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TMI Blog2019 (1) TMI 389X X X X Extracts X X X X X X X X Extracts X X X X ..... s file for examining it afresh. We also direct the tax authorities to examine this issue in an objective manner by properly considering the explanations and evidences furnished by the assessee. Addition made on account of difference in income found in Form 26AS and that reported by the assessee - Held that:- We notice that the Ld DRP has also restored this issue to the file of the AO with the direction to examine the reconciliation statement filed by the assessee and grant relief in respect of reconciled items of income. The ld A.R submitted that the assessee has furnished additional evidences to reconcile the income and TDS and accordingly prayed that this matter may be restored to the file of the AO. Since the assessee could reconcile the difference further, we are of the view that the same requires examination at the end of the AO. Accordingly we restore this issue to the file of the AO. Addition relating to Warranty Expenses - Held that:- TPO was not justified in taking such a view without bringing any corroborative material. We notice that the TPO has not doubted the genuineness of expenses, but has only questioned the necessity of incurring these expenses. He has furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d TDS and accordingly prayed that this matter may be restored to the file of the AO. Since the assessee could reconcile the difference further, we are of the view that the same requires examination at the end of the AO. Accordingly we restore this issue to the file of the AO. Addition made on account of difference in income found in Form 26AS and that reported by the assessee - Held that:- Since the assessee could reconcile the difference further, we are of the view that the same requires examination at the end of the AO. Accordingly we restore this issue to the file of the AO. In this year, one more plea has been put forth by the assessee. It was submitted that the AO has assessed unreconciled income between the books of the assessee and Form 26AS, but did not give credit for corresponding TDS amount. As stated that the assessee has moved a rectification petition before the AO, but the same has not been disposed of. There should not be any dispute that the TDS amount corresponding to the income assessed by the AO should be given credit. Accordingly we direct the AO to give credit of TDS amount relating to corresponding income. - I.T.A. No. 1453/Mum/2014, I.T.A. No. 4495/Mum/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to non-AEs. Accordingly it was submitted that the restrictions placed by the AE in the agreement entered with the assessee was with the objective of ensuring smooth business operations. We find merit in the said contentions of the assessee. If the assessee was really a contract manufacturer as considered by the tax authorities, it would be getting only a fixed amount of profit and further it would not be able to export goods on its own account. The facts available on record would show that the assessee has been selling goods to Non-AEs also. Accordingly we hold that the assessee should be considered as a Licence Manufacturer in the facts and circumstances of the case. 10. Since we have held that the assessee is licenced manufacturer, the basic foundation on which the disallowances of royalty and technical knowhow expenses were made would fail. Further the assessee has also pointed out that the TPO has not adopted any of one of the prescribed methods for benchmarking the transactions. Further the assessee has also taken support of certain case laws to contend that the aggregation of intrically connected transactions and determining the ALP of the transactions at entity level ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and accordingly disallowed the entire expenditure. The Ld DRP also held that the assessee has failed to prove the receipt of any service from AE commensurate with the cost allocation under various heads. It also took the view that the services may not have been provided by the AE. The Ld DRP also took the view that the assessee should have benchmarked the transactions separately instead of including the same with other transactions and benchmarking it under TNMM. Accordingly the Ld DRP confirmed the addition made by the AO. 6. We heard the parties on this issue. The assessee contended that the management fee is closely linked to its manufacturing activity and hence the aggregating the same with other activities and benchmarking the same at entity level under TNMM method is justified. The Ld A.R further submitted that the assessee has furnished e-mail correspondences under each category to prove the receipt of services, but the same has not been properly appreciated by the TPO/DRP. He also submitted that the TPO has not followed any of the prescribed method for determining the ALP of the transactions. The Ld A.R submitted that the assessee may be in a position to furnish more ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and accordingly prayed that this matter may be restored to the file of the AO. Since the assessee could reconcile the difference further, we are of the view that the same requires examination at the end of the AO. Accordingly we restore this issue to the file of the AO. 10. We shall now take up the appeal filed by the revenue, wherein following issues are contested:- (a) Addition relating to Warranty Expenses (b) Addition on account of TP adjustment made on purchase of patterns. (c) Addition relating to ASP management fee (d) Addition relating to club membership fee. 11. The first issue contested by the revenue relates to the disallowance of Warranty expenses. The facts relating thereto are that the assessee sells pumps to AEs and non-AEs on principal to principal basis. As per the terms of sales, the assessee provides Warranty on the products sold by it, irrespective of the fact as to whether the buyer is AE or non-AE. Where an AE is available in the Country to which the products were sold, the assessee approaches that AE to provide Warranty related services, which generally consists of repairing and reassembling works. The assessee has established this kind of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activities of the assessee. Accordingly the reasoning given by the TPO to determine ALP at NIL, in our view, is not sustainable. Accordingly we uphold the view taken by Ld DRP on this issue. 