M/S GE BE PRIVATE LIMITED ,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-3(1)(2), BANGALORE

PER BEENA PILLAI, JUDICIAL MEMBER

Present cross appeals has been filed by assessee as well as revenue against final order dated 24.9.2018 passed under section 143(3) read with section 144C of the act passed by Ld.DCIT Circle 3(1)(2), Bangalore for assessment year 2014-15 on following grounds of appeal: “The grounds mentioned herein by the Appellant are without prejudice to one another.

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i. That the order passed by the Learned Deputy Commissioner of Income- tax, Circle 3(1)(2), Bangalore ('Assessing Officer' or 'AO') and the directions passed by the learned Dispute Resolution Panel ('DRP' or 'the Panel'), to the extent prejudicial to the Appellant, is bad in law and liable to be quashed. That on the facts and in the circumstances of the case and in law, the learned DRP erred in partly confirming the action of the learned Assessing Officer / learned Transfer Pricing Officer ('learned TPO') in making an adjustment of INR 37,02,87,354/- and INR 2,89,13,206/- to the international transactions relating to the Contract Manufacturing Segment ('CM segment') and Engineering Design services segment ('Services segment') respectively of the Appellant. Further the learned DRP also erred in upholding the action of the learned AO in disallowing year-end provisions of INR 3,34,92,043 u/s 40(a)(ia) of the Income tax Act, 1961 and thus making a total adjustment of INR 43,26,92,603 to the total income of the Appellant. Grounds relating to transfer pricing matters 3. That on the facts and circumstances of the case, the learned DRP erred in upholding the action of the learned TPO of rejecting the contemporaneous transfer pricing documentation maintained by the Appellant, in good faith, as required under section 92D of the Act read with rule ioD of the Income-tax Rules, 1962 ('the Rules') in respect of the CM segment and invoking the provisions of section 92C(3) of the Act and conducting fresh analysis at the time of the assessment proceedings. 4. That on the facts and circumstances of the case, the learned DRP erred in upholding the action of the learned AO/ learned TPO of partially rejecting the transfer pricing documentation maintained by the Appellant, in good faith, as required under section 92D of the Act read with rule ioD of the Rules in respect of the Service segment and selectively rejecting certain comparables. 5. That on the facts and circumstances of the case, the learned DRP erred in upholding the action of the learned AO/ learned TPO in not considering the multiple year/prior year data of comparable companies while determining the arm's length price in relation to the Appellant's international transactions with its AEs. 6. That on the facts and circumstances of the case, the learned DRP erred in upholding the action of the learned AO/ learned TPO in determining the arm's length margin/ price using only FY 2013-14 data, which was not available to the Appellant at the time of complying with the contemporaneous transfer pricing documentation requirements. 7. That on the facts and circumstances of the case, the learned DRP erred in upholding the action of the learned AO/ learned TPO in rejecting the comparability analysis carried out by the Appellant in the TP documentation in respect of the CM segment and in conducting a fresh comparability analysis for the CM segment. ..

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Following are the comparables for exclusion/inclusion in the CM segment: 8. That on the facts and circumstances of the case, the learned DRP erred in upholding the action of the learned AO/ learned TPO in including Opto Circuits (India) Ltd as a comparable on the grounds of functional similarity whereas this company should have been excluded for the reason being functionally dissimilar and having a very high cost of working capital. That on the facts and circumstances of the case, the learned DRP erred in upholding the action of the learned AO/ learned TPO in excluding the following companies from the comparables' set even though these companies should have been included as they fall within the same industry description as that of Opto Circuits (India) Ltd.: a) Artemis Electricals Ltd. b) Continental Device India Ltd.; c) Instapower Ltd.; d) Joshi Electronics & Electricals Pvt. Ltd.; e) Naina Semiconductors Ltd.; f) Ruttonsha International Rectifier Ltd.; g) Syska Led Lights Pvt. Ltd. 10. That on the facts and circumstances of the case, the learned DRP erred in upholding the action of the learned AO/ learned TPO in excluding the following companies from the comparables' set even though these companies are functionally comparable: a) South India Surgical Co. Ltd.; b) Premier Medical Corporation. Pvt. Ltd. Following are the comparables for inclusion in the Services segment: 11. The learned TPO along with the learned AO in pursuance of the directions of the learned Panel erred in law and on facts in excluding Akshay Software Technologies Ltd. as a comparable to the Appellant on the ground of functional dissimilarity whereas this comparable should have been included for the reason being functionally similar and passing all the filters applied by the Learned TPO. 12. The learned TPO along with the learned AO in pursuance of the directions of the learned Panel erred in law and on facts in excluding Sasken Communications Technologies Ltd. as a comparable to the Appellant on the ground of functional dissimilarity whereas this comparable should have been included for the reason being functionally similar. 13. The learned TPO along with the learned AO in pursuance of the directions of the learned Panel erred in law and on facts in excluding Daffodil Software Limited as a comparable to the Appellant on the ground of segmental information being not available whereas this comparable should have been included for the reason being the revenue from sale of products (trading) is negligible. 14. The learned TPO along with the learned AO in pursuance of the directions of the learned Panel erred in law and on facts in excluding 12T2

