TaxTMI 
TaxTMI 
2023 (12) TMI 205
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....facts of the case. Transfer pricing grounds 2. The learned Transfer Pricing Officer ("TPO"), Learned AO/ Hon'ble DRP erred in rejecting the economic analysis performed by the Appellant in the transfer pricing documentation and adjusting the transfer price of the Appellant by an amount of INR 55,055,083/- under Section 92CA of the Act. 3. The Learned TPO/ Learned AO/ Hon'ble DRP erred in rejecting the comparability analysis undertaken by the Appellant in the TP documentation and in conducting a fresh comparability analysis by applying additional filters to determine the arm's length margin in the services segment. 4. The learned TPO/ Learned AO/ Hon'ble DRP has grossly erred in not rejecting the following companies from the list of comparable companies: • Bodhtree Consulting Limited • Infosys Limited • Larsen & Toubro Infotech Limited • Mindtree Limited • Persistent Systems Limited • Sasken Communication Technologies Limited • Tata Elxsi Limited • KALS Information Systems Limited 5. The learned TPO/ Learned AO/ Hon'ble DRP....
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.... 16. The learned TPO/ Learned AO/ Hon'ble DRP has erred in not appreciating that there exist a difference in the level working capital of the Appellant and the comparable companies and thereby erred in not providing an adjustment on account of working capital differences between the Appellant and the comparable companies. 17. The learned TPO/ Learned AO/ Hon'ble DRP erred in not allowing appropriate adjustment towards to the risk differential between the Appellant vis-à-vis independent comparable companies. Corporate tax grounds Disallowance of provision for warranty: 18. The learned Assessing officer ("learned AO") and the Hon'ble Dispute Resolution Panel ("Hon'ble DRP") have erred in disallowing the provision for warranty considering it to be a contingent/ unascertained liability, without appreciating that the Appellant has consistently recognized provision for warranty and the same is in accordance with the principles laid down by the Hon'ble Supreme Court in the case of Rotork Controls India (P) Ltd. ([2009] 180 TAXMAN 422 [SC]), hence, ought to be allowed as deduction under section 37 of the Act. 19. The lea....
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....me) substantiating the nature of expense and the benefits obtained by the Appellant. 25. The learned AO ought to have appreciated the fact that the term Research & Development ("R&D") used in the agreements is only a nomenclature and the Appellant has incurred royalty for use of intellectual property ("IP") (i.e. technical know-how developed and maintained by the group companies). 26. The learned AO has erred in concluding that there is no rationale for making royalty payment in addition to capital expenditure incurred on technical know-how provided by the AE, without appreciating that these two are distinct transactions and the Appellant has substantiated the business rationale for payment of royalty expenses through evidences and submissions. 27. The Hon'ble DRP erred in contending that Appellant has been granted license to manufacture and sell the products, and further erred in making other related contentions, without appreciating the fact that license was granted for use of EP or technical know-how, by the group companies. 28. The Hon'ble DRP has erred in contending that Appellant has been given right on patent/ technical know-how, p....
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....stead of INR 18,57,273, which is an arithmetical error. The appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided." 2. The Appellant is a wholly owned subsidiary of Continental Automotive GmbH, Germany. It is engaged in the manufacturing of components and systems for vehicles. It filed its return of income for AY 2009-10 on 30.09.2009, declaring the loss at Rs. 56,47,88,366/-. The return of income was selected for scrutiny assessment and reference was made to the TPO. Thereafter, a draft assessment order was passed on 11.03.2013 u/s. 143(3) r.w.s. 144C of the Income Tax Act, 1961 ("the Act"). 3. The Appellant filed its objections before the DRP which issued its directions on 30.12.2013. In line with the DRP directions, the Assessing Officer ('AO') passed the final assessment order u/s. 143(3) r.w.s.144C of the Act on 30.01.2014 computing the loss at INR 48,29,16,189/-. Aggrieved, both the assessee and the ....
