ASSISTANT COMMISSIONER OF INCOME-TAX vs. M/S. JOHN DEERE INDIA PVT. LTD., PUNE

आदेश / ORDER PER R.S.SYAL, VP : These two cross appeals – one by the assessee and the other by the Revenue - are directed against the final assessment order dated

2 M/s. John Deere India Pvt. Ltd., A.Yr. 2010-11

26-02-2015 passed by the Assessing Officer (AO) u/s.143(3)

r.w.s.144C (13) of the Income-tax Act, 1961 (hereinafter also called

‘the Act’) in relation to the assessment year 2010-11.

Revenue. The ld. AR did not object to the condonation of the delay.

Resultantly, the delay in condoned and the appeal is admitted for

disposal.

u/s 10A and ground no. 4 regarding the treatment of foreign

exchange loss/ gain. These grounds are, therefore, dismissed as not

pressed.

against the addition on account of transfer pricing addition

amounting to Rs.6,37,64,290/- made in respect of international

transaction of “Provision of Software Development Services” by

the assessee to its Associated Enterprise (AE).

Indian company, is engaged in providing Software Development

Services and Sales Support Services to Deere and Company, USA

and other group entities. The assessee filed its return declaring total

3 M/s. John Deere India Pvt. Ltd., A.Yr. 2010-11

income of Rs.1,05,28,198/-. Certain international transactions were

reported in Form No. 3CEB. The AO made a reference to the

Transfer Pricing Officer (TPO) for determining the Arm’s Length

Price (ALP) of the international transactions. The assessee reported

the first international transaction of “Provision of Software

Development Services” to Deere & Company with transacted value

of Rs.1,07,58,57,364/-. The assessee applied the Transactional Net

Margin Method (TNMM) for demonstrating that this transaction

was at ALP. It selected 21 companies as comparable with multiple

year data. The TPO did not dispute the correctness of the

application of TNMM as the most appropriate method. He,

however, rejected the assessee’s version of selecting comparables

with multiple year data. After entertaining objections from the

assessee, the TPO selected 11 companies, out of which 7 companies

were from the list of the assessee and 4 new companies were added.

The Dispute Resolution Panel (DRP) directed to exclude Infosys

Technologies Ltd. from the list of comparables drawn by the TPO.

The Panel further directed to include 5 new companies, which

brought total of comparable companies to 15. The Revenue is

aggrieved by certain directions given by the DRP, which we will

advert to a little later. The assessee is aggrieved only by the

4 M/s. John Deere India Pvt. Ltd., A.Yr. 2010-11

inclusion of three companies in the final tally of comparables,

namely, (a) Kals Information Technology Systems Ltd. (Segment);

(b) Thirdware Solutions Ltd.; and (c) Acropetal Technologies Ltd.

(Segment).

the assessee are in fact comparable or not, we need to ascertain the

true nature of the activities done by the assessee under this

international transaction. The TPO has recorded on page 3 of his

order that the assessee rendered Software Development Services to

Deere & Company. The Software Development Services are

mainly in the nature of computer programming and code

development based on the business knowledge provided by the

recipient of the service. The services provided by the assessee are

Software Application Development and Support for various

Business Divisions of Deere and Company; Data and Application

Management Services to various Business units of Deere &

Company; Designing new business solutions by using existing and

new technologies; Development and enhancement; Maintenance;

and Product support. The overall functions performed by the

assessee and Deere & Company in rendering software development

services have been summed up at pages 3 and 4 of the TPO’s order.

5 M/s. John Deere India Pvt. Ltd., A.Yr. 2010-11

The conceptualization and design of the software is done by the

Deere & Company. The assessee has a very limited role in overall

designing of the software. Functional specifications and

requirement analysis of the software is also done by Deere &

Company, which is then communicated to the assessee and the

assessee’s role in this function is also very limited. Thereafter,

starts the role of the assessee with Development of codes and

documentation; Testing and Quality Control. When the Software

Developed by the assessee is passed over to Deere & Company, the

same is integrated by the Deere & Company into the big overall

Software developed by the latter. The assessee entered into

Services agreement with Deere & Company on 26.5.2005, which is

valid for the year under consideration as well. This Agreement

provides that the assessee will render, inter alia, the Information

Technology Services for John Deere business applications. The

services include the development and support of the applications

used in the business outside India, which are wholly owned or

affiliated with Deere. Development of applications includes

providing computer programming and code development etc. with

the business knowledge provided by the recipient of the services.

