Tetra Pak India Private Ltd., Pune V. Deputy Commissioner of Income-tax,

CO 13/PUN/2016

• Counselvise Citation: [2017] 119 COUNSELVISE.COM (IT) 3507 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 4 month(s) 24 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 24-08-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2002-2003
• Appeal Filed On: 30-03-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NIRUPAMA KOTRU
• Keywords: Business income; Transfer pricing; Bad and doubtful debts
• Section: 28

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . . . . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NOS. 1586 & 1587/PUN/2014 / ASSESSMENT YEARS : 2002-03 & 2004-05 DCIT, CIRCLE - 7, PUNE . / APPELLANT V/S TETRA PAK INDIA PVT. LTD., GROUND FLOOR, MAYFAIR TOWERS, MUMBAI-PUNE ROAD, SHIVAJINAGAGAR, PUNE 411 005 PAN : AAACT3467B . / RESPONDENT C.O. NOS. 13 & 14/PUN/2016 (ARISING OUT OF ITA NOS. 1586 & 1587/PUN/2014) / ASSESSMENT YEARS : 2002-03 & 2004-05 TETRA PAK INDIA PVT. LTD., GROUND FLOOR, MAYFAIR TOWERS, MUMBAI-PUNE ROAD, SHIVAJINAGAGAR, PUNE 411 005 PAN : AAACT3467B . CROSS OBJECTOR V/S DCIT, CIRCLE - 7, PUNE . APPELLANT IN THE APPEAL ASSESSEE BY : SHRI NIKHIL PATHAK REVENUE BY : SHRI NIRUPAMA KOTRU, CIT / ORDER PER D. KARUNAKARA RAO, AM : THERE ARE FOUR APPEALS UNDER CONSIDERATION WHICH I NCLUDES TWO CROSS OBJECTIONS BY THE ASSESSEE. THESE APPEALS ARE FILE D FOR THE A.YRS. 2002-03 AND 2004-05. NO ADDITIONS WERE MADE IN THE ASSESSMENT FOR A.Y. 2003-04, / DATE OF HEARING : 22.08.2017 / DATE OF PRONOUNCEMENT: 24.08.2017 2 ITA NOS.1586 & 1587/PUN/2014 AND CO NOS. 13 & 14/PUN/2016 TETRA PAK INDIA PVT. LTD., THEREFORE, NO APPEALS FOR A.Y. 2003-04. FOR THE SA KE OF CONVENIENCE, THESE APPEALS WERE HEARD TOGETHER ARE AND BEING ADJUDICAT ED BY THIS COMPOSITE ORDER. ITA NO.1586/PUN/2014 AND CO NO.13/PUN/2016 - A.Y. 2002-03 : 2. WE SHALL TAKE UP APPEALS FOR A.Y. 2002-03 FIRST. IN ITA NO.1586/PUN/2014 FILED BY THE REVENUE, GROUND NOS. 1, 2 AND 5 ARE EITHER GENERAL IN NATURE OR RAISED ERRONEOUSLY WITHOUT UND ERSTANDING THE DECISION OF THE CIT(A) PROPERLY. FOR EXAMPLE, CIT(A) DECIDED CERTA IN ISSUES INVOLVING; INTEREST ON FIXED DEPOSIT, INCOME-TAX REFUND, PROFIT ON SALE OF ASSET ETC., IN FAVOUR OF THE REVENUE AND THEY WERE MISCONSTRUED BY THE AO AS DEC IDED AGAINST THE REVENUE. THEREFORE, GROUND NOS. 2 AND 4 (IN PART) ARE ERRONE OUSLY RAISED. CONSIDERING THE FACT THAT THE CIT(A) ACTUALLY DECIDED THESE ITEMS A GAINST THE ASSESSEE RELEVANT GROUNDS ARE DISMISSED AS EITHER GENERAL OR ERRONEOU S. THAT LEAVES GROUND NOS. 3 AND 4 (IN PART) FOR ADJUDICATION AND THE SAME REA D AS UNDER : 3. LIABILITY WRITTEN BACK AND DOUBTFUL DEBTS WRITT EN BACK AS NON-OPERATING WHEN SPECIALLY ASSESSEE COMPANY ITSELF HAS TREATED THEM AS NON-OPERATING IN LATER A.YS., I.E. A.Y. 2011-12 AND A.Y. 2010-11 AND TR EATED AS OPERATING IN EARLIER YEARS, I.E. THERE HAS BEEN NO CONSISTENCY IN ASSESS EES APPROACH IN TREATING ITEMS, AS OPERATING/NON-OPERATING. 