TMI Blog2022 (4) TMI 1506X X X X Extracts X X X X X X X X Extracts X X X X ..... been reversed at a regular intervals from year to year. We also note that this issue has been under litigation every year beginning from the assessment year 2008-09. The coordinate bench of the Tribunal in assessee s own case (supra) has in all the prior years decided this issue in favour of the assessee by allowing the deduction of provision for warranty. It is also the case of the assessee that in the case of Rotork Controls India (P) Ltd. [ 2009 (5) TMI 16 - SUPREME COURT] allowed the provision for warranty as a permissible deduction on the basis of certain parameters fulfilled by the assessee in that case. Since the parameters/ conditions laid down by the Hon ble Supreme Court in Rotork Controls case (supra) are fulfilled by the assessee the ratio of the said case squarely applies to the case of the assessee. Thus we note that the Rotork Controls case (supra) has been duly considered by the Tribunal wherein the Tribunal has categorically recorded its finding that Rotork Controls case is squarely applicable to the case of the assessee. There is no merit in the argument of the Ld. DR that the assessee has not applied any scientific/ reasonable methodology for claiming ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In doing so, the Revenue erred in: 1.2.1. Disregarding the fact that based on the economic and commercial circumstances, no independent third party would agree to provide such services without keeping an arm s length profit element over and above cost of services. 1.2.2. Disregarding the comprehensive benchmarking analysis undertaken by the appellant, without demonstrating the inadequacy or infirmity in the analysis so conducted by the appellant. 1.2.3. Disregarding the corroborative internal Comparable Uncontrolled Price analysis furnished by the appellant in relation to availing of supervision services. 1.2.4. Adopting a contradictory view with respect to availing of supervision services while accepting similarly priced services that the appellant provided to its AEs. 1.3. On the facts and in the circumstances of the case and in law, the Revenue erred in not appreciating that the pricing of such services including the mark-up paid thereof has been accepted by the Hon ble ITAT and by the Ld. TPO/ Ld. AO in the appellant s own case for the past years and there being no change in the facts and circumstances of the case in AY 2017-18 vis-a-vis the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r years and amount written back out of such provision and offered to tax. The Ld. AO grossly erred in not appreciating the above details; 2.5. On the facts and in the circumstances of the case and in law, the Ld. AO has grossly erred in not following the decisions of the Hon ble ITAT in appellant s own case for AY 2008- 09, AY 2010-11, AY 2011-12, AY 2012-13, AY 2013-14, AY 2014-15 and AY 2016-17 allowing the deduction of provision for warranty. Further, the principles for allowance of provision for warranty laid down by the judicial precedents have been fulfilled i.e., provision has been created on scientific basis, future outflow of resources, fulfils matching concept etc.; 2.6. Without prejudice to the above, provision for warranty utilized/ expenditure incurred in AY 2017-18 itself should be allowed to the appellant. General 3. On the facts and in the circumstances of the case and in law, the Ld. AO has erred in levying interest u/s 234B of the Act of Rs. 2,44,71,350 for AY 2017-18. 4. On facts and in law, the Ld. AO erred in initiating penalty proceedings u/s 270A of the Act for under reporting of income. 4. Briefly stated the facts are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee s own case for assessment year 2010-11 and in absence of supporting documents allowed the service fee for availing Supervision services and SAP integration services amounting to Rs. 23,42,68,597/- (Rs. 23,39,47,534 + 3,21,063) only to the extent of cost and the mark-up charged thereon by the AE was disallowed. Accordingly, the Ld. TPO proposed an adjustment of Rs. 90,10,331/-. In respect of availing of Central services amounting to Rs. 14,00,28,013/-, the Ld. TPO relied on the Hon ble DRP s order in the past years and allowed the service fee to the extent of cost and disallowed the mark-up charged thereon by the AE resulting in an adjustment of Rs. 66,68,001/-. Hence, the Ld. TPO vide his order dated 15.10.2019 under section 92CA(3) of the Act concluded that the AO shall enhance the income of the assessee by Rs. 1,56,78,332/- (Rs. 90,10,331 + Rs. 66,68,001) on account of disallowance