HAGGLUNDS DRIVES (INDIA) PVT. LTD. ( NOW MERGED IN BOSCH REXROTH (INDIA) LTD.),AHMEDABAD V. THE DY.CIT, CIRCLE-1(1)(2), AHMEDABAD

ITA 931/AHD/2015

AI Insights

The case involves multiple appeals by Hagglunds Drives (India) Pvt. Ltd. and Bosch Rexroth (India) Pvt. Ltd. against the orders of the Deputy Commissioner of Income Tax and the Income Tax Officer, which pertained to the assessment years 2010-11 and 2011-12. The primary issues revolved around the classification of office equipment for depreciation purposes, the disallowance of certain expenses under Section 40(a)(ia) of the Income Tax Act, the valuation of inventory, and the arm's length pricing of international transactions involving IT consultancy and guarantee fees. The Tribunal examined each issue in light of the relevant legal provisions, precedents, and the specific facts of the case, ultimately deciding in favor of the appellants on all counts.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 473799 (ITAT-AHMEDABAD)
• Duration Of Justice: 9 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 18-07-2024
• Assessment Year: 2010-2011
• Appeal Filed On: 16-04-2015
• Other Referred Cases: CIT vs. Subrata Dutta Choudhary, Vijaya Bank vs. CIT, Luxor Writing Instruments Pvt. Ltd. vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANKIT JAIN
• Assessee Lawyers: S.N. SOPARKAR
• Keywords: Set aside; Capital asset; Opportunity of being heard; Transfer pricing; International transaction; Question of law; Bad and doubtful debts; Corroborative evidences; Depreciation; Additional depreciation; Onus to prove; Capital expenditure; TDS; Revision of order; Capital asset converted into stock in trade; Non-deduction of tax
• Section: 48; 43; 22; 13; 145; 144C; 40(a)(ia); 72; 194C; 92C; 194J; 20

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I.T.A. No. 931/Ahd/2015 (Assessment Year: 2010-11) Hagglunds Drives (India) Pvt. Ltd. (Now merged in Bosch Rexroth (India) Ltd.), Sanand Viramgam Highway, Mouje, Iyava, Taluka Sanand, Ahmedabad-382170 Vs. Deputy Commissioner of Income Tax, Circle-1(1)(2), Ahmedabad [PAN No.AAACH5278G] (Appellant) .. (Respondent) I.T.A. No. 448/Ahd/2016 (Assessment Year: 2011-12) Bosch Rexroth (India) Pvt. Ltd., (Formerly known as Bosch Rexroth (India) Ltd.), Nr. Village Iyava, Sanand Viramgam Highway, Taluka Sanand, Ahmedabad-382170 Vs. Income Tax Officer, Ward-1(1)(3), Ahmedabad [PAN No.AAACM9898F] (Appellant) .. (Respondent) Appellant by : Shri S. N. Soparkar, Sr. Advocate & Shri Parin Shah, A.R. Respondent by: Shri Ankit Jain, Sr. D.R. Date of Hearing 18.07.2024 Date of Pronouncement 14.10.2024 O R D E R PER SIDDHARTHA NAUTIYAL, JM: Both appeals have been filed by the Assessee against the order passed by the Deputy Commissioner of Income Tax (in short “DCIT”), Circle-1(1)(2), ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 2 - Ahmedabad and Income Tax Officer (in short “ITO”), Ahmedabad vide orders dated 06.02.2015 & 28.12.2015 passed for the Assessment Year 2010-11 & 2011-12. 2. The assessee has raised the following grounds of appeal:- ITA No. 931/Ahd/2014 (A.Y. 2010-11) “1. On the facts and in the circumstances of the case and in law the Learned Deputy Commissioner of Income-tax Circle 1(11(2) Ahmedabad (Ld. AO) under the rectors of Honourable Dispute Resolution Panel (Hon’ble DRP) erred in classifying office equipment under the head \"furniture and fittings” instead of plant and machinery and thereby disallowing differential depreciation of Rs. 1,00,564 by restricting the claim of depreciation office equipment to ten percent. The Appellant prays that the aforesaid addition be deleted. 2. On the facts and in the circumstances of the case and in law the Ld. AO erred in disallowing expenses amounting to Rs. 15,21,424 under section 40(a)(ia) of the Act without appreciating the fact that the said payments were not subject to TDS. The Appellant prays that the aforesaid addition be deleted 3 On the facts and circumstances of the case and m law the Ld. AO under the directions of Hon’ble DRP erred in disallowing devaluation of inventory amounting to Rs. 1,40,79,555. While making this addition the Ld. AO erred in law and on facts on the following: i. in disregarding the stock valuation made by the Appellant as per AS 2 and section 145A of the Act ii. in not appreciating the fact that no adverse remark made by the Auditors the audit report and iii. in disregarding the contention of the Appellant that the current method of valuation of inventory has been followed consistently over the past years The Appellant prays that the aforesaid addition be deleted 4. Without prejudice to Ground No 3 on the facts and in the circumstances of the case, the disallowance, if any, should be restricted to Rs. 40.03 500 being the amount debited to the profit and loss account for the year under consideration. The Appellant prays that appropriate relief should the granted to the Appellant ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 3 - The Appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal.” Assessment Year 2010-11 Ground of Appeal Number 1: The assessing officer erred in classifying office equipment as “furniture and fittings” instead