TMI Blog2014 (8) TMI 1012X X X X Extracts X X X X X X X X Extracts X X X X ..... o the file of the Assessing Officer who shall re-visit the determination of arm's length price of the international transactions having regard to the material and submissions that assessee may put-forth in support of its stand, including the aforesaid additional evidence. Needless to say, the Assessing Officer shall allow an appropriate opportunity to the assessee of being heard and to furnish appropriate material and evidence in support of its plea that the international transactions entered into with the associated enterprises during the year under consideration are at an arm's length price. The Assessing Officer shall consider the submissions and material put-forth by the assessee and thereafter pass an appropriate order in accordance with law. Addition on deduction on account of product warranty liability - Held that:- We find that in para 5 of the assessment order, the Assessing Officer has summarily sustained the disallowance of ₹ 8,95,141/- on account of provision of warranty existence without determination the issues, which the DRP required him to address. Therefore, we are unable to uphold the order of the Assessing Officer on this aspect also. As a consequence, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company also imports components and parts for manufacturing Ring Spinning machines, and other parts and components namely TOP Rollers, Bottom Rollers, Top Arms Inserts. Components are also imported as per the requirements of customers who purchase the textile manufacturing machines. For the assessment year under consideration, assessee was found to have entered into international transactions with its associated enterprises on account of import of textile machinery, components and parts; export of textile machinery, component and parts; miscellaneous services availed and also provided to associated enterprises; interest payment; recovery of expenses; and, Provision for doubtful debts. As per the Transfer Pricing Study, assessee reported that it had benchmarked all the transactions except for export of goods, by using the Transactional Net Margin (TNM) Method. The transaction of export of goods were benchmarked by using Cost Plus Method. However, the Transfer Pricing Officer (TPO) observed that assessee had aggregated all the transactions and applied the TNM Method on aggregate level considering the data of the entire company as a whole. For this purpose, assessee had identified sev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opted the aforesaid adjustment for the purposes of computing total income of the assessee with respect to the international transactions with the associated enterprises. The objections raised by the assessee before the DRP were dismissed and accordingly the final assessment order made by the Assessing Officer u/s 143(3) r.w.s. 144C of the Act dated 2309.2010 contained an addition of ₹ 8,11,47,419/- to the returned income. The said addition is the subject-matter of dispute before us. 4. At the time of hearing, learned Representative for the assessee referred to an application dated 07.03.2012 made by the assessee under rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 (in short the Appellate Tribunal Rules) seeking permission to produce additional evidence in support of its ground challenging the addition of ₹ 8,11,47,419/- made to the total income by way of upward adjustment to the stated value of assessee s international transactions entered into with its associated enterprises. The particulars of additional evidence sought to be filed and its relevance, as canvassed by the appellant is as under :- Particulars of evidence being filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2012 have been filed and at the time of final hearing on 12.06.2014, another written comments dated 24.09.2013 made by the Assessing Officer have also been furnished by the learned CITDR appearing for the Revenue. We deem it fit and proper to reproduce the relevant extract from the comments offered by the Assessing Officer on two different occasions i.e. of 07.05.2012 and 24.09.2013 (supra). The comments dated 07.05.2012 read as under :- 1. The additional evidences mentioned at sr. no. 1, 2, 3 and 5 in the above table may be permitted to file. However, the Appellant has not submitted the specific details alongwith the amounts which are sought to be used and its impact on the determination of arm's length price. Therefore, at this stage, it is difficult to comment on the relevance as well as accuracy of the data sought to be used by the Appellant. 2. Further, the Appellant had not raised the ground of working capital adjustment either before the TPO/AO or before the DRP, Pune or before ITAT. Therefore, the same may not be allowed at this stage before ITAT. 3. The additional evidences mentioned at sr. no. 4 in the above table shall not be allowed as the Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This evidence should not be allowed and must be opposed. A copy of Lakshmi Machine Works Ltd. business profile as available on its website. Company Lakshmi Machine Works Ltd. was selected by the assessee as its comparable. The assessee has sought exclusion of Lakshmi Machine Works Ltd. on the ground that the assessee is a sick company. There is no objection for submission of the additional evidence. However, it may be brought to be notice to the Hon'ble ITAT, that similar situation has been dealt with by Pune ITAT in the case of