GOVERNMENT OF INDIA

OFFICE OF THE DEPUTY COMMISSIONER OF INCOME-TAX

TRANSFER PRICING OFFICER – 2(1)
5TH Floor, Room No. 506, BSNL Buildings, Tower – I,
No. 16, Greams Road, Chennai – 600 006.
Telephone: +91-044-28295286
e-mail: chennai.dcit.tpo2.1@incometax.gov.in

PAN: AAACM4378E/TPO2(1)/2020-21 Draft

TO
THE PRINCIPAL CHIEF COMMISSIONER OF INCOME TAX
(INTERNATIONAL TAXATION),
3RD FLOOR, E-2 BLOCK, CIVIC CENTRE,
NEW DELHI- 110 001.

Sir/Madam,

(THROUGH PROPER CHANNEL)

Subject: Annual Compliance Report of the Unilateral Advance Pricing Agreement

signed between CBDT and M/s Honeywell Electrical Devices and Systems
India Limited for the AY 2020-21 (FY 2019-20) – submission-regarding

Reference: Assistant Commissioner of Income Tax (Hq.) O/o Pr. CCIT (I.T)
New Delhi letter in F.No.Pr.CCIT(Intl Tax)/53/18-19/2022-
23/3049 dated 15.09.2022
-----------------

Kind attention is invited to the subject matter mentioned above.

M/s Honeywell Electrical Devices and Systems India Limited (“Assessee”) has
submitted Annual Compliance Report under Rule 10-0 of the Income Tax Rules, 1962
for the period beginning from 1st April 2019 to 31st March 2020 on the unilateral
Advance Pricing Agreement (APA) dated 30.03.2017 entered into with the Central
Board of Direct Taxes (CBDT).The assessee has filed Form 3CEF on 22.04.2022, which
was forwarded to this office vide reference cited above.

2. Profile of the assessee:

The applicant M/s Honeywell Electrical Devices and Systems India Limited, (PAN:
AAACM4378E), having its office at 3rd and 4th floor, Dowlath Towers, No. 57, 59, 61 &
63, Taylors road, Kilpauk, Chennai - 600010 is engaged in business of manufacturing
and distribution of switches, & sockets, bells & chimes, wiring devices and cable for
wall and floor applications has entered into an Unilateral Advance Pricing Agreement
under sec.92CC and sec.92CD of the Income tax Act, 1961 on 30 th March 2017 for the
assessment years 2020-21 and 2021-22.

3. Details of covered transactions and methodology adopted:

“Covered Transactions” means the international transactions for which the agreement
has been entered into. The transactions covered by the agreement as provided by the
assessee in Question no. 4 of Form 3CEF and methodology adopted by the assessee are
discussed as under:
4(a), 4(b) and 4(c): Nature and Amount of Covered Transactions, Country(ies)
involved.

As per form 3CEF

S. No Transaction Amount (INR)

1 Availing of 26,782,772
centralized
management,
administrative and
other services
from Honeywell
International
Inc.,USA
2 Availing of (86,783)
management and
administrative
services from AEs
in Asia- Pacific
region
 Agreed transfer Transactions:-
4(d) pricing method Payment of Royalty for use of technology and
trademark, CUP is the MAM adopted.
For the Transaction of Software development
services , Engineering Design Services and Shared
Support Services, TNMM to be adopted as MAM
with OP/OC as PLI.
The transaction of reimbursement of services
received from/paid to the AEs gets benchmarked
along with the respective main covered
transaction.

Most
Appropriate Transactional Net Margin
Method Method (“TNMM”)

Profit Level Operating Profit Margin:

Indicator Operating Profit Margin in
relation to operating expenses
means the ratio of operating
profit, being the operating
revenue in excess of operating
expense to the operating
expense expressed in terms of
percentage.(as defined in
Clause 1(d) of the APA)

4(e) Agreed profit level The Arm’s length price (“ALP”) of the covered
indicator transactions shall be the price that shall yield:
 For the purpose of Royalty for use of
technology shall be an amount equal to or
less than 6% of net sales.
 For the purpose of Royalty for use of
trademark shall be an amount equal to or less
than 1% of net sales.
 Operating profit on operating cost of 20% with
respect to the provision for software
development services, Engineering design
services and shared support services during
the financial year.
5. Transfer pricing methodology adopted:

a. Agreed 1. Payment of Royalty for use of technology and trademark,

upon in CUP is the MAM adopted. Further for the purpose of Royalty
the APA: for use of technology the ALP shall be an amount equal to or
less than 6% of net sales and for the purpose of Royalty for
use of trademark shall be an amount equal to or less than 1%
of net sales.

2. A. For the Transaction of Software development services,

Engineering Design Services (collectively called as ITEC
Services) and Shared Support Services, TNMM to be adopted
as MAM with Operating Profit Margin as PLI.
B. Operating Profit Margin in relation to operating expenses
means the ratio of operating profit, being the operating
revenue in excess of operating expense to the operating
expense expressed in terms of percentage.
C. The ALP of the covered transaction of provision for
software development services, Engineering design services
(Collectively qualified as ITEC Services) and shared support
services shall be a net operating profit margin of not less
20%.