of “plant and machinery” and thereby disallowing differential depreciation of ₹ 1, 86, 564/- 3. The brief facts relating to this Ground of Appeal are that the assessee claimed depreciation on office equipment@15%, which the Assessing Officer (AO) classified as \"furniture and fittings\" and allowed depreciation @ 10%. The AO’s classification led to a proposed disallowance of differential depreciation amounting to Rs. 1,86,564/- by limiting the claim to 10%, instead of the Assessee's claimed rate of 15 percent. The Assessee argued before DRP that the AO made several legal and factual errors. Firstly, the AO claimed that the Assessee did not specify the items for which it had sought a 15 percent depreciation rate. The Assessee contested this assertion, highlighting that office equipment qualifies for depreciation under the category of \" Plant and Machinery\", as outlined in Part III of New Appendix-I to the rules, and has consistently claimed this higher rate in previous years. The Assessee submitted before DRP that it has correctly calculated depreciation separately for furniture and fittings at 10 percent, and that the office equipment should be classified distinctly and subject to the higher rate of 15%. The office equipment in question includes items such as fire extinguishers and mobile phones, which the Assessee submitted clearly do not fall under the definitions of “furniture or fittings”. The Assessee relied on judicial precedent from the Punjab and Haryana High Court, which recognized similar equipment as eligible for higher depreciation as part of ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 4 - plant and machinery, further reinforcing its argument. Additionally, the Assessee referred to Section 32(1)(j)(ia) of the Income Tax Act, which allows for additional depreciation on new plant and machinery, arguing that this also includes office appliances and supports their classification as plant and machinery. During the hearing before DRP, the assessee submitted that the company employs an exclusive method of accounting for Excise Duty and CENVAT, indicating that the valuation method prescribed under Section 145A of the Income Tax Act would not affect its financial statements. The assessee submitted how the accounting for excise duties and the resulting impact on the profit and loss account would remain neutral regardless of the method used. However, the AO did not accept the arguments of the assessee and held that the details of the specific office equipment for which a 15 percent depreciation was claimed were not adequately provided. The AO was of the view that the classification under Part A of New Appendix-I clearly allows only 10 percent for furniture and fittings, and without proper evidence or details, the office equipment could not be justifiably classified under the more favourable “plant and machinery” category. Accordingly, the Ld. Assessing Officer allowed 10 percent depreciation on office equipment, resulting in the disallowance of the differential depreciation. 4. The assessee is in appeal before us against the aforesaid order passed by DRP/AO confirming the addition of differential amount of depreciation in the hands of the assessee. Before us, the counsel for the assessee submitted that the assessee company has now merged with Bosch Rexroth and accordingly, the cases of the assessee are now covered by the ITAT. Decision in the case of Bosch Rexroth. The counsel for the assessee drew our attention to page 45 of paper ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 5 - book-1 and submitted that the full details of office equipment were submitted by the assessee before the assessing officer for his consideration, and the allegation of the assessing officer that the complete details were not filed by the assessee is factually incorrect. The counsel for the assessee submitted that this issue has been decided in favour of the assessee in ITA No. 930/AHD/2015 for assessment year 2010-11. 5. It would be useful to reproduce the relevant extracts of the ruling for ready reference: “24. The ground no.5 reads as under: “On the facts and in the circumstances of the case and in law, the ld.AO under the direction of Hon’ble DRP erred in classifying office equipment under the head “furniture and fittings” instead of “plant & machinery” and thereby disallowing differential depreciation of Rs.11,71,648/- “ 25. Brief facts relating to the case are that during the assessment proceedings, the AO had noted that the assessee had claimed depreciation on office equipments at the rate of 15% on an amount of Rs.2,36,57,570/-. The AO held that the office equipment qualified as furniture and fittings and that the assessee accordingly was entitled to depreciation at the rate of 10% thereon and not 15%. The assessee was confronted with the same who responded by stating that it had claimed depreciation at the rate of 15% on office equipments which qualified as plant & machinery and were used in the factory premises. He stated that these equipments did not fall within the meaning of furniture and fittings. The AO was not convinced with the submission of the assessee, who held that as per the