With the above background of the nature of services provided by

6 M/s. John Deere India Pvt. Ltd., A.Yr. 2010-11

the assessee under this segment, we will endeavour to see if the

disputed companies are in fact, comparable or not.

Kals Information Technology Systems Ltd. (Seg.) :

assessee objected to the same by contending that it is functionally

different as it is also engaged in providing Software products since

its inception. The assessee further pointed out some calculation

mistakes in the operating margin of this company. The TPO

rejected the assessee’s contention by observing that nothing was

mentioned in the Profit and loss account of the company about the

sale of products. The DRP upheld the action of the AO in the draft

order, incorporating the inclusion of this company in the final set of

comparables by the TPO. Aggrieved thereby, the assessee is in

appeal before the Tribunal.

material on record. We have perused the Annual report of this

company, a copy of which is available at page 475 onwards of the

paper book. Note no.14 to the Notes to financial statements

provides background of this company by stating that : “The

company is engaged in Development of Software and Software

7 M/s. John Deere India Pvt. Ltd., A.Yr. 2010-11

products since its inception”. This company has two major

segments, namely, (a) STPI unit engaged in “Development of

Software and Software products” and (b) “Training Centre”

engaged in training of Software professionals on online products.

Segmental information has been given at page 497 of the paper

book, which shows revenues from the aforenoted two segments,

namely, “Application Software” and “Training”. Profit and loss

account of this company has been set out at page 492 of the paper

book. First item under the head “Income” is “Sales, Services and

Training” with the figure of Rs.2,30,45,144/-. Break-up of this

amount has been given in Schedule No.10 showing `Income from

Software Development–Export’ – Rs.2,16,92,935/-; `Translation

and Interpretation’ – Rs.10,84,248/-; and `Training receipts’ –

Rs.2,67,971/- Under the head “Operating Expenses”, an item of

Rs.11,00,000/- has been shown with narration of “Software

Consumption from Inventory”. Balance sheet of this company

shows `Inventories’ at Rs.60,47,977/-. The above information

clearly deciphers that Kals Information Technology Systems Ltd. is

not only engaged in providing Software Development Services but

is also dealing in Software products under the relevant segment. As

the assessee is not engaged in the business of Software products but

8 M/s. John Deere India Pvt. Ltd., A.Yr. 2010-11

is rendering only Software services on captive basis, in our

considered opinion, this company cannot be considered as

comparable. The Hon’ble jurisdictional High Court in CIT vs. PTC

Software (I) Pvt. Ltd. (2017) 395 ITR 0176 (Bom) has held that a

Software product company cannot be compared with a company

providing software services. As Kals Information Technology

Systems Ltd. was engaged in selling of software products which

was different from activity undertaken by assessee in that case,

namely, rendering of software service to its holding company, the

same was held to be rightly excluded from the list of comparables.

In view of the foregoing discussion, we order to exclude this

company from the final list of comparables.

Thirdware Solutions Ltd. :

objected to its inclusion by contenting that it was functionally

different and also a super profit making company. The assessee

claimed that this company was engaged in offering comprehensive

implementation and Application Management Support Services in

Enterprise Application. The TPO rejected the assessee’s

contentions. The DRP approved the action of the TPO in including

9 M/s. John Deere India Pvt. Ltd., A.Yr. 2010-11

this company in the list of comparables. The assessee has come up

in appeal against the inclusion of this company.

relevant material on record. The Annual report of this company is

available at page 415 onwards of the paper book. Profit and loss

account of this company shows `Sales’ of Rs.67,56,06,505/-.

