EMERSON ELECTRIC COMPANY (INDIA) PRIVATE LIMITED,MUMBAI vs. ADDL/JT/DY/ASSTT/CIT/ITO , DELHI

The present appeal has been filed by the assessee challenging the impugned final assessment order dated 29/01/2022, passed under section 143(3) read with section 144C(13) of the Income Tax Act, 1961 ("the Act"), pursuant to the directions dated 27/12/2021, issued by the learned Commissioner of Income Tax (DRP–1), Mumbai–3, [“learned DRP”], issued under section 144C(5) of the Act for the assessment year 2017–18.

Emerson Electric Company (India) Pvt. Ltd. ITA no.555/Mum./2023 enabled services, and manufacturing of horns and electric motors for elevator application. For the year under consideration, the assessee filed its return of income on 30/11/2017, declaring gross total income of Rs. 203,94,21,362. The return filed by the assessee was selected for scrutiny and statutory notices under section 143(2) as well as section 142(1) of the Act were issued and served on the assessee. Pursuant to the reference by the Assessing Officer (“AO”) under section 92CA(1) of the Act, the Transfer Pricing Officer (“TPO”) proposed a total transfer pricing adjustment of Rs. 12,42,61,908 vide order dated 19/01/2021, passed under section 92CA(3) of the Act. In conformity, the AO passed the draft assessment order dated 28/03/2021, under section 143(3) r/w section 144C(1) of the Act after making various additions/disallowances. While deciding assessee’s objections against the addition/disallowances made by the TPO/AO, the learned DRP vide its directions dated 27/12/2021, granted partial relief to the assessee. In conformity with the directions issued by the learned DRP, the AO passed the impugned final assessment on 29/01/2022 under section 143(3) r/w section 144C(13) of the Act. Being aggrieved, the assessee has raised the following grounds:-

“1. Ground no. 1 General ground On the facts and in the circumstances of the case and in law, the Learned Assessing Officer (Ld. AO) based on the directions of the Dispute Resolution Panel (DRP), erred in making total addition of Rs. 14.52.72,061 as per the order passed by the Ld. AO (Rs. 14,93.58.395 as per computation sheet) to the total income of the Appellant.

2. Ground no. 2 Income from business or profession - Transfer pricing adjustment On the facts and circumstances of the case and in law, the Ld. AO has erred in overstating the total income of the Appellant by Rs. 40,86,334 in the computation sheet to the order, even though the LA. DRP had Page | 2 Emerson Electric Company (India) Pvt. Ltd. ITA no.555/Mum./2023 granted relief of Rs. 40,86,332 in the transfer pricing adjustment made by the Ld. TPO. The Appellant prays that the AO be directed to compute the total taxable income as Rs. 2.18,46,93.421/-instead of Rs. 2,18,87.79,755.

5. Ground no. 5 – TP Adjustment on account of provision of engineering and related services (Engineering) segment - INR 6,79,69,676 Page | 3 Emerson Electric Company (India) Pvt. Ltd. ITA no.555/Mum./2023 On the facts and in the circumstances of the case and in law, the Learned AO/TPO erred in making an adjustment for provision of engineering and related services by: a) Disregarding the TP Study maintained by the Appellant in good faith and with due diligence; and b) Disregarding the aggregation approach adopted by the Appellant by segregating the three divisions of the Appellant within the engineering and related services segment and thereafter applying the same benchmarking analysis to such segregated three divisions. The Appellant therefore submits and prays that the aforesaid adjustment be deleted.

6. Ground no. 6 – Disallowance of expenses under Section 14A of the Act r.w. Rule 8D – INR 75.18,750 a) The Ld. AO erred in facts, circumstances and in law in disallowing expenses amounting to Rs.75.18,750 under section 14A of the Actr.w. Rule 8D(2) by considering such expenses related to exempt income. b) Without prejudice to above, the Ld.AO erred in not appreciating that the Appellant has not earned any exempt income during the year and accordingly no disallowance u/s 14A of the Act is warranted The Appellant prays that the aforesaid addition be deleted.

