TYCO VALVES & CONTROLS (INDIA) PVT. LTD.,BARODA vs. THE DY.CIT, BARODA CIR- 4,, BARODA

PER BENCH: The appeal has been filed at the instance of the Assessee against the order of Dispute Resolution Panel, Ahmedabad [DRP in short] passed under section 144C(5) of the Act dated 12/09/2011 arising in the assessment order passed under s.143(3) r.w.s.92C and r.w.s.144C of the Act dated 10/10/2011 for AY 2007-08.

The assessee has raised the following grounds of appeal:

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 2 - Ground no.1

1.1 On the facts and circumstances of the case the AO following the directions of the DRP erred in making an adjustment of Rs.2,20,69,862 in relation to determination of Arm's Length Price relating to the Appellant's international transactions of manufacturing of valves; 1.2 On the facts and circumstances of the case the AO following the directions of the DRP erred in making an adjustment of Rs.2,38,65,077 in relation to determination of Arm's Length Price relating to the Appellant's international of engineering design services; 1.3 On the facts and circumstances of the case the AO following the directions of the DRP erred in making an adjustment of Rs. 2,07,21,181 in relation to determination of Arm's Length Price relating to the Appellant's international transactions of Reimbursement of Management fee expenses; 1.4 On the facts and circumstances of the case the AO following the direction of the DRP erred in denying the (+/-) 5% range benefit available under proviso to Section 920(2) of the Act. It is prayed that the learned AO be directed to consider the international transactions of the Assessee as arm's length and accordingly the total transfer pricing adjustment of Rs.6,66,56,120 should be deleted.

Ground no. 2 2.1 The AO following the directions of the DRP has erred in law and in facts of the case in not allowing the deduction under section 10B of the Act of Rs. 7,14,80,242 as claimed by the Appellant in respect of the profits earned by its Chennai unit.

2.2 On the facts and circumstances of the case the AO following the directions of the DRP has erred in holding that the Chennai unit of your appellant is not carrying on any manufacturing activity.

Your Appellant submits that the Hon'ble jurisdictional Income Tax Appellate Tribunal in the Appellant's own case has held that the Chennai unit is carrying on manufacturing activity relying on the decision of the Hon'ble Gujarat High Court in the Appellant's own case. 2.3 On the facts and circumstances of the case the AO following the directions of the DRP has erred in concluding that the machinery taken on lease from Sakhi

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 3 - Raimondi Valve India Ltd. in the earlier years was not taken on lease but as an outright purchase. Your Appellant submits that the Mumbai Bench of the Income Tax Appellate Tribunal in the case of Sakhi Raimondi Valve India Ltd. has held that the machinery has been given on lease and not on outright sale. Ground no. 3 3.1 On the facts and circumstances of the case the AO following the directions of the DRP has erred in adding back an amount of Rs. 79,684 being assets costing less than Rs. 5,000 and depreciated fully in the books of account. Your Appellant submits that the said amount formed part of the book depreciation which had already been disallowed by the Appellant in the computation of income.

The Appellant craves leave to add, to amend, to alter, to substitute, to modify and / or withdraw all or any of the Grounds of Appeal as they may be advised to do so and to submit such statements, documents and papers as may be considered necessary either at or before the time of hearing of the appeal.

The assessee has raised additional ground of appeal vide letter dated 17- 02-2019 reproduced as under:

The Appellant craves leave to raise this additional ground of appeal before the Hon'ble ITAT. This is a legal ground and therefore as per the decision of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. (229ITR 383), it can be raised before the Hon'ble ITAT. 1. Without prejudice to the other grounds in appeal, it is respectfully submitted to exclude the amount of management fee while computing margins of Baroda unit, as inclusion of management fee in profit level indicator of Baroda unit is resulting into double taxation of management fee. 2. It is further respectfully submitted that even if adjustment is made, same ought to be restricted to the amount of international transactions only and shall not be made on entire cost of the Assessee's Baroda unit.

The Appellant also craves leave to add, amend, alter, change, delete and edit the above grounds of appeal before or at the time of the hearing of the appeal.

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 4 -

2.1. The issue raised by the assessee in ground no 1.1 is that the Ld. DRP erred in confirming the ALP adjustment of Rs. 2,20,69,862/- in relation to manufacturing of valves transactions with its AE. The assessee also claimed that if any disallowance is confirmed for the management expenses, then the margin of the assessee should be enhanced by such amount.

Distribution of the products to the 3rd parties. Its activities are ii. not limited to its AE only.

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 5 -

iii. Designing services to its AE namely Tyco Thermal Belgium. iv. Agency commission from its AE for providing services in connection with the installation, commissioning, market services and customer support services to its Indian customers.

3.1. The assessee is a wholly owned subsidiary of Tyco India (Singapore) Pvt. Ltd. The assessee carries out its business through two divisions situated in Baroda and Chennai. Both the divisions are engaged in the manufacturing activity of the products as described above. The sales operations of Baroda unit are primarily confined to the local market whereas the Chennai unit is EOU which was setup in 1999.

3.2. The assessee filed its return of income for the year under consideration dated 08-11-2007 declaring an income of Rs. 29,76,18,120/- which was processed u/s 143(1) of the Act. Subsequently, the case of the assessee was selected under scrutiny assessment. Accordingly the AO referred the case to the TPO.

3.3. The assessee during the year under consideration has entered into various transactions with its related parties as shown in the TP study which are in detailed as under: S.No. Description of the transactions Amount paid (in Amount received (In Rupees) Rupees) 1. Import of raw materials, parts 235766,610 - etc. 2. Import of finished goods for 183,087,977 - resale 3. Export of valves and valve - 447,290,344

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 6 -

components 4. Export of finished goods for - 25,435,903 resale 5. Agency Commission - 4,747,935 6. Provision of design related - 163,117,922 services 7 Payment of management fee 45,980,354 - and professional charges 8 Service Charges - 1,969,725 9 Reimbursement of other 16,117,651 - expenses

3.4. Further, the assessee has categorized the above transactions into 5 different heads for the purpose of TP study. The details of the categorization of the transactions are as under:

“4.2. Overview 4.2.1. During the year ended March 31, 2007, TVCIPL engaged in the following international transactions: i. Activities carried out in relation to valves, components etc. • Import of raw materials, parts etc; • Import of finished goods for resale; • Export of valves and valve components; • Export of finished goods (resale); and • Receipt of commission. ii. Provision of support services • Receipt of service charges for support services. iii. Services received • Payment of management charges. iv. Provision of design related services v. Reimbursements 4.2.2. For the purposes of our analysis, this report is divided into five sections namely, Activities carried out in relation to valves, components, etc.; Provision of support services; Receipt of Management charge; Provision of design related services and Reimbursements.”

