INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH “I-1”: NEW DELHI

BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER
AND

SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER
(Through Video Conferencing)

ITA No. 6558/Del/2016

(Assessment Year: 2010-11)

M/s. Honeywell International Vs. Addl CIT

(India) Pvt. Ltd, 1st Floor, Range-4,

Unitech Trade Centre, New Delhi

Sector-43, Block C, Sushant Lok

Phase-I, Gurgaon

PAN: AANCA7954K

(Appellant) (Respondent)

ITA No. 6552/Del/2016

(Assessment Year: 2010-11)

Addl CIT, Vs. M/s. Honeywell

Special Range-4, International (India) Pvt. Ltd,

New Delhi 1st Floor, Unitech Trade

Centre, Sector-43, Block C,

Sushant Lok Phase-I,

Gurgaon

PAN: AANCA7954K

(Appellant) (Respondent)

ITA No. 5801/Del/2017

(Assessment Year: 2011-12)

DCIT, Vs. M/s. Honeywell

Circle-11(1), International (India) Pvt. Ltd,

New Delhi 1st Floor, Unitech Trade

Centre, Sector-43, Block C,

Sushant Lok Phase-I,

Gurgaon

PAN: AANCA7954K

(Appellant) (Respondent)

ITA No. 5770/Del/2017

(Assessment Year: 2011-12)

M/s. Honeywell International Vs. DCIT,

(India) Pvt. Ltd, 1st Floor, Unitech Circle-11(1),

Trade Centre, Sector-43, Block New Delhi

C, Sushant Lok Phase-I,

Gurgaon

PAN: AANCA7954K

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(Appellant) (Respondent)

Revenue by : Shri Rajan Vora, CA
Assessee by: Shri Deeraj Kr. Jain, Sr. DR
Date of Hearing
Date of pronouncement 10/02/2021
24/05/2021

O R D E R

PER PRASHANT MAHARISHI, A. M.

1. These are the four cross appeals of the same assessee for Assessment Year
2010-11 and 2011-12, these appeals also involve similar facts raising
similar grounds, argued by both the parties together. Therefore, this
bunch of appeals is disposed of by this common order.

2. For A Y 2010-11 ITA No 6562/Del 2016 is filed by Additional CIT, New

Delhi (ld AO) against the order of ld CIT(A)-37, New Delhi dated 24.10.2016

in which following grounds of appeal is raised:-

“1. On the facts and in the circumstances of the case, the order of the
Commissioner of Income Tax (Appeals) is erroneous and bad in law.

2. Whether on the facts and circumstances of the case the ld CIT(A)
was correct in directing to exclude the comparables namely M/s. Aptico
and M/s TSR Darshaw Limited from the set of final comparables used
by the TPO.”

3. For AY 2010-11 , Assessee in ITA No 6558/Del/2016 has raised following

grounds of appeal.

“On the facts and circumstances of the case and in law, the Appellant
respectfully craves to prefer an appeal against the order passed under
section 250 of the Income-tax Act, 1961 (“the Act”) by Commissioner of
Income-tax (Appeal) - 37, New Delhi (“Ld. CIT(A)”) on the following grounds:

Corporate Tax Grounds

1. The Ld. CIT(A) has erred in, inter-alia, upholding Ld. AO‟s conclusions
purely on presumptions and irrelevant considerations.

2. That on facts and in law, the Ld. AO and Ld. CIT(A) erred in allocating
an excess expenditure of INR 31,798,275 over and above expenditure
of INR 3,595,995 already allocated by Appellant to the eligible unit
under section 10A of the Act, thereby reducing the deduction claimed
under section 10A of the Act.

2.1. That on the facts and circumstances of the case and in law, the Ld. AO
and Ld. CIT(A) while allocating excess expenditure of INR 3,17,98,275
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to section 10A unit has wrongly restricted deduction under section 10A
by equivalent amount without considering the impact of export turnover
of INR 23,27,23,738 and total turnover of INR 23,78,53,908, thereby
resulting in excess section 10A disallowance by INR 685,844.

2.2. That on the facts and circumstances of the case and in law, the Ld. AO
and Ld. CIT(A) erred in rejecting the basis adopted by the appellant for
allocation of common expenses among the eligible section 10A unit
and other units.

2.3. That on the facts and circumstances of the case and in law, the Ld. AO
and Ld. CIT(A) has erred in holding that the appellant has artificially
created an entity namely corporate division.

2.4. That on the facts and circumstances of the case and in law, the Ld. AO
and Ld. CIT(A) has erred in not considering the fact that the appellant is
not required to maintain separate books of accounts for different
business divisions as per Companies Act or any other law.

2.5. That on the facts and circumstances of the case and in law, the Ld. AO
and Ld. CIT(A) has erred in not appreciating the fact that the appellant
has submitted separate revenue and expenses of the corporate division.

3. That on facts and in circumstances of the case and in law, the Ld.
CIT(A) has erred in initiating the penalty proceedings under section
271(1)(c) of the Act consequent to the additions made in the order
passed under section 250 of the Act

4. That on facts and in circumstances of the case and in law, the Ld. AO
and Ld. CIT(A) has erred in levying the interest under section
234C/234D of the Act.”