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....me Rs. 29,99,21,836/- Operating Cost Rs. 29,17,94,808/- Operating Profit (Op. Income - Op. Cost) Rs. 1,81,27,034/- Operating/Net mark-up (OP/OC) 6.43% 9. The comparison of the TP study of the assessee and the TPO are as follows:- Appellant TPO Methodology adopted TNMM TNMM Profit Level Indicator (PLI) OP/TC OP/OC Database used PROWESS & CAPITALINE PLUS PROWESS & CAPITALINE PLUS Comparables selected 4 11 10. The comparables selected by the assessee and its arithmetic mean is as follows:- Sl. No. Name of the company Weighted Average margin (%) 1. CSS Technergy Ltd. 17.36 2. Chakkilam Infotech Ltd. 7.39 3. Geometric Ltd. 8.26 4. HDO Technologies Ltd. 10.11 Arithmetical Mean 10.78 11. The final comparables after the DRP directions are as follows:- SI. No. Name of the Company Margin 1. Kals Information Systems Ltd. 13.89% 2. Akshay Software Technologies Ltd. 8.11% 3. Bodhtree Consulting Ltd. 62.27% 4. RS Software (India) Ltd. 9.97% 5. Tata Elxsi Lt....
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....computing labs and systems integration services. Further the software development and services segment of the company comprises of hardware, software and animation services without availability of segmental break-up and no segmental details are available in the annual report of the company. In contrast, the Assessee is a captive software development service provider which does not develop/design/sell software products. Also, Tata Elxsi has a huge turnover of 419 crores whereas the Appellant's turnover is only 29.99 crores. Thus, the company is not comparable to the Appellant. Detailed submissions in this regard are placed at pages 284-286 of the paperbook. Persistent Systems Ltd. 15.2 The Assessee submits that the said company is engaged in Outsourced Product Development services for independent Software Vendors and enterprises. It offers complete product lifecycle services from end-to-end. It is mainly engaged in licensing of products and sale of products and no segmental information is available. The website of the company also mentions that the company is specialised in developing and distributing its own software products and technology innovation. The company also has su....
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....at these are not good comparables. For the sake of convenience, we extract below the said paragraphs: "10. As far as the appeal of the Assessee is concerned, the first aspect is with regard to exclusion of some of the comparable companies chosen by the TPO and retained by the DRP as comparable companies. The learned counsel for the Assessee submitted before us that the comparability of the following 5 comparable companies out of the 13 companies that remain after the order of the DRP viz., (i) Kals Information Systems Ltd., (ii) Bodhtree Consulting Ltd., (iii) Tata Elxsi Ltd., (iv) Persistent Systems Ltd. and (v) Infosys Ltd. was considered by the Tribunal in the case of Infinera India (P.) Ltd. v. ITO [2016] 72 taxmann.com 68 (Bang-Tribunal). The said decision was also in relation to AY 2009-10. In the aforesaid decision the issue raised was against including the aforesaid five companies as comparable companies. The plea of the Assessee was that the aforesaid five companies are not functionally comparable with the Assessee who was engaged in the business of providing SWD services to AE. It is also not in dispute before us that the functional profile of the Assessee in thi....
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....d to end web solutions software consultancy and design and development of software using latest technology and therefore, the same cannot be considered as a comparable in the case of companies rendering software development services, as in the present case. Therefore, by respectfully following this Tribunal order, we hold that this company is also excluded from the list of final comparables. (3) M/s Tata Elxsi Ltd., For exclusion of this company also, reliance has been placed on the same Tribunal order rendered in the case of Cisco Systems (India)(P.) Ltd. (supra) and our attention was drawn to para 26.4 to 26.5 of the order available on pages 103 to 105 of the case law compendium. For the sake of ready reference these paras are reproduced hereunder; '26.4 Tata Elxsi Ltd.:- As far as this company is concerned, it is not in dispute before us that in assessee's own case for the A.Y. 2007-08, this company was not regarded as a comparable in its software development services segment in ITA No. 1076/Bang/2011, order dated 29.3.2013. Following were the relevant observations of the Tribunal:- II. UNREASONABLE COMPARABILITY CRITERIA : 19. The lea....
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....014 order dated 12-12-2014 in the case of Yodlee Infotech Pvt. Ltd. v. ITO held as follows: "5.12............... This Tribunal in the case of 3DPLM Software Solutions Ltd. v. Dy. CIT (IT(TP) A No. 1303(Bang)/2012 dated 28-11-2013) has also held that Persistent Systems Pvt. Ltd., was in product designing services and into software product development. In the same decision it was also held that M/s Infosys Technologies Ltd., had considerable intangibles like IPR, and was also into software product development. It was also held that M/s Tata Elxsi Ltd., was developing niche products and into product designing services. Hence, these companies would in any case have to be excluded from the comparables being functionally different". 37. Following the said decision, we direct that Persistent Systems Ltd., be excluded from the final list of comparable companies chosen by the TPO'. The ld. DR of the revenue supported the orders of the authorities below; 16. We have considered the rival submissions. We find that in this case, the Tribunal has followed another Tribunal order rendered in the case of Yodlee Infotech Ltd. v. ITO [IT(TP) Appeal No. 108 (Ban....
