M/S INGERSOLL RAND (INDIA) LIMITED ,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-3(1)(1), BANGALORE

PER CHANDRA POOJARI, ACCOUNTANT MEMBER:

This appeal by assessee is directed against the assessment order passed by the Assessing Officer u/s 143(3) r.w.s. 144C r.w.s. 144B of the Income Tax Act, 1961 (in short “The Act”) dated 21.7.2022. The assessee has raised following grounds of appeal: Order is bad on facts 1.1 The order passed by Additional Commissioner/ Joint Commissioner/ Deputy Commissioner/ Assistant Commissioner/ Income Tax Officer — National Faceless Assessment Center ["learned AO"] under section 143(3) r.w.s 144C(13) r.w.s 144B of the Income tax Act, 1961 ["the Act"] is bad on facts, and therefore, liable to be set aside. Notwithstanding and without prejudice to the above, the Appellant wishes to file the following grounds of appeal: Transfer Pricing The grounds mentioned hereinafter are without prejudice to one another.

IT(TP)A No.867/Bang/2022 M/s. Ingersoll-Rand (India) Limited, Bangalore Page 2 of 22 1. The learned AO, learned Transfer Pricing Officer ('learned TPO') and the Honourable Dispute Resolution Panel ('Hon'ble DRP') grossly erred in determining an adjustment of INR 8,94,68,757/with respect to the international transaction rendered by the Appellant u/s 92CA of the Act.

3.1.1. The learned TPO/ learned AO/ Hon'ble DRP erred in not appreciating that the Appellant is engaged in provision of Information Technology Suppofi/ Software support services and instead erred in stating that the Appellant is engaged in provision of Information Technology enabled services (ITeS)/ Business Process Outsourcing (BPO) services without providing any cogent reasons. 3.1 .2. The learned TPO/ learned AO/ Hon'ble DRP erred in selecting comparable companies engaged in BPO/ ITeS without taking cognizance to the fact that the Appellant is engaged in rendering Information Technology Support/Software support services. 3.1.3. The Learned AO/ Learned TPO/ Hon'ble DRP erred in rejecting the TP documentation maintained by the Appellant by invoking provisions of sub- section (3) of 92C of the Act. 3.1.4. The Learned AO/ Learned TPO/ Hon'ble DRP erred in rejecting comparability analysis carried in the TP documentation and in conducting a fresh comparability analysis by introducing various filters while determining the Arm 's Length Price ("ALP"). 3.1.5 The Learned AO/Learned TPO/Hon'ble DRP erred in applying the core service income filter of 75% to sales, leading to a narrower comparable set. 3.1.6. The Learned AO/Learned TPO/Hon'ble DRP erred in applying export earning filter of 75% of' the total sales. leading to a narrower comparable set 3.1.7. The Learned AO/ Learned TPO/ Hon'ble DRP erred in considering the financial data of the preceding two years in case of the comparable companies wherein the data for the current year is unavailable, while determining the ALP. 3.1.8. The Learned AO/ Learned TPO/ Hon'ble DRP erred in applying different financial year ending filter while selecting the comparable companies,

3.1 9. The Learned AO/Learned TPO/Hon’ble DRP erred in rejecting companies having ratio of employee cost to sales of less than 25%. 3.1.10 The Learned AO/ Learned TPO/ Hon'ble DRP erred in not applying the upper limit on turnover while selecting the comparable companies.

IT(TP)A No.867/Bang/2022 M/s. Ingersoll-Rand (India) Limited, Bangalore Page 3 of 22 3.1.11.The Learned AO/ Learned TPO/ Hon'ble DRP erred in adopting an erroneous approach in computing the related party transaction ("RPT") filter of 25% for selecting the comparable companies. 3.1.12. The Learned AO/ Learned TPO/ Hon'ble DRP ought to have accepted the following companies as comparable to the Appellant, that were forming part of the TP documentation of the Appellant: • CG-VAK Software & Exports Ltd. • DCIS Dot Com Solutions India Pvt Ltd. • EC Info Systems India Private Ltd. • Evoke Technologies Pvt Ltd. • Harbinger Systems Pvt Ltd. • Isummation Technologies Pvt Ltd, OFS Technologies Ltd. • Orion India Systems Pvt Ltd. • R Systems International Ltd. • Rheal Software Ltd. • Sagarsoft (India) Ltd. • Sasken Technologies Ltd, • Sure IT Solutions India Pvt Ltd.