7. Ground no. 7- Addition under provisions of Section 36(1)(va) of the Act 1.75-77-735 INR On the facts and circumstances of the case and in law, in treating the contributions of the employees towards the provident fund amounting to INR 1,75.77.375, not remitted within the due date prescribed by respective Act as income of the Appellant without appreciating the fact that the amounts were deposited before the due date of filing of return of income for AY 2017-18 and hence should be allowable under section 43B of the Act. The Appellant prays that the aforesaid addition be deleted.

8. Ground no. 8 – Incorrect computation of interest under Section 234B On the facts and circumstances of the case and in law, the Ld. AO has erred in computing and levying interest of Rs. 3,41,68,010 under section 234B of the Act. The Appellant prays that the Ld. AO be directed to recompute the interest under Section 234B as per law.

9. Ground no. 9 - Incorrect computation of interest under Section 234C On the facts and circumstances of the case and in law, the Ld. AO erred in levying interest of Rs. 13.98,175 under Section 234C instead of Rs.11,91,466. The Appellant prays that the Ld. AO be directed to recompute the interest under Section 234C as per law. Page | 4

Emerson Electric Company (India) Pvt. Ltd. ITA no.555/Mum./2023 10. Ground no. 10- Penalty proceedings On the facts and circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings under section 270A of the Act. The Appellant prays that the Ld. AO be directed to drop the penalty proceedings. All of the above Grounds of Appeal are independent of and without prejudice to each other. Furthermore, the Appellant craves leave to add to, alter, amend, delete, modify or withdraw all or any of the Grounds of Appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.”

3. Ground no.1, raised in assessee’s appeal is general in nature and therefore, needs no separate adjudication.

4. The issue arising in ground no.2, raised in assessee’s appeal, is pertaining to overstating the total income of the assessee in the computation sheet forming part of the final assessment order.

Emerson Electric Company (India) Pvt. Ltd. ITA no.555/Mum./2023 consider the correct amount of total taxable income for computing the total demand payable. Accordingly, ground no.2, raised in assessee’s appeal is allowed for statistical purposes.

“8.1.1.2. Functions performed by Emerson India Emerson India is engaged in providing IT and related support services (hereinafter referred as 'ITeS') for the in-house consumption of the AES The services rendered by Emerson India are primarily in the nature of database management, administration and help desk support services. The services provided by the Company includes the following: i. Application support, database support and maintenance, IT helpdesk support, support integration portals etc. ii. Email server administration and management of applications such as Unix, Linux etc. iii. Operating systems and network administrations Page | 6

Emerson Electric Company (India) Pvt. Ltd. ITA no.555/Mum./2023 iv. Oracle ERP application database administration and management services v. Oracle ERP application usage and troubleshooting support services and product lifecycle management applications. vi. Datacentre support such as Unix admin services, Windows admin services, messaging support service, support for administration of server hosting and related services, etc.”

Emerson Electric Company (India) Pvt. Ltd. ITA no.555/Mum./2023 19/01/2021, passed under section 92CA(3) of the Act arrived at a set of following 12 comparables for benchmarking the international transaction of “Provision of IT support and related services”:-

PLI Sr. Name of Company (OP/OC) No. 23.79 Akshay Infotech Ltd. 1. 7.71 Avantha Business Solutions Ltd. 2. 5.07 Jindal 3. 20.73 Surevin BPO 4. 12.5 Omega healthcare management 5. 15.5 R systems 6. 37.63 Ultramarines & Pigments 7. 18.94 Comviva Technologies 8. 19.78 X S CAD India 9. 22.03 Nilhilent 10. 25.17 Infobeans 11. 30.19 Cygnet 12. 18.94 35th percentile 13. 20.26 Median 14. 22.03 65th Percentile 15.

