LD. TPO TO EXCLUDE MPS LIMITED AND EXCEL INFOWAYS LTD., FROM THE LIST OF COMPARABLES IN IT E S SEGMENT. 10. 5 . NOW, WE AR E LEFT ONLY WITH ONE COMPARABLE CHOSEN BY THE LD. TPO WHICH IS JINDAL INTELLICOM LTD., HAVING A MARGIN OF 11.92%. IT IS NOW WELL SETTLED THAT WORKING CAPITAL IS TO BE GIVEN TO THE ASSESSEE AND THERE IS NO DISPUTE IN THIS REGARD. WE FIND THAT THE ASSESSEE HAD INFACT GIVEN THE WORKINGS FOR WORKING CAPITAL ASSESSMENT OF ALL THE COMPARABLES BEFORE THE LD. TPO WHICH ARE ENCLOSED IN PAGE 570 OF THE PAPER BOOK. THE LD. TPO IS DIRECTED TO GIVE WORKING CAPITAL ADJUSTMENT IN RESPECT OF JINDAL INTELLICOM LTD., AND RE COMPUTE THE MARGIN THEREON AND THEN DECIDE AS TO WHETHER ANY ADJUSTMENT TO ALP IS TO BE MADE WHEN COMPARED WITH ASSESSEES MARGIN. ACCORDINGLY, THE GROUND NO.3 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 11. PROVISION FOR SOFTWARE DEVELOPM ENT SERVIES (IT SEGMENT) GROUND NO.4 RAISED BY THE ASSESSEE: - THE ASSESSEE PROVIDES SOFTWARE DEVELOPMENT AND RELATED SERVICES TO ITS AES. THE ASSESSEE HAS ADOPTED TNMM AS THE MOST APPROPRIATE METHOD TO DETERMINE THE ALP OF INTERNATIONAL TRANSACTIONS ON SO FTWARE ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 26 DEVELOPMENT SERVICES. THE MARGIN OF THE ASSESSEE UNDER IT SEGMENT IS DETERMINED AS UNDER: - PARTICULARS AMOUNT (RS.) OPERATING REVENUE 9,41,15,178 OPERATING COST 8,94,79,015 OPERATING PROFIT 46,36,163 ASSESSEE'S MARGIN 5.18% 11.1. THE ASSESSEE SELECTED 7 COMPARABLE COMPANIES ENGAGED IN SIMILAR SERVICES AND MEAN MARGIN OF THE COMPARABLE COMPANIES WAS 5.05% AS AGAINST ASSESSEES MARGIN OF 5.18% AND ACCORDINGLY, THE ASSESSEE CONCLUDED THAT ITS PRICING WAS AT ARMS LENGTH. 11.2. THE LD. TPO REJECTED / MODIFIED THE FILTERS APPLIED BY THE ASSESSEE IN THE TP STUDY REPORT AND ALSO INTRODUCED NEW FILTERS, BASED ON WHICH THE LD. TPO SELECTED CERTAIN COMPARABLES WITH AVERAGE MEAN MARGIN OF 25.57% AND ACCORDINGLY MADE ADJUSTMENT TO ALP AS UNDER: - PARTICULARS AMOUNT (RS.) OPERATING REVENUE (A) 9,41,15,178 OPERATING COST (B) 8,94,79,015 ARMS LENGTH MEAN MARGIN (C) 25 . 57% ALP OF INTERNATIONAL TRANSACTION (D) 11,23,58,541 ADJUSTMENT OVER OPERATING INCOME (D - A) 1,82,43,364 11.3. THE ASSESSEE PLEADED BEFORE THE LD. DRP THAT THE LD. TPO HAD NOT CONDUCTED A STRUCTURED SEARCH FOR COMPARABLE COMPANIES AND HAD INSTEAD RESORTED TO CHERRY PICKING OF COMPARABLES BASED ON THE ORDER FOR THE A.Y.2013 - 14. THE LD. DRP ACCORDINGLY DIRECTED THE LD. T PO TO CONDUCT A FRESH SEARCH FOR DETERMINING THE FINAL SET OF COMPARABLE COMPANIES IN IT ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 27 SEGMENT. DURING THE REMAND PROCEEDINGS, THE ASSESSEE SUBMITTED A FRESH SEARCH CONDUCTED WHEREIN FOUR NEW COMPANIES WHICH QUALIFIED ALL THE FILTERS APPLIED BY THE TPO W ERE IDENTIFIED. FURTHER THE LD. TPO IDENTIFIED FOUR NEW COMPARABLE COMPANIES THROUGH A FRESH SEARCH CONDUCTED IN THE DATA BASE. THUS, THE TPO FINALLY SELECTED 12 COMPARABLE COMPANIES OUT OF WHICH SIX COMPANIES WERE ORIGINALLY CONSIDERED BY HIM IN HIS ORDER , TWO COMPANIES FROM THE FRESH SEARCH CONDUCTED BY THE ASSESSEE DURING THE REMAND PROCEEDINGS AND FOUR COMPANIES FROM THE FRESH SEARCH CONDUCTED BY THE LD. TPO. THE LD. TPO ACCEPTED THE SUBMISSION OF THE ASSESSEE IN RESPECT OF EXCLUSION 2 COMPANIES NAMELY 1) SURYAJYOTI INFOTECH LTD., AND 2) CITIXSYS TECHNOLOGIES LTD., THE LD. DRP ACCEPTED THE SUBMISSION OF THE ASSESSEE FOR INCLUSION OF TWO COMPARABLES NAMELY 1) KIREETI SOFT TECHNOLOGIES LTD., AND 2) PRIYA SOFTWEB SOLUTIONS PVT. LTD. ACCORDINGLY, THE FINAL S ET OF COMPARABLES PURSUANT TO DIRECTIONS OF THE LD. DRP ARE AS UNDER: - S. NO NAME OF THE COMPANY OP/TC% 1 CG - VAK SOFTWARE AND EXPORTS LIMITED 5 . 96 2 CYBER INFRASTRUCTURE PVT. LTD. 53 . 52 3 INFOBEANS TECHNOLOGIES LTD. 48.97 4 INGENUITY GAMIN G PVT. LTD. 24.42 5 EVOKE TECHNOLOGIES PVT. LTD. 6.56 6 DAFFODIL SOFTWARE LTD. 11.74 7 I2T2 INDIA LTD. 4.04 8 NIHILENT ANALYTICS LTD. 43 . 79 9 CYBERCOM DATAMATICS INFORMATION SOLUTIONS LTD. 76.21 10 PURE S OFTWARE PVT LTD. 15.12 11 KIREETI SOFT TECHNOLOGIES LTD. 4 . 08 ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 28 12 PRIYA SOFTWEB SOLUTIONS PVT. LTD. 17 . 45 ARITHMETIC MEAN 25 . 98 11.4. BASED ON THE ABOVE, THE LD.TPO ARRIVED AT THE ADJUSTMENT TO ALP OF RS.1,86,10,485/ - AS UNDER: - PARTICULARS AMOUNT (RS.) OPERATING REVENUE (A) 9,41,15,178 OPERATING COST (B) 8,94,79,015 ARMS LENGTH MEAN MARGIN (C) 25 . 98% ALP OF INTERNATIONAL TRANSACTION (D) 11,27,25,663 ADJUSTMENT OVER OPERATING INCOME (D - A) 1,86,10,485 12. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE U S. 13. WE HAVE HEARD RIVAL SUBMISSIONS. FROM THE AFORESAID FINAL LIST OF 12 COMPARABLES CONSIDERED BY THE LD. TPO FOR MAKING ADJUSTMENT TO ALP, WE FIND THAT COMPARABLE COMPANIES MENTIONED IN SR. NO.1 AND 10 VIZ. CG - VAK SOFTWARE & EXPORTS LTD., AND PURE S OF TWARE PVT. LTD., ARE NOT DISPUTED BY THE LD. AR BEFORE US. THE SAME IS RECKONED AS A STATEMENT FROM THE BAR. THE COMPANIES MENTIONED IN SR. NOS. 5,6,7,11 & 12 ABOVE WERE ACCEPTED BY THE LD. TPO VIZ., EVOKE TECHNOLOGIES PVT. LTD; DAFFODIL SOFTWARE LTD; L2T2 INDIA LTD; KIREETI SOFT TECHNOLOGIES LTD; PRIYA SOFTWEB SOLUTIONS PVT. LTD., IN EFFECT, THE LD. AR BEFORE US IS CONTESTING ONLY COMPANIES MENTIONED IN SR. NOS. 2,3,4,8 & 9, NAMELY SEEKING FOR EXCLUSION OF THE SAME , VIZ. CYBER INFRASTRUCTURE PVT. LTD; INFO BEANS TECHNOLOGIES LTD; INGENUITY GAMING PVT. LTD; N IHILENT ANALYTICS LTD; CYBERCOM DATAMATICS INFORMATION SOLUTIONS LTD. NOW LET US EXAMINE EACH AND AFORESAID COMPARABLES WHICH THE ASSESSEE PRAYS FOR EXCLUSION FROM THE LIST OF COMPARABLES. ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 29 13.1. EXCLUSION OF CYBER INFRASTRUCTURE PVT. LTD., - MARGIN OF 53.52% WE FIND THAT THE ASSESSEE HAD ARGUED BEFORE THE LD. TPO THAT THIS COMPANY IS ENGAGED IN DEVELOPMENT OF SOFTWARE AND PROVIDING BPO SERVICES TO CUSTOMERS BASED OUTSIDE INDIA. IT PROVIDES END TO END SOFT WARE SOLUTIONS BASED ON THEIR REQUIREMENTS. IT PERFORMS THE COMPLETE RANGE OF ACTIVITIES SUCH AS REQUIREMENT MAPPING, CONCEPTUALISATION, DEVELOPMENT AND TESTING ETC. IT WAS ALSO PLEADED BEFORE THE LD. TPO DURING REMAND PROCEEDINGS AND THIS COMPANY IS ALSO ENGAGED IN SOFTWARE PROJECT DEVELOPMENT AND HAS DEVELOPED PROJECTS NAMELY FREE AS AIR WHICH OFFERS COMPLETE SOLUTIONS FOR PREPARING, SIGNING, SENDING AND MANAGING DOCUMENTS ONLINE. 13.1.1. WE FIND THAT THE LD. DRP HAD HELD THAT THIS COMPANY IS ONLY IN T HE ACTIVITY OF SOFTWARE DEVELOPMENT AND CONSULTANCY RECEIPTS FOR EXPORTS AND IN DOMESTIC TARIFF . 13.1.2 . THE LD. DRP OBSERVED THAT THERE IS NO MENTION OF BPO SERVICES IN THE WEBSITE OF THE SAID COMPANY AND THAT THE REFERENCE MADE BY THE STATUTORY AUDITOR IS A MISTAKE SINCE THE COMPANY IS INTO BUSINESS PROCESS MANAGEMENT THROUGH SOFTWARE DEVELOPMENT AND IT IS NOT A BPO. WE FIND FROM PAGE 1043 OF THE PAPER BOOK CONTAINING THE CORPORATE INFORMATION IN THE ANNUAL REPORT FOR THE YEAR ENDING 31/03/2014 WHEREIN I T IS CATEGORICALLY MENTIONED THAT THIS COMPANY IS ENGAGED IN DEVELOPMENT OF SOFTWARE AND PROVIDING BPO SERVICES TO CUSTOMERS BASED OUTSIDE INDIA. WE ALSO FIND FROM PAGE 1044 OF THE PAPER BOOK CONTAINING THE ACCOUNTING POLICY IN RESPECT OF REVENUE RECOGNIT ION WHEREIN IT IS MENTIONED AS UNDER: - AMOUNT RECEIVABLE FROM SALE/DEVELOPMENT OF SOFTWARE/BUSINESS PROCESS OUTSOURCING SERVICES IS RECOGNISED AS INCOME ON TIME BASIS OR WORK COMPLETION BASIS, AS THE CASE MAY BE. REVENUE FROM FIXED PRICE CONTRACT ARE REC OGNIZED AS PER THE PROPORTIONATE COMPLETION METHOD OR TIME BASIS AS PER THE NATURE OF CONTRACT. ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 30 13. 1. 3. WE ALSO FIND FROM THE PROFIT AND LOSS ACCOUNT OF THE SAID COMPANY IN THE YEAR ENDING 31/03/2014 THAT IT HAD DISCLOSED TOTAL REVENUE FROM OPERATIONS O F RS.2241.62 LAKHS WITH BREAK - UP OF WHICH ARE AS UNDER: - I ) SOFTWARE DEVELOPMENT AND CONSULTANCY RECEIPTS(EXPORT) RS.2236.19 LAKHS II ) SOFTWARE DEVELOPMENT AND CONSULTANCY RECEIPTS (DTA) - RS. 5.43 LAKHS =============== TOTAL RS.2241.62 LAKHS ================ 13. 1. 4. WE ALSO FIND FROM THE NOTES OF ACCOUNTS FOR THE YEAR ENDING 31/03/2014 ENCLOSED IN PAGE 1046 OF THE PAPER BOOK UNDER THE CAPTION EARNINGS IN FOREIGN CURRENCY , THAT THE SAID COMPANY HAD REFLECTED EXPORT EARNINGS OF RS. 2236.19 CRORES DERIVED FROM SOFTWARE EXPORTS AND BPO SERVICES. FROM THE ENTIRE PERUSAL OF THE ANNUAL REPORT , WE FIND THAT THERE IS NO SEGMENTAL D ATA FOR REVENUE RECEIVED FROM SOFTWARE DEVELOPMENT AND FROM BPO SERVICES THER EON. HENCE, IN THE ABSENCE OF SEGMENTAL DATA, THE REVENUE STREAM AND MARGIN DERIVED FROM IT SEGMENT ALONE CANNOT BE ASCERTAINED, THEREBY MAKING IT INCOMPARABLE WITH THE ASSESSEE. HENCE, WE DIRECT THE LD. TPO TO EXCLUDE THE SAME FROM THE LIST OF COMPARABLES . 13.2. EXCLUSION OF INFOBEANS SYSTEMS INDIA PVT. LTD MARGIN OF 48.97% WITH REGARD TO THIS COMPARABLE, ASSESSEE HAS PLEADED BEFORE THE LD. TPO THAT THE SAID COMPANY IS ENGAGED IN DIVERSIFIED ACTIVITIES SUCH AS AUTOMATION ENGINEERING SERVICES, S ERVICEN OW IMPLEMENTATION, BIG DATA, ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 31 UI AND UX CUSTOMISED SOFTWARE, DATA MINING, DATA MODELLING, STATISTICAL ANALYSIS, MACHINE LEARNING TECHNIQUES ETC., WHEREAS THE ASSESSEE HEREIN WAS ENGAGED ONLY IN ROUTINE SOFTWARE DEVELOPMENT SERVICES. THE LD. TPO HOWEVER, DID NOT HEED TO THE CO NTENTIONS OF THE ASSESSEE AND INCLUDED THE SAME AS A COMPARABLE. THE LD. DRP HELD THAT THE SAID COMPARABLE HAS GOT ONLY ONE SEGMENT I.E., SALE OF SOFTWARE AND ACCORDINGLY THE SAME IS COMPARABLE WITH THE ASSESSEE. WE FIND FROM THE FINANCI AL STATEMENTS OF THE SAID COMPARABLE THAT IT HAD DERIVED REVENUE FROM SALE OF SOFTWARE (EXPORT) TO THE TUNE OF RS.32,96,59,883/ - WHICH IS ENCLOSED IN PAGE 1069 OF THE PAPER BOOK. WE ALSO FIND FROM NOTE NO.27 IN PAGE 1069 OF THE PAPER BOOK WHICH IS NOTES FO RMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDING 31/03/2014, THE SAID COMPANY UNDER THE CAPTION EARNINGS IN FOREIGN EXCHANGE HAD REFLECTED EXPORT OF GOODS / SERVICES CALCULATED ON FOB BASIS TO THE TUNE OF RS.32,96,59,883/ - . WE FIND THAT THERE I S NO SEGMENTAL BREAK - UP AVAILABLE WITH REGARD TO SALE OF SOFTWARE AND REVENUE DERIVED FROM THE SOFTWARE DEVELOPMENT SERVICES IN ORDER TO MAKE IT COMPARABLE WITH THE ASSESSEE HEREIN IN IT SEGMENT. WE FIND THAT RELIANCE IN THIS REGARD HAD BEEN RIGHTLY PLACED BY THE LD. AR ON THE CO - ORDINATE BENCH DECISION OF PUNE TRIBUNAL IN THE CASE OF PUBMATIC INDIA PVT. LTD., IN ITA NO.655/PUN/2017 FOR A.Y.2012 - 13 ORDER DATED 09/03/2018 WHEREIN IT WAS HELD AS UNDER: - 18. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE FIRST ASPECT IS THE FUNCTIONAL COMPARABILITY OF CONCERN WHICH HAS BEEN FINALLY SELECTED TO BE COMPARABLE. IN RESPECT OF INFOBEANS SYSTEMS PVT. LTD., THE FINANCIALS OF SAID CONCERN CLEARLY REFLECT THAT IN ADDITION TO PROVIDING SOFTWARE DEVELOPM ENT SERVICES TO ITS ASSOCIATED ENTERPRISES, IT HAD ALSO EARNED FOREIGN EXCHANGE FROM EXPORT OF GOODS ON FOB BASIS. THE EVENT OF EXPORT OF GOODS WAS ALSO MENTIONED IN NOTES AND ALSO IN THE PROFIT AND LOSS ACCOUNT, WHERE REVENUE FROM SALE OF SOFTWARE WAS DEC LARED. THE SEGMENTAL DETAILS OF TWO ACTIVITIES CARRIED ON BY THE SAID CONCERN WERE NOT AVAILABLE AND IN THE ABSENCE OF THE SAME, THE CONCERN COULD NOT BE EQUATED AS FUNCTIONALLY COMPARABLE TO A CONCERN WHICH WAS PROVIDING SOFTWARE DEVELOPMENT SERVICES TO I TS ASSOCIATED ENTERPRISES. APPLYING THE SAME SET OF REASONING AS IN THE PARAS HEREINABOVE, WE HOLD THAT INFOBEANS SYSTEMS PVT. LTD. IS NOT COMPARABLE TO THE ASSESSEE ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 32 WE HOLD THAT IN THE ABSENCE OF SEGMENTAL DATA AND RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF PUNE TRIBUNAL, WE DIRECT THE LD. TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 13.3. EXCLUSION OF INGENUITY GAMING PVT. LTD., - MARGIN OF 24.42% WE FIND THAT THE ASSESSEE HAD SUBMITTED BEFORE THE LD. TPO THAT THIS COMPANY IS FUNC TIONALLY NOT COMPARABLE ON THE GROUND THAT IT IS A TECHNOLOGY COMPANY AND A DESIGN STUDIO ROLLED INTO ONE. THEY WERE CLOSELY INVOLVED WITH THE LEADING LAND BASED ONLINE AND MOBILE GAMING COMPANIES WORLDWIDE, DELIVERING GAMES TO ALL MAJOR PLATFORMS AND OPER ATORS. ACCORDINGLY, IT WAS PLEADED THAT THE SAID COMPANY IS ENGAGED IN DIVERSIFIED ACTIVITIES IN THE IT GAMING SPACE WHEREAS ASSESSEE IS INTO ROUTINE SOFTWARE DEVELOPMENT SERVICES THEREBY MAKING IT FUNCTIONALLY NOT COMPARABLE. IT WAS PLEADED THAT THE SAID COMPANY ALSO DEALS IN INVENTORIES WHICH INDICATES THAT THE SAID COMPANIES REVENUE STREAM INCLUDES SALE OF PRODUCTS EVEN THOUGH IT IS NOT MENTIONED SPECIFICALLY IN THE FINANCIAL STATEMENTS. THE LD. TP HOWEVER, DID NOT HE E D TO THE CO NTENTIONS OF THE ASSESSEE AND INCLUDE D THE SAME IN THE LIST OF COMPARABLES. THE LD. DRP WHILE UPHOLDING THE ACTION OF THE LD. TPO OBSERVED THAT THE SAID COMPANY IS ENGAGED ONLY IN SOFTWARE DEVELOPMENT AND THE OUTCOME IS IN TERMS OF GAMES. THE SAID COMPANY IS NOT DERIVING ANY INCOM E FROM SALES OF GOODS OTHER THAN SOFTWARE DEVELOPMENT. THE LD. DRP ALSO OBSERVED THAT THE ALLEGATION THAT THE SAID COMPANY H AS INVENTORIES IS MISPLACED. 13.3.1. WE FIND THAT THE SAID COMPANY IS ENGAGED INTO GAMING BUSINESS AND FROM THE PERUSAL OF THE PROF IT AND LOSS ACCOUNT OF THE SAID COMPARABLE IT HAD REFLECTED EXPORT REVENUE FROM SOFTWARE DEVELOPMENT SERVICES TO THE TUNE OF RS.10,80,37,386/ - AND ALSO AS INVENTORIES OF ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 33 RS.11,59,834/ - . WE ALSO FIND FROM THE PROFIT AND LOSS ACCOUNT THAT THE S UM OF RS.3,28, 274/ - HAS BEEN REFLECTED AS INCOME TOWARDS CHANGES IN INVENTORIES OF FINISHED GOODS, WORK IN PROGRESS AND STOCK IN TRADE. ALL THESE POINTS COLLECTIVELY GO TO PROVE THAT THE SAID COMPANY IS ALSO ENGAGED IN THE SALE OF PRODUCTS APART FROM SOFTWARE DEVELOPMEN T. FROM THE PERUSAL OF THE ENTIRE ANNUAL REPORT OF THE SAID COMPANY , WE FIND THAT THERE IS NO SEGMENTAL DATA AVAILABLE FOR THE REVENUE STREAM IN RESPECT OF REVENUE FROM SOFTWARE DEVELOPMENT AND REVENUE FROM SALE OF PRODUCTS. HENCE, IN THE ABSENCE OF SEGME NTAL DATA FOR THE SOFTWARE DEVELOPMENT SEGMENT ALONE , THE SAME CANNOT BE HELD TO BE COMPARABLE WITH THE ASSESSEE IN IT SEGMENT. ACCORDINGLY, WE DIRECT THE LD. TPO TO EXCLUDE THE SAME FROM THE LIST OF COMPARABLES. 13.4. EXCLUSION OF NIHILENT ANALYTICS LTD ., (FORMERLY KNOW AS ICRA TECHNO ANALYTICS LTD.) MARGIN OF 43.79% WE FIND THAT ASSESSEE HAD ARGUED THAT THIS COMPARABLE HAS GOT RELATED PARTY TRANSACTIONS MORE THAN 25% AND RANGE OF SERVICES INCLUDES SOFTWARE DEVELOPMENT AND CONSULTANCY, ENGINEERING DES IGN SERVICES, WEB DEVELOPMENT AND HOSTING, BUSINESS ANALYTICS AND BPO SERVICES. IT WAS ALSO PLEADED THAT THERE IS NO INFORMATION ABOUT THE EXPORT REVENUE EARNED BY THE SAID COMPANY. IT WAS FURTHER PLEADED THAT THE SAID COMPANY IS ALSO ENGAGED IN SALE OF SO FTWARE PRODUCTS. THE LD. TPO HOWEVER, OBSERVED THAT EXPORT REVENUE OF THIS COMPARABLE IS 25.51 CRORES OUT OF TOTAL SALES OF RS.27.94 CRORES, THEREFORE, PASSING THE EXPORT FILTER APPLIED BY HIM. HE OBSERVED THAT SALES OF PRODUCTS DURING THE YEAR WAS NIL. SI NCE THE COMPANY IS ENGAGED IN SOFTWARE DEVELOPMENT AND CONSULTATION, ENGINEERING DESIGN SERVICES, WEB DEVELOPMENT AND HOSTING, THEY ARE SIMILAR TO IT SERVICES COMPANY AND ACCORDINGLY COMPARABLE