Vishay Components, AY 2006-07 (ITA 133/PN/11), In this case, TPO had rejected one of the comparable on the groud that it was a sick company and referred to BIFR. The ITAT has rejected the contention of the department and has directed to include the company in comparability analysis. Audited segmental profitability statement of the Appellant for the year under consideration. As per the 3CEB report, the assessee company had benchmarked all the transactions except for e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore it is in this background it has been realized by the assessee that the aforesaid additional evidence was necessary to determine the arm's length price of the international transactions. It was therefore contended that the aforesaid evidence be admitted for proper adjudication of assessee s tax liability. It was also submitted that assessee would have no objection if the Tribunal admits the additional evidence and the matter is restored back to the file of the lower authorities in order to allow appropriate opportunity for the Revenue of considering the new evidence. 8. On the other hand, learned CIT-DR appearing for the Revenue has contended that the additional evidence now sought to be produced by the assessee is nothing but an afterthought and if the same is admitted for adjudication it would amount to altering the entire transfer pricing analysis originally carried out by the assessee in its transfer pricing study. 9. We have heard the rival parties with respect to the preliminary prayer of the assessee seeking admission of the aforesaid additional evidence in terms of rule 29 of the Appellate Tribunal Rules. At the outset, we may reproduce hereinafter rule 29 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntext, a reference may be made to the judgement of the Hon ble Supreme Court in the case of K. Venkataramiah vs. A. Seetharama Reddy, AIR 1963 SC 1526. In the said judgement, the Hon ble Supreme Court had an occasion to consider rule 27 of Order 47 of the Civil Procedure Code, 1908. The aforesaid judgement of the Hon ble Supreme Court was referred to by the Tribunal in the case of Abhay Kumar Shroff vs. ITO, (1997) 63 ITD 144 in the context of rule 29 of the Appellate Tribunal Rules because the language of rule 27 of Order 47 of the Civil Procedure Code, 1908 is almost similar to that of rule 29 of the Appellate Tribunal Rules. The Hon ble Supreme Court held as under :- Under Rule 27(1), the Appellate Court has the power to allow additional evidence not only if it requires such evidence to enable it to pronounce judgement , but also for any other substantial cause . There may well be cases where even though the Court finds that it is able to pronounce judgement on the stage of record as it is, and so it cannot strictly say that it requires additional evidence to enable it to pronounce judgement, it still considers that in the interest of justice something which remains obscur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missions that assessee may put-forth in support of its stand, including the aforesaid additional evidence. Needless to say, the Assessing Officer shall allow an appropriate opportunity to the assessee of being heard and to furnish appropriate material and evidence in support of its plea that the international transactions entered into with the associated enterprises during the year under consideration are at an arm's length price. The Assessing Officer shall consider the submissions and material put-forth by the assessee and thereafter pass an appropriate order in accordance with law. In the result, the Ground of Appeal No.1 of the assessee is treated as allowed for statistical purposes only. 13. The second Ground in the appeal is with respect to an addition of ₹ 8,95,141/- made by the Assessing Officer which represented assessee s claim for deduction on account of product warranty liability. The claim of the assessee was that the Provision for warranty was claimed as a deduction in view of the decision of the Hon ble Supreme Court in the case of Rotork Controls India P. Ltd. vs. CIT, (2009) 314 ITR 62 (SC). The DRP dealt with the issue in the following manner :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion resulting in outflow of resources on account of impugned provision. Thirdly, the DRP required the Assessing Officer to examine whether or not the present value of the future liability could be properly ascertained and discounted on an accrual basis so as to become deductible u/s 37(1) of the Act. For the aforesaid purpose, the Assessing Officer was required to examine the nature of the business, the nature of sales and nature of the product manufactured; past history of warranty claims, method adopted by the assessee for quantifying the provision, etc. and to decide the issue thereafter keeping in mind the judgement of the Hon ble Supreme Court in the case of Rotork Control India P. Ltd. (supra). 15. However, we find that in para 5 of the assessment order, the Assessing Officer has summarily sustained the disallowance of ₹ 8,95,141/- on account of provision of warranty existence without determination the issues, which the DRP required him to address. Therefore, we are unable to uphold the order of the Assessing Officer on this aspect also. As a consequence, we set-aside the assessment order on this aspect also and direct the Assessing Officer to pass a speaking order a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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