4. THE LD.CIT(A)-IT/TP, PUNE HAS ERRED IN TREATING MISCELLANEOUS INCOME AS OPERATING WHEN RS.17,78,678/- (SIC) HAS BEEN TREATED AS NON-OPERATING BY THE LD.CIT(A)-IT/TP, PUNE IN CALCULATION IN PARA 2.2.17 OF THE APPELLATE ORDER (REST OF THE AMOUNT OUT OF THE TOTAL HAS ALREADY TAKEN AS OPERATING BY TPO). 3. BRIEFLY STATED RELEVANT FACTS ARE THAT THE ASSES SEE FILED THE RETURN OF INCOME DECLARING LOSS OF RS.8,79,49,514/- AND THE A SSESSMENT IS COMPLETED ON THE TOTAL INCOME OF NIL AFTER INCORPORATING THE TP ADJUSTMENT AS SUGGESTED BY THE TPO. OTHERWISE, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF PACKING MATERIAL, PACKING MACHINES AND SYSTEMS. THE OPERATING PROFITS OF THE ASSESSEE OP/OC IS 7.5% AND THE TP ST UDY OF THE ASSESSEE SUPPORTED THAT THE SAME IS WITHIN THE ARMS LENGTH. HOWEVER, DURING THE 3 ITA NOS.1586 & 1587/PUN/2014 AND CO NOS. 13 & 14/PUN/2016 TETRA PAK INDIA PVT. LTD., PROCEEDINGS BEFORE THE TPO, COUPLE OF COMPARABLES W ERE EXECUTED THEREBY THE OP/OC IS RECALCULATED BY TPO AT 5.85%. FURTHER, TH ERE IS OTHER ADJUSTMENT MADE BY THE TPO TO THE OPERATING PROFIT OF THE ASSE SSEE ITSELF. TPO EXCLUDED CERTAIN ITEMS OF INCOME FROM THE SCOPE OF OPERATING PROFIT OF THE ASSESSEE, THE DETAILS OF WHICH ARE MENTIONED IN PARA NO.2.2.16 OF THE ORDER OF CIT(A). OUT OF THE OPERATING PROFITS OF THE ASSESSEE AS DECLARED I N THE BOOKS OF ACCOUNTS, THE TPO HELD THE FOLLOWING SIX ITEMS SHOULD NOT CONSTIT UTE THE OPERATING PROFITS. THEREFORE, THEY WERE EXCLUDED. THE DETAILS ARE AS U NDER : PARTICULARS AMOUNT (RS.) INTEREST ON FD 95,63,024/ - INTEREST ON IT REFUND 4,05,651/ - LIABILITY WRITTEN BACK 6,15,59,011/ - PROFIT ON SALE OF ASSET 1,43,28,497/ - DOUBTFUL DEBTS WR ITTEN BACK 1,48,74,0 96/ - MISCELLANEOUS INCOME 1,15,12,640/ - TOTAL 11,22,43,919/ - 4. THUS, THE ABOVE REFERRED AMOUNT OF RS.11,22,43,9 19/- WAS EXCLUDED FROM THE SCOPE OF OPERATING PROFITS. AFTER ADJUSTMENT, THE NET OPERATING PROFIT/OPERATING COST (OP/OC), WHICH WAS FINALLY CO NSIDERED BY THE TPO FOR TP STUDY, WORKS OUT TO ONLY 0.45%. THUS, THE RANGE BE TWEEN 0.45% TO 7.5% EXCEEDED THE MARGIN OF +/-5%. THEREFORE, TPO/AO MA DE ADDITION OF RS.9,44,58,212/- (PARA NO.6.2 OF THE AOS ORDER). THUS, APART FROM THE OTHER ISSUES, THE EXCLUSION OF THE ABOVE ITEMS OF INCOME FROM THE PURVIEW OF OPERATING PROFITS BECAME THE SUBJECT MATTER OF DISPUTE BEFORE THE FIRST APPELLATE PROCEEDINGS. AT THE END OF THE SAME, THE CIT(A) HE LD (1) THE RECEIPTS ON ACCOUNT OF INTEREST OF FIXED DEPOSIT, (2) INCOME-TA X REFUND AND (3) PROFIT ON SALE OF ASSET (NON-BUSINESS INCOME) DO NOT CONSTITUTE A N OPERATING INCOME. CIT(A) ALSO HELD THAT A PART OF THE MISCELLANEOUS INCOME ( OTHER THAN THE DESIGN INCOME AND SERVICES INCOME) ALSO ON THE NON-OPERATING PROF ITS. THEREFORE, ON THESE ITEMS CIT(A) ACCORDINGLY CONFIRMED THE (NON-OPERATI NG NATURE) OPINIONS OF THE 4 ITA NOS.1586 & 1587/PUN/2014 AND CO NOS. 13 & 14/PUN/2016 TETRA PAK INDIA PVT. LTD., AO/TPO AND AGAINST THE ASSESSEE. FURTHER, THE CIT( A) CONFIRMED THE INCLUSION OF (1) LIABILITY WRITTEN BACK, (2) DOUBTFUL DEBTS W RITTEN BACK AND (3) MISCELLANEOUS INCOME (DESIGN INCOME AND SERVICES INCOME) FOR THE PURPOSE OF COMPUTING THE OPERATING PROFITS OF THE ASSESSEE AND ACCEPTED THE ASSESSEES AVERMENTS ON THESE ITEMS. 