TaxTMI 
TaxTMI 
2025 (5) TMI 1571
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.... another: 1. That on the facts and circumstances of the case and in law, the Ld. AO as well the Hon'ble CIT(A) erred in disallowing the provision for leave encashment of Rs. 1,53,71,919/- by erroneously invoking the provisions of section 43B(f) of the Act. 1.1 That the Ld. AO as well as the Hon'ble CIT(A) erred on facts and in law in not appreciating that the provisions of section 43B(f) of the Act were not applicable in facts of the instant case. 1.2 That the Ld. AO erred in disallowing the provision for leave encashment by invoking provisions of see 43B(f) without appreciating that this amount does not represent sum payable by the company. 2. That the Ld. AO as well as the Hon'ble CIT(A) erred in not allowing the deduction for provision for warranty amounting to Rs. 5,73,56,176/- without appreciating that the provision was created on scientific basis and the same represents liability in praesenti allowable under section 37(1) of the Act. 2.1 The Hon'ble CIT(A) erred in not appreciating the basis adopted by the company for calculating the provision for warranty expenses thereby holding that there is hardly any co-relatio....
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..... That the Hon'ble CIT (Appeals) erred in following the order passed by the Ld. AO u/s 143(3) in respect of AY 2005-06, the same being arbitrary, contrary to law, facts and circumstances of the case. 5.1 That the Hon'ble CIT(Appeals) erred in following the order of the Ld. AO, since the Ld. AO did not exercise his judgment in referring the appellant's case to the Transfer Pricing Officer (TPO). 5.2 That the Ld. CIT(Appeals) erred in law in relying on the order u/s 92CA(3) of the Act passed by the Ld. TPO and Ld. AO's action of confirming the Ld. TPO's order, which in itself is bad in law and liable to be quashed. 5.3 That the Ld. CIT (Appeals) grossly erred both in facts and law by upholding the decision of the Ld. AO/ TPO of disregarding the transfer pricing study (TP Study) and the fresh search conducted by the appellant in determining the arm's length price with respect to the international transactions undertaken by the appellant to provide software development services, to its overseas group companies. 5.4 That the Ld. CIT (Appeals) erred in supporting the use of current year data for comparable companies, i.e., data ....
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.... That the above grounds of appeal are without prejudice to each other." 3. With regard to ground no.1 to 1.2, at the time of hearing, ld. AR of the assessee brought to our notice that the issue raised by the assessee in these grounds are covered against the assessee in assessee's own case in AYs 2003-04 & 2004-05 vide order dated 24.08.2018 passed by ITAT and filed a copy of order at the Bar. The decision of coordinate Bench is also reported in (2019) 102 taxmann.com 567 (Delhi-Trib) and in this regard, he also brought to our notice para 10 of the aforesaid order. 4. On the other hand, ld. DR of the Revenue also submitted that the issue is covered against the assessee vide aforesaid order of ITAT in assessee's own case. 5. Considered the rival submissions and perused the material on record. We find that this issue is covered against the assessee vide coordinate Bench order dated 24.08.2019 (supra) and the relevant finding given in para 10 is reproduced below for the sake of clarity :- "10. We have carefully considered the rival contentions and found that the assessee has made a provision for leave encashment of Rs. 41633651/-. This sum was not paid during....
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....t from 1 April 2002 leave salary payable by the assessee as an employer to his employees is brought within the purview of section 43B of the act However, the relaxation contained in the 1st proviso is available. On further it is clarified that once deduction of the provision made in an earlier year's is allowed, no deduction is permissible in respect of the same amount once again on payment basis. Therefore, if the assessee has made the provision of leave salary which has not been paid on or before the due date prescribed under the income tax act for filing of the return of income then such provision cannot be allowed as deduction in the year in which the provision is made but the payment has not been made before the due date of filing of the return of income. In view of this, we do not find any infirmity in the order of the lower authorities. Hence ground number 1 of the appeal of the assessee against the disallowance of provision of leave encashment by invoking the provisions of section 43B (F) of the act of Rs. 4163365/- is dismissed." 6. Respectfully following the decision of the coordinate Bench (supra), we dismiss ground nos.1 to 1.2 raised by the assessee. 7. With ....
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....e in favour of the assessee vide para 23 of its order. For the sake of repetition, findings of the coordinate Bench in para 23 is reproduced below :- "23. We have carefully considered the rival contention and perused the orders of the lower authorities. We have noted the details of the software expenditure produced before us by the learned authorized representative, which was also provided to the learned departmental representative. Out of the total expenditure of Rs. 6714164/-, most of the expenditure has been incurred by the assessee towards the software annual maintenance charges. The assessee's major expenditure of Rs. 836030/- was also because of the annual renewal of the software licenses. Assessee has also made the software development expenditure for bringing up the relevant software used for the day-to-day business needs of the assessee. In view of this, it cannot be said that the software has given any benefit of enduring nature to the assessee or are capital expenditure in nature. In view of this is the expenditure incurred by the assessee on software expenditure is day-to-day routine expenditure and annual renewal charges only, we are of the opinion that it....