Break-up of such sale has been given in Schedule 12, which

records `Export from SEZ units’ – Rs.47,58,40,447/-; `Export from

STPI units’ – Rs.11,20,90,633; `Revenue from subscription’ –

Rs.1,53,13,736/-; `Sale of licence’ – Rs.1,51,38,618/-; and

`Software Services’ – Rs.5,72,23,072/-. This company has

segments only on geographical basis and not on functional level.

As such, there is no bifurcation of operating profit from Software

Services and others including Sale of licence and Revenue from

subscription etc. Even the first two major items of `Exports from

SEZ units’ and `Export from STPI units’ do not show as to whether

these were exports of Software products or Software Services. In

the absence of the availability of any concrete information in respect

of Software Services, we fail to comprehend as to how this

company, also having software products in its portfolio, can be

10 M/s. John Deere India Pvt. Ltd., A.Yr. 2010-11

construed as comparable. The same is accordingly directed to be

excluded.

Acropetal Technologies Ltd. (Seg.) :

comparables. The assessee raised objections to its inclusion by

contending that apart from others, this company was engaged in

providing on-site services which made it functionally different. The

TPO observed that on-site development expenses were less than

50% of total expenses and hence, it was not a significant factor. He,

therefore, proceeded to include it in the list of comparables. The

DRP directed the TPO to take only the IT service segment of this

company as comparable. The assessee is aggrieved by this direction

of the DRP incorporated in the final assessment order.

material on record, we find that the Annual report of this company

is available at page 353 onwards of the paper book. Information

regarding segmental reporting has been given at pages 376 and 377

of the paper book. There are only three segments, namely, (a)

Engineering Design Services, (b) Information Technology Services

and (c) Health care. Pursuant to the direction of the DRP, the TPO

11 M/s. John Deere India Pvt. Ltd., A.Yr. 2010-11

has included only Information Technology Services segment in the

final set of comparables. Directors’ report of this company records

that “the company is uniquely placed with readymade Software

products to cater to the needs of Hospitals and Healthcare Centres

both in India and abroad especially in the USA”. Profit and Loss

account of this company appears at page 367 of the paper book,

which records `Decrease in Inventories’ by (Rs.1,50,80,060/-)

under the head “Expenditure”. Balance sheet of this company also

has a figure of `Inventories’. Apart from this company being

engaged in Software products also, it is pertinent to note that it has

rendered on-site services of a greater magnitude. It can be seen from

expenses of Rs.55,85,57,169/- incurred under the head “Employee

related and on-site Development Charges”, this company incurred

“on-site Development Expenses” at Rs.42,32,55,491/-, which

transpires that employees related costs incurred by the company on

on-site development is roughly at 75% of total employees related

costs. As against this, the assessee is not engaged in rendering any

on-site services. A company engaged in providing on-site services

cannot be compared with a company providing similar services

from its own premises (in-house) due to several significant

differences in operating costs and also the revenues apart from vital

12 M/s. John Deere India Pvt. Ltd., A.Yr. 2010-11

differences in the level of assets employed and risks undertaken. In

view of the foregoing, we are satisfied that this company cannot be

considered as comparable as it is not only engaged in the business

of Software products but is also providing on-site services, which

make it distinguishable from the assessee company. We, therefore,

order to exclude this company from the list of comparables.

Software Development Services. The DRP directed to include 5

new companies in the list of comparables which, inter alia,

included (a) Akshay Software Technologies Ltd. (b) R.S. Software

Systems rendering on-site services. The TPO had rejected these

companies because they were rendering on-site services. The DRP,

however, did not find anything amiss in including these companies

despite those being engaged in rendering on-site services. The

Revenue is aggrieved by the inclusion of such companies.

