M/s GE BE Private Limited , Bangalore v. Deputy Commissioner of Income Tax Circle-3(1)(2), Bangalore

ITA 3263/BANG/2018 | 2014-2015
Pronouncement Date: 31-08-2021 | Result: Partly Allowed

Appeal Details

RSA Number 326321114 RSA 2018
Assessee PAN AAACG6714A
Bench Bangalore
Appeal Number ITA 3263/BANG/2018
Duration Of Justice 2 year(s) 8 month(s) 24 day(s)
Appellant M/s GE BE Private Limited , Bangalore
Respondent Deputy Commissioner of Income Tax Circle-3(1)(2), Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 31-08-2021
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 31-08-2021
Date Of Final Hearing 13-07-2021
Next Hearing Date 13-07-2021
Last Hearing Date 27-01-2020
First Hearing Date 14-09-2020
Assessment Year 2014-2015
Appeal Filed On 06-12-2018
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI ACCOUNTANT MEMBER AND SMT. BEENA PILLAI JUDICIAL MEMBER ITA NO.3263/BANG/2018 ASSESSMENT YEAR : 2014-15 GE BE PVT. LTD. 60 EXPORT PROMOTION INDUSTRIAL PARK WHITEFIELD BENGALURU-560 066. PAN AAACG 6714 A VS. THE DY. COMMISSIONER INCOME CIRCLE-3(1)(2) BENGALURU. APPELLANT RESPONDENT ASSESSEE BY : SHRI SACHIT JOLLY ADVOCATE REVENUE BY : SHRI DEVARATHNA KUMAR CIT.DR DATE OF HEARING : 13-07-2021 DATE OF PRONOUNCEMENT : 31-08-2021 ORDER PER BEENA PILLAI JUDICIAL MEMBER PRESENT CROSS APPEALS HAS BEEN FILED BY ASSES SEE AS WELL AS REVENUE AGAINST FINAL ORDER DATED 24.9.2018 PASSED UNDER SECTION 143(3) READ WITH SECTION 144C OF THE ACT PASSED BY LD.DCIT CIRCLE 3(1)(2) BANGALORE FOR ASSESSMENT YEAR 2014- 15 ON FOLLOWING GROUNDS OF APPEAL: THE GROUNDS MENTIONED HEREIN BY THE APPELLANT ARE WITHOUT PREJUDICE TO ONE ANOTHER. PAGE 2 OF 33 ITA NO.3263/BANG/2018 I. THAT THE ORDER PASSED BY THE LEARNED DEPUTY COMM ISSIONER OF INCOME- TAX CIRCLE 3(1)(2) BANGALORE ('ASSESSING OFFICER' OR 'AO') AND THE DIRECTIONS PASSED BY THE LEARNED DISPUTE RESOLUTION PANEL ('DR P' OR 'THE PANEL') TO THE EXTENT PREJUDICIAL TO THE APPELLANT IS BAD IN LAW AND LIABLE TO BE QUASHED. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LEARNED DRP ERRED IN PARTLY CONFIRMING THE ACTION O F THE LEARNED ASSESSING OFFICER / LEARNED TRANSFER PRICING OFFICER ('LEARNE D TPO') IN MAKING AN ADJUSTMENT OF INR 37 02 87 354/- AND INR 2 89 13 20 6/- TO THE INTERNATIONAL TRANSACTIONS RELATING TO THE CONTRACT MANUFACTURING SEGMENT ('CM SEGMENT') AND ENGINEERING DESIGN SERVICES SEGM ENT ('SERVICES SEGMENT') RESPECTIVELY OF THE APPELLANT. FURTHER TH E LEARNED DRP ALSO ERRED IN UPHOLDING THE ACTION OF THE LEARNED AO IN DISALL OWING YEAR-END PROVISIONS OF INR 3 34 92 043 U/S 40(A)(IA) OF THE INCOME TAX ACT 1961 AND THUS MAKING A TOTAL ADJUSTMENT OF INR 43 26 92 603 TO THE TOTAL INCOME OF THE APPELLANT. GROUNDS RELATING TO TRANSFER PRICING MATTERS 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED DRP ERRED IN UPHOLDING THE ACTION OF THE LEARNED TPO OF REJEC TING THE CONTEMPORANEOUS TRANSFER PRICING DOCUMENTATION MAIN TAINED BY THE APPELLANT IN GOOD FAITH AS REQUIRED UNDER SECTION 92D OF THE ACT READ WITH RULE IOD OF THE INCOME-TAX RULES 1962 ('THE RULES' ) IN RESPECT OF THE CM SEGMENT AND INVOKING THE PROVISIONS OF SECTION 92C( 3) OF THE ACT AND CONDUCTING FRESH ANALYSIS AT THE TIME OF THE ASSESS MENT PROCEEDINGS. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED DRP ERRED IN UPHOLDING THE ACTION OF THE LEARNED AO/ LEARNED TPO OF PARTIALLY REJECTING THE TRANSFER PRICING DOCUMENTATION MAINTA INED BY THE APPELLANT IN GOOD FAITH AS REQUIRED UNDER SECTION 92D OF THE ACT READ WITH RULE IOD OF THE RULES IN RESPECT OF THE SERVICE SEGMENT AND SEL ECTIVELY REJECTING CERTAIN COMPARABLES. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED DRP ERRED IN UPHOLDING THE ACTION OF THE LEARNED AO/ LEARNED TPO IN NOT CONSIDERING THE MULTIPLE YEAR/PRIOR YEAR DATA OF COMPARABLE COM PANIES WHILE DETERMINING THE ARM'S LENGTH PRICE IN RELATION TO T HE APPELLANT'S INTERNATIONAL TRANSACTIONS WITH ITS AES. 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED DRP ERRED IN UPHOLDING THE ACTION OF THE LEARNED AO/ LEARNED TPO IN DETERMINING THE ARM'S LENGTH MARGIN/ PRICE USING ONLY FY 2013-14 DA TA WHICH WAS NOT AVAILABLE TO THE APPELLANT AT THE TIME OF COMPLYING WITH THE CONTEMPORANEOUS TRANSFER PRICING DOCUMENTATION REQU IREMENTS. 7. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED DRP ERRED IN UPHOLDING THE ACTION OF THE LEARNED AO/ LEARNED TPO IN REJECTING THE COMPARABILITY ANALYSIS CARRIED OUT BY THE APPELLANT IN THE TP DOCUMENTATION IN RESPECT OF THE CM SEGMENT AND IN C ONDUCTING A FRESH COMPARABILITY ANALYSIS FOR THE CM SEGMENT. .. PAGE 3 OF 33 ITA NO.3263/BANG/2018 FOLLOWING ARE THE COMPARABLES FOR EXCLUSION/INCLUSI ON IN THE CM SEGMENT: 8. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED DRP ERRED IN UPHOLDING THE ACTION OF THE LEARNED AO/ LEARNED TPO IN INCLUDING OPTO CIRCUITS (INDIA) LTD AS A COMPARABLE ON THE GROUNDS OF FUNCTIONAL SIMILARITY WHEREAS THIS COMPANY SHOULD HAVE BEEN EXCLUDED FOR THE REASON BEING FUNCTIONALLY DISSIMILAR AND HAVING A VERY HIGH COST OF WORKING CAPITAL. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE TH E LEARNED DRP ERRED IN UPHOLDING THE ACTION OF THE LEARNED AO/ LEARNED TPO IN EXCLUDING THE FOLLOWING COMPANIES FROM THE COMPARABLES' SET EVEN THOUGH THESE COMPANIES SHOULD HAVE BEEN INCLUDED AS THEY FALL WI THIN THE SAME INDUSTRY DESCRIPTION AS THAT OF OPTO CIRCUITS (INDI A) LTD.: A) ARTEMIS ELECTRICALS LTD. B) CONTINENTAL DEVICE INDIA LTD.; C) INSTAPOWER LTD.; D) JOSHI ELECTRONICS & ELECTRICALS PVT. LTD.; E) NAINA SEMICONDUCTORS LTD.; F) RUTTONSHA INTERNATIONAL RECTIFIER LTD.; G) SYSKA LED LIGHTS PVT. LTD. 10. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED DRP ERRED IN UPHOLDING THE ACTION OF THE LEARNED AO/ LEARNED TPO IN EXCLUDING THE FOLLOWING COMPANIES FROM THE COMPARABLES' SET EVEN THOUGH THESE COMPANIES ARE FUNCTIONALLY COMPARABLE: A) SOUTH INDIA SURGICAL CO. LTD.; B) PREMIER MEDICAL CORPORATION. PVT. LTD. FOLLOWING ARE THE COMPARABLES FOR INCLUSION IN THE SERVICES SEGMENT: 11. THE LEARNED TPO ALONG WITH THE LEARNED AO IN PU RSUANCE OF THE DIRECTIONS OF THE LEARNED PANEL ERRED IN LAW AND ON FACTS IN EXCLUDING AKSHAY SOFTWARE TECHNOLOGIES LTD. AS A COMPARABLE T O THE APPELLANT ON THE GROUND OF FUNCTIONAL DISSIMILARITY WHEREAS THIS COMPARABLE SHOULD HAVE BEEN INCLUDED FOR THE REASON BEING FUNCTIONALL Y SIMILAR AND PASSING ALL THE FILTERS APPLIED BY THE LEARNED TPO. 12. THE LEARNED TPO ALONG WITH THE LEARNED AO IN PU RSUANCE OF THE DIRECTIONS OF THE LEARNED PANEL ERRED IN LAW AND ON FACTS IN EXCLUDING SASKEN COMMUNICATIONS TECHNOLOGIES LTD. AS A COMPAR ABLE TO THE APPELLANT ON THE GROUND OF FUNCTIONAL DISSIMILARITY WHEREAS THIS COMPARABLE SHOULD HAVE BEEN INCLUDED FOR THE REASON BEING FUNCTIONALLY SIMILAR. 