4. For AY 2011-12 , the ld AO has raised the following grounds of appeal in

ITA No. 5801/Del/2017 for the Assessment Year 2011-12:-

“1. Whether on the facts and circumstances of the case the Ld. CIT(A) was
correct in rejecting the comparable namely M/s Eclerx Services Ltd.
from the set of final comparables used by the TPO stating that the
company is functionally dissimilar without going into the fact that the
company offered services “Data analytics and process outsourcing”
which are part and process of ITES segment.

2. Whether on the facts and circumstances of the case the Ld. CIT(A) was
correct in rejecting the comparable namely M/s Media Research Users
Council from the set of final comparables used by the TPO.

3. Whether on the facts and circumstances of the case the Ld. CIT(A) was
correct in rejecting the comparable namely M/s Aptico Limited from the
set of final comparables used by the TPO stating that segmented data
is unavailable when that is not a case as income from various
operations of company is available and the same is on record.

4. Whether on the facts and circumstances of the case the Ld. CIT(A) was
correct in directing the AO to allocate total corporate expenses of Rs.
2,09,42,886/- instead Of Rs. 49,15,81,559/-“

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5. For AY 2011-12 ITA NO No. 5770/Del/2017, Assessee has raised following
grounds of appeal. :-

“Transfer Pricing Matter - Provision of IT Enabled Services

1. On facts and in law, the Learned Additional Commissioner of Income
Tax, Transfer Pricing Officer-1 (2) („Ld. TPO‟) and Learned Deputy
Commissioner of Income Tax, Circle 11(1), New Delhi („Ld. AO‟) have
erred in violating, and the Learned Commissioner of Income Tax
(Appeals)-19, New Delhi („Ld. CIT(A)‟) has erred in confirming the action
of Ld. AO /Ld. TPO in violating the provisions of Rule 10B(2) of the
Income Tax Rules, 1962 („the Rules‟) by rejecting following comparable
companies (refer below) as identified by the Appellant, disregarding the
fact that the Functions, Assets and Risk („FAR‟) profile of these
companies is same as that of Appellant‟s business:

• Caliber Point Business Solutions Ltd.

• Cosmic Global Ltd.

• Datamatics Financial Services Ltd.

• Informed Technologies India Ltd.

2. On facts and in law, the Ld. AO / Ld. TPO have erred in violating and
the Ld. CIT(A) has erred in confirming the action of Ld. AO / TPO in
violating the provision of Rule 10B(2) of the Rules by adding following
new companies as comparables to the Appellant:

• Accentia Technologies Ltd.

• Infosys BPO Ltd.

• TCS E-Serve Ltd.

3. On facts and in law the Ld. AO and Ld. TPO have erred in not granting
and the Ld. CIT(A) has erred in confirming the action of Ld. AO and Ld.
TPO, of not granting the benefit of the 5% variation as per the proviso to
section 92C(2) of the Act to the Appellant.

4. On facts and in law, the Ld. AO and Ld. TPO have erred in
disregarding and the Ld. C1T(A) has erred in confirming the action of
Ld. AO and Ld. TPO, of disregarding prior years' data used by the
Appellant to benchmark its international transactions, in its TP
Documentation for the year and holding that current year (i.e. FY 2010-
11) data for comparable companies should -be used despite the fact
that the same was not necessarily available to the Appellant at the time
of preparing its TP Documentation, and grossly misinterpreting the
requirement of contemporaneous' data in the Rules to necessarily imply
current year data, thereby breaching the principles of natural justice
and 'impossibility of performance'.

Corporate Tax Grounds

5. That the Ld. C1T(A) and Ld. AO has erred on facts and in law in
treating business expense of corporate division as an overhead and
allocating a part of it to the unit eligible for exemption under section 10A

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of the Act („10A unit‟) when such expense in any manner (directly or
indirectly) does not pertain to the 10A unit.

5.1 That the Ld. CIT(A) and Ld. AO has grossly erred on facts and in law in
holding that the functions of the corporate office are restricted to and as
defined in Companies Act, even though there is no such requirement
under the Companies Act.

5.2 That the Ld. CIT(A) and Ld. AO has grossly erred on facts and in law
holding that corporate / business expenses of the corporate division are
incurred in respect of the entire Company including all its divisions
(including 10A unit as well)

6. That on the facts and circumstances of the case, the Ld. CIT(A) has
erred in assuming that the cost allocation with respect to the corporate
division done by the appellant appears to be in-correct and inflated
without analysing the reasons for the same.

7. That, on the facts and circumstances of the case, the Ld. CIT(A) has
erred on facts in holding that the appellant cannot incur losses while
rendering services to the Indian group

8. That on the facts and circumstances of the case and in law, the Ld.
CIT(A) has erred in assuming that the appellant should have earned a
profit margin of 16% for the transactions with its Indian group entities,
which similar to the profit margin agreed by the appellant in the
Advance Pricing Agreement („APA‟).

Common Grounds

9. On facts and in law, the Ld. AO has erred in initiating penalty
proceedings under section 271(l)(c) of the Act.

10. On facts and in law, the Ld. AO has erred in levying the interest under
section 234B and of the Act.”

6. Brief facts of the case for Ay 2010-11 shows that the assessee is a company

engaged in the business of manufacturing and trading of electronic security

systems and life safety equipment like fire and smoke detectors, CCTVs etc.