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 7 - 3.5. The Assessee for benchmarking its transactions classified under the head in relation to valves, component etc in connection with the determination of ALP has used the following basis. i. The assessee has aggregated the activity of the both Baroda and Chennai unit for determining the ALP with respect to the following transactions: a. Import of raw materials, parts etc. b. Import of finished goods for resale c. Export of valves and valves components d. Export of finished goods (resale) and e. Receipt of commission ii. The assessee selected itself as tested party. iii. The assessee applied the TNMM as most appropriate method at entity level and also compared the same at entity level with the comparables. iv. The assessee used operating profit margin to sales as its PLI.

3.6. Accordingly, the assessee selected 5 comparable after applying the following filters: a) Select valves and pump manufacturing co. b) Exclude the comparable having related party transactions c) Used more than 1 year data d) Sales > zero e) Manufacturing sale to sales > 90%

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 8 - 3.7. Thus, the assessee determined the operating profit margin @ 9.65% of the comparable cases which was compared with operating margin of it (the assessee) i.e. 15.91%. Thus the assessee claimed its margin on the transactions with the AE is at Arm length and no adjustment in the international transactions with the AE is required.

3.8. However, the TPO was not satisfied with the filters used/ applied by the assessee for determining the ALP. Similarly, the AO was also unsatisfied from the action of the assessee for aggregating the transaction in working out the ALP for the International Transactions with the AE. Accordingly, the TPO rejected the comparable selected by the assessee and conducted fresh search by considering the Baroda and Chennai unit separately and by using the following filters:

1) Only select valves manufacturing companies. 2) Sale > 25 crores. 3) Similar financial year data 4) Turnover more than 25 crores and less than 25 crore. 5) Related party transaction up to 25% should be accepted.

3.9. In view of the above, the TPO found three comparable as discussed below: S.No. Name of the comparable/company OP to sales 1. ASCO 36.49% 2. KSB (Segment) 23.95%

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 9 - 3. Virgo Engineers Ltd. 12.59%

3.10. Accordingly, the TPO determined the average PLI of the comparable at 25.88% for comparing the same with the PLI of Baroda and Chennai Unit separately. However, the TPO has made risk adjustment on account of bad debts, lower inventory, capacity utilization and market plan in the average mean of PLI of the comparables while working out the ALP of the Chennai Unit by 2%. Thus the PLI of the comparable was taken at 23.88% in case of Chennai Unit.

3.11. The TPO further worked out the PLI of Baroda and Chennai Unit at 18.42% and 17.01% respectively.

3.12. However, the assessee objected on the working of the AO by observing as under:

1) Pumps and valves are intrinsically connected to each other as they are used together. Therefore pump manufacturing company should also be considered/ selected as comparable.

2) Turnover filter of Rs. 25 crore is not acceptable. As such it should be of Rs. 1 crore.

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 10 - 3) ASCO India Limited is manufacturer of solenoid Valves and its 30 % turnover from sale of spares and others. Therefore the same should not be selected as comparable.

4) All three comparable cannot be accepted for both the unit. Both the unit have different FAR.

3.13. However, the TPO rejected the contention of the assessee by observing as under:

1) Assessee failed to provide any technical justification in support of its contention that the pump manufacturing companies are similar to valves manufacturing.

2) Assessee did not given any economic justification to adopt the filter of turnover for Rs. 1 crore instead of 25 crore.

3) In case of ASCO India it is not clear from the financial statement that that 30% turnover is from spares parts only. It is because in the financial statement of ASCO Limited there is no mentioned about the sales of the spares.

4) The assessee has not submitted any economic analysis suggesting that the comparable selected by him (the TPO) are not acceptable for both

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 11 - unit. It is very clear that proposed comparable may not be exactly similar to the both unit but these are broadly similar.

3.14. Accordingly, the TPO determined the PLI for both the units separately i.e. for Baroda unit PLI computed as 25.88% and for Chennai Unit PLI computed as 23.88%. ( after 2% risk adjustment as discussed above). Thus the TPO has made addition in case of Baroda unit amounting to Rs. 6,70,07,374/- and in case of Chennai unit amounting to Rs. 4,71,42,168/-.

3.15. Aggrieved assessee, preferred an appeal before the Ld. DRP and reiterated the submissions as made before the TPO. However the Ld. DRP rejected the contention of the assessee and confirmed the order of the TPO in part by observing as under:

“33. The main issue, apart from the other legal issues which would be discussed later, related to the inclusion of the rejection of the aggregation approach and inclusion of the Asco Pneumatics (India) Pvt. Ltd in the comparables. Both the issues were discussed in detail with the assesses. The Panel also deliberated on this in detail. The assessee is engaged hi the business of manufacturing (namely machining, assembly and testing) of valves, valve parts, actuators, components and accessories. Its business operations are conducted through two major business divisions; namely the Baroda Unit which mainly caters to the domestic market and the Chennai Unit, which being a 100% EOU, caters to export of components to associated enterprises. The activities carried out in relation to manufacturing of valves are: Import of raw materials, parts etc; Import of finished goods for resale; Export of valves and valve components; Export of finished goods (resale); and Receipt of commission. The assessee is primarily engaged in manufacturing activities and is also engaged in distribution based, on varied customer demands. The manufacture of a valve and distribution of spares accordingly to the assessee, Is an integrated activity- within the valve industry and. accordingly wants its operations to be viewed as one consolidated

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 12 - function. But, distribution forms a small fraction of the total revenue of the company and is essentially undertaken to supplement the product range already offered to customer. All these suggest that the assessee company is basically a normal company. There is no transaction which can be stated to be different and be considered to be interlinked. Every business enterprise has purchases and sales. But they are not interlinked. Paragraph 1.42 of the OECD guidelines provide for evaluation of combined transactions where such transactions are closely linked or continuous and cannot be evaluated separately. As per the OECD guidelines, examples may include, (a) long-term contracts for the supply of commodities or services, (b) rights to use intangible property, (c) pricing a range of closely linked products (e.g., in a product line) when it is impractical to determine pricing for each individual product or transaction. Another example would be the licensing of manufacturing know-how and the supply of vital components to an associated manufacturer; it may be more reasonable to assess the arm's length terms for the two items together rather than individually. As per the OECD guidelines combining more than one transactions becomes all the more necessary where there exists an intentional set-off - one associated enterprise provides a benefit to another associated enterprise which is balanced to some extent by- different benefits received from that enterprise in return. In such situation the enterprises may claim that the benefit received by the respective enterprises should be set-off against the benefit each enterprise has provided as full or part payment of those benefits and only net gain or loss of the transactions needs to be considered. But the assessee's case does not fall- in the ambit of any of the above examples given above. Thus, the Panel is of the view that the aggregation approach would not be the right approach for the TP study as adopted by the assessee. The action taken by the TPO in this respect was appropriate and needs no interference.