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....tfully following this judgment of the Hon'ble Delhi High Court, we direct the AO/TPO to exclude this company also from the list of final comparables." 11. Following above said the decision rendered by the Tribunal in the case of M/s. Schneider Electric IT Business India Pvt. Ltd (supra) and M/s. Infinera India Pvt. Ltd. (supra), we direct exclusion of (i) M/s Bodhtree Consulting Ltd, (ii) Tata Elxsi Ltd., (iii) Persistent Systems Ltd. and (iv) Infosys Ltd." 17.1 Following the order of the coordinate Bench of the Tribunal in the case of M/s. Sonus Networks India Pvt. Ltd. (supra), we direct exclusion of (i) M/s Bodhtree Consulting Ltd, (ii) Tata Elxsi Ltd., (iii) Persistent Systems Ltd. and (iv) Infosys Ltd. from the list of comparables. Sasken Communication Technologies Ltd 18. It was submitted that the company is engaged in high-end software products and services that are not similar to the services rendered by the Assessee. It develops and owns several patents and earns returns on the same while the Assessee neither develops nor owns any patents. Moreover, the company incurs significant expenditure on research and development activities and hardware. However....
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....er of more than Rs. 200 crores could not be taken as comparable companies for an assessee having turnover of less than Rs. 200 crores. The Ld A.R submitted that, on application of above said upper turnover filter, the above said three companies would be excluded. Accordingly he prayed for application of upper turnover filter and exclusion of above said three companies. 10. He submitted that in assessee own case for assessment year 2007-08, Trilogy E-Business Software India (P.) Ltd. v. Dy. CIT [2013] 29 taxmann.com 310/140 ITD 540 (Bang. - Trib.), coordinate bench of this Tribunal applied turnover filter to exclude comparables. This Tribunal observed and held as under: 'The ld. counsel for the assessee as well as the ld. DR made rival submissions on various aspects of the adjustment made by the TPO. These objections will be dealt with under different heads. (1) Turnover Filter 11. The ld. counsel for the assessee submitted that the TPO has applied a lower turnover filter of Rs. 1 crore, but has not chosen to apply any upper turnover limit. In this regard, it was submitted by him that under rule 10B(3) to the Income-tax Rules, it was necessary....
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....ction entered into by a Rs. 1,000 crore company cannot be compared with the transaction entered into by a Rs. 10 crore company. The two most obvious reasons are the size of the two companies and the relative economies of scale under which they operate." 13. It was further submitted that the TPO's range (Rs. 1 crore to infinity) has resulted in selection of companies like Infosys which is 277 times bigger than the Assessee (turnover of Rs. 13,149 crores as compared to Rs. 47.47 crores of Assessee). It was submitted that an appropriate turnover range should be applied in selecting comparable uncontrolled companies. 14. Reference was made to the decision of the ITAT Bangalore Bench in the case of Genisys Integrating Systems (India) (P.) Ltd. v. Dy. CIT [2012] 53 SOT 159/20 taxmann.com 715, wherein relying on Dun and Bradstreet's analysis, the turnover of Rs. 1 crore to Rs. 200 crores was held to be proper. The following relevant observations were brought to our notice:- "9. Having heard both the parties and having considered the rival contentions and also the judicial precedents on the issue, we find that the TPO himself has rejected the companies wh....
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....omparables. In these circumstances, it was submitted by him that the assessee cannot have any grievance in this regard. .......... .......... 20. In this regard we find that the provisions of law pointed out by the ld.counsel for the assessee as well as the decisions referred to by the ld. counsel for the assessee clearly lay down the principle that the turnover filter is an important criteria in choosing the comparables. The assessee's turnover is Rs. 47,46,66,638. It would therefore fall within the category of companies in the range of turnover between 1 crore and 200 crores (as laid down in the case of Genisys Integrating Systems (India) (P.) Ltd. (supra). Thus, companies having turnover of more than 200 crores have to be eliminated from the list of comparables as laid down in several decisions referred to by the ld. counsel for the assessee. Applying those tests, the following companies will have to be excluded from the list of 26 comparables drawn by the TPO viz., Turnover Rs. (1) Flextronics Software Systems Ltd. 848.66 crores (2) iGate Global Solutions Ltd. 747.27 crores (3) Mindtree Ltd. 590.39 crores (4) Pers....
