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2018 (10) TMI 236 - AT - Income TaxTPA - comparable selection - functinal dissimilarity - Held that:- The appellant company is engaged in the business of trading of machines used for counting, accepting, sorting and authentication of cash. These machines are primarily used in banks. The Company also renders after sales support and maintenance services to its customers using such machines, thus companies functionally dissimilar with that of assessee need to be deselected from final list. Computation of operating profit margin relates to foreign exchange loss and liabilities and provisions no longer required written back - Held that:- Once it has been held that the business profile of the appellant company has not changed from the past year, merely because there was a forex loss on account of fall in rupee, the same cannot justify the treatment of forex loss as non-operating in A.Y 2009-10. In our considered view, there should be consistency in the approach of the assessee and since the assessee has taken a very inconsistent view in A.Y 2009-10 and the DRP has rightly treated the forex loss as part of operating profit, we do not find any reason to interfere with the same. Liabilities and provisions written back - Held that:- The liabilities and provisions written off in earlier years were taken as part of operating profit, therefore, when the same are written back, they must be considered as operating in nature for computation of operating profit margin. We direct accordingly. Treatment of income received by the assessee from rendering management support services to its AEs as non-operating in nature - notionally attributing non-operating expenses to the management support service income - Held that:- We find that on the one hand the TPO has treated the management support service income of ₹ 10,507,777/- as non operating and corresponding expenses of ₹ 97,15,490/- have been considered as operating in nature, thereby blowing hot and cold in the same breath. If management support services income is considered as non-operating, then corresponding expenses incurred while rendering such services should be considered as non operating instead of notional amount of ₹ 60,114/-. While deciding this ground against the assessee, we direct the TPO/Assessing Officer to consider the actual expenditure of 97,15,490/- for allocation towards management support service income of ₹ 1,05,07,777/- considered as non operating. This ground is partly allowed. Disallowance of provisions for warrantee - Held that:- We find that the machines are supplied to various parts of the country and there are different costs of providing warrantee services in different parts, which mean that in some regions there are few machines but to meet the warrantee obligations, engineers have to be stationed there. The distance of the machine from the engineer’s location is also a relevant factor, since long distance transfers require additional expenditure to be incurred. Usage of the machines differ from customer to customer. There is no dispute that the warrantee obligation is inbuilt in the purchase order/agreement and the warrantee provision is not a contingent liability and it is quite certain that the expenses would be incurred in meeting the warrantee obligation linked to the sales of the current year in the following year. As in the case of Bharat Earth Movers Vs. CIT [2000 (8) TMI 4 - SUPREME COURT] has laid down that if a business liability has arisen in an accounting year, the deduction should be allowed although the liability may have to be quantified and discharged on a future date Disallowance of liquidated damages - Held that:- As relying on CPS CASH PROCESSING SOLUTIONS PRIVATE LTD. [FORMERLY KNOWN AS-DE LA RUE CASH PROCESSING SOLUTIONS INDIA PVT. LTD. VERSUS DCIT CIRCLE-1 (1) , GURGAON [2018 (7) TMI 224 - ITAT DELHI] The Clause prescribing the liability to pay liquidated damages arose at the point of time when the Company fail to deliver the machines on the due date and at that point of time the liability agreed which is a prudent trader it could quantify and take into account by means of trader. The Assessing Officer as well as the CIT(A) has not taken correct cognizance as to liquidated damages incurred by the company and accordingly deducted by the customers from the payment of sale proceeds is as per the agreed terms and contract. All these factors have not been properly assessed by the Assessing Officer as well as CIT(A).
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