TMI Blog2021 (2) TMI 609X X X X Extracts X X X X X X X X Extracts X X X X ..... upheld the action of the Ld.AO as the liability was not crystallised during the year under consideration - HELD THAT:- DRP referred to the categorical observation in the draft assessment order wherein the said fact has been noted by the Ld.AO. DRP also noted that the said expenses would be allowable only when it is crystallised which falls in the next year. This has not been controverted by any documents/evidences by the Ld.AR even before us. Under such circumstances we do not find any infirmity with the observations of DRP in upholding the action of the Ld.AO.Accordingly this ground raised by assessee stands dismissed. Disallowance of expenditure on advertisement and warranty provision - AR prayed for one more opportunity to be granted to assessee to support its claim - HELD THAT:- We remand this issue to the Ld.AO for assessee to provide necessary documents in support of its claim. The Ld.AO shall verify the details/evidences filed by assessee and consider the claim in accordance with law. - IT(TP)A No.628/Bang/2017 - - - Dated:- 10-2-2021 - Shri. Chandra Poojari, Accountant Member And Smt. Beena Pillai, Judicial Member For the Assessee : Shri K.R Vasudevan, Adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Appellant. 9. Without prejudice to the argument that CPM is the most appropriate method, the learned AO/learned TPO/Hon'ble DRP erred in not providing appropriate adjustment towards customs duty incurred by the Appellant vis- -vis comparable companies. 10. The learned AO/learned TPO/Hon'ble DRP erred in not considering the previous two years financial data of the comparable companies while determining the ALP. Corporate Tax 11. Disallowance of provision created for sales/advertisement - ₹ 73,37,974 a. The learned AO/ Hon'ble DRP has erred in considering provision for annual sales schemes or advertisement expenses amounting to ₹ 73,37,974 as contingent liability not crystalized ason3l March 2012. b. The learned AO/ Hon'ble DRP has erred in disallowing the provision for annual sales schemes or advertisement expenses amounting to ₹ 73,37,974 under section 37 of the Income-tax Act, 1961 ('the Act'). c. The learned AO/ Hon'ble DRP ought to have appreciated that if a business liability arises in an accounting year, the deduction should be allowed in that year although the liability may be discharged at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome for year under consideration on 29/11/2012 declaring current year loss of ₹ 29,98,71,723/-. Subsequently, the assessee filed revised return on 31/03/2014, declaring loss of ₹ 21,15,18,062/-. Book profit was shown to be at nil by assessee. The case was selected for scrutiny and notice under section 143(2) of the Act was issued, in response to which, representatives of the assessee appeared before the Ld. AO and filed requisite details as called for. 3. The Ld.AO observed that, the assessee was engaged in the business of manufacture and sale of water heaters. During the year it was observed that, the assessee had international transaction exceeding ₹ 50 crores. Therefore with prior approval, the issue reference was made to the transfer pricing officer to determined arm s length price as per provisions of section 92CA of the Act. 4. Upon receipt of reference, the Ld.TPO called upon assessee to file requisite details in Form 3CD regarding the international transaction between the assessee and its AE. The Ld. TPO noted that assessee had following international transaction during the year under consideration: Category Amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P the assessee submitted that it is in the start-up phase and operates in the capital intensive industry and hence despite having held the gross margin, it failed to recover the other operational costs at net level and hence reports loss, as compared to the comparable companies, who were early entrants in the specified industry. 9. The DRP observed that assessee has not brought any argument or facts in favour of application of CPM in the instant case when it is a full-fledged manufacturer. The DRP observed that replies and submissions were general and vague without making out any case in its favour. The DRP thus confirmed the action of the Ld.TPO and application of TNMM as most appropriate method. 10. In respect of disallowance of provision created for sales/advertisement, DRP held as under: Having considered the submissions, we have perused the record to find that _ has examined this issue in para 6 of the Draft Asst Order (DAO), wherein he has brought out clearly, that the liability is crystallised in the next financial year and the obligation to pay is also in the next financial year based on the 'sales numbers' of the current year. Everything is happening in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmissions, we have examined para 7 of the TP order this issue was discussed while concluding in para 7.5-7.6 that: 7.5 Even going by the warranty provision workings, it is seen that for the past three years, the actual utilization of warranty varies from 17% to 43%. Further, the returns under warranty also vary from 0.15% to 0.40% of production. 7.6 Going by all the above, it is inferred that the warranty provisions not been made in a scientific manner as laid out by the ratio supra) of the Apex Court. Therefore, the unused warranty provisions of 94,95,260/- is being disallowed and added to the taxable income. Considering these facts, we are of the view that the assessee has no valid and scientific basis in creating the said warranty provision @1.85% of sales, as laid by the Hon ble SC in the case of Rotork India. Only upon proving that the assessee has a scientific basis behind the said calculation of the provision, then comes the overall limit of 3%. Hence, we are of the view that the said claim is not allowable and accordingly, reject the objection. However, it is observed from the Balance Sheet, P L account and Computation of income filed along with the ROI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngth. It was therefore submitted by him that determination of MAM and determination of ALP based on the MAM should be directed to be carried out. 18. The ld. counsel for the assessee, on the other hand, pointed out that as far as international transaction of trading in heaters is concerned, in assessee's own case, this Tribunal has held that RPM is the MAM for determining the ALP. The decision of ITAT in Dy. CIT v. A.O. Smith India Water Heating (P.) Ltd.[2018] 97 taxmann.com 218 (Bang. - Trib.) was sought to be relied upon by the ld. counsel for the assessee. With regard to the international transaction of purchase of raw materials, the ld. counsel for the assessee brought to our notice that the only reason given by the TPO for rejecting the CPM as MAM is the absence of details regarding computation of gross profit of the assessee. In this regard, our attention was drawn to the TP study where the gross margins earned by the assessee have been clearly given. These details have already been extracted while dealing with the contentions of the assessee before the DRP in the earlier part of this order. It was therefore submitted by the ld. counsel for the assessee that the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the law and no restriction can be placed on his powers to bring any relevant and appropriate data on record in the matter of determination of ALP. 23. In the result, the appeal by the revenue is allowed for statistical purposes. 19. We note that, for assessment year 2011-12, it was the revenue who was aggrieved by the directions of DRP in considering CPM as the most appropriate method for determining ALP of the international transaction under trading segment. For assessment year 2011-12, the Ld.TPO had adopted RPM as against CPM considered by assessee, with same set of comparables as considered by assessee therein. 20. In the present facts the Ld.TPO adopted TNMM as against CPM adopted by assessee with the same set of comparables as considered by assessee for determining the arm s length price of the transaction under trading segment. Admittedly, no difference has been pointed out in facts and circumstances for assessment year under consideration vis-a-vis assessment year 2011-12. Respectfully following the directions of this Tribunal for assessment year 2011-12 in assessee s own case, we direct the Ld.TPO to determined the arm s length price of the transaction un ..... X X X X Extracts X X X X X X X X Extracts X X X X
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