13. THE LEARNED TPO ALONG WITH THE LEARNED AO IN PU RSUANCE OF THE DIRECTIONS OF THE LEARNED PANEL ERRED IN LAW AND ON FACTS IN EXCLUDING DAFFODIL SOFTWARE LIMITED AS A COMPARABLE TO THE AP PELLANT ON THE GROUND OF SEGMENTAL INFORMATION BEING NOT AVAILABLE WHEREA S THIS COMPARABLE SHOULD HAVE BEEN INCLUDED FOR THE REASON BEING THE REVENUE FROM SALE OF PRODUCTS (TRADING) IS NEGLIGIBLE. 14. THE LEARNED TPO ALONG WITH THE LEARNED AO IN PU RSUANCE OF THE DIRECTIONS OF THE LEARNED PANEL ERRED IN LAW AND ON FACTS IN EXCLUDING 12T2 PAGE 4 OF 33 ITA NO.3263/BANG/2018 INDIA LIMITED AS A COMPARABLE TO THE APPELLANT ON T HE GROUND OF FUNCTIONAL DISSIMILARITY WHEREAS THIS COMPARABLE SHOULD HAVE B EEN INCLUDED FOR THE REASON BEING FUNCTIONALLY SIMILAR. 15.THE LEARNED TPO ALONG WITH THE LEARNED AO IN PUR SUANCE OF THE DIRECTIONS OF THE LEARNED PANEL ERRED IN AW AND ON FACTS IN EXCLUDING KIREETI SOFT TECHNOLOGIES LIMITED AS A COMPARABLE T O THE APPELLANT ON THE GROUND OF DIFFERENCE IN OPERATING MODEL WHEREAS THI S COMPARABLE SHOULD HAVE BEEN INCLUDED FOR THE REASON BEING FUNCTIONALL Y SIMILAR. 16. THE LEARNED TPO ALONG WITH THE LEARNED AO IN PU RSUANCE OF THE DIRECTIONS OF THE LEARNED PANEL ERRED IN LAW AND ON FACTS IN EXCLUDING EXILANT TECHNOLOGIES PRIVATE LIMITED AND CELESTREAM TECHNOLOGIES PRIVATE LIMITED AS COMPARABLE COMPANIES TO THE APPELLANT ON THE GROUND OF NON- AVAILABILITY OF FINANCIAL DATA FOR FY 2013-14 WHERE AS THE DATA FOR FY 2013- 14 IS AVAILABLE IN PUBLIC DOMAIN. 17. THE LEARNED TPO ALONG WITH THE LEARNED AU IN PU RSUANCE OF THE DIRECTIONS OF THE LEARNED PANEL ERRED IN LAW AND ON FACTS IN EXCLUDING MAVERIC SYSTEMS LIMITED AS A COMPARABLE TO THE APPE LLANT ON THE GROUND THAT IT FAILS THE FILTER OF R&D EXPENDITURE LESS TH AN 3% OF SALES WHEREAS THIS COMPARABLE SHOULD HAVE BEEN INCLUDED FOR THE R EASON BEING NO EXPENDITURE IS MADE ON ACCOUNT OF R&D DURING THE FY 2013-14. 18. THE LEARNED TPO ALONG WITH THE LEARNED AU IN PU RSUANCE OF THE DIRECTIONS OF THE LEARNED PANEL ERRED IN LAW AND ON FACTS IN EXCLUDING EVOKE TECHNOLOGIES PRIVATE LIMITED AS A COMPARABLE TO THE APPELLANT ON THE GROUND THAT IT FAILS THE FILTER OF EXPORT REVEN UE MORE THAN 25% OF SALES WHEREAS THIS COMPARABLE SHOULD HAVE BEEN INCLUDED F OR THE REASON BEING FUNCTIONALLY SIMILAR. 19. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED AO/ LEARNED TPO ERRED IN LAW AND ON FACTS IN THE COMPUT ATION OF OPERATING MARK-UP ON COST FOR COMPANIES WHILE PERFORMING THE COMPARABILITY ANALYSIS IN RELATION TO THE CM SEGMENT AND SERVICES SEGMENT OF THE APPELLANT. 20. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED DRP ERRED IN UPHOLDING THE ACTION OF THE LEARNED AO/ LEARNED TPO IN NOT ALLOWING THE WORKING CAPITAL ADJUSTMENT FOR DETERMINING THE ARM' S LENGTH PRICE WHILE RELYING ON THE JUDICIAL PRECEDENTS BASED ON A FACT PATTERN WHICH IS NOT APPLICABLE TO THE APPELLANT. 21. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED DRP ERRED IN UPHOLDING THE ACTION OF THE LEARNED AO/ LEARNED TPO IN NOT ALLOWING THE WORKING CAPITAL ADJUSTMENT FOR DETERMINING THE ARM' S LENGTH PRICE AND NOT RELYING ON THE JUDICIAL PRECEDENTS AVAILABLE IN THE CASE OF THE APPELLANT 22. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED DRP ERRED IN UPHOLDING THE ACTION OF THE LEARNED AO/ LEARNED TPO OF IGNORING THE LIMITED RISK NATURE OF THE CM SEGMENT AND SERVICES SEGMENT OF THE APPELLANT AND THEREAFTER SELECTING HIGH PROFIT MAKI NG ENTREPRENEURIAL COMPANIES AS COMPARABLES. IN DOING SO THE LEARNED AU/LEARNED TPO HAS PAGE 5 OF 33 ITA NO.3263/BANG/2018 ERRED IN NOT PROVIDING AN APPROPRIATE ADJUSTMENT TO WARDS THE RISK DIFFERENTIAL EVEN WHEN THE FULL-FLEDGED ENTREPRENE URIAL COMPANIES HAVE BEEN SELECTED BY THE LEARNED TPO AS COMPARABLES. GROUNDS RELATING TO OTHER THAN TRANSFER PRICING MAT TERS 23. THAT ON THE FACTS AND CIRCUMSTANCE OF THE CASE THE LEARNED DRP ERRED IN UPHOLDING THE ACTION OF THE LEARNED AO FOR THE A DDITION OF INR 3 34 92 043 UNDER SECTION 4O(A)(IA) OF THE ACT ON T HE BASIS THAT THE TAX WAS DEDUCTIBLE ON YEAR END PROVISIONS UNDER CHAPTER XVI I-B OF THE ACT. 24. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED AU ERRED IN NOT GRANTING THE CREDIT FOR TAXES DEDUCTED AT SO URCE OF INR 54 163. 25. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED AO ERRED IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT O F INR 8 81 44 212. THAT THE APPELLANT CRAVES LEAVE TO ADD TO AND/OR TO ALTER AMEND RESCIND MODIFY THE GROUNDS HEREIN BELOW OR PRODUCE FURTHER DOCUMENTS BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. BRIEF FACTS OF THE CASE ARE AS UNDER: 2. THE ASSESSEE IS A COMPANY AND IS ENGAGED IN THE BUSINESS OF CONTRACT MANUFACTURING OF COMPONENTS AND PARTS OF M EDICAL DIAGNOSTIC IMAGING EQUIPMENT AND ALSO ENGAGED IN PR OVISION OF ENGINEERING DESIGN SERVICES TO ITS AFFILIATE WORLD WIDE. IT FILED ITS RETURN OF INCOME FOR YEAR UNDER CONSIDERATION WHICH WAS SUBSEQUENTLY REVISED ON 28/11/2011 DECLARING TOTAL INCOME OF RS.95 62 19 661/-. THE RETURN WAS PROCESSED UNDER S ECTION 143(1) OF THE ACT AND THE CASE WAS SELECTED FOR SC RUTINY. NOTICES UNDER SECTION 143(2) AND 142(1) WAS ISSUED TO ASSES SEE. IN RESPONSE TO STATUTORY NOTICES REPRESENTATIVE OF AS SESSEE APPEARED BEFORE THE LD.AO AND FILED REQUISITE DETAI LS AS CALLED FOR. 2.1. LD.AO OBSERVED THAT ASSESSEE HAD INTERNATIONAL TRANSACTION EXCEEDING RS.15 CRORE AND THEREFORE REFERENCE WAS M ADE TO THE TRANSFER PRICING OFFICER TO DETERMINED ARMS LENGTH PRICE OF THE TRANSACTION AS PER PROVISIONS OF SECTION 92CA OF TH E ACT. PAGE 6 OF 33 ITA NO.3263/BANG/2018 2.2. UPON RECEIPT OF REFERENCE LD.TPO CALLED UPON ASSESSEE TO FILE REQUISITE DETAILS OF THE TRANSACTION IN FORM 3CEB. LD.TPO OBSERVED THAT ASSESSEE HAD FOLLOWING INTERNATIONAL TRANSACTION WITH ITS ASSOCIATED ENTERPRISE: INTERNATIONAL TRANSACTIONS AMOUNT (IN RS.) CONTRACT MANUFACTURING PURCHASE OF RAW MATERIAL AND C OMPONENTS 1249172769/- PURCHASE OF CAPITAL GOODS 898888/ - SALE OF MANUFACTURED GOODS 5129201135/- PAYMENT OF ROYALTY/TECHNICAL KNOWHOW FEES 57899486/ - ENGINEERING DESIGN