material on record. While discussing the non-comparability of

Acropetal Technologies Ltd. above, we have held that a company

rendering on-site services cannot be compared with a company

rendering in-house services. The ld. AR has fairly brought to our

13 M/s. John Deere India Pvt. Ltd., A.Yr. 2010-11

notice an earlier order passed by the Pune bench of the Tribunal in

the case of TIBCO Software (India) Pvt. Ltd. Vs. DCIT (2015) 58

taxmann.com 215 (Pune-Tribunal) in which a company rendering

on-site services has been held to be non-comparable with company

rendering in-house services. Incidentally, Akshay Software and

Zylog Systems Ltd. were part of the companies considered by the

Pune Bench in the aforenoted order which were held to be not

comparable. Respectfully following the precedent and adopting our

reasoning given above while dealing with Acropetal Technologies

Ltd., we overturn the impugned order on this score and direct that

such companies providing on-site services cannot be considered as

comparable. The departmental ground is allowed.

of the DRP to include certain companies which were initially not

included by the assessee in its list of comparables because the

relevant financial data was not available. However, during the

course of proceedings before the TPO, the assessee could lay its

hands on the data and came up with contention to include them in

the list of comparables, which was not acceded to by the TPO. Here

it is pertinent to mention that similar companies are appearing in

other segments of the assessee as well. The DRP directed the AO to

14 M/s. John Deere India Pvt. Ltd., A.Yr. 2010-11

examine as to whether such companies including three in the extant

segment, namely, (a) E-Zest Solutions Ltd. (b) Evoke Technologies

Pvt. and (c) Maveric Systems Ltd. were part of accept-reject matrix

of the assessee. If the same were found to be part of the same, then

it was directed to consider these companies as comparables in case

they meet all the relevant filters.

consider such companies for inclusion as the same were not

originally included in the list of comparables by the assessee.

DR that the assessee should be prohibited from taking a stand

contrary to the one which was taken at the stage of the preparation

of the TP study report. It goes without saying that the object of

assessment is to determine correct income in respect of which the

assessee is chargeable to tax. As the income not originally offered

for taxation, if otherwise chargeable, is required to be included in

the total income, in the same breath, any income wrongly included

in the total income, which is otherwise not chargeable, should be

excluded. There can be no estoppel against the provisions of the

Act. Extending this proposition further in the context of the transfer

15 M/s. John Deere India Pvt. Ltd., A.Yr. 2010-11

pricing, if the assessee fails to report an otherwise comparable case,

then the TPO is obliged to include it in the list of comparables, and

in the same manner, if the assessee failed to report an otherwise

comparable case in its TP study due to one reason or the other and

later on claims that it should be considered, then, there should be

nothing to forbid the assessee from claiming so, provided the

company so reported is, in fact, comparable. Simply because a

company was wrongly ignored by the assessee as comparable,

cannot tie its hands in contending before the authorities that a

particular company was wrongly excluded from the list of

comparable, which is, in fact, comparable. There is no qualitative

difference in a situation where the assessee claims that a wrong

company inadvertently included for the purpose of comparison

should be excluded and the situation in which the Revenue does not

accept a particular comparable company chosen by the assessee,

albeit later, as comparable. The underlying object of the entire

exercise is to determine the correct arm’s length price of an

international transaction. Simply because a company was wrongly

not considered by the assessee as comparable, cannot, act as a

deterrent for claiming that this company is, in fact, comparable and

be considered for evaluation. The Special Bench of the Tribunal in

16 M/s. John Deere India Pvt. Ltd., A.Yr. 2010-11

DCIT vs. Quark Systems Pvt. Ltd. (2010) 132 TTJ (Chd) (SB) 1 has

held that a company which was wrongly included by the assessee

and also by the TPO in the list of comparables at the time of

computing ALP, can be excluded by the Tribunal, if the assessee

proves that the same was wrongly included. Similar view has been

later on taken by the Hon’ble Bombay High Court in CIT Vs. Tata

Power Solar Systems Ltd. (2017) 298 CTR 0197 (Bom) holding that

a party is not barred in law from withdrawing from its list of

comparables, a company included on account of mistake. This ratio

also applies in the reverse direction, that is, where the assessee

wrongly excluded a good comparable from the list of comparables

and then pleads for its inclusion in the final list of comparables.