5. AGGRIEVED WITH SUCH INCLUSION OF THESE 3 ITEMS A S OPERATING INCOME OF THE ASSESSEE FOR CALCULATING OP/OC FOR TRANSFER PRICING PURPOSES, THE REVENUE IS IN APPEAL BEFORE US THAT GROUND NO.3 REFERRED ABOVE. ASSESSEE FILED A CROSS OBJECTION IN SUPPORT OF THE ORDER OF CIT(A). 6. BEFORE US, LD. COUNSEL FOR THE ASSESSEE SUBMITTE D THAT INCLUSION OF SAID 3 ITEMS, BEING THE BUSINESS RECEIPTS OF ASSESSEES CO RE BUSINESS ACTIVITY, RIGHTLY CONSTITUTE AN OPERATING INCOME. THEREFORE, THE ORD ER OF CIT(A) IS FAIR AND REASONABLE. TO ELABORATE THE SAME, HE SUBMITTED VA RIOUS ARGUMENTS ON EACH OF THE ITEM AS GIVEN IN THE SUBSEQUENT PARAGRAPHS. 7. REGARDING THE CREDIT TO PROFIT AND LOSS ACCOUNT ON ACCOUNT OF LIABILITIES WRITTEN BACK AMOUNTING TO RS.6,15,59,011/-, LD. CO UNSEL FOR THE ASSESSEE SUBMITTED THAT THE DETAILS OF THE LIABI L ITIE S W RIT T EN BACK ARE GIVEN ON PAGES 56 TO 58 OF THE PAPER BOOK. T H ESE DOCUMENTS SUPPORTS THE ASSESSEES CONTENTION TH AT THOSE LI A BILITIES BELONG TO EARLIER YEARS AND DIRECTLY RELAT ABLE TO TH E R EG UL A R BU S INESS OPERATIONS OF THE ASSESSEE COMPAN Y . T HE LIABILITIES, SINCE NO LONGER PAYABLE TO THE BUSINESS CREDITORS, ARE W RITT E N BACK IN THIS YEAR AND THE SAME ARE OFFERED TO TAX AS A BUSINESS INCOME U/S 41 (1) OF T HE ACT. THE LD. CIT(A), IN PARAS 2.2.16, CLEARL Y H E LD TH A T A LL TH ES E LIABILITIES WRITTEN BACK WERE ARI S IN G OUT OF NORM A L BU S IN ESS OP ER ATIONS AND THEREFORE , THE SAME FORMS PART OF OPERATING IN CO M E OF THE ASSESSEE . A CCORDINGLY, HE DIRECTED THE AO TO INCLUDE THE SAID AMOUNT OF RS.6,15 , 59,011 / -. FURTHER, FOR THE SAID PROPOSITION, THE LD. COUNS EL FOR 5 ITA NOS.1586 & 1587/PUN/2014 AND CO NOS. 13 & 14/PUN/2016 TETRA PAK INDIA PVT. LTD., THE ASSESSEE RELIED ON THE DECISION OF DELHI BENCH OF THE TRIBUNAL IN TH E CAS E O F SONY INDIA PVT . LTD. 114 ITD 44] . LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT I N PARAS 106 - 106 . 2 , ( PA GES 3 8 39) OF THE ORDER , HON'BLE TRIBUNAL HELD THAT THE IDENTICAL ISSUE, THE LIABILITIES WRITTEN B A C K W OULD F ORM PART OF OPERATING INCOME FOR THE PURPOSE OF DETERMINING TH E OP ERA TIN G PRO F IT . WITH THE ABOVE ARGUMENTS, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CIT(A) IS JUSTIFIED IN DIRECTING THE AO/ T PO TO IN C LUD E THE AMOUNT OF LIABILITIES WRITTEN BACK AS PART OF O PERATING INCOM E FOR THE PURPOSE OF CALCULATING THE RATIO OF OP/OC OF THE ASSESSEE. THE SAME IS THE CASE WITH THE WRITE BACK OF THE DOUBTFU L DEBTS. 8. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATI VE FOR THE REVENUE HEAVILY RELIED ON THE ORDER OF THE AO. LD. DR READ OUT RELEVANT PARAGRAPHS OF THE AO TO HIGHLIGHT THE REASONING OF THE ASSESSING OFFICER. 