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2018 (1) TMI 1366 - ITAT DELHITPA - computing the arm's length price in respect of international transaction - Working capital adjustment - Held that:- The facts of the case are identical to the facts of Assessment Year 2006-07. Since DRP has not given the benefit of working capital adjustment while computing the arm's length price in respect of international transaction, we set aside the matter to the file of the Assessing Officer with the direction to examine the case of the assessee and decide the issue afresh in accordance with the provisions of law. The A.O. will provide necessary opportunity to the assessee of being heard. Risk adjustment - Held that:- There is no dispute regarding the risk factors that should be taken into account by granting certain adjustments to the main margin of comparables. TPO has observed that assessee is a contract research service provider to its parent group and are not dependent on market situations. It is also been observed by TPO that assessee is assured of a fixed return on cost and therefore they are risk insulated entity whereas the comparables chosen are independent companies and there’s full risk associated with the normal enterprise real venture. As robust data was not available before Ld. TPO, he did not grant any adjustment in regard to the risk undertaken by the comparables vis-a-vis no risk undertaken by assessee - this issue regarding granting of working capital and risk adjustment back to the file of Ld. TPO for re- computation, on the basis of data made available to him. Disallowance of warranty expenses claimed - Held that:- As decided in assessee's own case in the preceding assessment years we allow the claim of provision for warranty as business expenditure. Accordingly this ground raised by assessee stand allowed. Disallowance on marketing expenses incurred by assessee on account of providing handsets to its dealers and employees, treating the same as capital asset - Held that:- Undisputedly assessee is a company which is engaged in import and sale of mobile handsets. It has a wide team of dealers and sales personnel. Assessee has given free of cost Mobile to all these persons for communication amongst themselves for the business of assessee. Assessee has therefore debited the cost of these phones as marketing expenses and reduced it from its inventory - naturally the expenditure of giving phones to sales team is an expenditure incurred by assessee wholly and exclusively for the purpose of business of assessee. Assessee has also not capitalized these phones for the obvious reasons that phones are not owned by assessee and therefore there is no requirement of claim of depreciation thereon. Thus expenditure is revenue in nature, assessee is eligible for deduction under section 37 (1) - decided in favour of assessee Enhancement of value of closing stock - handsets damaged during the transit and those provided to assessee’s employees and dealers etc are to be treated as capital assets - Held that:-In the foregoing paragraphs in respect of ground numbers 5 and 5.1 the cost of handsets given away to employees and sales team have been treated to be revenue in nature. Further admittedly assessee has not capitalised such handsets given away to the sales team and employees by reducing it from the inventory stock. As these handsets are held to be not owned by assessee value of such handsets cannot be added back to the closing stock. This would amount to double edition. Accordingly this ground raised by assessee stands allowed. Disallowance of 25% of provision for stock obsolescence by treating the same as unexplained - Held that:- Assessee has created the provision for obsolescence with the view that in the event for any reason these handsets/accessories become saleable it would anyways form part of profits. We therefore set aside this issue to Ld. AO for valuing such obsolete stock at net realisable value. He should give due consideration to the information if any, provided by the assessee.
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