The Hon’ble Jurisdictional High Court in CIT Vs. Reuters India Pvt.

Ltd. 288 CTR 741 (Bom.) has held that there can be no estoppel in

pointing out the correct facts before the appellate authorities

particularly when all facts are on record. In view of the foregoing

discussion, we do not find any reason to interfere with the direction

given by the DRP on this count in so far as the objection of the

Revenue is concerned. The ld. DRP has simply directed to examine

the comparability of these companies and did not, at the threshold,

throw the assessee out simply on the reasoning that the relevant

17 M/s. John Deere India Pvt. Ltd., A.Yr. 2010-11

information was filed in respect of these companies only during the

course of proceedings before the TPO. In view of the foregoing

discussion, we are satisfied that the direction given by the DRP

cannot be interfered. This ground is, therefore, not allowed.

direction of the DRP to exclude the Infosys Technologies Ltd. from

the list of comparables. The TPO included Infosys Technology Ltd.

in the final tally of comparables. The assessee objected to such

inclusion by contending, inter alia, that it is engaged in noteworthy

R&D activities apart from having significant intangible assets and

exceptionally high turnover. The assessee also submitted that this

company is functionally not comparable as it is also having

revenues from software products. Not convinced, the TPO held this

company to be comparable. The ld. DRP directed to exclude this

company, which has been assailed by the Revenue before us.

on record, we find that Infosys is also earning revenues from

Licensing of software products. The extent of profit from software

services, in the overall kitty of profits from software services and

software products, cannot be separated because of the merged

18 M/s. John Deere India Pvt. Ltd., A.Yr. 2010-11

expenses. In view of the fact that the total profit of this company

includes profit from software development services as well as

software products and there is no separate profit available for the

software development services, we are unable to find any

comparability of this company. It is further seen that the assessee is

a captive unit rendering services to its AE alone without acquiring

any intellectual property rights in the work done by it in the

development of software, which also makes it distinguishable from

Infosys. The Hon’ble Delhi High Court in CIT vs. Agnity India

Technologies (P) Ltd. (2013) 219 Taxmann 26 (Del) considered the

giantness of Infosys Ltd., in terms of risk profile, nature of services,

number of employees, ownership of branded products and brand

related profits, etc. in comparison with such factors not prevailing in

the case of Agnity India Technologies Pvt. Ltd., being, a captive

unit providing software development services without having any IP

rights in the work done by it. After making comparison of various

factors as enumerated above, the Hon’ble Delhi High Court held

Infosys to be not comparable with Agnity India Technologies Pvt.

Ltd. The facts of the instant case are more or less similar inasmuch

as the extant assessee is also a service provider with a limited

number of employees at its disposal and also not owning any

19 M/s. John Deere India Pvt. Ltd., A.Yr. 2010-11

branded products with no expenditure on R&D etc. When we

consider all the above factors in a holistic manner, there remains

absolutely no doubt that Infosys Technologies Ltd. is incomparable

to the assessee company. Respectfully following the judgment of

the Hon’ble Delhi High Court in Agnity India (supra), we hold that

Infosys Technologies Ltd. cannot be treated as comparable with the

assessee company and the ld. DRP was justified in directing its

exclusion.

of the DRP to the AO for allocating unallocable expenses to each

segment in proportion to segmental turnover to total turnover.

companies on segmental basis in the list of comparables in the

Software Development Services segment as well as the other

segments of the assessee. For example, under the Software

Development Services segment, the TPO considered R Systems

International Ltd., Kals Information Technology Systems Ltd., and

Acropetal Technologies Ltd. on segmental basis. However, while

calculating the operating profits of the relevant segments of these

companies, the TPO did not take into consideration their

unallocated expenses. The DRP directed the AO “to allocate

20 M/s. John Deere India Pvt. Ltd., A.Yr. 2010-11

unallocable expenses to all segments in proportion to segmental

turnover to total turnover and thereafter compute margins”. The

Revenue is aggrieved by such direction.