3.1.13. Without prejudice to the above, the learned AO/ learned TPO/ Hon'ble DRP ought to have accepted the below mentioned additional comparable companies that were submitted following the search methodology of the learned TPO during the show-cause proceedings, as comparable to the Appellant:

• Ace Software Export Ltd. • Batch Master Software Private Ltd. • Indianic Infotech Ltd. • Orangescape Technologies Ltd. • Athena Global Technologies Ltd. • Minvesta Infotech Ltd. • E-Zest Solutions Ltd, • Kals Information System Ltd. • Inteq Software Private Ltd. • Net Access (India) Ltd. • PCS Technology Ltd. • Fourth Dimension Solutions Ltd.

3.1.14. The learned AO/ learned TPO/ Hon'ble DRP ought to have rejected the following companies from the final set of comparables to the Appellant as they did not satisfy the comparability criteria:

• Infosys B P M Services Pvt. Ltd. • Manipal Digital Systems Pvt. Ltd. • Domex E Data Pvt Ltd.

IT(TP)A No.867/Bang/2022 M/s. Ingersoll-Rand (India) Limited, Bangalore Page 4 of 22 • Vitae International Accounting Services Pvt Ltd. • Inteq B P O Services Pvt. Ltd. • Motif India Infotech Pvt. Ltd. • Eclerx Services Ltd. • MPS Ltd. • Microland Ltd. • Datamatics Business Solutions Ltd. • Fuzen Software Pvt. Ltd. • Tech Mahindra Business Services Ltd. 3.1.15. The learned AO/ learned TPO/ Hon'ble DRP erred in not providing suitable adjustment towards working capital adjustment for determining the arm's length price of the international transaction of the services segment.

3.1.16. The learned AO/ learned TPO/ Hon'ble DRP erred in not providing any risk adjustment in determining the arm's length price of the international transaction of the services segment. 3.1.17. The learned AO/ learned TPO/ Hon'ble DRP erred in considering foreign exchange gain/ loss as operating in nature while computing the operating markup of the Appellant. 4. Cost contribution charges

4.1. The learned AO/ learned TPO/ Hon'ble DRP erred in treating the arm's length price ('ALP') in respect of payment for cost contribution charges amounting to INR 6,34,89,757/- as 'NIL'. 4.2 The learned AO/ learned TPO/ Hon'ble DRP erred in not accepting the transfer pricing analysis undertaken considering Transactional Net Margin Method ('TNMM') as the most appropriate method ('MAM') in accordance with the provisions of the Act read with Income-Tax Rules, 1962 ("Rules"). 4.3. The learned AO/ learned TPO/Hon’ble DRP erred in holding that (he international transactions cannot be aggregated in the application of TNMM for the transfer pricing analysis without appreciating the fact that the principle of aggregation of closely linked transactions is a well established rule prescribed by the Organisation for Economic Co-Operation and Development Guidelines ("OECD Guidelines"). 4.4. The learned AO/ learned TPO/ Hon'ble DRP erred in questioning the commercial expediency of the payment of cost contribution without giving cognizance to the fact that it is entirely the Appellant's prerogative as to how the business is to be conducted. 4.5. The learned AO/ learned TPO/ Hon'ble DRP erred in holding that Comparable Uncontrolled Price ('CUP') is the MAM with respect to the payments made by the Appellant towards cost contribution charges in accordance with the Act read with the Rules, despite the Ld. TPO not following the provisions

IT(TP)A No.867/Bang/2022 M/s. Ingersoll-Rand (India) Limited, Bangalore Page 5 of 22 prescribed in clause (a) of the sub-rule (l) of Rule 10B of the Rules for determining the ALP in relation to an international transaction under CUP. 4.6, The learned AO/ learned TPO/ Hon'ble DRP erred in ignoring the evidences submitted by the Appellant towards the payments made for the cost contribution charges to its AE and thereby concluding that the Appellant has not derived any benefits. 4.7. The learned AO/ learned TPO/ Hon'ble DRP erred in not giving cognizance to the fact that an identical issue in the Appellant's own case for earlier assessment years was ruled in favor of the Appellant by the Hon'ble Tribunal.

The learned AO erred in computing interest under section 234C of the Act which is consequential in nature. The appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided.” 2. Facts of the case are that the Assessee is engaged in the business of manufacturing and sales of industrial air compressors. The Assessee also provides Information Technology support services (“IT support services”) to its AE. During the assessment year 2018- 19, the relevant international transaction entered into by the Assessee with its AEs are provision of IT support services for a consideration of Rs. 29,88,81,042/-, payment of cost contribution charges of Rs. 6,34,89,757/-, purchase of raw materials and sale of finished goods. All the transactions in the manufacturing segment i.e. purchase of raw materials, sale of finished goods, payment of cost contribution charges (along with certain other ancillary payments and receipts) were aggregated and the Assessee benchmarked the same in an aggregated manner. The international transaction of provision of IT support services was benchmarked appropriately by applying certain filter and selecting certain comparable companies.

