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TMI Blog2022 (5) TMI 1534X X X X Extracts X X X X X X X X Extracts X X X X ..... ture. Ground No.2 consisting of 2.1 to 2.8.4 relates to transfer pricing adjustment made in respect of manufacturing segment. The manufacturing segment consisted of manufacturing and distribution of desktops and note books. The assessee had benchmarked the international transactions in manufacturing segment under internal CUP method. The TPO adopted TNM method and accordingly made transfer pricing adjustment of Rs.22.62 crores. The Ld. DRP gave partial relief to the assessee and accordingly transfer pricing adjustment came to be reduced to Rs.9.79 crores. 3.1 The Ld. A.R. submitted that an identical issue has been examined by the coordinate bench in the assessee's own case in IT(TP)A No.2444/Bang/2019 relating to assessment year 2015-16 and the tribunal, vide its order dated 6.3.2020, restored the matter to the file of the TPO with the direction to apply CUP method as most appropriate method and accordingly determined arm's length price. The Ld A.R submitted that the co-ordinate bench had examined the Most Appropriate Method adopted for earlier years and accordingly gave the above said direction. The Ld. A.R. prayed that this issue may be restored to the file of the AO following t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... marketing and sales promotion. The case of the assessee was that it is not an international transaction, as it was incurred in India for distribution segment. The TPO did not accept the same and he applied bright line test and accordingly made transfer pricing adjustment of Rs.111.68 crores. The same was upheld by Ld. DRP and accordingly, the A.O. also made the addition. 4.1 The Ld. A.R. submitted that the assessee has incurred AMP expenses to boost its market share and the same was not incurred at the instance of overseas A.E. He further submitted that there was no mutual agreement or understanding or arrangement with the A.E. towards reimbursement of expenses incurred by the assessee for AMP. Accordingly, by placing reliance on the decision rendered by Hon'ble Delhi High Court in the case of Maruti Suzuki Ltd. (ITA No.110/2014 & ITA 710/2015), the Ld. A.R. submitted that the AMP expenses will not fall under the purview of international transaction as defined u/s 92 of the Act and hence, the transfer pricing adjustment made by the AO is liable to be deleted. 4.2 We heard Ld. D.R. on this issue. According to the Ld. A.R., the decision rendered by Hon'ble Delhi High Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i High court in the case of Maruti Suzuki India Ltd. (supra) to the facts of the present case and accordingly first determine the question as to whether the AMP expenses would fall under the category of international transaction. If it is held to be not an international transaction, then the question of making any transfer pricing adjustment will not arise. After hearing the assessee and examining the facts afresh, the AO/TPO may take appropriate decision in accordance with law. 5. Ground No.4 consisting of 4.1 to 4.6 relate to disallowance of provision for warranty. During the year under consideration, the assessee had provided for "provision for warranty" to the tune of Rs.103.75 crores and claimed the same as deduction. The A.O. took the view that the provision for warranty is a contingent liability. Accordingly, he held that the same is not allowable as deduction. However, the A.O. allowed actual expenditure incurred during the year on meeting the warranty claims, which was Rs.100.25 crores. Accordingly, the AO made net disallowance of Rs.3,49,28,600/-. 5.1 The Ld. A.R. submitted that this is a recurring issue and the Tribunal in A.Y. 2015-16 allowed the claim of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as Hon'ble jurisdictional High Court, we direct the A.O. to delete the disallowance of Rs. 3,49,28,600/- relating to provision for warranty. 6. Ground No. 5.1 consisting of 5.1.2 to 5.1.3 relates to addition of "provision for warranty" to the net profits under Explanation 1 to sec. 115JB for the purpose of computing book profits, holding the same as 'contingent liability'. In the earlier paragraph, we have held that the provision for warranty is not contingent liability and accordingly allowed the deduction for computing total income under normal provisions of the Act. We also notice that the coordinate bench has also adjudicated this issue u/s 115JB in assessment year 2015-16 expressing the view that the provision for warranty need not be added to the net profit u/s 115JB, since it is not a contingent liability. The relevant observations made by the coordinate bench in AY 2015-16 are extracted below:- "35. As far Gr.No. VII raised by the assessee is concerned, the same relates to addition made to the book profits u/s 115JB of the Act on account of provision for warranty liability treating the same to be a liability of a contingent nature and hence liable to be added to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000/- made by the assessee towards its gratuity liability cannot be added back for the purpose of computation of the assessee's income under Section 115JB of the Act. Section 115JB of the Act as is well known pertains to special provision for payment of tax by certain companies. Sub-section (1) of Section 115JB of the Act provides that a minimum alternative tax to be paid by the companies as computed under the said provision. Sub-section (2) of Section 115 JB requires every company for the purposes of the said section to prepare its profit and loss account in accordance with the provisions of paras 2 and 3 of Schedule 6 of the Companies Act. Explanation 1 to said section provides that for the purposes of the said section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under subsection (2), as increased by various items specified in Clauses (a) to (0 provided therein. Clause (c) thereof reads as thus: \ "(c) The amount or amounts set aside to provisions made for meeting liabilities, other than ascertained ' In other words, if an amount is specified for provision which is for meeting with the liabilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts to a reserve or provision. The Supreme Court held that an assessee can while working out its net profits, provide from its gross receipts his liability to pay a certain sum towards gratuity liabilities of the employees. If such liability is properly ascertainable and it is possible to arrive at proper discounted present value. 20. In case of Rotork Controls India (P.) Ltd. v. CIT [2009] 314 ITR 62/180 Taxman 422 (SC), the Supreme Court' in the context of an assessee making provision for estimated expenditure towards warranty observed that provision is a liability which can be measured only by using substantial degree of estimation. Such provision is recognized when an assessee had a present obligation as a result of past events, and it is possible that any outflow of resources will be required to settle the obligation and further a reliable estimate can be made of the amount of obligation. 21. Considering the above judicial pronouncements and the facts on hand, we have no hesitation in upholding the Tribunal's view that though actual payment of gratuity may be made at a later point of time upon periodical release of the employees from service, it is provision having ..... X X X X Extracts X X X X X X X X Extracts X X X X
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