EMERSON ELECTRIC COMPANY ( INDIA) P. LTD,MUMBAI vs. ASST CIT 9(2)(2), MUMBAI

आदेश / O R D E R PER M. BALAGANESH (A.M):

With the consent of both the parties, the appeal in A.Y.2014-15 is taken up for adjudication first.

531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., c) Engineering and related services segment - This segment is engaged in rendering designing and other engineering development needs with respect to products sold by the Emerson group. d) IT and related services segment (ITeS segment) - This segment is engaged in rendering services related to IT help desk and database administration related services. e) Software development and related service segment (IT segment) - This segment is engaged in software development related services which are used for manufacturing microprocessors by Emerson group. f) Facilitation support service segment (MSS segment) - This segment is engaged in rendering marketing support services in respect of products of the Emerson group 3.1. Pursuant to the directions of ld. DRP, the ld. AO passed the final assessment order by making adjustment to arm‟s length price (ALP) on account of the following items to the tune of Rs.20,62,58,915/- as under:-

S.No. Description Amount in Rs. 1 12,36,14,584 Adjustment on account of provision of engineering and related services 2 Adjustment on account of provision of ITeS 6,03,56,767 3 Adjustment on account of provision of IT services 1,86,10,485 Adjustment on account of provision of marketing support services 4 36,77,079

Total 20,62,58,915 3.2. Now let us address the transfer pricing adjustment made in respect of each of the aforesaid segments.

531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd.,

Sr. No. Name of the company OP/TC (%) i Axis-IT&T Ltd. 12.48 2 Cades Digitech Pvt. Ltd. 0.98 3 COWI India Pvt. Ltd. 15.24 4 Hepatica Technologies Pvt. Ltd. -5.33 5 Acropetal Technologies Ltd. -EDS 22.50 (segmental) Mean margin 9.17 4.1.1. Accordingly, it was concluded that the international transaction of engineering and related service segment were at arm's length.

531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., 4.2. The ld. TPO asked the assessee to furnish the profitability of each of the three divisions in respect of engineering and related services segment. The assessee furnished the segmented statement before the ld. TPO vide its submission dated 14/06/2017 as under:-

Engineering and related services - business division wise profitability

Particulars FCEC EEEC EIC Total Amount (in INR) Segment revenue(a) Revenue from operations 28,51,93,726 3,25,90,93,366 1,48,38,23,394 5,02,81,10,486 28,51,93,726 3,25,90,93,366 1,48,38,23,394 5,02,81,10,486

Segment Expenses (b) Personnel cost 14,68,49,349 1,46,21,13,437 79,82,19,593 2,40,71,82,379 Depreciation and amortisation 1,43,47,517 5,75,26,620 8,78,52,188 15,97,26,325 Administrative and selling expenses 5,48,40,421 63,26,78,426 49,59,82,840 1,18,35,01,687

Administrative and selling expenses 4,63,96,705 21,60,37,287 2,15,23,18,483 1,38,20,54,621 3,79,68,07,047 Operating Profit (c)=(a)-(b) 6,91,56,439 1,10,67,74,883 10,17,68,773 1,23,13,03,989 OP/TC%(d) = (c)/(b) 32.01% 51.42% 7.36% 32.43%

Reconciliation with profitability as per Note 18 of the financial statements

Particulars Amount Amount Amount Operating profit as determined 6,91,56,439 1,10,67,74,883 10,17,68,773 above

Add: Non Operating income Other Income 70,39,865 7,12,03,687 7,12,324

Less: Non operating expense Loss on the sale of assets 16,16,399 28,25,866 Revised Profitability as per financial statements 7,61,96,304 1,17,63,62,171 9,96,55,231

531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., 4.3. The ld. TPO disregarded the aggregation approach adopted by the assessee. The ld. TPO observed that the transfer pricing charge for all three divisions being different clearly proves that functions performed for all the three divisions i.e., EIC, EEEC and FCEC are not the same and hence, aggregated approach cannot be followed. Accordingly, he concluded that the arm‟s length price of provision of engineering services is to be benchmarked separately. He also observed that there is no interlinking of transactions between these three divisions and price setting mechanism for each division is not depending on other divisions. Therefore, the aggregation approach is not allowed. The ld. TPO based on the divisionwise profitability statement furnished by the assessee as above observed that the assessee earned only 7.36% in EIC division as its operating profit as compared to 32.01% and 51.42% under FCEC and EEEC division respectively. The ld. TPO accepted the margin reflected under FCEC and EEEC divisions. The ld. TPO however, sought to make adjustment to ALP only in respect of EIC division for which purpose, he selected the following two comparables with its margins and arrived at the arm‟s length mean margin at 16.31% as under:-

Particulars OP/TC Percentage(%) Axiz – IT & T Limited 7.15% Certification Engineers 24.82% International Ltd., Arm’s length mean margin 16.31% 4.4. Based on the above, the ld. TPO worked out the adjustment in EIC division to ALP as under:-

531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., Particulars Amount (Rs.) 148,38,23,394 Operating Revenue (A) Operating Cost (B) 138,20,54,621 Arms length mean margin (C) 16.31% ALP of international transaction (D) 16,07,37,978 Adjustment over operating income (D-A) 12,36,14,584 4.5. The ld. DRP upheld the action of the ld. AO in disregarding aggregation approach of all the three divisions under engineering segment by observing as under:-

"It is noted that the similar disallowances made by TPO in AY 2013- 2014 (as discussed above) had been upheld by the DRP .Further it is seen that assessee has been not be able to file the evidence to prove that the three divisions of the assessee are engaged in the similar activity so as to form the unified series of transactions or that they charge the same price or incur same costs. Though the divisions are engaged in providing engineering design and the related services ,the actual work done/functions performed by the three divisions are dissimilar and the same carries different risks. The variations of the level of return received by the assessee in these three areas clearly reveals the variation in functions and risks. It is seen that while FCEC division prepares the configuration engineering design of the product sought by the ultimate customer, the manufacturing is left to the AE and The AE thereafter supplies the product to customers and also undertakes installation and commissioning of the same. In this division, the risk of AE is maximum. In EEEC division the work relates to dealing in products in which AEs do not deal with .In this division the AE sources/buys the base product from outside source and only the modification required are done by the EEEC division. In this division also the assessee has very low risk as the purchase of the product and selling of the same is the responsibility of the AE. However, in EIC Division assessee not only develops design for the product but also develops prototype for testing the same. For the purpose of testing the EIC division engages the third party vendors and it also has the testing lab. The assessee also shares working prototype with the AEs. The assessee also share the test reports with customers for their approvals. Therefore, in the EIC Division the assessee is doing much more than merely providing engineering design. Therefore the risk

531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., of the assessee in the EIC division is much higher. The involvement of the third party vendors also involves a higher risk on the part of the EIC Division. The TPO was also guided for the order for AY 2013-14 where the above facts were analysed in detail. In the view of the above, it is held that the TPO was correct in segregating the three divisions of the assessee for the purpose of benchmarking .The assessee has failed to explain the low OP/TC margin of the EIC division and therefore, this part of the objection of the assessee is dismissed."

531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., years. Hence, it was pleaded that the ld. TPO was not justified in taking the divergent view during the year under appeal alone. 6.2. It was pleaded that the ld. TPO had taken conflicting views, as on one hand, he alleged that the services under three divisions of engineering and related services segment are different and the benchmarking approach of the assessee is flawed, but at the same time, the ld. TPO selected the assessee‟s own comparable company i.e. Axis IT & T Ltd., in the final set of comparables selected by him. Thus, the ld. TPO himself had taken comparables chosen by the assessee and compared each division with the same set of comparables which are into engineering and related services segment. In this regard, the business divisionwise overview on engineering and related services segment would be relevant to note together with the detailed nature of services rendered under each of the said business divisions falling under the common umbrella which is engineering and related services segment as under:-

FCEC EEEC EIC    Customer approaches the Customer approaches Customer AEs for supply of products AEs for supply of products approaches the AEs for supply of certain products. The engineering services in   relation to the products are AE communicates AEs source the base outsourced to the division. request to division. product and engineering  activities required to customise Once request for a  the product to meet the Based on product received from the customer's requirement is specification received from customer is shared by the AEs to outsourced to the division the AEs, designs are the division, configuration developed for the product engineering of the product is and shared with the AEs for undertaken by the division based  The services rendered their inputs and approvals. on specifications provided by the by the division includes AEs graphical designing and related  The division carries engineering services. These  out modifications if any AEs evaluate design/ services are carried out based on based on inputs provided by configuration framework and the specifications provided by provide inputs for modifications the AEs. the AEs.  Post AEs approval, a  Post AEs approval, based prototype for testing  The designs developed on the configuration framework

531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., and standard price list shared by by the division is shared with purposes is developed. Third the AEs, the division draws up the AEs for their approvals party vendors identified by quotation which is shared with the the AEs are engaged to AEs. manufacture the prototype  The division carries out and the prototypes are tested modifications if any based on by the division.  Once customer finalises inputs provided by the AEs  The designs and test the quotation, the division is reports are shared involved in analysing the Order with the AEs.  The AEs then share the vis-a-vis the quotation to verify  AEs share the designs with customers for consistency. designs with approval. customers for  The division then approvals. develops dimensional  Post customer  Post customer approval, drawings and shares it approvals, the AEs the AEs develops the with the AEs. manufactures and product and conducts supplies the products acceptance tests at the to the customers customer location  Dimensional drawings and configuration frameworks are shared by  The division provides AEs with customers for assistance to the AEs in approvals. relation to financial analysis and buy out  Post approvals from assistance. These services are not customers, the AEs undertaken on manufacture and supply standalone basis and are products to the customers ancillary to the engineering design services rendered by the division.

6.3. The ld. AR pleaded that the Emerson Group is structured in a manner that generally each entity focuses on one business platform. The AEs receive orders from customers for products in the business platforms they deal with. In relation to this, the AEs thereafter outsource the engineering and related services to the assessee's business divisions. During FY 2013-14, the AEs have availed engineering and related services. In many instances, the services are provided to one AE from different divisions of the assessee. For instance, Asco Power Technologies LP, an AE of the assessee engaged in manufacture and sale of switches,

531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., power control systems such as UPS, DCS etc., availed services from both EEEC and EIC divisions during FY 2013-14. Thus, the services rendered by these business divisions of the assessee were utilized by Asco Power Technologies LP for designing, manufacturing and supplying products in the power control segment to the customers. Similarly, in case of Emerson Process Management Valve Automation Inc, an AE of the assessee, engaged in manufacture and sale of valve automation products, availed services from both EIC and FCEC divisions during FY 2013-14. Thus, the services rendered by these business divisions of the assessee were utilized by Emerson Process Management Valve Automation Inc. for designing, manufacturing and supplying products in the industrial automation product segment to the customers. Thus, the above clearly substantiates that the engineering and related services rendered by the business divisions are towards a common end use/ application. 6.4. Yet another important point which was pleaded before us by the ld. AR was that common pool of funds were used for all the three divisions and that the funds of all the three divisions under the engineering services segment were interlaced as they are drawn from a common pool of funds maintained by the assessee company. The evidences were also furnished by the ld. AR by specific reference to the bank statement of the assessee maintained with Citi Bank which are enclosed in pages 406 & 407 of the paper book indicating fund transfer from each of the divisions as above. 6.5. We find that in all the aforesaid three divisions, manufacturing activity were only done by the AE and assessee company merely provides engineering and related services to its AE thereon. Hence, the Indian company i.e., assessee assumes lesser risks in all the three divisions. Hence, we hold that the ld. DRP had proceeded on an incorrect assumption of fact that assessee in EIC division is engaged in manufacturing activity. From the table reproduced above, it is very clear

531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., that assessee in EIC division subsequent to AEs approval, develops proto type for testing purposes. The assessee does not manufacture the proto type. The third party divisions identified by the AEs are engaged to manufacture the proto type and the proto types are tested by the assessee in its EIC division falling under engineering and related services segment. Later these designs and test reports are shared with the AEs and the AE in turn shares the same with the customers for approvals. Post customer approvals, the AEs manufacture and supply the products to the ultimate customers. Hence, the observation made by the ld. DRP that assessee in EIC division is engaged in manufacturing activity is incorrect and not emanating from the facts available on record. In any case, we find that even if the observation of the ld. DRP that EIC division is completely different from ECEC and EEC division is to be accepted, still we hold that there is no segmental data available for comparables having EIC division alone for the purpose of benchmarking. Hence, the comparison made by the ld. TPO and upheld by the ld. DRP ignoring the aggregated approach deserves to fail on this account itself. 6.6. From the reading of provisions of Section 92C(1) of the Act, we find that the expression “class of transaction” is mentioned thereon. We hold that the assessee in the instant case had aggregated „class of transactions‟ falling in engineering and design services. From the reading of provisions of Section 92C(1) of the Act, we find that the Section uses the expression “class of associated persons”. From the background of the assessee and the AEs reflected in the TP study report, various documents available on record which are not disputed, we find that all the AEs are engaged in manufacturing of industrial automated products. 6.7. From the bank statement of the assessee which are enclosed on sample basis in pages 406 and 407 of the paper book, we find that the funds for all the three divisions in the engineering services segment are interlaced as they are drawn from a common pool of funds maintained by 531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., the assessee company. We find that all the three divisions under the engineering services segment are engaged in rendering design and engineering services falling under the common administration and management control of the company and funds for the three divisions are interlaced as they are drawn from a common pool of funds maintained by the company. In these circumstances, adoption of aggregated approach for benchmarking the international transaction should be accepted. We also find that the co-ordinate bench of Delhi Tribunal had endorsed our view in the case of Birla Soft India Ltd., in and 4713/Del/2011 dated 06/05/2014 wherein it was held as under: ―The assessee was engaged in rendering software development and related services with operations in three STPI units in different locations. The assessee had aggregated the services rendered under all the three segments while determining ALP considering that the services rendered were identical and there were no significant functional differences. The TPO, while evaluating the transactions, chose to segregate and benchmark each of the units separately by assuming that the functions, assets and risks undertaken by each of the STPI units were distinct from each other. The Delhi Tribunal, observed that the TPO totally disregarded the unity of business, administrative control, and unity of funds for the three units. The Tribunal also stated that independent FAR analysis of each unit with existing comparables is practically not possible due to the common management and interlacing of funds. "

6.8. We also find that when the transactions are closely linked to each other, as in the case of the assessee before us, under the engineering and related services segment, it would be relevant in this regard to go into provisions of Indian transfer pricing regulations and other regulations as under:-

Indian TP regulations Rule 10A of the Income Tax Rules, 1962 ('the Rules') defines transactions as - "includes number of closely linked transaction" 17. Other guidelines and regulations

531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., Further, we referred to other guidelines and regulations for guidance on aggregation of the international transactions and the relevant paras are reproduced below for your reference. a) Organisation for Economic Co-operation and Development Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD Guidelines) Para 3.9 of the OECD Guidelines state that "Ideally, in Order to arrive at the most precise approximation of fair market value, the arm's length principle should be applied on a transaction-by-transaction basis. However, there are often situations where separate transactions are so closely linked or continuous that they cannot be evaluated adequately on a separate basis" b) Guidance Note issued by Institute of Chartered Accountants of India The Guidance Note on Report under section 92E of the Income Tax Act, 1961, issued by ICAI (August 2013 version), also supports the view on aggregation of transactions, wherein it has been mentioned as follows: "Para 3.8 It may be noted that in Order to be closely linked transactions, it is not necessary that these transactions need be identical or even similar. For example, a collaboration agreement may provide for import of raw materials, sale of finished goods, provision of technical services and payment of royalty. Different methods may be chosen as the most appropriate methods for each of the above transactions when considered on a standalone basis. However, under particular circumstances., one single method may be chosen as the most appropriate method covering all the above transactions as the same are closely linked." c) US TP Regulations In respect of the aggregation of transactions, reference is also invited to the US TP Regulations. The relevant extract from the US TP regulation is provided below: "(i) Aggregation of transactions - (A) In general The combined effect of two or more separate transactions (whether before, during, or after the taxable year under review) may be considered, if such transactions, taken as a whole, are so interrelated that consideration of multiple transactions is the most reliable means of determining the arm's length consideration for the controlled transactions. Generally, transactions will be aggregated only when that involve related products or services, as defined in 1.603A-3(c)(7)(vii).

6.9. We hold that the transactions under all the three divisions pertain to same class falling under engineering and related services segment. In 531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., this regard, the relevant legal provisions are to be looked into which are as under:- Rule 10C (2) of the Rules reads as follows: "(2) In selecting the most appropriate method as specified in sub-rule (i), the following factors shall be taken into account, namely: — (a) the nature and class of the international transaction; (b) the class or classes of associated enterprises entering into the transaction and the functions performed by them taking into account assets employed or to be employed and risks assumed by such enterprises;

Rule 10D of the Rules inter-alia states as follows: "10D (i) Every person who has entered into an international transaction shall keep and maintain the following information and documents, namely:— (a).... (b).... (i) a description of the methods considered for determining the arm's length price in relation to each international transaction or class of transaction, the method selected as the most appropriate method along with explanations as to why such method was so selected, and how such method was applied in each case;" Section 92C of the Act reads as follows: "92C. (i) The arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe namely…." 6.10. Based on above extracts from the Rules and the Act, it can be concluded that international transactions can be aggregated when the transactions pertain to the same class. Further, Section 92C and Rule 10C state that for selecting the most appropriate method to determine arm's length price (ALP) among other factors, the nature and class of transaction and functions performed in respect of the transactions are critical. Where (i) the nature and class of the international transactions; (ii) the class or classes of AEs entering into the international transactions; as well as (iii) the FAR analysis in relation to the transactions are similar,

531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., it would be prudent to aggregate the international transactions while determining the most appropriate method as per the Indian TP regulations.

6.11. Hence, we hold that the provisions of the Act and the rules permit aggregation of similar class of transactions if the FAR is the same when the services are rendered to a class or classes of AEs while determining MAM. Therefore, we hold that it would be rational to apply this aggregated approach of considering the three business divisions together for determining the ALP. 6.12. The ld. AR also made an alternative argument in support of ground No.2.1.7. raised by it wherein he stated that even one of the comparables considered by the ld. TPO i.e., Certification Engineers International Ltd. is excluded, then the assessee would be through with its margin. In this regard, the assessee also pleaded before the ld. TPO to exclude this comparable on the ground that the said comparable is a Government company as it is only wholly owned subsidiary of Engineers India Ltd., which is a Government of India Undertaking. The assessee also pleaded before the ld. TPO for excluding this comparable on the ground that the said comparable fails export earnings filter of more than 75% of total revenue (filer applied by the ld. TPO) as this company has insignificant export earnings. The assessee also pleaded before the ld. TPO to exclude this comparable on the ground that the said comparable is engaged in provision of certification, recertification, safety audit, HSE management system and third party inspection of equipment and installation services. The ld. TPO ignored all the contentions of the assessee and considered the said company as a good comparable with that of the assessee. We find that one of the filters applied by the ld. TPO was that the export earnings should be more than 75% of the total revenue to fall within the ambit of a comparable company. In this regard, from the perusal of the 531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., annual report of the said comparable, we find from page 468 of the paper book, that the total export earnings in foreign exchange towards professional fees for 31/03/2014 i.e. A.Y.2014-15 was only Rs.50.21 lakhs whereas the total revenue of the said comparable was Rs.27.63 Crores which works out to 1.81% of total revenue. We find that filters applied by the TPO and mentioned in pages 5 to 9 of his order, hence, this comparable deserves to be rejected on this count itself. 6.13. We also find that this comparable i.e., Certification Engineers International Ltd., is a wholly owned subsidiary of Engineers India Ltd., which is not in dispute before us. We find that the Hon‟ble Jurisdictional High Court in the case of CIT vs. Thyssen Krupp Industries India Pvt. Ltd., in reported in 385 ITR 612 (BOM) had accepted the finding of the Tribunal for Engineers India Ltd., is a Government company. The relevant operative portion of the said decision of Hon‟ble Bombay High Court supra is as under:- Re question (b) :- (a) The grievance of the respondent assessee before the Tribunal was that M/s. Engineers India Ltd. has been erroneously introduced as a comparable by the TPO for determining the ALP of the respondent assessee's International Transactions. The impugned order of the Tribunal records the fact that the Engineering India Ltd. is a Government Company and its annual report indicates that a substantial part of its revenue in execution of turnkey projects arose out of executing projects of public sector undertakings. In the circumstances, the impugned order of the Tribunal holds that the Engineers India Ltd. could not be considered to be comparable for the reason that contracts between Public Sector undertakings are not driven by profit motive alone but other consideration also weigh in such as discharge of social obligations etc. Thus, it is not comparable. Moreover, from the annual report, it is clear that the revenue earned in executing turnkey project for other public sector undertakings was much more than the filter of 25%, which has been applied by the TPO in his order under Section 92CA(3) of the Act, while taking TRF Ltd. as a comparable on the ground that its related party transaction was not in excess of 25% of its total turnover. Thus, applying consistent filter of 25% or less of related party transaction alone to be considered comparable, Engineers India Ltd. could not be considered to be comparable.

531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd.,

(b) We find that the view taken by the Tribunal in the impugned order is a reasonable and possible view. Nothing has been shown which would justify our interference in the impugned order of the Tribunal excluding Engineers India Ltd. from the list of comparables. (c) In the above view, question (b) as framed also does not give rise to any substantial question of law. Thus, not entertained.

6.14. In view of the aforesaid findings and respectfully following the decision of the Hon‟ble Jurisdictional High Court supra, we direct the ld. TPO to exclude the Certification Engineers International Ltd., from the list of comparables. 6.15. We also find that assessee has provided workings for working capital adjustments before the ld. TPO which is enclosed in page 402 of the paper book. Now it is well settled that working capital adjustment is to be given to the assessee while taking the margin of comparable companies for the purpose of benchmarking the international transactions of the assessee. We direct the ld. TPO accordingly. Accordingly, the grounds raised by the assessee in ground No.2 under engineering and related services segment are disposed off as per the aforesaid findings and directions.

7.1. The brief facts of this issue are that assessee is engaged in providing ITeS services for the in-house consumption of the AEs, primarily in the nature of database management, administration and help desk support services. In order to benchmark the international transactions of ITeS, TNMM was selected as the most appropriate method. The margin of the assessee under ITeS segment is determined as follows:

531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd.,

Particulars Amount (Rs.) Operating Revenue 60,45,06,948 Add: Voluntary adjustment by Appellant 2,60,95,326 Total Operating Revenue 63,06,02,274 Operating Cost 55,63,52,032 Operating Profit 7,42,50,242 Assessee's Margin 13.35% 7.1.1. The arithmetic mean of the margins of the 11 comparable companies selected by the assessee in TPSR is 13.85% and accordingly, it was concluded that the international transaction of ITeS were at arm's length.

7.2. The ld. TPO made a TP adjustment in ITeS division to the tune of Rs.6,03,56,767/- as under:- Particulars Amount (Rs.) 63,06,02,274 Operating Revenue (after voluntary adjustment) (A) Operating Cost (B) 55,63,52,032 Arms length mean margin (C) 24.19% ALP of international transaction (D) 69,09,59,040 Adjustment over operating income (D-A) 6,03,56,767 7.3. The action of the ld. TPO was upheld by the ld. DRP.

531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., by the ld. TPO. The ld. AR only prayed for exclusion of two of the comparables selected by the ld. TPO i.e., MPS Ltd., having margin of 48.56% and Excel Infoways Ltd., having margin of 12.10%. Now, let us examine as to whether the assessee is entitled for seeking exclusion of these two comparables individually.

9.1. Exclusion of MPS Limited

We find from the annual report of MPS Ltd., for the year ending 31/03/2014, the said comparable provides end to end print and digital publishing solutions to its partners across the entire value chain from contained provision, enhancement and transformation to delivery and customer support, making it a trusted partner to the biggest publishers in the world. The Director‟s report under the heading “Management Discussion and Analysis” reflect that MPS Ltd., has developed end to end cloud based publishing platform, MPS Digicore, which addresses the need for an integrated work flow that publishers have started to ask for. As such, MPS Ltd., has a first mover advantage in exploiting the market and establishing it as a premier technology solutions provider for publishers. The same market forces have also created immense opportunities for MPS Digitrak, the production targeting system developed by MPS Ltd., and MPS Digicamp, automated composition. Similar other solutions are being developed at MPS Ltd., as research and development (R&D) continues based on the market requirement. The assessee stated before the ld. TPO that MPS Ltd., is functionally not comparable by stating various functions performed by MPS Ltd., as under:- a) As per the Corporate information disclosed in the financial statements for the year ending 31/03/2013, MPS Ltd., the company is engaged in the business of providing publishing solutions viz., typesetting and data digitization services for 531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., overseas publishers. The company has a 100% Export Oriented Unit in Bengaluru, and units registered under the Software Technology Park of India (STPL) scheme that are located in Chennai, Delhi, Gurgaon and Dehradun. The Company also operates through its branch in United States of America. The company provides publishing services relating to typesetting of books and journals, composing of yellow page advertisements and catalogues, data coding, conversion, indexing, editing, copy editing, editorial services, software development, maintenance and support to global publishers. b) MPS Ltd. is engaged in developing of software projects such as Digicore and Digitrak. c) MPS Ltd. has incurred outsourcing costs which indicate that it follows different business model. d) From the annual report of the said comparable it is noted as under:- ―MPS Ltd., provides content creation production, transformation and technology services to global academic, scientific and educational publishers. The company has a team of more than 2,860 employees based in offices in Bengaluru, Chennai, Gurgaon, Noida and Dehradun in India and at Portland, Oregon, Orlando, Florida, Durham, North Carolina and Effingham, Ittinos in the United States. Established as an Indian subsidiary of Macmillan (Holdings)Ltd., in 1979, the company had evolved over its forty five year history to become one of the most experienced and dominant players in the publishing services outsourcing space.‖ 9.2. We find that the ld. TPO however did not appreciate the contentions of the assessee and held that this comparable is functionally comparable with that of the assessee in ITeS segment. The ld. DRP on 531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., perusal of the annual report of the MPS observed that the said comparable operates in only one segment of providing publishing solutions and it does not sell any software based services to its customers. The ld. DRP further observed that software forms part of its intangible assets and it is more of a tool to offer ITeS to customers.

9.3. From the perusal of the annual report for the year ended 31/03/2014 of the said comparable, we find from page 707 of the paper book that the said comparable had incurred outsourcing cost of Rs.1078.76 Crores which is included under the head “miscellaneous expenses” which goes to prove that it has got a different business model. From the various functions performed by MPS Ltd., we find that the said comparable is predominantly in the business of digital publishing which cannot be treated at par with ITeS which is the case of the assessee in ITeS segment. In this regard, we find that the reliance placed by the ld. AR on the Co-ordinate Bench decision of Bangalore Tribunal in the case of M/s. Google (India) Pvt. Ltd., vs. DCIT in for A.Y.2006-07 dated 19/10/2012 is well founded wherein it was held as under:- ―16. As far as (4) Apex Knowledge Solutions Pvt. Ltd., is concerned, we find that the assessee had taken objections before the TPO that it is functionally different, as it is provides services such as E-publishing knowledge based services etc. But TPO has rejected the objection on the ground the assessee has not considered the verticals or functional lines during the search process conducted by it and, therefore, it is not proper to make any objection on this basis now. We are not able to agree with the finding of the TPO as confirmed by the DRP on this issue. Merely because, the assessee itself has not considered the said filter while making its TP study; it cannot be said that it cannot raise such an objection before the TPO. It is the TPO who has adopted this company as comparable. On such adoption, the assessee has every right to raise the objections as regards the functional differences between the assessee and comparable. It is the bounden duty of the TPO to consider the said objections in accordance with law. As brought out by the assessee, the assessee is in the TT enabled services, whereas the said company Apex Knowledge Salutation Pvt. Ltd., is in the business of E-publishing which cannot be 531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., said to be in the same line of business. The functional differences are likely to affect the profit marking capacity of both the companies. In view of the same, we are of the opinion that this company is also to be excluded from the list of comparables.‖ 9.3. In view of the above, we hold that the comparable chosen by the ld. TPO, M/s. MPS Ltd., is functionally not comparable with that of the assessee and accordingly, we direct the ld. TPO to exclude the same from the list of comparables.

We find that the assessee has pleaded before the ld. TPO that this comparable was indeed considered by the assessee in its accept / reject matrix and was ultimately rejected by the assessee since this comparable was disclosing abnormal margins. It was also pleaded before the ld. TPO that since the turnover filter applied by the ld. TPO ranges from Rs.6.05 Crores to 604.80 Crores, the turnover of Excel Infoways in ITeS / BPO Segment was only Rs.5.28 Crores and hence, the same does not fall within the range of turnover filter applied by the ld. TPO, thereby eligible to get excluded from the list of comparables. Apart from this, it was also pleaded that the said company had considered it reasonable to close down its ITeS / BPO segment in the F.Y.2011-12 on account of global recession and had planned to diversify its business into new areas like construction, development of property, real estate etc., It was also pleaded before the ld. TPO by making specific reference in this regard to the annual report of the said comparable for F.Y.2011-12 wherein the said company had invested Rs.28.71 lakhs for purchase of properties. It was also stated that the said company had changed its name in the F.Y.2014-15 from Excel Infoways Ltd., to Excel Real Infra Ltd., clearly indicating its intention of diversifying its activities into real estate and 531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., infrastructural development business and getting out from ITeS segment. The assessee also drew attention to the ld. TPO to the Explanatory Statement given in this regard for postal ballot notice for F.Y.2014-15 u/s.102 of the Companies Act, 2013. Apart from this, the assessee also furnished the following table to drive home its point that the said comparable had practically decided to close down its ITeS / BPO segment due to its diminishing revenue and profitability thereon as under: (all amounts are in Rs, crores) FY 15-16 FY 14-15 FY 13-14 FY 11-12 FY 10-11 Particulars FYU-13

2.30 7.61 7.91 1.18 Segment Revenue 5.28 20.35 (A) 1.43 2.83 4.77 5.61 5.98 Segment expenses (C) 4.71 Segment Result (B) (0.25) (0.53) 0.57 2.84 2.30 14.37 12.10% 59.50% (17.92)% (18.87)% 41.07% 239.39% OP/TC% (B)/(C)

10.1. Based on the aforesaid factors, the assessee pleaded that the said comparable is functionally different from that of the assessee and accordingly, deserves to be excluded. The ld. TPO however, held that the said comparable is engaged in IT services and BPO services providing voice based services, customer services which include out bound sales, marketing, voice, email response, real time chart, knowledge management and other value added services.

10.2. The ld. DRP while upholding the action of the ld. TPO observed as under:- ―The claim of the assessee that this company is shifting focus form BPO/ITeS to Infra activity is not relevant because assessee is relying upon the certain activities which have transpired in the company during FY 2014-15 and not FY 2013-14; (ii) So far as the segmental accounts of the company are not reliable is concerned, the assessee has not brought out any tangible material in this regard; (iii) Profitability of the company cannot be sole criteria for selection of rejection of the company.‖

531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., 10.3. We find that the aforesaid facts and figures remain undisputed before us and we find that the turnover of the said comparable from its ITeS / BPO segment was Rs.5.28 Crores for the A.Y.2014-15, whereas the turnover of the assessee under ITeS segment was Rs.60.45 Crores. This admittedly does not fall within the turnover filter range fixed by the ld. TPO itself which is Rs.6.45 Crores to 604.50 Crores. Hence, we hold that the said comparable fails on the turnover filter applied by the ld. TPO and accordingly deserves to be excluded from the list of comparables and we direct accordingly.

10.4. In effect, we direct the ld. TPO to exclude MPS Limited and Excel Infoways Ltd., from the list of comparables in ITeS segment.

10.5. Now, we are left only with one comparable chosen by the ld. TPO which is Jindal Intellicom Ltd., having a margin of 11.92%. It is now well settled that working capital is to be given to the assessee and there is no dispute in this regard. We find that the assessee had infact given the workings for working capital assessment of all the comparables before the ld. TPO which are enclosed in page 570 of the paper book. The ld. TPO is directed to give working capital adjustment in respect of Jindal Intellicom Ltd., and recompute the margin thereon and then decide as to whether any adjustment to ALP is to be made when compared with assessee‟s margin. Accordingly, the ground No.3 raised by the assessee is allowed for statistical purposes.

531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., development services. The margin of the assessee under IT segment is determined as under:- Particulars Amount (Rs.) Operating Revenue 9,41,15,178 Operating Cost 8,94,79,015 Operating Profit 46,36,163 Assessee's Margin 5.18% 11.1. The assessee selected 7 comparable companies engaged in similar services and mean margin of the comparable companies was 5.05% as against assessee‟s margin of 5.18% and accordingly, the assessee concluded that it‟s pricing was at arm‟s length. 11.2. The ld. TPO rejected / modified the filters applied by the assessee in the TP study report and also introduced new filters, based on which the ld. TPO selected certain comparables with average mean margin of 25.57% and accordingly made adjustment to ALP as under:- Particulars Amount (Rs.) Operating Revenue (A) 9,41,15,178 Operating Cost (B) 8,94,79,015 Arms length mean margin (C) 25.57% ALP of international transaction (D) 11,23,58,541 Adjustment over operating income (D-A) 1,82,43,364 11.3. The assessee pleaded before the ld. DRP that the ld. TPO had not conducted a structured search for comparable companies and had instead resorted to cherry picking of comparables based on the order for the A.Y.2013-14. The ld. DRP accordingly directed the ld. TPO to conduct a fresh search for determining the final set of comparable companies in IT

531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., segment. During the remand proceedings, the assessee submitted a fresh search conducted wherein four new companies which qualified all the filters applied by the TPO were identified. Further the ld. TPO identified four new comparable companies through a fresh search conducted in the data base. Thus, the TPO finally selected 12 comparable companies out of which six companies were originally considered by him in his order, two companies from the fresh search conducted by the assessee during the remand proceedings and four companies from the fresh search conducted by the ld. TPO. The ld. TPO accepted the submission of the assessee in respect of exclusion 2 companies namely 1) Suryajyoti Infotech Ltd., and 2) Citixsys Technologies Ltd., The ld. DRP accepted the submission of the assessee for inclusion of two comparables namely 1) Kireeti Soft Technologies Ltd., and 2) Priya Softweb Solutions Pvt. Ltd. Accordingly, the final set of comparables pursuant to directions of the ld. DRP are as under:- Name of the company OP/TC% s. No CG-VAK Software and Exports Limited 5.96 1 2 53.52 Cyber Infrastructure Pvt. Ltd. 48.97 3 Infobeans Technologies Ltd. 4 24.42 Ingenuity Gaming Pvt. Ltd. 6.56 5 Evoke Technologies Pvt. Ltd. 11.74 6 Daffodil Software Ltd. 7 4.04 I2T2 India Ltd. 43.79 8 Nihilent Analytics Ltd. 76.21 9 Cybercom Datamatics Information Solutions Ltd. Pure Software Pvt Ltd. 15.12 10 4.08 11 Kireeti Soft Technologies Ltd.

531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., 12 17.45 Priya Softweb Solutions Pvt. Ltd. Arithmetic Mean 25.98 11.4. Based on the above, the ld.TPO arrived at the adjustment to ALP of Rs.1,86,10,485/- as under:- Particulars Amount (Rs.) Operating Revenue (A) 9,41,15,178 8,94,79,015 Operating Cost (B) Arms length mean margin (C) 25.98% ALP of international transaction (D) 11,27,25,663 Adjustment over operating income (D-A) 1,86,10,485

531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., 13.1. Exclusion of Cyber Infrastructure Pvt. Ltd., - Margin of 53.52% We find that the assessee had argued before the ld. TPO that this company is engaged in development of software and providing BPO services to customers based outside India. It provides end to end software solutions based on their requirements. It performs the complete range of activities such as requirement mapping, conceptualisation, development and testing etc. It was also pleaded before the ld. TPO during remand proceedings and this company is also engaged in software project development and has developed projects namely “Free AS AIR” which offers complete solutions for preparing, signing, sending and managing documents online. 13.1.1. We find that the ld. DRP had held that this company is only in the activity of software development and consultancy receipts for exports and in domestic tariff. 13.1.2. The ld. DRP observed that there is no mention of BPO services in the website of the said company and that the reference made by the Statutory Auditor is a mistake since the company is into business process management through software development and it is not a BPO. We find from page 1043 of the paper book containing the corporate information in the annual report for the year ending 31/03/2014 wherein it is categorically mentioned that this company is engaged in development of software and providing BPO services to customers based outside India. We also find from page 1044 of the paper book containing the accounting policy in respect of “revenue recognition” wherein it is mentioned as under:- ―Amount receivable from sale/development of software/Business Process Outsourcing services is recognised as income on time basis or work completion basis, as the case may be. Revenue from fixed price contract are recognized as per the proportionate completion method or time basis as per the nature of contract. ―

531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., 13.1.3. We also find from the profit and loss account of the said company in the year ending 31/03/2014 that it had disclosed total revenue from operations of Rs.2241.62 lakhs with break-up of which are as under:- i) Software Development and Consultancy Receipts(export) – Rs.2236.19 Lakhs ii) Software Development and Consultancy Receipts (DTA) - Rs. 5.43 Lakhs =============== Total Rs.2241.62 Lakhs ================ 13.1.4. We also find from the notes of accounts for the year ending 31/03/2014 enclosed in page 1046 of the paper book under the caption “earnings in foreign currency”, that the said company had reflected export earnings of Rs.2236.19 Crores derived from software exports and BPO services. From the entire perusal of the annual report, we find that there is no segmental data for revenue received from software development and from BPO services thereon. Hence, in the absence of segmental data, the revenue stream and margin derived from IT segment alone cannot be ascertained, thereby making it incomparable with the assessee. Hence, we direct the ld. TPO to exclude the same from the list of comparables.

13.2. Exclusion of Infobeans Systems India Pvt. Ltd – Margin of 48.97% With regard to this comparable, assessee has pleaded before the ld. TPO that the said company is engaged in diversified activities such as automation engineering services, ServiceNow implementation, big data,

531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., UI and UX customised software, data mining, data modelling, statistical analysis, machine learning techniques etc., whereas the assessee herein was engaged only in routine software development services. The ld. TPO however, did not heed to the contentions of the assessee and included the same as a comparable. The ld. DRP held that the said comparable has got only one segment i.e., sale of software and accordingly the same is comparable with the assessee. We find from the financial statements of the said comparable that it had derived revenue from sale of software (export) to the tune of Rs.32,96,59,883/- which is enclosed in page 1069 of the paper book. We also find from note No.27 in page 1069 of the paper book which is notes forming part of the financial statements for the year ending 31/03/2014, the said company under the caption “earnings in foreign exchange” had reflected export of goods / services calculated on FOB basis to the tune of Rs.32,96,59,883/-. We find that there is no segmental break-up available with regard to sale of software and revenue derived from the software development services in order to make it comparable with the assessee herein in IT segment. We find that reliance in this regard had been rightly placed by the ld. AR on the co-ordinate bench decision of Pune Tribunal in the case of Pubmatic India Pvt. Ltd., in for A.Y.2012-13 order dated 09/03/2018 wherein it was held as under:- ―18. We have heard the rival contentions and perused the record. The first aspect is the functional comparability of concern which has been finally selected to be comparable. In respect of Infobeans Systems Pvt. Ltd., the financials of said concern clearly reflect that in addition to providing software development services to its associated enterprises, it had also earned foreign exchange from export of goods on FOB basis. The event of export of goods was also mentioned in notes and also in the Profit and Loss Account, where revenue from sale of software was declared. The segmental details of two activities carried on by the said concern were not available and in the absence of the same, the concern could not be equated as functionally comparable to a concern which was providing software development services to its associated enterprises. Applying the same set of reasoning as in the paras hereinabove, we hold that Infobeans Systems Pvt. Ltd. is not comparable to the assessee‖

531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd.,

We hold that in the absence of segmental data and respectfully following the aforesaid decision of Pune Tribunal, we direct the ld. TPO to exclude this company from the list of comparables.

13.3. Exclusion of Ingenuity Gaming Pvt. Ltd., - Margin of 24.42% We find that the assessee had submitted before the ld. TPO that this company is functionally not comparable on the ground that it is a technology company and a design studio rolled into one. They were closely involved with the leading land based online and mobile gaming companies worldwide, delivering games to all major platforms and operators. Accordingly, it was pleaded that the said company is engaged in diversified activities in the IT gaming space whereas assessee is into routine software development services thereby making it functionally not comparable. It was pleaded that the said company also deals in inventories which indicates that the said companies revenue stream includes sale of products even though it is not mentioned specifically in the financial statements. The ld. TP however, did not heed to the contentions of the assessee and included the same in the list of comparables. The ld. DRP while upholding the action of the ld. TPO observed that the said company is engaged only in software development and the outcome is in terms of games. The said company is not deriving any income from sales of goods other than software development. The ld. DRP also observed that the allegation that the said company has inventories is misplaced. 13.3.1. We find that the said company is engaged into gaming business and from the perusal of the profit and loss account of the said comparable it had reflected export revenue from software development services to the tune of Rs.10,80,37,386/- and also as inventories of 531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., Rs.11,59,834/-. We also find from the profit and loss account that the sum of Rs.3,28,274/- has been reflected as income towards changes in inventories of finished goods, work in progress and stock in trade. All these points collectively go to prove that the said company is also engaged in the sale of products apart from software development. From the perusal of the entire annual report of the said company, we find that there is no segmental data available for the revenue stream in respect of revenue from software development and revenue from sale of products. Hence, in the absence of segmental data for the software development segment alone, the same cannot be held to be comparable with the assessee in IT segment. Accordingly, we direct the ld. TPO to exclude the same from the list of comparables.

13.4. Exclusion of Nihilent Analytics Ltd., (Formerly know as ICRA Techno Analytics Ltd.) – Margin of 43.79% We find that assessee had argued that this comparable has got related party transactions more than 25% and range of services includes software development and consultancy, engineering design services, web development and hosting, business analytics and BPO services. It was also pleaded that there is no information about the export revenue earned by the said company. It was further pleaded that the said company is also engaged in sale of software products. The ld. TPO however, observed that export revenue of this comparable is 25.51 Crores out of total sales of Rs.27.94 Crores, therefore, passing the export filter applied by him. He observed that sales of products during the year was nil. Since the company is engaged in software development and consultation, engineering design services, web development and hosting, they are similar to IT services company and accordingly comparable with that of the assessee. The ld. DRP called for a remand report from the ld. TPO to ascertain the exact percentage of related party transactions. The 531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., ld. DRP observed that related party transactions as well as ratio of this comparable worked out to 26%. The ld. DRP observed that while RPT ratio of 25% has been found to be a correct filter for ensuring the arm‟s length comparability in order to ensure comparability, it would be proper if a float of +/- 1% is allowed. Accordingly, it directed the ld. TPO to re- verify the computation of the assessee and include the comparable after the RPT is found to be in excess of the prescribed filter. The ld. TPO again verified the workings of the assessee and observed as under: On verification of the annual report of the company it is seen that a) Services rendered related parties is -Rs.6.22 Crores b) Reimbursement of expenses by related parties - Rs.0.6 Crores c) Reimbursement of expenses to related services - Rs.0.4 Crores

Hence, RPT divided by sales is (service rendered to related parties + reimbursement of expenses by related parties) divided by sales(Rs.6.22 Crores +.6 Crores)÷27.9 x 100 = 24.4%. The ld. TPO observed that the assessee had taken both reimbursement paid to and received from related parties while calculating the RPT ratio and accordingly objected that the same is above 25%. 13.4.1. The ld. TPO did not agree to this computation made by the assessee and accordingly held that since the RPT transaction are not more than 25%, the said company is a good comparable. We find under various filters applied by the ld. TPO for benchmarking the international transactions, one such filter applied thereon is with “companies with related party transactions less than 25% of the revenues are selected.” Under this caption, the ld.TPO had also observed that related party transactions on revenue and expenditure side were considered for applying this criterion. This is the filter and credential applied by the ld. TPO, then it is incumbent on the part of the ld. TPO to consider all the aforesaid three transactions together while arriving at the RPT ratio i.e.,

531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., a) Services rendered related parties is -Rs.6.22 Crores b) Reimbursement of expenses by related parties - Rs.0.6 Crores c) Reimbursement of expenses to related services - Rs.0.4 Crores 13.4.2. If all the aforesaid three transactions are considered then the RPT to sales ratio works out to 25.88% which fails the RPT filter applied by the ld. TPO. Hence, the same deserves to be excluded on this count itself. In view of this, no opinion herein is given with regard to functional dissimilarities between this comparable and the assessee company which was argued by the ld. AR before us.

13.5. Exclusion of Cybercom Datamatics Information Solutions Ltd – Margin of 76.21%

It was pleaded that this company is engaged in sale of software and hardware products, rendering of consultancy / advisory services on information / internet systems and surveyors of information services in the nature of strategic advice, security solutions which are in the nature of high end consultancy services. The assessee pleaded that the segmental data in respect of aforesaid diversified activities are not available and hence not comparable apart from functional dissimilarities, in view of the fact that assessee is engaged into routine software development services. The ld. DRP observed that the principal business of the said comparable is providing the technical and software services and the profit and loss account also mentions sales of services. Accordingly, the same is a good comparable. We find from the annual report of the said comparable for 31/03/2014 under the heading “disclosure of general information about the company” that the principal object of the company is to act as consultants and advisors on information /internet system and surveyors of information services and to carry on the business of 531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., development, testing, implementation, migration of home grown and other applications, marketing and manufacturing of non-technology products and services, software and hardware systems, enterprise and embedded technologies in the telecom and other industries. This goes to prove that the said comparable is into diversified activities, high end services provider in the information technology sector for which segmental data is admittedly not available. Even from the accounting policy on „revenue recognition‟ of the said comparable, we find that the company has mentioned that revenue from technical and software services is recognised on a time and material basis when services are rendered and related costs are incurred. However, there is no break-up of revenue derived from technical services and revenue derived from software services separately for the purpose of ensuring comparability with that of the assessee in IT segment. In this regard we find that the reliance placed on the decision of the Hon‟ble Andhra Pradesh High Court by the ld. AR in the case of CIT vs. Intoto Software India Pvt. Ltd., in IT(TP)A No.233 of 2014 dated 24/03/2014 is well founded wherein it was held as under:- ―We have heard learned Counsel for the appellant, and have gone through the judgment and order of the learned Tribunal. The learned Tribunal on fact found in the manner as follows: " Having heard both the parties and having gone through the material on record, we find that the TPO at page 37 of his order has brought out the differences between a product company and a software development services provider. Thus, it is clear that he s aware of the functional dissimilarity between a product company and a software development service provider. Having taken note of the difference between the two functions, the Assessing Officer ought not to have taken the companies which are into both the product development as well as software development service provider as comparables unless the segmental details are available." In view of the aforesaid fact-finding of the learned "^burial, this Court cannot re-appreciate the same. Accordingly, the appeal is dismissed. Miscellaneous petitions pending, if any, shall stand closed. No order as to costs.‖

531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., 13.5.1. We have already placed reliance on the decision of Pune Tribunal in the case of Pubmatic India Pvt. Ltd. supra which had also endorsed a similar proposition. Respectfully following the same, we direct the ld. TPO to exclude this company from the list of comparables. Accordingly, the ground No.4 raised by the assessee with regard to software development services stand disposed off in the aforesaid manner.

The assessee is engaged in providing marketing support services in India for the products of AEs. It even functions as a communication channel between AEs and the customers in India. Based on FAR analysis in the TP study report, it was pleaded that assessee is a limited risk service provider engaged in rendering MSS segment. The assessee adopted TNMM as the most appropriate method to determine the ALP of international transaction of MSS segment. The margin of the assessee under MSS segment was determined as under:- Particulars Amount (Rs.) Operating Revenue 12,21,82,566 Add: Voluntary adjustment by 85,39,276 Appellant Total Operating Revenue 13,07,21,842 Operating Cost 11,24,48,897 Operating Profit 1,82,72,945 Assessee's Margin 16.25%

531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., 14.1. The ld. TPO rejected certain parties chosen by the assessee and introduced new comparable companies. Finally pursuant to the directions of the ld. DRP, the ld. TPO selected final four comparables as under:- Name of the company OP/TC% s. No MCI Management India Pvt. Ltd. 5.18 1 2 Jubilant Biosys Ltd 15.02 3 AXIS Integrated Systems Limited 23.81 4 34.07 Priya International Limited - Intending segment Arithmetic Mean 19.52 14.2. Based on the above, the ld. TPO made adjustment under MSS segment in the final assessment order to the tune of Rs.36,77,080/- as under:- Particulars Amount (Rs.) Operating Revenue (A) 13,07,21,842 11,24,48,897 Operating Cost (B) Arms length mean margin (C) 19.52% ALP of international transaction (D) 13,43,98,922 Adjustment over operating income (D-A) 36,77,080

531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., (A.Y.2013-14)

531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., 22. Ground No.5 raised by the assessee in respect of engineering and related services is similar to ground No.2 raised by the assessee for A.Y.2014-15 and the decision rendered by us supra thereon would apply with equal force for A.Y.2013-14 also. 23 Software Development Services: Ground No.2 raised by the assessee The assessee provided software development services to its AEs. TNMM was adopted as the most appropriate method to determine ALP of international transactions of IT segment. The margin of the assessee under IT segment was determined as under:- Particulars Amount (Rs.) Operating Revenue 16,96,35,715 61,85,680 Add: Suo moto adjustment by Appellant 17,58,21,395 Total Operating Revenue 16,55,88,054 Operating Cost 1,02,33,341 Operating Profit Assessee's Margin 6.18% 23.1 The assessee selected 7 comparables engaged in similar services and the arthimetic mean margin of the comparable companies selected in TP study report was 6.18%, accordingly, it was concluded that international transactions of IT segment was at arm‟s length.

23.2. The ld. TPO rejected / modified the filters applied by the assessee in the TP study report and also introduced new filters. Based on the new / altered filters applied by the ld. TPO, the ld. TPO selected 10 comparables which included one comparable chosen by the assessee also. The average OP/TC of those 10 comparables was worked out by the ld. TPO at 531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., 28.23% and adjustment to ALP was made to the tune of Rs.4,27,02,814/- as under:- Particulars Amount (Rs.) Operating Revenue (A)* 16,96,35,715 Operating Cost (B) 16,55,88,054 Arms length mean margin (C) 28.23% ALP of international transaction (D) 21,23,38,529 Adjustment over operating income (D-A) 4,27,02,814 23.3. In the aforesaid computation made by the ld. TPO, suo moto adjustment made by the assessee in the sum of Rs.61,85,680/- was not considered by the ld. TPO. The ld. DRP accepted the assessee‟s submission of exclusion of three comparables namely 1) Suryajyoti Infotech Ltd., 2) Vama Industries (software segment) and 3) Infobeans Systems India Pvt. Ltd., and rejected the inclusion of new comparable companies. The ld. DRP also changed working capital adjustment claim made by the assessee. The ld. DRP however, directed the ld. TPO to give effect to the following adjustments made by the assessee after due verification of records. The ld. TPO in the final assessment order passed pursuant to directions of ld. DRP adopted the final set of comparables as under:- Name of the company OP/TC% s. No 9.60 i Spry Resources India Pvt. Ltd. 2 Aspire Systems India Pvt. Ltd. 50.21 3 12.29 CG-VAK Software and Exports Limited Cyber Infrastructure Pvt. Ltd. 4 43.79

531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., 5 Harbinder Software Pvt. Ltd. 21.98 Ingenuity Gaming Pvt. Ltd. 6 40.94 Thirdware Solution Ltd., 7 37.15 Arithmetic Mean 30.85 23.4. Based on the above, the TP adjustment made in IT segment in the final assessment order was Rs.4,70,36,254/- which is worked out as under:- Particulars Amount (Rs.) Operating Revenue (A)* 16,96,35,715 Operating Cost (B) 16,55,88,054 Arms length mean margin (C) 30.85% ALP of international transaction (D) 21,66,71,969 Adjustment over operating income (D-A) 4,70,36,254 23.5. In this order also, the ld. TPO failed to give effect to DRP directions with regard to voluntary adjustment made by the assessee in IT segment.

531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., iii) CITL Ltd.,

27.1. Exclusion of Aspire Systems India Pvt. Ltd., We find that the assessee had argued before the ld. TPO that this company is functionally not comparable as it is engaged in diversified activities as under:- 1. Product Engineering & ISVs 2. Enterprise solution 3. Independent testing sendee 4. Business intelligence and analytics 5. Digital services 6. Product engineering for enterprises 7. Portals and content management 8. Infrastructure and application support service 9. Enterprises application (source: website extract)

27.1.1. Since, no segmental details were available with respect to revenue from software and other diversified services as above, the ld. AR pleaded that this company cannot be included in the list of comparables due to functional dissimilarities. We find that from the list of activities carried out listed hereinabove, we find that the said comparable company is primarily a software services company focused in helping software companies create innovative projects. We also find that the entire revenue is derived only from software services. Hence, there is no 531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., question of rejecting this comparable on the ground that segmental data is not available. We also find from page 1585 of the paper book that segmental data in respect of software segment is also available in the annual report of the said comparable. Hence we hold that this comparable is functionally comparable with that of assessee. Hence, we direct the ld. AO to include the same in the list of comparables.

27.2. Exclusion of Cyber Infrastructure Pvt. Ltd., and Ingenuity Gaming Pvt. Ltd.,

The decision rendered by for A.Y.2014-15 in respect of these two comparables will hold good for A.Y.2013-14 also and would apply accordingly in the absence of change in facts which has been agreed by both the parties before us.

27.3. Exclusion of Thirdware Solutions Ltd.,

We find that the ld. AR argued before us that the said company is functionally not comparable with that of the assessee in view of the fact that the said company provides various diversified services as it is into ERP, BI and BPM, application implementation, application management, application development and derive revenue from various sources such as sale of license, revenue from subscription etc., 27.3.1. The ld. AR also argued that primary segmental data is not available indicating break-up of revenue from various streams in respect of this comparable in the annual report. We have gone through this annual report of the said comparable and we find that the said comparable had derived revenue from sale of services to the tune of Rs.14,225.84 lakhs. From the revenue recognition policy reflected in the 531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., said annual report, it is mentioned under the caption “income from services” that “Revenue from software development and implementation on time and material contracts is recognised and billable to clients as per the terms of specific contracts. On fixed price contracts revenue recognition and billable based on milestones achieved and after receiving the sign off certificates from the customers for the specific milestones as specified in the contracts. Revenue from subscription contract is recognised on acceptance or renewal of contract and is accrued over the period of the contract. Revenue from sale of user licenses for software applications is recognised on e-delivery of software license key to end user.‖ 27.3.2. Hence, it would be relevant to understand the break-up of revenue of Rs.14225.84 between software services and other business norms in order to arrive at the margins of software segment and then make it comparable with that of the assessee. We also find from the profit and loss account of the said comparable that the said comparable has got purchase of stock in trade to the tune of Rs.2482.34 lakhs thereby making it functionally uncomparable with the assessee. Hence, it could be safely concluded that the said company cannot be held as a comparable company with that of the assessee in view of functional dissimilarities and absence of segmental data of revenue or profits derived from software segment alone. Our view is also endorsed by the co-ordinate Bench decision of Delhi High Court in the case of ST Ericson India Pvt. Ltd., vs. ACIT in dated 26/09/2018 wherein it was observed as under:- Thirdware Solutions Limited 24. The Annual Report of this company is exhibited at pages 811 to 916 of the paper book Volume –II. The Company is engaged in the business of Information Technology and Information Technology enabled services. The company caters to both domestic and international markets. A perusal of the Annual Report shows that segmental information of the revenue from information technology and information technology enabled services is not available. From page 882 of the paper book, we find that the revenue recognition policy is that Revenue from Subscription contract is recognised on acceptance 531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., or renewal of the contract and is accrued over the period of the contract. Revenue from sale of user licenses for software applications is recognised on e-delivery of Software Licence Key to end user. This company has intangibles worth Rs. 108.22 crores.

25. We further find that this comparable has been rejected by the Tribunal in assessee’s own case in assessment year 2010-11 in and the relevant finding is given at page 1644 Volume IV. Considering the functional profile of this company in the light of the finding of the co-ordinate bench [supra], we direct for exclusion of this company from the final list of comparables.

27.3.3. In view of the aforesaid findings and respectfully following the aforesaid judicial precedents, we direct the ld. TPO to exclude Thirdware Solutions Ltd., from the list of comparables.

27.4 Inclusion of Evoke Technologies Ltd, Kals Information Systems Ltd. CITL Ltd. We find that one of the filters applied by the ld. TPO in his order for benchmarking the international transactions is turnover filter wherein he had proposed to include companies which are falling within the range of turnover from 1.73 Crores to 173.90 Crores. We find that the turnover of Evoke Technologies Ltd., is Rs.37.39 Crores; turnover of Kals Information Systems Ltd., is Rs.2.52 Crores and turnover of CTIL Ltd., is 14.04 Crores from software development segment alone. These figures are taken from the respective annual reports of the said comparables for the year ended 31/03/2013 which are enclosed in the paper book. Hence, all these three comparables fall within the turnover filter applied by the ld. TPO for inclusion of the same as comparables. The functional similarity of this company with that of the assessee is not disputed by the ld. DRP. We only find that the ld. DRP has arrived at an erroneous figure by considering the total turnover of the assessee instead of taking the turnover from software development segment alone for the purpose of 531/Mum/2018 M/s. Emerson Electric Company (India) Pvt. Ltd., comparability of assessee with the aforesaid three comparables. In view of this, we direct the ld. TPO to include these three companies in the list of comparables for benchmarking the international transactions of the assessee in IT segment.

27.5. We direct the ld. TPO to grant working capital adjustment in respect of final comparables to be chosen as per the aforesaid directions which is now well settled in law. Accordingly, the ground No.2 raised by the assessee in respect of software development segment are disposed off.