included by the TPO in the final list of comparables under all the

segments of the assessee, including Software Development

Segment, have been taken on segmental level. Common unallocated

operating expenses of such companies were not taken into

consideration in determining their respective profit margins. It is

but natural that while calculating operating profit margin of such

companies, effect of unallocated operating expenses qua relevant

segments has to be given. It is so because the assessee’s

corresponding profit margin has been determined after considering

all the relevant operating expenses and the comparison can be done

only on level playing field. We, therefore, agree in principle with

the ld. DRP that allocation of common unallocated expenses is

required to be made. However, we do not subscribe to the view

canvassed by the DRP that all such common unallocated expenses

should be apportioned on the basis of segmental turnover to total

turnover.

21 M/s. John Deere India Pvt. Ltd., A.Yr. 2010-11

distinct nature and hence there cannot be a uniform key of

apportionment. For example, `Rent’ paid by an assessee cannot be

bifurcated on the basis of sales or revenue from different segments,

such as, Manufacturing, Trading and services. The extent of area

used by each business segment varies as per the nature of

transaction, which may have no relation with the gross revenue. For

example, a manufacturing unit will need relatively more space than

a trading unit. Similarly, a service unit will need still lesser space. In

such a scenario, apportioning common Rent expenditure on the

basis of sales or gross revenue from such varied divisions, will give

skewed results of segment profitability. Similarly, contribution of

various segments to other items of expenses varies depending upon

the nature of transaction, extent of capital employed and labour

required etc. etc. So all common expenses cannot be apportioned in

the universal ratio of sales or gross revenue from different

segments, each having its own separate features and characteristics.

One can logically make allocation depending upon the nature of

expenses and appropriate allocation key. As the assessee is not

aggrieved by the otherwise inclusion of such companies on the

ground of allocation of unallocated expenses, we set aside the

22 M/s. John Deere India Pvt. Ltd., A.Yr. 2010-11

impugned order and direct the AO/TPO to allocate common

unallocated expenses on the basis of relevant keys as the case may

be after allowing an opportunity of hearing to the assessee.

DESIGN ENGINEERING SEGMENT :

by the transfer pricing addition of Rs.21,31,640/- in respect of

international transaction of Design Engineering and Testing

Services provided by the assessee company to its AE .

position that the assessee declared margin of 14.10%, which after

the directions given by the DRP, stood computed at Arm’s Length

margin of 14.24%. Though the assessee has raised certain grounds

against difference in its declared margin and that of comparables,

but the same was admitted to have become academic in view of

such difference in the operating margins, being within the

permissible range not warranting any transfer pricing addition. The

ld. AR further conceded that even if the ground of the assessee in

this regard is rejected and all the grounds taken by the Revenue for

this segment are allowed, still the assessee’s operating margin

would be within the permissible range. Without going into the

23 M/s. John Deere India Pvt. Ltd., A.Yr. 2010-11

merits of the ground taken by the assessee, we dismiss the same as

having become academic.

this segment is concerned. Ground no. 2 is against the direction of

the DRP to consider certain companies whose final accounts were

not available in the public domain at the time of preparation of

Transfer pricing study report and such companies were excluded

after inclusion of the accept-reject matrix. During the course of

proceedings before the TPO, Annual accounts of such companies

came into being which were relied upon by the assessee and a

prayer was made for the inclusion of such companies in the list of

comparables. Though the TPO refused to oblige, the ld. DRP

directed the TPO to examine the comparability of only such

companies from such a list which were found in the accept-reject

matrix of the assessee.

Development Service segment. Following our view taken

hereinabove, we hold that there can be no estoppel against the

assessee in contending before the authorities that a particular

company or companies may be considered as comparable. It is then

24 M/s. John Deere India Pvt. Ltd., A.Yr. 2010-11

for the authorities to examine the comparability and decide as to

whether these are comparable or not. We, therefore, reject the view

point taken by the Department in Ground no.2 of its appeal.

against the direction of the ld. DRP to allocate common unallocated

expenses to the relevant segment in proportion of segmental

turnover to total turnover. We have discussed this aspect while

dealing with Software development services segment of the

assessee. The same view is followed here also.

