TaxTMI 
TaxTMI 
2012 (5) TMI 283
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....ding the adjustment based on the order passed u/s 92CA of the Act passed by the learned JCIT (TP-II) (TPO) as the said order was passed without jurisdiction. (3) The DRP has erred both in law and on facts in arbitrarily upholding the rejection of Resale Price Method (RPM) adopted by the appellant as the Most Appropriate Method (MAM) for import of parts for manufacturing segment and instead adopting the Transaction Net Margin Method (TNMM) by considering the resale of parts initially imported for the manufacturing activity as a separate trading activity in itself. (4) The DRP has erred both in law and on facts in arbitrarily upholding the adjustment without appreciating that the sale back of the redundant stock of parts was closely linked to the manufacturing operations carried out by the assessee involving import of parts from the Associated Enterprises rather than a regular business activity. (5) The DRP has erred both in law and on facts in arbitrarily upholding the TNMM to benchmark the software license and failed to appreciate that the assessee has merely reimbursed the cost of the software procured by the AE from third parties and provided to the assessee.....
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....us international transactions with its associated enterprises. In view of the same, he made a reference to the TPO u/s 92CA of the Income-tax Act for determination of the arms length price (ALP) with regard to the said international transactions. The TPO, after considering the assessee's contentions with regard to various transactions, accepted the ALP determined by the assessee in its 92CA report as far as 8 transactions are concerned, but made TP adjustment with regard to the following transactions :- (1) Sale of imported parts of raw-material (2) Purchase of imported parts of raw material (3) Software licence and (4) Royalty paid. 6. The TPO rejected the methods followed by the assessee for arriving at the ALP for all the above transactions and adopted the TNMM as the most appropriate method for arriving at the ALP of all the transactions. Thereafter, he determined the ALP as per the TNMM method and the TP adjustment was reported to the assessing authority. The assessing authority after taking into consideration all the TP adjustments made by the TPO, drafted the assessment order and furnished the same to the assessee. 7. Aggrieved by the said draft....
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....he assessee for the assessment year 2007-08 to demonstrate that the very same issues had arisen for the subsequent assessment year also. 11. The learned DR on the other hand strongly supported the orders of the authorities below and also filed his written submissions in support of his contentions. 12. Having heard both the parties and having considered the rival contentions and the material on record, we find that the assessee has followed the internal CUP method for arriving at ALP for the import of raw material, where as the TPO, in his order, has mentioned that the assessee has adopted the external CUP method. Similarly, for the royalty payment, the assessee has adopted the external cup method and it was a single payment, whereas the TPO observed at page 21 of his order that it is recurring payment. There were many flaws in the TPO's order which demonstrate that the facts of the case have not been properly appreciated by the TPO while making the TP study analysis. Another fact worth noting is that the similar transaction with the associated enterprises for the subsequent years have been considered by the TPO and have been accepted without any ALP adjustments. There has to be a....
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.... the same and added it to the income of the assessee. On appeal, the DRP confirmed the order of the AO and the assessee is in second appeal before us. 14. The learned counsel for the assessee submitted that the assessee has sold PCs and laptops to its customers with a warranty provision and as per the matching principle, the assessee has to make provision for such probable expenditure proportionate to the sales made. 15. The learned counsel for the assessee submitted that the assessee had acquired the business of PCs and laptops from IBM in India and therefore, it has adopted the basis on which IBM was making the provision for warranty in the earlier years. He submitted that the provision is based on scientific method and not on ad-hoc basis. He submitted that the assessee has provided the worksheet which would clearly show that the assessee had scientific method of estimating the liability based on past data and, therefore, the provision of warranty is allowable. In support of its contention, he placed reliance upon the following decisions : (1) Rotork Controls India (P.) Ltd v. CIT [2009] 314 ITR 62/180 Taxman 422 (SC) (2) CIT v. Ericssion & Communications (P.) Lt....
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.... 19. In the case before us, the assessee has acquired the business of desk tops and lap tops from IBM in the financial year relevant to the assessment year 2006-07. This being the first year of its business in personal computers, it has no data relating to the probable expenditure it would have to meet on account of warranty provision. It is also not disputed that IBM was carrying on business in India in the earlier assessment years and IBM was making the provision for warranty on the basis of its global data. Therefore, it cannot be said that the assessee cannot use the data used by IBM for the past year for making the estimation. If the assessee has made the provision on a scientific basis, it has to be allowed as deduction. However, this fact as to whether the assessee has made the provision in a scientific method has to be verified by the assessing authority. In view of the same, we deem it fit and proper to remand this issue to the assessing authority to reconsider the issue afresh in the light of the guidelines issued by the Hon'ble Supreme Court in the case of Rotrack Controls India (P.) Ltd (supra) and other judicial precedents. This ground is accordingly allowed for statis....
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.... operating revenue of the business and, therefore, has to be treated as revenue expenditure. For the contention that any expenditure incurred for carrying on business efficiently is revenue in nature, the learned counsel for the assessee has placed reliance upon the following other decisions - (1) S.A Builders Ltd. v. CIT [2007] 288 ITR 1/158 Taxman 74 (SC); and (2) CIT v. Mico Ltd., [2007] 163 Taxman 510 (Kar), wherein it has been held that the commercial expediency of an expenditure is to be decided by a businessman and decision to incur or not to incur such expenditure cannot be tested on the touchstone of strict legal liability to incur such an expenditure. 22. He also placed reliance upon the decision of Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1/3 Taxman 69 for the proposition that even if the assessee gets any enduring benefit from the said expenditure yet if it is for the smooth efficiency in carrying on day to day business operations of the company, then it is in the filed of revenue and not in the filed of capital. Thus according to him the expenditure must be allowed as deduction u/s 37 of the Income-tax Act. 23. The....
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....es have been made through the same dealership net work used by the IBM in its business prior to the acquisition. The future billing adjustment reserve of Rs. 12,501,000/- was a liability towards various claims/special discounts payable to distributors/dealers of IBM India, whereas the actual pay outs relating to the period upto the effective date of take over i.e 11th May, 2005 was 23,16,79,000/- and accordingly, the difference amounting to Rs. 21,91,78,000/- has been charged to the profit and loss account and this aspect was specifically mentioned in the notes to the financials of the assessee. The learned counsel for the assessee submitted that the above expenditure has been incurred over and above the estimated liability which was taken over from IBM and, therefore, relates to the carrying on of the assessee's business and such expenditure has been claimed as revenue expenditure. The learned counsel for the assessee further submitted that as regards duty free replenishment certificates receivable are concerned, they were also taken over from IBM India and were available for utilization against import of inputs used in the manufacture of goods without payment of customs duty. The....
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....e allowed as revenue expenditure, even though the assessee was not obligated to make such payment. In view of the same, he prayed that the above payments should be allowed as revenue expenditure. 27. The learned DR however supported the orders of the authorities below and submitted that these expenditure are relating to the period before acquisition of the business by the assessee and, therefore, it cannot be claimed by the assessee for the relevant assessment years. 28. Having heard both the parties and having considered the rival contentions and judicial precedents on the issue, we find that when the assessee has taken over the division of desk tops and lap tops from IBM, the assessee has also taken over the liabilities, which include the commission and discounts to the dealers. As held by the Hon'ble Supreme Court in the case T. Veerabhadra Rao, K. Koteswara Rao & Co. (supra), the successor of a business steps into the shoes of its predecessor and is liable to meet any claims against the predecessor. Similarly as held by the Hon'ble Madras High Court in the case of Georgepolous (supra) any expenditure incurred by the assessee to protect its business and to carry on its busines....