SERVICES PROVISION OF ENGINEERING DESIGN SERVICES 261579879/ - REIMBURSEMENT OF EXPENSES 3347119/- RECOVERY OF EXPENSES 3930969/- 2.3. LD.TPO NOTED THAT ASSESSEE USED FOLLOWING 9 C OMPARABLES IN RESPECT OF ENGINEERING DESIGN SERVICES SEGMENT WITH AN AVERAGE MARGIN OF 9.61% AS COMPARED TO ITS OWN MARGIN AT 1 1.64%. ASSESSEE COMPUTED ITS MARGIN BY USING OP/OC AS PLI. IT APPLIED TNMM AS MOST APPROPRIATE METHOD AND HELD THE TRANSA CTION TO BE AT ARMS LENGTH. S. NO. COMPANY NAME ROTC AFTER WC AND CAPM AD J USTMENT_ 1 AKSHAY SOFTWARE TECHNOLOGIES LTD. 5.01% 2 C G-V A K SOFTWARE & EXPORTS LTD. 1.42% 3 CADES DIGITECH PVT. LTD. [MERGED] -4.62% 4 LARSEN & TOUBRO INFOTECH LTD. 19.58% 5 MINDTREE LTD. 13.51% 6 PERSISTENT SYSTEMS LTD. 26.12% 7 R S SOFTWARE (INDIA) LTD. 22.15% 8 SASKEN COMMUNICATION TECHNOLOGIES LTD. -0.86% 9 TATA ELXSI LTD. 4.20% ARITHMETIC MEAN 9.61% PAGE 7 OF 33 ITA NO.3263/BANG/2018 2.4. LD.TPO THOUGH ACCEPTED THE COMPARABLES SELECTE D BY ASSESSEE IN TP DOCUMENTATION PROPOSED THE ALP OF E NGINEERING DESIGN SERVICE SEGMENT BY CONSIDERING SINGLE YEAR M ARGIN OF THE COMPARABLES. IT HAS BEEN SUBMITTED THAT IN THE REP LY TO THE SHOW CAUSE NOTICE ASSESSEE PROVIDED CORRECTED MARGINS O F 2 COMPANIES AND ALSO PROPOSED ADDITIONAL 8 COMPARABLE S. THE LD.TPO DID NOT AGREE WITH THE ADDITIONAL 8 COMPARAB LES PROPOSED BY ASSESSEE BUT REJECTED 3 COMPARABLES WHICH WERE ALREADY ACCEPTED BY THE LD.TPO THE SHOW CAUSE NOTICE PREVIO USLY SENT. WITH THE BALANCE 5 COMPARABLES THE LD.TPO COMPUTED AVERAGE MARGIN FOR ENGINEERING DESIGN SERVICE SEGMENT AT 27 .62%. S NO NAME OF TAX PAYER OP/OC 1 LARSEN & TOUBRO INFOTECH 36.06% 2 MINDTREE LTD. 20.43% 3 PERSISTENT SYSTEMS LTD. 35.10% 4 R S SOFTWARE (INDIA) LTD. 24.23% 5 TATA ELXSI LTD.(SEG) 22.29% AVERAGE 27.62% 2.5. IN RESPECT OF CONTRACT MANUFACTURING SERVICE S EGMENT LD.TPO OBSERVED THAT THE ASSESSEE PERFORMS ASSEMBLY AND MANUFACTURING OPERATIONS FOR AND ON BEHALF OF THE G ROUP AE. IT WAS NOTICED BY THE LD.TPO THAT THE ASSESSEE IMPORTS MATERIALS FROM ITS AE FOR THE PURPOSE OF CARRYING OUT MANUFAC TURING IN INDIA. THE ASSESSEE MANUFACTURES MEDICAL EQUIPMENT AND RELATED COMPONENTS AND FUNCTIONS IN THE INDUSTRY SEGMENT OF MEDICAL DEVICES. PAGE 8 OF 33 ITA NO.3263/BANG/2018 2.6. THE LD.TPO NOTED THAT ASSESSEE HAD USED OP/OC AS PLI FOR BENCHMARKING THE INTERNATIONAL TRANSACTION BY USING TNMM AS MOST APPROPRIATE METHOD. IT EARNED 11.89% MARGIN AN D THAT THE ARITHMATIC MEAN OF 34 COMPARABLES SELECTED BY THE A SSESSEE HAD AVERAGE MARGIN OF 5.10%. THE LIST OF COMPARABLES SE LECTED BY ASSESSEE IS AS UNDER: S. NO. COMPANY ROTC AFTER WC AND CAPM ADJUSTMENT 1 ACILLTD. 2.10% 2 BAJAJ MOTORS LTD. 0.16 % 3 BANCO GASKETS (INDIA) LTD. 4.47% 4 BHARAT GEARS LTD. 1.43% 5 DYNAMATIC TECHNOLOGIES LTD. 1.86% 6 G K N DRIVELINE (INDIA) LTD. 1.54% 7 G N A UDYOG LTD. 1.10% 8 GABRIEL INDIA LTD. 4.81% 9 HIGHWAY INDUSTRIES LTD. 6.67% 10 INDIA NIPPON ELECTRICALS LTD. 10.16% 11 J M T AUTO LTD. 4.68% 12 K A R MOBILES LTD. 1.10% 13 KALYANI FORGE LTD. 3.90% 14 MAJESTIC AUTO LTD. 2.24% 15 MUNJAL SHOWA LTD. 6.70% 16 NELCAST LTD. 3.14% 17 PERFECT CIRCLE INDIA LTD. -0.09% 18 RANE (MADRAS) LTD. 2.98% 19 RANE BRAKE LINING LTD. 1.42% 20 RANE ENGINE VALVE LTD. - 0.13% 21 RANE T R W STEERING SYSTEMS LTD. 11.70% 22 RAUNAQ AUTOMOTIVE COMPONENTS LTD. 2.43% 23 RING PLUS AQUA LTD. 6.96% 24 SAKTHI AUTO COMPONENTS LTD. 4.12% 25 SETCO AUTOMOTIVE LTD. 5.90% 26 SHANTH I GEARS LTD. -0.91% 27 SHIVAM AUTOTECH LTD. 13.89% 28 SHRIRAM PISTONS & RINGS LTD. 4.81% 29 SONA OKEGAWA PRECISION FORGINGS LTD. 19.60% 30 TALBROS AUTOMOTIVE COMPONENTS LTD. 5.30% 31 TALBROS ENGINEERING LTD. 7.31% 32 TATA TOYO RADIATOR LTD. 5.67% 33 UCAL FUEL SYSTEMS LTD. 7.85% PAGE 9 OF 33 ITA NO.3263/BANG/2018 34 Z F STEERING GEAR (INDIA) LTD. 18.68% 2.7. THE LD.TPO REJECTED ECONOMIC ANALYSIS CONDUCTE D BY ASSESSEE UNDER THIS SEGMENT AND PROPOSED A FRESH SE T OF COMPARABLES IN THE SHOW CAUSE NOTICE. THE LD.TPO RE JECTED THE WORKING CAPITAL ADJUSTMENT AND COMPUTED ALP AT 19. 58% USING FOLLOWING FRESH SET OF 8 COMPARABLES. S.NO. COMPANY NAME PLI (OP/OC 1 OPTO CIRCUITS (INDIA) LTD. 62.02% 2 BLUE NEEM MEDICAL DEVICES PVT. LTD. 20.78% 3 BHAT BIO-TECH (INDIA) PVT. LTD. 16.69% 4 ALLENGERS MEDICAL SYSTEMS LTD. 12.31% 5 SHREE PACETRONIX LTD. 13.04% 6 SAHAJANAND MEDICAL TECHNOLOGIES PVT. LTD. 18.10% 7 CENTENIAL SURGICAL SUTURE LTD. 8.05% 8 HEMANT SURGICAL INDS. LTD.; 5.64% AVERAGE 19.58% 2.8. LD.TPO THUS COMPUTED PROPOSED ADJUSTMENT AS UN DER: S.NO DESCRIPTION ADJUSTMENT U/S 92CA(IN RS.) 1 SERVICES SEGMENT RS. 3 98 24 410 2 CONTRACT MANUFACTURING SEGMENT RS. 44 8147 221 TOTAL ADJUSTMENT U/S 92CA RS. 48 79 71 631 2.9. UPON RECEIPT OF THE ORDER PASSED UNDER SECTION 92CA THE LD.AO PASSED DRAFT ASSESSMENT ORDER. THE LD.AO OBSE RVED THAT ASSESSEE HAS DEBITED EXPENSES WHICH WAS NOT DISALLO WED UNDER SECTION 40(A)(IA) OF THE ACT FOR NON-DEDUCTION OF T AX. HE THUS DISALLOWED UNDER SECTION 40(A)(AI) OF THE ACT SUM RS.3 34 92 043/-. PAGE 10 OF 33 ITA NO.3263/BANG/2018 2.10. AGGRIEVED BY THE DRAFT ASSESSMENT ORDER PASSE D BY THE LD.AO ASSESSEE RAISED OBJECTIONS BEFORE THE DRP. THE DRP UPHELD THE COMPARABLES ADOPTED BY THE LD.TP O HOWEVER DIRECTED THE LD.AO TO RELOCATE THE MARGINS OF THE C OMPANIES SO SELECTED. THE DRP REJECTED THE WORKING CAPITAL ADJU STMENT TO ASSESSEE UNDER BOTH THE SEGMENTS. THE DRP FURTHER U PHELD THE ACTION OF LD.AO IN MAKING ADDITION TOWARDS DISALLOW ANCE OF PROVISION OF EXPENSES. 2.11. ON RECEIPT OF THE DRP DIRECTIONS THE LD.AO A CCEPTED THE MARGINS PROPOSED BY ASSESSEE AND REVISED THE ADJUST MENT UNDER BOTH THE SEGMENTS AS UNDER: ENGINEERING DESIGN SERVICE SEGMENT RS.2 89 13 206/- CONTRACT MANUFACTURING SEGMENT: RS.37 02 87 354/-. 2.12. IN RESPECT OF DISALLOWANCE OF PROVISION OF EX PENSES UNDER SECTION 40(A)(IA) OF THE ACT THE LD.AO RELIED ON T HE DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF TOYOTA KIRLOSKAR MOTORS PVT LTD IN ITA NO. 1185/B/2014 FOR ASSESSMENT YEAR 2012-13 DATED 31/10/2017 . AGGRIEVED BY THE ORDER OF LD.AO ASSESSEE IS IN APP EAL BEFORE US NOW. 3. THE LD.COUNSEL SUBMITTED THAT VIDE APPLICATION DATED 18/06/2019 ASSESSEE RAISED FOLLOWING ADDITIONAL GRO UNDS FOR SEEKING DEDUCTION OF EDUCATION CESS UNDER SECTION 3 7(1) OF THE ACT. GROUNDS RELATING TO OTHER THAN TRANSFER PRICING MA TTERS 26. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE LEARNED AO/DRP ERRED IN NOT ALLOWING DEDUCTION UNDER SECTIO N 37(1) OF THE INCOME PAGE 11 OF 33 ITA NO.3263/BANG/2018 TAX ACT 1961 ON ACCOUNT OF EDUCATION CESSES PAID BY THE APPELLANT WHILE ARRIVING AT THE ASSESSED INCOME FOR THE YEAR UNDER APPEAL. THE APPELLANT CRAVES LEAVE TO ADD ALTER AMEND OR WITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL AND TO SUBMIT SUCH STATEMENTS DOCUMENTS AND PAPERS AS MAY BE CONSIDERED NECESSARY EITHER AT OR BEFORE THE APPEAL HEARING. 3.1. FURTHER VIDE APPLICATION DATED 27/01/2021 TH E ASSESSEE HAS RAISED FOLLOWING ADDITIONAL GROUND NOS.27-30 WH EREIN EXCLUSION OF LARSEN AND TOUBRO INFOTECH LTD. PERSI STENT SYSTEMS LTD. AND MINDTREE LTD. HAS BEEN SOUGHT WHICH ARE AS UNDER: 27. THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE THE TRANSFER PRICING OFFICER(TPO)/DISPUTE RESOLUTION PANEL(DR P) ERRED IN CONSIDERING LARSON & TUBRO INFOTECH LIMITED AS A CO MPARABLE TO THE EDS SEGMENT OF THE APPELLANT 28. WITHOUT PREJUDICE THE TPO/DRP FURTHER ERRED IN USING ENTITY WISE OPERATING MARGINS OF LARSON & TUBRO INFOTECH LIMITE D TO COMPUTE THE ARMS LENGTH PRICE; 29. THAT ON THE FACTS AND IN CIRCUMSTANCE OF THE CA SE THE TPO/DRP ERRED IN CONSIDERING PERSISTANT SYSTEMS LIMITED AS A COMP ARABLE TO THE EDS SEGMENT WHEREAS PERSISTENT SYSTEMS SHOULD HAVE BEEN REJECT ON LACK OF SEGMENTAL INFORMATION. 30. THAT ON FACTS AND IN CIRCUMSTANCED OF THE CASE THE TPO/DRP ERRED IN CONSIDERING MINDTREE LIMITED AS COMPARABLE TO THE EDS SEGMENT WHEREAS MINDTREE SHOULD HAVE BEEN REJECTED ON LACK OF SEGMENTAL INFORMATION. 3.2. THE LD.COUNSEL SUBMITTED THAT THE ISSUES RAIS ED IN ADDITIONAL GROUND NO. 26 STANDS SQUARELY COVERED BY DECISION OF HONBLE RAJASTHAN HIGH COURT IN CASE OF CHAMBAL FERTILIZERS AND PAGE 12 OF 33 ITA NO.3263/BANG/2018 CHEMICALS LTD. V. JT. CIT IT APPEAL NO. 52 OF 2018 BY ORDER DATED 31-7-2018. 3.3. FURTHER LD.COUNSEL SUBMITTED THAT ADDITIONAL GROUND NOS.27-30 ARE IN RESPECT OF THE COMPARABLES THAT AR E NOT FUNCTIONALLY SIMILAR TO THAT OF ASSESSEE. HE SUBMIT TED THAT THOUGH THESE COMPARABLES FORMED PART OF ASSESSEES OWN SET HONBLE KARNATAKA HIGH COURT IN CASE OF CITRIX R&D INDIA PVT.LTD. IN ITA NO. 533/2016 UPHELD THE OBSERVATIONS OF THIS TRIBUNAL THAT EXCLUSION OF ASSESSEES OWN COMPARABLE AT THE REQUE ST OF ASSESSEE. THIS TRIBUNAL HAD RELIED ON THE DECISION OF HONBLE CHANDIGARH SPECIAL BENCH IN CASE OF QUARK SYSTEMS VS DCIT REPORTED IN (2010) 38 SOT 307. IT IS SUBMITTED THAT COMPANY SOUGHT TO BE EXCLUDED WERE INADVERTENTLY INCLUDED I N THE SET OF COMPARABLES WITHOUT APPRECIATING THE FUNCTIONS WHIC H ARE IN THE NATURE OF ENGINEERING DESIGN SERVICES. HE SUBMITTED THAT THESE COMPARABLES WERE PREDOMINANTLY SOFTWARE PRODUCT COM PANIES AND CANNOT BE COMPARED TO THE FUNCTIONS PERFORMED B Y ASSESSEE UNDER ENGINEERING DESIGN SERVICES SEGMENT. 3.4. HE SUBMITTED IN THE APPLICATION FOR ADMISSION OF ADDITIONAL GROUND THAT SUBSTANTIAL JUSTICE WOULD BE RENDERED T O ASSESSEE BY ADMITTING THESE GROUND. IT WAS SUBMITTED THAT FOR ADJUDICATING THESE GROUNDS NO NEW FACTS NEEDS TO BE REFERRED AS THEY ARISE FROM THE RECORDS PLACED BEFORE US. 3.5. ON THE CONTRARY LD.SR.DR THOUGH OBJECTED FOR A DMISSION OF THE ADDITIONAL GROUNDS COULD NOT CONTROVERT THE SUB MISSIONS MADE BY LD.COUNSEL. PAGE 13 OF 33 ITA NO.3263/BANG/2018 WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. 3.6. WE NOTE THAT ISSUE RAISED BY THE ASSESSEE IN T HIS ADDITIONAL GROUND IS NO LONGER RES-INTEGRA. THE GROUNDS RAISED BY ASSESSEE UNDER THIS APPLICATION ARE ISSUES THAT NEED TO BE A DMITTED IN ORDER TO DETERMINE CORRECT TAXABLE INCOME IN THE HA NDS OF ASSESSEE. WE DRAW OUR SUPPORT FROM THE DECISION OF HONBLE SUPREME COURT IN CASE OF NATIONAL THERMAL POWER CORPORATION LTD (NTPC) V. CIT REPORTED IN (1998) 229 ITR 383 . ACCORDINGLY WE ADMIT THE ADDITIONAL GROUNDS REPRODU CED HEREINABOVE. 4. AT THE OUTSET THE LD.COUNSEL SUBMITTED THAT GROUND NO.1-2 ARE GENERAL IN NATURE AND THEREFORE DO NOT REQUIRE ANY ADJUDICATION. 4.1. IT IS SUBMITTED THAT GROUND NO.3-7 RELATES TO VARIOUS PROVISIONS FOR DETERMINING THE ARMS LENGTH MARGIN/ PRICE OF THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY ASSESSEE W ITH ITS ASSOCIATED ENTERPRISES WHICH ARE BASICALLY ACADEMIC IN NATURE. 4.2. THE CONTESTED ISSUES ARGUED BEFORE US BY THE L D.COUNSEL ARE: GROUND NO.8-22 WHICH RELATES TO THE ADDITION MADE UNDER THE 2 SEGMENTS. LD.COUNSEL SUBMITTED THAT ASSESSEE SEEKS EXCLUSION/ INCLUSION OF COMPARABLES UNDER BOTH THE SEGMENTS. IT IS ALSO SUB MITTED THAT ASSESSEE HAS RAISED THE PLEA AGAINST NON-GRANTING O F WORKING CAPITAL ADJUSTMENT FOR BOTH THE SEGMENTS. PAGE 14 OF 33 ITA NO.3263/BANG/2018 5. BEFORE WE UNDERTAKE COMPARABILITY ANALYSIS IT I S SINE QUA NON TO UNDERSTAND THE FUNCTIONS PERFORMED ASSETS OWNED AND RISKS ASSUMED BY ASSESSEE UNDER THIS SEGMENT. WE NOTE THAT LD.TPO HAS ANALYSED THE FUNCTIONS PERF ORMED BY ASSESSEE AS UNDER: FUNCTIONS AS PER THE MASTER SERVICES AGREEMENT: 5.1. THE TAXPAYER IS INTO CONTRACT MANUFACTURING SE GMENT AND ALSO PROVIDES ENGINEERING DESIGN SERVICES TO ITS AE S. GE IS ENGAGED IN THE MANAGEMENT LICENSING AND FUND ING OF THE RESEARCH AND DEVELOPMENT OF TECHNOLOGY FOR IMPROVED HEALTHCARE INCLUDING MEDICAL EQUIPMENT INFORMATION TECHNOLOGY CONTRAST AGENTS PROTEIN SEPARATIONS AND DISCOVERY SYSTEMS. 5.2. GE BE PVT.LTD. DESIRES TO LICENSE FROM GE THRO UGH GTC THE RIGHT TO USE GE ENTITY INTELLECTUAL PROPERTY AND GE INTELLECTUAL PROPERTY AS SPECIFIED HEREIN AND TO PARTICIPATE IN THE GLOBAL TECHNOLOGY DEVELOPMENT EFFORTS MANAGED OR FUNDED BY GE. GIC SHALL GRANT TO COLLABORATOR DURING THE TERM OF THIS AGREEMENT A NON-EXCLUSIVE NON-TRANSFERABLE RIGHT AND LICENSE: A. TO USE THE LICENSED INTELLECTUAL PROPERTY AS REQ UESTED BY COLLABORATOR TO DEVELOP MAKE HAVE MADE ASSEMBLE OR HAVE ASSEMBLED THE PRODUCE(S) AND THEREAFTER TO USE SE LL LEASE OFFER FOR SALE OR OTHERWISE DISPOSE OF AND IF APPLICABLE SERVICE SUCH PRODUCTS AND B. TO INCORPORATE THE LICENSED SOFTWARE INCLUDING THE RIGHT TO COPY AND MODIFY THE LICENSED SOFTWARE AND TO MAKE O R HAVE PAGE 15 OF 33 ITA NO.3263/BANG/2018 MADE SOFTWARE DERIVED FROM THE LICENSED SOFTWARE I NTO THE PRODUCT(S). AS PER THE TP DOCUMENT: 5.2. GE BE MANUFACTURES CT TUBES X-RAY TUBES HV T ANKS. DETECTORS AND OTHER PARTS AND ACCESSORIES FOR MEDIC AL DIAGNOSTIC IMAGING EQUIPMENT. THE SAID PRODUCTS ARE MANUFACTUR ED TO CATER TO BOTH DOMESTIC AND EXPORT MARKETS. THE PRODUCTS MANUFACTURED BY GE BE ARE SOLD ONLY TO AES WHETHER IN INDIA OR ABROAD. 5.3. GE BE ALSO PROVIDES ENGINEERING DESIGN SERVICE S TO ITS AES. ITS SERVICES INCLUDE VALUE-ENGINEERING DESIGN SERVI CES FOR GEHC GLOBAL CUSTOMER RELATED PROBLEMS AND ISSUES AND TA KE THE FORM OF TECHNICAL DRAWINGS AND DESIGNS. GE BE USES COMPU TER AIDED DESIGN ('CAD') COMPUTER AIDED MANUFACTURING ('CAM' ) AND OTHER SOFTWARE TOOLS IN THE PROVISION OF THESE SERVICES. 5.4. IN THE TRANS-APPRISING STUDY ASSESSEE HAS BEEN CATEGORISED AS A CAPTIVE SERVICE PROVIDER TO GE SO FAR AS ITS ENGINEERING DESIGN SERVICES SEGMENT IS CONCERNED. ASSESSEE IS P AID ON A FULL COST +10% BASIS FOR THE SERVICES PROVIDED BY IT. ASSETS OWNED: 5.5. IT HAS ALSO BEEN SUBMITTED THAT ASSESSEE DO NO T ENGAGE IN SIGNIFICANT R&D FOR CREATION OF INVALUABLE IP. IT H AS BEEN SUBMITTED THAT ASSESSEE USES TANGIBLE ASSETS SUCH A S FURNITURE FIXTURES OFFICE EQUIPMENT VEHICLES AND COMPUTERS. IT DOES NOT OWN ANY NON ROUTINE INTANGIBLE ASSETS. RISKS ASSUMED: PAGE 16 OF 33 ITA NO.3263/BANG/2018 5.6. IN THE TP STUDY IT HAS BEEN SUBMITTED THAT ANY EXPOSURE TO FOREIGN EXCHANGE RISK IS LARGELY MITIGATED BY HEDGI NG THROUGH GE CORPORATE TREASURY. IT HAS ALSO BEEN SUBMITTED IN T HE TP STUDY THAT IT DOES NOT BEAR ANY SIGNIFICANT RISK OF TECHN OLOGY OBSOLESCENCE AS THE AE WHO OWNS ALL MANUFACTURING TECHNOLOGIES. IT IS ALSO BEEN SUBMITTED THAT THE AE INCURRED EXPENSES ON BEHALF OF ASSESSEE AND THAT ALL THE EXP ENSES INCURRED BY ASSESSEE IS REIMBURSED ON COST BASIS. CLASSIFICATION: 5.7. IN THE TP STUDY ASSESSEE HAS BEEN CHARACTERISE D AS CONTRACT MANUFACTURER OF MEDICAL EQUIPMENT COMPONENTS AND PR OVIDER OF ENGINEERING DESIGN SERVICES. BASED ON THE ABOVE CHARACTERISATION WE SHALL UNDER TAKE THE COMPARABILITY ANALYSIS OF THE COMPARABLES ALLEGED B Y ASSESSEE AS WELL AS REVENUE FOR EXCLUSION/INCLUSION. 6. GROUND NO.8: UNDER CONTRACT MANUFACTURING SERVICE SEGMENT ASSESSEE IS SEEKING EXCLUSION OF OPTO CIRCUITS (INDIA) PVT.LTD . THE LD.COUNSEL SUBMITTED THAT THIS COMPARABLE HAS A MARGIN OF 62.02% AND IS FUNCTIONALLY NOT SIMILAR WITH THAT OF ASSESSEE. IT IS SUBMITTED THAT THIS COMPARABLE DEALS IN SENSORS M ONITORS AND OTHER PRODUCTS. REFERRING TO THE OBSERVATIONS OF LD .TPO AT PAGE 21 OF ORDER PASSED UNDER SECTION 92CA OF THE ACT T HE LD.COUNSEL SUBMITTED THAT THIS COMPANY IS ENGAGED IN MANUFACT URING VITAL SIGN PATIENT MONITOR RESPIRATORY AND ANAESTHETIC C ARE EQUIPMENT DEFIBRILLATORS PAD DEVICES. HE SUBMITTE D THAT THE COMPONENTS MANUFACTURED BY THIS COMPANY ARE USED IN DIFFERENT PAGE 17 OF 33 ITA NO.3263/BANG/2018 INDUSTRIES AND NOT FOR MANUFACTURING OF MEDICAL EQU IPMENTS AKIN TO MEDICAL INDUSTRY. IT IS SUBMITTED BY THE LD.COUN SEL THAT THIS COMPARABLE IS ENGAGED IN MANUFACTURING OF COMPLETE MACHINES WHEREAS ASSESSEE IS ONLY MANUFACTURING PARTS THAT A RE USED IN MACHINES USED IN MEDICAL INDUSTRY. HE REFERRED TO T HE ANNUAL REPORT AT PAGE 785 789 OF PAPER BOOK. 6.1. ON THE CONTRARY THE LD.SR.DR SUBMITTED THAT T HIS COMPANY IS FUNCTIONALLY COMPARABLE WITH THAT OF ASSESSEE AS IT IS ENGAGED IN DEVELOPING AND MANUFACTURING TECHNOLOGY ADVANCED MEDICAL EQUIPMENT AND DEVICES FOR MODERN HEALTHCARE PRACTIC ES. IT HAS BEEN SUBMITTED THAT THIS COMPARABLE WAS SELECTED AS IT IS ALSO ENGAGED IN MANUFACTURING OF ELECTRICAL COMPONENTS. THE LD.SR.DR EMPHASISED THAT THIS COMPANY IS ONE OF TH E COMPANY THAT WAS SELECTED UNDER THE NIC USED FOR MANUFACTUR ING SEGMENT. IT HAS BEEN SUBMITTED BY THE LD.SR.DR THAT THIS COMPANY IS EXACTLY SIMILAR ACTIVITIES AND FUNCTIONS PERFORMED AND ALSO PASSES ALL THE QUANTITATIVE FILTERS APPLIED BY THE LD.TPO. 6.2. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BO TH SIDES IN THE LIGHT OF RECORDS PLACED BEFORE US. 6.3. THE LD.COUNSEL ARGUED THAT THIS COMPANY HAS SU PERNORMAL PROFITS AND IS AN ABERRATION FROM THE OPERATING MAR GINS OF OTHER COMPANIES AND HENCE CANNOT BE CONSIDERED AS THE REP RESENTATIVE OF THE INDUSTRY. IT HAS ALSO BEEN SUBMITTED THAT TH IS COMPANY HAS HIGH COST OF WORKING CAPITAL AND DIMINISHING REVENU E. HE THUS SUPPORTED FOR EXCLUSION OF THIS COMPARABLE FROM THE FINALIST. PAGE 18 OF 33 ITA NO.3263/BANG/2018 6.4. WE NOTE THAT ASSESSEE IS INTO MANUFACTURE OF COMPONENTS/DEVICES USED IS MEDICAL DIAGNOSTIC IMAGI NG EQUIPMENTS AND IS NOT THE MANUFACTURER AND SELLER OF MEDICAL EQUIPMENT MACHINES. ON THE OTHER HAND THE COMPANY O PTO CIRCUITS IS INTO MANUFACTURE OF ELECTRON TUBES DIO DES TRANSISTORS AND RELATED DISCRETE DEVICES WHICH IS USED IN MEDIC AL DEVICES/EQUIPMENTS. THE GROUP TO WHICH THIS COMPANY BELONGS MANUFACTURES EMERGENCY CARDIAC CARE EQUIPMENT VASC ULAR TREATMENTS AND SENSING TECHNOLOGIES VITAL SIGN MON ITORS ETC WHICH ARE AN EQUIPMENT AS A WHOLE IN ITSELF. WE NOT E THAT BOTH ASSESSEE AS WELL AS THIS COMPANY CATER TO MEDICAL I NDUSTRY HOWEVER THE PRODUCTS MANUFACTURED BY ASSESSEE AND T HIS COMPANY ARE DIFFERENT. 6.5. AS NOTICED HEREINABOVE ASSESSEE IS A CONTRACT SERVICE PROVIDER MANUFACTURING COMPONENTS THAT IS USED IN M EDICAL IMAGING EQUIPMENTS WHEREAS THIS COMPANY MANUFACTURE S THE EQUIPMENTS/DEVICES AS A WHOLE WHICH IS USED IN CARD IAC CARE SYSTEM. AT THIS JUNCTURE WE OBSERVES THAT IS VERY DIFFICULT TO IDENTIFY AN IDENTICAL KIND OF COMPARABLE THAT HAS F UNCTIONS SIMILAR TO THAT OF ASSESSEE. IT IS FOR THIS REASON THAT ASSESSEE ADOPTED TNM AS THE MOST APPROPRIATE METHOD WHICH P ROVIDES COMPARABILITY OF NET PROFITS THAT COMPARABLE INDEPE NDENT BUSINESS EARN FROM THEIR TRADING ACTIVITIES IN COMP ARABLE MARKETS WITH OTHER THIRD PARTIES. WHICH IS WHY THI S METHOD HAS BECOME A DEFAULT METHOD FOR ALL THE TAXPAYERS. THE COMPARABILITY STANDARD FOR THE PURPOSE OF THE TRANSACTIONAL NET M ARGIN METHOD PAGE 19 OF 33 ITA NO.3263/BANG/2018 HAS TO BE MAINTAINED HIGHER THAN OTHER METHODS AS T HE METHOD DIRECTLY DEALS WITH THE NET PROFIT MARGIN. HOWEVER UNLIKE TRADITIONAL METHODS TRANSACTIONAL NET MARGIN METHO D DOES NOT DEPEND ON PRODUCT COMPARABILITY OR FUNCTIONAL COMPA RABILITY. 6.6. WE NOTE THAT IN CASE OF THE COMPARABLE THE A VERAGE RECEIVABLES FOR THE YEAR ENDING 31/03/2014 ARE 599. 63 CRORES WHEREAS THE SALES DURING THE YEAR WERE 262.78 CRORE S. THIS SHOWS THAT THIS COMPANY HAS HUGE TURNOVER. HOWEVER WE ALSO NOTE THAT WHILE COMPARING IT WITH THE ASSESSEE AP PROPRIATE WORKING CAPITAL ADJUSTMENT MUST BE ALLOWED TO ASSES SEE IN RESPECT OF THIS COMPANY. 