BUSINESS SUPPORT SERVICES SEGMENT :

of “Provision of Business Support Services” to Deere & Company

with transacted value of Rs.8,81,33,662/-. The TNM method was

applied for exhibiting that this transaction was at ALP. The TPO

considered 7 companies, including Asian Business Exhibition and

Conference Ltd., as comparable, which have been listed at page 47

of his order. The assessee’s objection that Asian Business

Exhibition and Conference Ltd. was functionally different did not

find favour with the TPO who held that this company is engaged in

a single segment, i.e. Exhibitions and Event Management and

25 M/s. John Deere India Pvt. Ltd., A.Yr. 2010-11

hence, comparable. On the basis of their overall operating margin

of 24.13%, the TPO recommended a transfer pricing adjustment of

Rs.89,85,865/-. The AO passed the order making the above

addition. The ld. DRP gave certain directions, including the

exclusion of Asian Business Exhibition and Conference Ltd. from

the list of comparables by observing that it was engaged only in

organization of Exhibitions and Conferences which was different

from the assessee’s business of providing Sales Support Services.

The Revenue is aggrieved by such direction of the ld. DRP.

material on record. In order to appreciate the comparability or

otherwise of Asian Business Exhibition and Conference Ltd., it is

sine qua non to consider the functional profile of the assessee under

this segment. It has been recorded on page 14 of the TPO’s order

that Deere & Company develops a business plan in order to

ascertain its requirements which involves market demand and

supply analysis. Thereafter, Deere & Company intimates to the

assessee about the materials required by it from time to time. The

assessee, in turn, discusses and confirms its understanding of the

requirements and the type of material with the respective Deere &

Company before commencing work to identify the supplier. The

26 M/s. John Deere India Pvt. Ltd., A.Yr. 2010-11

assessee is responsible for co-ordinating and liaising with the

suppliers after undertaking a detailed enquiry about them and their

due diligence. Thereafter, Deere & Company carries out inquiries to

a limited extent about the quality and rates etc. and then conducts its

own evaluation before utilizing the services of a specific supplier.

Deere & Company procures the material from the suppliers and

makes payment directly to them without any involvement of the

assessee except for follow up with the suppliers to ensure that a

delivery to Deere & Company is made on time. Apart from this,

the assessee is also providing account payable and other services

under this segment which include providing transactional services

for paying invoice for their activities outside India and other

services including payroll, employees record keeping, healthcare

transactions.

undertaken by the assessee under this segment, we now proceed to

examine as to whether the DRP was justified in directing to exclude

Asian Business Exhibition and Conference etc. which was included

by the TPO in the list of comparables. We have gone through the

Annual report of the company which is available at page 503

onwards of the paper book. In the Directors’ report, it has been

27 M/s. John Deere India Pvt. Ltd., A.Yr. 2010-11

mentioned that “the main area of operations of the company is

organizing Exhibitions and Conferences”. Profit and Loss account

of this company has been placed at page 514 of the paper book,

which shows “Direct Income” of Rs.53,18,30,655/-. Bifurcation of

the income has been given in Schedule 12 which reveals that the

Revenue from “Exhibitions and Events” is Rs.50,94,41,029/-;

`Delegate Fee’ is Rs.7,000/-; `Sponsorship/Promotional Charges’

are Rs.88,67,639/-; `Miscellaneous Receipts’ are Rs.7,57,747/- and

`Entry Charges’ are Rs.1,27,57,240/-. It is obvious from the

bifurcation of the `Direct Income’ that the entire income pertains to

Exhibitions and Events as has also been accepted by the TPO in his

order. The revenue recognition of this company has been given on

page 523 of the paper book, which mentions that it is earning

revenue from sale of stall space in exhibitions and events. On going

through the functional profile of this company, it becomes explicitly

clear that it is nowhere close to the assessee’s activities under this

segment, which are confined to maintenance/updation of suppliers

record and providing pay roll services etc. In our considered

opinion, the ld. DRP was fully justified in directing to exclude this

company from the list of comparables.

