TaxTMI 
TaxTMI 
2018 (10) TMI 1991
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....omestic) Segment The assessee submitted that it had received varied nature of management services under a Service Agreement entered into with its AE. For the purpose of compliance with the transfer pricing documentation requirements, the assessee documented in its transfer pricing study report and submitted in the course of assessment, the management services framework wherein the description of services received, payment terms, details of cost allocation mechanism, evidences of benefits received from such services etc were explained to the revenue. These are enclosed in Page 39 and Pages 294 to 295 of the Paper Book. We find that the assessee had considered payment of management service fee to be a different class of transaction, distinct from other international transactions. Accordingly, based on functional analysis, AE was determined as the least complex party and accordingly determined to be the tested party for the purpose of the analysis. Further , TNMM was determined to be the MAM. We find that the assessee undertook to identify comparable companies rendering similar services and the international transaction was determined to be at Arm's Length. These are enclosed....
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....hat the assessee had capitalized the following assets under intellectual properties:- a. Low cost single phase static meter IP for domestic segment. b. Low cost single phase static meter IP for South Asian market like Vietnam, etc. c. RF AMR Radio frequency accelerated meter reading IP d. Salem 3T Metering Module IP e. Salem 1G HVDS IP f. PL Comm Evaluation Modem IP 3.3.1. It was argued that the intellectual property rights acquired by the assessee consisted of designs, software, data base, research and development material and facility , technical know how, process know how , confidential information, basic and detailed drawings, operation and maintenance manuals relating to the business carried out by TECRES. The valuation of the same was carried out by an independent expert and valuation report is enclosed in pages 25 to 82 of paper book. We find that the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations issued in July 2010 (enclosed in pages 67 to 73 of Part A of Paper Book) provides that the term 'intangible property' includes rights to use industrial assets such as patents, tra....
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.... 3.3.2. We find that the assessee had filed a copy of the Business Transfer Agreement (BTA) entered into with Mr. Gandhi as an additional evidence. It was submitted by the ld AR that the said agreement was never called for by the lower authorities and hence there was no occasion for the assessee to file the same and it was also submitted that the acquisition of business from Mr Gandhi by the assessee was never a subject matter of debate. In these circumstances, we deem it fit and appropriate to admit the said additional evidence for better appreciation of the facts to resolve the issue under dispute before us. 3.3.3. We find force in the argument advanced by the ld AR that the transfer of employees would also result in transfer of knowhow also. We find that the Explanation 4 to section 32(1) of the Act defines 'knowhow' as any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil-well or other sources of mineral deposits (including searching for discovery or testing of deposits for the winning of access thereto). Section 32(1)(ii) of the act provides for depreciation on intangible assets includ....
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....nication facilities. We find that the reliance placed by the ld AR on the Co-ordinate bench decision of Pune Tribunal in the case of Modular Infotech P Ltd vs DCIT reported in 131 TTJ 243 (Pune) is well founded. In the said case, the assessee company was engaged in the business of software development and also licensing of software. It had taken over the business of a firm namely M/s Modular Systems and claimed depreciation @ 25% on an amount of Rs. 4,27,00,000/- pertaining to the value of IPR paid to the firm. The AO disallowed the claim of depreciation on IPR against which assessee filed appeal before the ld CITA. During the appellate proceedings with the CITA, the assessee pointed out that the amount of Rs. 4.27 crores included composite consideration in respect of all the intangible assets of the firm namely IPRs and the goodwill and submitted a fresh valuation of the assets including that of the goodwill at Rs. 79,50,000/-. The CITA disallowed depreciation on goodwill of Rs. 79,50,000/- and allowed assessee's claim of depreciation in respect of balance IPR payment. On appeal filed before the Tribunal, it was held that where assessee company took over business of a firm at valu....
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....lso directed to rework the opening WDV of this asset in the subsequent year and rework the allowability of depreciation on the same pursuant to this order. In view of this decision, we are not inclined to entertain the alternative claim of the assessee vide ground no. 1(a) that the consideration so paid in the sum of Rs. 4,92,00,000/- has to be construed as Goodwill and depreciation has to be granted accordingly. 7. In view of the above, we direct TPO/AO accordingly. Ground No. 6 raised by the assessee are allowed. 8. Ground No. 7 is relating to disallowance of provision for stock obsolescence under normal provisions. 9. Heard both and perused the material available on record. It is noted that the issue raised in Ground No. 7 was decided by this Tribunal in assessee's own case by its consolidated order dated 13.09.2017 for A.Y.'s 2010-11 and 2011-12. The relevant portion of which is reproduced herein below: 33.3. We have heard the rival submissions. From the perusal of the materials available on record, we find that the assessee has created a provision for obsolete inventories amounting to Rs 10,00,472/- during the year following the mandate provided in Accounting....
