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TMI Blog2024 (10) TMI 872X X X X Extracts X X X X X X X X Extracts X X X X ..... d TPO is not required to examine the efficacy of commercial transactions and its role is confined to determining the price or value of the transactions on an arm s length basis. We find no infirmity with the conclusion of the Tribunal. Valuation of closing stock - assessee had valued its opening stock and closing stock on the basis of cost or net realisable value, whichever is low - AO had faulted the assessee from valuing the stock at a value lower than the cost - HELD THAT:- There is no dispute that the assessee had been consistently valuing its stock both opening stock and closing stock on the basis of cost or realisable value, whichever is lower. The aforesaid basis is well accepted for valuation of stock. The said basis was also noted in Woodword Governor India (P.) Ltd. [ 2009 (4) TMI 4 - SUPREME COURT ] Revenue also does not dispute that if the aforesaid basis is followed consistently, the assessee s income for the year would be fully captured as the element of profit would also not be included in the opening stock. The finding of the Tribunal cannot be faulted. Clearly, no substantial question of law arises from the decision of the Tribunal to delete the addition made on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inment products. The assessee filed its income tax return on 30.11.2016 in respect of AY 2016-17 declaring a total income of Rs. 2,42,88,96,600/-. The assessee company also disclosed book profits of Rs. 98,16,78,477/- under Section 115JB of the Act. The return filed was picked up for scrutiny. The assessee had cross border transactions with associated enterprises (AEs) and the Assessing Officer (AO) referred the matter to the Transfer Pricing Officer (hereafter TPO) for examining whether the transaction with AEs were on arm s length basis. 4. The learned TPO passed an order dated 29.10.2019 proposing an adjustment of Rs. 5,66,31,02,637/-. 5. The AO framed a draft assessment order dated 31.12.2019, which also included the adjustments proposed by the learned TPO. Apart from the adjustments, the AO also proposed disallowance on account of stock valuation loss, royalty, and provision for warranties. The AO also proposed addition of corporate social responsibility (CSR) expenditure for computing Minimum Alternate Tax (MAT) under Section 115JB of the Act. The AO found fault with the assessee valuing the closing stock at a value less than the cost. The AO also reduced part of the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the intangibles i.e. the AE? C. Whether on the facts and circumstances of this case, the Hon ble ITAT has erred in relying upon the decision of this Hon ble Court in case of Cushman and Wakefield (ITA No. 475/2012) whereas the issues involved in this case are different from that of the assessee s case as arm s length price of International transactions related to payment of royalty has been determined by the TPO within the authority as prescribed u/s 92C of the Act? D. Whether on the facts and circumstances of this case, the Hon ble ITAT was correct in not appreciating the action of the TPO for calculating ALP at NIL for royalty payment made by the assessee to the AE Sony Corp for the licensed patents and know-how which are actually used by third parties and not by the AE? E. Whether on the facts and circumstances of this case, the Hon ble ITAT was correct in deleting the disallowance made by the assessing officer on account of stock valuation loss without appreciating that any provision for diminution in the value of assets is not allowable deduction either under the normal provisions of the Act or u/s 115JB of the Act? F. Whether on the facts and circumstances of this case, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with by the assessee, which were manufactured by MBIL and CTTL. 14. The assessee had furnished the agreements with the concerned parties. It submitted that Sony Corporation, Japan had not licensed any technology to MBIL and CTTL but had only set out terms and conditions, which would govern the transactions between Sony Corporation or any of its subsidiaries with MBIL and/or CTTL. The assessee had also set out the commercial arrangement between the assessee and the AEs, which required payment of royalty. 15. The Tribunal referred to the decision of this Court in Commissioner of Income Tax-I v. M/s Cushman and Wakefield (India) Pvt. Ltd., Neutral Citation No. 2014:DHC:2764-DB and faulted the learned TPO for ignoring the commercial expediency and benchmarking the payment of royalty at Nil. The Tribunal held that the learned TPO was required to conduct a study to determine the arm s length price and not to determine the commercial expediency of the international transactions with the AEs. The Tribunal also accepted that Sony Corporation, Japan had invested significant amount for intangible properties, which the assessee has the license to use. The Tribunal examined the agreement betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : VALUATION OF CLOSING STOCK 19. The assessee had valued its opening stock and closing stock on the basis of cost or net realisable value, whichever is low. The AO had faulted the assessee from valuing the stock at a value lower than the cost. There is no dispute that the assessee had been consistently valuing its stock both opening stock and closing stock on the basis of cost or realisable value, whichever is lower. The aforesaid basis is well accepted for valuation of stock. The said basis was also noted by the Supreme Court in CIT v. Woodword Governor India (P.) Ltd.: (2009) 312 ITR 254 . The learned counsel for the Revenue also does not dispute that if the aforesaid basis is followed consistently, the assessee s income for the year would be fully captured as the element of profit would also not be included in the opening stock. 20. The finding of the Tribunal cannot be faulted. Clearly, no substantial question of law arises from the decision of the Tribunal to delete the addition made on account of the valuation of closing stock. RE: EXCESS PROVISIONS FOR WARRANTY 21. The AO had made a deletion in the sum of Rs. 52,12,77,597/- on account of excess provision for claims against w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icantly lower by Rs. 1,93,41,11,353/-. Thus, the provision standing at the end of the financial year 2015-16 relevant to AY 2016-17, stood at Rs. 96,78,04,688/-, which was lower than the provision of Rs. 1,34,79,39,537/- for warranties at the end of the financial year 2014-15. It is apparent that this was because the sales in the financial years 2012-13, 2013-14 and 2014-15 were higher than the sales during the financial year 2015-16 24. The final assessment order dated 30.03.2021 does not indicate that the AO had conducted any detailed examination of the method of calculating the provison as adopted by the assessee. As noted above, the assessee had set out the method deployed and the calculation, however, the calculation of the same was not examined by the AO. Without examination in detail the methodology deployed by the assessee for determining the amount of provision, the AO s conclusion regarding the reasonableness and efficacy of the provision would at best be arbitrary and, thus, unjustified. 25. The Tribunal had taken note of the decision of this Court in Commissioner of Income Tax v. M/s Sony India (P) Ltd., Neutral Citation No. 2006:DHC:24184-DB for the earlier assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so. 27. As noted above, the method adopted by the assessee to make a provision for warranties was examined in any detail and therefore, the AO s premise that it was unscientific one is clearly not sustainable. In our view, no substantial question of law arises with regard to the decision of the learned Tribunal in directing deletion of the addition made by the AO on account of the provision for warranties. RE: EXPENDITURE ON CSR 28. The AO had deleted the expenses on CSR amounting to Rs. 4,56,46,135/- for the purposes of calculating book profits and determining the tax payable under Section 115JB of the Act. It is also material to note that since the tax determined under the normal provisions of the tax was higher, the AO had assessed the tax chargeable on the said basis and not on the basis of book profits of the assessee. 29. The Tribunal had found that there was no provision under Section 115 JB of the Act, which required the expenditure on CSR to be adjusted for arriving at book profits. It is also settled law that except for adjustments as expressly set out under Section 115JB of the Act, book profits are required to be determined on the basis of accounts maintained in accord ..... X X X X Extracts X X X X X X X X Extracts X X X X
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