Emerson Electric Company (India) Pvt. Ltd. ITA no.555/Mum./2023 pricing adjustment made in respect thereof will be deleted. Accordingly, in view of the submissions made by the learned AR, we are confining our findings in ground no. 3 only in respect of the aforesaid five comparables. Further, the other issues raised in ground no. 3 are treated as not pressed and are kept open for adjudication if they arise in assessee’s case in the future.

(i) Comviva Technologies Ltd.

Emerson Electric Company (India) Pvt. Ltd. ITA no.555/Mum./2023

(ii) XS Cad India Private Limited 15. The next comparable challenged by the assessee is XS Cad India Private Limited. This company was included as comparable by the TPO vide order passed under section 92CA(3) of the Act on the basis that it is functionally

Emerson Electric Company (India) Pvt. Ltd. ITA no.555/Mum./2023 comparable to the assessee and satisfies all the filters. Before the learned DRP, the assessee submitted that this company is engaged in diversified activities and has not provided segmental information bifurcating revenue generated from IT support and related services vis-à-vis revenue generated from other activities. The DRP vide its directions rejected the objections filed by the assessee. Being aggrieved, the assessee has challenged the inclusion of this company as comparable.

Emerson Electric Company (India) Pvt. Ltd. ITA no.555/Mum./2023 treats its complete operations as a single segment, i.e. “Information Technology Services”. As noted above, the assessee has made relevant segment reporting in the notes to its financial statements. Since this company is earning revenue from various streams, therefore, in the absence of relevant segmental information, this company cannot be said to be functionally comparable to the assessee. Accordingly, we direct the TPO/AO to exclude XS Cad India Private Limited while benchmarking the international transaction pertaining to “Provision of IT support and related services”.

Nihilent Ltd. (iii) 18. The next comparable challenged by the assessee is Nihilent Ltd. This company was included as comparable by the TPO vide order passed under section 92CA(3) of the Act on the basis that it is functionally comparable to the assessee and satisfies all the filters. Before the learned DRP, the assessee submitted that this company has not provided segmental information bifurcating revenue generated from IT support and related services vis-à-vis revenue generated from other activities. It was further submitted that this company is engaged in the business of transformation, digital transformation, branding & marketing information, and data science & analytics services. Further, it was submitted that this company is involved in other computer- related activities like maintenance of websites of other firms/creation of multimedia presentations for other firms, etc. The learned DRP vide its directions rejected the objections filed by the assessee on the basis that the business activities of this company is functionally comparable and satisfies all the filters. Being aggrieved, the assessee has challenged the inclusion of this company as comparable. Page | 12

Emerson Electric Company (India) Pvt. Ltd. ITA no.555/Mum./2023

Emerson Electric Company (India) Pvt. Ltd. ITA no.555/Mum./2023 (iv) Infobeans Technologies Ltd.

Emerson Electric Company (India) Pvt. Ltd. ITA no.555/Mum./2023 claimed that Infobeans Technologies Ltd provides software engineering services primarily in Custom Application Development, Content Management Systems, Enterprise Mobility, and Big Data Analytics. In the annual report, it is claimed that this company earned 99.26% of its total turnover from computer programming, consultancy, and related activities. We find that the entire revenue from operations, in the financial statement of this company, comprises of income from software services, without any further bifurcation of this revenue and segmental information. We find that even before the learned DRP the assessee raised this objection that no segmented financials of this company are available. Further, this fact was also accepted by the learned DRP that this company has only one segment, i.e. sale of software. However, the learned DRP proceeded to reject the objections filed by the assessee and held this company to be comparable to the assessee. Therefore, we are of the view that in the absence of relevant segmental information, this company cannot be held to be functionally comparable to the assessee. Accordingly, we direct the TPO/AO to exclude Infobeans Technologies Ltd while benchmarking the international transaction pertaining to “Provision of IT support and related services”.

