TaxTMI 
TaxTMI 
2017 (8) TMI 1565
X X X X Extracts X X X X
X X X X Extracts X X X X
....refund, profit on sale of asset etc., in favour of the Revenue and they were misconstrued by the AO as decided against the Revenue. Therefore, Ground Nos. 2 and 4 (in part) are erroneously raised. Considering the fact that the CIT(A) actually decided these items against the assessee relevant grounds are dismissed as either general or erroneous. That leaves Ground Nos. 3 and 4 (in part) for adjudication and the same read as under : "3. liability written back and doubtful debts written back as non-operating when specially assessee company itself has treated them as non-operating in later A.Ys., i.e. A.Y. 2011-12 and A.Y. 2010-11 and treated as operating in earlier years, i.e. there has been no consistency in assessee's approach in treating items, as operating/non-operating. 4. The Ld.CIT(A)-IT/TP, Pune has erred in treating Miscellaneous income as operating when Rs. 17,78,678/- (sic) has been treated as non-operating by the Ld.CIT(A)-IT/TP, Pune in calculation in Para 2.2.17 of the appellate order (Rest of the amount out of the total has already taken as operating by TPO)." 3. Briefly stated relevant facts are that the assessee filed the return of income declaring loss of Rs.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the CIT(A) confirmed the inclusion of (1) liability written back, (2) doubtful debts written back and (3) Miscellaneous income (design income and services income) for the purpose of computing the operating profits of the assessee and accepted the assessee's averments on these items. 5. Aggrieved with such inclusion of these 3 items as operating income of the assessee for calculating OP/OC for Transfer Pricing purposes, the Revenue is in appeal before us that Ground No.3 referred above. Assessee filed a cross objection in support of the order of CIT(A). 6. Before us, Ld. Counsel for the assessee submitted that inclusion of said 3 items, being the business receipts of assessee's core business activity, rightly constitute an operating income. Therefore, the order of CIT(A) is fair and reasonable. To elaborate the same, he submitted various arguments on each of the item as given in the subsequent paragraphs. 7. Regarding the credit to profit and loss account on account of "liabilities written back" amounting to Rs. 6,15,59,011/-, Ld. Counsel for the assessee submitted that the details of the liabilities written back are given on pages 56 to 58 of the Paper Book. These documents ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2.2 The Appellant stated that some of the above items are inextricably linked with the business operations of the Appellant and hence, these are in the nature of operating income therefore, such items should be considered for computing operating margin of the Appellant. In this connection, the Appellant relied on the decision of the Bangalore Tribunal in the case of Wipro Ltd., Vs. Deputy Commissioner of Income Tax (2005) 96 TTJ 211. 2.2.3 Out of the total amount involved in liabilities written back of Rs. 6,15,59,011/- the Appellant explained in detail, each major item of reversal of provisions of expenses made in earlier years totalling Rs. 4,72,65,840/-. The Appellant stated that it is evident that these provisions are made in respect of expenses, which are of an operating nature. These expenses were expected to be incurred by the Appellant in its course of its business. Thus, reversal of the balance provisions in the A.Y. 2002-03, should be considered for computing operating income. 2.2.7 On doubtful debts written back of Rs. 1,48,75,096/-, the Appellant stated that provisions made in respect of doubtful debts, which arise in the normal course of operations, made on an es....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ting profits of the assessee. This issue was discussed by the CIT(A) (in para Nos. 2.2.8 to 2.2.10). 12. Ld. Departmental Representative for the Revenue relied on the order of the AO. 13. We find that the designs income and other services income is directly linked to the core activities of the assessee. Therefore, we support the view of the CIT(A) on these items. Ld. DR could not file any evidence to hold it otherwise. Therefore, on hearing both the sides, we find the conclusion given by the CIT(A) on this issue of inclusion of Miscellaneous income as part of the operating profit is fair and reasonable and it does not call for any interference. Thus, the ground No.3 raised by the Revenue has to be dismissed in view of the above discussion and findings of the CIT(A). 14. The cross objection filed by the assessee is only in support of the order of CIT(A). Therefore, the same is dismissed. 15. In the result, the appeal of the Revenue and the Cross objection of the assessee are dismissed. ITA No.1587/PUN/2014 and C.O No.14/PUN/2016 - A.Y. 2004-05 : 16. Grounds raised by the Revenue in the appeal for A.Y. 2004-05 reads as under : "1. The Ld.CIT(A)-IT/TP, Pune has er....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation furnished by the Appellant as reproduced above, I agree with the Appellant that the Appellant's margin falls within +/-5% of the arm's length price. In these circumstances, the learned TPO was not required to make adjustment to the Appellant's international transactions. Accordingly, I delete the adjustment of Rs. 8,03,84,164/- made by the learned TPO." 20. Considering the above, we are of the opinion that the AO/TPO have erred in making addition on this account while the difference in Operating profit/Operating cost figures are within the range of +/-5% of the OP/OC of the assessee. The statute allows the same. Therefore, we are of the considered view that the order of CIT(A) is fair and reasonable and it does not call for any difference. Accordingly, Ground No.1 raised by the Revenue is dismissed. 21. Regarding Ground No.2 relating to allowing of warranty provisions it is the submission of the Ld. Counsel for the assessee that the said issue now stands covered in assessee's own case in favour of the assessee by the order of the Tribunal vide ITA No.1545/PUN/2014 order dated 23-12-2016. Bringing our attention to Para No.9 of the order of Tribunal (Supra) the allowability....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s made on account of warranty. In case any part of the warranty was utilized, then the same was so debited or / and the balance on expiry of period of warranty was written back. This method was regularly and systematically followed by the assessee. The CIT(A) has referred to the factual aspects of the case and pointed out that the machinery sold by the assessee was in the range of Rs. 4-6 crores and there were limited buyers of said machinery. In view of said facts and circumstances, where the assessee was engaged in the manufacture of specialized machinery for packaging and the assessee had warranty clause against supply of the said machinery, then the recognition of application of warranty by way of making the provision in the books of account is accepted accounting practice and such a liability recognized by the assessee is Contingent Liability. Following the ratio laid down by the Hon'ble Supreme Court in Rotork Controls India P. Ltd. Vs. CIT (supra), we hold that the value of Contingent Liability by way of recognizing the warranty liabilities, by making a provision and also following systematic method of its write back and / or utilization is an accepted accounting method adop....