15. The next issue contested by the revenue relates to the TP adjustment made on Patterns purchased by the assessee. The assessee has imported new patterns from its AE, viz., M/s Sulzer Pumps, Mexico. The assessee treated the same as Capital assets and further stated that these are specific design patterns used to manufacture special pumps. The assessee submitted that the Design Patterns were transferred to the assessee by its AE at its book value and the said value has been accepted by the Customs Authorities also. The TPO took the view that the valuation by Customs authorities is done under different economic and fiscal matrix. He further took the view that the assessee has not furnished any valuation certificate nor did it prove that the Design Patterns were transferred at its book value of AE. The TPO noticed from the bill of entry that the product has been imported as Spare Part for pumps as against the claim of the assessee that it has imported Design Patterns. Accordingly the TPO to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emaining grounds give rise to the following issues:- (a) Disallowance of expenses of Royalty, technical knowhow fees and annual charges of Microsoft licencing fee by determining the ALP at NIL. (b) Disallowance of ASP Management fees (c) Addition on account of difference in income as per Form 26AS. 22. We heard the parties and perused the record. The first issue relates to the disallowance of Royalty, technical knowhow fees and annual charges of Microsoft licencing fee. We have considered an identical issue in the assessee s own case in ITA No.6059/Mum/2013 relating to AY 2008-09 and we have restored the issues to the file of the AO for examining them afresh, as the Tribunal held the assessee to be Licenced Manufacturer . We have followed the order passed in AY 2008-09 in AY 2009-10 and accordingly restored these issues to the file of the AO/TPO. Following the orders passed in the above said two years, we restore these issues in this year also to the file of the AO/TPO with identical directions. 23. The next issue urged by the assessee relates to the disallowance of ASP Management fees. An identical issue was considered by us in AY 2009-10 in the preceding paragraph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les, the assessee has provided warranty on the pumps so sold. There should not be any dispute that it is quite normal business practice to provide warranty on the goods sold. The assessee has so arranged its affairs that is has requested its AE located in other Countries to provide warranty services on the product and get reimbursement from it. The assessee has considered the same to be cost effective and also operationally convenience to meet the warranty requirements. The TPO has taken the view that the post sale risks shall be the responsibility of the overseas AEs. In our view, the TPO was not justified in taking such a view without bringing any corroborative material. We notice that the TPO has not doubted the genuineness of expenses, but has only questioned the necessity of incurring these expenses. He has further observed that the assessee has incurred the expenses only in certain Countries and not in other Countries. The question of necessity of incurring expenses is beyond the scope of the tax authorities. Hence, what is required to be seen is whether the assessee has incurred these expenses and they are related to the business activities of the assessee. Accordingly the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection to examine the reconciliation statement filed by the assessee and grant relief in respect of reconciled items of income. The ld A.R submitted that the assessee has furnished additional evidences to reconcile the income and TDS and accordingly prayed that this matter may be restored to the file of the AO. Since the assessee could reconcile the difference further, we are of the view that the same requires examination at the end of the AO. Accordingly we restore this issue to the file of the AO. In this year, one more plea has been put forth by the assessee. It was submitted that the AO has assessed unreconciled income between the books of the assessee and Form 26AS, but did not give credit for corresponding TDS amount. It was stated that the assessee has moved a rectification petition before the AO, but the same has not been disposed of. There should not be any dispute that the TDS amount corresponding to the income assessed by the AO should be given credit. Accordingly we direct the AO to give credit of TDS amount relating to corresponding income. 31. In the result, the appeal filed by the assessee for AY 2009-10 and 2010- 11 are treated as Partly Allowed. The appeal of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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