TaxTMI 
TaxTMI 
2018 (1) TMI 1366
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.... ('Ld.AO') to the Additional Commissioner of Income-tax, Transfer Pricing Officer-II ('Ld TPO'), under section 92CA(I) of the Income-tax Act, 1961 ('Act") was validly made, thereby failing to appreciate that the Ld AO had not recorded any reasons under section 92CA of the Act which made it expedient and necessary for him to make a reference under that provision; 3.That the Ld. CIT(A) has grossly erred in confirming an adjustment of Rs. 14,609,814/- out of the total adjustment of Rs. 23,640,603/- made by the Ld. AO to the returned income of the appellant, and in doing so, has grossly erred in: i. confirming the action of the Ld AO/ Ld TPO of rejecting the benchmarking analysis carried out by the appellant in its TP Study and conducting a fresh search, using different filtration criteria, to select comparables based on h is own conjectures and surmises; ii. confirming the action of the Ld AO/ Ld TPO of relying on arbitrary financial criteria for selecting comparables, thereby disregarding the functions-assets-risk profile of the companies being considered; iii. confirming the action of the Ld AO/ Ld TPO of considering the current year (....
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....r limit and instead adopting an arbitrary/ inconsistent upper limit of 80 percent for the OP/ TC margin; xi. confirming the action of the Ld AO/ Ld TPO of denying the benefit of (+/-) 5 percent [as per proviso to section 92C(2) of the Act] to the appellant; xii. disregarding judicial pronouncements in India. 4. That the Ld. CIT (A) grossly erred in confirming the disallowance of an amount of Rs. 54,886,377/- on account of Provision for Warranty, without appreciating that the issue stands covered in favour of the appellant, in view of order of the Hon'ble ITAT for the AY 2000-0 I & 2001-02 and that the said order was followed by the predecessor of the CIT(A) in AY 2002-03. 4.1 That the Ld. CIT (A) grossly erred on facts and in law, in confirming the disallowance of an amount of Rs. 54,886,377/- being the provision for warranty, on the grounds that such provision was contingent in nature and should have been allowed on an actual basis, in the year of occurrence of the event and no: in the year in which the provision is made. 4.2 That the Ld. CIT (A) grossly erred in law and on facts in merely confirming the conclusion of the Ld. AO that th....
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....erved that assessee is engaged in trading of mobile phones and their accessories and installation of network equipments. In addition to this, assessee also has research and development centre at Hyderabad and Bangalore. Ld.AO after considering the submissions and details advanced by assessee, passed assessment order making following additions/disallowances: Sl. No. Particulars Amount in Rs. 1. Addition on account of Foreign Travelling Expenses 57,23,201 2. Addition on account of provisions for warranty 5,48,86,377 3. Addition on account of marketing expenses 39,98,939 4. Addition on account of closing stock 2,68,17,770 5. Addition on account of provision for obsolescence of inventory 8, 50, 084 6. Transfer pricing addition in pursuance of order under section 92CA (3) of the act 2,36,40,603 Ld. CIT (A) confirmed addition made by Ld. AO by relying upon order of his predecessor for assessment year 2000-01 and 2001-02. 3. Aggrieved by the order passed by Ld. AO, assessee preferred appeal before Ld.CIT(A) who allowed the claim of assessee in respect of transfer pricing addition, and foreign travel e....
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....and subsequent assessment years. 6.7. It is observed that this Tribunal vide order dated 18/05/12, for assessment year 2007-08 in ITA No. 4559/del/2011, held as under: "20. We have heard both the parties and gone through the material available on record. ITAT Delhi Bench 'E' in the case of assessee for Assessment Year 2006-07 in ITA no.551/Del/2010 dt. 24.11.2011 after considering provisions of sec.92C has held as under. "6. We have carefully considered the submissions in light of the material produced and precedent relied upon. It is an undisputed fact that on the same set of facts and in the same business model the assessee has been provided the working capital adjustments in the preceding assessment years. Under the circumstances, in our considered opinion, it was incumbent upon the TPO to consider the same in the current year. 6.1. In this regard we place reliance upon the decision of the Hon 'ble Jurisdictional High Court in the case CIT Vs. Dalmia Promoters Developers (P) Ltd. 281 ITR 346 wherein it was held that for rejecting the view taken in earlier assessment years, there must be material change in the fact, situation or in law. In this c....