It also provides management and support services to its AEs.

7. Assessee filed its return of income on 11.10.2010 declaring income of Rs.

26,18,68,287/-. During the year, the assessee has undertaken

international transaction of provision of market support services of Rs.

20.54 crores. It has entered into 9 other international transactions. The

assessee has adopted transactional net margin method as the most

appropriate method and has shown its PLI of NCP @10% using 7

comparables with an average profit margin of 11.37% thus, stated that its

international transaction are at arm’s length. The TPO examined the

accept/ reject metrics, filters and functional profile of the assessee, sets up

new filter and based on that he selected 5 comparables whose average profit

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level indicator of OP/ OC was determined @ 24.06%. Operation cost of the
assessee was Rs. 18,67,41,542/-, average margin applied was 24.06%,
determining the ALP of Rs. 23,16,71,557/- against the international
transaction value of Rs. 20,54,15,696/-. Ld TPO proposed an adjustment of
Rs. 2,62,55,861/- considering 105% of the price received at Rs.
21,56,86,481/- as per order u/s 92CA(3) dated 17.01.2014. Over and
above the ld AO found that the assessee is eligible for deduction u/s 10A of
the Act. The ld AO found that all common expenses are not allocated to
eligible units (units on which deduction is available u/s 10A of the Act) and
non eligible units. Therefore, the ld AO argued that why not all common
expenses should be allocated on the basis of turnover. The assessee
objected to the same stating that there is different revenue stream in
eligible and non-eligible units. Corporate division of the assessee also
provides business support services to other entity. Ld AO held that
corporate division is nothing but a corporate office. He examined the
detailed chart of income and various expenses submitted by the assessee.
He also looked at the profit and loss account of the corporate division. He
noted that net revenue of the corporate division is shown at Rs. 3.90 crores,
which is nothing but the services fee received of for business support
services. He further noted that expenditure of Rs. 23.74 crores of employee
cost Rs. 12.15 crore of administrative and other expenses are included in
this, which are liable to be allocated between the eligible and non eligible
units. Therefore, he noted that 9.86% of the turnover is of eligible units
and 90.14% is non 10A unit. He allocated total corporate expenditure of
business support services of Rs. 35,89,68,263/- based on turnover. He
reduced allocation already made by the assessee and held that there is a
shortage of allocation of corporate expenses to 10A units of Rs. 3,17,8,275/-
. He held that by this sum the deduction claimed by the assessee of Rs.
49157260/- is higher therefore, he reduced the above deduction of Rs.
3,17,98,275/- and restricted it to Rs. 1,73,58,985/-. There are certain
other disallowances of depreciation etc of Rs. 2,23,568/-. Based on this the
assessment u/s 143(3) of the Act read with section 144C was passed on
22.04.2014 determining total income of the assessee at Rs. 32,01,41,190/-
against the return income of Rs. 26,18,68,287/-.

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8. The assessee preferred appeal against the above order before the ld CIT(A).
In the corporate tax matter, the assessee challenged that the allocation of
expenditure made by the AO between the eligible and non eligible units is
not correct. The learned CIT – A upheld the action of the learned assessing
officer for the reason that according to her the whole controversy would
have been avoidable had the appellant choose to submit details of its
books of accounts relating to corporate division which was required to be
examined by the learned assessing officer for allocation of expenses and the
expenses of the corporate division whether they are required to be allocated
or not. The main reason for upholding the action of the learned assessing
officer is that the assessee has not maintained or not produced the separate
books of accounts of the 10A eligible units. However, during the course of
appellate proceedings assessee submitted a detailed chart with respect to
the allocation of expenditure but the learned CIT – A disregarded the same
in absence of any separate books of accounts. Thus, the action of the
learned assessing officer was upheld.

9. Thus, Assessee is aggrieved with the same and is in appeal before us as per
ground number 2 of the appeal. According to that ground assessee contests
that assessee has already allocated an expenditure of ₹ 3,525,995/– and the
learned assessing officer and the learned CIT – A has confirmed the
allocation of ₹ 31,798,275/– which is erroneous. The ground of appeal no 3
of initiation of the penalty proceedings and chargeability of interest u/s
234C and 234D were not pressed. Therefore, the solitary issues of the
appeal of the assessee are with respect to allocation of expenditure between
eligible and non eligible units for working of deduction u/s 10A of the Act.