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India Limited as a comparable to the Appellant on the ground of functional dissimilarity whereas this comparable should have been included for the reason being functionally similar. 15.The learned TPO along with the learned AO in pursuance of the directions of the learned Panel erred in aw and on facts in excluding Kireeti Soft Technologies Limited as a comparable to the Appellant on the ground of difference in operating model whereas this comparable should have been included for the reason being functionally similar. 16. The learned TPO along with the learned AO in pursuance of the directions of the learned Panel erred in law and on facts in excluding Exilant Technologies Private Limited and Celestream Technologies Private Limited as comparable companies to the Appellant on the ground of non- availability of financial data for FY 2013-14 whereas the data for FY 2013- 14 is available in public domain. 17. The learned TPO along with the learned AU in pursuance of the directions of the learned Panel erred in law and on facts in excluding Maveric Systems Limited as a comparable to the Appellant on the ground that it fails the filter of R&D expenditure less than 3% of sales whereas this comparable should have been included for the reason being no expenditure is made on account of R&D during the FY 2013-14. 18. The learned TPO along with the learned AU in pursuance of the directions of the learned Panel erred in law and on facts in excluding Evoke Technologies Private Limited as a comparable to the Appellant on the ground that it fails the filter of export revenue more than 25% of sales whereas this comparable should have been included for the reason being functionally similar. 19. That on the facts and circumstances of the case, the learned AO/ learned TPO erred in law and on facts in the computation of operating mark-up on cost for companies while performing the comparability analysis in relation to the CM segment and Services segment of the Appellant. 20. That on the facts and circumstances of the case, the learned DRP erred in upholding the action of the learned AO/ learned TPO in not allowing the working capital adjustment for determining the arm's length price while relying on the judicial precedents based on a fact pattern which is not applicable to the Appellant. 21. That on the facts and circumstances of the case, the learned DRP erred in upholding the action of the learned AO/ learned TPO in not allowing the working capital adjustment for determining the arm's length price and not relying on the judicial precedents available in the case of the Appellant 22. That on the facts and circumstances of the case, the learned DRP erred in upholding the action of the learned AO/ learned TPO of ignoring the limited risk nature of the CM segment and Services segment of the Appellant and thereafter selecting high profit making entrepreneurial companies as comparables. In doing so, the learned AU/learned TPO has

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erred in not providing an appropriate adjustment towards the risk differential, even when the full-fledged entrepreneurial companies have been selected by the learned TPO as comparables. Grounds relating to other than transfer pricing matters 23. That on the facts and circumstance of the case, the learned DRP erred in upholding the action of the learned AO for the addition of INR 3,34,92,043 under section 4o(a)(ia) of the Act on the basis that the tax was deductible on year end provisions under Chapter XVII-B of the Act. 24. That on the facts and circumstances of the case, the learned AU erred in not granting the credit for taxes deducted at source of INR 54,163. 25. That on the facts and circumstances of the case, the learned AO erred in levying interest under section 234B of the Act of INR 8,81,44,212. That the Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein below or produce further documents before or at the time of hearing of this Appeal.” Brief facts of the case are as under: 2. The assessee is a company and is engaged in the business of contract manufacturing of components and parts of medical diagnostic imaging equipment and also engaged in provision of engineering design services to its affiliate, worldwide. It filed its return of income for year under consideration which was subsequently revised on 28/11/2011 declaring total income of Rs.95,62,19,661/-. The return was processed under section 143(1) of the Act, and the case was selected for scrutiny. Notices under section 143(2) and 142(1) was issued to assessee. In response to statutory notices, representative of assessee appeared before the Ld.AO and filed requisite details as called for. 2.1. Ld.AO observed that assessee had international transaction exceeding Rs.15 crore and therefore reference was made to the transfer pricing officer to determined arm’s length price of the transaction as per provisions of section 92CA of the Act.

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2.2. Upon receipt of reference, Ld.TPO called upon assessee to file requisite details of the transaction in Form 3CEB. Ld.TPO observed that, assessee had following international transaction with its associated enterprise: Amount (in Rs.) International transactions Contract manufacturing 1249172769/- Purchase of raw material and components 898888/- Purchase of capital goods 5129201135/- Sale of manufactured goods 57899486/- Payment of royalty/technical knowhow fees Engineering design services 261579879/- Provision of engineering design services 3347119/- Reimbursement of expenses 3930969/- Recovery of expenses

2.3. Ld.TPO noted that, assessee used following 9 comparables in respect of Engineering Design Services Segment with an average margin of 9.61%, as compared to its own margin at 11.64%. Assessee computed its margin by using OP/OC as PLI. It applied TNMM as most appropriate method and held the transaction to be at arms length.

