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2017 (10) TMI 1470 - AT - Income TaxTP Adjustment - correctness of aggregation approach in benchmarking international transactions - HELD THAT - Tribunal discussed the TP guidelines relating to aggregation of international transactions before granting relief to the assessee. The Tribunal also discussed ICAI guidelines on this issue before approving the aggregation approach of the assessee. Considering the covered nature of the issue we are of the opinion that the issue in the present case is squarely covered and in favour of the assessee. Therefore the grounds raised by the Revenue are dismissed. Provision for warranty - HELD THAT - It is evident that the claim of the assessee on account of warranty provision is allowed by the Tribunal in assessee s own case in the A.Y. 2003-04. Ld. Departmental Representative has not brought anything on record to controvert the above finding of the Tribunal. Therefore we find that the order of CIT(A) is in tune with the decision of the Tribunal. Addition of bad debts - HELD THAT - We find that the DRP has not appreciated the fact that the assessee complied with the condition of writing off of the debts in the books of account of the assessee as irrecoverable. They made an elaborate discussion distinguishing the Supreme Court judgment in the case of T.R.F. Ltd Vs. CIT 2010 (2) TMI 211 - SUPREME COURT . In our view the decision of DRP is required to be reversed on this issue considering the binding of judgments of Hon ble Supreme Court (supra) read with Section 36(1)(vii) of the Act. - Appeal of the assessee is allowed.
Issues Involved:
1. Aggregation Approach in Benchmarking International Transactions 2. Provision for Warranty 3. Claim of Bad Debts Issue-wise Detailed Analysis: 1. Aggregation Approach in Benchmarking International Transactions: The Revenue challenged the Dispute Resolution Panel (DRP)'s decision to support the aggregation approach adopted by the assessee for benchmarking international transactions. The Transfer Pricing Officer (TPO) had rejected this approach, favoring a segmental or sub-segmental approach, leading to adjustments amounting to ?16.27 Crore. The DRP reversed the TPO's decision, supporting the assessee's aggregation approach. The Tribunal noted that the assessee's various business activities, including manufacturing packaging materials, trading, and importing straws and capital equipment, were interlaced. The Tribunal referred to its previous decision for A.Y. 2009-10, where the aggregation approach was upheld, emphasizing that the activities were closely interlinked and could not be evaluated separately. The Tribunal found the issue covered by its earlier decision and dismissed the Revenue's appeal, supporting the DRP's decision. 2. Provision for Warranty: The assessee contested the disallowance of the incremental provision for warranty amounting to ?1,04,84,520/-. The Tribunal referred to its previous decisions for A.Ys. 2002-03 & 2004-05, where the provision for warranty was allowed. The Tribunal reiterated that the provision for warranty, systematically maintained and written back if unutilized, is an accepted accounting practice and not a contingent liability. The Tribunal cited the Supreme Court's decision in Rotork Controls India P. Ltd. Vs. CIT, which supported the assessee's method of recognizing warranty liabilities. Consequently, the Tribunal allowed the assessee's claim for the provision for warranty. 3. Claim of Bad Debts: The assessee also contested the disallowance of bad debts amounting to ?85,00,273/-. The Assessing Officer (AO) and the DRP had disallowed the claim, suspecting the debts' validity due to ongoing business transactions with the debtors. The Tribunal, however, referred to the Supreme Court's decision in T.R.F. Ltd. Vs. CIT, which held that once the bad debts are written off in the books of account, the AO cannot question their correctness. The Tribunal found that the assessee had complied with the conditions of Section 36(2) of the Income Tax Act, 1961, and reversed the DRP's decision, allowing the assessee's claim for bad debts. Conclusion: The Tribunal dismissed the Revenue's appeal, supporting the DRP's decision on the aggregation approach in benchmarking international transactions. It allowed the assessee's appeal, accepting the provision for warranty and the claim for bad debts, thus reversing the DRP's and AO's disallowances. The order was pronounced on 27th October 2017.
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