Sr. Company name Comparables for Comparables for No. Baroda Unit Chennai Unit 1. KSB Pumps Ltd (Valves 23.95% 23.95% Segment) 2. Virgo Engineers Ltd. 17.19% 17.19% Mean 20.57% 20.57%

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 13 -

The AO/TPO is directed to recompute the adjustment on the basis of the above comparables for each unit of the assessee, the approach adopted by the TPO. The TPO had allowed 2% risk adjustment on comparable for Baroda Unit while comparing them with Chennai Unit, as the TPO accepted that there was difference in risk profile of Chennai Unit and Baroda Unit as comparables typically assume higher risk as compared to Chennai Unit which .is catering to the AEs only. In this regard, assessee has submitted to the TPO that the bad debt ratio to sales of, comparables was 0.23% whereas same for the Chennai unit was Nil. Similarly, Chennai unit had lower inventory, capacity utilization risk as it is catering to AEs and its marketing plan are based on forecast received from the AEs. Considering the same, the same risk adjustment is also allowed. The Panel decided to adopt the above average PLIs and directs the TPO/AO to compute the ALPs and the compute TP adjustments.”

Being aggrieved by the order of the Ld. DRP the assessee is in appeal before us.

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 14 - 4.1. The learned AR also submitted that the name of such company ( KAR Mobile ) was accepted by the TPO in the assessment years 2009- 10, 2010-11, 2011-12, 2012-13, 2013-14 and 2014-15. The learned AR also places the copies of the assessment orders which are placed on record.

4.2. The learned AR also submitted that the assessee is entitled to place new company as comparable either before the AO or appellate proceedings as held by the Bangalore Tribunal in the case of NTT Data global delivery services Ltd reported in 69 taxmann.com 7.

4.3. The learned AR alternatively submitted that the assessee should be allowed proportionate adjustments in the event any adjustment made in the management expenses while determining the ALP. The learned AR accordingly submitted that the DRP in the own case of the assessee for the assessment years 2012-13 and 2013-14 has granted such proportionate adjustments.

4.4. The learned AR further alternatively submitted that the assessee has filed fresh TP study report in line of the search process of the TPO before the DRP but the DRP has not considered the same while adjudicating the issue before it. Accordingly the learned AR prayed before us to remit the matter to the file of the TPO for fresh adjudication after considering the fresh TP report/such filters filed by the assessee before the DRP.

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 15 -

6.1. Admittedly, the name of the impugned company was proposed by the assessee 1st time before the learned DRP in the list of comparable companies selected in pursuance to the fresh search filters as adopted by the TPO. Keeping in view the fact that such company has already been included as one of the comparable in the own case of the assessee in

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 16 - several assessment years as mentioned above, we find considerable force in the argument of the assessee.

6.2. However, there is no law suggesting that the comparable selected one year should necessarily be selected in the other. It is because the filter applied can be different from one year to other depending upon the facts and circumstances of each year. Therefore, we cannot direct the AO to include such company as comparable but he can certainly consider the inclusion of such company in the list of comparable companies in the light of search filters adopted by him for the year under consideration. Accordingly, in the interest of justice and fair play we remit the impugned issue to the file of the AO for fresh adjudication as per the provisions of law and in the light of the above stated discussion.

6.3. Coming to the argument of the assessee for granting the proportionate adjustment of the management expenses, in this regard we find considerable force in the argument of the learned counsel for the assessee. Therefore it is pertinent to note that we have made the disallowance of management expenses the tune of Rs 1,35,96,799/- vide paragraph number 12 of this order. Accordingly, we direct the TPO/AO to work out the PLI of the assessee after considering the disallowance of the management expenses confirmed by us. In this connection we draw support and guidance from the judgment of Hon’ble ITAT Hyderabad in case of TNS India(P) Ltd. Vs ACIT reported in 48 taxmann.com 80 wherein it was held as under:

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 17 - “iii) We have considered the submissions of the parties and perused the materials on record. It is the contention of the learned AR that though the TPO has disallowed the payment of management fees by determining the ALP at Nil, but, at the same time, he has considered the same while computing operating margin of the assessee. We are of the view that when the TPO is disallowing the payment of management fees, it cannot be considered for the purpose of computation of operating margin, otherwise, it will amount to double addition. We, therefore, remit this issue back to the file of the AO/TPO to look into this aspect and decide the issue after affording reasonable opportunity of being heard to the assessee.

6.4. In view of the above, we direct the TPO/AO to decide the issue raised by the assessee in the additional ground of appeal in the light of the above stated discussion and as per the provisions of law.

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 18 - 7.1. It is also pertinent to note that the company namely KAR Mobiles suggested by the assessee for inclusion in the list of comparables, is also available in the fresh comparables furnished by the assessee before the learned DRP which, we have already set aside the file of the TPO for fresh adjudication as discussed above. In case the AO/TPO agrees to include the above company i.e. KAR Mobile, then there is no need for the AO/TPO to consider the fresh TP study filed by the assessee before the ld. DRP.

7.2. In view of the above, and after considering the facts in totality, we are of the view that the entire issue raised in the main ground of appeal is set aside to the file of the TPO for fresh adjudication in the light of the above stated discussion and as per the provisions of law. Hence the main ground of appeal of the assessee is allowed for the statistical purposes. However, the additional ground raised by the assessee is allowed.

7.3. The issue raised by the assessee in ground no. 1.2 is that the Ld. DRP erred in confirming the ALP adjustment of Rs. 2,20,69,862/- in relation to Engineering design service.

7.4. The assessee has two separate design units at Noida and Vashi which carried out design related services. The assessee during the year provided Engineering Design Service to its AE namely Tyco Thermal controls NV Belgium (Tyco Belgium) and incurred cost amounting to Rs.

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 19 -

16,31,17,922/- only without charging any markup. However the assessee suo-moto declared markup amounting to Rs. 1,82,03,035/- equivalent to 11.15% on cost. The assessee in providing these services uses CAD/CAM software and high qualified technical person.

7.5. The assessee applied TNMM method for determining the ALP for such engineering design service provided to AE and used PLI as Return on total cost. Accordingly, the assessee selected 5 comparables and calculated PLI at 11.87%. The details of comparables are available as under:

S.No. Name of the Company Data Source Mark-up on Total Cost 1. Ace Software Exports Ltd. P 10.91% 2. Geometric Software Solutions P 12.46% Co.Ltd. 3. Onward Technologies Ltd. P 6.65% 4. Tata Technologies Ltd. P 15.79% 5. Infotech Enterprises Ltd. Seg-P 13.53%

Mean 11.87% Median 12.46% Upper Quartile 10.91% Lower Quartile 14.10%

7.6. However, the TPO was not satisfied with the TP study conducted by the Assessee. Accordingly the TPO rejected the comparables selected by the assessee and carried out the fresh search. Thus the TPO proposed 4 comparable and determined the PLI of such comparables as 23.18%. The necessary details stand as under:

Sr.No. Name of the Company Margin for FY 2006-07 % 1. Ace Software Exports Limited 16.32

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 20 - 2. KLG Systej Ltd 22.25 3. Powersoft Global Solutions Ltd. 15.35 4. Rolta India Ltd. 38.79 Arithmetic Mean 23.18

7.7. However, the assessee has raised the objection in relation to the comparables selected by the TPO as detailed under:

1) In case of Rolta India Limited, the standalone segment results are not available. As such the consolidated financial statements have been prepared by the Company as per AS-21 and IFRS. Therefore this is not a suitable comparable.

