TMI Blog2013 (8) TMI 826X X X X Extracts X X X X X X X X Extracts X X X X ..... s pertinent to note that the Commissioner of Income Tax(Appeals) has determined the arm's length by considering the entity level results of the assessee which includes all the international transactions, therefore, when the over all price of the assessee is within the range of 5% of ALP being the arithmetic mean then no adjustment is permitted - Decided in favour of assessee. Computation of book profit u/s 115JB - The assessee in the return of income has not increased book profit computed u/s 115JB on account of diminution in value of investment debited to the profit and loss account, however, during the assessment proceedings the assessee conceded the adjustment in view of the retrospective amendment in section 115JB with effect from 1.4.2004 by the finance Act 2009 - Assessing Officer has not examined this issue from the angle of the actual written of the amount as the assessee conceded the same - Following decision of CIT Vs Yokogawa India Ltd. [2012 (9) TMI 390 - ITAT BANGALORE] - Matter remitted back for fresh adjudication. - I.T.A. No. No. 42/Mum/2012, I.T.A. No. 8595/Mum/2011 - - - Dated:- 3-7-2013 - Shri P. M. Jagtap AM And Shri Vijay Pal Rao, JM,JJ. For the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of components of Rs. 22,93,38,265/- made by the appellant from its Associated Enterprise, TNMM is the most appropriate method as against Cost Plus Method (CPM) adopted by the appellant. While doing so, the learned CIT(A), inter alia, erred in - i) Observing that the appellant had no objection to adoption of TNMM as the most appropriate method as against CPM adopted by the appellant and accepted by the TPO. ii) Not considering adjustment for functional analysis of comparable companies furnished during the course of assessment/appeal proceedings. iii) Not dealing with appellant's submissions that M/s. SM Energy Tekniks Electronics Ltd. (SM Energy) can not be rejected as comparable only on the ground that the said comparable company is consistently incurring losses. iv) Rejecting Schlafhorst Engineering India Ltd. (Schlafhorst) as comparable company, without giving opportunity to the appellant, merely on the grounds that the accounting years of Schlafhorst and the appellant are different and that Schlafhorst had abnormal loss during the year. v) Directing adjustment to the Arms Length Price though the TPO, after examining the documentary evidence placed on record by the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Senior Counsel of the assessee has submitted that if the assessee succeed in ground no. 2(v) with respect to the benefit of tolerance range of 5% of Arms Length Price determined on the basis of arithmetic mean as per proviso to section 92C(2) of the Act then the adjustment made by the authorities below on the basis of Arms Length Price determined will be deleted and all other grounds raise by the assessee in respect of transfer pricing issue would become in-fructuous, however, may be kept open. The Ld. DR has agreed to the proposition that after the issue No. 2(v) of the assessee's appeal is decided in favour of the assessee then all other issues relating to T.P. adjustment would become in fructuous. 7. In view of the above submissions we first take up the issue of benefit as per the proviso to section 92C(2) of the Income Tax Act. The assessee company is engaged in the business of manufacturing and dealing in textile machinery and it's spare. The assessee is a joint venture between M/s ATE Enterprises Pvt. Ltd. and M/s Saurer Gmbh. M/s Saurer Gmbh Com. KG holds 70% shares in assessee's company. During the year under consideration, the assessee has under taken international t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Commissioner of Income Tax(Appeals), though confirm the adjustment made by the TPO in respect of royalty payment but also enhanced the assessment by making adjustment in respect of purchase of component. The Commissioner of Income Tax(Appeals) has determined the ALP by taking the TNMM as most appropriate method but at the entity level of the assessee. The Commissioner of Income Tax(Appeals) has arrived at the arithmetic mean of the comparables operating profit at 8.33% against the operating profit at the entity level of the assessee at 4.71%. Though we do not approve the approach of the Commissioner of Income Tax(Appeals) for bench marking the purchase of component by taking the entity level results of the assessee instead of considering the data of international transactions only. Even otherwise as per the transfer pricing provisions/regulation each and every international transaction has to be bench marked by comparing Independent Uncontrolled Transaction. Since, the revenue has not challenged finding of Commissioner of Income Tax(Appeals) on the issue of transfer pricing adjustment, therefore, we do not propose to go into the issue which has not been raised before us. At the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Ld. AR as well as Ld. DR and considered the relevant material on record. The Ld. AR of the assessee has submitted that the assessee has made investment of Rs. 9 crores in the units of mutual fund as per the details at page no. 213 of the paper book. The market value of such investment as on the balance sheet date was Rs. 7,37,08,516/-. The assessee has debited the diminuend value of Rs. 162,91,484/- to the profit and loss account under the head diminution in value of investment. The assessee in the return of income has not increased book profit computed u/s 115JB on account of diminution in value of investment debited to the profit and loss account, however, during the assessment proceedings the assessee conceded the adjustment in view of the retrospective amendment in section 115JB with effect from 1.4.2004 by the finance Act 2009. The Ld. AR has submitted that, since the diminution in value of investment was not a provision but was actually written of in the books of account by valuing at market price. Therefore, the explanation of u/s 115JB is not attracted to the said amount. Hence, the Ld. AR has pleaded that the additional ground may be admitted for adjudication on merit. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puting the book profit u/s 115JB. The Assessing Officer has noted that the assessee has shown provision for warranty expenses amounting of Rs. 18,03,967/- as at the beginning of the year and a sum of Rs. 56,65,603/- being provision made during the year. After utilising a sum of Rs. 27,12,144/- during the year, the assessee has shown to have a net provision for warranty expenses of Rs. 47,57,496/-. The Assessing Officer asked the assessee to explain as to why the sum of Rs. 47,57,496/- should not be treated as uncertained liability and accordingly be disallowed and added to total income as well as book profit of the assessee. The assessee has explained that it is required to provide warranty for 6 months from the date of erection/8 months from date of sale invoice. Thus, during the subsistence of warranty period, if any of the machines sold has caused any problem to the customer, the assessee is required to repair/replace the parts etc. free of cost. The assessee relied upon the decision of Hon'ble Supreme Court in case of Rotork Controls India Pvt. Ltd. Vs CIT 223 CTR 425. The Assessing Officer did not accept the explanation of the assessee and treated the provision for warranty as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance has been made by the Assessing Officer on account of warranty provision. He has filed the copy of the assessment order for the assessment year 2009-10. 20. We have considered the rival submission as well as relevant material on record. The Assessing Officer has disallowed the claim of the assessee on the ground that the estimation of provision for warranty is not based on any previous data. On appeal, though the assessee has furnished concerned details and claim that the provision for warranty is based on the actual expense incurred in the earlier years, however the Commissioner of Income Tax(Appeals) has not discussed the fact and aspect whether the provision is based on reliable estimates or not. The decision of Hon'ble Supreme Court in case of Rotork Controls India Pvt. Ltd. Vs CIT (supra) has been considered by the Hon'ble Madras High Court in the recent decision in case of Renowned Auto Products Mfrs. Ltd. Vs ITO, 354 ITR 127 in para 12 13 as under: "No doubt, the learned counsel for the assessee relied on the decision of the apex court reported in Rotork Controls India P. Ltd. v. CIT [2009] 314 1TR 62 (SC) to substantiate his contention that the estimated prov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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