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....the stocks in accordance with AS-2 issued by the ICAI is one of the standards recognized u/s 145(2) of the Act, wherein the closing stock is to be valued at lower of cost or net realizable value. 33.3.1. We find that this issue is directly covered in favour of the assessee by the decision of the Hon'ble Delhi High Court in the case of CIT vs Hotline Teletube & Components Ltd reported in (2008) 175 Taxman 286 (Delhi) . The facts before the Hon'ble Delhi High Court and the decision rendered thereon are as under:- 3.1 The assessee had filed a return on 20-10-2002 declaring a loss of Rs. 51,031. The case of the assessee was picked up for scrutiny and a notice under section 143(2) of the Act was issued. During the course of the assessment, it came to light that the assessee is in the business of manufacture of picture tubes of black and white television sets, as well as, glass shells for black and white picture tubes, electron gun and glass stems. 3.2 During the course of the assessment proceedings, the Assessing Officer sought explanation from the assessee with regard to provision in respect of diminution in value of stock. The Assessing Officer also sought t....
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....al in assessee's own case by its consolidated order dated 13.09.2017 for A.Y.'s 2010-11 and 2011-12. The relevant portion of which is reproduced herein below: "32.2.4. When the assessee sells his goods, the warranty clause is part of the sale transaction and therefore it is a committed liability by the assessee at the very initial stage of sale. But for prescription of such a warranty clause, the customer may not even buy the product of the assessee. In the instant case, the assessee had given the figures of actual warranty liability incurred and paid in the previous years which forms the basis of existence of warranty liability in the past. Now it would be pertinent to get into Clause 19 of the Purchase Order dated 16.2.2010 issued by WBSEDCL to the assessee defining the terms and conditions of contract. The ld DR vehemently relied on this clause as it only mentioned about 'Guarantee' and there was no clause for 'warranty' in the terms and conditions. Accordingly the ld DR objected to the allowability of provision for warranty in the sum of Rs 1,85,85,000/-. For the sake of convenience, the relevant clause 19 under the caption 'Guarantee' is reproduced hereunder:- ....
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....ed in settlement, is determined by considering the said obligations as a whole. In this connection, it may be noted that in the case of a manufacture and sale of one single item the provision for warranty could constitute a contingent liability not entitled to deduction under section 37 of the said Act. However, when there is manufacture and sale of an army of items running into thousands of units of sophisticated goods, the past event of defects being detected in some of such items leads to a present obligation which results in an enterprise having no alternative to settling that obligation. In the present case, the appellant has been manufacturing and selling Valve Actuators. They are in the business from assessment years 1983-84 onwards. Valve Actuators are sophisticated goods. Over the years appellant has been manufacturing Valve Actuators in large numbers. The statistical data indicates that every year some of these manufactured Actuators are found to be defective. The statistical data over the years also indicates that being sophisticated item no customer is prepared to buy Valve Actuator without a warranty. Therefore, warranty became integral part of the sale price of the Va....
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....eal based on the systematic historical data of the past wherein warranty liabilities had occurred to the assessee. Reliance in this regard is again placed on yet another finding of the Hon'ble Supreme Court in the case of Rotork Controls India (P) Ltd vs CIT reported in 314 ITR 62 (SC) wherein it was held as under:- 17. At this stage, we once again reiterate that a liability is a present obligation arising from past events, the settlement of which is expected to result in an outflow of resources and in respect of which a reliable estimate is possible of the amount of obligation. As stated above, the case of Indian Molasses Co. (P.) Ltd. (supra) is different from the present case. As stated above, in the present case we are concerned with an army of items of sophisticated (specialised) goods manufactured and sold by the assessee whereas the case of Indian Molasses Co. Ltd. (supra) was restricted to an individual retiree. On the other hand, the case of Metal Box Co. of India Ltd. (supra) pertained to an army of employees who were due to retire in future. In that case the company had estimated its liability under two gratuity schemes and the amount of liability was deducted f....
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....TPO/AO accordingly. Ground No. 8 raised by the assessee are allowed. 14. Ground No. 9 is relating to disallowance of provision for leave encashment. 15. Heard both and perused the material available on record. It is noted that the issue raised in Ground No. 9 was decided by this Tribunal in assessee's own case by its consolidated order dated 03.08.2016 for A.Y.'s 2007-08 and 2008-09. The relevant portion of which is reproduced herein below: "2.1. We have heard the rival submissions. At the outset, we find that the CIT(A) confirmed the disallowance as made by the Ld. AO on account of claim for provision for leave encashment. Ld. counsel for the assessee stated that the deduction on account of provision for leave encashment was made on the basis of the judgment of Hon'ble jurisdictional High Court in the case of Exide Industries Ltd. Vs. Union of India (2007) 292 ITR 470 (Cal) but he fairly conceded that subsequently Hon'ble Supreme Court has stayed this judgment of Hon'ble jurisdictional High Court vide order 08-05-2009 by following observations:- "Pending hearing and final disposal of the Civil Appeals, Department is restrained from recovering pe....
