TaxTMI 
TaxTMI 
2022 (4) TMI 1506
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....t was acceded to. The Ld. DR had no objection. Accordingly, appeal and stay application were heard on 16.03.2022. We take up the appeal first for consideration. 2. The appeal of the assessee is directed against the order of Additional/Joint/Deputy/ACIT/ITO, National E-Assessment Centre, Delhi ("AO") under section 143(3) read with section 144C of the Act pertaining to AY 2017-18. 3. The assessee has raised the following grounds of appeal:- "Pertaining to Transfer Pricing Matters: Adjustment Rs. 1,56,78,332 1.1. On the facts and in the circumstances of the case and in law, the Learned Dispute Resolution Panel ('Ld. DRP'), the Learned Transfer Pricing Officer ('Ld. TPO') and the Learned AO (collectively referred as "the Revenue") erred in making an adjustment of Rs. 1,56,78,332 to the total income of the appellant on account of the difference in the arm's length price ('ALP') of its international related party transactions under the provisions of Section 92CA(4) of the Act. 1.2. On the facts and in the circumstances of the case and in law, the AO/TPO/DRP has grossly erred in disallowing the mark-up portion charged by the associated enterprises ("AEs") ....
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....-15 and the decisions of the Hon'ble Income Tax Appellate Tribunal ("ITAT") for AY 2008-09, AY 2010-11, AY 2011-12, AY 2012-13, AY 2013-14, AY 2014-15 and AY 2016-17 in appellant's own case, allowing the deduction of provision for warranty. 2.3. On the facts and in the circumstances of the case and in law, the Ld. DRP directed the Ld. AO, that while allowing the deduction, to verify the detail of provision created in preceding years, actual expenditure, earlier provision utilized, the balance provision carried forward and year-wise sales so as to justify the basis for provision for warranty and that the actual expenses on warranties incurred in subsequent years and excess provision written back also are consistent. However, the Ld. AO grossly erred in not following the above directions and disallowed the provision for warranty on misconceived & irrelevant considerations. 2.4. On the facts and in the circumstances of the case and in law, the appellant submitted complete details before the Ld. AO and the Ld. DRP including sample copy of contracts showing extracts for clause of warranty, party-wise details of warranty claims payable as per contracts for which provisi....
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....availing the following services from its AEs:- Head Amount (Rs.) Supervision services 23,39,47,534/- SAP integration services 3,21,063/- Central services 14,00,28,013/- 4.2 The assessee in its transfer pricing documentation has followed transaction- by - transaction approach. The assessee applied Transactional Net Marginal Method ("TNMM") to benchmark its transaction for availment of Supervision services and SAP integration services and Cost Plus Method ("CPM") for availment of Central services from its AEs. 4.3 In respect of the above transactions, the Ld. TPO during the transfer pricing proceedings asked the assessee to substantiate as to how these transactions have been treated in its books of account and to furnish certain details thereof. The assessee submitted its written reply on 21.12.2020 and 29.12.2020 which were not accepted by the Ld. TPO. The Ld. TPO observed that assessee has not offered cogent evidence in support of its claim that mark-up was paid only on internal cost and third party cost are charged on cost-to-cost basis. The Ld. TPO considering the directions of the Hon'ble DRP in assessee's own case for assessment year 2010-11 and in....
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....sessee has undertaken the impugned transactions in the past years as well and there has been no change in the facts and circumstances of the case in this year (i.e. AY 2007-18) viz-a-viz those years. The Ld. DR relied on the order of the Ld. AO/ Hon'ble DRP. 7. We have heard the Ld. Representatives of the parties and perused the material on record. In our considered view, the assessee deserves to succeed. Ground No. 1.1 to 1.5 pertaining to transfer pricing adjustment of Rs. 1,56,78,332 7.1 Our attention was drawn to the order of the Hon'ble Tribunal for the assessment years 2014-15 and 2016-17 in assessee's own case wherein similar issue arose for consideration and the Hon'ble Tribunal keeping in view the entire facts and circumstances of the case deleted the entire adjustment made on this account by allowing the mark-up charged by the AEs in the services provided to the assessee. The relevant extract of the order of the Hon'ble Tribunal for the assessment years 2014-15 and 2016- 17 in ITA No. 8119/De/2018 and ITA No. 475/Del/2021 respectively dated 18.08.2021 is reproduced below:- "4. The assessee paid Rs.8.28 lacs for supervising charges, and Rs.14.25 Crores fo....
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....ovided in this regard. It was only stated that since the AE was providing the services, it was entitled to earn some margin on the same. However, as discussed earlier, while the primary beneficiary of the services is the assessed, there are also some incidental benefits accruing to the group. The parent company gets benefited by better synergies, scale of economy, better coordination and reporting. Considering this, the AE, in our opinion, was not justified in charging any mark up on the cost of services. The arm's length price of the services is therefore decided at the actual cost. The adjustment is therefore sustained to the extent of mark up only. The TPO is directed to reduce the adjustment accordingly." 6. The main argument of the Id. AR was that these transactions are benchmarked by using TNMM and furnished that TP documentation whereas the TPO did not follow any prescribed method and the entire mark-up is disallowed without giving any reasons. The observation of the revenue that the parent company gets benefited by better synergies, scale of economy, better coordination and reporting cannot be accepted. 7. While the assessee avails supervision services....
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.... merely an estimated liability not based upon any scientific methodology and that though it is a legacy issue yet has not attained finality. Therefore, the provision for warranty of Rs. 11,11,70,277/- is treated as an unascertained liability and hence disallowed in the computation of total income. The Ld. AO at the end of his order noted that the assessee has filed its detailed response vide submissions dated 15.03.2021 and 23.04.2021 regarding the issue of 'provision for warranty', these submissions are considered by him but not found tenable. 8.2 The Ld. AR drew our attention to the fact that the issue under consideration has been consistently decided in favour of the assessee for earlier assessment years in its own case by the co-ordinate bench of Hon'ble Tribunal. The Hon'ble Tribunal has allowed the deduction of provision for warranty in earlier assessment years from AY 2008-09 to AY 2016-17 in assessee's own case (ITA No.2295/Del/2013, ITA No.7147/Del/2018, ITA No.1057/Del/2016, ITA No.567/del/2015, ITA No.4663/Del/2017, ITA No.4664/Del/2017, ITA No.8119/Del/2018, ITA No. 475/del/2021). The assessee has been consistently following policy of making provision for warranty as....
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....submitted the below tabular presentation providing a reconciliation of provision for warranty for various years i.e. provision created in preceding years, actual expenditure during the year under consideration, earlier provision utilized, the balance provision carried forward: AY Opening balance Additions Reversal Utilization Closing balance Contract revenue 2009-10 35,58,78,785 10,22,90,817 5,13,94,994 25,54,00,584 15,13,74,024 3,92,60,86,075 2010-11 15,13,74,024 28,81,12,854 4,50,43,319 9,11,22,433 30,33,21,126 3,55,32,53,339 2011-12 3 0,33,21,126 18,76,87,197 3,24,89,702 9,49,25,941 36,35,92,680 4,60,22,79,741 2012-13 36,35,92,680 23,89,75,515 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,....