ROTC after WC and CAPM S. No. Company Name ad j ustment_ , 1 Akshay Software Technologies Ltd. 5.01% 2 C G-V A K Software & Exports Ltd. 1.42% 3 Cades Digitech Pvt. Ltd. [Merged] -4.62% 4 Larsen & Toubro Infotech Ltd. 19.58% 5 Mindtree Ltd. 13.51% 6 Persistent Systems Ltd. 26.12% 7 R S Software (India) Ltd. 22.15% 8 Sasken Communication Technologies -0.86% Ltd. 9 Tata Elxsi Ltd. 4.20%

Arithmetic mean 9.61%

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2.4. Ld.TPO though accepted the comparables selected by assessee in TP documentation, proposed the ALP of Engineering Design Service Segment by considering single year margin of the comparables. It has been submitted that, in the reply to the show cause notice, assessee provided corrected margins of 2 companies and also proposed additional 8 comparables. The Ld.TPO did not agree with the additional 8 comparables proposed by assessee, but rejected 3 comparables which were already accepted by the Ld.TPO the show cause notice previously sent. With the balance 5 comparables the Ld.TPO computed average margin for engineering design service segment at 27.62%.

S NO NAME OF TAX PAYER OP/OC 36.06% 1 Larsen & Toubro Infotech 2 Mindtree Ltd. 20.43% 3 Persistent Systems Ltd. 35.10% 24.23% 4 R S Software (India) Ltd. 5 Tata Elxsi Ltd.(Seg) 22.29% Average 27.62%

2.5. In respect of Contract Manufacturing Service segment, Ld.TPO observed that the assessee performs assembly and manufacturing operations for and on behalf of the group AE. It was noticed by the Ld.TPO that the assessee imports materials from its AE for the purpose of carrying out manufacturing in India. The assessee manufactures medical equipment and related components and functions in the industry segment of medical devices.

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2.6. The Ld.TPO noted that assessee had used OP/OC as PLI for benchmarking the international transaction by using TNMM as most appropriate method. It earned 11.89% margin and that the arithmatic mean of 34 comparables selected by the assessee had average margin of 5.10%. The list of comparables selected by assessee is as under: ROTC after WC and S. No. Company CAPM adjustment 1 ACILLtd. 2.10% 2 Bajaj Motors Ltd. 0.16% 3 Banco Gaskets (India) Ltd. 4.47% 4 Bharat Gears Ltd. 1.43% 5 Dynamatic Technologies Ltd. 1.86% 6 G K N Driveline (India) Ltd. 1.54% 7 G N A Udyog Ltd. 1.10% 8 Gabriel India Ltd. 4.81% 9 Highway Industries Ltd. 6.67% 10 India Nippon Electricals Ltd. 10.16% 11 J M T Auto Ltd. 4.68% 12 K A R Mobiles Ltd. 1.10% 13 Kalyani Forge Ltd. 3.90% 14 Majestic Auto Ltd. 2.24% 6.70% 15 Munjal Showa Ltd. 16 Nelcast Ltd. 3.14% Perfect Circle India Ltd. 17 -0.09% 18 Rane (Madras) Ltd. 2.98% 19 Rane Brake Lining Ltd. 1.42% 20 Rane Engine Valve Ltd. -0.13% 21 Rane T R W Steering Systems Ltd. 11.70% 22 Raunaq Automotive Components Ltd. 2.43% Ring Plus Aqua Ltd. 6.96% 23 24 Sakthi Auto Components Ltd. 4.12% 25 Setco Automotive Ltd. 5.90% 26 Shanthi Gears Ltd. -0.91% 27 Shivam Autotech Ltd. 13.89% Shriram Pistons & Rings Ltd. 4.81% 28 29 Sona Okegawa Precision Forgings Ltd. 19.60% 30 Talbros Automotive Components Ltd. 5.30% 31 Talbros Engineering Ltd. 7.31% 32 Tata Toyo Radiator Ltd. 5.67% 33 Ucal Fuel Systems Ltd. 7.85%

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34 Z F Steering Gear (India) Ltd. 18.68%

2.7. The Ld.TPO rejected economic analysis conducted by assessee under this segment and proposed a fresh set of comparables in the show cause notice. The Ld.TPO rejected the working capital adjustment, and computed ALP at 19.58% using following fresh set of 8 comparables.

S.No. Company Name PLI (OP/OC 1 Opto Circuits (India) Ltd. 62.02% 2 Blue Neem Medical Devices Pvt. Ltd. 20.78% 3 Bhat Bio-Tech (India) Pvt. Ltd. 16.69% 4 Allengers Medical Systems Ltd. 12.31% 5 Shree Pacetronix Ltd. 13.04% 6 Sahajanand Medical Technologies Pvt. 18.10% Ltd. 7 Centenial Surgical Suture Ltd. 8.05% 8 Hemant Surgical Inds. Ltd.; 5.64% Average 19.58%

2.8. Ld.TPO thus computed proposed adjustment as under: S.No Description Adjustment u/s 92CA(In Rs.) 1 Services Segment Rs. 3,98,24,410 2 Contract Manufacturing Rs. 44,8147,221 segment Total adjustment u/s 92CA Rs. 48,79,71,631

2.9. Upon receipt of the order passed under section 92CA, the Ld.AO passed draft assessment order. The Ld.AO observed that assessee has debited expenses which was not disallowed under section 40(a)(ia) of the act for non-deduction of tax. He thus disallowed under section 40(a)(ai) of the Act sum Rs.3,34,92,043/-.