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.... the same as an unascertained liability and added back the same while computing the book profits u/s 115JB of the Act. This action of the ld AO was upheld by the ld DRP. Aggrieved, the assessee is in appeal before us vide Ground No. 14. 34.2. We have heard the rival submissions. We find that as per the provisions of The Micro, Small and Medium Enterprises Development Act, 2006, any amount due to the supplier as defined in section 2(n) of the MSMED Act, should be paid on the date agreed upon between the buyer and the seller, which shall be before the appointed date as per section 15 of MSMED Act. Section 16 of the said Act provides that in case the buyer (i.e the assessee herein) fails to make the payment to the supplier , then the buyer shall be responsible to pay interest at monthly intervals on the amount due to the supplier from the appointed date at three times the bank rate notified by the Reserve Bank of India. Accordingly, the ld AR argued that the liability towards interest can in no way be termed as an unascertained liability as it gets crystallized pursuant to an independent statute. He stated that the term 'ascertained' as defined in the Oxford Dictionary means ....
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....06 also starts with non-obstante clause by stating 'Notwithstanding anything contained in the Income Tax Act, 1961'. In this regard, it was argued by the ld DR that the wisdom of the legislators need to be accepted that the Parliament ought to have considered the provisions of the earlier Act while legislating the new Act. Obviously the MSMED Act was legislated and assent of the Hon'ble President of India obtained only on 16.6.2006 which is much after the Income Tax Act, 1961 and section 115JB of the Act contained therein. Going by the intention behind enacting the MSMED Act, i.e to protect the interests of the micro, small and medium enterprises that they get their dues in time for the supplies made by them and they don't get exploited by the big corporates or bigger players in the market, this payment of interest to those suppliers were provided in the MSMED Act. But we would like to state that the issue before us is to be decided as per the provisions contained in section 115JB of the Act. It is not in dispute that the revenue had sought to add back the provision for interest in the sum of Rs 29,21,911/- while computing the book profits u/s 115JB of the Act by treating the same ....
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....loss account or if any amount referred to in clause (j) is not credited to the profit and loss account, and as reduced by , - ............................ Once the expression "Book Profits" is defined in section 115JB of the Act, we cannot travel beyond what is defined therein and we cannot impute any other words or provisions therein unless otherwise specified by the statute . Reliance in this regard is placed on the decision of the Hon'ble Apex Court in the case of Apollo Tyres Ltd reported in 255 ITR 273 (SC). Admittedly the interest payable to suppliers under MSMED Act, 2006 is not one of the item contemplated for addition to net profit for the purpose of computing book profits u/s 115JB of the Act. It is well settled that provisions of section 115JB of the Act creates a deeming fiction and there cannot be deeming fiction on an existing deeming fiction by imputing the provisions of section 23 of MSMED Act, 2006 into the expression "book profits" as defined in Explanation 1 to Section 115JB of the Act. We find that there is no other clause provided in Explanation (1) to section 115JB(2) of the Act for increasing the book profits of the assessee due to this prov....
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....e ld AR also placed the scrutiny assessment orders of the assessee on record for the Asst Year 2014-15 u/s 143(3) of the Act dated 26.12.2016, wherein this aspect has been duly examined by the ld AO in the assessment and deduction was duly granted by him in the assessment. In view of these facts and findings, we hold that the provision for interest payable to suppliers registered under MSMED Act, 2006 in the sum of Rs 29,21,911/- is only an ascertained liability and need not be added back to the book profits computed u/s 115JB of the Act. Accordingly, the Ground No. 15 raised by the assessee for Asst Year 2011-12 is allowed. 19. In view of the above, we direct TPO/AO accordingly. Ground No. 10 raised by the assessee is allowed. 20. Ground No. 11 is relating to addition made on account of provision for warranty and deduction of actual warranty expenditure under book profit. 21. Heard both and perused the material available on record. It is noted that the issue raised in Ground No. 11 was decided by this Tribunal in assessee's own case by its consolidated order dated 13.09.2017 for A.Y.'s 2010-11 and 2011-12. The relevant portion of which is reproduced herein below: ....
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....the reasoning adopted by the Tribunal cannot be found fault with. The considerations which weighed with the Supreme Court in Rotork Controls India (P.) Ltd.'s case (supra) in concluding such warranty provisions were not contingent liabilities would apply with greater force to negate the claim by the revenue that such provisions are made for diminution in the value of any asset, so as to be covered by Explanation 1(i) to section 115JB of the Act. In these circumstances, the Court is satisfied that no substantial question of law arises for consideration. Similar view was also taken by the co-ordinate bench decision of Mumbai Tribunal in the case of Anchor Electricals (P) Ltd vs DCIT reported in (2015) 81 taxmann.com 250 (Mumbai-Trib.) dated 26.4.2017 in the context of allowability of provision for warranty vis a vis computation of book profits u/s 115JB of the Act. It was held that :- 23. With regard to the adjustment in book profit u/s115JB is concerned, it is noted that this issue is squarely covered in favour of the assessee by the judgment of Hon'ble Delhi High Court in the case of Becton Dickinson India (P) Ltd. (supra), wherein it has been held that th....