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TMI Blog2018 (10) TMI 236X X X X Extracts X X X X X X X X Extracts X X X X ..... e forex loss as part of operating profit, we do not find any reason to interfere with the same. Liabilities and provisions written back - Held that:- The liabilities and provisions written off in earlier years were taken as part of operating profit, therefore, when the same are written back, they must be considered as operating in nature for computation of operating profit margin. We direct accordingly. Treatment of income received by the assessee from rendering management support services to its AEs as non-operating in nature - notionally attributing non-operating expenses to the management support service income - Held that:- We find that on the one hand the TPO has treated the management support service income of ₹ 10,507,777/- as non operating and corresponding expenses of ₹ 97,15,490/- have been considered as operating in nature, thereby blowing hot and cold in the same breath. If management support services income is considered as non-operating, then corresponding expenses incurred while rendering such services should be considered as non operating instead of notional amount of ₹ 60,114/-. While deciding this ground against the assessee, we direct the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee : Shri Rohit Tiwari, Adv For The Revenue : Ms. Anchal Khandelwal, Sr.DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, These two appeals by the assessee are preferred against the two separate orders for A.Ys 2009-10 2010-11 framed u/s 143(3)/144C of the Income-tax Act, 1961 [hereinafter referred to as 'the Act']. Since common issues are involved in both these appeals, they were heard together and are being disposed off by this common order for the sake of convenience and brevity. 2. Briefly stated, the facts of the case are that the appellant company [DLRI] is a company incorporated in India in September 1998 under the provisions of Companies Act, 1956 and is a subsidiary of De la Rue BV Netherlands [DLRN] except for one share held by De La Rue International Limited, UK. The appellant company is engaged in the business of trading of machines used for counting, accepting, sorting and authentication of cash. These machines are primarily used in banks. The Company also renders after sales support and maintenance services to its customers using such machines. 3. The following international transactions u/s 92CA(1) of the Act were refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of Machines 2. De La Rue North America Inc., USA Group Company Manufacturing Trading of Machines 3- De La Rue Cash Systems, Hongkong Group Company Trading of Machines Spares 4- De La Rue (Malaysia), SDN, BHD Group Company Trading of Machines Spares 5- De La Rue Cash Systems, the Netherlands Group Company Trading of Machines Spares 6. De La Rue Cash Systems, Dubai Group Company Trading of Machines Spares 5. The comparables selected by the appellant are as under: a) Priya Limited b) CCS Infotech Ltd c) Compuage Inforcom Ltd d) IACI Infocom Ltd e) CMS Computers Ltd f) Iris Computers Ltd g) Kilburn Office Automotion Ltd 6. Out of the above comparables, the TPO rejected the following comparables: a) ACI Infocom Ltd b) CCS Infotech Ltd c) Compuage Inforcom Ltd d) Iri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CMS Computers Ltd 1.71% Yes 1.24% Yes 17.05% No No -6.50 No No 7 Kilburn Office Automation Ltd 16.52% Yes 20.82 % Yes 15.77% No Yes 17.56 Yes Yes Average 1.29 2.98 8. It would be pertinent to mention here that not only the business profile of the assessee has not changed during the year under appeal, but also the business profile of all the aforesaid comparables is same as they were in A.Ys 2007-08 and 2008-09. We could not find any justifiable reason for not accepting the comparables which were considered by the TPO himself in earlier A.Ys. Moreover, two comparables, namely, Compuage Inforcom Ltd and Priya Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered on the facts of the case in hand. 16. In A.Y 2010-11, as mentioned elsewhere, the assessee has taken the forex gain as operating profit but the DRP has treated the same as non operating. Once again, there is a inconsistent approach by the DRP this time. Once it has been decided that forex gain/loss is part of the operating profit, the same view has to be taken for AY 2010-11 also. We accordingly, direct the Assessing Officer/TPO to treat the forex gain in AY 2010-11 as part of operating profit for determination of operating profit margin. Ground No. 2.1(a) of AY 2010-11 is allowed. 17. Ground No. 2.5(b) in A.Y 2009-10 relates to liabilities and provisions written back. 18. The lower authorities have treated the same as non-operating in nature placing reliance on Safe Harbor Rules. The notification of CBDT issued on 18.09.2013 on Safe Harbor Rules define concept of operating expense, operating revenue and operating profit respectively. 19. In our considered view, the liabilities and provisions written off in earlier years were taken as part of operating profit, therefore, when the same are written back, they must be considered as operating in nature for computat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o not established nor any scientific method has been brought on record by which the said provision amount has been arrived at. Warrantee provision is merely an adhoc provision and, therefore, cannot be allowed. 25. When the above objection was raised before the DRP, the DRP partly allowed the claim for provision of warrantee to the extent of 1.25% of the sales as against the provision made at 5%. 26. Before us, the ld. AR vehemently stated that the warrantee is in-built in the purchase order/agreement and the liability on account of warrantee is integral part of sales Revenue. It is the say of the ld. AR that since the entire sales revenue is accounted as revenue, therefore, corresponding deduction for warrantee provision should also be allowable. The ld. AR further pointed out that on similar facts in assessee s own case, the Tribunal has decided this issue in favour of the assessee in ITA No. 5017/DEL/2012 for A.Y 2007-08. 27. Per contra, the ld. DR strongly supported the findings of the lower authorities. 28. We have carefully considered the orders of the authorities below qua the issue. In our understanding of the facts, we find that the machines are supplied to var ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have considered the submissions of both the parties and perused the records of the case. We are in agreement with the reasoning given by Ld. CIT(A) for which he has given reasons in his order, ITA Nos. 2671/Del/2013 5017/Del/2012 enumerated above. Merely because the assessee had written back the provision in subsequent year cannot be a basis for disallowing the assessee's claim in the current year, particularly when assessee had given specific basis for making this warranty provision. Assessee's claim is fortified by the decision relied upon by Ld. CIT(A). Accordingly, we see no reason to interfere in the order of Ld. CIT(A) on the issue in question. Accordingly, order of Id. CIT(A) is upheld. After looking to the order of the ITAT for Assessment Year 2007-08, the ITAT have dismissed appeal of the Revenues by holding that merely because the assessee had returned back the provisions in subsequent year cannot be a basis for disallowing the assessee's claim in the current year, particularly when the assessee had given specific basis for making warranty provisions. The Hon'ble Apex Court in case of Rotork Controls India (P) Ltd. (supra) has given the criteria ..... X X X X Extracts X X X X X X X X Extracts X X X X
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