ROCKWELL AUTOMATION PRIVATE LTD. ,NEW DELHI vs. ACIT,CIRCLE-19(1), NEW DELHI

International Transaction entered into by the assessee company. Order u/s 92CA(3) of the Act was passed by the Dy. Commissioner of Income Tax. TPO- 3(2)(1), New Delhi, on 29.01.2021. The TPO has made an upward adjustments regarding Arm’s length price in Class -I and II transactions of Rs. 18,42,15,262/-, Engineering design services of Rs. 2,80,32,618/-, Customer support services of Page 4 of 10

ITA No.- 1638/Del/2022 Rockwell Automation India Private Limited. Rs. 27,54,300/-, Business support service of Rs. 39,32,078/- and Interest on outstanding receivables of Rs. 3,60,38,910/- i.e. total adjustment of Rs. 25,49,73,168/-. Accordingly, the NaFAC, Delhi passed a draft order u/s 144C of the Income Tax Act, 1961 on 29.09.2021. Aggrieved with the draft order, the assessee filed objections before DRP-2, Delhi against draft order. DRP-2, Delhi after detailed hearing pronounced its judgement on 29.04.2022 and had issued certain direction in the case of the assessee company. Complying the same, the Ld. TPO -3(2)(2), Delhi vide DSN & Order No. ITBA/COM/F/17/2022- 23/1043662323(1) dated 29.06.2022 has given appeal effect to order dated 29.04.2022 of DRP-2, New Delhi u/s 144C of the Act and have reduced the transfer pricing adjustment from Rs. 25,49,73,168/- to Rs. 18,02,78,879/- for AY 2017-18.

“Ld. TPO made an adjustment of INR 179,613,231 w.r.t. assembly and manufacturing segment by aggregating the results of distribution segment while carrying out such adjustment. While aggregating the transactions of two different class having different FAR, no opportunity was provided by the TPO. Various instances cited in the table below clearly evidence the approach of Ld. TPO in aggregating distribution segment with assembly/ manufacturing segment to implement the adjustment. Inconsistent with Adjustment carried out only in Refer page 693 of TPO's own position assembly/ manufacturing merit appeal in the previous year segment; no adverse inference (AY 2016-17) drawn in the distribution segment (in fact never in the history of Appellant's Page 5 of 10

ITA No.- 1638/Del/2022 Rockwell Automation India Private Limited. operations, any adverse inference has been drawn in distribution segment) Show Cause Notice Nowhere in the show cause Refer page 113 of AY 2017-18 notice when the adjustment merit appeal was originally proposed, there was a discussion on aggregation of distribution segment profit & loss account. Use of PLI The TPO has considered the Refer page 73 to 74 PLI of only assembly/ of merit appeal manufacturing segment to make the adjustment. Use of Comparable The Ld. TPO has considered/ Refer page 73 of Companies modified only assembly/ merit appeal manufacturing comparable companies.

Ld. DR argument that the appellant's main business is to provide solution and whether it is import of components or import of finished products it forms part of the solution is completely devoid of legal and factual merits of the case. It rather grossly violates the provisions of Rule 10B(2) of the Income tax Rules 1962 which require the comparability analysis to be performed based on the functions performed, assets employed and risks assumed (FAR) by the parties to the transactions. At various instances during the TP assessment proceedings, it has been brought to Ld. TPO's attention that the FAR of the appellant under assembly and distribution segment are absolutely distinct. For assembly, the appellant has set- up a full-scale assembly facility, imports components for further value addition and assembly, deploys plant & machinery, land, building and other tangible assets as well as assumes complete ownership and risk in respect of these products. Whereas, in case of import of finished products, products are sold to third party customers without making any value-addition, and the appellant primarily engages in activities of storage and distribution. Such distinction between two segments is always reflected in the segment profit & loss account maintained by the appellant since inception of these activities and has never been challenged in the past. The Ld. DRP has also acknowledged this fact in their directions that the approach upheld by DRP in preceding A Ys shall apply in this A Y as well (Refer page 45 of merit appeal). It is the incorrect approach, rather a mistake committed by the TPO in his order that's now being endorsed through baseless arguments.”