2) In case of other comparable namely Power Soft Global Solution Limited, the assessee submitted that this company is engaged in IT service, outsourcing engineering sources, GIS services RFID services. Further it has not reported segmental result therefore it should not be treated as suitable comparable.

7.8. However, the Ld. TPO rejected the contention of the assessee by observing that - 1) In case of Rolta India limited the assessee did not provide any difference in Indian AS and IFRS which affected the profit.

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 21 - 2) In case of power soft global solution, all the segments of the company are the parts of engineering design service or engineering service.

7.9. Accordingly, the AO determined the ALP of Rs. 20,09,28,656/- by using PLI of 23.18% and made the addition of Rs. 1,96,07,699/- to the total income of the assessee.

7.10. Aggrieved assessee preferred an appeal before the Ld. DRP and reiterated the submission before the Ld. DRP. However the Ld. DRP partly allowed the appeal of the assessee by observing that the power soft Global solution was a software development company and it was not a suitable comparable. Accordingly the ld. DRP excluded from the set of comparable. Therefore the DRP direct to the TPO/AO compute the ALP accordingly.

Being aggrieved by the order of the Ld. DRP the assessee is in appeal before us.

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 22 - 8.1. The learned AR in support of his contention referred the order of Delhi ITAT in the case of Tech books electronics reported in 65 taxman.com 241 where the margin of -6.79% was accepted.

8.2. The learned AR further submitted that the comparable selected by the TPO namely Rolta should be rejected for the reasons detailed under: i. The related party transactions is of 26.80% which is quite high than the standard percentage. Therefore the same needs to be rejected. In this regard the learned AR has relied on the judgment as under:

ii. The comparable company is following financial year beginning from July to June whereas the assessee being the tested party is following the financial year from April to March. Therefore the same should be rejected as a comparable. The learned AR in support of his contention has referred to the following judgments:

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 23 - 4. Softbrands India Private Limited (IT(TP)A No.1094/Bang/2011) pronounced in August 2016 (Para 18.2)

iii. The financial statements of Rolta used by the TPO are consolidated, including the results of the foreign subsidiaries. As such the financial statement of Rolta for the stand alone segment for the year under consideration was not available. Accordingly the assessee claimed that such consolidated financial statements cannot be used as comparable. The learned AR also drew our attention on pages 611 volume III where the financial statements of the comparable were placed. The learned AR in support of his contention referred to the following judgments: 1. American express (44 Taxmann.com 389 (Delhi Trib.) (para 21) Page 749 2. 3DPLM Software Solutions Ltd. vs. Dy.Cit (2014) 42 taxmann.com 333 (Bang. – Trib.) (Para 12.4.1.) Page 777

8.3. The learned AR also alternatively submitted that the TPO has accepted a comparable namely KLG Systel Ltd. which is engaged in life cycle management. Accordingly it claimed that the similar company engaged in product life cycle services namely Geometric should also be considered as one of the comparable. The learned AR also claimed that the impugned company is also offering engineering Solution services. Thus the learned AR prayed for the inclusion of this as comparable company. However, the learned AR further submitted that if Rolta is rejected from the set of comparables, then he will not press for the inclusion of Geometric in the list of comparables.

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 24 - 9. On the other hand, the learned DR submitted that the matter for working out the correct margin in case of Ace software can be set aside to the file of the TPO for fresh adjudication.

9.1. The learned DR also claimed that the related party transactions in the case of Rolta is less than 25% and therefore the same should be included.

9.2. The learned DR further submitted that the assessee in the assessment year 2005-06 has offered the margin at the rate of 20.96% and there was no change in the facts and circumstances. Accordingly, the ld. DR claimed that the margin at the rate of 20.96% should also be applied for working out the ALP for the year under consideration. The learned DR vehemently supported the order of the authorities below.

9.3. The learned AR in his rejoinder submitted that the margin in the earlier assessment 2005-06 was computed depending upon the facts and figures of that year. Therefore, the same basis cannot be adopted in the year under consideration on account of changes in the facts and figures between the comparables viz a viz the assessee.

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 25 - i. Whether Ace software Exports Ltd. margin computed by the TPO is correct in the given facts and circumstances.

ii. Whether the comparable namely Rolta needs to be rejected in the given facts and circumstances.

iii. Whether the comparable namely Geometric should be included in the list of comparable. 10.1. Regarding the question No. 1, we find that the issue is factual in nature and accordingly we set aside to the file of the TPO to work out the actual margin of Ace software and adjudicate the issue accordingly.

10.2. Regarding the comparable namely Rolta, we note that it is a group of companies comprising 7 associated enterprises and operating in different parts of world as detailed under:

Name of the Entity Country of incorporation Effective Group shareholding(%) Rolta International Inc. USA 100 (‘RUS’) Rolta Saudi Arabia Limited South Arabia 75 (‘RSA’) Rolta Middle East (FZ – UAE 100 LLC (‘RME’) Rolta UK Limited (‘RUK’) UK 100 Rolta Beneulx B.V. Nehterlands 100 Rolta Canada Limited Canada 100 Rolta Deutschland GmbH Germany 100

10.3. The financial statement of Rolta India Ltd was for the entire group which was used as comparable in the case of the assessee company. In our considered view the consolidated financial statements

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 26 - cannot be compared with the assessee. It is because the consolidated financial statement of Rolta India Ltd. also contain the information/financial result of the entire group. As such, the provisions of the Act requires that only the Indian company of Rolta group can be considered as one of the comparable for working out the ALP of the assessee. The consolidated financial statements of Rolta are placed on page no. 603 of the paper book.

10.4. In holding so we also draw support and guidance from the order of Hon’ble Mumbai tribunal in the case of Capgemini India Private Limited, ITA no 7861/MUM/2011 dated 28-02-2013 wherein it was held as under: “5.3.3 We first deal with the pleas raised by the ld. Sr. Counsel for using consolidated results for the purpose of comparison of margins. The ld. CIT-DR has pointed out that the four comparables having substantial related party transactions i.e., CG-VAK, Mascon Global Limited, Mastek Ltd. and Patni Computer Systems Ltd. have substantial revenue's from overseas market and, therefore, the consolidated results which have profit from different markets will not be comparable. It was pointed out in case of Mascon Global Limited, 75% of the revenue came from USA, Moscow and UK and in case of CG-VAK 75% of the revenue came from other jurisdictions. In case of Patni Computer Systems Ltd., 61% of the revenue came from USA, UK, Germany and Brazil whereas in case of Mastek Ltd. substantial part of the revenue came from other countries. These claims of ld. CIT-(DR) which were based on the annual reports of the companies which were placed on record were not disputed by the ld. Sr. Counsel. Under the provisions of Rule 10B(2)(d), comparability of transactions has to be considered after taking into account the prevailing market conditions including geographical locations, size of market and cost of capital and labour etc. Therefore, we agree with the ld. CIT-(DR) that the consolidated results which include profit from different overseas jurisdictions having different geographical and marketing conditions will not be comparable. No material has been brought on record by the assessee to show that any of the comparables were having branches abroad in addition to subsidiaries. We also note that in case of American Express (India) Pvt. Ltd. (supra), the TPO had taken consolidated results to nullify the results of AY .07-08 related party transactions but the Tribunal in a similar situation had not allowed the same on the ground that substantial revenue came from other markets which were not comparable. We, therefore, uphold the view taken by the authorities below to adopt standalone results for the purpose of

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 27 - comparison of margins. Consequently we also uphold the order of TPO for rejecting the above mentioned four comparables which have substantial related party transactions because the transactions in these cases could not be considered as fully uncontrolled.”