WITH THAT OF THE ASSESSEE. THE LD. DRP CALLED FOR A REMAND REP ORT FROM THE LD. TPO TO ASCERTAIN THE EXACT PERCENTAGE OF RELATED PARTY TRANSACTIONS. THE ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 34 LD. DRP OBSERVED THAT RELATED PARTY TRANSACTIONS AS WELL AS RATIO OF THIS COMPARABLE WORKED OUT TO 26%. THE LD. DRP OBSERVED THAT WHILE RPT RATIO OF 25% HAS BEEN FOUN D TO BE A CORRECT FILTER FOR ENSURING THE ARMS LENGTH COMPARABILITY IN ORDER TO ENSURE COMPARABILITY , IT WOULD BE PROPER IF A FLOAT OF +/ - 1% IS ALLOWED. ACCORDINGLY, IT DIRECTED THE LD. TPO TO RE - VERIFY THE COMPUTATION OF THE ASSESSEE AND INCLUDE THE CO MPARABLE AFTER THE RPT IS FOUND TO BE IN EXCESS OF THE PRESCRIBED FILTER. THE LD. TPO AGAIN VERIFIED THE WORKINGS OF THE ASSESSEE AND OBSERVED AS UNDER: ON VERIFICATION OF THE ANNUAL REPORT OF THE COMPANY IT IS SEEN THAT A ) SERVICES RENDERED RELATED PARTIES IS - RS.6.22 CRORES B ) REIMBURSEMENT OF EXPENSES BY RELATED PARTIES - RS.0.6 CRORES C ) REIMBURSEMENT OF EXPENSES TO RELATED SERVICES - RS. 0 .4 CRORES HENCE, RPT DIVIDED BY SALES IS (SERVICE RENDERED TO RELATED PARTIES + REIMBURSEMENT OF EXPENSES BY R ELATED PARTIES) DIVIDED BY SALES(RS.6.22 CRORES +.6 CRORES)27.9 X 100 = 24.4%. THE LD. TPO OBSERVED THAT THE ASSESSEE HAD TAKEN BOTH REIMBURSEMENT PAID TO AND RECEIVED FROM RELATED PARTIES WHILE CALCULATING THE RPT RATIO AND ACCORDINGLY OBJECTED THAT THE SAME IS ABOVE 25%. 13.4.1. THE LD. TPO DID NOT AGREE TO THIS COMPUTATION MADE BY THE ASSESSEE AND ACCORDINGLY HELD THAT SINCE THE RPT TRANSACTION ARE NOT MORE THAN 25%, THE SAID COMPANY IS A GOOD COMPARABLE. WE FIND UNDER VARIOUS FILTERS APPLIED BY THE LD . TPO FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS, ONE SUCH FILTER APPLIED THEREON IS WITH COMPANIES WITH RELATED PARTY TRANSACTIONS LESS THAN 25% OF THE REVENUES ARE SELECTED. UNDER THIS CAPTION, THE LD.TPO HAD ALSO OBSERVED THAT RELATED PARTY TRANS ACTIONS ON REVENUE AND EXPENDITURE SIDE WERE CONSIDERED FOR APPLYING THIS CRITERION. THIS IS THE FILTER AND CREDENTIAL APPLIED BY THE LD. TPO, THEN IT IS INCUMBENT ON THE PART OF THE LD. TPO TO CONSIDER ALL THE AFORESAID THREE TRANSACTIONS TOGETHER WHILE A RRIVING AT THE RPT RATIO I.E., ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 35 A ) SERVICES RENDERED RELATED PARTIES IS - RS.6.22 CRORES B ) REIMBURSEMENT OF EXPENSES BY RELATED PARTIES - RS.0.6 CRORES C ) REIMBURSEMENT OF EXPENSES TO RELATED SERVICES - RS.0.4 CRORES 13.4.2. IF ALL THE AFORESAID THREE TR ANSACTIONS ARE CONSIDERED THEN THE RPT TO SALES RATIO WORKS OUT TO 25.88% WHICH FAILS THE RPT FILTER APPLIED BY THE LD. TPO. HENCE, THE SAME DESERVES TO BE EXCLUDED ON THIS COUNT ITSELF. IN VIEW OF THIS , NO OPINION HEREIN IS GIVEN WITH REGARD TO FUNCTIONAL DISSIMILARITIES BETWEEN THIS COMPARABLE AND THE ASSESSEE COMPANY WHICH WAS ARGUED BY THE LD. AR BEFORE US. 13. 5. EXCLUSION OF CYBERCOM DATAMATICS INFORMATION SOLUTIONS LTD MARGIN OF 76.21% IT WAS PLEADED THAT THIS COMPANY IS ENGAGED IN SALE OF SOFTWA RE AND HARDWARE PRODUCTS, RENDERING OF CONSULTANCY / ADVISORY SERVICES O N INFORMATION / INTERNET SYSTEMS AND SURV E YORS OF INFORMATION SERVICES IN THE NATURE OF STRATEGIC ADVICE, SECURITY SOLUTIONS WHICH ARE IN THE NATURE OF HIGH END CONSULTANCY SERVICES. T HE ASSESSEE PLEADED THAT THE SEGMENTAL DATA IN RESPECT OF AFORESAID DIVERSIFIED ACTIVITIES ARE NOT AVAILABLE AND HENCE NOT COMPARABLE APART FROM FUNCTIONAL DISSIMILARITIES, IN VIEW OF THE FACT THAT ASSESSEE IS ENGAGED INTO ROUTIN E SOFTWARE DEVELOPMENT SERV ICES. T HE LD. DRP OBSERVED THAT THE PRINCIPAL BUSINESS OF THE SAID COMPARABLE IS PROVIDING THE TECHNICAL AND SOFTWARE SERVICES AND THE PROFIT AND LOSS ACCOUNT ALSO MENTIONS SALES OF SERVICES. ACCORDINGLY, THE SAME IS A GOOD COMPARABLE. WE FIND FROM THE ANN UAL REPORT OF THE SAID COMPARABLE FOR 31/03/2014 UNDER THE HEADING DISCLOSURE OF GENERAL INFORMATION ABOUT THE COMPANY THAT THE PRINCIPAL OBJECT OF THE COMPANY IS TO ACT AS CONSULTANTS AND ADVISORS ON INFORMATION /INTERNET SYSTEM AND SURV E YORS OF INFORMA TION SERVICES AND TO CARRY ON THE BUSINESS OF ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 36 DEVELOPMENT, TESTING, IMPLEMENTATION, MIGRATION OF HOME GROWN AND OTHER APPLICATIONS, MARKETING AND MANUFACTURING OF NON - TECHNOLOGY PRODUCTS AND SERVICES, SOFTWARE AND HARDWARE SYSTEMS, ENTERPRISE AND EMBEDDED TECHNOLOGIES IN THE TELECOM AND OTHER INDUSTRIES. THIS GOES TO PROVE THAT THE SAID COMPARABLE IS INTO DIVERSIFIED ACTIVITIES, HIGH END SERVICES PROVIDER IN THE INFORMATION TECHNOLOGY SECTOR FOR WHICH SEGMENTAL DATA IS ADMITTEDLY NOT AVAILABLE. EVEN FROM TH E ACCOUNTING POLICY ON REVENUE RECOGNITION OF THE SAID COMPARABLE, WE FIND THAT THE COMPANY HAS MENTIONED THAT REVENUE FROM TECHNICAL AND SOFTWARE SERVICES IS RECOGNISED ON A TIME AND MATERIAL BASIS WHEN SERVICES ARE RENDERED AND RELATED COSTS ARE INCURR ED. HOWEVER, THERE IS NO BREAK - UP OF REVENUE DERIVED FROM TECHNICAL SERVICES AND REVENUE DERIVED FROM SOFTWARE SERVICES SEPARATELY FOR THE PURPOSE OF ENSURING COMPA RA BILITY WITH THAT OF THE ASSESSEE IN IT SEGMENT. IN