AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2024 (10) TMI 872
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....lowed. 3. The assessee company is engaged in the business of import and distribution of various products under the brand name 'Sony', which are mainly audio and visual entertainment products. The assessee filed its income tax return on 30.11.2016 in respect of AY 2016-17 declaring a total income of Rs. 2,42,88,96,600/-. The assessee company also disclosed book profits of Rs. 98,16,78,477/- under Section 115JB of the Act. The return filed was picked up for scrutiny. The assessee had cross border transactions with associated enterprises (AEs) and the Assessing Officer (AO) referred the matter to the Transfer Pricing Officer (hereafter TPO) for examining whether the transaction with AEs were on arm's length basis. 4. The learned TPO passed an order dated 29.10.2019 proposing an adjustment of Rs. 5,66,31,02,637/-. 5. The AO framed a draft assessment order dated 31.12.2019, which also included the adjustments proposed by the learned TPO. Apart from the adjustments, the AO also proposed disallowance on account of stock valuation loss, royalty, and provision for warranties. The AO also proposed addition of corporate social responsibility (CSR) expenditure for computing Minimum Al....
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....ble ITAT was justified in not appreciating that the assesse company had not used the licensed patents and know-how for manufacturing of licensed products and accordingly it is not liable to pay royalty charges to the owner of the intangibles i.e. the AE? C. Whether on the facts and circumstances of this case, the Hon'ble ITAT has erred in relying upon the decision of this Hon'ble Court in case of Cushman and Wakefield (ITA No. 475/2012) whereas the issues involved in this case are different from that of the assessee's case as arm's length price of International transactions related to payment of royalty has been determined by the TPO within the authority as prescribed u/s 92C of the Act? D. Whether on the facts and circumstances of this case, the Hon'ble ITAT was correct in not appreciating the action of the TPO for calculating ALP at NIL for royalty payment made by the assessee to the AE Sony Corp for the licensed patents and know-how which are actually used by third parties and not by the AE? E. Whether on the facts and circumstances of this case, the Hon'ble ITAT was correct in deleting the disallowance made by the assessing officer on account of stock....
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....to the AE. Accordingly, the TPO held that royalty amount of Rs. 2,79,43,965/- paid in respect of goods manufactured by MBIL and Rs. 10,04,88,528/- in respect of goods manufactured by CTTL were required to be benchmarked at Nil. Thus, according to the learned TPO, no royalty was payable on the goods of Sony brand dealt with by the assessee, which were manufactured by MBIL and CTTL. 14. The assessee had furnished the agreements with the concerned parties. It submitted that Sony Corporation, Japan had not licensed any technology to MBIL and CTTL but had only set out terms and conditions, which would govern the transactions between Sony Corporation or any of its subsidiaries with MBIL and/or CTTL. The assessee had also set out the commercial arrangement between the assessee and the AEs, which required payment of royalty. 15. The Tribunal referred to the decision of this Court in Commissioner of Income Tax-I v. M/s Cushman and Wakefield (India) Pvt. Ltd., Neutral Citation No. 2014:DHC:2764-DB and faulted the learned TPO for ignoring the commercial expediency and benchmarking the payment of royalty at Nil. The Tribunal held that the learned TPO was required to conduct a study to de....
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....pt that any question of law arises regarding disallowance on account of royalty paid by the assessee to the AEs. It is not disputed that the learned TPO is not required to examine the efficacy of commercial transactions and its role is confined to determining the price or value of the transactions on an arm's length basis. We find no infirmity with the conclusion of the Tribunal. (II) RE: VALUATION OF CLOSING STOCK 19. The assessee had valued its opening stock and closing stock on the basis of cost or net realisable value, whichever is low. The AO had faulted the assessee from valuing the stock at a value lower than the cost. There is no dispute that the assessee had been consistently valuing its stock - both opening stock and closing stock - on the basis of cost or realisable value, whichever is lower. The aforesaid basis is well accepted for valuation of stock. The said basis was also noted by the Supreme Court in CIT v. Woodword Governor India (P.) Ltd.: (2009) 312 ITR 254. The learned counsel for the Revenue also does not dispute that if the aforesaid basis is followed consistently, the assessee's income for the year would be fully captured as the element of profit would ....
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....the assessee had taken into account the number of items reported for repair. On the said basis it determined the failure ratio and also the actual cost of repairing the product. The assessee stated that it divided the actual repair cost by the number of failure items for determining the provisions to be made. The above tabular statement clearly indicates that the provision for warranties has a direct co-relation with the volume of sales. During the relevant assessment year, the assessee has incurred an expenditure of Rs. 2,31,42,46,202/- but the provision made was much significantly lower by Rs. 1,93,41,11,353/-. Thus, the provision standing at the end of the financial year 2015-16 relevant to AY 2016-17, stood at Rs. 96,78,04,688/-, which was lower than the provision of Rs. 1,34,79,39,537/- for warranties at the end of the financial year 2014-15. It is apparent that this was because the sales in the financial years 2012-13, 2013-14 and 2014-15 were higher than the sales during the financial year 2015-16 24. The final assessment order dated 30.03.2021 does not indicate that the AO had conducted any detailed examination of the method of calculating the provison as adopted by the ....
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....et apart different amounts for different assessment years. It is not the case of the revenue that the amounts set apart were unreasonably disproportionate to the amounts which were claimed by the customers on the basis of the warranties in the past. In that view, the Tribunal was justified in holding that the amounts set apart by the assessee was an allowable deduction. No substantial question of law arises for our consideration in this appeal, which fails and is hereby dismissed." 26. Although, the AO had attempted to distinguish the facts obtaining in earlier years, it is apparent that the AO had failed to do so. 27. As noted above, the method adopted by the assessee to make a provision for warranties was examined in any detail and therefore, the AO's premise that it was unscientific one is clearly not sustainable. In our view, no substantial question of law arises with regard to the decision of the learned Tribunal in directing deletion of the addition made by the AO on account of the provision for warranties. RE: EXPENDITURE ON CSR 28. The AO had deleted the expenses on CSR amounting to Rs. 4,56,46,135/- for the purposes of calculating book profits and determining t....