IT(TP)A No.867/Bang/2022 M/s. Ingersoll-Rand (India) Limited, Bangalore Page 6 of 22 In its TP study, the Assessee treated all the international transactions as being at arm’s length.

2.1 Upon a reference being made by the Assessing Officer to the TPO, the TPO passed an order dated 31.07.2021, determining a TP adjustment in respect of the transaction of IT support services and the payment of cost contribution charges. Insofar as the IT support services segment is concerned, the TPO erroneously characterized the services rendered by the Assessee as being Information Technology Enabled Services and accordingly selected companies rendering the said services to benchmark the transaction. Insofar as the payment of cost contribution charges is concerned, while the Assessee had benchmarked the same in an aggregated manner in the manufacturing segment, the TPO disregarded the same and proceeded to test the transaction in a segregated manner. While so, the TPO accepted the manufacturing segment of the Assessee, which included the payment of cost contribution charges as being at arm’s length.

2.2 Initially, a draft assessment order dated 24.09.2021 came to be passed by the Assessing Officer incorporating the aforesaid aggregate TP adjustment of Rs. 9,44,07,757/-.

2.3 Aggrieved, the Assessee filed its objections before the DRP which, vide its directions dated 17.06.2022 granted partial relief to the Assessee. Pursuant to the DRP directions, the Assessing Officer passed a final assessment order dated 20.07.2022 in which the aggregate TP adjustment was reworked to Rs. 8,94,68,757/-.

2.4 Aggrieved by the final assessment order, the Assessee has preferred the present appeal before us.

IT(TP)A No.867/Bang/2022 M/s. Ingersoll-Rand (India) Limited, Bangalore Page 7 of 22 Details of the Assessee’s International Transactions

Particulars Amount in Rs. Outcome of TP Order Purchase of raw materials 81,13,57,454/- Accepted to be at arm’s length Sale of finished goods 107,49,76,654/- Accepted to be at arm’s length Provision of services 13,89,421/- Accepted to be at arm’s length Payment of cost 6,34,89,757/- Adjustment of Rs. contribution charges 6,34,89,757/- Provision of IT support 29,88,81,042/- Adjustment of Rs. services 3,09,18,000/- Recovery of expenses from 1,82,08,071/- Accepted to be at AE arm’s length Reimbursement of expenses 14,76,075/- Accepted to be at to AE arm’s length Balance of trade receivables 28,14,36,526/- Accepted to be at arm’s length Balance of advance received 36,42,066/- Accepted to be at arm’s length Balance of trade receivables 28,64,09,418/- Accepted to be at arm’s length 3.1 The ld. A.R. further submitted the analysis of the TP study of the assessee and the TPO as follows:

IT SUPPORT SERVICES SEGMENT:

3.2 Net mark-up on cost earned by the Assessee as computed by the TPO:

Particulars Amount Operating Revenue Rs. 29,88,81,000/- Operating Cost Rs. 26,00,12,000/- Operating Profit Rs. 3,88,69,000/- (Op. Revenue – Op. Cost) Operating/Net mark-up 14.95% (OP/OC)

IT(TP)A No.867/Bang/2022 M/s. Ingersoll-Rand (India) Limited, Bangalore Page 8 of 22 3.3 Comparison of the TP studies done by the Assessee and TPO:

3.3.1 At the outset, he submitted that the services rendered by the Assessee are in the nature of IT support services. The services relate to provision of support services to the software that has already been developed and currently being used by the Ingersoll-Rand group of companies. The services are only supporting in nature and does not involve development of software applications and analytics. The Assessee only provides back-end IT support to its AE.

3.3.2 He submitted that the TPO failed to appreciate the nature of the services rendered by the Assessee and proceeded to characterize the services as being in the nature of Information technology enabled services and accordingly tested the transaction.