10. In the appeal of the revenue with respect to TP adjustment of market
support services, there was no dispute between the assessee and the
revenue with respect to 3 comparables. However, the ld TPO included 2
fresh comparables being (1) TSR Darshaw Ltd having a margin of 41.57%
and (2) M/s. Apitco Ltd shows margin 40.09%. On appeal the ld CIT(A)
accepted the argument of the assessee and rejected the inclusion of both
the comparables and therefore, the revenue is in appeal on this aspect.
Pursuant to the order of the ld CIT(A) the ld TPO deleted the above addition
as the margin of the assessee vis-à-vis margin of the comparable was within

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the range of +- 5% thus in the appeal of the revenue only 2 comparables
which are directed to be excluded by the ld CIT(A) are challenged.
11. The assessee has also raised an additional ground of appeal as per
application dated 9 October 2019 wherein it has claimed the deduction u/s
37 (1) of the act in relation to the liability of education cess on income tax
for the year. The assessee filed an application wherein the assessee has
raised in this additional ground stating that it is purely legal in nature, does
not require any further investigation of facts, and therefore should be
admitted. Assessee further submitted that issue is squarely covered in
favour of the assessee by the decision of the Honourable Rajasthan High
Court in case of CIT versus Chambal fertilizers and chemicals Ltd and
Honourable Bombay High Court in Sesa Goa Ltd. It is therefore submitted
that the additional ground should be admitted.
12. The learned departmental representative vehemently objected to the
additional ground raised by the assessee and stated that it is a fresh claim
made by the assessee wherein in the return of income the assessee has
already paid the tax and not claimed this expenditure as deductible.
Therefore, it was stated that it should not be admitted.
13. We have carefully considered the rival contention and perused relevant
arguments on this issue. We find that the issue is legal in nature and no
fresh facts are required to be investigated in this case and such ground
can be raised at any point of time, therefore, we admit the additional
ground raised by the assessee, which would be adjudicated later on.
14. Coming to the appeal of the assessee the fact shows that in assessment year
2005 – 06, the assessee had set up a software Technology Park under the
name and style of Global Customer Support Centre or call Centre Division
which is engaged in providing information technology enabled services to its
AE. There is no dispute that above unit is eligible for deduction u/s 10A of
the Act. It is also undisputed that deduction u/s 10A has been consistently
allowed to the assessee in past years. During the year the assessee has filed
working of eligible profit for deduction u/s 10 A of the income tax act where
common expenditure of ₹ 3,595,995/– are allocated and it has been
reduced from the allowable deduction. The assessee has also separate
division, which is called as corporate division stated to be providing services

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of supervision for other business division. That division also provides
business support services to various other entities of the group and thus
claimed to have a separate stream of income. The ld AO held that there is no
separate division in existence and therefore expenditure with respect to the
corporate division was allocated in the eligible units in proportion to the
turnover. Thus the deduction u/s 10A was reduced by Rs. 3,17,95,275/-.
The learned CIT – A also upheld the same.
15. The ld AR submitted that the assessee allocates the common expenses on
scientific basis, which is consistently followed by the assessee and
accepted by the ld AO in past years. Therefore, it should also be accepted in
the present year. He further stated that the separate business activity,
which is being conducted by the assessee in altogether different way,
expenses related to that unit, cannot be allocated to altogether unrelated
units. He further stated that the ld AO is frequently changing the allocation
of the expenses. He referred to the order for AY. 2009-10 wherein, allocation
of common expenses was made based on turnover. He further stated that
there is no requirement under the companies Act for maintaining separate
books of account for different business divisions. He submitted that
assessee has given complete details of the expenses and revenue of all
eligible and non eligible units, which are in dispute, but only the allocation
key has been disputed. In fact from the specific accounts, expenditure wise
allocation made by the assessee the ld AO was shown however the learned
assessing officer is trying to impute the general key of turnover for allocation
of expenditure. He in fact submitted that the turnover cannot be the key for
allocation of expenditure when identified expenditure can be allocated for
the purposes of the earning of the income of eligible as well as non eligible
units. He further submitted that the ld AO has not found any infirmity in
the expenditure wise allocation made by the assessee. He therefore,
submitted that the ld AO merely applies thumb rule of turnover for
allocation of expenditure for the purpose of computing eligible deduction. In
the end he submitted that for Assessment Year 2011-12 the ld CIT(A) after
considering 16% marked up as agreed in the advance pricing agreement has
reworked the cost to be allocated between 10A and non 10A units. He
therefore, submitted that even if the same methodology applied in the year

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considering the revised allocation is only Rs. 23,01,768/- over and above
the allocation of Rs. 35,95,995/- already made by the assessee.
16. The ld DR vehemently supported the order of the lower authorities for
allocation of the expenses.
17. We have carefully considered the rival contentions. For this year we find
that the issue of allocation of expenses the ld CIT(A) while deciding the
ground No. 16 to 20, she upheld the action of the ld AO. However, for the
identical issue before CIT (A) in Assessment Year 2011-12 which was
decided on 04.07.2017 while deciding ground No. 17B where the
adjustment was made by the ld AO, the ld CIT(A) agreed that there are
certain expenditure which required to be allocated but not all the expenses
as claimed by ld AO. The ld CIT(A) held that when the appellant is charging
a substantial markup from its international AEs. There is no reason why
similar margin would not be charged from its AEs in India. Though he held
that the cost allocation of the assessee is incorrect but it was also held that
amount of allocation adopted by the ld AO is also incorrect. It was further
held that the cost allocated by the assessee contains an element which
relates to common services or common corporate functions and hence, is to
be allocated to both exempt and non exempt entities. He further held that as
of both the units the services are provided to AEs and APA of assessee has
accepted margin 16% therefore, similar margin should also be received
from the domestic companies. Thus according to this, indirectly referred
that 16% of the cost is required to be allocated of the corporate division to
the eligible unit for deduction u/s 10 A of the act. From this it is apparent
that allocation of expenditure of corporate division which provides services
to the internal units of the assessee which are eligible for deduction u/s 10
A and also not eligible for deduction Under that Section as well as to the
outside parties, has different cost structure. If the corporate division
expenses are analyzed, it has total income of ₹ 39,069,430 whereas its
expenditure is Rs 2 69,38,893/–. Out of this expenditure of Rs
269,38,893/– assessee itself has allocated a sum of Rs 257,90,957 to
various units. The noneligible unit of the assessee has a net sales of ₹
2,101,616,685 whereas the eligible unit of the assessee has a turnover of
Rs 23,35,75,346/–. Thus roughly it can be seen that the turnover of the