ITA No.- 1638/Del/2022 Rockwell Automation India Private Limited. aggregating the result of distribution segment with assembly / manufacturing segments. This was inconsistent with TPO’s own position in the previous year wherein adjustments was carried out in the assembly / manufacturing segments and no adverse inference has been drawn in distribution segment. Furthermore, in the TPO’s show cause notice when the adjustment was proposed, there was no mention of such aggregation. Moreover, the TPO has considered the manufacturing segments to make the adjustments. Further, the assessee has submitted that it has brought to the TPO’s attention that the FAR of the assessee under the assembly and distribution segments are totally justified. For assembly, the assessee has set up a full scale assembly facility, including, deployment in the plant & machinery, land, building and other tangible assets.

Whereas in the case of import of finished products, products are sold to third party customers without making any value-addition and the assessee primarily engages in activities of storage and distribution.

5.1 In our considered opinion, the submission of the assessee is justified that the AO has wrongly aggregated the assembly segment with distribution segment. We direct that such aggregation is not permissible in the facts and circumstances of the case as discussed above. We direct accordingly.

ITA No.- 1638/Del/2022 Rockwell Automation India Private Limited. “The Ld. TPO considered the delay in payment received by the Appellant from its AE as "unsecured loans" and proposed to charge a rate equal to L1BOR plus 400 basis points. i.e. 5.18% by considering delay to be beyond 6 months. Basis the directions issued by Hon'ble DRP, the Ld. TPO reduced the adjustment to INR 6,65,649 by netting off the payables from receivable and charged the interest on net receivables on AE-wise basis. The Appellant submits that it did not charge interest from its major third-party customers. Thus, this depicts an arm's length situation. In this regard, the Appellant would like to submit that the Hon’ble Income Tax Appellate Tribunal ("ITAT") in Appellant's own case for AY 2014-15 [ITA No. 6806/De1/2018] on the same issue has deleted the adjustment and held as under :- (Refer page no. 700 of merit application) In view of the aforesaid sequence of' events, it would he noted that the decision of Hon'ble Delhi High Court in the case of Kusum Healthcare is still the binding precedent on the issue of interest on outstanding receivables. Needless to mention that the law laid down by the Hon'ble High Court in the case of Kusum Healthcare was followed by the Co-ordinate Benches of the ITAT. There is complete uniformity in the act of the assessee in not charging interest from both the AE and Non AE debtors and the delay in realization of the export proceeds in both the cases is same. Reliance is being placed on the decision of Hon'ble Bombay High Court in the case of CIT-9 vs. M/s. Indo American Jewellery Ltd. in ITA (L) No.1053 of 2012 order dated 08.01.2013. Keeping in view the various judicial pronouncements and the facts of the case that neither interest has been charged nor paid, we hereby allow the appeal of the assessee on this ground.”

6.1 We have heard both parties and perused the materials available on record.

As pointed out by the Ld. Counsel for the assessee in assessee’s own case for Assessment Year 2014-15 on the same issue ITAT has deleted the similar adjustments. The order of the ITAT in the concluding part has held as under:

“In view of the aforesaid sequence of' events, it would he noted that the decision of Hon'ble Delhi High Court in the case of Kusum Healthcare is still the binding precedent on the issue of interest on outstanding receivables. Needless to mention that the law laid down by the Hon'ble High Court in the case of Kusum Healthcare was followed by the Co- ordinate Benches of the ITAT. There is complete uniformity in the act of the assessee in not charging interest from both the AE and Non AE debtors and the delay in realization of the export proceeds in both the cases is same. Reliance is being placed on the decision of Hon'ble Bombay High Court in the case of CIT-9 vs. M/s. Indo American Jewellery Ltd. in ITA (L) No.1053 of 2012 order dated 08.01.2013. Page 8 of 10

ITA No.- 1638/Del/2022 Rockwell Automation India Private Limited. Keeping in view the various judicial pronouncements and the facts of the case that neither interest has been charged nor paid, we hereby allow the appeal of the assessee on this ground.”

Respectfully following the precedents as above, we allow the assessee’s appeal on this ground. It is not the case that the above ITAT order has been reversed by Hon’ble High Court.

Order pronounced in the open court on 12 .7. 2023.