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TMI Blog2020 (4) TMI 747X X X X Extracts X X X X X X X X Extracts X X X X ..... gly, we direct Ld. AO/TPO to delete addition made on account of advertisement expenses under section 37 (1). Disallowance of warranty expenses - HELD THAT:- Assessee's case dearly fans in line with the legal ratio set out by the various appellate decisions cited at Bar in so far as the provision for warranty stood crystallized as soon as the sate was made which a customer would like to be fulfilled within the warranty period and is at the cost of an assessee's goodwill. Therefore, the residual amount purported to have been held by the Assessing Officer as an excess provision cannot be considered as a contingent provision and not an ascertained liability. The warranty period continues beyond an year which fact was rightly considered by the Id. CIT(A). - Decided against revenue. Disallowance of foreign exchange loss - DR submitted that foreign exchange loss cannot be allowed, as the transactions are speculative in nature and contingent in character - HELD THAT:- Accounting treatment is to recognise exchange fluctuation gain or loss in the profit and loss account as on the valuation date. Hon ble Supreme Court in case of CIT vs Woodward Governor India (P) Ltd [ 2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd on facts, by levying interest of ₹ 13,92,24,998 under Section 234B of the Act. 8. The learned AO has erred in law, and on facts, in initiating penalty proceedings under Section 271(1)(c) of the Act. Brief facts of the case are as under: 2. Assessee is a company and filed its return of income on 28/11/11, declaring total income of ₹ 33,16,17,482/-. The case was selected for scrutiny and notice under 143 (2) was issued to assessee. Subsequently notice under section 142 (1) along with questionnaire was issued to assessee. In response to statutory notice, representative of assessee filed requisite details as called for. Ld.AO observed that assessee had international transaction with associated enterprise exceeding ₹ 15 crores and accordingly case was referred to transfer pricing officer to determine arm s length price of international transaction. 3. Upon receipt of reference, Ld.TPO called upon assessee to file economic details of international transaction in Form 3 CEB. Ld.TPO observed that assessee had following international transaction with its associated enterprises: Particulars Paid Recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions. It was submitted that during assessment proceedings before Ld. TPO, international transactions undertaken by assessee with associated enterprises was examined and accepted to be at arm s length, under manufacturing and distribution segments. However, adverse observation was made by Ld. TPO that assessee incurred huge expenses for purposes of advertisement, market promotion and development of intangibles of AEs and concluded that such expenses should be reimbursed by AE along with a mark-up. Ld. TPO thus computed adjustment at ₹ 1,56,75,58,922/-. 8. DRP upon analysing submissions of assessee, directed Ld. AO/TPO to delete proposed addition on account of AMP expenses. However, it was directed that expenses amounting to ₹ 4.96 crore incurred on media advertisement are in the nature of capital expenditure which resulted in enduring benefit in the form of creating brand of assessee, and therefore cannot be said to have been incurred wholly and exclusively for business carried out. DRP thus directed advertisement expenses to be disallowed under section 37 (1) of the Act. 9. Upon receipt of DRP directions, Ld.AO/TPO disallowed expenses incurred towards media advert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon decision of Hon ble Karnataka High Court in case of CIT vs Indo Nisan Foods Ltd., reported in (2013) 35 Taxmann.com 637, decision of Hon ble Bombay High Court in case of CIT vs Asian Paints (India) Ltd., reported in (2016) 75 Taxmann.com 152 and decision of Hon ble Delhi High Court in case of CIT vs Spice Distribution Ltd., reported in (2015) 54 Taxmann.com 325. Ld. AR submitted that all these decisions are placed in paper book at page 307-316. 13.2 On the contrary, Ld. CIT DR placed reliance upon orders passed by authorities below. 13.3 We have perused submissions advanced by both sides in light of records placed before us. In the decisions relied upon by Ld. AR Hon ble Courts have discussed the tests of enduring benefit. Hon ble Court, have opined that expenditure incurred towards advertisement to promote sales can in no way treated as capital expenditure. And that if argument of the revenue is upheld then no expenditure could be considered of having been incurred for purposes of business. Even otherwise there are number of decisions by Hon ble High Courts which holds advertisement expenses to be revenue in nature because advertisements do not have long-lasting ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of the assessee by this Tribunal. This Tribunal in assessee s own case for A. Ys : 2007 08 2008 09 vide order dt. 4.11.2015 in ITA Nos. 1179 1180/Bang/2012 has held in paras 9 to 12 as under: 9. We have also heard the teamed Departmental Representative and considered the facts and materials on record including the decisions cited before us. 9.1 While dealing with the issue in the order dated 30-1-2009 in TA No. 774/Bang/2010 it has been observed as under: 5. We have heard the rival contentions and perused the material available on record. We are of the considered view that the assessee's case dearly fans in line with the legal ratio set out by the various appellate decisions cited at Bar in so far as the provision for warranty stood crystallized as soon as the sate was made which a customer would like to be fulfilled within the warranty period and is at the cost of an assessee's goodwill. Therefore, the residual amount purported to have been held by the Assessing Officer as an excess provision cannot be considered as a contingent provision and not an ascertained liability. The warranty period continues beyond an year which fact was rightly consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... torical trend, it is important that the company has a proper accounting system for capturing relationship between the nature of the sales, the warranty provisions made and the actual expenses incurred against it subsequently If warranty provisions are based on experience and historical trend(s) and if the working is robust then the question of reversal in the subsequent two years, in the above example, may not arise in a significant way'. 11. In the assessee's own case in identical facts for the immediately preceding year, the Tribunal in FA No.22/Bang/2011 assessment year 2006-07 vide order dated 16.032012 has decided the issue in favour of the assessee, following the orders of the Tribunal for earlier years namely. 2004-05 and 200506. 12. Following the above decisions for the earlier years passed by the Coordinate Bench of Bangalore, toe hold that the CIT(A) is not justified in upholding the disallowance of provision for warranty and accordingly dismiss the ground of appeal of the revenue on this issue.' Following the earlier orders of this Tribunal in assessee's own case, we do not find any error or illegality in the impugned order of CIT (Appeals) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Ld. AO. At the outset it has been submitted that this issue stands covered in favour of assessee by its own decision for assessment year 2012-13 and 2013-14 vide order dated 10/05/19 in IT(TP)A No. 502/B/2017 and IT(TP)A No. 2837/B/2017 respectively. 19.1 On the contrary, Ld. CIT DR placed reliance upon orders passed by Ld. TPO. 19.2 We have perused submissions advanced by both sides in light of records placed before us. It is observed that for assessment year 2012-13 and 2013-14 in assessee s own case identical issue has been analysed in detail and held as under: 21. We notice that the above said decision squarely applies to the facts of the present case. In his arguments, the Ld. A.R also submitted that the economic ownership of brand lies in the hands of the assessee. As noticed earlier, the revenue has not shown that there existed any international transaction on account of incurring of AMP expenses. Accordingly, following the above said decision, we hold that the AO/TPO was not justified in making T.P adjustment on account of AMP expenses. Accordingly, we hold that no adjustment needs to be done in respect of AMP expenses and accordingly delete the add ..... X X X X Extracts X X X X X X X X Extracts X X X X
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