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....es 19,508,381,374 RPT% 16.61% 21.2 The ld. AR placed reliance on the decision of this Tribunal in assessee's own case for AY 2014-15 and Sonus Networks India Pvt. Ltd. (supra) for AY 2009-10. 22. The ld. DR relied on the orders of the revenue authorities. 23. We have heard both the parties and perused the material on record. The coordinate Bench of the Tribunal in the case of DCIT v. Informatica Business (P) Ltd. for AY 2009-10 [2019] 106 taxmann.com 354 (Bangalore - Trib.). excluded L&T Infotech Ltd. from the comparables by observing that it fails turnover filter. The turnover of this company is more than Rs. 200 crores. The relevant part of the order is as under:- 7. .......... '14. Remaining grounds i.e. 12 to 15 are in respect of assessee's claim for exclusion of various comparables i.e. (1) .... (2) ...... (3) ........ (4) ....... (5) ......) (6) Larsen and Toubro Infotech Ltd. (7) ........ ........... Regarding Larsen & Toubro Infotech Ltd., it was submitted that this comparable company fails turnover filter because onsite revenue of this company is only about 5....
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....his company. 23.2 The ld. AO/TPO is directed to compute the arithmetical mean of the working capital adjusted mean of the final comparable companies in the light of above directions and examine whether such arithmetical mean would fall within the +/- 5% range of assessee's NCP margin to be arm's length. Ground Nos. 18 to 20 - Disallowance of provision for warranty : Rs. 10,88,018 24. During the year, the Appellant had debited a sum of Rs. 1,09,46,000/- towards warranty expenses which included Rs. 98,57,982/- being an amount of actual claim by the customers made during the year and Rs. 10,88,018/- being the amount of provision for warranty. The movement in provision for warranty as accounted for by the Appellant for the year under consideration till assessment year 2019-20 is as under:- A.Y. Opening balance (A) Provision debited to P&L (B) Actual expenditure (C) Closing balance Net Provision (B-C) 2008-09 1,49,29,932 59,78,651 31,92,102 1,77,16,481 27,86,549 2009-10 1,77,16,481 1,09,35,490 98,57,982 1,87,93,989 10,77,508 2010-11 1,87,94,000 87,37,867 1,95,32,000 79,99,867 (1,07,94,133) 2011-12 79,....
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....ates provision for warranty on a scientific basis. Based on the above, expenses incurred by it towards warranty expense are allowable under section 37 of the Act. Detailed submissions in this regard are placed at pages 634-733 of the paperbook. He further submitted that the said issue is squarely covered by the decision of this Tribunal in assessee's own case for AY 2014-15 wherein it is held that the provision for warranty has to be allowed as a deduction. 24.4 The ld. DR supported the orders of lower authorities and submitted that the assessee has not adopted any scientific method for creating the provision for warranty. Therefore the judgment of Hon'ble Supreme Court in the case of Rotork Controls India P. Ltd. (180 Taxman 422) (SC) will not apply in the case of the assessee. During the course of proceedings before the DRP, the assessee was unable to produce as to how the provision for warranty has been made on any scientific basis. The provision for warranty is recognized as per the observation of the ld. DRP in the following 3 situations relying on the above judgment:- (a) An enterprise has a present obligation as a result of a past event; (b) It is probab....
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....e enterprise of resources embodying economic benefits. A detailed assessment of the warranty provisioning policy is required particularly if the experience suggests that warranty provisions are generally reversed if they remained unutilized at the end of the period prescribed in the warranty. Thus, the Hon'ble Apex Court pointed out that the provision has to be made based on reliable estimation of the obligations. Unless the three conditions recognising the liability are satisfied, the claim could not be automatically allowed as a provision made on a historical trend. 25.1 In the present case the assessee is providing warranty for 24 months on automotive products sold by it on the basis of percentage on sales as fixed by the quality centre for each product. The assessee has not produced any credible evidence/calculation as to how the provision for warranty has been arrived relating to different products before the authorities below. A specific query was asked to the ld. AR regarding the unutilised provision for warranty in the books of accounts to which the ld. AR replied that in such case it represented increase in the closing balance of the year adjusted in future warranty cla....