THIS REGARD WE FIND THAT THE RELIANCE P LACED ON THE DECISION OF THE HONBLE ANDHRA PRADESH HIGH COURT BY THE LD. AR IN THE CASE OF CIT VS. INTOTO SOFTWARE INDIA PVT. LTD., IN IT(T P )A NO.233 OF 2014 DATED 24/03/2014 IS WELL FOUNDED WHEREIN IT WAS HELD AS UNDER: - WE HAVE HEARD LEARNED COUNSEL FO R THE APPELLANT, AND HAVE GONE THROUGH THE JUDGMENT AND ORDER OF THE LEARNED TRIBUNAL. THE LEARNED TRIBUNAL ON FACT FOUND IN THE MANNER AS FOLLOWS: ' HAVING HEARD BOTH THE PARTIES AND HAVING GONE THROUGH THE MATERIAL ON RECORD, WE FIND THAT THE TPO AT PAG E 37 OF HIS ORDER HAS BROUGHT OUT THE DIFFERENCES BETWEEN A PRODUCT COMPANY AND A SOFTWARE DEVELOPMENT SERVICES PROVIDER. THUS, IT IS CLEAR THAT HE S AWARE OF THE FUNCTIONAL DISSIMILA RITY BETWEEN A PRODUCT COMPANY AN D A SOFTWARE DEVELOPMENT SERVI CE PROVIDE R. HAVING TAKEN NOTE O F THE DIFFERENCE BETWEEN THE TWO FUNCT IONS, THE ASSESSING OFFICER OUGHT NOT TO HAVE TAKEN THE COMPANIES WHICH ARE INTO BOTH THE PRODUCT DEVELOPMENT AS WELL AS SOFTWARE DEVELOPMENT SERVICE PROV IDER AS COMPARABLES UNLESS THE SEGMENTAL D ETAILS ARE AVAILABLE.' IN VIEW OF THE AFORESAID FACT - FINDING OF THE LEARNED 'BURIAL, THIS COURT CANNOT RE - APPRECIATE THE SAME. ACCORDINGLY, THE APPEAL IS DISMISSED. MISCELLANEOUS PETITIONS PENDING, IF ANY, SHALL STAND CLOSED. NO ORDER AS TO COSTS. ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 37 13.5.1. WE HAVE ALREADY PLACED RELIANCE ON THE DECISION OF PUNE TRIBUNAL IN THE CASE OF PUBMATIC INDIA PVT. LTD. SUPRA WHICH HAD ALSO ENDORSED A SIMILAR PROPOSITION. RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE LD. TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. ACCORDINGLY, THE GROUND NO.4 RAISED BY THE ASSESSEE WITH REGARD TO SOFTWARE DEVELOPMENT SERVICES STAND DISPOSED OFF IN THE AFORESAID MANNER. 14. PROVISION FOR FACILITATION / MARKETING SUPPORT SERVICES (MSS SEGMENT) THE ASS ESSEE IS ENGAGED IN PROVIDING MARKETING SUPPORT SERVICES IN INDIA FOR THE PRODUCTS OF AES. IT EVEN FUNCTIONS AS A COMMUNICATION CHANNEL BETWEEN AES AND THE CUSTOMERS IN INDIA. BASED ON FAR ANALYSIS IN THE TP STUDY REPORT, IT WAS PLEADED THAT ASSESSEE IS A LIMITED RISK SERVICE PROVIDER ENGAGED IN RENDERING MSS SEGMENT. THE ASSESSEE ADOPTED TNMM AS THE MOST APPROPRIATE METHOD TO DETERMINE THE ALP OF INTERNATIONAL TRANSACTION OF MSS SEGMENT. THE MARGIN OF THE ASSESSEE UNDER MSS SEGMENT WAS DETERMINED AS UNDER: - PARTICULARS AMOUNT (RS.) OPERATING REVENUE 12,21,82,566 ADD: VOLUNTARY ADJUSTMENT BY APPELLANT 85,39,276 TOTAL OPERATING REVENUE 13,07,21,842 OPERATING COST 11,24,48,897 OPERATING PROFIT 1,82,72,945 ASSESSEE'S MARGIN 16 .25% ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 38 14.1. THE LD. TPO REJECTED CERTAIN PARTIES CHOSEN BY THE ASSESSEE AND INTRODUCED NEW COMPARABLE COMPANIES. FINALLY PURSUANT TO THE DIRECTIONS OF THE LD. DRP, THE LD. TPO SELECTED FINAL FOUR COMPARABLES AS UNDER: - S. NO NAME OF THE COMPANY OP/TC% 1 MCI MANAGEMENT INDIA PVT. LTD. 5.18 2 JUBILANT BIOSYS LTD 15.02 3 AXIS INTEGRATED SYSTEMS LIMITED 23.81 4 PRIYA INTERNATIONAL LIMITED - INTENDING SEGMENT 34.07 ARITHMETIC MEAN 19.52 14.2. BASED ON THE ABOVE, THE LD. TPO MADE ADJUS TMENT UNDER MSS SEGMENT IN THE FINAL ASSESSMENT ORDER TO THE TUNE OF RS.36,77,080/ - AS UNDER: - PARTICULARS AMOUNT (RS.) OPERATING REVENUE (A) 13,07,21,842 OPERATING COST (B) 11,24,48,897 ARMS LENGTH MEAN MARGIN (C) 19.52% ALP OF INTERNATIONAL T RANSACTION (D) 13,43,98,922 ADJUSTMENT OVER OPERATING INCOME (D - A) 36,77,080 15. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 16. WE HAVE HEARD RIVAL SUBMISSIONS. OUT OF THE FOUR COMPARABLES FINALLY SELECTED BY THE LD. TPO PURSUANT TO THE ORDER O F THE LD. DRP, THE LD. AR BEFORE US CONTESTED FOR EX CLUSION OF ONLY ONE COMPARABLE I.E., AXIS INTEGRATED SYSTEMS LTD., THE LD. AR ARGUED THAT THE SAID COMPARABLE FAILS ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 39 THE EXPORT FILTER APPLIED BY THE LD. TPO IN AS MUCH AS THERE WAS NO EXPORT REVENUE DERIV ED BY THE SAID COMPARABLE. WE FIND THAT ONE OF THE FILTERS ADOPTED BY THE LD. TPO FOR BENCHMARKING INTERNATIONAL TRANSACTIONS WAS THAT COMPANIES WHO HAVE EXPORT SERVICE INCOME LESS THAT 75% OF THE SALES WERE EXCLUDED . IN OTHER WORDS, THE LD. TPO HAD APPL IED THE FILTE RS THAT WERE CHOSEN AS COMPARABLE COMPANIES WHICH HAS EXPORT REVENUE MORE THAN 75% OF TOTAL REVENUE . FROM THE PERUSAL OF THE ANNUAL REPORT OF THE SAID COMPANY AS ON 31/03/2014, WE FIND THAT THE SAID COMPANY HAD DERIVED REVENUE FROM OPERATIONS TO THE TUNE OF RS.5,45,72,126/ - , BREAK - UP OF WHICH ARE AS UNDER: - SALES : RS. 2,13,321/ - LIASONING CHARGES RECEIVED : RS.54,28,33,284/ - REIMBURSEMENT OF EXPENSES : RS. 75,521/ - =========== TOTAL RS.5,45,72,126/ - ========= ==== 16.1. WE FIND FROM NOTE NO.26 TO THE FINANCIAL STATEMENTS ENCLOSED IN PAGE 1450 OF THE PAPER BOOK UNDER THE CAPTION EARNINGS IN FOREIGN CURRENCY , IT IS REFLECTED THAT FOB VALUE OF SALES WAS RS.NIL. THIS GOES TO PROVE THAT THE EXPORT EARNINGS OF THIS COMPARABLE COMPANY WAS RS.NIL DURING THE YEAR. HENCE, IT COULD BE SAFELY CONCLUDED THAT THE SAID COMPARABLE FAILS THE EXPORT FILTER APPLIED BY THE LD. TPO AND ACCORDINGLY DESERVES TO BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES, ACCORDINGLY, WE DIREC T LD. TPO TO EXCLUDE AXIS INTEGRATED SYSTEMS LTD., FROM THE LIST OF COMPARABLES. THE LD. TPO IS DIRECTED TO RE - COMPUTE THE MARGIN OF ALP UNDER MSS SEGMENT AS PER THE AFORESAID DIRECTIONS. ACCORDINGLY, GROUND NO.5 RAISED BY THE ASSESSEE IS DISPOSED OFF IN T HE ABOVE MENTIONED MANNER . 