10.5. In view of the above, we hold that the company namely Rolta India Ltd. cannot be considered as comparable. Accordingly, we reverse the finding of the learned DRP and direct the TPO not treat this company as the comparable for the purpose of working out the ALP of the assessee with respect to the transactions carried out with its associated enterprises. As, we have rejected Rolta India Ltd as one of the comparable, we do not find any reason to adjudicate the issue for the inclusion of Geometric Software Solution Co Ltd. Hence, the ground of appeal of the assessee is partly allowed for statistical purposes.

10.6. The issue raised by the assessee in ground no. 1.3 is that the Ld. DRP erred in confirming the ALP adjustment of Rs. 2,07,21,181/- in relation to Reimbursement of management fees expenses.

10.7. The assessee has entered into an agreement with Tyco Flow Control Ote. Ltd. Singapore (TFCA) to receive the Management and marketing services as detailed under: “S.No. Type of service Nature of service provided 1. Management fee 1 a IT Department Data Network/Infrastructure consultancy Desktop Hardware/Software consultancy Email Accounts and Access Remote Access (VPN/Dialup) support Technology & Infrastructure Consultation 1 b HR Department Strategic Initiatives Provides leadership and partners with business unit

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 28 -

in all corporate initiatives/projects Coordinates with the US headquarter and liaison between 5 businesses and the Corporate Evaluate and lead to increase Employee Attitude Survey scores Succession Planning & Organization Leadership Review Span Layers Analysis to access organization efficiency Core Business Functions Establish Policy and guidelines to assist effective and efficient human capital management. Coordinates with the US for expatriate compensation & benefits matters. Drive and lead the annual bonus payouts and compensation reviews processes up to execution and complete implementation of the changes. 1 c Tax Department Assist the taxation working and assessment as per India Laws which helps to submit the submission to tax authorities. Vice President of Tax helps to TVCIPL in Indian tax matters. He reviews the assessment orders and submissions and liaisoning with local tax consultants for submissions in case of appeal to tax departments. 1 d Legal Department Legal departments has legal counsel who help in preparing/reviewing the agreements/contracts to be signed/entered with customers/vendor or third party. Legal department also helps in filing legal submission before statutory authorities. 1 e Treasury Treasury departments helps in cash management by Department providing support for issue of Bank guarantee/Letter of Credit with banks. Provides assistance in taking forward cover in forex as and when required. Facilities in getting better forex rates. 1 f Finance To ensure that all processes surrounding the Department accounting and closing processes are performed efficiently and effectively. Coordinating, compiling and analyzing monthly reporting matters for actual and forecast, quarterly reporting and budgeting Facilitate the Intercompany & Intracompany reconciliation process for both segment companies and Tyco companies. Consulting support on improvements to internal controls (documentation, action item evaluation, implementation) and coordinating resources thereon.

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 29 - 2 Marketing fees 2 a Product Transfer Price Administration Management Transfer of Technology Increase product penetration Product innovation & technology Product benchmarking Expand product applications 2 b Marketing Services Maintain corporate identity Print collaterals – literature, posters, launch manuals Administers the Tyco valves website Events management – sales conferences, exhibitions Branding & positioning”

The TFCA charge Markup 5% on cost.

10.8 However, the TPO found from the details filed by the assessee that the assessee did not file the invoice of management expenses amounting to Rs. 1,25,56,602/-. Therefore the TPO accordingly benchmarked such expenses at Rs. NIL. Accordingly the TPO made upward adjustment of Rs. 1,25,56,602/- only.

10.9 The TPO further found from the details filed by the assessee that the some of the invoices pertains to earlier year. However the assessee did not make any provision of these services in the relevant FY. Therefore the TPO benchmarked these invoices at NIL. Accordingly the TPO made upward adjustment of Rs. 10,40,197/-

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 30 - 10.10 The TPO further found from the details filed by the assessee for the remaining management expenses of Rs. 3,23,83,555 that these are in the nature of followings: “(i) Policies and Procedures (ii) Internal MIS and forecasting (iii) Support of Tax & Legal matters (iv) Support of internal audit (v) Treasury support maintaining banking limits and banking facilities on global basis. (vi) Management support to Indian operation. (vii) Insurance support (viii) Support on Sarbans-Oxley implementation.”

10.11 It is clear from the above details that the services provided by the AE are duplicate in nature and repetitive. The service rendered by the AE to assessee was the requirement of holding company in its stewardship capacity. These services are beneficial to shareholder, group entities, and compliance of law and regulation of other countries. There was no evidence that the assessee required these services for its business. Accordingly the TPO sought clarification from the assessee on his observation as discussed above.

The reply of the assessee stands as under:

1) The services received by it (the assessee) are closely connected with its business. It enable to it (the assessee) to perform its function effectively in an efficient manner.

2) If the assessee would not have received these services from its AE then it (the assessee) would have procured the same from third party service provider.

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 31 -

3) These services help in maintaining better internal controls in the company.

10.12 However, the TPO rejected the contention of the assessee and disallowed part of the management fees of Rs. 64,76,711/- being 20% of Rs. 3,23,83,555/- by treating the same as the expenses not required for its business. The TPO further marked-up 10% of these expenses for Rs. 6,47,671.00. Therefore the TPO made the upward adjustment of Rs. 71,24,382/- only.

10.13 Aggrieved assessee preferred an appeal before the Ld. DRP.

10.14 The assessee before the ld. DRP reiterated the submissions as made before the TPO. However the Ld. DRP dismissed the appeal of the assessee by observing that disallowance was made on the basis of the fact rather than any adjustment.

Being aggrieved by the order of the learned DRP, the assessee is in appeal before us.

10.15. The learned AR before us submitted that the assessee has claimed total management fee expenses in the year under consideration amounting to Rs. 4,59,80,354/-only. The ld. AR for the assessee has further filed the breakup of such expenses as detailed under:

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 32 - i. Management fee of Rs. 1,25,56,602/- where the debit notes or not available. ii. Management fees of Rs. 10,40,197/- where the debit note of the earlier years are available. iii. Management fees of Rs. 3,23,83,555/- being 20% of ad hoc disallowance along with 10% markup thereon.