rate of depreciation prescribed under the Income Tax Rules, 1962 in Part-III of new Appendix,equipments are not covered under the plant & machinery, but they are covered under the category fittings on which rate of depreciation is 10%. Accordingly, he restricted the assessee’s claim of depreciation on office equipments to 10% as opposed to 15% claim by the assessee, and excess depreciation so claimed by the assesseeamounting to Rs.11,71,648/- was proposed by the AO to be disallowed in his draft order passed under section 143C of the Act. 26. The assessee objected to the same before the ld.DRP contending that it had been consistently claimed depreciation at the rate of 15% on office equipments which qualified as plant & machinery, and which had been allowed in earlier year also, and further relied on the decision of Hon’ble Punjab & Haryana High Court in the case of CIT Vs. Subrata Dutta Choudhary, 197 taxmann 71 (P&H) in support of his contentions that equipments qualify cannot be treated as office furniture, but qualified as plant & machinery. The ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 6 - Ld.DRP however dismissed the contentions of the assessee, nothing that the assessee had not furnished details of items on which depreciation at the rate of 15% was claimed under the head “office equipments”, and therefore, in the absence of details furnished by the assessee, the contention of the assessee cannot be accepted that office equipments qualified as plant & machinery for claiming depreciation at the rate of 25%. The relevant finding of the ld.DRP in this regard at para 1.2 of his order reads as under: “1.2 We have considered the basis of allowing of depreciation @ 10% as against depreciation claimed @ 15% by the assessee on office equipments and also consider the detailed submission and arguments of the assessee. From the detailed submission before the AO as well as before this panel, it is clear that assessee has not furnished the details of items on which depreciation @ 15% is claimed under the head office equipments. As per Part A of new Appendix -I, depreciation @10% is allowable on furniture and fittings including electrical fitting and electrical fittings include electrical wiring, socket, other fittings and fans etc. Office equipments without any details and description with supporting evidence @ 15%. Assessee's argument that the details of items/list of assets (office equipments on which depreciation was claimed @ 15% was never asked for by the AO cannot be accepted because of such office equipments. Under these circumstances, it is held that, the Assessing Officer has rightly allowed the depreciation @10% and disallowed differential depreciation of Rs.11,71,648/-. Therefore, the assessee's objection rejected. However, the AO is directed to adopt revised WDV for granting depreciation in subsequent year.” 27. Accordingly, in compliance with direction of the ld.DRP, AO made disallowance on excess depreciation claimed by the assessee on office equipments amounting to Rs.11,17,648/- and it is against this disallowance that the assessee has raised the above ground before us. 28. During the course of hearing before us, the ld.counsel for the assessee reiterated his contentions made before lower authorities which summarized briefly to the effect that – i) The assessee had been consistently claiming depreciation on office equipments which were in the nature of plant & machinery at the rate of 15% treating them as qualified for depreciation under the block “plant & machinery”; ii) That the major portion of the depreciation was claimed by the assessee on office equipments pertained to opening block of asset so qualified as office equipments on whichthe assessee had claimed depreciation at the rate of 15% in earlier years, and had been consistently allowed by the Revenue. In this regard, our attention was drawn to the Paper Book Page No.58 of Volume-I of PB being particulars of depreciation allowable as per Income Tax Rules for the impugned year i.e. 2010-11 being part of tax audit report furnished by the assessee, pointing out therefrom the fact that of the total value of office equipments on which depreciation at the rate of 15% had been claimed by the assessee amounting to Rs.2,32,52,570/-, an amount of Rs.2,24,47,127/- represented the opening written down value of the block of asset and the additions ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 7 - made during the year were only to the tune of Rs.12,10,443/-. The contentionof the assessee was that where the assessee’s block of asset of office equipments qualifying for depreciation at the rate of 15% had been consistently recognized by the Revenue as being in accordance with the law and rules prescribed in this regard, the block of asset now being shifted by taking a total different view that too without any basis at all and merely on change of view that office equipments invariably of their nature and description, did not qualify as plant & machinery for claiming depreciation at the rate of 15%; iii) The ld.counsel for the assessee contended that the finding of the ld.DRP that no details of office equipments have been furnished by the