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TMI Blog2019 (7) TMI 660X X X X Extracts X X X X X X X X Extracts X X X X ..... amount paid to the senior level employees under Management Incentive Bonus Plan (MIBP) - addition made u/s 43B r.w.s.36(1)(ii) considering bonus - HELD THAT:- Observation of the Revenue Authorities is incorrect since the facts on records clearly demonstrates that the issue of bonus as well as issue of MIBP are in altogether different terms and conditions. The judgment of SHRIRAM PISTONS AND RINGS LTD. VERSUS CIT [ 2008 (4) TMI 273 - DELHI HIGH COURT] has referred to the Good Work Reward and it has been clearly held that it does not constitute bonus within meaning of section 36(1)(ii) and was allowable as normal business expenditure u/s.37. We, therefore, set aside the order of the Ld. CIT(Appeals) on this issue and held that the MIBP paid to the employees are not bonus in the hands of the employees and the said amount is allowable for deduction u/s.37(1) by the assessee. Thus, this ground of appeal of the assessee is allowed. Disallowance of provision for warranty - trading liability incurred by the assessee in respect of the products sold by it to the customers in the ordinary course of its business - HELD THAT:- As decided in assessee s own case [ 2017 (4) TMI 1261 - ITAT PUNE] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alculation - compensation income is operating income or not - one off transaction which had not occurred in any of other assessment years - HELD THAT:- CIT-A has correctly observed that compensation income of 2.65 Cr. has arisen during regular conduct of business. Without operation of the business, the assessee would not have earned this income. This income cannot be considered to be one time income to justify its exclusion on the ground of extraordinary income. Therefore, the Ld. CIT(A) has rightly directed to the AO to include this compensation income for computing PLI being operating income. Thus, we are of the considered view that the order of the Ld. CIT(A) is fair and reasonable and it does not call for any interference and relief provided to the assessee is hereby sustained. Accordingly, ground No.4 raised in appeal by the Revenue is dismissed. Addition on account of payment of retention bonus - HELD THAT:- Assessee submitted that the person namely, Mr. Sunil Kaul is the Manager of the assessee s company and he is not holding any share of the company and he is working for the company and the amount paid is in the nature of reward given to the employee for working in a compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and cost of fixed assets as non operating expenditure. This expenditure is operating expenditure and would be part of computation for arriving at the assessee‟s PLI. This action of the Assessing Officer was upheld by the Ld. Commissioner of Income Tax (Appeals). 5. The Ld. AR of the assessee vehemently argued that earlier there were some old technology and there was requirement for installing new equipments and for this reasons, the assessee had brought in expat technicians for installation of the new equipments. Therefore, the Ld. AR contended that such amount is for capital expenditure and cannot form any part of the Profit & Loss account of the assessee. 6. Per contra, the Ld. DR placed strong reliance on the orders of the Sub-ordinate Authorities on this issue. 7. We have perused the case records and heard the rival contentions. On analyzing the facts of the case, we observe that it is an undisputed fact that the services of expat technicians were utilized by the assessee and that was for installation of new equipments. This amount is, therefore, part of the capital of the assessee and has to be taken to the Balance Sheet and it cannot be part of the Profit & Loss ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Income Tax, (2008) 307 ITR 363 (Delhi). 11. Per contra, the Ld. DR has placed reliance on the orders of the Sub-ordinate Authorities. 12. We have perused the case records and heard the rival contentions. We have also given considerable thought to the judicial pronouncement placed before us. That as demonstrated by the Ld. AR of the assessee in the statement showing Management Incentive Policy documents, there is separate column for bonus and separate column for MIBP. The objective for giving MIBP to employees is in a way to acknowledge the efforts made by the employees in achieving higher goals for the company. This is absolutely separate from the bonus given to employees. The case law that has been placed before us i.e. judgment of the Hon‟ble Delhi High Court in the case of Shriram Pistons & Rings Ltd. Vs. Commissioner of Income Tax (supra.), had also been placed before the Revenue Authorities. However, they have strictly gone into interpreting the nomenclature of the terms of good work reward and have held that this case is distinguishable in facts with regard to the case of the assessee where it is a question of giving incentive bonus. This observation of the Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eat exchangers, its parts and components. Against the sale of air-conditioners and heat exchangers manufactured by it, the assessee was making provision for warranty on scientific basis. If any expenditure was actually incurred for warranty, then the same was debited against the provision. The Assessing Officer was of the view that the said expenditure is not allowable in the hands of assessee, placing reliance on the decision of the Pune Bench of Tribunal in the case of Thermax Babcock & Wilcox Ltd. (supra) relating to assessment year 1990-91. First of all, where the assessee is following systematic basis for making the said provision for warranty which has been consistently followed by the assessee, then the same merits to be allowed in the hands of assessee. In this regard, we find support from the ratio laid down by the Hon'ble Supreme Court in Rotork Controls India P. Ltd. Vs. CIT (supra). 45. Now, coming to the stand of the Assessing Officer that in assessment year 1990-91 in the case of Thermax Babcock & Wilcox Ltd. (supra), disallowance was made since the assessee had not sold single unit of manufactured product in the said year. The Tribunal in the later assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Income Tax Vs. ALSTOM Projects India Limited (supra), wherein the Hon'ble High Court has held that in the absence of segmental accounts, TP adjustment have to be restricted only to transactions with Associated Enterprises on proportionate basis. The relevant extract of the findings of Hon'ble High Court are as under : "10. We may once more note that the Income Tax Department within the jurisdiction of this Court must adopt a consistent view on issues of law. In this case, we find that the Revenue urges the absence of segmental accounts would warrant entity wise adjustment, when the Revenue had itself in Pedro Araldite Pvt. Ltd. (Supra) did not canvas the point, as even according to it the issue stood covered by the earlier orders of this Court in favour of the Assessee. The Revenue must apply the law equally to all and cannot take inconsistent position in law (de hors the facts) to apply different standards to different assessee. The administration of the tax laws should not degenerate into an arbitrary and inconsistent application of law dependent upon the Assessee concerned. 