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2023 (12) TMI 205 - AT - Income TaxTP Adjustment - comparable selection - HELD THAT:- Following the order of M/s. Sonus Networks India Pvt. Ltd. [2020 (10) TMI 663 - ITAT BANGALORE] we direct exclusion of (i) M/s Bodhtree Consulting Ltd, (ii) Tata Elxsi Ltd., (iii) Persistent Systems Ltd. and (iv) Infosys Ltd. from the list of comparables. Sasken Communication Technologies Ltd.and L&T Infotech Ltd. are to be excluded from the comparables because this company fails the turnover filter. Disallowance of provision for warranty - Appellant had debited a sum towards warranty expenses which included an amount of actual claim by the customers made during the year and amount of provision for warranty - AO disallowed the provision for warranty contending the same to be contingent liability/ created on estimate basis - HELD THAT:- In the present case the assessee is providing warranty for 24 months on automotive products sold by it on the basis of percentage on sales as fixed by the quality centre for each product. The assessee has not produced any credible evidence/calculation as to how the provision for warranty has been arrived relating to different products before the authorities below. A specific query was asked to the ld. AR regarding the unutilised provision for warranty in the books of accounts to which the ld. AR replied that in such case it represented increase in the closing balance of the year adjusted in future warranty claims and no separate entry is made for unutilized warranty provision and he referred to the details of provision for warranty in the table extracted above. Before us, the ld. AR produced the basis for calculation of provision for warranty extracted hereinabove and he also submitted that that in remand proceedings by the co-ordinate bench for the assessment year 2010-11, the AO has accepted the provision for warranty expenses debited into profit & loss account. Further in assessee’s own case the co-ordinate bench of the Tribunal has decided the issue [2022 (3) TMI 1522 - ITAT BANGALORE] as held provision for warranty created is based on past experience and historical trend of each product and at a percentage. The claim made by the Assessee that the method followed for creating provision for anticipated liability on account of warranty stands vindicated by the fact that the actual liability on account of warranty expenses is always on the higher side. The reasons given by the DRP for not accepting the claim of the Assessee is that the provision is created as a percentage of sale, ignoring the fact that past experience is also the basis for creation of provision for warranty. We are therefore of the view that the provision for warranty has to be allowed as a deduction, as the provision created satisfies the requirements for claiming provision as a liability. Nature of expenses - annual licence fee - AO did not allow the claim of assessee u/s. 37(1) as revenue expenditure and also the depreciation for want of genuineness of expenses - payments of annual license fees by entering into an agreement with its group company - AO disallowed the above contending it to be capital in nature and also that it is not a genuine expenditure while passing the draft order, on the basis that no evidences were submitted supporting the same - HELD THAT:- The agreement was made on 1st January, 2009 for one year and it was automatically renewable unless terminated. This is the second round of proceedings. There is nothing to show that there is termination of the agreement and hence the agreement is still in force. Further on perusal of the order of the ld. DRP assessee could produce only the copy of agreement with it AEs. It was the primary duty of the assessee to establish whether the expenditure incurred was not enduring benefit and it was recurring expenditure with credible evidence. But the assessee has failed to do so by merely submitting the copy of agreements, TDS certificate and benefit received. The assessee is also not eligible for claim of deduction u/s. 35(1)(iv) of the Act since it has not fulfilled the conditions as specified in the section. From the above, we are of the view that the ld. DRP has examined the issue in detail and we do not find any infirmity in the order of the ld. DRP. The AO is directed to grant depreciation as per the order of the ld. DRP. Short grant of credit for Tax Deducted at Source and foreign tax credit - as submitted that the Appellant had filed an application for rectification before the AO along with the TDS certificates - HELD THAT:- DRP has given direction to the AO for giving TDS credit after verification. We direct accordingly.
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