10.16. At the outset, the learned AR, before us submitted that he doesn’t want press for the management fees of Rs. 10,401,97/- where the debit note of the earlier year were not available.

10.17. The learned AR further submitted that the assessee has already made the disallowance of management fees amounting to Rs. 1,25,56,602/- on account of non-deduction of TDS. Accordingly the learned AR claimed that there cannot be further disallowance to the extent of such management fee expenses.

10.18. The learned AR further submitted that the TPO has no jurisdiction to make the disallowance on ad hoc basis. As such the TPO is under the obligation to determine the Arm Length Price. The learned AR in support of his contention relied on the following orders: a) Flakt India Ltd. ITA No 1032/Mds/2014 b) Ness Technologies (India) Pvt Ltd. reported in 76 taxmann.com 209 c) Debt Norske Veritas reported in 67 Taxmann.com 16

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 33 - 10.19. The learned AR further submitted that the in AY 2009-10 the Ld. DRP delete the same addition made by the Ld. TPO on ad hoc basis.

11.1. The learned DR further submitted that the assessee has not furnished sufficient documentary evidence with respect to the balance management fees expenses amounting to Rs. 3,23,83,555/-. Therefore, the TPO in the absence of sufficient documentary evidence had no alternate except to make the disallowance on ad hoc basis.

11.2. The learned DR also claimed that if the addition is deleted that the assessee will get the double benefit. As such the assessee on one hand has not furnished the documentary evidence in support of such management fee expenses and on the other hand there will not be any addition for the disallowance of such expenses which is loss to the Government exchequer.

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 34 - 12. We have heard the rival contentions of both the parties and perused the materials available on record. Regarding the management fees of Rs. 1,25,56,602/- we note that the assessee was under the duty to provide the documents as desired by the TPO during the proceedings. But the assessee failed to do so. Therefore, the TPO has made the disallowance of entire expenses. Now the controversy arises whether there is a need to determine the ALP of the impugned expenses which has already been disallowed in the computation of income on account of non-deduction of TDS.

12.1. If we accept the argument of the learned counsel for the assessee, then the impugned expenses will be allowed as deduction to the assessee in the year in which the assessee complies the provisions of TDS. Thus we disagree with the contention of the assessee for not computing the arm length price of such management fees as discussed above. Furthermore, there was no documentary evidence filed by the assessee in support of such expenses. Therefore, we are inclined to confirm the same by upholding the order of the authorities below.

We are also not oblivion to the fact that there cannot be double addition of the same amount by treating the ALP at nil and on account of non- deduction of TDS under the provisions of the Act. As such, there will be the addition of one-time for the amount of Rs. 1,25,56,602.00 only. Moreover, it is not the case of the assessee that there was the double

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 35 - addition for the amount as discussed above and for the reasons elaborated in the preceding paragraph.

It is also pertinent to note that the assessee will not get the benefit by way of deduction of the impugned amount even after complying the provisions of TDS in future years. It is because the ALP of such transaction has been determined at nil for the year under consideration.

12.2. Regarding the addition of Rs. 10,40,197/-, we find that the assessee has not pressed the same at the time of hearing. Therefore we dismiss the same as not pressed.

Regarding the ad hoc disallowance of management fee expenses, we note that there is no power under the provisions of the Act which allows to the TPO to make the disallowance on ad hoc basis. As such the law is fairly clear and requires the TPO to determine the arm length price of the international transaction with the AE. As such there is no power available to the TPO to make the ad hoc disallowance while computing the income under the head business and profession. In this regard we find support and guidance from the judgment of Hon’ble Mumbai Tribunal in case DCIT Vs. Flakt (India) Ltd. reported in 76 taxmann.com 209 where in it was held as under:

“Another aspect which emerges from the order of the TPO is as follows. After considering the factual matrix, the TPO has proceeded to determine the arm's length price for the service charges at 10% of the expenses recovered. Ostensibly, the income arising from an international transaction is liable to be computed, having regard to the arm's length price as mandated in section 92(1) of the Act. Section 92C

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 36 - prescribes the manner of determination of the arm's length price and sub-section (1) thereof specifically lays down various methods by which the determination of arm's length price has to be made. It is quite clear that there is no adhocism permissible in the manner of computation of arm's length price of an international transaction, whereas the action of the Transfer Pricing Officer in considering the arm's length price @10% of the expenses recovered is not only adhoc but it also does not conform to any of the methods prescribed in section 92C(1) of the Act. On this count itself, the action of the TPO is suspect, even if, it is to be understood that the impugned transaction was an international transaction requiring computation of income having regard to its arm's length price.

12.3. In view of the above, we hold that the TPO has erred by making the disallowance on ad hoc basis. Accordingly we delete the addition made by the authorities below.

12.4. We are also conscious to the fact that the assessee in the said facts and circumstances will get double benefit. First of all the assessee did not furnish the basic requirements as desired by the Income Tax Department and at the same time it has not been penalized. But, the provisions of law is supreme which requires that the TPO to determine the ALP of the transactions referred by the AO. The TPO as such cannot make the disallowance on ad hoc basis. In view of the above and after considering the facts in totality, the ground of appeal raised by the assessee is partly allowed.

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 37 - 13.1. The provisions of section 92(1) of the Act requires to determine the income arising from the international transactions having regard to the arm’s length price. Further the meaning of international transaction has been defined under section 92B(1) of the Act i.e. between 2 or more associated enterprises. Thus from the above provisions it is clear that the adjustment in determining the income shall be limited to the extent of international transactions entered between the associated enterprises. Accordingly, we direct the AO if any adjustment needs to be made then it should be limited to the extent of international transaction between the associate enterprises. In this regard we find support and guidance from the judgment of Mumbai Tribunal in case of Phoeinx Macano (India Pvt Ltd) ITA no 7361/MUM/2012 vide order dated 7th January 2014 where in it was held as under: “7. We have heard both the parties and their contention have carefully been considered. So far it relates to grievance of the assessee that the TP adjustment can only be applied to international transactions of the assessee with the AE and it cannot be applied at ITA No.7361/2012 entity level, the issue is found to be covered by the aforementioned decision of the Tribunal in the case of Thyssen Krupp Industries India Pvt. Ltd. (supra). Therefore, we hold that determination of arms length price should be restricted only to international transaction of the assessee with its AE. It was pointed out that the figures are available with the AO, detail of which has also been filed before us at page 170 of the paper book. Therefore, we direct the AO to take only the international transactions of the assessee with its AE for the purpose of determining arms length price. We direct accordingly.

13.2. In view of the above, we direct the TPO to make the addition for the adjustments if any limited to the extent of international transactions between the specified persons. We order accordingly. Hence the ground of appeal of the assessee is allowed.

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 38 - 13.3. The issue raised by the assessee in ground No. 1.4 is that the AO has denied the benefit available under proviso to section 92C(2) of the Act for +/- 5% benefit.