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.... incurred for the purpose of business, has been claimed as deduction by the Appellant under section 37 of the Act. The AO disallowed the above contending it to be capital in nature and also that it is not a genuine expenditure while passing the draft order, on the basis that no evidences were submitted supporting the same. The DRP has upheld the disallowance proposed by the AO by observing that the fixed percentage of expenditure incurred by the assessee was in the nature of royalty and it was capital in nature after relying on the judgment of Hon'ble jurisdictional High Court in the case of Telco Construction Co. Ltd. v. ACIT (TS-628-HC-2020(KAR) and also observed that the assessee has acquired the right over the technical know-how, patent, drawings and other rights mentioned in the agreement and expenditure incurred on such technical know-how gives enduring benefit to the assessee. However, the DRP held that since the expenditure incurred was capital in nature, the Appellant would be entitled to depreciation under Section 32 of the Act, after relying on the judgment of the Hon'ble Supreme Court in the case of Honda Siel Cars India Ltd. (2019) 101 Taxmann 322 (SC) in which it has ....
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....ucts. Such expenditure should be allowed under section 37(1) of the Act based on following submission:- i. Section 37 of the Act is a residual clause for claiming deduction for any expenditure incurred for the purposes of the business. ii. For the purpose of claiming deduction under section 37 of the Act, the following conditions should be fulfilled: * The expenditure must be revenue in nature and should not be covered by any express deductions under sections 30 to 36 of the Act. * The expenditure should not be personal in nature. * The expenditure should be incurred wholly and exclusively for the purposes of the business or profession. iii. Such payments are made only towards "access" to technical knowledge and not absolute transfer of technical knowledge or information. iv. Such expenses were incurred by the Appellant for increasing profitability relating to products manufactured by the Appellant by applying new methods of manufacture/ technology provided under the aforementioned agreements. v. The object of the aforementioned agreement was to obtain the benefit of technical knowledge available with the licen....
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....Appellant is obligated to hold in confidence all the information provided under the agreement. Clause 8 Degree of transfer Yes. The scope of the license is only to grant right to use licensed intellectual property. There is no transfer of absolute ownership of any intellectual property. Clause 2.1 Nature of royalty Yes. Royalty was paid based on a percentage of net sales as provided in the agreement Clause 5.1 26.6 It is submitted that for the above expenses, the Appellant receives a wide array of assistance, services, support and guidance on a recurring basis. It can be said that these royalty payments made are commensurate to the benefits obtained by the Appellant on a year on year basis. The broad key areas of support/ assistance/ service provided by Continental global to Appellant is described below in detail:- Standard Practices: (a) Continental global provides access to standard procedures, methodologies, best practices, knowledge updates, etc. relating to manufacturing process of a product. These are provided largely through software platforms used by Continental group on a standardized basis across the world. These are continuously update....
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....ments. * Tracking and overall management of the project on real-time basis. * Integration of costing software and accounting software (SAP). Various tools like tech.net, prod.net, log.net, camline etc are provided to the Appellant and some of the key tools in use by the Appellant are discussed below: Sl. No. Tool Name Tool/ platform description Benefit to 'Continental India' 1 Tech.Net It is a platform which provides access to latest technical information, standard practices, procedures, etc. Tech.Net members possess highest level of education (PHd) and provide support centrally to each location whenever a problem cannot be resolved locally. Appellant uses Tech.net (manufacturing technology network) to gain access to the technical information, standard practices and documents, and applies/ implements the same for its manufacturing process, testing process, etc. As mentioned earlier, this information and support is a catalyst for the Appellant's business. 2 Collaborative robots ("Cobot") Cobot is an advanced version of robots which focuses on safety and cost reduction. This is easy and Cobot helps the Appellant in reduci....
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....o products, manufacturing process, etc. with the Appellant. The requirement of the customers varies from country to country and therefore, Continental global provides customized versions of its designs, layouts and drawings to the Appellant which are best suited for the Indian market. Training (a) Continental global conducts online courses, training through video conferencing, live training workshops etc. to equip its people with updated technologies, products and solutions, and specifically focus on measures and guidelines for implementation of standards, new technology etc. These trainings are facilitated from the global experts of the Continental group. This contributes to enhanced productivity. Validation (a) Continental global validates the complete product layout/ design as submitted to it by local teams for its feasibility and then provides a "go-ahead" to the local team for its implementation. This is prepared and submitted in the form of a project matrix. (b) Continental global, due to their expertise could uncover any issues at an initial stage itself. Therefore, the above process aids Continental India to prevent any issues, avoid duplica....