(v) Cygnet Infotech Pvt. Ltd. 24. The next comparable challenged by the assessee is Cygnet Infotech Pvt. Ltd. This company was included as comparable by the TPO vide order passed under section 92CA(3) of the Act on the basis that it is functionally comparable to the assessee and satisfies all the filters. Before the learned DRP, the assessee submitted that the company has not provided segmental information by bifurcating revenue generated from IT support and related services vis-à- Page | 15

Emerson Electric Company (India) Pvt. Ltd. ITA no.555/Mum./2023 vis revenue generated from other activities. It was submitted that this company’s functional profile is different from the assessee and the services are not comparable to that of the assessee. The learned DRP rejected the objections filed by the assessee and held that this company is functionally comparable to the assessee and satisfies all the filters. Being aggrieved, the assessee has challenged the inclusion of this company as comparable.

Emerson Electric Company (India) Pvt. Ltd. ITA no.555/Mum./2023 Therefore, we are of the view that in the absence of relevant segmental information, this company cannot be held to be functionally comparable to the assessee. Accordingly, we direct the TPO/AO to exclude Cygnet Infotech Pvt. Ltd. while benchmarking the international transaction pertaining to “Provision of IT support and related services”.

Emerson Electric Company (India) Pvt. Ltd. ITA no.555/Mum./2023 For benchmarking this transaction, the assessee used TNMM as the most appropriate method with PLI of OP/TC. By considering itself as the tested party, the assessee identified five comparable companies with an average margin of 10.49%. As the assessee computed its own PLI at 10.98% accordingly, it claimed that the international transaction of “Provision of Facilitation Support Services” is at ALP.

Sr. OP/OC Name of Company No. 38.12% Majestic research services & solutions Ltd. 1. 10.60% Kestone integrated marketing services ltd. 2. 0.64% Priya International Ltd. 3. 18.35% Focus suites solutions & services Ltd. 4. 20.04% Axience consulting Pvt. Ltd. 5. 17.55% Arithmetic Mean

Emerson Electric Company (India) Pvt. Ltd. ITA no.555/Mum./2023 Management India Private Ltd., which was excluded by the TPO. Accordingly, in view of the submissions made by the learned AR, we are confining our findings in ground no.4, only in respect of the aforesaid two companies. Further, the other issues raised in ground no.4, are treated as not pressed and are kept open for adjudication, if they arise in assessee’s case in the future.

Axience Consulting Private Ltd. (a) 33. The first comparable challenged by the assessee in respect of an international transaction of “Provision of Facilitation Support Services” is Axience Consulting Private Ltd. This company was included as comparable by the TPO vide order passed under section 92CA(3) of the Act. Before the learned DRP, the assessee submitted that this company is not functionally comparable to the assessee as it is engaged in a diversified range of services. It was further submitted that there is no information relating to segmental breakup in the annual report of this company. The learned DRP vide its directions rejected the objections filed by the assessee and held that this company is also engaged in market research analysis for its clients and experience in business intelligence of specialised nature is rendered for its clients, and thus is functionally similar to the assessee. Being aggrieved, the assessee has challenged the inclusion of this company as comparable.

(b) MCI Management India Private Ltd.

