TMI Blog2019 (7) TMI 660X X X X Extracts X X X X X X X X Extracts X X X X ..... 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- -vis provision fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot - 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 abso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. Commissioner of Income Tax(Appeals) on this issue has held as per detailed reasons given in his order which is on record that he did not find any basis for treating the additional salary cost of expat technicians and cost of fixed assets as non operating expenditure. This expenditure is operating expenditure and would be part of computation for arriving at the assessee‟s PLI. This action of the Assessing Officer was upheld by the Ld. Commissioner of Income Tax (Appeals). 5. The Ld. AR of the assessee vehemently argued that earlier there were some old technology and there was requirement for installing new equipments and for this reasons, the assessee had brought in expat technicians for installation of the new equipments. Therefore, the Ld. AR contended that such amount is for capital expenditure and cannot form any part of the Profit Loss account of the assessee. 6. Per contra, the Ld. DR placed strong reliance on the orders of the Sub-ordinate Authorities on this issue. 7. We have perused the case records and heard the rival contentions. On analyzing the facts of the case, we observe that it is an undisputed fact tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is enumerated separately under separate heading altogether. But this MIBP is only to reward the employees for achieving better result for the company. The Ld. AR of the assessee placed reliance on the decision of the Hon‟ble Delhi High Court in the case of Shriram Pistons Rings Ltd. Vs. Commissioner of Income Tax, (2008) 307 ITR 363 (Delhi). 11. Per contra, the Ld. DR has placed reliance on the orders of the Sub-ordinate Authorities. 12. We have perused the case records and heard the rival contentions. We have also given considerable thought to the judicial pronouncement placed before us. That as demonstrated by the Ld. AR of the assessee in the statement showing Management Incentive Policy documents, there is separate column for bonus and separate column for MIBP. The objective for giving MIBP to employees is in a way to acknowledge the efforts made by the employees in achieving higher goals for the company. This is absolutely separate from the bonus given to employees. The case law that has been placed before us i.e. judgment of the Hon‟ble Delhi High Court in the case of Shriram Pistons Rings Ltd. Vs. Commissioner of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee is corporate issue against the disallowance of provision for warranty. On this issue, the Co-ordinate Bench of the Tribunal, Pune has held as follows: 44. We have heard the rival contentions and perused the record. The issue arising by way of ground of appeal No.5 raised by the assessee is against the disallowance of provision made for warranty. The assessee was engaged in the business of manufacture and sale of air-conditioners, heat exchangers, its parts and components. Against the sale of air-conditioners and heat exchangers manufactured by it, the assessee was making provision for warranty on scientific basis. If any expenditure was actually incurred for warranty, then the same was debited against the provision. The Assessing Officer was of the view that the said expenditure is not allowable in the hands of assessee, placing reliance on the decision of the Pune Bench of Tribunal in the case of Thermax Babcock Wilcox Ltd. (supra) relating to assessment year 1990-91. First of all, where the assessee is following systematic basis for making the said provision for warranty which has been consistently followed by the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee‟s own case as hereinabove referred, this issue had come up for adjudication before the Co-ordinate Bench of the Tribunal, Pune and the Tribunal on this issue has held as follows: 20. We have heard the rival contentions and perused the record. The issue arising by way of ground No. 1 raised by the Revenue is against the direction of CIT(A) in restricting the TP adjustment, if any, to the value of international transactions and not to the total turnover of the assessee. We find that 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 (supra), wherein the Hon ble High Court has held that in the absence of segmental accounts, TP adjustment have to be restricted only to transactions with Associated Enterprises on proportionate basis. The relevant extract of the findings of Hon ble High Court are as under : 10. We may once more note that the Income Tax Department within the jurisdiction of this Court must adopt a consistent view on issues of law. In this case, we find that the Revenue urges the absence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion of law arises. Therefore, we do not entertain the present appeal. 