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.... occurs in the execution of contract then assessee will become liable for payment of liquidated damages. The liability, thus, crystallized with the occurrence of event of delay in the execution of contract. The assessee might, after entering into negotiation with the party, get a waiver or partial deduction in its liability but that does not absolve the assessee from being liable for liquidated damages on occurrence of the event of delay in execution of the contract. " (page 556 of the Corporate tax PB for AY 2006-07) B.5. The ITAT has not restored the matter back to the AO for any further verification and therefore the observation that the ground is allowed for statistical purposes in Para 175 is a typographical error on the face of it. B.6. This is also evident from the order giving effect to the order of Hon'ble Tribunal for AY 2007-08 which is enclosed as Annexure 'C'. In fact, the Hon'ble Members wanted to see the OGE for AY 2007-08 which was not readily available and thus a direction was given to submit the same, B.7. It may kindly be appreciated that the AO passed a fresh order of assessment as the matters relating to TP an....
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.... provision of expenses cannot be allowed. He brought to our notice page 195 of the paper book wherein the details are based on milestones i.e. attaining the milestone of 30%, 60% & 100%. It clearly indicates that it is a provision and not actual damages claimed by the BSNL. With regard to damages claimed by the TATA AIG, he submitted that the issue under consideration is covered by the decision of earlier assessment year and submitted that the same may be remitted back to the Assessing Officer for verification and prayed that the issue of BSNL may also be remitted back to Assessing Officer for proper verification. 16. Considered the rival submissions and material placed on record. We observed that assessee has claimed liquidated damages claimed by the BSNL and TATA in respective assessment years under consideration. It is brought to our notice that in AY 2007-08, the coordinate Bench in assessee's own case allowed the claim of the assessee by observing as under :- "169.1 We have considered the rival submission and have perused the record of the case. Admittedly the contract entered into by the Assessee with its customer contained a specific clause on liquidated damages ....
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....he same is placed on record. Based on the above MAP, the assessee seeks to withdraw the grounds raised by the assessee with regard to provision of software development expenses. 19. After considering the same, we are inclined to allow the withdrawal of ground nos.5 to 5.9 raised by the assessee with regard to transfer pricing issue, since the current assessment year under consideration is covered by the MAP provisions. 20. Ground no.6 is against the initiation of penalty proceedings u/s 271(1)(c) which is premature at this stage and accordingly, the same is dismissed as such. 21. Ground No.7 is general in nature, hence the same is dismissed as such. 22. In the result, the appeal filed by the assessee being ITA No.4789/Del/2014 for AY 2005-06 is partly allowed. 23. The assessee has filed appeal being ITA No.3641/Del/2015 for AY 2006-07 raising following grounds of appeal :- "The following grounds of appeal are independent of, and without prejudice to one another: 1. That on the facts and in the circumstances of the case and in law, the order passed by the Ld. AO and the Hon'ble CIT(A) is bad in law. 2. That the Ld. AO as well as the Hon&....
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.... Without prejudice to the above grounds of appeal, the appellant is entitled to the deduction available under section 10A / 10B of the Income-tax Act, 1961 (the Act) on the increased profits of the business of the eligible undertakings on account of various disallowances made. Accordingly, a direction may kindly be given in this regard. 5. That on the facts and in the circumstances of the case, the reference made by the Ld. Assessing Officer (Ld. AO') suffers from jurisdictional error as the Ld. AO has not recorded any reasons in the assessment order based on which he reached the conclusion that it was 'expedient and necessary' to refer the matter to the Ld. Transfer Pricing Officer ('Ld. TPO') for computation of the arm's length price, as is required under section 92CA(1) of the Act. 6. That the Ld. CIT erred in upholding the adjustment to the income of the appellant of Rs. 27,52,24,842 by holding that the appellant's international transaction of provision of software development services to the Associated Enterprises ('AEs') does not satisfy the arm's length principle as envisaged under the Act and in doing so have grossly....
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....appellant undertakes minimal business risks as against comparable companies that are full- fledged risk taking entrepreneurs; and 5.10 disregarding judicial pronouncements in India in undertaking the TP adjustment 5.11 disregarding the fact that the appellant was entitled to tax holiday on its part of its profits from provision of software development services to the AEs and therefore would not have any untoward motive of deriving any tax advantage by manipulating transfer prices of its international related party transactions 5.12 disregarding the factual realities of the functional profile of the appellant in respect of its software development activities and wrongly holding that the appellant is involved in research and development activities and product development and consequently including companies involved in the trading of products in the comparable set 5.13 Without prejudice to ground 5.2, the action of Ld. CIT in confirming the action of the TPO in selecting comparable whose data does not correspond to the financial year of the Appellant as thus in conflict with Rule 10B(4) of the Income tax Act, being the data not contemporaneous. ....