6.7. WE THEREFORE DO NOT FIND ANY INFIRMITY IN RETA INING THIS COMPARABLE IN THE FINALIST HOWEVER APPROPRIATE WORK ING CAPITAL ADJUSTMENT IS TO BE GRANTED TO ASCERTAIN THE MARGIN TO BE COMPARED WITH THAT OF ASSESSEE. ACCORDINGLY WE DIRE CT THE LD.AO/TPO TO RECOMPUTE THE MARGIN OF THIS COMPARABL E BY TAKING THE WORKING CAPITAL ADJUSTMENT INTO CONSIDER ATION. IN THE RESULT THIS COMPARABLE RAISED BY ASSESSEE FO R EXCLUSION IS REMANDED TO THE LD.TPO FOR RECOMPUTING THE MARGINS IN ACCORDANCE WITH DIRECTIONS HEREINABOVE. ACCORDINGLY GROUND NO. 8 RAISED BY ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. 7. GROUND NO.9-10 HAS BEEN RAISED BY ASSESSEE SEEKING INCLUSION OF FOLLOWING COMPARABLES. THE ASSESSEE SEEKS INCLUSION OF ARTIMES ELECTRICALS LTD. CONTINENTAL DEVICE INDIA LTD. INSTA POWER LTD. JO SHI ELECTRONICS PAGE 20 OF 33 ITA NO.3263/BANG/2018 & ELECTRICALS PVT.LTD. NAINA SEMICONDUCTORS LTD. RUTTONSHA INTERNATIONAL RECTIFIER LTD. SAYS SYSCA LED LIGHTS PVT LTD. 7.1. IT IS SUBMITTED BY THE LD.COUNSEL THAT IN THE EVENT OPTO CIRCUITS INDIA PVT.LTD. IS RETAINED THEN THESE CO MPARABLES MAY ALSO BE RETAINED AS IT FALLS WITHIN THE SAME INDUST RY DESCRIPTION AS THAT OF OPTO CIRCUITS. 7.2. HE SUBMITTED THAT THESE COMPARABLES WERE NEVER EVEN CONSIDERED BY THE LD.TPO AND HAS BEEN REJECTED AT T HE OUTSET. HE PLACED RELIANCE ON OBSERVATIONS BY THE LD.TPO AT PA GE 24 OF THE ORDER PASSED UNDER SECTION 92CA OF THE ACT. 7.3. WE HAVE DEALT WITH THE REASONS FOR RETAINING O PTO CIRCUITS. THE LD.TPO REJECTED THESE COMPARABLES AS THEY DO NO T MANUFACTURE COMPONENTS THAT FORM PART OF MEDICAL EQ UIPMENTS AKIN TO MEDICAL INDUSTRY. HOWEVER THE LD.TPO HAS N OT ANALYSED THE QUANTITATIVE FILTERS AS ASSESSEE IS USING TNMM AS MOST APPROPRIATE METHOD WHICH IS NOT UNDER OBJECTION. WE MAY ALSO DIRECT THE LD.TPO TO CONSIDER THE INDUSTRY TO WHICH THESE COMPARABLES CATER. ONLY IN THE EVENT IT IS MANUFACT URING DEVICES/COMPONENTS THAT CATER TO MEDICAL INDUSTRY I T MAY BE CONSIDERED FOR FURTHER ANALYSIS. 7.4. WE THEREFORE REMAND THESE COMPARABLES BACK TO LD.TPO TO VERIFY THESE COMPARABLES ON QUANTITATIVE FILTERS. A SSESSEE IS DIRECTED TO PROVIDE ALL REQUISITE DETAILS/INFORMATI ON IN ORDER TO ASSIST THE LD.TPO TO CARRY OUT THE FAR ANALYSIS WIT H ASSESSSEE. IN THE EVENT THESE COMPARABLES ARE FOUND TO BE SATI SFYING THE QUANTITATIVE FILTERS APPLIED BY THE LD.TPO THEY MAY BE CAN PAGE 21 OF 33 ITA NO.3263/BANG/2018 INCLUDED IN THE FINAL SET OF COMPARABLES BY GRANTIN G APPROPRIATE WORKING CAPITAL ADJUSTMENTS. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS A LLOWED FOR STATISTICAL PURPOSES. 8. GROUND NO.10 IS IN RESPECT OF INCLUSION OF PREMIER MEDICAL CORPORATION PVT.LTD AND SOUTH INDIA SURGICAL CO LTD . PREMIER MEDICAL CORPORATION PVT.LTD 8.1. THE LD.COUNSEL SUBMITTED THAT THIS COMPARABLE MANUFACTURES SIMILAR PRODUCTS AS THAT OF ASSESSEE A ND PASSES THROUGH ALL THE FILTERS APPLIED BY THE LD.TPO HE SU BMITTED THAT THIS COMPARABLE WAS INCLUDED IN THE SEARCH RESULT T HAT FORMED PART OF NOTICE DATED 23/10/2017 BY THE LD.TPO. IT W AS SUBMITTED THAT THE LD.TPO HIMSELF WAS OF THE OPINION THAT T HIS COMPANY IS TO BE CONSIDERED AS A COMPARABLE COMPANY HOWEVER T HE SAME STOOD REJECTED WITHOUT GIVING ANY OPPORTUNITY OF BE ING HEARD. THE LD.COUNSEL SUBMITTED THAT THIS COMPANY IS FUNCTION ALLY SIMILAR TO ASSESSEE AS IT IS ENGAGED IN DEVELOPING POINT OF CARE RAPID TESTS. IT HAS BEEN SUBMITTED THAT FOLLOWING THE BRO AD FUNCTIONAL SIMILARITY THAT IS REQUIRED UNDER TNMM THIS COMPAR ABLE MAY BE INCLUDED IN THE FINAL LIST. 8.3. ON THE CONTRARY THE LD.SR.DR SUBMITTED THAT THIS COMPANY BASICALLY CATERS TO PHARMACEUTICAL RESEARCH COMPANI ES AS IT IS BASICALLY IN ENGAGED IN DEVELOPING THE RAPID DIAGNO STIC TESTS TO DETECT INFECTIOUS DISEASES FERTILITY CANCER SCREE NING CARDIAC MARKER TESTS THYROID RANGE TESTS AND DRUG OF ABUSE TESTS ETC. SHE THUS OBJECTED FOR ITS INCLUSION. PAGE 22 OF 33 ITA NO.3263/BANG/2018 8.4. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH S IDES IN LIGHT OF RECORDS PLACED BEFORE US. NO DOUBT UNDER TNMM BROAD COMPARABILITY MUST BE THE CRITERIA TO SHORTLIST THE COMPARABLES HOWEVER THE COMPARABL ES SO SELECTED MUST BE CATERING TO THE INDUSTRY TO WHICH THE ASSESSEE ALSO CATERS. WE NOTE THAT THE COMPARABLE UNDER CON SIDERATION CATERS TO DIAGNOSTIC CENTRES WHEREIN VARIOUS TEST NEEDS TO BE CARRIED OUT FOR IDENTIFYING A DRUG IN THE PROCESS O F TREATMENT OR DIAGNOSIS. THE ASSESSEE IS ENGAGED IN MANUFACTURING OF COMPONENT USED IN MEDICAL IMAGING. IN OUR VIEW BOTH ASSESSEE AS WELL AS THIS COMPARABLE CATERS TO MEDICAL INDUSTRY AND THEREFORE IT NEEDS TO BE ANALYSED IN RESPECT OF OTHER QUANTIT ATIVE SIMILARITIES. WE THEREFORE REMAND THIS COMPARABLE B ACK TO THE LD.TPO TO CONSIDER IT ON THE OTHER QUANTITATIVE FIL TERS APPLIED. ACCORDINGLY THIS COMPARABLE ALLEGED BY ASSESSEE FOR INCLUSION STANDS REMANDED TO LD.TPO FOR FRESH ADJUDICATOIN. SOUTH INDIA SURGICAL CO LTD. 8.5. THE LD.COUNSEL IS SEEKING INCLUSION OF THIS CO MPARABLE AS IT IS INVOLVED IN MANUFACTURING SIMILAR PRODUCTS THAT OF ASSESSEE. IT HAS BEEN SUBMITTED THAT THIS COMPARABLE PASSES THRO UGH ALL THE FILTERS APPLIED BY THE LD.TPO. THE LD.COUNSEL SUBMI TTED THAT THIS COMPARABLE WAS REJECTED ONLY FOR THE REASON THAT IT FAILS THE PERSISTENT LOSS FILTER. THE LD.COUNSEL SUBMITTED TH AT THIS COMPARABLE WAS SELECTED IN THE SHOW CAUSE NOTICE IS SUED BY THE LD.TPO. PLACING RELIANCE ON THE OBSERVATIONS OF THE DRP AT PAGE 7 THE LD.COUNSEL SUBMITTED THAT LD.TPO WAS DIRECTE D TO LOOK PAGE 23 OF 33 ITA NO.3263/BANG/2018 INTO THE CLAIM OF ASSESSEE WHETHER THE CALCULATION HAS BEEN DONE CORRECTLY. HOWEVER THE DRP FINALLY UPHELD ITS EXCLU SION FOR MAKING PERSISTENT LOSS. 8.6. ON THE CONTRARY THE LD.SR.DR SUBMITTED THAT T HIS COMPANY SHOWS NEGATIVE PROFITS IN THE PREVIOUS YEAR AND THE REFORE DOES NOT FULFIL THE CRITERIA OF PERSISTENT LOSS FILTER APPLI ED BY THE LD.TPO. THE LD.SR.DR THUS SUPPORTED THE EXCLUSION OF THIS C OMPARABLE FROM FINALIST. 8.7. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH S IDES IN LIGHT OF RECORDS PLACED BEFORE US. IN OUR VIEW COMPARABLE COMPANIES CANNOT BE EXCLUDED UNLESS THE FUNCTIONAL PROFILE IS DIFFERENT. IT CANNOT BE OUTRI GHTLY REJECTED MERELY BY APPLYING CONSISTENT LOSS-MAKING FILTER. C OMPREHENSIVE FAR ANALYSIS IS VITAL FOR APPROPRIATE RESULTS. ACCO RDING TO RULE 10B(4) OF INCOME TAX RULES 1962 THE DATA FOR TWO PRECEDING YEARS RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION MAY BE CONSIDERED. IT IS THEREFORE NECESSARY THAT THE LD.T PO CARRIES OUT A DETAILED FAR ANALYSIS BEFORE REJECTING A COMPARABLE ON ANY ONE OF QUANTITATIVE FILTERS SO APPLIED. 