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noneligible unit is approximately 10 times higher than the eligible units on
turnover basis. The total expenditure of Rs 257,90,957 was allocated to
noneligible unit to the extent of ₹ 22,194,962/– and to the eligible unit ₹
3,595,995/–. The main reason for not believing the allocation of
expenditure of the assessee by the learned assessing officer was for the
allegation that assessee company has smartly created a corporate division
and disclosed the receipt on this account being receipt of corporate division
and the expenses related to these services. In fact assessee is rendering
services to the other parties also from this division which has been recorded
by the learned CIT – A also. Further the learned assessing officer held that
there is no separate books of accounts maintained by the assessee with
respect to the eligible units and noneligible units as well as with respect to
the business support service group, and other units. For this reason only,
the learned AO applied the thumb rule of turnover for allocation of
expenditure. The learned AO in fact has not found any expenditure which is
pertaining to another division of eligible units which has been shown by the
assessee as an expenditure of eligible units. The assessee has also stated
that it has grouping of such expenditure and income in the books of
accounts maintained on SAP which clearly shows demarcation of the
expenditure and income pertaining to eligible units and noneligible units.
The learned CIT – A also recorded this fact in paragraph number 20.4 of her
order. It is also recorded in her order that assessee has also presented a
chart showing details of allocation of such expenditure. Even otherwise no
where the learned and AO as well as CIT – A held that allocation made by
the assessee of Rs 3,595,995/– is not correct with reasons. They have
merely assumed that in absence of any separate books of accounts, the
expenditure needs to be allocated based on turnover. There is no such
mandate provided Under the law wherein assessee has maintained its books
of accounts on ERP software which clearly gives an assurance about the
allocation of those expenditure. No doubt, if, there is any defect or infirmity
found in allocation of such expenditure even in ERP system, the AO can
rework the same. But no such efforts have been made either by the learned
AO or by CIT – A therefore allocation of expenditure merely on the basis of
turnover when there are different kind of services rendered by both these

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units i.e. eligible as well as noneligible, such a thumb rule allocation key of
turnover cannot be approved in absence of detailed verification by the
learned AO showing that allocation made by the assessee on different
allocation key is incorrect. It is also important to note that in subsequent
assessment year i.e. assessment year 2011-12 the learned CIT – A has dealt
with this issue wherein the learned CIT – A had reworked the cost to be
located between the 10 A and non-10 A units based on the 16% markup
agreed in the advance pricing agreements entered into by the assessee. The
assessee submitted that the issue before APA was in respect of Mark up to
be charged in respect of provision of management and administrative
services rendered by the assessee to its foreign associated enterprises. APA
held that the services rendered by assessee to its foreign AE need to be at
cost +16% margin / markup. The learned CIT – A based on the same
rational that when similar services are rendered to domestic associated
enterprise the assessee would need to earn similar markup i.e. 16% on
services rendered to overseas associated enterprise. Therefore as stated in
paragraph number 17.6 of the order of the learned CIT – A for assessment
year 2011 – 12 he imputed the margin of 16% and thereafter the directed
the learned assessing officer to compute the eligible profit for deduction u/s
10 A of the act. The assessee has submitted before us that if such a margin
is also imputed for this year the common expenditure allocation would be ₹
2,301,768 as placed at page book number 2320 of the paper book. This
would be over and above the allocation made by the assessee of Rs
3,595,995. As we find that order of the ld CIT (A) for subsequent year has
reached at correct methodology of allocation of expenditure same can also
be applied for the current year. The dl DR did not raise any serious
objection to this proposition. Therefore, we direct the learned assessing
officer to recompute the allocation of expenditure to the eligible and
noneligible unit for this year also by applying the margin of 16%. The AO
may verify the working as placed by the assessee at page number 2320 and
then recalculate the addition on that basis. Thus the orders of lower
authorities on this issue are set aside . Accordingly, ground number 2 – 2
point 5 of the appeal of the assessee is allowed accordingly.

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18. The ground number 3 of the appeal of the assessee is with respect to the
initiation of the penalty proceedings u/s 271 (1) (C) of the act, this ground is
premature at this stage and therefore same is dismissed.

19. Ground number 4 of the appeal is with respect to the chargeability of
interest u/s 234C and 234D of the income tax act both are consequential in
nature and therefore ground number 4 is dismissed.