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.6098/MUM/2018 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 40 ITA NO.531/MUM/2018 (A.Y.2013 - 14) 18. THE GROUND NO.1 RAISED BY THE ASSESSEE IS GENERAL IN NATURE AND DOES NOT REQ UIRE ANY SPECIFIC ADJUDICATION. 19. THE GROUND NO.4 RAISED BY THE ASSESSEE IS WITH REGARD TO FACILITATION SUPPORT SERVICES IS SIMILAR TO GROUND NO.5 FOR A.Y.2014 - 15 AND THE DECISION RENDERED THEREON WOULD APPLY WITH EQUAL FORCE TO A.Y.2013 - 14 ALSO. 20. GRO UND NOS.3.1 RAISED BY THE ASSESSEE IN RESPECT OF IT E S SEGMENT IS ALSO SIMILAR TO A.Y.2014 - 15 WHEREIN WE HAVE ALREADY DIRECTED THE LD. TPO TO EXCLUDE EXCEL INFOWAYS LTD., AND MPS LTD., FROM THE LIST OF COMPARABLES. IF THE SAME ARE EX CLUDED , THEN THE LD. AR SUBMITTED THAT ASSESSEE WOULD BE WITHIN +/ - 3% RANGE. ACCORDINGLY, WE DIRECT THE LD. TPO TO FOLLOW THE DECISION RENDERED BY US IN RESPECT OF THESE TWO COMPARABLES NAMELY EXCEL INFOWAYS LTD., AND MPS LTD., FOR IT E S SEGMENT OF THE ASSESSEE AND RECOMPUTE THE ALP AND DECIDE AS TO WHETHER ANY ADJUSTMENT , IF ANY , IS WARRANTED THEREON. THE GROUND NO.3.1 RAISED BY THE ASSESSEE FOR A.Y.2013 - 14 IS DISPOSED OFF ACCORDINGLY. 21. THE GROUND NO. 2.2 IN RESPECT OF IT SEGMENT , GROUND NO.3.2 IN RESPECT OF ITE S SEGMENT AND GROUND NO.4.2 IN RESPECT OF MSS SEGMENT ARE COMMON IN NATURE , WHEREIN THE ASSESSEE HAD CONTESTED THAT SUO MOTO ADDITION MADE BY THE ASSESSEE DURING ITS BENCHMARKING , IN RESPECT OF EACH OF THOSE SEGMENTS WERE NOT CONSIDERED BY THE LD. TPO IN THE FINAL ORDE R PASSED FOR THE A.Y.2013 - 14 WHEREAS THE SAME WAS DULY CONSIDERED BY THE LD. TPO FOR THE A.Y.2014 - 15. WE DIRECT THE LD. TPO TO CONSIDER THE SUO MOTO DISALLOWANCES MADE BY THE ASSESSEE IN RESPECT OF AFORESAID THREE SEGMENTS AND RE - COMPUTE THE ALP OF THOSE S EGMENTS ACCORDINGLY. HENCE, GROUND NOS. 2.2, 3.2 AND 4.2 RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 41 22. GROUND NO.5 RAISED BY THE ASSESSEE IN RESPECT OF ENGINEERING AND RELATED SERVICES IS SIMILAR TO GROUND NO.2 RAISED BY THE ASSESSEE FOR A.Y.2014 - 15 AND THE DECISION RENDERED BY US SUPRA THEREON WOULD APPLY WITH EQUAL FORCE FOR A.Y.2013 - 14 ALSO. 23 SOFTWARE DEVELOPMENT SERVICES: GROUND NO.2 RAISED BY THE ASSESSEE THE ASSESSEE PROVIDED SOFTWARE DEVELOPMENT SERVICES TO ITS AES. TNMM WAS ADO PTED AS THE MOST APPROPRIATE METHOD TO DETERMINE ALP OF INTERNATIONAL TRANSACTIONS OF IT SEGMENT. THE MARGIN OF THE ASSESSEE UNDER IT SEGMENT WAS DETERMINED AS UNDER: - PARTICULARS AMOUNT (RS.) OPERATING REVENUE 16,96,35,715 ADD: SUO MOTO ADJ USTMENT BY APPELLANT 61,85,680 TOTAL OPERATING REVENUE 17,58,21,395 OPERATING COST 16,55,88,054 OPERATING PROFIT 1,02,33,341 ASSESSEE'S MARGIN 6.18% 23.1 THE ASSESSEE SELECTED 7 COMPARABLES ENGAGED IN SIMILAR SERVICES AND THE ARTHIM E TIC MEAN MARGIN OF THE COMPARABLE COMPANIES SELECTED IN TP STUDY REPORT WAS 6.18%, ACCORDINGLY, IT WAS CONCLUDED THAT INTERNATIONAL TRANSACTIONS OF IT SEGMENT WAS AT ARMS LENGTH. 23.2. THE LD. TPO REJECTED / MODIFIED THE FILTERS APPLIED BY THE ASSESSEE IN TH E TP STUDY REPORT AND ALSO INTRODUCED NEW FILTERS. BASED ON THE NEW / ALTERED FILTERS APPLIED BY THE LD. TPO, THE LD. TPO SELECTED 10 COMPARABLES WHICH INCLUDED ONE COMPARABLE CHOSEN BY THE ASSESSEE ALSO. THE AVERAGE OP/TC OF THOSE 10 COMPARABLES WAS WORKE D OUT BY THE LD. TPO AT ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 42 28.23% AND ADJUSTMENT TO ALP WAS MADE TO THE TUNE OF RS.4,27,02,814/ - AS UNDER: - PARTICULARS AMOUNT (RS.) OPERATING REVENUE (A)* 16,96,35,715 OPERATING COST (B) 16,55,88,054 ARMS LENGTH MEAN MARGIN (C) 28.23% ALP OF INTE RNATIONAL TRANSACTION (D) 21,23,38,529 ADJUSTMENT OVER OPERATING INCOME (D - A) 4,27,02,814 23.3. IN THE AFORESAID COMPUTATION MADE BY THE LD. TPO, SUO MOTO ADJUSTMENT MADE BY THE ASSESSEE IN THE SUM OF RS.61,85,680/ - WAS NOT CONSIDERED BY THE LD. TP O. THE LD. DRP ACCEPTED THE ASSESSEES SUBMISSION OF EXCLUSION OF THREE COMPARABLES NAMELY 1) SURYAJYOTI INFOTECH LTD., 2) VAMA INDUSTRIES (SOFTWARE SEGMENT) AND 3) INFOBEANS SYSTEMS INDIA PVT. LTD., AND REJECTED THE INCLUSION OF NEW COMPARABLE COMPANIES. THE LD. DRP ALSO CHANGED WORKING CAPITAL ADJUSTMENT CLAIM MADE BY THE ASSESSEE. THE LD. DRP HOWEVER, DIRECTED THE LD. TPO TO GIVE EFFECT TO THE FOLLOWING ADJUSTMENTS MADE BY THE ASSESSEE AFTER DUE VERIFICATION OF RECORDS. THE LD. TPO IN THE FINAL ASSESSME NT ORDER PASSED PURSUANT TO DIRECTIONS OF LD. DRP ADOPTED THE FINAL SET OF COMPARABLES AS UNDER: - S. NO NAME OF THE COMPANY OP/TC% I SPRY RESOURCES INDIA PVT. LTD. 9.60 2 ASPIRE SYSTEMS INDIA PVT. LTD. 50.21 3 CG - VAK SOFTWARE AND EXPORTS LIMI TED 12.29 4 CYBER INFRASTRUCTURE PVT. LTD. 43 . 