9. WE HEARD THE AUTHORISED REPRESENTATIVES OF THE P ARTIES AND FIND THAT THE SIMILAR ISSUE STANDS DECIDED BY THE TRIBUNAL OF DEL HI BENCH IN THE CASE OF SONY INDIA PVT . LTD. (SUPRA) AND IN FAVOUR OF THE ASSESSEE. THUS, IT IS A SETTLED ISSUE THAT SUCH LIABILITY WRITTEN BACK AMOUNT AS DISCUSSE D IN THE SAID PARAS FALLS IN THE AMBIT OF THE PROVISIONS OF SECTION 28 TO 43 OF THE I.T. ACT AND THEREFORE IN THE SCOPE OF BUSINESS PROFITS OF THE ASSESSEE. SAME IS THE REASONING SO FAR AS THE WRITE BACK OF THE DOUBTFUL DEBTS ARE CONCERNED. TH IS WRITE BACK LOGIC HAS PARITY WITH THAT OF THE WRITE BACK OF THE LIABILITIES. FU RTHER, WE HAVE ALSO PERUSED THE ORDER OF CIT(A) AND FIND PARA NO.2.2.2, 2.2.3 AND 2 .2.7 RELATES TO WRITE BACK OF BAD DEBTS AND WE PROCEED TO EXTRACT THE SAME AS UND ER : 2.2.2 THE APPELLANT STATED THAT SOME OF THE ABOVE ITEMS ARE INEXTRICABLY LINKED WITH THE BUSINESS OPERATIONS OF THE APPELLANT AND H ENCE, THESE ARE IN THE NATURE OF OPERATING INCOME THEREFORE, SUCH ITEMS SHOULD BE CONSIDERED FOR COMPUTING OPERATING MARGIN OF THE APPELLANT. IN THIS CONNECT ION, THE APPELLANT RELIED ON THE DECISION OF THE BANGALORE TRIBUNAL IN THE CASE OF WIPRO LTD., VS. DEPUTY COMMISSIONER OF INCOME TAX (2005) 96 TTJ 211. 6 ITA NOS.1586 & 1587/PUN/2014 AND CO NOS. 13 & 14/PUN/2016 TETRA PAK INDIA PVT. LTD., 2.2.3 OUT OF THE TOTAL AMOUNT INVOLVED IN LIABILITIES WRITTEN BACK OF RS.6,15,59,011/- THE APPELLANT EXPLAINED IN DETAIL, EACH MAJOR ITEM OF REVERSAL OF PROVISIONS OF EXPENSES MADE IN EARLIER YEARS TOTALL ING RS.4,72,65,840/-. THE APPELLANT STATED THAT IT IS EVIDENT THAT THESE PROV ISIONS ARE MADE IN RESPECT OF EXPENSES, WHICH ARE OF AN OPERATING NATURE. THESE EXPENSES WERE EXPECTED TO BE INCURRED BY THE APPELLANT IN ITS COURSE OF ITS B USINESS. THUS, REVERSAL OF THE BALANCE PROVISIONS IN THE A.Y. 2002-03, SHOULD BE CO NSIDERED FOR COMPUTING OPERATING INCOME. 2.2.7 ON DOUBTFUL DEBTS WRITTEN BACK OF RS.1,48,75,096/-, THE APPELLANT STATED THAT PROVISIONS MADE IN RESPECT OF DOUBTFUL DEBTS, WHICH ARISE IN THE NORMAL COURSE OF OPERATIONS, MADE ON AN ESTIMATED B ASIS ARE SUBSEQUENTLY REVERSED. DOUBTFUL DEBTS ARE INEXTRICABLY LINKED W ITH THE BUSINESS OPERATIONS AND HENCE, DOUBTFUL DEBT WRITTEN BACK SHOULD BE CONSIDE RED AS OPERATING INCOME. HOWEVER, WITHOUT PREJUDICE, IF THE SAME ARE NOT CON SIDERED AS OPERATING INCOME FOR COMPUTING OPERATING MARGIN, THEN PROVISION FOR DOUBTFUL DEBTS AMOUNTING TO RS.3,09,20,559/- AND PROVISION FOR DOUBTFUL ADVANCE S OF RS.6,16,064/- CURRENTLY INCLUDED ON OPERATING COSTS, SHOULD ALSO BE EXCLUDE D FROM OPERATING COSTS FOR THE PURPOSES OF COMPUTING OPERATING MARGIN. 10. CONSIDERING THE ABOVE DISCUSSION GIVEN BY THE C IT(A), WE ARE OF THE VIEW THAT THE SAME IS SUPPORTED BY THE DECISION OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF SONY INDIA PVT . LTD. (SUPRA). LD. AUTHORISED REPRESENTATIVE ALSO R AISED AN ARGUMENT STATING THAT FAVOURABLE ADJUSTMENT OF T HE EXPENDITURE CLAIMED WAY OF PROVISION OF DOUBTFUL DEBTS DEBITED TO PROFIT AN D LOSS ACCOUNT, IF GIVEN BENEFIT TO THE ASSESSEE, WHILE CALCULATION OF OPERATING COS T, THE RESULTANT RATIO OF OP/OC OF THE ASSESSEE IS WITHIN THE RANGE OF +/-5%. THUS , FOR ALL THE REASONS DISCUSSED ABOVE, THE ORDER OF THE CIT(A) IS FAIR AND REASONAB LE ON THESE 3 ITEMS AND, THEREFORE, THE RELEVANT LIMBS OF THE GROUND RAISED BY THE REVENUE ARE DISMISSED. 