20. The additional ground raised by the assessee is with respect to the
deductibility of the education cess Under the provisions of Section 37 (1) of
the act. The fact shows that the assessee has paid taxes including the
education cess along with taxes and the same is claimed now as deduction
u/s 37 (1) of the act. This issue is squarely covered in favour of the
assessee by the decision of the honourable Rajasthan High Court in case of
CIT versus Chambal fertilizers and chemicals Ltd (ITA number 52 of 2018
dated 31 July 2018 as well as of the decision of the Honourable Bombay
High Court in case of Seas Goa Ltd in tax appeal number 17 and 18 of
2013 dated 28th of February 2020. In view of the above judicial precedents
of the Honourable High Court’s we find that the education cess paid on
income tax is allowable to the assessee as a deduction u/s 37 (1) of the act.
We direct the learned assessing officer to examine the calculation of the
education cess and grant assessee deduction accordingly. In view of this
additional ground raised by the assessee is allowed.

21. In the result appeal of the assessee for assessment year 2010 – 11 is partly
allowed.

22. Coming to the appeal of the learned assessing officer wherein he has
challenged the direction of the ld CIT (A) for exclusion of the comparable (1)
TSR Darshaw Limited and (2) Aptico Limited. The learned departmental
representative vehemently supported the order of the learned transfer
pricing officer. The learned authorised representative submitted that Aptico
limited has been excluded in case of the assessee itself for assessment year
2008 – 09 in ITA number 3901/del/2015 dated 20 November 2019. Further
the above company was also excluded by the learned CIT – A for
assessment year 2011 – 12 however which has been challenged by the
learned AO in the appeal before us. With respect to the second comparable
TSR Darshaw Limited it is also submitted that in assessee’s own case for

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assessment year 2007 – 08 in ITA number 2385/del/2014 dated 30 June
2017 the above comparable was excluded. Therefore, the transfer pricing
issue in the appeal of the learned assessing officer is squarely covered in
favour of assessee.
23. We have carefully considered the rival contention and find that with respect
to the exclusion of the above two comparables, in assessee’s own case the
above two comparables have been excluded by the coordinate bench in
different years. No reason has been shown to us to deviate from the same.
No change in the functional analysis of the comparable vis-a-vis the
assessee was shown with respect to those years. In view of this we
respectfully following the decision of the coordinate bench in assessee’s own
case for exclusion of the about two comparables, we uphold the order of the
learned CIT – A and dismiss the solitary ground in the appeal of the learned
assessing officer.
24. Accordingly, the appeal of the learned AO for assessment year 2010 – 11 is
dismissed.

A Y 2011-12

25. Now we take up the appeals of the parties for assessment year 2011 – 12.
26. Coming to the facts of case for that year the assessee filed its return of

income on 30 November 2011 declaring a total income of ₹ 507,826,739/–.
The assessment u/s 143 (3) of the act was passed on 30 April 2015 wherein
an addition on account of the transfer pricing adjustment was made in ITeS
segment of the assessee of ₹ 32,661,938 and in marketing support services
of ₹ 36,731,715 and management and other administrative services of Rs 2
73,22,870. With respect to the allocation of common expenses for the
purpose of deduction u/s 10 A, the reduction in the deduction claimed by
the assessee was made to the extent of Rs 230,89,737/–. Accordingly, total
income of the assessee was assessed at Rs 625,933,000 against the
returned income of Rs 507,826,739.
27. Aggrieved by the order of the learned AO, The appeal was preferred by the
assessee before the learned CIT – A who passed an order on 4 July 2017.
Addition on account of the arm’s-length price of the market support services
of ₹ 36,731,715, the learned CIT – A directed the learned AO to exclude two

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comparables (1) Aptico Limited (2) Media Research Users for the reason that
those are functionally not comparable. With respect to the determination of
arm’s-length price of ITeS segment the learned CIT – A directed the learned
AO/TPO to exclude E Clrex Services Ltd. With respect to the allocation of
the common expenditure being total expenditure of 49,15,81,558 for
allocation, he applying a margin of 16% to the cost incurred in the segment,
held that there is less allocation f the cost in the service division by Rs
20,942,886/– which should have been allocated between 10 A units and the
taxable units , therefore the learned CIT – A directed the learned assessing
officer to allocate the total corporate expenditure of ₹ 20,942,886/– instead
of ₹ 491,581,559/–.
28. Therefore both the parties are aggrieved by the order of the learned CIT – A
and are in appeal before us.
29. The learned assessing officer has preferred an appeal against exclusion of
the comparable E Clerx services Ltd, Media Research Users Council and
Aptico Ltd from the transfer pricing comparability study and with respect to
the total allocation of expenses reduced by the learned CIT – A.
30. The assessee has raised in fact 10 grounds of appeal. It is aggrieved by the
confirmation of exclusion of four comparables in ITeS services and inclusion
of three comparables. The assessee is also aggrieved by the order of the
learned CIT – A with respect to the allocation of expenditure to the extent of
Rs 20,942,886/–.
31. We first come to the appeal of the learned AO. The ground number [1] is
with respect to the exclusion of E Clrex services Ltd from the comparability
analysis in the ITeS segment. On this issue we have heard the rival parties
where they have confirmed that there is no dispute on the functions
performed by the assessed in the ITeS services. Assessee rendered its IT
enabled services to its overseas associated enterprise of ₹ 21.02 crores
Under the global customer support service centre. The assessee has stated
that it is a low risk bearing entity support centre for Honeywell group of
entities. It performs the function of ITeS and back-office activities such as
order management and data management activities, aftermarket support
activities, sales and market support activities and business process
improvement, project management and data management activities. The