3.4 Filters applied by the Assessee in its TP study:

Step Description 1. Companies having data of the FYs 2016-17 or 2017-18 - accepted 2. Companies having net sales equal to or more than Rs. 1 crore - accepted 3. Companies having positive net worth - accepted 4. Companies having manufacturing and trading income less than or equal to 50% of sales - accepted 5. Companies having extraordinary events of merger/acquisition, holding significant inventory, owning significant IPs/developing proprietary products - rejected 6. Companies having ratio of related party transactions to total income less than 25% - accepted. 7. Companies having ratio of employee cost to net sales more than 25% - accepted 8. Companies having ratio of foreign exchange earnings to net sales more than 75% - accepted 9. Companies reporting consecutive losses in the relevant years – rejected 10. Companies reporting abnormal margins in the relevant years – rejected

IT(TP)A No.867/Bang/2022 M/s. Ingersoll-Rand (India) Limited, Bangalore Page 9 of 22 3.5 Comparables selected by Assessee and weighted average of OP/OC of comparable companies:

Sl. Name of the company Average No. unadjusted margin (in %) 1. CG-VAK Software & Exports 8.40 2. DCIS Dot Com Solutions India Pvt. 3.90 Ltd. 3. EC Info Systems India Pvt. Ltd. 43.43 4. Evoke Technologies Pvt. Ltd. 4.89 5. Harbinger Systems Pvt. Ltd. 7.41 6. Isummation Technologies Pvt. Ltd. 3.69 7. OFS Technologies Ltd. 25.01 8. Orion India Systems Pvt. Ltd. 21.59 9. R Systems International Ltd. (seg.) 21.32 10. Rheal Software Ltd. -4.40 11. Sagarsoft (India) Ltd. 17.41 12. Sasken Technologies Ltd. (seg.) 9.54 13. Sure IT Solutions India Pvt. Ltd. 16.21 35th Percentile 7.41 Median 9.54 65th Percentile 17.41 NOTE: The TPO rejected all comparables selected by the Assessee.

3.6 Filters applied by the TPO:

Step Description Companies rendering Information technology enabled services selected 1. Use of current year (FY 2017-18) data where available. 2. Companies having different financial year ending i.e., not 31.03.2018 or data that does not fall within 12-month period i.e. 01.04.2017 to 31.03.2018 - excluded 3. Companies whose income was less than Rs. 1 Crore - excluded 4. Companies having ITEs and related service less than 75% of total operating revenues – excluded 5. Companies which have more than 25% related party transactions - excluded. 6. Companies having export sales less than 75% of sales – excluded 7. Companies with employee cost less than 25% turnover - excluded

IT(TP)A No.867/Bang/2022 M/s. Ingersoll-Rand (India) Limited, Bangalore Page 10 of 22 3.7 Comparables selected by TPO and margin of the companies:

Sl. Weighted No. Name of the Company average (in %) Jindal Intellicom Ltd. 7.41 1. Microland Ltd. 8.58 2. Datamatics Business Solutions Ltd. 13.41 3. Fuzen Software Pvt. Ltd. 15.75 4. Tech Mahindra Business Services 18.85 5. Ltd. Infosys B P M Services Pvt. Ltd. 20.95 6. Manipal Digital Systems Pvt. Ltd. 23.54 7. Domex E Data Pvt. Ltd. 26.34 8. Vitae Intrernational Accounting 27.35 9. Services Pvt Ltd. 10. AGS Health Pvt. Ltd. 27.64 11. Ultramarine & Pigment Ltd. (Seg.) 33.28 12. Access Healthcare servies Pvt. Ltd. 39.03 13. Inteq BPO Services Pvt. Ltd. 39.15 14. Motif India Pvt Ltd. 45.72 15. Eclerx Services Ltd. 46.85 16. MPS Ltd. 61.83 35th Percentile 20.95 Median 26.84 65th Percentile 33.28 3.8 Computation of arm’s length price by the TPO and the adjustment made:

Particulars Amount Operating Revenue Rs. 29,88,81,000/- Operating Cost Rs. 26,00,12,000/- Operating profit Rs. 3,88,69,000/- Median of comparable set 26.84% Arm’s length price Rs. 32,97,99,000/- Price received Rs. 29,88,81,000/- Shortfall being adjustment u/s. Rs. 3,09,18,000/- 92CA

IT(TP)A No.867/Bang/2022 M/s. Ingersoll-Rand (India) Limited, Bangalore Page 11 of 22 3.9 DIRECTIONS ISSUED BY DRP:

Briefly, the ld. A.R. submitted the directions issued by the DRP are as follows:

i. The DRP failed to appreciate the contentions of the Assessee that the services rendered by it are not in the nature of Information Technology Enabled Services and that therefore it cannot be benchmarked with companies rendering such services.

ii. However, the DRP accepted the contentions of the Assessee that Jindal Intellicom Ltd, AGS Health Pvt. Ltd, Access Healthcare Services Pvt. Ltd, and Ultramarine & Pigment Ltd. are not comparable to the Assessee and thus directed their exclusion.

iii. All the other contention seeking exclusion and inclusion of companies came to be rejected.