21. Applying the ratio laid down by the Hon ble Bombay High Court, we uphold the order of CIT(A) and dismiss the ground No.1 raised by the Revenue. Respectfully following the decision of the Hon‟ble Bombay High Court in the case of Commissioner of Income Tax Vs. ALSTOM Projects India Limited (supra.) and the decision of the Co-ordinate Bench of the Tribunal, Pune in assessee‟s own case, we dismiss the ground No.1 of the Revenue s appeal. 21. Ground No.2 of Revenue‟s appeal is with regard to whether the Ld. Commissioner of Income Tax(Appeals) was justified in deleting transfer pricing adjustment of Product Development and testing. 22. The assessee had paid ₹ 9,28,80,947/-towards international transactions relating to the payment of reimbursement of product development and testing expenses to Behr group of entities. The Ld. Transfer Pricing Officer in his order has observed that the assessee has furnished no evidence in respect of receipt of services, its price in open market etc. Though the assessee had paid this am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer/ Transfer Pricing Officer to verify the nature of expenses in relation to the services received by the assessee and adjudicate the matter after providing reasonable opportunity of hearing to the assessee. Thus, ground No.2 of the Revenue s appeal is allowed for statistical purposes. 25. Ground No.3 of the Revenue‟s appeal is with regard to the exclusion from operating expenses the foreign currency losses suffered. The assessee stated that the Transfer Pricing Officer has not excluded foreign currency losses suffered from the forward contracts for computation of PLI. It was stated that the assessee had suffered foreign currency loss during the year as under: Particulars Amount (in lakhs) Discount on forward foreign currency contracts 30.79 Provision for loss on forward contracts ( amortised) 2.94 Foreign Exchange loss 25.99 Bank charges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -operating expenditure for the purpose of PLI of the assessee. It is further noticed that the Ld. CIT(A) observed that discount on forward foreign currency contract of ₹ 30.79 lakhs was to be treated as non operating. As against this, the Ld. AR submitted that the same is also in the nature of finance charges and hence, should be excluded. On pertinent query, the Ld. AR could not produce any details of such expenditure for ascertaining whether it is in the nature of finance charges or foreign currency loss. In view of the above facts, we set aside the impugned order and remit the issue to the file of Assessing Officer for ascertaining the true nature of this amount. In case, it is found to be in the nature of finance charges, it should be excluded from total operating expenses for the purpose of calculating PLI of the assessee. However, if it is in the nature of foreign currency loss, it should be included in the operating expenses of the assessee. This additional ground is thus allowed for statistical purposes. 28. Now we take up the ground of the Revenue against the direction of the Ld. CIT(Appeals) in treating foreign currency gain/loss as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions taking cognizance of safe harbour rules for the period anterior to their insertion in other contexts, does not improve the case of the Department. Following the judgment in Principal Commissioner of Income Tax Vs. Ameriprise India Private Limited (ITA 206/2016) decided on 23.03.2016, holding foreign exchange gains earned by the assessee, which is in relation to trading items and emanating from international transactions, cannot be treated as non-operating losses and gains, the Hon'ble Delhi High Court in Pr. CIT Vs. B. C. Management Services Pvt. Ltd. (2018) 403 ITR 45 (Del) reiterated held that foreign exchange fluctuation in relation to trading transactions, prior to safe harbor rules from 2013, is operating gain or loss. In view of the foregoing discussion, we are of the considered opinion that the amount of foreign exchange gain/loss arising out of trading transactions is required to be considered as an item of operating revenue/cost, both for the assessee as well as the comparables. It is an undisputed fact that the assessee has been consistently treating foreign exchange fluctuation as operating in nature and the Revenue has accepted the same. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time income to justify its exclusion on the ground of extraordinary income. The appellant would periodically earn such income. Therefore, the learned AO is directed to include the amount of ₹ 2.65 Cr. for computing the Appellant s PLI being its operating income. 32. We have perused the case records and given considerable thought to the documents on records. The Ld. Commissioner of Income Tax(Appeals) 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. Commissioner of Income Tax (Appeals) has rightly directed to the Assessing Officer to include this compensation income for computing PLI being operating income. Thus, we are of the considered view that the order of the Ld. Commissioner of Income Tax (Appeals) 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 Reven ..... X X X X Extracts X X X X X X X X Extracts X X X X
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