8.8. WE ACCORDINGLY REMAND THIS COMPARABLE BACK TO LD.TPO TO CONSIDER FAR ANALYSIS OF THIS COMPANY WITH THAT OF ASSESSEE IN ORDER TO ASCERTAINED THE REASON BEHIND A CONSISTENT LOSS IN THE PRECEDING 2 ASSESSMENT YEAR. ACCORDINGLY THIS COMPARABLE IS REMANDED BACK TO LD. TPO FOR FRESH ADJUDICATION. PAGE 24 OF 33 ITA NO.3263/BANG/2018 9. GROUND NO.11-18 IS IN RESPECT OF COMPARABLES SOUGHT FOR INCLUSION BY ASSESSEE. IT HAS BEEN SUBMITTED BY THE LD.COUNSEL THAT ALL C OMPARABLES ALLEGED FOR INCLUSION IN THESE GROUNDS WERE ADDITIO NAL COMPARABLES PROPOSED BY ASSESSEE DURING THE TRANSFE R PRICING ASSESSMENT PROCEEDINGS. IT WAS SUBMITTED THAT AMON GST THE COMPARABLES SOUGHT FOR EXCLUSION IN THESE GROUNDS THE LD.TPO DID NOT COMMENT IN RESPECT OF KIREETI SOFT TECHNOLO GIES LTD. HOWEVER THE DRP HELD IT TO BE NOT COMPARABLE. 9.1. IT HAS BEEN SUBMITTED BY THE LD.COUNSEL THAT T HESE COMPARABLES HAVE BEEN SOUGHT FOR INCLUSION FOR ENGI NEERING DESIGN SERVICE SEGMENT. AKSHAY SOFTWARE TECHNOLOGIES LTD. 9.2. IT IS SUBMITTED THAT THIS COMPARABLE IS FUNCT IONALLY SIMILAR TO THAT OF ASSESSEE AND IS ENGAGED IN PROCUREMENT INSTALLATION IMPLEMENTATION SUPPORT AND MAINTENANCE OF ERP PROD UCTS AND SERVICES. IT HAS BEEN SUBMITTED THAT THIS COMPANY E ARNS REVENUE FROM SOFTWARE SERVICES. IT IS ALSO SEEN THAT MAJORI TY OF THE INCOME IS EARNED BY THIS COMPANY FROM SOFTWARE RELATED SER VICES. HE SUBMITTED BY THE LD.COUNSEL THAT THIS VIEW REJECTED THIS COMPARABLE AS IT WAS PROVIDING PROFESSIONAL SERVICE S PROCUREMENT INSTALLATION IMPLEMENTATION SUPPORT AND MAINTENANCE OF ERP PRODUCTS AND SERVICES IN INDIA A ND OVERSEAS. WHEREAS THE DRP UPHELD THE REJECTION OF THIS COMPA RABLE AS THIS WAS HAVING A DIFFERENT MODEL AND THEREFORE FUNCTION ALLY NOT SIMILAR. THE DRP OBSERVED THAT 85% OF THE TOTAL EXP ENDITURE IN PAGE 25 OF 33 ITA NO.3263/BANG/2018 CASE OF THIS COMPANY PERTAINS TO FOREIGN BRANCH EXP ENDITURE AND SUBSTANTIAL PART OF SUCH EXPENDITURE WAS INCURRED T OWARDS EMPLOYEE BENEFIT. 9.3. IT HAS THUS BEEN SUBMITTED BY THE LD.COUNSEL T HAT THE REASONING BEHIND EXCLUSION OF THIS COMPARABLE BY TH E LD.TPO AS WELL AS THE DRP IS DIFFERENT. BOTH THE DRP AS WELL AS THE LD.TPO HAS NOT ESTABLISHED HOW THIS COMPARABLE IS FUNCTION ALLY NOT SIMILAR WITH THAT OF ASSESSEE. 9.4. ON THE CONTRARY THE LD.SR.DR SUBMITTED THAT THIS COMPARABLE WAS EXCLUDED BY THE LD.TPO IN PRECEDING ASSESSMENT YEAR WHICH HAS NOT BEEN CONTESTED BY ASSESSEE BEFO RE THIS TRIBUNAL . 9.5. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH S IDES IN LIGHT OF RECORDS PLACED BEFORE US. WE NOTE THAT THE EMPLOYEE COST FILTER IS MORE THAN 75%. THIS HAS BEEN OBSERVED BY THE LD.TPO AS WELL AS DRP. ADMITTE DLY THIS COMPARABLE HAS NOT BEEN CONTESTED BY ASSESSEE IN TH E PRECEDING ASSESSMENT YEAR BEING ASSESSMENT YEAR 2011-12. AN O RDER PASSED BY COORDINATE BENCH OF THIS TRIBUNAL FOR ASSESSMENT YEAR 2011-12 IS PLACED IN THE PAPER BOOK AT PAGE 44 ALON G WITH WRITTEN SUBMISSIONS. WE ACCORDINGLY DO NOT FIND ANY INFIRMITY IN THIS CO MPARABLE BEING EXCLUDED FROM THE FINALIST. SASKEN COMMUNICATIONS TECHNOLOGIES LTD. 9.6. THE LD.COUNSEL SUBMITTED THAT THIS COMPARABLE IS FUNCTIONALLY SIMILAR WITH ASSESSEE AS IT IS INVOLVE D IN PAGE 26 OF 33 ITA NO.3263/BANG/2018 COMMUNICATIONS SOLUTIONS. IT HAS BEEN SUBMITTED THA T THIS COMPARABLE IS INVOLVED IN AUTOMOTIVE INDUSTRY SMAR T DEVICES AND WEARABLES ENTERPRISE GRADE DEVICES SATCOM AND TRANSPORTATION INDUSTRIES. IT HAS THUS BEEN SUBMITT ED THAT THIS COMPARABLE HAS FUNCTIONS SOFTWARE DEVELOPMENT SEGME NT WHICH IS AKIN TO ASSESSEE. 9.7. ON THE CONTRARY THE LD.SR.DR SUBMITTED THAT TH IS COMPARABLE IS INTO AUTOMATION SECTOR WHEREAS ASSES SEE IS INTO ENGINEERING DESIGNS THAT USES CERTAIN COMPUTER-BASE D SOFTWARE. SHE SUBMITTED THAT THIS COMPANY IS NOT AT ALL COMPA RABLE WITH THAT OF ASSESSEE. 9.8. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH S IDES IN LIGHT OF RECORDS PLACED BEFORE US. WE NOTE THAT THIS COMPANY IS NOT IN THE SIMILAR FUN CTIONS AS THAT OF ASSESSEE AND THEREFORE IS NOT FUNCTIONALLY COMPA RABLE. IT IS ALSO NOTED THAT THIS COMPANY IS INTO DEVELOPMENT OF SOFTWARE PRODUCTS AND HENCE IS AN COMPARABLE WITH THAT OF AS SESSEE UNDER THIS SEGMENT. ACCORDINGLY WE UPHOLD THE REJECTION OF THIS COMPAR ABLE FROM THE FINALIST. 9.9. DAFFODIL SOFTWARE LTD. I2T2 LTD. KIREETI SOF T TECHNOLOGIES LTD. EXILANT TECHNOLOGIES PVT.LTD. C ELSTREAM TECHNOLOGIES LTD. MAVERIC SYSTEMS LTD. EVOKE TECH NOLOGIES LTD. PAGE 27 OF 33 ITA NO.3263/BANG/2018 IT IS SUBMITTED BY THE LD.COUNSEL THAT THESE WERE ADDITIONAL COMPARABLES FILED BY ASSESSEE BEFORE THE LD.TPO WHI CH WERE REJECTED. 9.10. WE HAVE HEARD THE SUBMISSIONS ADVANCED BY BOT H SIDES IN LIGHT OF RECORDS PLACED BEFORE US IN RESPECT OF THE SE COMPARABLES. WE HAVE ALSO PERUSED THE ANNUAL REPORTS PLACED IN T HE PAPER BOOK. WE NOTE THAT DAFFODIL SOFTWARE LTD. I2T2 LTD. EXILANT TECHNOLOGIES PVT.LTD. CELSTREAM TECHNOLOGIES LTD. AND MAVERIC SYSTEMS LTD. ARE ENGAGED IN SOFTWARE ENGINEERING P RODUCTS. WE NOTE THAT THESE COMPARABLES HAVE NOT BEEN VERIFI ED BY THE LD.TPO IN TERMS OF FAR ANALYSIS WITH THAT OF ASSESS EE AND HAS REJECTED BY APPLYING ONE OR OTHER FILTER ON QUANTIT ATIVE BASIS. AS ASSESSEE IS USING TNM AS MOST APPROPRIATE METHOD T HE FUNCTIONS PERFORMED ASSETS OWNED AND RISK ASSUMED BY THE COMP ARABLES VIS-A-VIS ASSESSEE. ACCORDINGLY WE REMAND THESE COM PARABLES BACK TO LD.TPO FOR DE NOVO VERIFICATION. 9.11. WE NOTE THAT KIREETI SOFT TECHNOLOGIES LTD. AND TVOKE TECHNOLOGIES LTD. ARE INTO INFORMATION TECHNOLOGY S ERVICES WHICH IS NOT SIMILAR TO ENGINEERING DESIGN SERVICES. AS T HESE COMPARABLES ARE NOT PRIMARILY COMPARABLE ON FUNCTIO NALITY THE OTHER PARA METERS NEED NOT BE LOOKED INTO. ACCORDIN GLY THESE COMPARABLES STANDS REJECTED TO BE CONSIDERED FOR IN CLUSION. WE ALSO DIRECT THE LD.TPO TO GRANT WORKING CAPITAL ADJUSTMENT IN ACCORDANCE WITH LAW IN RESPECT OF THE COMPARABLES FINALLY RETAINED. PAGE 28 OF 33 ITA NO.3263/BANG/2018 IN THE RESULT THESE GROUNDS RAISED BY ASSESSEE STAN DS PARTLY ALLOWED. 10. NOTHING HAS BEEN ARGUED IN RESPECT OF GROUND NO. 19-22. 11. GROUND NO.23 IS IN RESPECT OF DISALLOWANCE OF PROVISION OF EXPENSES UNDER SECTION 40(A)(IA) OF THE ACT BEING T HE YEAR-END PROVISION. 11.1. IT HAS BEEN SUBMITTED THAT THE DECISION RELIE D BY THE AUTHORITIES BELOW HAS BEEN REVERSED BY HONBLE KARNATAKA HIGH COURT . 