Emerson Electric Company (India) Pvt. Ltd. ITA no.555/Mum./2023

Emerson Electric Company (India) Pvt. Ltd. ITA no.555/Mum./2023 Method upon considering OP/TC as the PLI and treating the assessee as the tested party. The assessee selected five companies as comparable for benchmarking this transaction with an average PLI of 10.93%. Since assessee’s OP/TC margin was 23.13%, the international transaction pertaining to “Provision of Engineering and related services” was claimed to be at arm’s length. During the transfer pricing assessment proceedings, the assessee was asked to show cause as to why the transactions of “Provision of Engineering and related services” be benchmarked separately for FCEC, EEC, and EIC divisions. In response thereto, the assessee submitted that functions performed by FCEC, EEC, and EIC divisions are the same, personal cost incurred as a percentage of total operating cost is almost the same across all three divisions, and the quantum of administrative and selling expenses incurred as a percentage of total operating cost is similar across all the three divisions. The TPO vide order passed under section 92CA(3) of the Act did not agree with the submissions of the assessee and held that the aggregation approach followed by the assessee is flawed. The TPO further held that the transfer pricing charged for all the three divisions being different clearly proves that the functions performed for all the three divisions, i.e. FCEC, EEC, and EIC, are not the same and hence aggregated approach as adopted by the assessee cannot be followed. Thus it was held that the arm’s length price of the international transaction pertaining to “Provision of Engineering and related services” needs to be determined separately since there is no interlinking of the transaction between these three divisions and the price setting mechanism for each division is not dependent on other division. Accordingly, the TPO proposed an upward adjustment of Rs. 6,49,09,463 in Emerson Electric Company (India) Pvt. Ltd. ITA no.555/Mum./2023 respect of international transaction pertaining to “Provision of Engineering and related services”. The learned DRP, vide its directions, after noting that the issue involved is recurring in nature and the grounds raised are similar to that of earlier years rejected the objections filed by the assessee by following the directions as rendered in preceding assessment years in order to keep the issue alive since the decision of the DRP cannot be challenged by the Department. In conformity with the learned DRP’s directions, the AO passed the impugned final assessment order. Being aggrieved, the assessee is in appeal before us.

“6.1. We find that the primary argument of the Id. AR was that in the case of the assessee, the segmental data of each of the divisions 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 its engineering and related services segment. The Id. 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 Id. TPO in earlier years after due examination of the international transactions of the assessee. It was pleaded that there is no Page | 25

Emerson Electric Company (India) Pvt. Ltd. ITA no.555/Mum./2023 change in the functions performed, assets employed and the risks assumed by the assessee in A.Y.2014-15 i.e. the year under appeal vis-à-vis the previous assessment years. Hence, it was pleaded that the Id. TPO was not justified in taking the divergent view during the year under appeal alone. 6.2. It was pleaded that the Id. 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 Id. TPO selected the assessee's own comparable company i.e. Axis IT & T Ltd., in the final set of comparables selected by him. Thus, the Id. 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 divisions falling under the common umbrella which is engineering and related services segment as under:-  Customer approaches  Customer approaches  Customer approaches the AES for supply of AES for supply of the AEs for supply of products products certain products. The engineering services in e  AE communicates  AES source the base rel relation to the products request to division. and engineering ou are goutsourced to the product activities  Once request for a division. required to customise product received from the product to meet the  Based on specification the customer is shared customer's requirement received from the AEs, by the AEs to the outsourced to the designs are developed division, configuration division for the product and engineering of the shared with the AEs for product is undertaken by  The services rendered their inputs and the division based on th by the division approvals. specifications provided includes graphical by the AEs designing and related  The division carries out engineering services. modifications if any  AEs evaluate design/con- These ou services are based on inputs figuration framework and carried out based on ba provided by the AEs. provide inputs for the specifications modification  Post AEs approval, a provided by th the AES. prototype for testing  Post AEs approval, based  The designs developed purposes is developed. on the configuration by the division is shared Third party vendors framework and standard with AEs for their identified by the AEs are price list shared by the approvals. engaged to manufacture AEs, the division draws the prototype and the up the quotation which is  The division carries out prototypes are tested by shared with the AES. modifications if any the division. based on inputs  Once customer finalises provided by the AEs.  The designs and test the quotation, the reports are shared division is involved in  The AEs then shre the with the AES. analysing the Order vis– designs with customers a–vis the quotation to for approval.  AES share the with verify consistency. for designs customers  Post customer approvals.  The division then approval, the AEs develops dimension- develops the product nal drawings and and conducts shares it with the acceptance tests at AEs. the customer location Page | 26

Emerson Electric Company (India) Pvt. Ltd. ITA no.555/Mum./2023  Dimensional  The division  Post customer drawings and provides assistance approvals, the AES configuration to the AEs in manufactures and frameworks are relation to financial supplies the products shared by AEs with analysis and buy to the customers customers for out assistance. approvals. These services are not undertaken on  Post approvals from standalone basis customers, the AEs and are ancillary to manufacture and the engineering supply products to design services the customers rendered by the division.