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learned transfer pricing officer included the above comparable as it is
functionally according. Before us the assessee has submitted that the
turnover of the comparable is Rs 3419 crores whereas the turnover of the
assessee is only ₹ 21.02 crores. It was further stated that this is also not
functionally similar to the assessee and in assessee’s own case for
assessment year 2007 – 08 in ITA number 2385/del/2014 dated 20
November 2019, above comparable was excluded. Further for assessment
year 2008 – 09 also this company was excluded from the comparability
analysis and the same was not challenged by the revenue before the ITAT.
In view of manifold difference in the turnover of the company with the
assessee (₹ 21.02 crores Vs ₹ 3419 crores) and respectfully following the
decision of the coordinate bench in assessee’s own case, wherein this
comparable company was excluded from the comparability analysis, we do
not find any infirmity in the order of the learned CIT – A in direct the ld
AO/TPO to exclude E clerex Services Limited for comparability analysis.
Accordingly, ground number [1] of the appeal of the learned assessing
officer is dismissed.
32. The second ground of appeal is with respect to the exclusion of Media
Research Users Council in the market support service segment of the
assessee. We have heard the rival contentions on this issue. The assessee
has rendered the market support services to its overseas associated
enterprise of ₹ 30.86 crores in order to facilitate the sale of their products in
India. It also provided sourcing support services to its overseas group
entities so as to assist them in procuring raw materials/components from
India. Assessee provided market support services to other entities also. The
significant functions of the assessee are performing market support and
communication and advising and liaisons , sourcing support by the
assessee. It is stated that it is a limited risk captive market support service
provider for the international transaction of provision of market support
services and is remunerated at cost +10% markup. The assessee has
benchmarked the above transaction applying the transactional net margin
method and profit level indicator of net cost plus markup. The assessee
selected six comparable companies having the profit level indicator of
12.76% whereas the assessee’s margin was 10% and thus it was stated that

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the transaction is at arm’s-length. However the learned transfer pricing
officer rejected 4 out of 6 comparable companies and further introduced 2
companies. One of them is Media Research Users Council [ MRUC] whose
margin is 14.53% and Aptico limited who is margin is 25.17%. On appeal
before the learned CIT – A the assessee contended for exclusion of both
these comparable companies which CIT (A) accede to . Therefore the revenue
is challenges this before us as per ground number 2 and 3. The learned CIT
– A has excluded the Media Research Users Council for the reason that
same is not functionally comparable since it is a non-profit organization
which undertakes advertising and publishing of newspaper and periodicals
and also acts as an independent advertising agency which is completely
different from the functions performed by the assessee. The learned CIT – A
further held that the comparable company derives its revenue from business
of publishing newspapers and periodicals and the source of its revenue is
basically the periodicals and the subscription by the members. The financial
results of the comparable company also revealed that there are certain pass-
through costs which have not been booked into the profit and loss account
of the comparable company. For this reason is the same was excluded. The
learned departmental representative could not show us any infirmity in the
order of the learned CIT – A. Further the learned authorised representative
supported with the decision of honourable Delhi High Court in case of
another company in ITA number 966/2018 dated 4 September 2018
wherein this comparable company has been excluded as it is not for profit
company. Therefore respectfully following the decision of the honourable
Delhi High Court we confirm the order of the learned CIT – A in rejecting the
Media Research Users Council from the comparability analysis in provision
of market support services segment of the assessee. Thus, ground number 2
of the appeal is dismissed.
33. The ground number [3] is with respect to the direction of the learned CIT –
A for exclusion of Aptico Limited which is identical to the issue involved in
the appeal of the learned AO for assessment year 2010 – 11. The arguments
of both the parties remain the same. We have already held for that year that
Aptico Ltd is correctly excluded by the learned CIT – A. Therefore, for those
reasons, ground number [3] of the appeal of the learned AO is dismissed.

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34. Ground number [4] of appeal of learned AO is with respect to the order of
the learned CIT – A directing the learned AO to allocate corporate
expenditure of ₹ 20,942,886 instead of Rs 49,15,81,559/–. Both the
parties confirmed that the issue is identical to the issue in the appeal of
assessee for assessment year 2010 – 11 and there are no change in the facts
and circumstances for the current year. Both the parties also stated that
their arguments are also similar for this year also. This issue has already
been decided by us in the impugned order for assessment year 2010 – 11,
for the similar reasons, we hold that the learned CIT – A is correct in holding
that the allocation of ₹ 20,942,886/– should be made between the eligible
and noneligible units for the purpose of working out deduction u/s 10 A of
the income tax act instead of ₹ 49,15,81,559/–. To reach at this conclusion
the learned CIT – A has asked the assessee to reconcile corporate results
along with the transfer pricing transaction shown in form number 3CEB. He
also verified the details of the breakup of the receipts of the corporate
division which renders the business support services to international
associated enterprise. The learned CIT – A in para Number 17.6 has
further noted that when the assessee is charging a substantial markup for
its international transactions there is no reason that why similar margin
should not have been charged from its associated enterprise in India for the
working out of deduction u/s 10 A of the act. Thus it takes care of the real
profit of eligible and non eligible units. On careful perusal of order of the
learned CIT – A we find that if the allocation of expenditure is made on the
basis of the markup charged between the domestic associated enterprises as
well as the foreign associated enterprise, in absence of any infirmity in the
allocation of the expenditure made by the assessee and application of
thumb rule of applying allocation key of turnover by the learned assessing
officer, it will meet the end of the justice. In view of this ground number 4
of the appeal of the learned AO is dismissed.