28 M/s. John Deere India Pvt. Ltd., A.Yr. 2010-11

comparables by the assessee during the course of transfer pricing

proceedings, which were earlier excluded because of the non-

availability of the relevant financial data and allocation of

unallocated expenses are similar to those discussed in the context of

Software Development Services segment of the assessee. We adopt

our view taken hereinabove on these two aspects in the context of

this international transaction as well.

against the confirmation of disallowance u/s.40(a)(i) of the Act in

relation to payments of Rs.24,88,60,369/- made to Deere &

Company, USA towards Information System charges;

Telecommunication charges; and also IT Software Licenses;

Internet Access charges; and IT Support Services. Similarly, there

is another confirmation of disallowance u/s.40(a)(ia) amounting to

Rs.75,48,813/- on account of failure to deduct tax at source.

paid a total sum of Rs.24,88,60,369/- towards Information Systems

and Telecommunications etc. without any deduction of tax at source

to its foreign/AE. On being called upon to explain as to why

29 M/s. John Deere India Pvt. Ltd., A.Yr. 2010-11

disallowance should not be made for the failure to on the part of the

assessee to deduct tax at sources before making such payments, the

assessee submitted that it received IT Support Services and also

paid for use of Software Licenses and Lease Rent charges to Deere

& Company without any deduction of tax at source as there was no

such requirement. Similar position was stated in respect of

payments made in India amounting to Rs.75,48,813/- without

deduction of tax at source. The AO held that the amount paid by

the assessee was chargeable to tax in the hands of the recipients as

Royalty. He, therefore, disallowed the said amount u/s.40(a)(i)/(ia)

of the Act because the assessee failed to deduct tax at source on

such payments. The DRP did not interfere with the order passed by

the AO.

material on record. The ld. AR, at the very outset, submitted that

the assessee made payments pursuant to certain agreements, some

of which were filed by him as additional evidence. He further stated

that similar issue came to be considered by the Tribunal in

assessee’s own case for the A.Yrs. 2007-08 and 2008-09 in which

the matter was decided in favour of the assessee. The ld. AR

submitted that he would be satisfied if the impugned order is set

30 M/s. John Deere India Pvt. Ltd., A.Yr. 2010-11

aside and the matter is restored to the file of AO for deciding this

issue afresh in the light of the additional evidence filed by the

assessee. The ld. DR did not raise any objection to the restoration

of the issue.

the impugned order on the question of disallowance u/s.40(a)(i)/(ia)

and remit the matter to the file of AO for deciding it afresh as per

law in the light of additional evidence filed by the assessee.

Needless to say, the assessee will be allowed reasonable opportunity

of hearing.

Order pronounced in the Open Court on 25th April, 2019.

Sd/- Sd/- (VIKAS AWASTHY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT

पुणे Pune; �दनांक Dated : 25th April, 2019. सतीश

31 M/s. John Deere India Pvt. Ltd., A.Yr. 2010-11

आदेश क� क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to: अ�ेिषत आदेश आदेश आदेश 1. अपीलाथ� / The Appellant; 2. ��यथ� / The Respondent; 3. आयकर आयु�(अपील) / The CIT (Appeals)-13, Pune 4. The Pr. CIT-5, Pune िवभागीय �ितिनिध, आयकर अपीलीय 5. अिधकरण, पुणे “सी” / DR ‘C’, ITAT, Pune; 6. गाड� फाईल / Guard file. // True copy //

आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार

// True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

Date 1. Draft dictated on 25-04-2019 Sr.PS 2. Draft placed before author 25-04-2019 Sr.PS 3. Draft proposed & placed JM before the second member 4. Draft discussed/approved JM by Second Member. 5. Approved Draft comes to Sr.PS the Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *