ASSISSTANT COMMISSIONER OF INCOME TAX CORPORATE CIRCLE 1 1, CHENNAI vs. FL SMITH PRIVATE LIMITED, KANCHIPURAM

Per contra, Mr.S.P.Chidambaram, the ld.AR for the assessee invited our 7. attention to the Audited Financial Statements of AY 2011-12 of the subsidiary

:-10-: ITA. Nos:1682, 1731 & 1763/Chny/2024& CO No.71/Chny/2024 FPIL (Formerly known as Transweigh (India) Limited), wherein the assessee had paid a consideration of Rs. 66,22,76,582/- to a third party during AY 2011-12 to acquire all the shares of FPIL. Pursuant to the acquisition, FPIL became a wholly owned subsidiary of the assessee. Subsequently, a few years down the line, for business synergies and various other reasons, a Scheme of Amalgamation of FPIL with the assessee was filed and such Scheme was approved by the Hon’ble High Court of Bombay on 27.06.2014. Pursuant to the Hon’ble Bombay High Court Order, the assets and liabilities of FPIL were transferred to the assessee as per the Scheme of Amalgamation with effect from 01.04.2013 (the Appointed Date). The value of Net assets transferred from FPIL to the assessee amounted to Rs.20,64,25,682/-. The ld.AR pointed out that the excess of Cost of investment in shares of FPIL over the Value of Net assets transferred from FPIL to the assessee as per the Order of the Hon’ble Bombay High Court, amounted to Rs.45,58,50,900/- and the same is in the nature of Goodwill, eligible for tax depreciation at 25% on intangible assets.

Further, ld.AR also contended that the excess consideration paid i.e. 8. Cost of investment in shares of FPIL over the net asset value of FPIL taken over, has been accounted as Deficit on amalgamation and reduced from the General reserves of the assessee as per the mandate of the applicable Accounting Standards. Such details of consideration paid (Cost of investment), net assets taken over and deficit on amalgamation has been duly disclosed in Note 43B of the Audited Financial Statements of AY 2014-15. The goodwill was not recorded in the books of the assessee prior to the amalgamation since goodwill arises only on amalgamation of FPIL with the assessee. However, for income tax purposes, such excess consideration paid is nothing but goodwill arising on amalgamation of FPIL with the assessee. The ld.AR also emphasized that the treatment of such excess consideration under the Income-tax Act may be different from the treatment adopted in the financials.

:-11-: ITA. Nos:1682, 1731 & 1763/Chny/2024& CO No.71/Chny/2024 In other words, accounting treatment followed in the books of account need not be followed for tax deductions and tax claims as held by various Courts and Tax Tribunals. Under the Act, such excess consideration paid to the third party represents the amount incurred by the assessee with respect to the future enduring benefits of FPIL accruing to the assessee. With respect to the reference made to provisions of section 43 of the Act, ld.AR stated that in the present case, Goodwill is an asset that arises out of the amalgamation and therefore, prior to acquisition, there can be no existing book value for such goodwill in the assessee’s books. Further, ld.AR argued that other benefits accruing on amalgamation such as business synergies, customer lists, patents, trained employees, know-how and other beneficial contracts continue with the assessee post-merger of FPIL and the excess consideration paid is towards such enduring benefits derived in the subsequent years. Accordingly, such excess consideration paid over and above the value of net assets taken over, represents goodwill and tax depreciation at 25% on goodwill is allowable.

:-12-: ITA. Nos:1682, 1731 & 1763/Chny/2024& CO No.71/Chny/2024 amalgamation by way of merger accounted under pooling of interest method. Therefore, in the instant case, when the amalgamation is accounted by way of pooling of interest method, wherein Goodwill is reduced from the reserves of the assessee and goodwill is not recorded in the books of the assessee, would not impact the treatment of goodwill as an intangible asset or the claim of depreciation on goodwill for tax purposes.

As far as the aspect of power of authorities to consider the claim of the 10. assessee for depreciation on goodwill during appeal proceedings is concerned, the ld.AR placed reliance on the decision of the Hon'ble Apex Court in the case of Goetze (India) Ltd. v. CIT [2006] 284 ITR 323 (SC) wherein the Supreme Court held that there is no bar to consider the claim of the assessee for additional depreciation, made otherwise than by a revised return of income, by the appellate authorities.

:-13-: ITA. Nos:1682, 1731 & 1763/Chny/2024& CO No.71/Chny/2024 entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised. We are, therefore, of the considered opinion that there is no bar to consider the claim of the assessee for depreciation on goodwill arising on amalgamation, made before the appellate authorities, otherwise than by a revised return of income.

On merits, we have heard both the parties, perused the material on 12. record and gone through the orders of the authorities below along with the judicial precedents relied on. There is no dispute with regard to the fact that FPIL is a wholly owned subsidiary of the asseesee. We find that as per the Scheme of Amalgamation approved by the Order of the Hon’ble Bombay High Court, the consideration paid by the assessee is much more than the net value of assets and liabilities taken over by the assessee. Such excess consideration paid by the assessee has been treated as goodwill and the assessee has claimed depreciation thereon at the applicable rate.

We find merit in the arguments of the ld.AR that as per the AY 2011-12 13. Audited Financials of the subsidiary FPIL (Formerly known as Transweigh (India) Limited), the assessee had paid a consideration of Rs.66,22,76,582/- to a third party during AY 2011-12 to acquire all the shares of FPIL. Pursuant to the acquisition, FPIL became a wholly owned subsidiary of the assessee. Subsequently, a few years down the line, the Assessee filed a Scheme of Amalgamation of FPIL with the assessee, and such Scheme was approved by an Order of the Hon’ble High Court of Bombay on 27.06.2014. Pursuant to the said Order, with effect from 01.04.2013 (the Appointed Date), the assets and liabilities of FPIL were transferred to the assessee as per the Scheme of Amalgamation. The value of Net assets transferred from FPIL to the assessee amounted to Rs.20,64,25,682/- as disclosed in Note 43B of the Audited Financial Statements of AY 2014-15 of the assessee.

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We are of the view that the consideration of Rs.66,22,76,582/- paid for 14. investment in shares of FPIL over the Value of Net assets of Rs.20,64,25,682/- transferred from FPIL to the assessee, pursuant to the Order of the Hon’ble Bombay High Court, amounting to Rs.45,58,50,900/-, is in the nature of Goodwill and is eligible for tax depreciation on intangible assets.

Adverting to the finding of the AO that the goodwill cannot be self- 15. generated and that the claim of the assessee is on account of self-generated goodwill is not correct. The AO has relied upon Explanation 7 to section 43(1) and Explanation 2(b) to section 43(6) of the Act to hold that since goodwill was never recorded in the books, the assessee was not eligible for depreciation. But in the case before us, the goodwill on which depreciation is claimed by the assessee is arising out of the amalgamation scheme, and is not the self- generated goodwill as alleged by the AO. We find force in the submissions of the ld.AR that Explanation 7 to section 43(1) and Explanation 2(b) to Section 43(6) of the Act, does not affect the right of amalgamated company to claim depreciation, since the provisions of section 43 of the Act is applicable only where an existing block of asset is transferred from the amalgamating company to the amalgamated company. In the instant case, since goodwill comes into existence only for the first time subsequent amalgamation, the aforesaid Explanation do not apply. Explanation 7 to Section 43(1) and Explanation 2(b) to Section 43(6) of the Act do not affect the right of the amalgamated company to claim depreciation, as they would operate where an asset is acquired by amalgamating company, without incurring any financial outlay and such asset is transferred to amalgamated company without incurring any financial outlay. In the instant case, since excess consideration paid while initially acquiring the company prior to amalgamation and post amalgamation the net asset received is lesser than the purchase consideration, the differential consideration will constitute goodwill and as such

:-15-: ITA. Nos:1682, 1731 & 1763/Chny/2024& CO No.71/Chny/2024 aforesaid Explanation in provisions of section 43 of the Act are inapplicable. Our above decision is also supported by the Orders of the Tribunal relied upon by the assessee, in the following decisions: 1. KIFS International LLP v. DCIT ITA No. 557/AHD/2022 2. S&P Capital IQ (India) (P.) Ltd. v. ACIT [2024] 158 taxmann.com 12 (Hyderabad - Trib.) 3. I & B Seeds (P.) Ltd. v. DCIT [2022] 142 taxmann.com 274 (Bangalore - Trib.)

15.1 Further, the Hyderabad Bench of the ITAT in the case of S&P Capital IQ (India) (P.) Ltd. (supra) and the Bangalore Bench of the ITAT in the case of I & B Seeds (P.) Ltd. (supra) held that by way of amendment through Finance Act, 2021 clause (b) of Section 2(11) of the Act was amended and the goodwill of the business or profession is excluded from the block of assets comprised in intangible assets. This amendment has come into force with effect from 01.04.2021 i.e. AY 2021-22. It follows that by way of this express provision, the Legislature excluded the goodwill of a business or profession from the block of intangible assets and till AY 2021-22, it shall be construed that goodwill was comprised in the block of intangible assets eligible for depreciation. Accordingly, the Hyderabad Tribunal and the Bangalore Tribunal in the said cases, held that goodwill is an intangible asset and is eligible for depreciation for the amalgamations/mergers prior to AY 2021-22.

Further, the Ld.DR also submitted that depreciation on goodwill is not 16. allowable in cases of accounting done under pooling of interest method. In this context, we find that so far as accounting for amalgamation by way of pooling of interest method is concerned, the Pune Bench of the ITAT in the case of Cosmos Co-op Bank Ltd. (supra) held that amalgamation in question not by way of purchase but is an amalgamation by pooling of interest method, is no ground to deny the claim of the assessee. The relevant extract of the Pune Tribunal decision is reproduced below: “The other objection of the CIT(A) to the effect that the amalgamation in question is not by way of purchase but is an amalgamation by merger, in our view, is no ground to deny the claim of the assessee, which is otherwise well-

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founded. Therefore, having regard to the aforesaid discussion, in our view, on facts and in law, the assessee is entitled for depreciation on the impugned sum for acquisition of business of commercial rights contemplated in section 32(1)(ii) of the Act. Thus, on the Ground of Appeal No.3, assessee succeeds.” Following the aforesaid decision and the judicial principles that an entry 17. in the books of account does not determine taxability, we find force in the arguments of the ld. ld.AR that taxable income and income tax thereon must be computed according to the specific provisions of the Act, irrespective of the method of accounting used for financial statements. Accordingly, in our view, the amalgamation of FPIL with the assessee accounted by way of pooling of interest method, is no ground to deny a bona fide claim of the assessee and tax depreciation on goodwill arising on amalgamation is allowable. We are of the view that irrespective of the method of accounting i.e. pooling of interest method or purchase method is relevant only for the purpose of books/financials. However, as far as tax purposes is concerned, the guiding principle laid down by the Hon’ble Supreme Court in the case of Smifs Securities Ltd. [2012] 24 taxmann.com 222 gains more relevance. For the sake of clarity and ready reference, the relevant paras are reproduced hereunder: “Question No.[b]: "Whether goodwill is an asset within the meaning of Section 32 of the Income Tax Act, 1961, and whether depreciation on `goodwill' is allowable under the said Section?" Answer: In the present case, the assessee had claimed deduction of Rs.54,85,430/- as depreciation on goodwill. In the course of hearing, the explanation regarding origin of such goodwill was given as under: "In accordance with Scheme of Amalgamation of YSN Shares & Securities (P) Ltd with Smifs Securities Ltd (duly sanctioned by Hon'ble High Courts of Bombay and Calcutta) with retrospective effect from 1st April, 1998, assets and liabilities of YSN Shares & Securities (P) Ltd were transferred to and vest in the company. In the process goodwill has arisen in the books of the company." It was further explained that excess consideration paid by the assessee over the value of net assets acquired of YSN Shares and Securities Private Limited [Amalgamating Company] should be considered as goodwill arising on amalgamation. It was claimed that the extra consideration was paid towards the reputation which the Amalgamating Company was enjoying in

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order to retain its existing clientele. The Assessing Officer held that goodwill was not an asset falling under Explanation 3 to Section 32(1) of the Income Tax Act, 1961 [`Act', for short]. We quote hereinbelow Explanation 3 to Section 32(1) of the Act: "Explanation 3.-- For the purposes of this sub-section, the expressions `assets' and `block of assets' shall mean--[a] tangible assets, being buildings, machinery, plant or furniture; [b] intangible assets, being know- how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature." Explanation 3 states that the expression `asset' shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading the words `any other business or commercial rights of similar nature' in clause (b) of Explanation 3 indicates that goodwill would fall under the expression `any other business or commercial right of a similar nature'. The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b). In the circumstances, we are of the view that `Goodwill' is an asset under Explanation 3(b) to Section 32(1) of the Act. One more aspect needs to be highlighted. In the present case, the Assessing Officer, as a matter of fact, came to the conclusion that no amount was actually paid on account of goodwill. This is a factual finding. The Commissioner of Income Tax (Appeals) [`CIT(A)', for short] has come to the conclusion that the authorised representatives had filed copies of the Orders of the High Court ordering amalgamation of the above two Companies; that the assets and liabilities of M/s. YSN Shares and Securities Private Limited were transferred to the assessee for a consideration; that the difference between the cost of an asset and the amount paid constituted goodwill and that the assessee Company in the process of amalgamation had acquired a capital right in the form of goodwill because of which the market worth of the assessee-Company stood increased. This finding has also been upheld by Income Tax Appellate Tribunal [`ITAT', for short]. We see no reason to interfere with the factual finding. One more aspect which needs to be mentioned is that, against the decision of ITAT, the Revenue had preferred an appeal to the High Court in which it had raised only the question as to whether goodwill is an asset under Section 32 of the Act. In the circumstances, before the High Court, the Revenue did not file an appeal on the finding of fact referred to hereinabove. For the afore-stated reasons, we answer Question No.[b] also in favour of the assessee.” (emphasis supplied).

Thus, it is clear that the Hon'ble Supreme Court has considered the 18. circumstances and the process of amalgamation under which goodwill has arisen on which depreciation was claimed. Therefore, the judgement in the case of Smifs Securities Ltd. (supra) is applicable to the facts of the case

:-18-: ITA. Nos:1682, 1731 & 1763/Chny/2024& CO No.71/Chny/2024 before us and the excess payment over the net book value of assets and liabilities acquired on account of amalgamation is in the nature of ‘goodwill’ and is eligible for depreciation u/s.32(1)(ii) of the Act.

Lastly, the Hyderabad Tribunal decision relied upon by the Ld.DR in the 19. case of Invesco (India) Private Limited (supra) is distinguishable from the facts of the case before us. In the case of Invesco (India) Private Limited, for showing investment in shares the Company had adopted DCF method of valuation of shares and in order to record goodwill, the Company had adopted a different method of Fair Market Value of assets, both on the same date of 01.04.2016. Further, the Assessing Officer has brought out various defects in the DCF method followed by the Company to arrive at the intrinsic value of shares as on 31.03.2016. Therefore, the Tribunal in that case, held that since the assessee-company is unable to explain as to how a company can be valued on the very same day for different purposes, in their considered view, the argument of the Company that DCF method is the recognized method for the purpose of valuation of shares and the Company had acquired shares as per DCF method is devoid of merits and cannot be accepted. On the contrary, in the case of the assessee, the assessee had not followed two different methods of valuation and deficit on Amalgamation is recorded in Note 43B of the Audited Financial Statements of AY 2014-15 of the assessee. Therefore, the decision in the case of Invesco (India) Private Limited is distinguishable on facts and is not applicable to the case before us.

Further, the following decisions relied upon by the ld.AR also hold that 20. goodwill is an intangible asset and tax depreciation on goodwill is allowable: 1. PCIT v. Zydus Wellness Ltd. [2020] 113 taxmann.com 154 (SC) and PCIT v. Zydus Wellness Ltd. [2017] 87 taxmann.com 82 (Gujarat) 2. Urmin Marketing (P.) Ltd. v. DCIT [2020] 122 taxmann.com 40 (Ahmedabad - Trib.)

In view of the above and respectfully following the above precedents 21.

:-19-: ITA. Nos:1682, 1731 & 1763/Chny/2024& CO No.71/Chny/2024 relied upon by the assessee on the issue, we are inclined to dismiss the grounds of appeal nos.i to ix raised by the Revenue in relation to depreciation on goodwill.

Disallowance under section 14A of the Act:

Next ground of appeal is regarding disallowance u/s.14A of the Act. The 22. AO had contended that disallowance u/s.14A of the Act can be made even in cases where no exempt income was earned and that there is no provision to restrict the disallowance to the extent of exempt income earned. The ld.CIT(A) had followed the decision of the jurisdictional Hon’ble Madras High Court in Marg Ltd. vs. CIT [2020] 120 taxmann.com 84 (Madras) wherein it is held as under: “We, therefore, dispose of the present appeal by answering question of law in favour of the Assessee and against the Revenue and by holding that the disallowance under Rule 8D of the IT Rules read with Section 14A of the Act can never exceed the exempted income earned by the Assessee during the particular assessment year.”

Accordingly, the ld.CIT(A) partly allowed the assessee’s ground by 23. directing the AO to restrict the disallowance to the exempt income earned i.e Rs.9,24,960/-.

Both the parties have agreed that the disallowance can be restricted to 24. the extent of dividend income. Accordingly, this ground of appeal raised by the Revenue is dismissed.

Transfer pricing issues:

The Ld.DR and Ld.AR contented as below in relation to 25. exclusion/inclusion of comparable company:

McNally Bharath Engineering Co Ltd (McNally Bharat).

The Ld.DR relied upon the findings of the TPO and contended that 26.

:-20-: ITA. Nos:1682, 1731 & 1763/Chny/2024& CO No.71/Chny/2024 McNally Bharat performs functions similar to those of the Assessee, particularly in the domain of material handling equipment. It was further submitted that the annual report of the said company does not provide segmental information, and therefore, the company ought to be retained as a comparable.

Per contra, the Ld.AR for the Assessee submitted that McNally Bharat is 27. functionally dissimilar and hence cannot be considered as a valid comparable. It was argued that the company is engaged in providing end-to-end turnkey solutions across diverse sectors including power, steel, coal and mining, ports, aluminum, water, oil and gas, as well as large-scale infrastructure projects such as buildings and townships, high-rise constructions, roads, metro, railways, etc. The assessee further submitted that McNally Bharat enjoys significant market presence and is largely insulated from market risks, as its operations are predominantly aligned with government-backed infrastructure projects. In light of these facts, it was contended that McNally Bharat Engineering Co. Ltd., being functionally dissimilar and risk-profile-wise incomparable with the assessee, was rightly excluded from the final set of comparables.

International Combustions (I) Ltd.:

The Ld.DR relied upon the relied upon the order of the TPO, which 28. rejected International Combustions (I) Ltd. by stating that the comparable is not functionally similar to that of the Assessee.

We have duly considered the rival submissions and examined the 30. material available on record. It is noted that the Learned ld.CIT(A), in the impugned order, has observed that M/s.McNally Bharat Engineering Co. Ltd.

:-21-: ITA. Nos:1682, 1731 & 1763/Chny/2024& CO No.71/Chny/2024 operates across multiple business segments which are fundamentally different from those of the assessee. Accordingly, the Ld.CIT(A) concluded that the said company is not functionally comparable with the assessee. In view of the foregoing and having regard to the functional dissimilarity, we uphold the said finding and direct that M/s.McNally Bharat Engineering Co. Ltd. be excluded from the final set of comparables.

As regards inclusion of the comparable company, International 31. Combustion (India) Ltd., we observe that the Ld.CIT(A) has held the said company to be functionally similar to the Assessee. In the absence of any material placed on record to controvert such finding, we concur with the view taken by the Ld.CIT(A) and accordingly direct that International Combustion (India) Ltd. be included in the final list of comparable companies.

In the result the appeal of the Revenue is dismissed. 32.

ITA No.: 1682/CHNY/2024 AY 2015-16

On the issue of allowability of depreciation on goodwill arising on 33. amalgamation of FPIL with the assessee, we find that the facts of the case are identical to the earlier AY 2014-15, except that in the earlier AY 2014-15 the claim for depreciation on goodwill was made during assessment proceedings whereas in the subject AY 2015-16, the claim for depreciation on goodwill was made in the revised return of income. In view of our decision on the same facts for AY 2014-15 and respectfully following the above precedents relied upon by the assessee on the issue, we are inclined to dismiss the grounds of appeal nos.i to ix filed by the Revenue.

CO No.71/Chny/2024 AY 2015-16

The assessee has filed cross objection to the revenue's appeal for AY 34. 2015-16 with respect to the transfer pricing grounds in relation to the downward

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adjustment towards Controlling & Accounting and Legal Service fees paid to the Associated Enterprise amounting Rs.1,85,42,427/-. The Ld.AR submitted that the impugned downward adjustment made by the TPO has been erroneously confirmed by the ld.CIT(A), arbitrarily and without any basis.

The grounds of appeal raised in the CO is extracted hereunder: 35. 1. Incorrect consideration of the Arm’s length Price of Business Support Services fee with respect to Legal and Controlling & Accounting services as ‘NIL’ 1.1 The AO/CIT(A) erred in confirming the action of the TPO in holding the arm’s length price of the Business support service fees paid to the AE as ‘Nil’ without appreciating the fact that the payment for such services has been made on defined and generally accepted parameters and allocation keys. 1.2 The AO / TPO/ CIT(A) has erred in disallowing an ad hoc proportion of payments attributable for certain category of services, which is based on mere surmise and conjecture. 1.3 The AO/ TPO/ CIT(A) erred in law by accepting five out of seven components of the Business Support Service fee to be at arm’s length and by disallowing the remaining two components of the Business Support Fee without appreciating the fact that disallowing only a part of the transaction is not valid under law.

1.4 The AO/ TPO/ CIT(A) having accepted the payment for part of the Business Support Service fee at a mark-up of 5 per cent to be at arm’s length basis, has erred in disallowing the other part of the Business support service fee where the same percentage of markup was charged. 1.5 The AO/ TPO/ CIT(A) erred in ignoring sufficient evidences provided by the Appellant to prove that it was in need of services, services were actually rendered and the benefit was actually derived from the services obtained from the AE.

1.6 Without prejudice to the above, the TPO erred in accepting the fact that, with the ongoing developments in compliance and regulatory frameworks, a legal team is inevitable and is not obligatory on the part of the appellant to provide any additional evidence to substantiate the same 1.7 The AO/TPO erred in segregating and separately benchmarking Business Support Services instead of aggregating the same and benchmarking the international transaction under TNMM. 1.8 Without prejudice to the above, the TPO erred in incorrectly applying/adopting other method/CUP method for benchmarking Business Support Services.

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Background:

The Assessee is a member of the FLSmidth Group and is engaged in the 36. manufacture and supply of equipment, machinery, parts and render supervision of erection and commissioning services to cement / mineral industries (Projects Segment). The Assessee also provides engineering services (Engineering Segment) and Financial shared services (FSS Segment) to its group companies. While the engineering segment and FSS segment renders services to the Group companies, the projects segment caters to external mineral and cement plants and process control companies.

The TPO has made a downward adjustment of Rs.1,85,42,427/- by 37. disallowing part of the Business Support Service fees (i.e. fees for Legal and Controlling & Accounting) paid by the Assessee for want of evidence and proof of economic commercial benefit derived by the Assessee. The TPO benchmarked the transaction of ‘payment for legal and controlling & accounting services’ by adopting hypothetical CUP under other method as the most appropriate method and established the arm’s length price to be NIL. The Assessing Officer accordingly confirmed the adjustment made by the TPO and passed the final assessment order by upholding the downward adjustment proposed.

The Ld.AR for the assessee invited our attention to the fact that the 39. assessee had entered into a Business Support Services Agreement with its Associated Enterprise (“AE”) for the receipt of various business support services, pursuant to which the assessee agreed to remunerate its AE on a

:-24-: ITA. Nos:1682, 1731 & 1763/Chny/2024& CO No.71/Chny/2024 cost-plus markup of 5%. The agreement encompassed a bouquet of services. It was contended that the TPO has examined and accepted payments in respect of all other services rendered under the said agreement, but has selectively disallowed payments in relation to services in the nature of Legal, Controlling, and Accounting.

It was further submitted that the markup of 5% is uniformly applied to 40. these services as well, in line with the terms of the service agreement and the group-wide cost allocation mechanism applicable across all group entities. The Ld.AR of the assessee has further highlighted that the TPO was satisfied with the evidence furnished for all other services, he has, without any cogent basis, disallowed only the Legal, Controlling, and Accounting services despite the assessee having furnished similar documentary evidence, such as email correspondence, reports, announcements, and other contemporaneous records. It was argued that the TPO has erroneously characterized such evidence as duplicative and, on that basis alone, proceeded to make an adjustment. The Ld.AR further submitted that the business support services received by the assessee are inextricably linked with the assessee’s core operations and business activities and, therefore, cannot be benchmarked in isolation. Accordingly, it was contended that the assessee had correctly aggregated the transactions and benchmarked the same under the Transactional Net Margin Method (“TNMM”). It was emphasized that once the TPO has accepted the overall benchmarking under TNMM and acknowledged that the assessee’s margins are substantially higher than those of the comparable companies, the TPO is precluded from making a separate and selective adjustment in respect of only the Legal, Controlling, and Accounting services, which admittedly form an integral part of the Business Support Services.

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The Ld.AR further argued that the TPO has, in fact, allowed payment 41. towards Legal and Controlling and Accounting charges (as part of Business Support Services) for Assessment Years 2016-17, 2017-18, and 2018-19. It was therefore contended that the TPO ought to have adhered to the principle of consistency, particularly in the absence of any change in facts or in the terms and conditions of the agreement. In support of this contention, the Ld.AR placed reliance on the decision of the Chennai Bench of the Tribunal in AVO Carbon India Private Limited (IT(TP)A No. 82/Chny/2024), wherein the Tribunal held as under: “… We have noted that the rival parties have concurred that there has been no distinguishable change in the facts of the present case vis-à-vis those prevailing in AYs 2012-13 and 2015-16, for which this Tribunal had granted relief to the assessee. Accordingly, in adherence to the principle of consistency, as well as in respectful compliance with the decisions of the Hon’ble coordinate Benches of this Tribunal in the assessee’s own case, discussed supra, we set aside the orders of the lower authorities and direct the Ld. AO to delete the impugned addition of ₹7,25,09,110/- on account of downward adjustment of payment of management fees. Consequently, all the grounds of appeal raised by the assessee on this issue are allowed.” 42. The Ld.AR placed reliance on the decision of the Chennai Bench of the Tribunal in M/s.Haworth India Pvt Ltd Vs. DCIT, Chennai (IT(TP)A No.23/Chny/2024) for AY 2020-21 wherein the Hon’ble Chennai Tribunal had held that: “We have noted the facts of the present case are akin to those available in judicial precedence discussed herein above. Thus, as the assessee’s core business activity and sale is inextricably linked/dependent on the Global Account Management service from its AEs, the payment of these charges cannot be segregated and benchmarked separately. The judicial precedence discussed hereinabove also support this line of thinking. Accordingly, in respectful compliance to the same, we hold that the Assessee has rightly aggregated and benchmarked this transaction under TNMM. Accordingly, we hold that the TPO having accepted the overall TNMM analysis, was not right in excluding Global Account Management charges for separate benchmarking analysis. Accordingly, we set aside the order of lower authorities and direct the Ld.AO to delete the impugned addition of Rs.5,08,36,826/- on account of downward adjustment of payment of management fees towards global account management charges. All the grounds of appeal raised by the assessee on this issue are therefore allowed.”

:-26-: ITA. Nos:1682, 1731 & 1763/Chny/2024& CO No.71/Chny/2024 The Ld.AR placed reliance on the decision of the Chennai Bench of the 43. Tribunal Bonfigioli transmissions Private Limited Vs. DCIT, ITAT Chennai for AY 2013-14 [ITA No. 2977/CHNY/2017] the ITAT had held that: “Admittedly the business of the assessee is a consolidated one. The services referred under ‘Corporate Services” are intrinsically linked to its manufacturing and sales activity. These two services cannot be separately demarcated. Corporate services are the services rendered, which has helped the assessee in generating the business in respect of marketing and trading. This being so, in view of the decision of Hon’ble Delhi High Court in the case of CIT vs. EKL Appliances Ltd., referred to supra, the ld. Assessing Officer is directed to allow the assessee’s claim of the Corporate Services expenditure incurred by assessee” 44. Per contra, the Ld.DR relied upon the order of authorities below.

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Transfer Pricing issues:

Promac engineering Industries Ltd (Promac)

:-28-: ITA. Nos:1682, 1731 & 1763/Chny/2024& CO No.71/Chny/2024 Eimco Elecon (India) Ltd:

“Even with regard to the comparable companies which are taken into consideration by the AO/ TPO the learned CIT(A) has correctly held that Rites Limited is a Government of India enterprise and considering the nature of the contracts and the implicit guarantee provided by the Government of India etc., Rites Limited cannot be taken as a comparable case and hence the learned CIT(A) was justified in excluding the same”

We have duly considered the rival submissions and examined the 53. material available on record on the above comparable companies and gone through the orders of the authorities. It is noted that the Ld.CIT(A), in the impugned order, has observed that Promac is engaged in manufacture of lifting and handling equipments and are fundamentally distinct from that of Assessee's business. In view of the foregoing and having regard to the functional dissimilarity, we uphold the said finding and direct that Promac Engineering Co. Ltd. be excluded from the final set of comparables.

:-29-: ITA. Nos:1682, 1731 & 1763/Chny/2024& CO No.71/Chny/2024 As regards the comparable company, Eimco Elecon Ltd., we observe that 54. the Ld.CIT(A) has held the said company it is observed that Eimco Elecon (India) Ltd. caters to Government companies/ projects which makes the company to operate under a profit making environment and further the company undertakes significant research and development activities.

In the absence of any material placed on record to controvert such 55. finding, we concur with the view taken by the Ld.CIT(A) and accordingly direct that Eimco Elecon Ltd. be excluded in the final list of comparable companies.

Aqua Pumps Infra Venture Ltd.

The Ld.DR has objected to the inclusion of Aqua Pumps Infra Venture 56. Ltd. as a comparable on the ground that the said company is not functionally similar to the assessee, as it is engaged in construction activities relating to infrastructure projects in other fields.

Per contra, the Ld.AR submitted that the company was selected as a 57. comparable since it is engaged in providing EPC services for infrastructure projects and that the nature of activities as well as the risk profile are comparable to those of the assessee. It was contended that mere involvement in infrastructure projects in different sub-segments does not render the company functionally dissimilar.

Hercules Hoist Ltd.

Further, the Ld.DR also challenged the inclusion of Hercules Hoist Ltd. 58. as a comparable, contending that the said company is engaged in the manufacturing of materials different from those of the assessee and is, therefore, functionally dissimilar. In response, the Ld.AR submitted that Hercules Hoist Ltd. is engaged in the manufacture of material handling equipment catering to various industries, including the cement and

:-30-: ITA. Nos:1682, 1731 & 1763/Chny/2024& CO No.71/Chny/2024 infrastructure sectors, and that the assessee is also engaged in construction activities in the cement and mining industries. It was argued that the functions performed by the comparable are broadly aligned with those of the assessee.

We have heard the rival submissions and perused the material on 59. record. We find no infirmity in the order of the ld.CIT(A) in this regard. Having regard to the nature of activities, functional profile, and risk assumptions, we hold that Aqua Pumps Infra Venture Ltd. and Hercules Hoist Ltd. are functionally similar to the assessee and, accordingly, are to be included in the final set of comparable companies. Therefore, grounds of appeal in this regard are dismissed. Hence, the appeal of the revenue is dismissed.

Order pronounced in the open court on 21st January, 2026 at Chennai.

Sd/- Sd/- (मनु कुमार �ग�र) (एस. आर. रघुनाथा) (MANU KUMAR GIRI) (S. R. RAGHUNATHA) �या�यक सद�य/Judicial Member लेखा सद�य/Accountant Member चे�नई/Chennai, .दनांक/Dated, the 21st January, 2026 SP आदेश क* (�त0ल1प अ2े1षत/Copy to: 1. अपीलाथ'/Appellant 2. ()यथ'/Respondent 3.आयकर आयु3त/CIT– Chennai/Coimbatore/Madurai/Salem 4. 1वभागीय (�त�न�ध/DR 5. गाड% फाईल/GF