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TMI Blog2012 (4) TMI 225X X X X Extracts X X X X X X X X Extracts X X X X ..... per correct accounting principles, liabilities attached to the sales of the current year, which can be determined with a fair degree of reasonableness, are required to be provided for in the current year itself - in the event of provision not being allowed as a deduction, the same should be allowed on payment basis – Held that:- Once the DRP holds that the provision has been made on a reasonable basis, a finding which cannot be challenged by the Assessing Officer, and is allowable in principle, its quantum can not be reduced solely on the ground that in the subsequent year the entire payment is not made – in favour of assessee and direction to AO to delete the impugned disallowance. disallowing the provision for sales return – AO was of the view that since sales returns have actually been made in the subsequent year, the same should have been accounted in the subsequent year itself - Held that:- there is no point in first taking into account income on sales, which never reached finality, and then accounting for loss on sales return in the subsequent year , thus the approach of the assessee is in consonance with the well settled accountancy principles and the Assessing Officer wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing up relief sought in the appeal, and, it does not, therefore, need any adjudication by us. 4. In the second ground of appeal, the assessee has raised the following grievances: 2.1 On the facts and in the circumstances of the case and in law, the learned AO and Hon'ble DRP have erred in applying the provisions of Rule 8D of the Income Tax Rules, 1962 ("the Rules") for the while making a disallowance under section 14A of the Act to arrive at the assessed income for the relevant financial year. 2.2 On the facts and in the circumstances of the case and in law, the learned AO under the directions issued by the Hon'ble DRP erred in making a further disallowance of Rs. 10,12,362 under section 14A of the Income - tax Act, 1961 ("the Act"), in addition to Rs. 166,000 already disallowed by the appellant, on the alleged ground that the appellant is not maintaining separate books of accounts for earning exempt income. 2.3 The learned AO and Hon'ble DRP failed to appreciate that no further expenses are relatable to exempt income and accordingly no further disallowance is warranted in the instant case under section 14A of the Act. 5. So far as this ground of appeal is concerned, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment year 2008-09 are concerned, disallowance under section 14 A(1) can only be made and that " for that purpose, the Assessing Officer is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income under the Act" and that "the Assessing Officer must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record". Undoubtedly, such expenses are required to take into account 'direct expenses' as also 'indirect expenses', but then the disallowance has to be on a reasonable basis consistent with all the relevant facts and circumstances of the case. The Assessing Officer has, however, applied rule 8 D for assessment prior to assessment years 2008-09 as well, on the ground that this is the basis on which reasonable disallowance can be made, but then this approach is clearly directly contrary to the decision of Hon'ble Bombay High Court in Godrej Boyce Mfg. Co. Ltd. case ( supra ). The very approach adopted by the AO is unreasonable, contrary to legal position, and without re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year 2004-05 is pending before the Delhi A bench of the Tribunal. In the year before us, however, the DRP itself has upheld the grievance of the assessee in principle and dispute is confined to a limited aspect of quantification. Our adjudication is therefore confined to a very narrow issue which, strictly speaking, is not even the issue before the coordinate bench. In any case, since it is a stay granted matter and the next date of hearing in the said matter is fixed on 4th March 2012, we deem it fit and proper to proceed with deciding the issue on merits. The relevant material facts are like this. In the course of the assessment proceedings, the Assessing Officer noticed that the assessee has claimed revenue deduction, in respect of special discount on sales, as a revenue deduction. When Assessing Officer required the assessee to furnish details in respect of the same, it was submitted by the assessee that a provision of Rs. 3,20,99,878 has been made for the special discount in respect of sales made in fourth quarter of the year. This provision is made on the basis of discount rate announced by the company and is passed on the customers in the subsequent year. It was also sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uctibility has nothing to do with the events of the subsequent year. An provision made in excess or in short, due to bona fide errors- even if any, can result in corresponding adjustment in those years but it cannot affect admissibility of claim in the year in which provision is made. Learned Departmental Representative has contended that the provision cannot be allowed at all and has pointed out that the provision is not made on reasonable basis, but all these things are irrelevant now because the DRP has given a finding which cannot be challenged by the Assessing Officer. In view of these discussions, as also bearing in mind entirety of the case, we uphold the grievance of the assessee and direct the Assessing Officer to delete the impugned disallowance. 12. Ground No. 3 is also allowed. 13. In ground no. 4, the assessee has raised the following grievance: 4.1. On the facts and in the circumstances of the case and in law, the learned AO under the directions issued by the Hon'ble DRP erred in disallowing the provision for sales return amounting to Rs. 20,053,988. 4.2 Without further prejudice to the above, the learned AO erred in not giving a finding in the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tisfaction of the Assessing Officer but the method employed is such that, in the opinion of the Assessing Officer, the income cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the Assessing Officer may determine", there is no enabling provision now which permits the Assessing Officer to tinker with the profits computed in accordance with the method of accounting so employed under section 145 and as long as the mandatory accounting standards are duly followed. It is not even Assessing Officer's case that the mandatory accounting standards have not been followed. This analysis of Section 145, read with applicable accounting standards, apart, even on first principles, deduction in respect of anticipated losses, as a measure of prudent accounting principles, cannot be declined. It is only elementary that the accountancy principle of conservatism, which has been duly recognized by the Courts, mandates that anticipated losses are to be provided for in the computation of income but it does not permit anticipated profits to be taken into account till the profits actually arise. Even an anticipated loss, even if it may not have cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances of the case and in law, the learned TPO erred in and the Hon'ble DRP further erred in upholding / confirming the action of the TPO wherein the TPO wrongly disregarded the multiple year analysis undertaken by the appellant in accordance with Rule 1OB(4) of the Rules for computing margins of comparable companies. 10. On the facts and in the circumstances of the case and in law, the learned TPO erred in and the Hon'ble DRP further erred in not correctly applying the Proviso to Section 92C(2) of the Act and have failed to grant the relief for the downward adjustment of 5 percent from the arithmetic mean, which is permitted to and which has also been opted for by the Appellant. 11. On the facts and in the circumstances of the case and in law, the learned TPO erred in and the Hon'ble DRP further erred in violating the provisions of Section 92C(3) of the Act by failing to justify any reasons or conditions mentioned in clause (a) to (d) therein are not satisfied by the appellant for determining the arm's length price. 12. The directions of the Hon'ble DRP and thus the order of the learned AO is not a peaking order The directions of the Hon'ble DRP and thus the order of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technical services and contract testing services. Merckle GMBH, Germany is a pharmaceutical producer and contract manufacturer of proprietary and generic medicines. ... The assessee has also set up a moder R D Laboratory to carry out pharmaceutical product development and provide analytical research and stability testing services to its associated enterprises. .ENGINEERS INDIA LTD. (EIL) is engaged in a diverse set of activities viz ., providing a full suite of engineering and related technical services for petroleum refineries and other industrial projects. It provides a complete range of services needed to conceptualise, design, engineer and construct projects to meet the specific requirements of its clients. Its association with the clients extends beyond the commissioning of their plants through monitoring operation of each plant and accumulating feedback on performance. Lumpsum Turnkey projects from concept to commissioning is an area into which EIL has entered in a big way. Further, EIL operates in the refining sector involving in activities such as Motor Spirit Quality Up-gradation projects, Up-gradation of refineries, Pipeline projects. A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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