35. In the result ITA number 5801/del/2017 for assessment year 2011 – 12
preferred by the learned assessing officer is dismissed.

36. Now we come to the appeal of the assessee wherein as per ground number 5
– 8 is against the order of the learned CIT – A respect to the allocation of
expenditure for working out deduction u/s 10 A of the act. In view of our

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decision in ground number [4] of the appeal of the learned assessing officer
for the same assessment year all these grounds of the appeal of the assessee
do not survive and hence they are dismissed.
37. The ground number 9 is with respect to the initiation of penalty proceedings
and ground number 10 is with respect to the levy of the interest, the ground
number nine is premature and ground number 10 is consequential in
nature and therefore both these grounds are dismissed.
38. The ground number 1 – 4 are with respect to the transfer pricing matter
with respect to the determination of the arm’s-length price of the ITeS
services of the assessee. Mainly assessee is contesting the confirmation of
the action of the learned assessing officer/transfer pricing officer by the
learned CIT – A in accepting the following comparable companies for the
purpose of determination of the arm’s-length price of the international
transactions. The comparables contested are (1) Accentia technologies Ltd
(2) Infosys BPO Ltd, (3) TCS E serve Limited. With respect to Accentia
technologies Ltd the facts stated before us shows that in assessee’s own
case for assessment year 2008 – 09 , learned CIT (A) has excluded the
above comparable company and the learned AO has accepted that order and
not preferred any appeal before the ITAT. Further the assessee has also
contested before us that this comparable company is engaged in providing
knowledge process outsourcing services. The learned authorised
representative has also relied upon the plethora of the judicial precedent
wherein case of some other assessee this comparable is directed to be
excluded. However, we do not agree with such an approach while dealing
with comparable companies. However as in the assessee’s own case in
earlier years same is excluded which has not been challenged by the learned
AO, thus, it has become final, now there is no merit in challenging the
same before us once again. In view of this we hold that above comparable
company i.e. Accentia technologies Ltd be excluded from the set of
comparables.
39. With respect to the Infosys BPO Ltd which has a turnover of Rs 1129 crores
In addition, TCS E serve which is a turnover of Rs. 1442 crores, both these
comparable companies have significantly higher turnover compared to the
turnover of the assessee which is just Rs 30.81 crores and both are

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enjoying the brand value of respective group companies. The decision of the
honourable Bombay High Court in case of CIT V Pentair Water Limited in
[2016] 69 taxmann.com 180 (Bombay)/[2016] 381 ITR 216 (Bom) as well as
the decision of the honourable Delhi High Court in case of CIT v. Agnity
India Technologies (P.) Ltd. [2013] 219 Taxman 26/36 taxmann.com 289
(Delhi) also supports the view In view of this we direct the learned AO/TPO
to exclude the above two comparable companies. Accordingly, ground
number 2 of the appeal of assessee is allowed.
40. Assessee did not press ground number 1, 3 and 4 and therefore those are
dismissed.
41. Assessee has also raised an additional ground of appeal on 5 December
2024 claim of deduction of education cess paid on income tax for the year.
The claim of the assessee is that this ground is legal in nature and can be
raised at any point of time, as no fresh facts are required to be investigated.
Identically to this ground we have admitted the additional ground raised
by the assessee for assessment year 2010 – 11 and for the same reasons we
also allow the application of the assessee for raising of the above additional
ground. Hence additional ground is admitted.
42. This additional ground has been adjudicated by us in the case of the
assessee for assessment year 2010 – 11 following the decision of the
Honourable Rajasthan and Honourable Bombay High Court. For the similar
reasons and with similar directions we sent back the issue to the file of
the learned assessing officer for verifying the calculation for grant of
deduction u/s 37 (1) of the act of education cess. Accordingly, the additional
ground raised by the assessee is allowed.
43. In the result, appeal of the assessee for assessment year 2011 – 12 is partly
allowed.
44. Accordingly, all the 4 appeals are disposed of as above.
Order pronounced in the open court on 24/05/2021.

-Sd/- -Sd/-
(AMIT SHUKLA) (PRASHANT MAHARISHI)
JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 24/05/2021
A K Keot

Copy forwarded to

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1. Applicant
2. Respondent
3. CIT
4. CIT (A)
5. DR:ITAT

ASSISTANT REGISTRAR
ITAT, New Delhi

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