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2.10. Aggrieved by the draft assessment order passed by the Ld.AO, assessee raised objections before the DRP. The DRP upheld the comparables adopted by the Ld.TPO however directed the Ld.AO to relocate the margins of the companies so selected. The DRP rejected the working capital adjustment to assessee under both the segments. The DRP further upheld the action of Ld.AO in making addition towards disallowance of provision of expenses. 2.11. On receipt of the DRP directions, the Ld.AO accepted the margins proposed by assessee and revised the adjustment under both the segments as under: Engineering Design Service Segment Rs.2,89,13,206/- Contract Manufacturing Segment: Rs.37,02,87,354/-. 2.12. In respect of disallowance of provision of expenses under section 40(a)(ia) of the Act, the Ld.AO relied on the decision of coordinate bench of this Tribunal in case of Toyota Kirloskar Motors Pvt Ltd in ITA No. 1185/B/2014 for assessment year 2012-13 dated 31/10/2017. Aggrieved by the order of Ld.AO, assessee is in appeal before us now. 3. The Ld.Counsel submitted that, vide application dated 18/06/2019 assessee raised following additional grounds for seeking deduction of education cess under section 37(1) of the Act. “Grounds relating to other than transfer pricing matters 26. That on the facts and in the circumstances of the case, the Learned AO/DRP erred in not allowing deduction under section 37(1) of the Income

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Tax Act, 1961, on account of Education Cesses paid by the Appellant while arriving at the assessed income for the year under appeal. The Appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.”

3.1. Further, vide application dated 27/01/2021, the assessee has raised following additional Ground Nos.27-30 wherein, exclusion of Larsen and Toubro Infotech Ltd., persistent systems Ltd., and Mindtree Ltd., has been sought which are as under: “27. That on the facts and in circumstances of the case, the Transfer Pricing Officer(“TPO”)/Dispute Resolution Panel(“DRP”) erred in considering Larson & Tubro Infotech Limited as a comparable to The EDS segment of the Appellant 28. Without prejudice, the TPO/DRP further erred in using entity wise operating margins of Larson & Tubro Infotech Limited to compute the arms length price; 29. That on the facts and in circumstance of the case, the TPO/DRP erred in considering Persistant Systems Limited as a comparable to the EDS segment whereas Persistent Systems should have been reject on lack of segmental information. 30. That on facts and in circumstanced of the case the TPO/DRP erred in considering Mindtree Limited as comparable to the EDS segment whereas Mindtree should have been rejected on lack of segmental information.” 3.2. The Ld.Counsel submitted that, the issues raised in additional ground No. 26 stands squarely covered by decision of Hon’ble Rajasthan High Court in case of Chambal Fertilizers and

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Chemicals Ltd. v. Jt. CIT IT Appeal No. 52 of 2018 by order dated 31-7-2018. 3.3. Further, Ld.Counsel submitted that, additional Ground Nos.27-30 are in respect of the comparables that are not functionally similar to that of assessee. He submitted that though these comparables formed part of assessee’s own set, Hon’ble Karnataka High Court in case of Citrix R&D India Pvt.Ltd., in ITA No. 533/2016 upheld the observations of this Tribunal that exclusion of assessee’s own comparable at the request of assessee. This Tribunal had relied on the decision of Hon’ble Chandigarh Special Bench in case of Quark Systems vs DCIT reported in (2010) 38 SOT 307. It is submitted that, company sought to be excluded were inadvertently included in the set of comparables without appreciating the functions which are in the nature of engineering design services. He submitted that, these comparables were predominantly software product companies and cannot be compared to the functions performed by assessee under engineering design services segment. 3.4. He submitted in the application for admission of additional ground that substantial Justice would be rendered to assessee by admitting these ground. It was submitted that, for adjudicating these grounds no new facts needs to be referred, as they arise from the records placed before us. 3.5. On the contrary Ld.Sr.DR though objected for admission of the additional grounds could not controvert the submissions made by Ld.Counsel.

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We have perused the submissions advanced by both sides in light of records placed before us. 3.6. We note that issue raised by the assessee in this additional ground is no longer res-integra. The grounds raised by assessee under this application are issues that need to be admitted in order to determine correct taxable income in the hands of assessee. We draw our support from the decision of Hon’ble Supreme Court in case of National Thermal Power Corporation Ltd (NTPC) v. CIT reported in (1998) 229 ITR 383. Accordingly we admit the additional grounds reproduced hereinabove. 4. At the outset the Ld.Counsel submitted that Ground No.1-2 are general in nature and therefore do not require any adjudication. 4.1. It is submitted that, Ground No.3-7 relates to various provisions for determining the arm’s length margin/price of the international transactions undertaken by assessee with its associated enterprises which are basically academic in nature. 4.2. The contested issues argued before us by the Ld.Counsel are: Ground No.8-22 which relates to the addition made under the 2 segments. Ld.Counsel submitted that assessee seeks exclusion/inclusion of comparables under both the segments. It is also submitted that assessee has raised the plea against non-granting of working capital adjustment for both the segments.