11. REGARDING THE INCLUSION OF THE MISCELLANEOUS I NCOME AMOUNTING TO RS.1,15,12,640/- LD. COUNSEL FOR THE ASSESSEE BROUG HT OUR ATTENTION TO THE RELEVANT FACTS AND SUBMITTED THAT, OUT OF THE S AID A MOUNT, THE LD. CIT(A) HAS CONSIDERED AN AMOUNT OF RS.17 , 78 , 678 / - AS NON-OPERATING INCOME AND, THEREFORE, IT IS INELIGIBLE FOR INCLUSION IN COMPUT ATION OF OPERATING PROFIT. ACCORDINGLY, THE BALANCE A MOUNT O F MISCELLANEOUS INCOME WHICH IS CONSIDERED AS PART OF OPERATING INCOME I S R S . 9 7 ,3 3 ,9 6 2 / - AND IT IS IN FAVOUR OF THE ASSESSEE . DURING THE PROCEEDINGS BEFORE AO/CIT(A), ASSESSEE GAVE THE DETAILS OF THE SAID 7 ITA NOS.1586 & 1587/PUN/2014 AND CO NOS. 13 & 14/PUN/2016 TETRA PAK INDIA PVT. LTD., AMOUNT ON PAGES 4, 12, 59 AND 60 OF THE PAPER BOOK. HE FURTHER SUBMITTED THAT MISCELLANEOUS INCOME AMOUNTING TO RS.97,33,962/- IN CLUDES THE DESIGN INCOME OF RS.70 , 40,773 / - WHICH IS GENERATED IN TH E COUR SE O F THE OPERATING BUSINESS OF THE ASSESSEE AND SAME IS THE CASE WITH THE SERVICE INCOME OF RS.7,0 4,206/-. THESE TWO ITEMS OF DESIGN INCOME AND OTHER SERVICES INCOME HAVE DIRECT NEXUS TO THE CORE OPERATIONAL ACTIVITIES OF THE ASSESSEE, THEREBY, THESE 2 AMOUNTS ALSO QUALIFY THE DEFINITION OF OPERATING PROFITS OF THE ASSESSEE. THIS ISSUE WAS DI S CUSSED BY TH E C I T(A) ( IN P A R A NOS. 2 .2.8 TO 2.2.10). 12. LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE RELIED ON THE ORDER OF THE AO. 13. WE FIND THAT THE DESIGNS INCOME AND OTHER SERV ICES INCOME IS DIRECTLY LINKED TO THE CORE ACTIVITIES OF THE ASSESSEE. THE REFORE, WE SUPPORT THE VIEW OF THE CIT(A) ON THESE ITEMS. LD. DR COULD NOT FILE A NY EVIDENCE TO HOLD IT OTHERWISE. THEREFORE, ON HEARING BOTH THE SIDES, W E FIND THE CONCLUSION GIVEN BY THE CIT(A) ON THIS ISSUE OF INCLUSION OF MISCELLANE OUS INCOME AS PART OF THE OPERATING PROFIT IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. THUS, THE GROUND NO.3 RAISED BY THE REVENUE HAS TO BE DISMISSED IN VIEW OF THE ABOVE DISCUSSION AND FINDINGS OF THE CIT(A). 14. THE CROSS OBJECTION FILED BY THE ASSESSEE IS ON LY IN SUPPORT OF THE ORDER OF CIT(A). THEREFORE, THE SAME IS DISMISSED. 15. IN THE RESULT, THE APPEAL OF THE REVENUE AND TH E CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. ITA NO.1587/PUN/2014 AND C.O NO.14/PUN/2016 A.Y. 2004-05 : 16. GROUNDS RAISED BY THE REVENUE IN THE APPEAL FOR A.Y. 2004-05 READS AS UNDER : 8 ITA NOS.1586 & 1587/PUN/2014 AND CO NOS. 13 & 14/PUN/2016 TETRA PAK INDIA PVT. LTD., 1. THE LD.CIT(A)-IT/TP, PUNE HAS ERRED IN NOT APPR ECIATING THE COMPUTATION MECHANISM FOR ARMS LENGTH PRICE GIVEN IN 2 ND PROVISO TO SECTION 92C(2) READ WITH RULE 10B(1)(E), WHEREIN IT IS CLEARLY STATED T HAT VARIATION HAS TO BE CIRCULATED WITH REFERENCE TO INTERNATIONAL TRANSACT IONS UNDERTAKEN BY THE ASSESSEE. 2. THE LD.CIT(A)-IT/TP, PUNE HAS ERRED IN ALLOWING WARRANTY PROVISION EVEN THOUGH THEY ARE CONTINGENT IN NATURE DESPITE THE FA CT THAT IN EARLIER YEAR ASSESSEES APPEAL HAS BEEN DISMISSED. 