iv. The DRP rejected the contention of the Assessee that the payments made towards cost contribution charges were at arm’s length. 3.10 List of companies post the DRP’s Directions:

On giving effect to the above directions issued by the DRP, the final list of comparables is as follows:

Sl. Weighted No. average Name of the Company (in %) 1. Microland Ltd. 8.58 2. Datamatics Business Solutions Ltd. 13.41 3. Fuzen Software Pvt. Ltd. 15.75 4. Tech Mahindra Business Services Ltd. 18.85 5. Infosys B P M Services Pvt. Ltd. 20.95 6. Manipal Digital Systems 23.54 7. Domex E Data Pvt. Ltd. 26.34 8. Vitae Intrernational Accounting Services 27.35 Pvt Ltd.

IT(TP)A No.867/Bang/2022 M/s. Ingersoll-Rand (India) Limited, Bangalore Page 12 of 22 9. Inteq BPO Services Pvt. Ltd 39.15 10. Motif India Pvt Ltd 45.72 11. Eclerx Services Ltd. 46.85 12. MPS Ltd. 61.83 3.11 FINAL ASSESSMENT ORDER:

Pursuant to the directions of the DRP, the AO passed a final assessment order, wherein the TP adjustment stood reduced to Rs. 2,59,79,000/-. 3.12 GROUNDS IN THE APPEAL:

Briefly, the ld. A.R. submitted the grounds in the appeal that are being pressed is as follows:

a. That the TPO and DRP erred in treating the IT support services rendered by the Assessee as being in the nature of Information Technology Enabled services, and consequently erred in excluding the companies selected by the Assessee in its TP study (Ground Nos. 2, 3.1.1, 3.1.2 and 3.1.12)

b. That the AO and DRP erred in not excluding Tech Mahindra Business Services Ltd., Infosys B P M Services Pvt. Ltd., Manipal Digital Systems Pvt. Ltd., Domex E Data Pvt. Ltd., Vitae Intrernational Accounting Services Pvt Ltd., Inteq BPO Services Pvt. Ltd, Motif India Pvt Ltd, Eclerx Services Ltd., MPS Ltd., from the final list of comparables as being functionally incomparable. (Ground No. 2 and 3.1.14)

c. That the TPO/AO/DRP erred in not providing suitable adjustment towards working capital for determining the arm’s length price of international transactions of the services segment. (Ground No. 3.1.15)

d. That the TPO/AO/DRP erred in considering the foreign exchange gain/loss as operating in nature while computing the operating markup of the Assessee. (Ground No. 3.1.17)

IT(TP)A No.867/Bang/2022 M/s. Ingersoll-Rand (India) Limited, Bangalore Page 13 of 22 4. Ground No.1 is general in nature which does not require any adjudication. 5. Ground Nos.2, 3.1.1 to 3.1.11 are with regard to erroneous treatment by the TPO of the IT support services rendered by the assessee as being in the nature of Information Technology enabled services. 6. The ld. A.R. submitted that the Assessee is challenging the action of the TPO in not appreciating that the services rendered by the Assessee are in the nature of IT support services, and instead treating the services as being in the nature of IT Enabled services and thereby benchmarking the Assessee with companies rendering IT enabled services. 6.1 He submitted that the Assessee is engaged in rendering IT support services to its AEs on a cost plus model. The services relate to provision of support services to the software that has already been developed and currently being used by the Ingersoll-Rand group of companies. The services are only supporting in nature and does not involve development of software applications and analytics. The Assessee only provides back-end IT support to its AE. The services rendered by the Assessee are categorized into the following division of activities:

- Infrastructure and security: • Network operations. • Request and ticket management. • Helpdesk. • Database and operations management. • Security administration and management. • Access management. - Application management: • Application development. • Web services. • Enterprise resource planning (Oracle based). • Core development – this pertains to customization of existing applications. • Historical and legacy application support and system integration.

IT(TP)A No.867/Bang/2022 M/s. Ingersoll-Rand (India) Limited, Bangalore Page 14 of 22

- Data and digital technical services: • Supplier master clean up. • Data management. • Creation of standard reports. • All reports are generated/extracted from a particular application. 6.2 He further submitted that the above services rendered by the Assessee are not pure Information Technology Enabled services. It is submitted that Rule 10TA(e) of the Income-tax Rules, 1962 (“the Rules”) defines information technology enabled services as the following business process outsourcing services provided mainly with the assistance or use of information technology:

(i) back office operations; (ii) call centres or contact centre services; (iii) data processing and data mining; (iv) insurance claim processing; (v) legal databases; (vi) creation and maintenance of medical transcription excluding medical advice; (vii) translation services; (viii) payroll; (ix) remote maintenance; (x) revenue accounting; (xi) support centres; (xii) website services; (xiii) data search integration and analysis; (xiv) remote education excluding education content development; or (xv) clinical database management services excluding clinical trials.