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....hat should be taken into account by granting certain adjustments to the main margin of comparables. Ld. TPO has observed that assessee is a contract research service provider to its parent group and are not dependent on market situations. It is also been observed by Ld. TPO that assessee is assured of a fixed return on cost and therefore they are risk insulated entity whereas the comparables chosen are independent companies and there's full risk associated with the normal enterprise real venture. As robust data was not available before Ld. TPO, he did not grant any adjustment in regard to the risk undertaken by the comparables vis-a-vis no risk undertaken by assessee. 7.5. Ld. CIT (A) is silent on the issue. The comparables that has been retained by Ld. CIT (A) does have very high/abnormal profit margins. 7.6. In anyways we have already set aside the issue regarding comparables selected/retained by Ld. CIT (A) back to the file of Ld. TPO in the appeal filed by the revenue for assessment year 2003-04 in ITA No. 2380/del/2010 vide order dated 06/12/2017. Accordingly it would be just to set aside this issue regarding granting of working capital and risk adjustment back to the fi....
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....is Tribunal on this issue. 8.5. On the contrary Ld. DR placed reliance upon the order of authorities below. 8.6. It is observed that the issue has now come to rest by the decision of Hon'ble Delhi High Court in assessee's own case in 841/2009 & 842/2009 vide order dated 19.10.2010. Hon'ble court has dealt with the issue as under: "We find from the order of the CIT as well as ITAT that the explanation given by the assessee was that this provision was made on the basis of past experience and other relevant consideration. The very fact that the provision for lesser amount is made in spite of the fact that as well as had indicates in this issue would itself demonstrate that there was a proper application of mind on the part of the assessee in making this provision. Merely on this ground, the Assessing Officer could not have disallowed the provision to the extent of 25% and thus the Income Tax Appellate Tribunal rightly allowed the entire provision towards warranty. We may also observe here that such provision has been made in preceding as well as subsequent Assessment Years and has been allowed in full by the ITAT and affirmed by this Court. Therefore, no question of law....
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....y reduction/adjustment in the stock in trade due to distribution of phones on free of cost basis should be considered as revenue expenses. 9.6. He submitted that similar issue has been set aside to Ld. AO by this Tribunal for assessment year 1998-99, has now become time-barred and Ld. AO has not yet passed any order in respect of the same. Attention was invited to the copies of the orders placed in the paper book. He submitted that unless this issue is decided by this Tribunal it would never reach to a logical conclusion. He submitted that in the interest of natural Justice the issue may be considered and decided for the year under consideration so as to attain some certainty. 9.7. On the contrary Ld. DR placed reliance upon the orders of Ld. AO and submitted that the issue may be set aside to the file of Ld. AO for verification of the issue as has always been consistently done by this Tribunal in the other assessment years. 9.8. We have perused the submissions advanced by both the sides and the light of the records placed before us and the orders of this Tribunal in assessee's own case relied upon by both the sides. Ld.AR while contesting the issue had categorically submi....
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....y to employees and sales team have been treated to be revenue in nature. Further admittedly assessee has not capitalised such handsets given away to the sales team and employees by reducing it from the inventory stock. As these handsets are held to be not owned by assessee value of such handsets cannot be added back to the closing stock. This would amount to double edition. Accordingly this ground raised by assessee stands allowed. 10.1. This ground raised by assessee stands allowed. 11. Ground No. 7 This ground has been raised against the disallowance of 25% of provision for stock obsolescence by treating the same as unexplained. 11.1. Ld. AR submitted that assessee had debited a sum of Rs. 3,400, 339/-as provision for obsolete inventory. It was submitted by assessee before the authorities below that the provision represents the value of non-moving inventory of spare parts and accessories of the mobile handsets which had been faced out of the market due to technological advancements. Assessee had therefore made 100% provision for the value of non-moving inventory of spare parts/accessories of phone models which has been faced out. Ld.AR further submitted that the provi....
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....12. On appeal before Hon'ble High Court, the court held as under: "9. From the reading of the orders of the AO as well as CIT(A), we find that in respect of this claim, the Assessing Authority had sent questionnaire to the assessee to furnish details and justification of the claim of provision of obsolescence of inventory. No doubt, the assessee had supplied certain information in reply to such questionnaire, however, as a fact the AO found that the assessee had not furnished any papers/documents in support of claim made in provision according to the obsolescence of inventory. Thus, the claim was disallowed only on account of non furnishing of the requisite information in this regard. Having regard to the aforesaid facts, insofar as these two assessment years is concerned and the amount involved, so far the issue of the claim for obsolescence is concerned, we are of the opinion that no substantial question of law arises for our consideration. We may, however, make it clear that since the assessments order were passed, which was modified to the extent mentioned above by the CIT(A) taking into consideration the factual position appearing in these two assessment years, it wou....