17. LD. COUNSELS FOR BOTH THE SIDES BROUGHT OUR ATT ENTION TO THE LANGUAGE USED IN GROUND NO.1 AND SUBMITTED THAT THE SAID GRO UND IS NOT HAPPILY WORDED. IN ANY CASE, IT IS THE SUBMISSION OF THE LD. DEPART MENTAL REPRESENTATIVE FOR THE REVENUE THAT THE RELIEF GRANTED BY THE CIT(A) IS NO T PROPER AND REQUESTED FOR CONFIRMING THE ORDER OF THE AO ON THIS ISSUE. 18. RELEVANT FACTS OF THE CASE INCLUDE THAT THE AO MADE ADJUSTMENTS TO THE PROFITS OF THE ASSESSEE AMOUNTING TO RS.8,03,84,164 /-. HOWEVER, IT IS THE CASE OF THE ASSESSEE THAT ACTUAL OPERATING PROFITS/TOTAL CO ST (OP/OC) OF THE ASSESSEE WORKS OUT TO 10.70% AND THE ARMS LENGTH PRICE WORK ED OUT BY THE TPO IS PEGGED AT 13.87%. THE DIFFERENCE WORKS OUT TO ONLY 3.17% AS AGAINST THE MARGIN OF +/-5% ALLOWED BY THE STATUTE. THIS SUGGE STS THE NON-REQUIREMENT OF ANY ADJUSTMENTS ON ACCOUNT OF TP STUDY IN THE ASSES SMENT OF THE ASSESSEE. APPRECIATING THE ABOVE, THE CIT(A) GRANTED RELIEF A S PER THE DISCUSSION GIVEN IN PARA NOS.3.1.1. TO 3.2.2. INFACT, THE CIT(A) HELD IT AGAINST THE REVENUE IN REPLY TO THE ASSESSEES GROUND NO.18 RAISED BY THE ASSESS EE BEFORE HIM. THE FACTS RELEVANT TO COMPUTATION OF OPERATING PROFIT/OPERATI NG COST ARE TABULATED AT PAGE 21 OF THE ORDER OF THE CIT(A). FOR THE SAKE OF COM PLETENESS OF THIS ORDER, WE PROCEED TO EXTRACT THE SAID CALCULATION IN A TABULA R FORM AS UNDER : PARTICULARS AT ACTUAL RS. AT ARMS LENGTH PRICE (ALP) RS. TOTAL REVENUE 2,80,86,69,873 2,88,90,54,037 SALES TO AES 1,22,23 ,75,520 1,30,27,59,684 SALES TO NON AES 1,58,62,94,353 1,58,62,94,353 TOTAL COST 2,53,71,51,170 2,53,71,51,170 OPERATING COST 27,15,18,703 35,19,02,867 OPERATING PROFIT/TOTAL COST 10.70% 13.87% 9 ITA NOS.1586 & 1587/PUN/2014 AND CO NOS. 13 & 14/PUN/2016 TETRA PAK INDIA PVT. LTD., 19. AFTER HEARING BOTH THE SIDES ON THIS ISSUE, WE PROCEED TO EXTRACT THE CONTENTS OF PARA NO.3.2.2 WHICH READS AS UNDER : 3.2.2 I HAVE CONSIDERED THE APPELLANTS SUBMISSION AND COMPUTATION. ON PERUSAL OF THE COMPUTATION FURNISHED BY THE APPELLA NT AS REPRODUCED ABOVE, I AGREE WITH THE APPELLANT THAT THE APPELLANTS MARGI N FALLS WITHIN +/-5% OF THE ARMS LENGTH PRICE. IN THESE CIRCUMSTANCES, THE LEA RNED TPO WAS NOT REQUIRED TO MAKE ADJUSTMENT TO THE APPELLANTS INTERNATIONAL TR ANSACTIONS. ACCORDINGLY, I DELETE THE ADJUSTMENT OF RS.8,03,84,164/- MADE BY T HE LEARNED TPO. 20. CONSIDERING THE ABOVE, WE ARE OF THE OPINION TH AT THE AO/TPO HAVE ERRED IN MAKING ADDITION ON THIS ACCOUNT WHILE THE DIFFER ENCE IN OPERATING PROFIT/OPERATING COST FIGURES ARE WITHIN THE RANGE OF +/-5% OF THE OP/OC OF THE ASSESSEE. THE STATUTE ALLOWS THE SAME. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE ORDER OF CIT(A) IS FAIR AND REASONABL E AND IT DOES NOT CALL FOR ANY DIFFERENCE. ACCORDINGLY, GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED. 21. REGARDING GROUND NO.2 RELATING TO ALLOWING OF WARRANTY PROVISIONS IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE SAID ISSUE NOW STANDS COVERED IN ASSESSEES OWN CASE IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL VIDE ITA NO.1545/PUN/2014 ORDER DAT ED 23-12-2016. BRINGING OUR ATTENTION TO PARA NO.9 OF THE ORDER OF TRIBUNAL (SUPRA) THE ALLOWABILITY OF WARRANTY PROVISION WAS SAID TO HAVE BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN THE SAID PARAGRAPH. 