IT(TP)A No.867/Bang/2022 M/s. Ingersoll-Rand (India) Limited, Bangalore Page 15 of 22 6.3 For instance, he submitted that the services rendered under the head application management are in the nature of development, and therefore all the services rendered by the Assessee cannot be classified as Information Technology Enabled services. Therefore, he submitted that the entire benchmarking analysis undertaken by the TPO proceeding on the erroneous footing that the Assessee is an ITE service provider is wholly erroneous and unsustainable. Therefore, he submitted that the TP study rightly done by the Assessee ought to be accepted. 7. The ld. D.R. relied on the order of lower authorities. 8. We have heard the rival submissions and perused the materials available on record. The assessee raised specific grounds before ld. DRP as follows:

“2.3 Ground of objection No. 3: Learned TPO erred in rejecting the Transfer Pricing of the Assessee Objection No. 3.1: The TPO/ AO has erred in disregarding the economic analysis carried out by the Assessee in the Transfer Pricing documentation documentation'). Ground No 3.2: The TPO/ AO has erred in rejecting the filters applied by the Assessee without giving any cogent reasons. Objection No. 3.3: The TPO/ AO has erred in rejecting the companies selected by the Assessee in the TP documentation without providing sufficient reasons for rejection Objection No 3.4: The TPO/ AO has erred in not having appreciated the fact that the TP documentation maintained by the Assessee cannot be rejected merely on account of difference of opinion. Objection No.3.5: The learned TPO erred in characterizing IRIL as an ITeS Company without appreciating the functional profile of the Assessee that was documented in the TP report. & 2.4 Ground of objection No. 4: The TPO has erred in conducting a fresh search or comparable companies” 8.1 The ld. DRP clubbed all these grounds together and adjudicated as follows:

“Having considered the submissions, we note that the TPO has rejected the TP study as the assessee had applied inappropriate filters and also failed to adopt

IT(TP)A No.867/Bang/2022 M/s. Ingersoll-Rand (India) Limited, Bangalore Page 16 of 22 appropriate filters for selection of comparables. The assessee has not applied the employee cost > 25% of total operating cost filter, the income from core service > 75% of sales filter, export service income >75% of sales filters and considering companies with different financial year ending (i.e., not March 31, 2018) while making the comparable analysis. In this regard, it is relevant to refer to Rule 10B(2) which reads: 10B (2) For the purposes of sub-rule (1), the comparability of an International transaction [or a specified domestic transaction] with an uncontrolled transaction shall be judged with reference to the following, namely: — (a) the specific characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions; (c) the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions; (d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail.

2.3.2 The above Rule specifically mandates that the comparability shall be judged with reference to specific characteristics of services provided, assets employed, the geographical location, cost of labour and other market conditions. Thus, the application of these filters become relevant and mandatory, as they take into account these comparability factors namely- geographical location and market conditions (export filter); assets employed and cost of labour (employee cost filter). The non- application of these filters have resulted in non-compliance to these mandatory requirements specified in the above Rule, and as a result the comparability analysis is not in accordance with the requirements of section 92C read with Rule 10B. 2.3.3 We further note that the assessee had not considered current year data for comparable analysis. Further, it is pertinent to note that the recently inserted Rule 10B(5) mandatorily requires the use of current year data even if it is subsequently available at the time of determination of arm's length price during the course of assessment proceedings. The word 'shall' used in the proviso to Rule 10B(5) clearly stipulates such mandatory condition. Thus, the current year data has to be necessarily considered for the purpose of comparable analysis. The non- consideration of the current year data as mandatorily required by the Rule, make the TP analysis defective, incorrect and unreliable. It is also pertinent to note that the proviso to Rule10CA (2) requires the current year data to be mandatorily included in the dataset for computation of weighted average, and, if the current year data indicates that the enterprise is not comparable for the current year, then the data relating to the earlier two years cannot be included in the data if the enterprise