3. The transaction of reimbursement of services received

from/paid to the AEs gets benchmarked along with the
respective main covered transaction.

b. Followed 1. The taxpayer has followed the CUP Method for the
during transactions related to Payment of Royalty towards
the year Technology and Trademarks.
to justify
i. The assessee has paid an amount of Rs. 83.09 crores
the arm’s
length towards royalty for use of technology which is equal
price of to 6% of the net sales.
the 2. The assessee has paid an amount of Rs. 13.84crores towards
internatio royalty of for use of trademark which is equal to 1% of the
nal net sales.
transacti 3. For the Transaction of Software development services,
ons
Engineering Design Services (collectively called as ITEC
covered
by APA Services) the taxpayer has adopted TNMM as MAM with
Operating Profit Margin as PLI.
i. Based on theabove, the assessee has shown a PLI (OP/OC)
of 21%.
ii. For the Transaction of Shared Support Services the
taxpayer has adopted TNMM as MAM with Operating Profit
Margin as PLI.
i. Based on above, the assessee has shown a PLI
 (OP/OC) of 34.92%.
ii. The transaction of reimbursement of services
received from/paid to the AEs are benchmarked
along with the respective main covered
transaction

c. Variation No Variation
s
between
(a) and
(b) above
if any:
d. Reasons N/A
for
variations
:

6. Details on satisfaction of critical assumptions:

The details of critical assumptions on APA entered and observations of this office are
as under:

Critical Assumption 1:
The transfer pricing methodology, as described in the Agreement, will be consistently
applied throughout the term of the Agreement for the covered transactions.

Observation of this office:

The transfer pricing methodology has been consistently applied throughout the year in
question as per the declaration of the assessee.

Critical Assumption 2:
In respect of the covered transactions, functions performed, assets employed and risks
assumed, shall remain materially the same as described in Appendix I

Observation of this office:

The Functions performed, Assets employed and Risks assumed (FAR) have materially
remained the same as per the declaration of the assessee.

Critical Assumption 3:
In respect of the covered transactions, the business activities, the relevant financial,
tax, accounting methods and classification of the Applicant Company shall remain
materially the same as provided in Applicant’s submission in relation to the
Agreement, during the term of the Agreement.

Observation of this office:

As per the submissions of the assessee, Business activities, Financial and tax
accounting methods and classifications of the Assessee remained materially the same
as described or used in the APA application.

Critical Assumption 4:
The APA would continue to be applicable even when there is a change in the business
result or shareholding structure of the AEs, shareholding of Applicant or change in the
AEs or addition of AEs, provided there is no material change in the covered transaction
and no material change in the FAR, as listed out in Appendix I, subject to the
condition that the new AE should not be resident of a jurisdiction which has been
notified under Section 94A of the Act or a resident of no tax or low tax jurisdiction as
defined in Rule 10 TA(i) of the Rules.

Observation of this office:

There is no change in the covered transactions, the business activities or holding
structure of the AE, no material change in the covered transaction, no material
change in the FAR and the new AEs are not resident of a domain which have been
notified u/s 94A of the Act or not a resident of no tax or low tax jurisdiction as
defined in rule 10TA(i) of the Rules.

Critical Assumption 5: Invoicing and Credit Terms

5.1 It is agreed that weighted average period of payment for invoice raised on the
Applicant by the AEs for the covered transactions for an APA year shall not be less
than 30 days from the day of receipt of invoice. In case this condition is not met,
interest will be charged by the Applicant at SBI export credit rate prevailing on 30 th
September of the concerned previous year, on a pro-rata basis.
5.2 It is agreed that no advance payment shall be made in regard to charges for
transactions covered by the Agreement.
5.3 It is agreed that no interest shall be paid by AEs for any delay in payment of the
invoices raised in respect of the transactions covered in the Agreement.

Critical Assumption 6
A Certificate from an independent Cost Accountant in India shall be obtained by the
Applicant for each year, and filed as part of Annual Compliance Report, confirming the
following:

(a) Working of the arm’s length price of Transactions 1 and 2 is in accordance with
this Agreement.
(b) Details containing bifurcation of Applicant’s Operating Revenue (from sale of
goods/services) between AE and non-AE in the context of Paragraph 6 (relates
to transaction 1 and 2 only).
(c) The allocation of costs plus mark-up for Transactions 1 and 2 is in accordance
with Appendix IV.

Critical Assumption 7:
For transactions 1 and 2 the Applicant can be considered to have complied with the
provisions of this Agreement (insofar as many as applicable) where
(1) AE at the time invoicing, reduces the cost (plus mark-up) allocable by 20% to
the Applicant, or
(2) The Applicant reduces the cost (plus mark-up) allocable by 20% in determining
its taxable income.

Critical Assumption 8:
The provisions of proposed Section 92CE of the Act shall be applied in so far as may be
applicable

Critical Assumption 9:
The charges to the Applicant on account of Transaction 1 and Transaction 2 shall be
allocated appropriately to all the business segments (third party as well as AEs) and
shall be considered for determining the ALP of the international transactions, if any.

Maintenance of Documents as per Appendix III of the APA agreement is

complied with except for the things where the assessee has not complied
with the critical assumptions and documents were called for which have
been discussed in details with relevant critical assumption.

Considering the above, a view favourable to the revenue may be taken.

Yours faithfully,

(NANDINI R. NAIR, IRS)

Deputy Commissioner of Income-tax
Transfer Pricing Officer –2(1),
Chennai

Enclosed: Check list