11. We also note that the Delhi High Court in Commissioner of Income Tax Vs. Keihin Panalfa Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had paid ₹ 9,28,80,947/-towards international transactions relating to the payment of reimbursement of product development and testing expenses to Behr group of entities. The Ld. Transfer Pricing Officer in his order has observed that the assessee has furnished no evidence in respect of receipt of services, its price in open market etc. Though the assessee had paid this amount to the Associated Enterprises but it has not been able to demonstrate with facts and figures that any benefit, the assessee may have derived towards receipt of such services. Further, the Ld. Transfer Pricing Officer observed that the payment made being based on cost sharing basis, does not support the fact that payments have been made either towards quantum of services received or for any services received at all and therefore, the Transfer Pricing Officer was not at all certain as to whether any services have been received by the assessee as against the said payment made. 23. The Ld. Commissioner of Income Tax (Appeals) on this issue observed that the Ld. Transfer Pricing Officer in his order has not doubted receipt of such services, although the Ld. Transfer Pricing Officer has mentioned that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25.99 Bank charges 53.81 Total 113.53 The assessee submitted that the loss has not arisen out of the assessee‟s ordinary business operations and according to the "Safe Harbour Rules" issued by the CBDT dated 18.09.2013, foreign currency loss should be treated as non-operating in nature. 26. The Ld. Commissioner of Income Tax(Appeals) on this issue has held as follows: "2.4.4 I have considered the facts and the position of the law. It is settled that foreign currency loss is non-operating loss in view of the "Safe Harbour Rules" issued by the CBDT dated 18.09.2013. However, entire amount of ₹ 1.13 Cr. claimed by the Appellant would not qualify for this purpose. I find that discount on forward foreign currency contract of ₹ 30.79 lakhs and bank charges of ₹ 53.81 Lakhs is not foreign exchange loss, hence the same will be considered as the Appellant's operating expenditure. Remaining amount of the foreign currency loss would be treated as non-operating loss for the computation of the Appellant's PLI." Thus, it is seen that the Ld. CIT(Appeals) treated forward foreign currency contract of ₹ 30.79 lakhs and bank charges of ₹ 53.81 lakhs as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /costs of the assessee as well as that of the comparables. When we advert to the nature of such foreign exchange gain earned by the assessee, it has not been controverted by the ld. DR that the same is in relation to the trading items emanating from the international transactions. If the foreign exchange gain/loss directly results from the trading items, we fail to appreciate as to how such foreign exchange fluctuation gain/loss can be considered as non-operating. 7. The Special Bench of the Tribunal in ACIT Vs Prakash I Shah (2008) 115 IT]) 167 (Mum) (SB) has held that the gain due to fluctuations in the foreign exchange rate emanating from export is its integral part and cannot be differentiated from the export proceeds simply on the ground that the foreign currency rate has increased subsequent to sale but prior to realization. It went on to add that when goods are exported and invoice is raised in currency of the country where such goods are sold and subsequently when the amount is realized in that foreign currency and then converted into Indian rupees, the entire amount is relatable to the exports. In fact, it is only the translation of invoice value from the foreign currenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal has referred the judgment in Pr. Commissioner of Income Tax Vs. Ameriprise India Private Limited (ITA 206/2016) and the judgment of Hon‟ble Delhi High Court in Pr. CIT Vs. B.C Management Services Pvt. Ltd. (2018), 403 ITR 45( Del.) wherein it has been held that foreign exchange fluctuation in relation to trading transactions, prior to Safe Harbour Rules from 2013, is operating gain or loss. Thus, in view of the foregoing discussion we are of the opinion that the amount of foreign exchange gain/loss arising out of business/trading transactions is required to be considered as an item of operating revenue/cost. Thus, the ground No.3 raised in appeal by the Revenue is allowed. 29. The "provision for loss on forward contracts (amortized)" is not the subject matter of appeal before us either from the side of the assessee or from Revenue. 30. Ground No.4 of Revenue‟s appeal is whether the Ld. Commissioner of Income Tax (Appeals) was justified in holding that PLI be calculated taking compensation income as operating when it was one off transaction which had not occurred in any of other assessment years. 31. With regard to the issue, the assesee has submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment was made as per the contract and the amount did not pertain to only FY 2008-09. The Assessing Officer stated that the payment was made for achieving enduring gain and therefore, expenditure of ₹ 20,00,000/- is capital in nature and hence, was disallowed by the Assessing Officer. The assessee stated that the said payment is an incentive given to the employee for being in the assessee‟s employment for the period from 2005-08. As per the terms of the contract, the assessee was to pay the employee in the FY 2008-09 an amount of ₹ 20,00,000/-, if he was in the employment of the assessee during 2005-08. The terms for payment of the retention bonus were decided at the time of the employment of the employee to retain them. Therefore, the payment made to the employee is to be considered as revenue expenditure. 34. The Ld. Commissioner of Income Tax(Appeals) on this issue has held as follows: "2.5.5 I have considered the facts and arguments of the Appellant. I agree with the appellant that the payment made by the Appellant is in the nature of bonus given to the employees as an incentive for having worked for the longer duration. This payment is not made for achievin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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