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2019 (7) TMI 660 - AT - Income TaxNature of expenditure - revenue or capital expenditure - remuneration paid for the installation and commissioning new brazing furnace and implementation of new technology - HELD THAT:- We observe that it is an undisputed fact that the services of expat technicians were utilized by the assessee and that was for installation of new equipments. This amount is, therefore, part of the capital of the assessee and has to be taken to the Balance Sheet and it cannot be part of the Profit & Loss account either as operating or non operating expenditure. We, therefore, set aside the impugned order and direct the AO/TPO to re-compute the operating profit by excluding such expenditure from the overall expenses. Hence, additional ground No.2 of appeal of the assessee is allowed for statistical purposes. Disallowance of good work reward - amount paid to the senior level employees under Management Incentive Bonus Plan (MIBP) - addition made u/s 43B r.w.s.36(1)(ii) considering bonus - HELD THAT:- Observation of the Revenue Authorities is incorrect since the facts on records clearly demonstrates that the issue of bonus as well as issue of MIBP are in altogether different terms and conditions. The judgment of SHRIRAM PISTONS AND RINGS LTD. VERSUS CIT [2008 (4) TMI 273 - DELHI HIGH COURT] has referred to the “Good Work Reward” and it has been clearly held that it does not constitute bonus within meaning of section 36(1)(ii) and was allowable as normal business expenditure u/s.37. We, therefore, set aside the order of the Ld. CIT(Appeals) on this issue and held that the MIBP paid to the employees are not bonus in the hands of the employees and the said amount is allowable for deduction u/s.37(1) by the assessee. Thus, this ground of appeal of the assessee is allowed. Disallowance of provision for warranty - trading liability incurred by the assessee in respect of the products sold by it to the customers in the ordinary course of its business - HELD THAT:- As decided in assessee's own case [2017 (4) TMI 1261 - ITAT PUNE] wherein as directed to the AO to allow the claim of the assessee vis-à-vis provision for warranty. TP adjustment - direction of CIT(Appeals) in restricting TP adjustment, if any, to the value of international transactions and not to the total turnover of the assessee - As decided in assessee's own case [2017 (4) TMI 1261 - ITAT PUNE] and [2013 (5) TMI 891 - ITAT PUNE] the said issue is squarely covered by the decision of Hon’ble Bombay High Court in Commissioner of Income Tax Vs. ALSTOM Projects India Limited [2016 (12) TMI 1408 - BOMBAY HIGH COURT] , wherein held that in the absence of segmental accounts, TP adjustment have to be restricted only to transactions with Associated Enterprises on proportionate basis. Transfer pricing adjustment of Product Development and testing - doubt regarding the receipt of service - HELD THAT:- The facts further demonstrated that for yearlier year the Co-ordinate Bench of the Tribunal(supra) has restored the issue to the file of AO for verification of nature of the expenses debited by the assessee. Taking totality of facts and circumstances into consideration and in view of the fact that there is difference of observation on facts by the Ld. TPO as well as the CIT(A), we set aside the order of the Ld. CIT(A) on this issue and restore the issue back to the file of the AO/ TPO to verify the nature of expenses. Thus, ground No.2 of the Revenue’s appeal is allowed for statistical purposes. Exclusion of foreign currency losses from operating expenses - applicability of Safe Harbour Rules” issued by the CBDT dated 18.09.2013 - ssessee has been consistently treating foreign exchange fluctuation as operating in nature - HELD THAT:- The Co-ordinate Bench of the Tribunal has referred the judgment in Pr. CIT Vs. Ameriprise India Private Limited [2016 (3) TMI 1272 - DELHI HIGH COURT] and the judgment Pr. CIT Vs. B.C Management Services Pvt. Ltd. . [2017 (12) TMI 255 - DELHI HIGH COURT] wherein it has been held that foreign exchange fluctuation in relation to trading transactions, prior to Safe Harbour Rules from 2013, is operating gain or loss. Thus, in view of the foregoing discussion we are of the opinion that the amount of foreign exchange gain/loss arising out of business/trading transactions is required to be considered as an item of operating revenue/cost. Thus, the ground No.3 raised in appeal by the Revenue is allowed PLI calculation - compensation income is operating income or not - one off transaction which had not occurred in any of other assessment years - HELD THAT:- CIT-A has correctly observed that compensation income of ₹ 2.65 Cr. has arisen during regular conduct of business. Without operation of the business, the assessee would not have earned this income. This income cannot be considered to be one time income to justify its exclusion on the ground of extraordinary income. Therefore, the Ld. CIT(A) has rightly directed to the AO to include this compensation income for computing PLI being operating income. Thus, we are of the considered view that the order of the Ld. CIT(A) is fair and reasonable and it does not call for any interference and relief provided to the assessee is hereby sustained. Accordingly, ground No.4 raised in appeal by the Revenue is dismissed. Addition on account of payment of retention bonus - HELD THAT:- Assessee submitted that the person namely, Mr. Sunil Kaul is the Manager of the assessee‟s company and he is not holding any share of the company and he is working for the company and the amount paid is in the nature of reward given to the employee for working in a company for a longer duration and it is absolutely contractual payment. That even, these facts are mentioned in the order of CIT (Appeals). DR could not bring any evidences or material on record to controvert these facts. We do not find any infirmity with the findings of CIT(Appeals) and the relief provided to the assessee is therefore sustained. Thus, ground No.5 raised in appeal by the Revenue is dismissed.
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