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made Software derived from the Licensed Software, into the Product(s). As per the TP document: 5.2. GE BE manufactures CT Tubes, X-ray tubes, HV Tanks. Detectors and other parts and accessories for medical diagnostic imaging equipment. The said products are manufactured to cater to both domestic and export markets. The products manufactured by GE BE are sold only to AEs whether in India or abroad. 5.3. GE BE also provides engineering design services to its AEs. Its services include value-engineering design services for GEHC global customer related problems and issues, and take the form of technical drawings and designs. GE BE uses computer aided design ("CAD'), computer aided manufacturing ("CAM') and other software tools in the provision of these services. 5.4. In the trans-apprising study assessee has been categorised as a captive service provider to GE so far as it’s engineering design services segment is concerned. Assessee is paid on a full cost +10% basis for the services provided by it. Assets owned: 5.5. It has also been submitted that assessee do not engage in significant R&D for creation of invaluable IP. It has been submitted that assessee uses tangible assets such as furniture, fixtures, office equipment, vehicles and computers. It does not own any non routine intangible assets. Risks assumed:

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5.6. In the TP study it has been submitted that any exposure to foreign exchange risk is largely mitigated by hedging through GE corporate treasury. It has also been submitted in the TP study that it does not bear any significant risk of technology obsolescence as the AE who owns all manufacturing technologies. It is also been submitted that the AE incurred expenses on behalf of assessee and that all the expenses incurred by assessee is reimbursed on cost basis. Classification: 5.7. In the TP study assessee has been characterised as contract manufacturer of medical equipment components and provider of engineering design services. Based on the above characterisation, we shall undertake the comparability analysis of the comparables alleged by assessee as well as revenue for exclusion/inclusion. 6. Ground No.8: Under contract manufacturing service segment, assessee is seeking exclusion of Opto Circuits (India) Pvt.Ltd. The Ld.Counsel submitted that, this comparable has a margin of 62.02% and is functionally not similar with that of assessee. It is submitted that, this comparable deals in sensors, monitors and other products. Referring to the observations of Ld.TPO at page 21 of order passed under section 92CA of the Act, the Ld.Counsel submitted that, this company is engaged in manufacturing vital sign patient monitor, respiratory and anaesthetic care equipment, defibrillators, PAD devices. He submitted that the components manufactured by this company are used in different

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industries and not for manufacturing of medical equipments akin to medical industry. It is submitted by the Ld.Counsel that, this comparable is engaged in manufacturing of complete machines, whereas assessee is only manufacturing parts that are used in machines used in medical industry. He referred to the annual report at page 785, 789 of paper book. 6.1. On the contrary, the Ld.Sr.DR submitted that this company is functionally comparable with that of assessee as it is engaged in developing and manufacturing technology advanced medical equipment and devices for modern healthcare practices. It has been submitted that this comparable was selected as it is also engaged in manufacturing of electrical components. The Ld.Sr.DR emphasised that, this company is one of the company that was selected under the NIC used for manufacturing segment. It has been submitted by the Ld.Sr.DR that this company is exactly similar activities and functions performed and also passes all the quantitative filters applied by the Ld.TPO. 6.2. We have perused the submissions advanced by both sides in the light of records placed before us. 6.3. The Ld.Counsel argued that this company has supernormal profits and is an aberration from the operating margins of other companies and hence cannot be considered as the representative of the industry. It has also been submitted that this company has high cost of working capital and diminishing revenue. He thus supported for exclusion of this comparable from the finalist.

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6.4. We note that assessee is into manufacture of components/devices used is medical diagnostic imaging equipment’s and is not the manufacturer and seller of medical equipment machines. On the other hand the company Opto Circuits is into manufacture of electron tubes, diodes, transistors and related discrete devices which is used in medical devices/equipments. The group to which this company belongs manufactures emergency cardiac care equipment, vascular treatments and sensing technologies, vital sign monitors etc which are an equipment as a whole in itself. We note that both assessee as well as this company cater to medical industry however the products manufactured by assessee and this company are different. 6.5. As noticed hereinabove, assessee is a contract service provider manufacturing components that is used in medical imaging equipments whereas this company manufactures the equipments/devices as a whole which is used in cardiac care system. At this juncture we observes that, is very difficult to identify an identical kind of comparable that has functions similar to that of assessee. It is for this reason that assessee adopted TNM as the most appropriate method, which provides comparability of net profits that comparable independent business earn from their trading activities in comparable markets with other third parties. Which is why, this method has become a default method for all the taxpayers. The comparability standard for the purpose of the Transactional Net Margin Method

