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2011 (10) TMI 666 - AT - Income TaxTransfer pricing adjustments - providing non sufficient opportunity - Held that - Since the main contention of the assessee is that the Transfer Pricing Officer has not given sufficient opportunity we are of the considered view that the matter may be set aside to the file of the AO with the direction to obtain fresh report from the T.P.O. and the T.P.O. is directed to recomputed the transfer price after giving reasonable opportunity of being heard to the assessee. Entitlement to plus or minus 5% adjustment as per section 92C(2) - Held that - Only one price has been determined under (most appropriate method) for evaluating arms length price the question of applicability of proviso 2 of section 92C(2) does not arise. Therefore assessee was not entitled to the concession of plus or minus 5% as prescribed in the said provision. Deletion of motor car expenses and payments for acquisition of motor cars - Held that - Observations of the AO were correct as the vehicles were used wholly and exclusively by the appellant and therefore the ownership also was lying with the appellant. That the lessor was claiming depreciation cannot be the ultimate test for ownership of the lessor. On the other hand the CIT(A) wrongly held that the ownership did not pass on to the lessee and thus the financial charges or lease rent should be allowed. This is wrongly found as the lessor might have sold the assets to the lessee or the user of the vehicle. Disallowance of provision for replacement guarantee - Held that - The provisions are based on the previous years data and based on the sales and AO himself has allowed the provisions made by assessee in Assessement year 2004-05 while doing the assessment u/s 143 itself we are of the view that assessee is entitled to deduction of provisions. Disallowance of advances written off - Held that - As in the interest of justice we consider it fit to restore this issue to the file of AO for fresh verification and decide the same as per law after giving a reasonable opportunity of being heard to assessee.
Issues Involved:
1. Transfer Pricing Adjustments 2. Deletion of Motor Car Expenses and Payments for Acquisition of Motor Cars 3. Disallowance of Provision for Replacement Guarantee 4. Disallowance of Advances Written Off Issue-wise Detailed Analysis: 1. Transfer Pricing Adjustments: - Revenue's Appeal and Assessee's Grounds: The primary issues raised by both the Revenue and the assessee pertain to transfer pricing adjustments involving import of monitors, export of finished goods, export of ETG, payment of IT charges, and reimbursement of expenses. - AO's Adjustments: The AO made adjustments totaling Rs. 3,74,05,022/- under various heads such as import of monitors, export of finished goods, export of ETG, payment of IT charges, and reimbursement of expenses. - CIT(A)'s Decision: The CIT(A) deleted adjustments related to export of ETG and payment of IT charges, reasoning that the differential contribution margin (CM) was not significant and the IT charges were allocated uniformly based on global policy. - Remaining Adjustments: The CIT(A) confirmed adjustments for import of monitors, export of finished goods, and reimbursement of expenses but the assessee appealed only against the first two. The CIT(A) also rejected the benefit of +/- 5% range while computing the arm's length price. - Tribunal's Decision: The Tribunal found that the Transfer Pricing Officer (TPO) had not given sufficient opportunity to the assessee and set aside the matter to the AO for fresh report from the TPO. The Tribunal also upheld the CIT(A)'s rejection of the +/- 5% range benefit, stating that it applies only when more than one price is determined. 2. Deletion of Motor Car Expenses and Payments for Acquisition of Motor Cars: - AO's Disallowance: The AO disallowed Rs. 70,00,000/- claimed as lease rental on cars, treating it as capital expenditure since the assessee appeared to be the owner of the cars. - CIT(A)'s Decision: The CIT(A) deleted the disallowance, reasoning that if the assessee was considered the owner, depreciation should be allowed. The CIT(A) noted that Leaseplan India Ltd. claimed depreciation, indicating ownership. - Tribunal's Decision: The Tribunal found the AO's action justifiable and set aside the CIT(A)'s decision, restoring the AO's disallowance. 3. Disallowance of Provision for Replacement Guarantee: - AO's Disallowance: The AO disallowed Rs. 10,24,78,000/- as provision for replacement guarantee but allowed the actual payment of Rs. 10,14,41,000/-. - CIT(A)'s Decision: The CIT(A) confirmed the AO's action, stating that future warranty obligations are not deductible as they are not actual expenditures. - Tribunal's Decision: The Tribunal allowed the provision, citing the Supreme Court's decision in Rotork Controls (India) Pvt. Ltd. vs CIT, which allows provision for warranty if scientifically computed. 4. Disallowance of Advances Written Off: - AO's Disallowance: The AO disallowed Rs. 6,30,00,000/- claimed as bad debts, stating that the assessee failed to prove the debts became bad and did not provide necessary details. - CIT(A)'s Decision: The CIT(A) confirmed disallowance of Rs. 52,67,000/- as capital expenditure and allowed the rest. - Tribunal's Decision: The Tribunal restored the issue to the AO for fresh verification, allowing the assessee to submit additional evidence. Conclusion: - Appeals Outcome: The appeals by both the Revenue and the assessee were allowed in part for statistical purposes, with several issues set aside for fresh consideration by the AO.
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