11.2. THE LD.SR.DR RELIED ON THE ORDERS PASSED BY A UTHORITIES BELOW. 11.3. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. WE NOTE THAT AUTHORITIES BELOW RELIED ON DECISION O F COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF TOYOTA KIRLOSKAR MOTORS PRIVATE LIMITED IN ITA NO. 1185/B A NG/2014 FOR ASSESSMENT YEAR 2012- 13 DATED 31/10/2017 . THE SAID DECISION HAS BEEN REVERSED BY THE HONBLE KARNATAKA HIGH COURT IN ITA NO. 245/2018 BY ORDER DATED 24/03/2021 . WE NOTE THAT HONBLE KARNATAKA HIGH COURT DISCUSSED THE ISSUE IN DETAIL AND HAS HELD THAT IN THE ABSENCE OF INCOME ACCRUING TO ANYONE UNDER THE ACT THE LIABILI TY TO DEDUCT TDS ON THE ASSESSEE COULD NOT HAVE BEEN FASTENED. HONBLE COURT HELD AS UNDER: 11. IN THE LIGHT OF AFORESAID WELL-SETTLED LEGAL P OSITION WE MET WERE TO THE FACTS OF THE CASE ON HAND. IN THE I NSTANT CASE PAGE 29 OF 33 ITA NO.3263/BANG/2018 THE PROVISION WAS CREATED DURING THE COURSE OF THE YEAR REVERSAL OF ENTRY WAS ALSO MADE IN THE SAME ACCOUNT ING YEAR. THE ASSESSING OFFICER ERRED IN LAW IN HOLDING THAT ASSESSEE SHOULD HAVE DEDUCTED TAX AS PER THE RATE APPLICABLE ALONG WITH INTEREST. THE AUTHORITIES UNDER THE ACT OUGHT TO HAVE APPRECIATED THAT THE ABSENCE OF ANY INCOME ACCRUING TO ANYONE UNDER THE ACT THE LIABILITY TO DEDUCT TDS O N THE ASSESSEE COULD NOT HAVE BEEN FASTENED AND CONSEQUEN TLY THE PROCEEDINGS UNDER SECTION 201 AND 201(1A) COULD NOT HAVE BEEN INITIATED. FOR THE AFOREMENTIONED REASON THE S UBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR OF ASSESSEE A ND AGAINST THE REVENUE. 11.4. THE BASIS ON WHICH THE DISALLOWANCE WAS MADE HAS BEEN REVERSED BY HONBLE KARNATAKA HIGH COURT . ACCORDINGLY WE DIRECT THE LD.AO TO GRANT THE CLAIM OF ASSESSEE UPON VERIFICATION IN ACCORDANCE WITH LAW AND THE PR INCIPLE LAID DOWN BY HONBLE KARNATAKA HIGH COURT . ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. 12. GROUND NO.24 IS IN RESPECT OF SHORT CREDIT COMPUTED BY THE LD.AO FOR WHICH A DIRECTION IS TO BE GIVEN. IT HAS BEEN SUBMITTED THAT RECTIFICATION APPLICATIO N IN RESPECT OF THE TAX CREDIT HAS BEEN FILED AND IS PENDING BEFORE THE LD.AO. WE DIRECT THE LD.AO TO VERIFY THE DETAILS FILED BY ASS ESSEE IN RESPECT OF THE TDS CREDITED AND TO ALLOW THE CLAIM IN ACCOR DANCE WITH LAW. PAGE 30 OF 33 ITA NO.3263/BANG/2018 ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. ADDITIONAL GROUND NO.26: 13. THE LD.COUNSEL SUBMITTED THAT THE ISSUE STANDS SQUARELY COVERED BY DECISION OF HONBLE RAJASTHAN HIGH COURT IN CASE OF CHAMBAL FERTILIZERS AND CHEMICALS LTD. V. JT. CIT IT APPEAL NO. 52 OF 2018 BY ORDER DATED 31-7-2018. 13.1. IT IS SUBMITTED THAT EDUCATION CESS IS NOT T AX AND HENCE IS NOT DISALLOWABLE. WE ALSO RELY ON THE JUDGMENT OF HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF CHAMBAL FERTILIZERS AND CHEMICALS LTD. V. JT. CIT (SUPRA) WHICH AFTER TAKING INTO ACCOUNT AFOREMENTIONED CBDT CIRCULAR HELD THAT SECTION 40( A )( II ) APPLIES ONLY TO TAXES AND NOT TO EDUCATION CESS. RELEVANT E XTRACT OF THE DECISION IS REPRODUCED FOR EASE OF REFERENCE:- '13. ON THE THIRD ISSUE IN APPEAL NO. 52/2018 IN V IEW OF THE CIRCULAR OF CBDT WHERE WORD 'CESS' IS DELETED IN O UR CONSIDERED OPINION THE TRIBUNAL HAS COMMITTED AN E RROR IN NOT ACCEPTING THE CONTENTION OF THE ASSESSEE. APART FRO M THE SUPREME COURT DECISION REFERRED THAT ASSESSMENT YEA R IS INDEPENDENT AND WORD CESS HAS BEEN RIGHTLY INTERPRE TED BY THE SUPREME COURT THAT THE CESS IS NOT TAX IN THAT VIEW OF THE MATTER WE ARE OF THE CONSIDERED OPINION THAT THE V IEW TAKEN BY THE TRIBUNAL ON ISSUE NO. 3 IS REQUIRED TO BE REVER SED AND THE SAID ISSUE IS ANSWERED IN FAVOUR OF THE ASSESSEE.' RESPECTFULLY FOLLOWING THE AFORESAID VIEW WE ALLOW THE ADDITIONAL GROUND NO. 26 RAISED BY ASSESSEE. PAGE 31 OF 33 ITA NO.3263/BANG/2018 ADDITIONAL GROUND NO.27-30 14. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN THE LIGHT OF RECORDS PLACED BEFORE US. IN THESE GROUNDS ASSESSEE SEEKS EXCLUSION OF FOLLOW ING COMPARABLES: LARSEN AND TOUBRO INFOTECH LTD. PERSISTENT SYSTEMS LTD. MINDTREE LTD. 14.1. THE LD.COUNSEL SUBMITTED THAT ASSESSEE PROVID ES ENGINEERING DESIGN SERVICES INCLUDING PROVIDING ENG INEERING DRAWINGS/DESIGNS BOTH 2D AND 3D MODELS BY USING SOF TWARE LIKE CAD CAA EXCEPT RACK FOR MEDICAL PRODUCTS AND SOLVI NG GLOBAL GE HEALTHCARE CUSTOMER RELATED DESIGN PROBLEMS AND ISSUES. HE SUBMITTED THAT THESE COMPARABLES SOUGHT FOR EXCLUSI ON ARE PRODUCT BASED ENGINEERING SERVICES. IT IS SUBMITTED THAT THESE COMPARABLES ARE BASICALLY INTO PRODUCT SERVICES AND TECHNOLOGY INNOVATION. THE ASSESSEE DID NOT OBJECT FOR INCLUSI ON OF THESE COMPARABLES BEFORE THE DRP HOWEVER IT IS BEFORE TH IS TRIBUNAL THAT THEY HAVE BEEN SOUGHT FOR EXCLUSION. THEIR WER E OTHER COMPARABLES SOUGHT BY ASSESSEE FOR INCLUSION UNDER THIS SEGMENT WHICH ARE ALSO INTO ENGINEERING DESIGN SERVICES AND WE HAVE REMANDED THOSE COMPARABLES TO THE LD.TPO TO CONSIDE R IT AFRESH IN THE LIGHT OF FAR ANALYSIS IN ACCORDANCE WITH LAW . 14.2. WE REMAND THESE COMPARABLES ALSO BACK TO LD.T PO TO READJUDICATE IN IT BASED ON FAR ANALYSIS. THE LD. T PO SHALL CONSIDER ALL THE OBJECTIONS RAISED BY ASSESSEE IN R ESPECT OF THESE PAGE 32 OF 33 ITA NO.3263/BANG/2018 COMPARABLES IN THE LIGHT OF FAR ANALYSIS AND TO CON SIDER THE CLAIM IN ACCORDANCE WITH LAW. NEEDLESS TO SAY THAT PROPER OPPORTUNITY OF BEING HEARD MUST BE GRANTED TO ASSESSEE. ACCORDINGLY THESE GROUNDS RAISED BY ASSESSEE STAND S ALLOWED FOR STATISTICAL PURPOSES. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS ALLOW ED PARTLY AS INDICATED HEREINABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST AUGUST 2021 SD/- SD/- (CHANDRA POOJARI) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMB ER BANGALORE DATED THE 31 ST AUG 2021. /VMS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT BANGALORE PAGE 33 OF 33 ITA NO.3263/BANG/2018 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR -8- 2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER -8- 2021 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. -8- 2021 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS -8- 2021 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON -8- 2021 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE -8- 2021 SR.PS 8. IF NOT UPLOADED FURNISH THE REASON -- SR.PS 9. FILE SENT TO THE BENCH CLERK -8- 2021 SR.PS 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER. 13. DRAFT DICTATION SHEETS ARE ATTACHED NO SR.PS