22. AFTER HEARING BOTH THE SIDES AND ON PERUSING TH E FACTS OF THE PRESENT CASE, WE NOW FIND THE DECISION OF THE TRIBUNAL GIVEN IN P ARA NO.9 HELD THE ASSESSEE AND THE ISSUE HAS TO BE DECIDED IN FAVOUR OF THE AS SESSEE. FOR THE SAKE OF COMPLETENESS OF THE ORDER, WE PROCEED TO EXTRACT TH E SAME AS UNDER : 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS AGAINST THE CLAIM OF DEDUCTION ON ACCOUNT OF PROVISION MADE FOR WARRANTY. THE ASSESSEE WAS ENGA GED IN THE MANUFACTURE AND SALE OF PROCESSING EQUIPMENTS AND FILLING MACHI NES FOR BOTH DAIRY AND BREAD 10 ITA NOS.1586 & 1587/PUN/2014 AND CO NOS. 13 & 14/PUN/2016 TETRA PAK INDIA PVT. LTD., PROCESSING INDUSTRIES. THE MACHINERIES WHICH WERE BEING MANUFACTURED BY THE ASSESSEE WERE HEAVY PACKAGING MACHINERIES AND FOR T HE SUPPLY OF SAME, THE ASSESSEE WAS ENTERING INTO AGREEMENT WITH THE PROSP ECTIVE BUYERS. THE COPY OF ONE SUCH AGREEMENT IS PLACED ON RECORD BY THE ASSES SEE AT PAGES 70 TO 79 OF THE PAPER BOOK. AS PER WARRANTY CLAUSE 7 OF THE AGREEM ENT, IT IS PROVIDED THAT THE EQUIPMENT IS SOLD SUBJECT TO EXPRESS WARRANTY, WHER EIN THE SELLER WARRANTS THAT THE EQUIPMENTS SHALL BE FREE FROM MATERIAL DEFECTS IN WORKMANSHIP, MATERIALS AND DESIGN FOR PERIOD OF 12 MONTHS FROM THE DATE OF COMMENCEMENT OF USE OR PERIOD OR 18 MONTHS FROM THE DELIVERY, WHICHEVER IS SHORTER. IT WAS UNDERTAKEN BY THE ASSESSEE TO REPAIR OR REPLACE FREE OF CHARGE TO THE PURCHASER ANY PART OF EQUIPMENT WHICH CONTAINS A DEFECT OR ACTUAL REFUND TO THE PURCHASER THE PORTION OF PRICE ATTRIBUTABLE TO THE DEFECTIVE PART. THE R EPLACEMENT OR REPAIR PRICE WERE ALSO SUBJECT TO SOME WARRANTY FOR THE REMAINDER OF ORIGINAL WARRANTY PERIOD OR SIX MONTHS FROM THE DATE OF REPAIR OR INSTALLATION OF REPLACEMENT PART, WHICHEVER IS SHORTER. IT WAS AGREED THAT THE PURCHASER HAD T O BEAR THE COST AND RISK OF TRANSPORT OF DEFECTIVE PART TO THE SELLER, WHO IN T URN, HAD TO REPAIR OR REPLACE THE SAME ON THE SAME TERMS AS THE EQUIPMENT WAS SUPPLIE D. AS PER CLAUSE 7.4, THE SELLER I.E. THE ASSESSEE HAD NO LIABILITY FOR ANY D EFECT IN THE EQUIPMENT BECAUSE OF ORDINARY WEAR AND TEAR, MISUSE OR ABUSE AND OTHER C ONDITIONS. IN VIEW OF UNDERTAKING GIVEN BY THE ASSESSEE BY WAY OF WARRANT Y ON THE EQUIPMENT SOLD BY IT TO THE PROSPECTIVE PURCHASERS, THE ASSESSEE WAS MAINTAINING A SYSTEMATIC METHOD, WHEREIN THE PROVISION WAS MADE ON ACCOUNT O F WARRANTY. IN CASE ANY PART OF THE WARRANTY WAS UTILIZED, THEN THE SAME WA S SO DEBITED OR / AND THE BALANCE ON EXPIRY OF PERIOD OF WARRANTY WAS WRITTEN BACK. THIS METHOD WAS REGULARLY AND SYSTEMATICALLY FOLLOWED BY THE ASSESS EE. THE CIT(A) HAS REFERRED TO THE FACTUAL ASPECTS OF THE CASE AND POINTED OUT THAT THE MACHINERY SOLD BY THE ASSESSEE WAS IN THE RANGE OF RS.4-6 CRORES AND THER E WERE LIMITED BUYERS OF SAID MACHINERY. IN VIEW OF SAID FACTS AND CIRCUMSTANCES , WHERE THE ASSESSEE WAS ENGAGED IN THE MANUFACTURE OF SPECIALIZED MACHINERY FOR PACKAGING AND THE ASSESSEE HAD WARRANTY