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has to be maintained higher than other methods as the method directly deals with the Net Profit Margin. However, unlike traditional methods, Transactional Net Margin Method does not depend on product comparability or functional comparability. 6.6. We note that, in case of the comparable, the average receivables for the year ending 31/03/2014 are 599.63 crores, whereas the sales during the year were 262.78 crores. This shows that this company has huge turnover. However, we also note that, while comparing it with the assessee, appropriate working capital adjustment must be allowed to assessee in respect of this company. 6.7. We therefore do not find any infirmity in retaining this comparable in the finalist however appropriate working capital adjustment is to be granted to ascertain the margin to be compared with that of assessee. Accordingly we direct the Ld.AO/TPO to recompute the margin of this comparable by taking the working capital adjustment into consideration. In the result this comparable raised by assessee for exclusion is remanded to the Ld.TPO for recomputing the margins in accordance with directions hereinabove. Accordingly ground No. 8 raised by assessee stands allowed for statistical purposes. 7. Ground No.9-10 has been raised by assessee seeking inclusion of following comparables. The assessee seeks inclusion of Artimes Electricals Ltd., Continental device India Ltd., Insta Power Ltd., Joshi Electronics

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& Electrical’s Pvt.Ltd., Naina Semiconductors Ltd., Ruttonsha International Rectifier Ltd., says Sysca Led lights Pvt Ltd. 7.1. It is submitted by the Ld.Counsel that, in the event Opto Circuits India Pvt.Ltd., is retained, then these comparables may also be retained as it falls within the same industry description as that of Opto circuits. 7.2. He submitted that these comparables were never even considered by the Ld.TPO and has been rejected at the outset. He placed reliance on observations by the Ld.TPO at page 24 of the order passed under section 92CA of the Act. 7.3. We have dealt with the reasons for retaining Opto circuits. The Ld.TPO rejected these comparables as they do not manufacture components that form part of medical equipments akin to medical industry. However, the Ld.TPO has not analysed the quantitative filters as assessee is using TNMM as most appropriate method which is not under objection. We may also direct the Ld.TPO to consider the industry to which these comparables cater. Only in the event it is manufacturing devices/components that cater to medical industry it may be considered for further analysis. 7.4. We therefore remand these comparables back to Ld.TPO to verify these comparables on quantitative filters. Assessee is directed to provide all requisite details/information in order to assist the Ld.TPO to carry out the FAR analysis with assesssee. In the event these comparables are found to be satisfying the quantitative filters applied by the Ld.TPO they may be can

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included in the final set of comparables by granting appropriate working capital adjustments. Accordingly this ground raised by assessee stands allowed for statistical purposes. 8. Ground No.10 is in respect of inclusion of Premier Medical Corporation Pvt.Ltd and South India surgical Co Ltd. Premier Medical Corporation Pvt.Ltd 8.1. The Ld.Counsel submitted that, this comparable manufactures similar products as that of assessee and passes through all the filters applied by the Ld.TPO he submitted that this comparable was included in the search result that formed part of notice dated 23/10/2017 by the Ld.TPO. It was submitted that, the Ld.TPO himself was of the opinion that, this company is to be considered as a comparable company, however the same stood rejected without giving any opportunity of being heard. The Ld.Counsel submitted that, this company is functionally similar to assessee, as it is engaged in developing, point of care rapid tests. It has been submitted that following the broad functional similarity that is required under TNMM, this comparable may be included in the final list. 8.3. On the contrary, the Ld.Sr.DR submitted that, this company basically caters to pharmaceutical research companies as it is basically in engaged in developing the rapid diagnostic tests to detect infectious diseases, fertility, cancer screening, cardiac marker tests, thyroid range tests and drug of abuse tests etc. She thus objected for its inclusion.

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8.4. We have perused submissions advanced by both sides in light of records placed before us. No doubt under TNMM broad comparability must be the criteria to shortlist the comparables, however the comparables so selected must be catering to the industry to which the assessee also caters. We note that, the comparable under consideration caters to diagnostic centres, wherein various test needs to be carried out for identifying a drug in the process of treatment or diagnosis. The assessee is engaged in manufacturing of component used in medical imaging. In our view both assessee as well as this comparable caters to medical industry and therefore it needs to be analysed in respect of other quantitative similarities. We therefore remand this comparable back to the Ld.TPO to consider it on the other quantitative filters applied. Accordingly this comparable alleged by assessee for inclusion stands remanded to Ld.TPO for fresh adjudicatoin. South India surgical Co Ltd. 8.5. The Ld.Counsel is seeking inclusion of this comparable as it is involved in manufacturing similar products that of assessee. It has been submitted that this comparable passes through all the filters applied by the Ld.TPO. The Ld.Counsel submitted that this comparable was rejected only for the reason that it fails the persistent loss filter. The Ld.Counsel submitted that this comparable was selected in the show cause notice issued by the Ld.TPO. Placing reliance on the observations of the DRP at page 7, the Ld.Counsel submitted that Ld.TPO was directed to look

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into the claim of assessee, whether the calculation has been done correctly. However the DRP finally upheld its exclusion for making persistent loss. 8.6. On the contrary, the Ld.Sr.DR submitted that this company shows negative profits in the previous year and therefore does not fulfil the criteria of persistent loss filter applied by the Ld.TPO. The Ld.Sr.DR thus supported the exclusion of this comparable from finalist. 8.7. We have perused submissions advanced by both sides in light of records placed before us. In our view comparable companies cannot be excluded unless the functional profile is different. It cannot be outrightly rejected merely by applying consistent loss-making filter. Comprehensive FAR analysis is vital for appropriate results. According to Rule 10B(4), of Income tax Rules 1962, the data for two preceding years relevant assessment year under consideration may be considered. It is therefore necessary that the Ld.TPO carries out a detailed FAR analysis before rejecting a comparable on any one of quantitative filters so applied. 8.8. We accordingly remand this comparable back to Ld.TPO to consider FAR analysis of this company with that of assessee in order to ascertained the reason behind a consistent loss in the preceding 2 assessment year. Accordingly this comparable is remanded back to Ld.TPO for fresh adjudication.

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case of this company pertains to foreign branch expenditure and substantial part of such expenditure was incurred towards employee benefit. 9.3. It has thus been submitted by the Ld.Counsel that the reasoning behind exclusion of this comparable by the Ld.TPO as well as the DRP is different. Both the DRP as well as the Ld.TPO has not established how this comparable is functionally not similar with that of assessee. 9.4. On the contrary, the Ld.Sr.DR submitted that, this comparable was excluded by the Ld.TPO in preceding assessment year, which has not been contested by assessee before this Tribunal. 9.5. We have perused submissions advanced by both sides in light of records placed before us. We note that the employee cost filter is more than 75%. This has been observed by the Ld.TPO as well as DRP. Admittedly this comparable has not been contested by assessee in the preceding assessment year being assessment year 2011-12. An order passed by coordinate bench of this Tribunal for assessment year 2011-12 is placed in the paper book at page 44 along with written submissions. We accordingly do not find any infirmity in this comparable being excluded from the finalist. Sasken communications technologies Ltd. 9.6. The Ld.Counsel submitted that this comparable is functionally similar with assessee as it is involved in

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communications solutions. It has been submitted that this comparable is involved in automotive industry, Smart devices and wearables, enterprise grade devices, Satcom and transportation industries. It has thus been submitted that this comparable has functions software development segment which is akin to assessee. 9.7. On the contrary the Ld.Sr.DR submitted that this comparable is into automation sector, whereas assessee is into engineering designs that uses certain computer-based software. She submitted that this company is not at all comparable with that of assessee. 9.8. We have perused submissions advanced by both sides in light of records placed before us. We note that this company is not in the similar functions as that of assessee and therefore is not functionally comparable. It is also noted that this company is into development of software products and hence is an comparable with that of assessee under this segment. Accordingly, we uphold the rejection of this comparable from the finalist. 9.9. Daffodil Software Ltd., I2T2 Ltd., Kireeti Soft Technologies Ltd., Exilant Technologies Pvt.Ltd., Celstream Technologies Ltd., Maveric Systems Ltd., Evoke Technologies Ltd.

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It is submitted by the Ld.Counsel that, these were additional comparables filed by assessee before the Ld.TPO which were rejected. 9.10. We have heard the submissions advanced by both sides in light of records placed before us in respect of these comparables. We have also perused the annual reports placed in the paper book. We note that Daffodil software Ltd., I2T2 Ltd., Exilant Technologies Pvt.Ltd., Celstream Technologies Ltd., and Maveric Systems Ltd., are engaged in software engineering products. We note that these comparables have not been verified by the Ld.TPO in terms of FAR analysis with that of assessee and has rejected by applying one or other filter on quantitative basis. As assessee is using TNM as most appropriate method, the functions performed assets owned and risk assumed by the comparables vis-a-vis assessee. Accordingly we remand these comparables back to Ld.TPO for de novo verification. 9.11. We note that Kireeti Soft Technologies Ltd., and Tvoke Technologies Ltd. are into information technology services which is not similar to engineering design services. As these comparables are not primarily comparable on functionality, the other para meters need not be looked into. Accordingly these comparables stands rejected to be considered for inclusion. We also direct the Ld.TPO to grant working capital adjustment in accordance with law, in respect of the comparables finally retained.

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In the result these grounds raised by assessee stands partly allowed. 10. Nothing has been argued in respect of Ground No. 19-22. 11. Ground No.23 is in respect of disallowance of provision of expenses under section 40(a)(ia) of the Act being the year-end provision. 11.1. It has been submitted that the decision relied by the authorities below has been reversed by Hon’ble Karnataka High Court. 11.2. The Ld.Sr.DR relied on the orders passed by authorities below. 11.3. We have perused submissions advanced by both sides in light of records placed before us. We note that authorities below relied on decision of coordinate bench of this Tribunal in case of Toyota Kirloskar motors private limited in ITA No. 1185/B a NG/2014 for assessment year 2012- 13 dated 31/10/2017. The said decision has been reversed by the Hon’ble Karnataka High Court in ITA No. 245/2018 by order dated 24/03/2021. We note that Hon’ble Karnataka High Court discussed the issue in detail and has held that in the absence of income accruing to anyone under the act the liability to deduct TDS on the assessee could not have been fastened. Hon’ble Court held as under: “11. In the light of aforesaid well-settled legal position, we met were to the facts of the case on hand. In the instant case

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the provision was created during the course of the year reversal of entry was also made in the same accounting year. The assessing officer erred in law in holding that assessee should have deducted tax as per the rate applicable along with interest. The authorities under the act ought to have appreciated that the absence of any income accruing to anyone under the act, the liability to deduct TDS on the assessee could not have been fastened and consequently, the proceedings under section 201 and 201(1A) could not have been initiated. For the aforementioned reason the substantial question of law is answered in favour of assessee and against the revenue. 11.4. The basis on which the disallowance was made has been reversed by Hon’ble Karnataka High Court. Accordingly, we direct the Ld.AO to grant the claim of assessee upon verification in accordance with law and the principle laid down by Hon’ble Karnataka High Court. Accordingly, this ground raised by assessee stands allowed for statistical purposes. 12. Ground No.24 is in respect of short credit computed by the Ld.AO for which a direction is to be given. It has been submitted that rectification application in respect of the tax credit has been filed and is pending before the Ld.AO. We direct the Ld.AO to verify the details filed by assessee in respect of the TDS credited and to allow the claim in accordance with law.

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Accordingly, this ground raised by assessee stands allowed for statistical purposes.

Additional Ground no.26: 13. The Ld.Counsel submitted that, the issue stands squarely covered by decision of Hon’ble Rajasthan High Court in case of Chambal Fertilizers and Chemicals Ltd. v. Jt. CIT IT Appeal No. 52 of 2018 by order dated 31-7-2018. 13.1. It is submitted that, education cess is not tax and hence is not disallowable. We also rely on the judgment of Hon'ble Rajasthan High Court in the case of Chambal Fertilizers and Chemicals Ltd. v. Jt. CIT (supra), which after taking into account aforementioned CBDT circular held that section 40(a)(ii) applies only to taxes and not to education cess. Relevant extract of the decision is reproduced for ease of reference:- "13. On the third issue in appeal no. 52/2018, in view of the circular of CBDT where word "Cess" is deleted, in our considered opinion, the tribunal has committed an error in not accepting the contention of the assessee. Apart from the Supreme Court decision referred that assessment year is independent and word Cess has been rightly interpreted by the Supreme Court that the Cess is not tax in that view of the matter, we are of the considered opinion that the view taken by the tribunal on issue no. 3 is required to be reversed and the said issue is answered in favour of the assessee."

Respectfully following the aforesaid view, we allow the additional ground No. 26 raised by assessee.

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Additional Ground No.27-30 14. We have perused submissions advanced by both sides in the light of records placed before us. In these grounds assessee seeks exclusion of following comparables: Larsen and Toubro Infotech Ltd. Persistent Systems Ltd. Mindtree Ltd. 14.1. The Ld.Counsel submitted that assessee provides engineering design services including providing engineering drawings/designs both 2D and 3D models by using software like CAD, CAA except rack for medical products and solving global GE Healthcare customer related design problems and issues. He submitted that these comparables sought for exclusion are product based engineering services. It is submitted that these comparables are basically into product services and technology innovation. The Assessee did not object for inclusion of these comparables before the DRP, however it is before this Tribunal that they have been sought for exclusion. Their were other comparables sought by assessee for inclusion under this segment which are also into engineering design services and we have remanded those comparables to the Ld.TPO to consider it afresh in the light of FAR analysis in accordance with law. 14.2. We remand these comparables also back to Ld.TPO to readjudicate in it based on FAR analysis. The Ld. TPO shall consider all the objections raised by assessee in respect of these

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comparables in the light of far analysis and to consider the claim in accordance with law. Needless to say that proper opportunity of being heard must be granted to assessee. Accordingly, these grounds raised by assessee stands allowed for statistical purposes. In the result appeal filed by assessee stands allowed partly as indicated hereinabove. Order pronounced in the open court on 31st August, 2021

Sd/- Sd/- (CHANDRA POOJARI) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 31st Aug, 2021. /Vms/ Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore 6. Guard file By order

Assistant Registrar, ITAT, Bangalore

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Date Initial 1. Draft dictated on On Sr.PS Dragon 2. Draft placed before -8- Sr.PS author 2021 3. Draft proposed & placed -8- JM/AM before the second 2021 member 4. Draft discussed/approved -8- JM/AM by Second Member. 2021 5. Approved Draft comes to -8- Sr.PS/PS the Sr.PS/PS 2021 6. Kept for pronouncement -8- Sr.PS on 2021 7. Date of uploading the -8- Sr.PS order on Website 2021 8. If not uploaded, furnish -- Sr.PS the reason 9. File sent to the Bench -8- Sr.PS Clerk 2021 10. Date on which file goes to the AR 11. Date on which file goes to the Head Clerk. 12. Date of dispatch of Order. 13. Draft dictation sheets are No Sr.PS attached