79 ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 43 5 HARBINDER SOFTWARE PVT. LTD. 21.98 6 INGENUITY GAMING PVT. LTD. 40.94 7 THIRDWARE SOLUTION LTD., 37.15 ARITHMETIC MEAN 30.85 23.4. BASED ON THE ABOVE, THE TP ADJUSTMENT MADE IN IT SEGM ENT IN THE FINAL ASSESSMENT ORDER WAS RS.4,70,36,254/ - WHICH IS WORKED OUT AS UNDER: - PARTICULARS AMOUNT (RS.) OPERATING REVENUE (A)* 16,96,35,715 OPERATING COST (B) 16,55,88,054 ARMS LENGTH MEAN MARGIN (C) 3 0.85 % ALP OF INTERNATIONAL TRANSACTI ON (D) 21,66,71,969 ADJUSTMENT OVER OPERATING INCOME (D - A) 4,70,36,254 23.5. IN THIS ORDER ALSO , THE LD. TPO FAILED TO GIVE EFFECT TO DRP DIRECTIONS WITH REGARD TO VOLUNTARY ADJUSTMENT MADE BY THE ASSESSEE IN IT SEGMENT. 24. AGGRIEVED, THE ASSESSE E IS IN APPEAL BEFORE US . 25. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE FINAL LIST OF 7 COMPARABLES CHOSEN BY THE LD. TPO PURSUANT TO DRP DIRECTIONS ARE LISTED HEREINABOVE. WE ALSO FIND THAT ASSESSE E HAD SOUGHT FOR INCLUSION OF FOLLOWING THREE COMPARABLES BEFORE THE LD. DRP WHICH WAS REJECTED BY THE LD. DRP. I) EVOKE TECHNOLOGIES LTD., II) KALS INFORMATION SYSTEMS LTD., ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 44 III) CITL LTD., 26. THE LD. AR BEFORE US AT THE TIME OF HEARING STATED THAT HE W OULD LIKE TO PRESS THE INCLUSION OF AFORESAID THREE COMPARABLES AND EXCLUSION OF THE FOLLOWING COMPARABLES NAMELY I) ASPIRE SYSTEMS INDIA PVT. LTD., 2) CYBER INFRASTRUCTURE PVT. LTD 3) INGENUITY GAMING PVT. LTD., 4) TH IRD WARE SOLUTIONS LTD., 27. LET US NO W EXAMINE EACH OF THE FOUR COMPARABLES WHICH ARE SOUGHT TO BE EXCLUDED BY THE LD. AR. 2 7.1 . EXCLU SION OF ASPIRE SYSTEMS INDIA PVT. LTD., WE FIND THAT THE ASSESSEE HAD ARGUED BEFORE THE LD. TPO THAT THIS COMPANY IS FUNCTIONALLY NOT COMPARABLE AS IT IS ENG AGED IN DIVERSIFIED ACTIVITIES AS UNDER: - 1. PRODUCT ENGINEERING & ISVS 2. ENTERPRISE SOLUTION 3. INDEPENDENT TESTING SENDEE 4. BUSINESS INTELLIGENCE AND ANALYTICS 5. DIGITAL SERVICES 6. PRODUCT ENGINEERING FOR ENTERPRISES 7. PORTALS AND CONTENT MANAGEMENT 8. INFRASTRUCTURE AND APPLICATION SUPPORT SERVICE 9. ENTERPRISES APPLICATION (SOURCE: WEBSITE EXTRACT) 27.1.1. SINCE, NO SEGMENTAL DETAILS WERE AVAILABLE WITH RESPECT TO REVENUE FROM SOFTWARE AND OTHER DIVERSIFIED SERVICES AS ABOVE, THE LD. AR PLEADED TH AT THIS COMPANY CANNOT BE INCLUDED IN THE LIST OF COMPARABLES DUE TO FUNCTIONAL DISSIMILARITIES. WE FIND THAT FROM THE LIST OF ACTIVITIES CARRIED OUT LISTED HEREINABOVE , WE FIND THAT THE SAID COMPARABLE COMPANY IS PRIMARILY A SOFTWARE SERVICES COMPANY FOCU SED IN HELPING SOFTWARE COMPANIES CREATE INNOVATIVE PROJECTS. WE ALSO FIND THAT THE ENTIRE REVENUE IS DERIVED ONLY FROM SOFTWARE SERVICES. HENCE, THERE IS NO ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 45 QUESTION OF REJECTING THIS COMPARABLE ON THE GROUND THAT SEGMENTAL DATA IS NOT AVAILABLE. WE ALSO FIND FROM PAGE 1585 OF THE PAPER BOOK THAT SEGMENTAL DATA IN RESPECT OF SOFTWARE SEGMENT IS ALSO AVAILABLE IN THE ANNUAL REPORT O F THE SAID COMPARABLE . H ENCE WE HOLD THAT THIS COMPARABLE IS FUNCTIONALLY COMPARABLE WITH THAT OF ASSESSEE. HENCE, WE DIRECT TH E LD. AO TO INCLUDE THE SAME IN THE LIST OF COMPARABLES. 27.2 . EX CLUSION OF CYBER INFRASTRUCTURE PVT. LTD., AND INGENUITY GAMING PVT. LTD., THE DECISION RENDERED BY FOR A.Y.2014 - 15 IN RESPECT OF THESE TWO COMPARABLES WILL HOLD GOOD FOR A.Y.2013 - 14 ALSO AND WOULD APPLY ACCORDINGLY IN THE ABSENCE OF CHANGE IN FACTS WHICH HAS BEEN AGREED BY BOTH THE PARTIES BEFORE US. 27.3. EX CLUSION OF TH IRD WARE SOLUTIONS LTD., WE FIND THAT THE LD. AR ARGUED BEFORE US THAT THE SAID COMPANY IS FUNCTIONALLY NOT COMPARABLE WITH THAT OF THE ASSESSEE IN VIEW OF THE FACT THAT THE SAID COMPANY PROVIDES VARIOUS DIVERSIFIED SERVICES AS IT IS INTO ERP, BI AND BPM, APPLICATION IMPLEMENTATION, APPLICATION MANAGEMENT, APPLICATION DEVELOPMENT AND DERIVE REVENUE FROM VARIOUS SOURCES SU CH AS SALE OF LICENSE, REVENUE FROM SUBSCRIPTION ETC., 27.3.1. THE LD. AR ALSO ARGUED THAT PRIMARY SEGMENTAL DATA IS NOT AVAILABLE INDICATING BREAK - UP OF REVENUE FROM VARIOUS STREAMS IN RESPECT OF THIS COMPARABLE IN THE ANNUAL REPORT. WE HAVE GONE THROUG H THIS ANNUAL REPORT OF THE SAID COMPARABLE AND WE FIND THAT THE SAID COMPARABLE HAD DERIVED REVENUE FROM SALE OF SERVICES TO THE TUNE OF RS.14,225.84 LAKHS. FROM THE REVENUE RECOGNITION POLICY REFLECTED IN THE ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 46 SAID ANNUAL REPORT, IT IS MENTIONED UNDER THE CAPTION INCOME FROM SERVICES THAT REVENUE FROM SOFTWARE DEVELOPMENT AND IMPLEMENTATION ON TIME AND MATERIAL CONTRACTS IS RECOGNISED AND BILLABLE TO CLIENTS AS PER THE TERMS OF SPECIFIC CONTRACTS. ON FIXED PRICE CONTRACTS REVENUE RECOGNITION AND BILLA BLE BASED ON MILESTONES ACHIEVED AND AFTER RECEIVING THE SIGN OFF CERTIFICATES FROM THE CUSTOMERS FOR THE SPECIFIC MILESTONES AS SPECIFIED IN THE CONTRACTS. REVENUE FROM SUBSCRIPTION CONTRACT IS RECOGNISED ON ACCEPTANCE OR RENEWAL OF CONTRACT AND IS ACCRUE D OVER THE PERIOD OF THE CONTRACT. REVENUE FROM SALE OF USER LICENSES FOR SOFTWARE APPLICATIONS IS RECOGNISED ON E - DELIVERY OF SOFTWARE LICENSE KEY TO END USER. 27.3.2. HENCE, IT WOULD BE RELEVANT TO UNDERSTAND THE BREAK - UP OF REVENUE OF RS.14225.84 BETW EEN SOFTWARE SERVICES AND OTHER BUSINESS NORMS IN ORDER TO ARRIVE AT THE MARGINS OF SOFTWARE SEGMENT AND THEN MAKE IT COMPARABLE WITH THAT OF THE ASSESSEE. WE ALSO FIND FROM THE PROFIT AND LOSS ACCOUNT OF THE SAID COMPARABLE THAT THE SAID COMPARABLE HAS GO T PURCHASE OF STOCK IN TRADE TO THE TUNE OF RS.2482.34 LAKHS THEREBY MAKING IT FUNCTIONALLY UNCOMPARABLE WITH THE ASSESSEE. HENCE, IT COULD BE SAFELY CONCLUDED THAT THE SAID COMPANY CANNOT BE HELD AS A COMPARABLE COMPANY WITH THAT OF THE ASSESSEE IN VIEW O F FUNCTIONAL DISSIMILARITIES AND ABSENCE OF SEGMENTAL DATA OF REVENUE O R PROFITS DERIVED FROM SOFTWARE SEGMENT ALONE. OUR VIEW IS ALSO ENDORSED BY THE CO - ORDINATE BENCH DECISION OF DELHI HIGH COURT IN THE CASE OF ST ERICSON INDIA PVT. LTD., VS. ACIT IN ITA NO.4434/DEL/2018 DATED 26/09/2018 WHEREIN IT WAS OBSERVED AS UNDER: - THIRDWARE SOLUTIONS LIMITED 24. THE ANNUAL REPORT OF THIS COMPANY IS EXHIBITED AT PAGES 811 TO 916 OF THE PAPER BOOK VOLUME II. THE COMPANY IS ENGAGED IN THE BUSINESS OF INFORMATION TE CHNOLOGY AND INFORMATION TECHNOLOGY ENABLED SERVICES. THE COMPANY CATERS TO BOTH DOMESTIC AND INTERNATIONAL MARKETS. A PERUSAL OF THE ANNUAL REPORT SHOWS THAT SEGMENTAL INFORMATION OF THE REVENUE FROM INFORMATION TECHNOLOGY AND INFORMATION TECHNOLOGY ENABL ED SERVICES IS NOT AVAILABLE. FROM PAGE 882 OF THE PAPER BOOK, WE FIND THAT THE REVENUE RECOGNITION POLICY IS THAT REVENUE FROM SUBSCRIPTION CONTRACT IS RECOGNISED ON ACCEPTANCE ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 47 OR RENEWAL OF THE CONTRACT AND IS ACCRUED OVER THE PERIOD OF THE CONTRACT. REV ENUE FROM SALE OF USER LICENSES FOR SOFTWARE APPLICATIONS IS RECOGNISED ON E - DELIVERY OF SOFTWARE LICENCE KEY TO END USER. THIS COMPANY HAS INTANGIBLES WORTH RS. 108.22 CRORES. 25. WE FURTHER FIND THAT THIS COMPARABLE HAS BEEN REJECTED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2010 - 11 IN ITA NO. 609/DEL/2015 AND THE RELEVANT FINDING IS GIVEN AT PAGE 1644 VOLUME IV. CONSIDERING THE FUNCTIONAL PROFILE OF THIS COMPANY IN THE LIGHT OF THE FINDING OF THE CO - ORDINATE BENCH [SUPRA], WE DIRECT FOR EXCLUSION OF THIS COMPANY FROM THE FINAL LIST OF COMPARABLES. 27.3.3. IN VIEW OF THE AFORESAID FINDINGS AND RESPECTFULLY FOLLOWING THE AFORESAID JUDICIAL PRECEDENTS, WE DIRECT THE LD. TPO TO EXCLUDE TH IRD WARE SOLUTIONS LTD., F RO M THE LIST OF COMPARABLES. 27.4 INCLUSION OF EVOKE TECHNOLOGIES LTD, KALS INFORMATION SYSTEMS LTD. CITL LTD. WE FIND THAT ONE OF THE FILTERS APPLIED BY THE LD. TPO IN HIS ORDER FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS IS TURNOVER FILTER WHEREIN HE HAD PROPOSED TO INCLUDE COMPANIES WHICH ARE FALLING WITHIN THE RANGE OF TURNOVER FROM 1.73 CRORES TO 173.90 CRORES. WE FIND THAT THE TURNOVER OF EVOKE TECHNOLOGIES LTD., IS RS.37.39 CRORES; TURNOVER OF KALS INFORMATION SYSTEMS LTD., IS RS.2.52 CRORES AND TURNOVER OF CTIL LTD., IS 14.04 CRORES FROM SOFTWARE DEVELOPMENT SEGMENT ALONE. THESE FIGURES ARE TAKEN FROM THE RESPECTIVE ANNUAL REPORTS OF THE SAID COMPARABLES FOR THE YEAR ENDED 31/03/2013 WHICH ARE ENCLOSED IN THE PAPER BOOK. HENCE, ALL THESE THREE COMPARABLES FALL WITHIN THE TURNOVER FILTER APPLIED BY THE LD. TPO FOR INCLUSION OF THE SAME AS COMPARABLE S . THE FUNCTIONAL SIMILARITY OF THIS COMPANY WITH THAT OF THE ASSESSEE IS NOT DISPUTED BY THE LD. DRP. WE ONLY FIND THAT THE LD. DRP HAS ARRIVED AT AN ERRONEOUS FIGURE BY CONSID ERING THE TOTAL TURNOVER OF THE ASSESSEE INSTEAD OF TAKING THE TURNOVER FROM SOFTWARE DEVELOPMENT SEGMENT ALONE FOR THE PURPOSE OF ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 48 COMPARABILITY OF ASSESSEE WITH THE AFORESAID THREE COMPARABLES. IN VIEW OF THIS, WE DIRECT THE LD. TPO TO INCLUDE THESE THREE COMPANIES IN THE LIST OF COMPARABLES FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE IN IT SEGMENT. 27.5. WE DIRECT THE LD. TPO TO GRANT WORKING CAPITAL ADJUSTMENT IN RESPECT OF FINAL COMPARABLES TO BE CHOSEN AS PER THE AFORESAID DIRECTIO NS WHICH IS NOW WELL SETTLED IN LAW. ACCORDINGLY, THE GROUND NO.2 RAISED BY THE ASSESSEE IN RESPECT OF SOFTWARE DEVELOPMENT SEGMENT ARE DISPOSED OFF. 28. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.531/MUM/2018 FOR A.Y.2013 - 14 IS PARTLY ALLOWED F OR STATISTICAL PURPOSES. 29. TO SUM UP: I) IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.6098/MUM/2018 FOR A.Y.2014 - 15 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. II) IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.531/MUM/2018 FOR A.Y.2013 - 14 I S PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 14 / 06 /201 9 SD / - ( RAVISH SOOD ) SD/ - ( M.BALAGANESH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED 14 / 06 /201 9 KARUNA SR. PS ITA NO S . 6098/MUM/ 2018 & 531/MUM/2018 M/S. EMERSON ELECTRIC COMPANY (INDIA) PVT. LTD., 49 COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//
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