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....business activities. Continental Global invests their efforts for providing the said services on a continuous basis. 27. The objections of the AO and Appellant's submission is tabulated below: Sl. No. AO's contention Appellant's submission Reference by the appellant 1. No proper evidences Furnished The Appellant had submitted the following details to the learned AO: 1. Copy of the agreement entered into with Continental Automotive GmbH, Germany 2. Copies of Form 16A's 3. Detailed submission evidencing the benefits obtained by the Assessee. 2. Nomenclature used in the agreement in R&D The Assessee submits that R&D is only a nomenclature used by the Assessee on the agreements since its group companies 3. Expenses is capital in nature since it provides enduring benefits and the Assessee has obtained far reaching benefits The Appellant submits that the impugned expense is not a capital expenditure, as there is no enduring benefit derived by the Appellant. The same is related to the business of the Appellant. The judicial precedents discussed above supports the case of the Appellant that expense is not capital in ....
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....ten notice with a period of six months before the end of initial term or the then current additional terms. He submitted that the case law relied by the ld. AR is not applicable in the present facts of the case. 29. After hearing both the sides, perusing the entire material on record and the orders of the lower authorities, We note that the assessee has paid royalty on a fixed percentage of revenue generated from the R&D activities. Before the AO in the second round of proceedings, the assessee was unable to produce the credible evidence in support of its expenditure, except the agreement, copy of Form 16A and benefits obtained by the assessee. The AO did not allow the claim of assessee u/s. 37(1) as revenue expenditure and also the depreciation for want of genuineness of expenses. Before the DRP, the assessee filed objections and in support of its claim submitted detailed submissions. The ld. DRP allowed the claim of depreciation treating it as a capital asset after relying on certain judgments. On perusal of the agreement we note that the "Licensed IP" were presently owned and acquired by CA Gmbh or to which the license is granted to CA Gmbh with right o sub-license. The Licen....
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....y of agreements, TDS certificate and benefit received. The assessee is also not eligible for claim of deduction u/s. 35(1)(iv) of the Act since it has not fulfilled the conditions as specified in the section. From the above, we are of the view that the ld. DRP has examined the issue in detail from para 2.19.1 to 2.19.16 and we do not find any infirmity in the order of the ld. DRP. The AO is directed to grant depreciation as per the order of the ld. DRP. Ground No. 34: Short grant of credit for Tax Deducted at Source and foreign tax credit 30. It is submitted that the Appellant had claimed an amount of Rs. 1,26,92,220/- in its return of income. However, the AO erred in not granting the full credit for the taxes deducted. In thig regard, it is submitted that the Appellant had filed an application for rectification before the AO along with the TDS certificates. Therefore, it is humbly prayed that the Appellant be granted full credit of the TDS deducted. 31. We have heard both the parties. The ld. DRP has given direction to the AO for giving TDS credit after verification. We direct accordingly. 32. Ground No. 35 is dismissed as not pressed. Ground No. 36: Arithmetical er....
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.... 7 18 Oct-09 7056 2 18 6 19 Nov-09 5027 6 19 5 20 Dec-09 6022 0 20 4 21 Jan-10 4716 0 21 3 22 Feb-10 4008 14 22 2 23 Mar-10 3240 22 23 1 24 Apr-1 0 2904 10 24 0 TOTAL 137,722 466 - c) The above table depicts actual sale for each of the month and quantity returned against the sales made during those month. d) Based on these actual data, percentage of likely warranty claim is arrived as follows: Step 1: Estimated future quantity likely to return is arrived in the given formula = Quantity returned x O/s Warranty Period Step 2: Elapsed Months Total quantity returned is arrived in the given formula = Actual Quantity returned +Estimated Future Quantity likely to return (as per Step 1) Step 3: Percentage of likely warranty claim in respect of product is arrived in the following formula Total Quantity returned (as per step2) Total quantity despatched Document 3 The table below depicts the results after following the above steps: Sr Month No. Qty dispatched Qty Returned Pending....