of mark-up on the cost allocated for IGS. 4.4 On raising objection against the draft assessment order, the Hon ble DRP relied on their order for earlier assessment years 2014-15 and 2016-17 wherein the similar issue arose for consideration and the Panel disallowed the mark-up on the cost allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for supervising charges, and Rs.14.25 Crores for central services. On supervision services, the AE charged a net profit mark-up of 4% on the internal cost incurred on the basis of number of hours spent by its personal in providing such services. On the central services, the AE charged 5% profit mark-up on internal cost while third party costs are charged on cost to cost basis. 5. The mark-up of 4% and 5% has been disallowed by the TPO and accordingly enhanced the income of the assessee based on the id. DRP observations for the year 2010-11. For the sake of ready reference, the same is reproduced as under: 3.3.2. In the assessee's case, the intra- group services relate to general administration, finance and accounting, coordination, general management, corporate and project financing, recruitment and education. It is noted that the assessee is an entrepreneur in its own right and is engaged in engineering, procurement and commissioning projects for the third party clients. It procured orders on independent basis and also carried out the project on its own. It is hardly operating as an extension of AE or catering exclusively to the AE. It virtually undertakes all t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee avails supervision services from its AEs and pays mark-up charges, it also provides such services to the AEs for their third party contracts and receives mark-up charges. The pricing basis and the results arising from the same have been accepted by the TPO. Disallowing the markup on receipt of services while in-principle accepting the provision of similar services rendered having similar intent and basis of pricing cannot be valid ground to disallow the mark-up. It is not out of contest to note that no such disallowance has been made on the mark-up in the case of the assessee AY 2007-08 to 2012-13 and AY 2015-16. 8. Hence, keeping in view, the entire facts and circumstances, the contention of the revenue that the AE invariably derives some benefit and hence no mark-up should be charged, cannot be accepted. 7.2 Keeping in view the rule of consistency and more so the position that the facts for the assessment year 2017-18 remain the same as that of assessment year 2014-15 and 2017 in respect of the impugned transactions with its AE, we respectfully following the order of the Hon ble Tribunal (supra) direct the Ld. AO to delete the addition of Rs.1,56,78,332/-. Grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy of making provision for warranty as per the terms of contract. Since provision for warranty made during the assessment year 20017-18 is on the same basis as in earlier years, the provision for warranty of Rs. 11,11,70,277 is allowable following the orders of the Hon ble ITAT (supra) for earlier years. 8.3 The Ld. AR also brought to our notice the judgment of the Hon ble Supreme Court in the case of Rotork Controls India (P) Ltd. vs. CIT [314 ITR 62 (SC)]. The Ld. DR submitted that the orders of the Tribunal (supra) are challenged by the Revenue before the Hon ble High Court and the matter is sub-judice. He submitted that the methodology followed by the assessee for creating provision for warranty needs to be verified which the assessee claims to be made on scientific basis. Hence, this issue may be restored to the file of the Ld. AO to verify assessee s claim. 9. We have considered the rival submissions and perused the material on record. We find that the contract between the assessee and its customers invariably contains clauses for warranty for default in functioning of equipment etc. supplied to customers as per terms of the contract. During the assessment year 2017-18, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,28,00,944 24,32,96,504 29,64,70,747 3,39,46,41,837 2013-14 29,64,70,747 41,88,64,157 2,02,09,842 20,55,67,885 48,95,57,177 2,57,40,20,904 2014-15 48,95,57,177 5,02,88,810 2,68,65,259 5,68,84,319 45,60,96,407 3,99,17,38,396 2015-16 45,60,96,407 13,99,70,672 15,15,91,912 18,70,47,392 25,74,27,775 2,34,16,14,840 2016-17 25,74,27,775 19,29,33,966 9,35,49,418 13,45,05,485 22,23,06,838 2,66,79,96,793 2017-18 22,23,06,838 14,75,47,954 3,63,77,677 15,97,256 17,37,51,550 3,17,10,09,143 9 years trend 35,58,78,785 1,76,66,71,942 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