13.4. The assessee during the proceedings also claimed the benefit of +/- 5% range as provided in proviso to section 92C(2) of the Income Tax Act. The assessee in support of the claim refer the press note issued by the Ministry of Finance (Dept. of Revenue) which was released at the time when the TP provision had been brought into the statute i.e. Finance Act 2001. The ministry of Finance through its press release specifically expressed that TP adjustment would not be made where price taken up by the assessee either 5% less or upto 5% more than the ALP determined by the AO.

13.5. The assessee also referred the circular issued by the CBDT vide circular no. 12 dated 23-08-2001 where it was clarified that the AO shall accept the price declared by the assessee if such price does not varied up to 5% less or more than with the ALP determined by the AO.

13.6. However, the AO observed that the price claimed by the assessee is above 5% of the ALP determined in its case. Therefore the assessee does not fall in the proviso as provided in proviso to section 92C(2) of the Act. The AO accordingly rejected the claim of the assessee.

13.7. Aggrieved assessee, preferred an appeal before the Ld.DRP who confirm the action of the TPO/AO by observing as under:

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 39 - “Sr.No. Company name Comparables for Comparables for Baroda Unit Chennai Unit 1. KSB Pumps Ltd (Valves 23.95% 23.95% Segment) 2. Virgo Engineers Ltd. 17.19% 17.19% Mean 20.57% 20.57% ……….. 35. On the ±5% margin, the Panel relied on the decision of the ITAT Hyderabad Bench in the case of M/s.Deloittee Consulting India Pvt.Ltd. (ITA Nos.1082 & 1084 of 2010). In this case the ITAT stated that from the Instructions Nos.12 and 14/2001, 8/2002 and 5/2010 the intention of the lawmakers and the stand of the Department is clear that 5% margin is not, and never was a standard deduction. Reasons, minus reliance on case law cited herein above, the ITAT Delhi Bench in the case of ST Microelectronics Pvt.Limited, in a decision dated 34d June, 2011 ruled that the assessee was not entitled to such an interpretation of the then proviso to Section 92C(2) of the Act as is being claimed in the present case. The ITAT also averred that the Transfer Pricing legislation cannot be seen as incentive provisions admitting of liberal construction. It seeks to protect a nation’s tax base by correcting an artificial assumption of margin made possible in the first place by the fact that transacting parties are but limbs of the same enterprise, though legally distinct entities across separate sovereign taxing nations. Thus the claim of the assessee for 5% margin was rejected. 36 As regards the use of multiple year data, the Panel once again relied on the decision of ITAT Hyderabad Bench in the case of M/s Deloittee Consulting India Pvt.Ltd. (ITA Nos.1082 & 1-84 of 2010). The ITAT in the above case stated that the lower authorities were right in considering the data of only one year. The expression “shall” used in the said Rule makes it clear that it is mandatory to use the current year data first, and if any circumstances reveal an influence on the determination of ALP in relation to the transaction being compared than other datas for period not more than two years prior to such financial year may be used. This issue is covered in favour of the revenue in a catena of cases including the recent decision of Delhi Bench of the Tribunal in the case of M/s.ST Microelectronics Private Limited vs. CIT(A) XX, New Delhi and others (ITA Nos.1806, 1807/Del/2008 and others) dated 30-6-2011, the ITAT stated. Accordingly, in this case the assessee did not show why the

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 40 - multiple year data needs to be sued for determination of ALP. That being so, the action of the TPO is upheld.” Being Aggrieved by the order of the Ld. DRP the assessee is in appeal before us.

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 41 - 16.1 We also draw our support and guidance from the judgment Hon’ble Delhi ITAT bench in the case of Globle Ventedge Pvt Ltd v/s DCIT reported in 37 SOT 1 where in it was held as under:

During the course of hearing of this appeal, neither the ld. counsel for the assessee nor the ld. D.R. for the revenue have been able to point out any basis or material or criteria to controvert or to rebut the findings and conclusion arrived at by the ld. CIT(A) except by relying upon their respective stand taken before the ld. CIT(A). Though the ld. counsel for the assessee made a specific submission about the benefit of adjustment of + 5% to be given while determining the Arms Length Price, the ld. counsel for the assessee has not been point out as to how and in what manner, the order of ld. CIT(A) in rejecting this claim of the assessee is improper and unjustified. Since both the parties have not been able to controvert the findings recorded by the ld CIT(A) or point out any material to enable us to take a view other than view taken by the ld. CIT(A), we are inclined to uphold the order of ld. CIT(A) on the point of determination of Arms Length Price in respect of the transactions entered into by the assessee with its associate enterprises, namely, RCS Centre Corp. Therefore, the order of ld. CIT(A) is upheld, and the grounds raised by the assessee as well as by the revenue on this issue are rejected. In view of the above we do not any reason to interfere in the finding of the DRP and accordingly uphold the order of the AO. Hence, the ground of appeal of the assessee is dismissed.

16.3. The interconnected issue raised by the assessee in ground No. 2.1 to 2.3 is that the Ld. DRP erred in denying the deduction u/s 10B of the Act for Rs. 7,14,80,242/- in respect of profit of Chennai unit.

16.4. The assessee in the year under consideration has claimed deduction u/s 10B amounting to Rs. 7,14,80,242.00. However the AO disallowed the deduction claimed by the assessee by observing that such deduction in the earlier year assessment year was disallowed by the respective AO. The disallowance made by the AO in earlier year was based on the following points:

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 42 - 1) The Chennai unit had more than 20% old plant & machinery which was earlier used for production purpose.

2) The assessee claimed that during FY 2001-02 it had taken plant & machinery for Chennai unit on lease from Sakhi Raimondi Valves (India) Ltd. However at the time of assessment of Sakhi Raimondi Valves (India) Ltd, the respective AO has given finding that the Sakhi Raimondi Valves (India) Ltd had transferred the machinery to the assessee on outright purchase.

16.5. In view of the above the AO denied the deduction claimed by the assessee under section 10B of the Act.

16.6. Aggrieved assessee preferred an appeal before the Ld. DRP who confirmed the order of the AO.

Being aggrieved by the order of the learned DRP, the assessee is in appeal before us.

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 43 - 19. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset we note that the impugned issue has already been decided in favor of the assessee in its own case (supra). The relevant extract of the order is reproduced as under:

“6. We have heard both the sides at some length. We have also perused the orders referred before us. Before we appreciate the facts of the case, we may like to place on record the scope of the introduction of section 10B in the Statute. Under the provisions of section 10A of the Income-tax Act, a five year tax holiday is allowed to industrial undertakings manufacturing or producing articles or things in a free trade zone subject to certain conditions. The exemption is available to industrial undertakings which have begun or begin to manufacture or produce articles or things during the previous year relevant to the assessment year commencing on or after April 1, 1981. The tax holiday is at the option of the assessee for five consecutive assessment years falling within the block of eight years beginning within the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things. The term "manufacture" includes processing or assembling or recording of programmes on any disc, tape, perforated media or other information storage device. The above tax holiday was not available to a hundred per cent export-oriented undertaking. Such undertakings were eligible only for deduction out of their export profits under section 80HHC of the Income-tax With a view to providing further incentive for earning foreign exchange, a new section 10B has been inserted by the Act, so as to secure that the income of a hundred per cent, export- oriented undertaking shall be exempt from tax for a period of five consecutive assessment year falling within the block of eight assessment years. The exemption provided under the new section is similar to the one provided to industrial undertakings operating in free trade zones. The exemption under the new provisions will be subject to the following conditions:- (i) That the unit manufactures or produces any articles or things. The term "manufacture" will include any processing or assembling or recording of programmes on disc, tape, perforated, media or other information storage device; (ii) That the unit has not been formed by the splitting up or reconstruction of an existing business; (iii) That it has not been formed by the transfer to a new business of machinery or plant previously used for any purpose.