IT(TP)A No.867/Bang/2022 M/s. Ingersoll-Rand (India) Limited, Bangalore Page 17 of 22 is comparable for the earlier two years. Thus, the comparability has to be necessarily determined with reference to the current year data. 2.3.4 The TPO has analysed in detail as to why the TP study of the assessee suffer from certain defects as discussed above aid adopted fresh search as per the law after giving opportunity of hearing by a issuing a detailed show cause notice. The show cause notice contained the.TP0 earmarks on the filers adopted by the taxpayer, filters applied by the TPO the search process adopted by the TPO, the accept / reject matrix of companies considered by the TPO and also the computation of operating margins. The notice also mentions the reason for the rejection of companies in each comparable company. The TPO has also provided the annual reports of the comparables to the taxpayer to file objections, if any. 2.1.5 As per the provisions of section 92C(3)(c) read with section 92CA, on the basis of material or information or documents in possession, if the TPO is of the opinion that the information or data used in computation of arm's length price is not reliable or correct, the TPO may proceed to determine ALP in relation to international transactions in accordance with section 92C(1) and 92C(2) on the basis of such material or documents available with TPO. In view of the above, we do not find any infirmity in the TPO's action in rejecting the TP study and consequently doing a fresh analysis.” 8.2 Now once again assessee raised the specific ground challenging treatment given by TPO to IT support services as ITeS. In our opinion, this issue requires to be examined at the end of the ld. TPO and he has to see the specific character of the services rendered by the assessee and decide accordingly. In the result, ground Nos.2, 3.1.1 to 3.1.11 raised by the assessee are partly allowed for statistical purposes.

IT(TP)A No.867/Bang/2022 M/s. Ingersoll-Rand (India) Limited, Bangalore Page 18 of 22 Assessee received certain intra-group services from its AE, which are in the nature of managerial services. The services rendered are: (i) strategy and continuous improvement initiatives; (ii) finance and treasury; (iii) administration; and (iv) taxation and other regulatory matters. Further, he submitted that the global IT support ensures the efficient and effective operation of the Group’s information systems operating platform. It gives access to basic computer systems, software packages, etc to group companies globally. This includes development of global IT strategy, development and maintenance IT systems, maintenance and update of group internet sites, etc. this ensures that all of the technology resources of an organization are managed in accordance with the company’s needs and priorities. The human resource support aims at developing global HR strategy, policies and procedures, guidance for structuring the organization, recruitment support, global training and learning programmes etc. these policies held the Assessee in establishing a world class working culture in compliance with regional norms. The central finance function aims at ensuring the efficient budgeting, forecasting, monitoring and reporting the Group’s financial performance and to provide support in connection with Tax and Treasury matters. The AE also support in strategy and continuous improvement initiative in the area of procurement, market research, supply chain, engineering, customer management, etc.

10.1 At the outset, the ld. A.R. submitted that this issue is covered in favour of the Assessee by the decisions of this Tribunal in the Assessee’s own case for assessment year 2010-11 (Order dated 05.11.2015 passed by this Tribunal in IT(TP)A No. 228/Bang/2015 at paras 9, 22 to 24) and in Assessee’s own case for assessment year 2011-12 in the directions dated 16.12.2015 passed by the DRP at page 3 of the DRP Directions. Therefore, he submitted that the adjustment made ought to be deleted. In any event, he submitted that:

IT(TP)A No.867/Bang/2022 M/s. Ingersoll-Rand (India) Limited, Bangalore Page 19 of 22 - Segregated benchmarking is incorrect:

10.2 He submitted that the cost contributions charges are closely linked to manufacturing function and therefore the same were benchmarked in an aggregated manner by the Assessee. He submitted that importantly, the TPO accepted the margin of the manufacturing segment to be at arm’s length. The operating cost in the manufacturing segment includes the cost contribution charges, and therefore once the manufacturing segment is accepted to be at arm’s length, the TPO is precluded from culling out expenses from the said segment and benchmarking the same in a segregated manner. He placed reliance in this regard on the decision of this Tribunal in the case of Herbalife International India Pvt. Ltd. v. DCIT (Reported in [2023] 151 taxmann.com 442 (Bangalore - Trib)) at paras 3.21 to 3.23.

- TPO cannot question benefit:

10.3 He submitted that benefit/receipt of services cannot be looked into by the TPO. Under Chapter X of the Act, the TPO is vested with the jurisdiction to only determine the arm’s length nature of an international transaction, having regard to rules 10A to 10E of the Rules. It is a settled position that the TPO is not vested with the power to examine whether an assessee received the services/any benefit therefrom. He placed reliance in this regard on the decisions of CIT v. EKL Appliances Ltd. (reported in [2012] 24 taxmann.com 199 (Delhi) at paras 21, 22) and CIT v. Lever India Exports Ltd. (reported in [2017] 78 taxmann.com 88 (Bombay) at paras 7 and 8), which have been followed consistently by this Hon’ble Tribunal, to hold that the TPO/AP cannot adjudicate on whether the Assessee derived any benefits from the transaction or whether the transaction was required to be entered into.

IT(TP)A No.867/Bang/2022 M/s. Ingersoll-Rand (India) Limited, Bangalore Page 20 of 22 - ALP cannot be determined to be ‘Nil’:

10.4 He submitted that ALP of a transaction cannot be determined to be ‘Nil’, in an adhoc manner, without following any of the prescribed methods. Reliance in this regard is placed on the following decisions: a. CIT v. Lever India Exports Ltd. (reported in [2017] 78 taxmann.com 88 (Bombay) at para 7); b. CIT v. Merck Ltd. (reported in in [2016] 73 taxmann.com 23 (Bombay).at para 3. II(d)); and c. CIT v. Johnson & Johnson Ltd. ([2017] 80 taxmann.com 337 (Bombay) para 4(d)).

In view of the above, he submitted that the adjustment made ought to be deleted.

“22. We find that the Mumbai Bench of the Tribunal in the case of Dresser Rand India Pvt. Ltd. (ITA No.8753/Mum/2010) upheld the payment of cost contribution charges and deleted the additions made by the AO observing as follows: • It is only elementary that how an assessee conducts his business is entirely his prerogative and it is not for the revenue authorities to decide what is necessary for an assessee and what’s not.

• An assessee may have any number of qualified accountants and management experts on his rolls, and yet he may decide to engage services of outside experts for auditing and management consultancy; it is not for the revenue officers to question assessee's wisdom in doing so. • Whether a particular expense on services received actually benefits an assessee in monetary terms or not is not even a consideration for its being

IT(TP)A No.867/Bang/2022 M/s. Ingersoll-Rand (India) Limited, Bangalore Page 21 of 22 allowed as a deduction in computation of income, and, by no stretch of logic, it can have any role in determining arm's length price of that service. • The real question which is to be determined in such cases is whether the price of this service is what an independent enterprise would have paid for the same. • Similarly, whether the AE gave the same services to the assessee in the preceding years without any consideration or not is also not relevant. • The Assessee has filed a huge compilation of papers, including copies of reports, emails and other documents evidencing the rendering of services. • There is no infirmity in4his contribution being taken as an arm's length contribution to the costs. • There is no objective way in which use of services can be measured and as is the commercial practice even in market factors driven situation, the costs are shared in accordance with some objective criterion, including sales revenues and number of employees. • In any case, the assessee has adopted TNMM as most appropriate method, and the revenue authorities have neither made an effort to show as to how this method is not appropriate to the facts of this case, nor shown as to which other prescribed method of ascertaining arm’s length price of services received will be more appropriate to these facts.

12.1 Further, Hon’ble jurisdictional High Court in ITA No.347/2016 vide order dated 1.8.2018 confirmed the above order of the Tribunal, wherein following question raised: “1. Whether on the facts and in the circumstances of the case, the Tribunal is right in directing the TPO to delete the additions made on account of cost contribution charges and notional interest on outstanding receivables from AE’s by merely following its earlier order which has not reached finality without considering the facts and materials on record?”

IT(TP)A No.867/Bang/2022 M/s. Ingersoll-Rand (India) Limited, Bangalore Page 22 of 22 12.2 The Hon’ble High Court dismissed the above question holding that there is no substantial question of law arises for consideration. 12.3 Further, it was also brought to our notice that ld. DRP for assessment year 2011-12 has followed the above ITAT’s order for assessment year 2010-11 and he placed on record the order of ld. DRP dated 16.12.2015 for the assessment year 2011-12 wherein observed as under: “10. Having considered the submissions, during the course of the proceedings the assessee placed reliance on the Hon’ble Bangalore ITAT’s decision in Assessee’s own case for the AY 2010-11 (ITA No.228/Bang/2015) in which the Hon’ble ITAT deleted the adjustment on account of payment of cost contribution charges following the decisions of Hon’ble Delhi ITAT in the case of Dresser Rand India Private Limited (ITA No.8753/Mum/2010) and AWB India Private Limited (ITA No.4454/Del/2011). Respectfully following the decision of the Hon’ble ITAT, Bengaluru, in assessee’s own case for AY 2010- 11, as the fact and circumstances remain the same, we direct the AO to delete the addition proposed.”

12.3 In view of the above discussion, we allow ground No.4.1 to 4.7 of the assessee’s appeal. 13. In the result, appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 7th May, 2024

Sd/- Sd/- (Keshav Dubey) (Chandra Poojari) Judicial Member Accountant Member

Bangalore, Dated 7th May, 2024. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order

Asst. Registrar, ITAT, Bangalore.