6.3. The Id. 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, power control systems such as UPS, DCS etc., availed services from both EEEC and EIC divisions during FY 2013-14. Thus, the services 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 Automation 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 by the business divisions are towards a common end use/ application. 6.4. Yet another important point which was pleaded before us by the Id. 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 Id. 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 divisions, manufacturing activity were only done by the AE and assessee company merely provides engineering and related services to its AE thereon. Hence, the Indian company i.e., assessee assumes lesser risks in all the three divisions. Hence, we hold that the Id. 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 that assessee in EIC division subsequent to AES approval, develops proto type for testing purposes. The assessee does not manufacture the proto type. The third party divisions identified by the AES are engaged to Page | 27

Emerson Electric Company (India) Pvt. Ltd. ITA no.555/Mum./2023 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 shared 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 Id. 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 Id. DRP that EIC division is completely different from ECEC and EEC division is to be accepted, still we hold that there is no segmental data available for comparables having EIC division alone for the purpose of benchmarking. Hence, the comparison made by the Id. TPO and upheld by the Id. DRP ignoring the aggregated 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 "class of transaction" is mentioned thereon. We hold that the assessee in the instant case had aggregated 'class of transactions' falling in engineering and design services. From the reading of provisions of Section 92C(1) of the Act, we find that the Section uses the expression "class of associated persons". From the background of the assessee and the AEs reflected in the TP study report, various documents 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 book, 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 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 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 each 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, and 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 transactions are closely linked to each other, as in the case of the assessee before us, under the engineering and related Emerson Electric Company (India) Pvt. Ltd. ITA no.555/Mum./2023 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 10A of the Income Tax Rules, 1962 ('the Rules') defines transactions as - "includes number of closely linked transaction"

17. Other guidelines and regulations Further, we referred to other guidelines and regulations 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 and 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. However, 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 Report 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 transactions. 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 of 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 multiple 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 related 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 class falling under engineering and related services segment. In this regard, the relevant legal provisions are to be looked into which are as under:- Rule 10C (2) of the Rules reads as follows: "(2) In selecting the most appropriate method as specified in sub-rule (1), the following factors shall be taken into account, namely:-

Emerson Electric Company (India) Pvt. Ltd. ITA no.555/Mum./2023 (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 10D of the Rules inter-alia states as follows: "10D (i) Every person 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 international 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. (1) 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 functions 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 pertain 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 transactions are critical. Where (1) 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, it would be prudent to aggregate the international transactions while determining the most appropriate method as per the Indian TP regulations. 6.11. Hence, we hold that the provisions of the Act and the rules permit aggregation of similar class of transactions if the FAR is the same when the services are rendered to a class or classes 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.”

Emerson Electric Company (India) Pvt. Ltd. ITA no.555/Mum./2023

Emerson Electric Company (India) Pvt. Ltd. ITA no.555/Mum./2023 disputed by the Revenue. We find that the Hon’ble Delhi High Court in Cheminvest Ltd. v. CIT: [2015] 378 ITR 33 (Delhi) held that section 14A will not apply if no exempt income is received or receivable during the relevant previous year. We further find that the Hon’ble jurisdictional High Court in Pr.CIT v/s Kohinoor Project (P) Ltd., [2020] 121 taxmann.com 177 (Bom.), rendered similar findings and dismissed the Revenue’s appeal on a similar issue. Since, in the present case, the assessee has not earned any dividend income, therefore, respectfully following the aforesaid judicial pronounce– ments, disallowance of expenditure under section 14A read with Rule 8D is not sustainable.

Emerson Electric Company (India) Pvt. Ltd. ITA no.555/Mum./2023

Emerson Electric Company (India) Pvt. Ltd. ITA no.555/Mum./2023 “returned income” in comparison to section 234B which refers to the term “assessed tax” for imposing interest. Accordingly, we direct the AO to compute the interest under section 234C of the Act on the “returned income” of the assessee. As a result ground no. 9 raised in assessee’s appeal is allowed for statistical purposes.