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 44 -

Unlike the provisions of section 10A of the Income-tax Act, even the existing hundred per cent export-oriented undertakings will be eligible to avail of the tax holiday for a full period of five assessment years in a block of eight years.

Therefore, the start point of the limitation for claiming the benefit flowing from section 10B would commence from the year of manufacture or production of the undertaking. If the conditions prescribed in the section are not satisfied in the year of commencement of production, it would not be able to claim such deduction in the subsequent years, unless the said initial test on the date of the starting point has been satisfied. Section 10B therefore do not give any indication that in each year of claim it's eligibility should be newly established; because the relevance of the phrase "newly established undertaking" is only to identify initial year of period for which assessee is eligible for claim of exemption u/s.10B of IT Act. Therefore, at the outset, it is justifiable to concentrate on the fact that whether the Chennai Unit was established in the year under consideration or not. On examination of the facts recorded by the AO, it was noticed that the Chennai Unit was established/acquired in the year 2000-01. This fact was rather noted by the Hon'ble Gujarat High Court in the aforecited decision dated 11.4.2008 and made an observation that the year 2001-02 was found to be the first year of the claim of deduction u/s.10B of IT Act. Due to this reason, reliance can be placed on Saurashtra Cement & Chemical Industries 123 ITR 669 (Guj.) and thus we hold that in the absence of any disturbance in respect of relief granted in initial year, there was no legal justification to disturb the continuous deduction of section 10B in any of the subsequent assessment year. The first year is the year in which the inquiry about the formation of the undertaking is required to be made by the AO. Although it is possible, as in the present case, that in any of the subsequent years the assessee had acquired new plant & machinery, may be of substantial value, as also may be increase the turnover or efficiency, nonetheless the act subscribes that the undertaking must not be formed by the splitting up or the reconstruction of a business already in existence. The Act also subscribes that the profits shall not to be included in the total income in respect of the prescribed consecutive assessment years beginning with the assessment years undertaking begins to manufacture an article. Therefore, the initial year is the year to establish the eligibility of the claim. Even the Ahmedabad Benches are also consistently subscribing this view as held in the case of Gateway Technolabs Pvt.Ltd., ITAT "C" Bench Ahmedabad (in ITA No.2473 & 2519/Ahd/2006 - AY 2003-04) order dated 4.9.2009.

6.1. As far as the question of alleged purchase of the machinery in question is concerned, there are few facts which indicate that the AO has wrongly held that it was an outright purchase by the Chennai Unit. In this regard, the first

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 45 - appellate authority has given a finding of fact that it was not evident from the records that the transaction relating to the machinery constituted outright sale. Likewise, as also simultaneously in the case of M/s.Sakhi Raimondi the first appellate authority has given a clear-cut finding that lease-rentals were received, relevant order of ld.CIT(A) has already been referred supra. Because of these facts and other evidences, such as the agreement, etc. we hereby hold that the AO has wrongly presumed that the transaction in question was a purchase of machinery by Chennai Unit. Because of this finding on facts a conclusion can be drawn that the rejection of deduction u/s.10B was bad in law. 6.2. An alternate plea has also been raised by ld.AR that the machinery which was taken on hire had costed less than the 20% of the total value of the machinery, therefore the impugned restrictive clause of section 10(b) was otherwise incorrectly invoked by the AO. For this proposition case laws cited was CIT vs. Nayyars Minerals Exports Pvt.Ltd. 231 ITR 864 (H.P.). A calculation in this regard has also been furnished; however, at this stage of second appeal no verification about the correctness of the said calculation is possible. Let it be as it is; notwithstanding this alternate plea do not survive anymore because we have already taken a view in assessee's favour as discussed in above paras. In the result, we hereby confirm the findings of ld.CIT(A), therefore the claim of deduction u/s.10B is directed to be allowed.”

19.1. In view of the above, we do not find any reason to uphold the finding of the learned DRP. Accordingly, we set aside the order of the learned DRP and direct the AO to allow the benefit to the assessee for the deduction under section 10B of the Act. Hence the ground of appeal of the assessee is allowed.

19.2. The interconnected issue raised by the assessee in ground no 3 is that the Ld. DRP erred in confirming the addition of Rs.79,684/- on account of full depreciation charged by assessee on asset costing less than Rs. 5000/-.

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 46 - 19.3. The AO observed from schedule 18 clause 1(b) of the financial statement of the assessee that the assessee claimed full depreciation on the assets costing less than Rs. 5000/-. However, the AO was of the view that there is no provision under the Act to allow 100% depreciation on assets costing less than Rs. 5000/-. Therefore the AO disallowed the depreciation of Rs. 79,684/- and added to the total income of the assessee. .

Aggrieved assessee preferred an appeal before the Ld. DRP.

19.4. The assessee before the learned DRP filed the details of purchase of assets amounting to Rs 79,684/- which are duly capitalized in the books of accounts and claimed depreciation u/s 32 of the Income tax Act. The ld. DRP directed to AO allow the claim of the assessee after necessary verification.

Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us.

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 47 - 22. We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the present case relates whether the assessee has claimed 100% deduction in respect of the assets costing less than Rs. 5,000.00 or it has claimed depreciation thereon as per the provisions of law. In this regard, we note that the learned DRP has given a direction to allow the claim of the assessee after necessary verification. We find no infirmity in the direction of the learned DRP in view of the fact that the issue involved is factual in nature. Accordingly we hold that no separate adjudication is required in the given facts and circumstances. Thus, we dismiss the ground of appeal raised by the assessee.

This Order pronounced in Open Court on 22/01/2020

Sd/- Sd/- (Ms. MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 22/01/2020 ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS

ITA No.2993/Ahd/2011 ACIT vs. M/s.Tyco Valves & Controls (I) Pvt.Ltd.vs. DCIT Asst.Year - 2007-08 - 48 -

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-DRP, Ahmedabad �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 21.1.2020 (word processed by Hon’ble AM in his computer by dragon) 2. Date on which the typed draft is placed before the Dictating Member 21.01.2020 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S … 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S…….22.1.2020 7. Date on which the file goes to the Bench Clerk…………………22.1.2020 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order……………