CLAUSE AGAINST SUPPLY OF THE SAID MACHINERY, THEN THE RECOGNITION OF APPLICATION OF WARRANTY BY WAY OF MA KING THE PROVISION IN THE BOOKS OF ACCOUNT IS ACCEPTED ACCOUNTING PRACTICE AN D SUCH A LIABILITY RECOGNIZED BY THE ASSESSEE IS CONTINGENT LIABILITY. FOLLOWING THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN ROTORK CONTROLS INDIA P. L TD. VS. CIT (SUPRA), WE HOLD THAT THE VALUE OF CONTINGENT LIABILITY BY WAY OF RE COGNIZING THE WARRANTY LIABILITIES, BY MAKING A PROVISION AND ALSO FOLLOWI NG SYSTEMATIC METHOD OF ITS WRITE BACK AND / OR UTILIZATION IS AN ACCEPTED ACCOUNTING METHOD ADOPTED BY THE ASSESSEE AND THE PROVISION MADE BY THE ASSESSEE IS TO BE ALLOWED AS DEDUCTION IN THE HANDS OF ASSESSEE. IT MAY BE CLARIFIED HERE IN THAT THE CIT(A) HAD REJECTED THE CLAIM OF ASSESSEE IN ASSESSMENT YEAR 2008-09 OB SERVING THAT THE ASSESSEE HAD MADE PROVISION TO THE EXTENT OF RS.32.74 CRORES , WHEREAS NONE OF THE PROVISIONS MADE IN THE EARLIER YEARS WERE MUCH UTIL IZED. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD HAS CLARIFIED THAT INADVERTENTLY, THE SAME WAS CREATED AT RS.32.74 CRORES BUT RS.31.07 CR ORES WAS WRITTEN BACK AND THE DEDUCTION BY WAY OF PROVISION OF WARRANTY WAS C LAIMED ONLY AT RS.1.67 CRORES. THE ASSESSING OFFICER HAD ALSO DISALLOWED SUM OF RS.1.67 CRORES ONLY. IN VIEW THEREOF, WE FIND NO MERIT IN THE OBSERVATIONS OF CIT(A) IN DENYING THE CLAIM OF ASSESSEE. APPLYING THE RATIO LAID DOWN BY THE H ONBLE SUPREME COURT IN ROTORK CONTROLS INDIA P. LTD. VS. CIT (SUPRA), THE ASSESSEE HAVING FULFILLED THE CONDITIONS LAID DOWN BY THE APEX COURT, WE FIND MER IT IN THE CLAIM OF ASSESSEE AND ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCTION ON ACCOUNT OF PROVISION FOR WARRANTY MADE AT RS.1.67 C RORES. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, ALLOWED. 23. FROM THE ABOVE, IT IS EVIDENT THAT THE CLAIM OF THE ASSESSEE ON ACCOUNT OF WARRANTY PROVISION IS ALLOWED BY THE TRIBUNAL IN AS SESSEES OWN CASE IN THE A.Y. 11 ITA NOS.1586 & 1587/PUN/2014 AND CO NOS. 13 & 14/PUN/2016 TETRA PAK INDIA PVT. LTD., 2003-04. LD. DEPARTMENTAL REPRESENTATIVE HAS NOT B ROUGHT ANYTHING ON RECORD TO CONTROVERT THE ABOVE FINDING OF THE TRIBUNAL. T HEREFORE, WE FIND THAT THE ORDER OF CIT(A) IS IN TUNE WITH THE DECISION OF THE TRIBUNAL. THEREFORE, THE DECISION OF THE CIT(A) GIVEN IN PARA NO.3.5.3 IS FA IR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUND NO.2 RAISED BY THE REVENUE IS DISMISSED. 24. IN THE RESULT, THE APPEAL OF THE REVENUE AND TH E CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. 25. TO SUM UP, BOTH THE APPEALS OF THE REVENUE AND THE CROSS OBJECTIONS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF AUGUST, 2017. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) /JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE; DATED : 24 TH AUGUST, 2017. COPY OF THE ORDER FORWARDED TO : / BY ORDER , // TRUE COPY // //TRUE COPY// SENIOR PRIVATE SECRETARY , / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. THE CIT(A) - IT/TP , PUNE THE CIT-IT/TP, PUNE 5. % , , B BENCH PUNE; 6. GUARD FILE.