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TMI Blog2018 (6) TMI 1563X X X X Extracts X X X X X X X X Extracts X X X X ..... ct warranties or similar contracts) the probability that an outflow will be required in settlement, is determined by considering the said obligations as a whole. In the case of the assessee, we find that such an estimation based on actuarial certificate has been approved in the earlier year. We direct the Assessing Officer to allow the provision for warranty. Addition u/s.40(a)(ii) - deduction on account of interest paid on delay in deposit of TDS - Held that:- Interest charged on the late deposit of TDS is an allowable deduction as interest paid is compensatory in nature - principle amount of TDS has been allowed as deduction and consequently interest thereof should also be allowed as deduction. AO has made the disallowance under the provision of Section 40(a)(ii) which merely provides for disallowance of taxes applicable on profits and gains earned by the assessee. Disallowance of TDS made by the Assessing Officer ostensibly is not sustainable. Accordingly, we hold that no disallowance on interest can be made u/s.40(a)(ii). - I.T.A. No.1438/DEL/2018 - - - Dated:- 18-6-2018 - SHRI AMIT SHUKLA, JUDICIAL MEMBER SHRI O.P. KANT, ACCOUNTANT MEMBER For the Appellant : Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f transaction Associated enterprises Value of international transaction in INR 1. Import of Consumer durable products, LCD and spare parts Toshiba Home Appliances Corporation, Toshiba consumer Products, Toshiba Singapore Pte. Ltd, Toshiba Corporation, Japan 135,203,521 2. Import and export of IT Products and accessories Toshiba Corporation, Japan, Toshiba America Information Systems Inc.,Toshiba Europe GmbH, Toshiba Singapore Pte. Ltd. (import of PC and its spare parts), Toshiba Singapore Pte. Ltd. (Sale of PC Spare parts) 635,578,977 3. Provision of Warranty Services Toshiba America Information System Inc., Toshiba (Australia) te. Ltd. Toshiba Europe GmbH, Toshiba of Canada Ltd., Toshiba Personal Computer network (Shanghai) Co. Ltd., Toshiba Corporation, Japan (Provision of global warranty services, Toshiba Singapore Ptd. Ltd (Provision of global warranty services), Toshiba Singpagore Pte. Ltd. (Provision of warranty support ervices), Toshiba Corporation, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 49,607 Add: Disallowance u/s. 37 33,775 Add: Disallowance u/s. 43B 11,464 4. The main issue with regard to the ALP adjustment was on account of AMP expenses of ₹ 6,80,38,610/- which was made on substantive basis. After the DRP s direction, the substantive adjustment of the said amount was determined at Nil . However, the TPO had made protective addition on account of AMP distribution of ₹ 4,80,11,151/-, which has been reduced to ₹ 4,26,35,832/- and that too on protective basis after applying the Bright Line Test. The protective adjustment, in the light of the direction issued by the DRP has been made after taking the following final list of comparables: S. No. Company Name Margin (OP/OR) as per the order of the TPO Margin (OP/OR) after the directions of the DRP Remarks 1. Best Mulyankan Consultants Ltd. 9.35 9.35 2. Certification Engineers International Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s being revised to ₹ 4,26,35,832/-. 5. Thus, the issue before us is, protective AMP adjustment of ₹ 4,26,35,832/- which was made by using Bright Line Test. 6. Before us the learned counsel for the assessee submitted that the BLT method has been held to be invalid by the Hon'ble Jurisdictional High Court in the case of Sony Erricson (supra) and catena of other judgments of the Hon'ble Delhi High Court, wherein it has been consistently held that BLT method cannot be applied for making adjustment in the AMP expenses. He further pointed out that this issue now stands decided in favour of the assessee in assessee s own case for the Assessment Year 2013-14 and in support he filed a copy of judgment in ITA No.6531/Del/2017 order dated 13.11.2017, wherein the Tribunal has deleted the said protective issue. 7. On the other hand, learned DR relied upon the order of the learned DRP. 8. After considering the relevant findings given in the impugned order as well as order of the Tribunal, we find that on substantive basis no addition has been made after the direction of the DRP as the same has been determined at Nil . The only issue is protective addition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgment of Hon'ble Delhi High Court, therefore, in view of the binding judicial precedent, we also delete the protective addition of ₹ 4,26,35,832/- made on account of AMP expenses and accordingly grounds no.2 to 2.9 are allowed. 10. Coming to the issue of disallowance of provision for warranty, the facts in brief are that assessee has created a provision for warranty amounting to ₹ 9,80,20,092/- based on actuarial estimation of liability. However, at the time of filing of return of income, the assessee disallowed the provision for warranty debited to the P L account and claim allowance only for the amount of actual utilization of the provision. Accordingly, net amount of ₹ 7,26,60,664/- was added while computing the taxable income. The assessee placed strong reliance upon the judgment of Hon'ble Supreme Court in the case of Rotork Controls India Pvt. Ltd. vs. CIT, reported in 314 ITR 62 (SC) and other decisions. The Assessing Officer noted that the assessee has voluntarily and suo motu disallowed amount of ₹ 9,80,20,092/- on account of provision for warranty at the time of filing of income tax return and the claim was not made through revised ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... After considering the relevant finding given in the impugned order as well as the submission made by the assessee, we find that the assessee has made additional claim of deduction of ₹ 7,26,60,644/- on account of provision for warranty [8,70,10,950 charged under the books of account (-) 1,43,50,306/- warranty used during the year]. The said provision has been duly certified by actuarial certificate which is not in dispute. The Hon'ble Supreme Court in the case of Rotork Controls Ltd. (supra) held that warranty services are normal business expenditure and not contingent liability. It was held that a provision is a liability which can be measured only by using a substantial degree of estimation. A provision is recognized when: (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision can be recognized. Liability is defined as a present obligation arising from past events, the settlement of which is expected to result in an outflow from the enterprise of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the views of lower authorities in not allowing the claim of the assessee. Hence, we direct the Id AO to withdraw the deduction already granted to the assessee of ₹ 7842523/- and to allow deduction of ₹ 18503389/-. 15. Accordingly, in view of the earlier year precedence and ratio laid down by the Hon'ble Supreme Court, we direct the Assessing Officer to allow the provision for warranty of ₹ 7,26,60,644/- in this year. Hence, the ground no.4 is treated as allowed. 16. Ground no.5, learned counsel submitted that interest of ₹ 1,49,607/- charged on the late deposit of TDS is an allowable deduction as interest paid is compensatory in nature. The principle amount of TDS has been allowed as deduction and consequently interest thereof should also be allowed as deduction. We find that Assessing Officer has made the disallowance under the provision of Section 40(a)(ii) which merely provides for disallowance of taxes applicable on profits and gains earned by the assessee. Thus, disallowance of TDS made by the Assessing Officer ostensibly is not sustainable. Accordingly, we hold that no disallowance on interest can be made u/s.40(a)(ii). Hence, ground ..... X X X X Extracts X X X X X X X X Extracts X X X X
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