assessee was incorrect as complete details had been furnished during the assessment proceedings vide letter dated 17.1.2014 to the AO wherein the details of additions to the fixed asset including office equipments was furnished. Our attention as drawn to the said details placed before us at PB Page No.301 to 307 more particularly, PB Page No.301 to 303 containing the details of office equipments purchased during the year specifically detailed by the assessee; iv) The ld.counsel for the assessee reiterated the proposition of law in this regard laid down by Hon’ble Punjab & Haryana High Court in the case of CIT Vs. Subrata Dutta Choudhary (supra) to the effect that even office equipments which are in the nature of plant & machinery used in the business of the assessee have to be treated as plant & machinery for the purpose of determining rate at which depreciation is allowable to them. 29. On the other hand, the ld.DR relied on the orders of the ld.DRP/ AO. 30. We have heard contentions of both the parties. The issue to be adjudicated is rate at which the depreciation is to be allowed as office equipments which the assessee had claimed at the rateof 15% i.e. rate applicable to the assets qualified as furniture and fixtures in Income Tax Rules, 1962. We have gone through entire facts of the case which are that the assessee’s claim of depreciation on office equipments at the rate of 15% was on the block of assets of office equipments comprising of opening WDV of Rs.2,24,47,127/- and additions made during the year to the tune of Rs.12,10,443/-. What transpires from the fact therefore is that the majority depreciation claimed by the assessee on office equipments at the rate of 15% related to the opening value of the block of asset coming over from past years, when these assets were acquired. It is an undisputed fact that all these opening WDV of office equipments value of Rs.2.24 crores, the assessee had consistently been claiming depreciation at the rate of 15% and has been allowed the same also by the Revenue. The assesseehas consistently pleaded before the Revenue authorities and even before us and this contention of the assessee has never been controverted by the Revenue. Therefore, it is fact on record that out of total WDV of office equipments on which the assessee had claimed depreciation at therate of 15% of Rs.2.36 crores, Rs.2.24 crores value of office equipments had all along been allowed depreciation at the rate of 15% by the Revenue in the past. 31. With respect to these assets, we find, the Revenue has changed its stand of asset qualifying for depreciation at the rate of 10% merely on account of change of view that too ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 8 - without any basis. It is not that the Revenue has now come in possession of some details regarding theseequipments, which showed that they did not qualify for depreciation at the rate of 15%, butare in the nature of furniture and fittings entitled to depreciation at 10%. It is only description of block of asset as office equipments which has lead the Revenue now to form a different view that being used in office, these equipments qualified as fittings to be included in the block of asset being furniture and fittings, thus qualified depreciation at the rate of 10%. Having consistently allowed the depreciation at the rate of 15% on this opening WDV of office equipments and with no change in facts and circumstances coming to the notice of the Revenue, we hold that the Revenue cannot now change its view on the issue to disentitle the assessee from its consistently allowing claim of depreciation at 15% on the same. 32. As for the office equipments purchased during the year, we have noted that the assessee has provided complete details of assets which were so purchased and which we have noted from the details furnished to us in PB Page No.301 to 303 that they were primarily in the nature of ACs., projectors, digital camera etc. and the assessee has claimed all these items as being installed as being used in the factory premises and since these assets qualified as machinery, we see no infirmity in the claim of the assessee for depreciation at the rate of 15% thereon treating these assets as plant & machinery. Argument of the ld.counsel for the assessee is supported by the decision of Hon’ble Punjab & Haryana High Court in the case of CIT Vs. Subrata Dutta Choudhary (supra) wherein identical claim of the assessee to depreciation on transformers, fax-machine and CCTV systems installed in the office premises were held by the Hon’ble Court, did not qualify as office furniture and fittings, but to be treated as part and parcel of the plant & machinery and entitled to depreciation at the rate prescribed to it. 33. In view of the above, we hold that the assessee is entitled to claim of depreciation at 15% on office equipments and disallowance of excess depreciation made by the AO by treating these assets as furniture and fittings entitled to depreciation at the rate of 10% amounting to Rs.11,71,648/- is directed tobe deleted. Ground no.5 of the assessee’s appeal is allowed.” 6. In view of the above, since the Ahmedabad Tribunal in the case of Bosch Rexroth in ITA number 930/Ahd/2015 has decided this issue in favour of the assessee, ground number 1 of the assessee’s appeal is allowed. Ground of Appeal No. 2: The DRP erred in disallowing expenses amounting to ₹ 15, 21, 424/- under section 40(a)(ia) of the Act: 7. The brief facts regarding this Ground of Appeal are that the Assessing Officer made disallowance of expenses under Section 40(a)(ia) of the Income ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 9 - Tax Act, 1961, due to the Assessee's failure to deduct tax at source (TDS) on certain payments made for labor, annual maintenance contracts (AMC), and professional charges. During the assessment proceedings, it was observed that the Assessee had made payments to several parties, including Drives India Ltd., Indian School of Business, System Advisors Software Services Pvt. Ltd., Hagglunds Drives AB, and Concept Information, amounting to Rs. 15,21,424. These payments were made without complying with the tax deduction requirements specified under Sections 194J and 194C of the Income Tax Act. 8. Ld. Assessing Officer observed that the payments included amounts such as Rs. 1,00,000 and Rs. 14,21,424 for which the Assessee did not deduct TDS as mandated by the law. The AO highlighted that the Assessee failed to deduct the appropriate TDS on payments made under Section 194J, which relates to professional fees, and Section 194C, which pertains to payments to contractors. Furthermore, the AO noted that the tax, once deducted, must be deposited with the Government by the end of the financial year, a requirement that the Assessee did not fulfill. The Assessee was asked to explain why the payment of Rs. 15,21,424 should not be disallowed due to these infractions. In response, the Assessee provided details of payments made to various parties, claiming they were TDS liable, but the AO found that despite being responsible for deducting tax on the total amount, the Assessee failed to do so. The Assessee did not offer any satisfactory explanation for this non-compliance. Accordingly, Ld. Assessing Officer held that given the clear requirements under Sections 194J and 194C of the Act, and the Assessee’s inability to demonstrate compliance, that the facts of the assessee’s case warranted disallowance under Section 40(a)(ia) of the Act. Ld. Assessing Officer observed that section 40(a)(ia) of the Act disallows ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 10 - any expenditure claimed by an Assessee that is not in accordance with the provisions for tax deduction. Accordingly, the AO disallowed the total payment of Rs. 15,21,424, citing the Assessee’s failure to adhere to the tax deduction provisions. It was noted that the Assessee did not file any objections before the Hon'ble Dispute Resolution Panel (D.R.P.) in Ahmedabad, reinforcing the decision to disallow these expenses based on the outlined failures to comply with the legal requirements. 9. On going to the facts of the instant case, we are of the considered view that there is no infirmity in the order of the assessing officer, so as to call for any interference with respect to this ground of appeal. The assesse has furnished no plausible explanation to justify non-deduction of taxes. 10. In the result, ground number 2 of the assessee’s appeal is dismissed. Ground number 3: DRP erred in upholding disallowance of devaluation of inventory amounting to ₹ 1,40,79,555/- 11. The brief facts relating to this issue are the addition of Rs. 1,40,79,555 on account of the devaluation of closing stock by the Assessee, a company engaged in the trading and servicing of hydraulic spares. Before the DRP the Assessee submitted that the AO misrepresented the facts and failed to acknowledge the stock valuation method employed, which is in accordance with Accounting Standard 2 (AS 2) and Section 145A of the Income Tax Act. The Assessee also submitted that the AO incorrectly concluded that there was no supporting evidence for the devaluation of inventory on an item-by-item basis and that the valuation was intentionally done to show lesser profits. Moreover, the Assessee ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 11 - submitted that the devaluation was not due to damage but rather due to a consistent policy of adjusting for slow-moving and non-moving inventory, which has been applied consistently over previous years. The nature of the Assessee's inventory is such that items lose value over time for several reasons, including the nature of the products, discontinuation of models, introduction of new products, and the general aging of inventory. To account for this, the Assessee has developed a policy to provide an allowance for slow-moving items, ensuring that the inventory is reflected at its estimated net realizable value. The assessee submitted that a detailed process is undertaken annually to assess the holding period and characteristics of the inventory, leading to a calculated percentage reduction for the allowance. This methodology is in line with the principle that inventories should not be valued above their expected realizable amounts. The assessee provided comprehensive documentation, including calculations and detailed methodologies, to support its claim of devaluation, all of which was included in the paper book. The assessee submitted that the accounting policy stated in the Assessee's financial statements clearly states that inventories are valued at the lower of cost or net realizable value, consistent with AS 2, in accordance with Section 145 of the Act, the Assessee submitted that its accounting practices have been in line with the methods it has consistently employed. The Assessee referred to numerous Court rulings that support the practice of writing down inventory for slow-moving or obsolete items, submitted that its approach complies with AS 2 and is substantiated by the Auditors' reports and technical evaluations. The DRP was of the view that the Assessee did not provide satisfactory evidence regarding the basis for devaluation and failed to demonstrate that the inventory was damaged, obsolete, or had declined in value. The DRP noted that the Assessee had generally reduced inventory values by an ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 12 - average of 50%, which DRP held was arbitrary and lacked proper justification as per the guidelines of AS 2. In reviewing the Assessee's submissions and the AO's findings, DRP noted that the AO had mischaracterized certain facts about the Assessee's operations, yet these misstatements did not significantly impact the conclusions regarding the inventory valuation. The DRP referred to various schedules and documentation provided by the Assessee, noting that, contrary to the Assessee’s claims, the realisable value of the closing stock consistently exceeded the declared inventory values. Further, DRP observed that analysis indicated that the Assessee had sold items without incurring losses, suggesting that the realisable value had not declined as claimed by the assessee. The DRP thus concluded that the Assessee had failed to demonstrate the validity of the devaluation methodology applied, and accordingly DRP upheld the disallowance of Rs. 1,40,79,555. Accordingly, DRP upheld the AO’s disallowance of Rs. 1,40,79,555 for the assessment year 2010-11, with instructions to reflect the correct opening stock value in the subsequent year. 12. The assessee is in appeal before us against the aforesaid order passed by DRP confirming the aforesaid addition in the hands of the assessee. Before us, the counsel for the assessee submitted that the issue of devaluation of inventory is covered by the decision of Tribunal in the assessee’s case for assessment year 2010-11 in ITA No. 930/Ahd/2015, wherein the assessee’s appeal has been allowed in it’s favour by the Tribunal, vide the aforesaid order. Accordingly, in view of the aforesaid order, the issue may be decided in favour of the assessee. It would be useful to reproduce the relevant extracts of the order of ITAT dated 17-05-2023, wherein this issue has been decided in favour of the assessee, for ready reference: ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 13 - “41. Ground No.8 reads as under: “On the facts and in the circumstances of the case and in law, the Ld. AO under the directions of Hon'ble DRP erred in disallowing devaluation of inventory amounting to Rs.1,79,46,564. While making the addition, the Ld. AO erred in law and on facts on the following: i. in disregarding the stock valuation made by the Appellant as per AS 2 and section 145A of the Act; ii. in not appreciating the fact that no adverse remark is made by the Auditors in the audit report; iii. in disregarding the contention of the Appellant that the current method of valuation of inventory has been followed consistently over the past years; The Appellant prays that the aforesaid addition be deleted.” 42. Briefly stated facts are that the AO noted on verification of the details of inventory that the assessee has reduced the value of closing stock by an amount of Rs.1,79,49,564/- being written off of slow moving stock. On being asked to justify and explain its claim, the assessee responded by stating that devaluation of stock had been done following the method of accounting prescribed under AS-2 for valuation of inventories requiring inventories to be valued at cost or net realizable value, whichever is lower, which practice the assessee had been consistently following in the past also, and which was in accordance the provisions of section 145A of the Act also. The AO however was not satisfied with the reply of the assessee for the reason that, he noted, while the assessee had reduced the value of cost of inventory by almost 50%, but had not supported this reduction in value with any evidence or logic. The AO noted that the assessee was manufacturer of hydraulic and pneumatic equipments and parts, and these items did not get decayed easily. The AO held that devaluation in accordance with the AS-2 was to be done on inventory only, in case they were damaged or had become whole or partially obsolete or their selling price has declined and the assessee has failed to prove with evidence that they became obsolete, damaged or declined in selling price of inventories so devalued by it. The assessee further contended before the AO that it had system for devaluing assets based on scientific evaluation of its stock wherein on the basis of age of inventory, a percentage valuation in its value had been worked out by the company to cover its loss in value which the company had noted inversely proportionate to the holding period of inventory. The AO however rejected this contention of the assessee also stating that the assessee had failed to identify the items which it had devalued. Accordingly not satisfied with the explanation of the assessee that the devaluation of its inventory to the extent of Rs.1,79,49,564/-, the AO had proposed disallowance of the same. The assessee objected to this disallowance. 43. Before the ld.DRP reiterating the contentions made before the AO and pointing out that the nature of its inventory were such that their value reduced over time on account of various factors; due to nature of products, design invention, quality improvement, discontinuation of certainproducts, introduction of new products and reiterated that ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 14 - devaluation was done by technical experts inthis regard based on system which were scientifically devised on an age wise analysis of the inventory. The ld.DRP however rejected all the contentions of the assessee stating that there was no justification for devaluation since the assessee appears to be selling stock at more thanthe cost price earning profits thereon. The relevant finding of the ld.DRP in this regard at para 2.1 to 2.4 of his order are as under: “2.1 We have considered the submission made by the assessee as reproduced above which is exactly the same in contents and in legal aspects filed before the Assessing Officer as in the case of Hagglund Drives India Pvt.Ltd. The Assessing Officer as un every aspect of the assessee's submission and arguments in the draft assessment order. Bosch rexorth (India) Ltd.is now merged with Hagglund Drives India Pvt. Ltd. Further, the assessee has not produced any submission on working of closing stock valuation to the panel of DRP as given in the case of Hagglund Drives Pvt.Ltd. 2.2 We have considered the arguments of the Assessing Officer as well as the assessee and its Authorised Representative. It is abundantly clear from the chart of closing stock, purchase and sales, is out of all spare parts, whether it is sold within 6 months or within 24 months or even from non moving items, that the realizable value of the closing stock was much more than the cost of item sold. From the profit earned on sale of spare parts it is clear that the sale price of items sold are not less than the cost price. There appears to be no justification for declaring the value of closing stock at 50% of the cost when the assessee himself has earned profit on each and every item sold. From the details of purchase, sales, opening stock and closing stock, in quantity and in value, it is proved beyond doubt that the realizable value of closing stock has not been reduced on any counts as per AS-2. From the details of sales and considering the gross profit margin on the sold items, it is clear that neither the selling price nor realizable value has declined. 2.3. Further, the assessee was requested to furnish the details of devalued items shown in opening stock and sold during the month of April, May, November & December, 2009 to find out whether the devalued items, either purchased during the year or during the earlier years have been sold at devalued price or purchase price or even more than that to find out whether the assessee has shown the correct valuation of closing stock at the year-end or not? Whether realizable value has really gone down as claimed by assessee? But the assessee did not produce the above details before the DRP panel. 2.4 From the above facts, it is abundantly clear that realizable value was not less than purchase value in any of the above items sold out of the old stock or purchase made during the year, which has been devalued by the assessee, by 50% of the purchase value, whether the purchase date is in the year 2009,2008 or 1999 or 2007 or 2001 or 2003. This shows that assessee has not followed the policy as per AS 2.Theassessee has never sold the devalued items below cost as admitted by the authorized representatives present during the hearing. However, the assessee through their Authorised Representative could not establish that the realizable value of the items were never less than the purchase value. This remains undisputed fact on record. It is proved beyond doubt that because of aging factor or on lapse ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 15 - of time, the realizable value of items in stock were never less than purchase value. On the contrary, the assessee has earned huge profit on the items sold out of opening stock. All items in stock have been sold on regular selling price and not sold any item at even discounted sales price. The assessee has claimed that the closing stock has been value as per AS-2 i.e. realizable value or purchase price whichever is less but the fact on record prove that the closing stock has been wrongly devalued below the purchase price. Hence, it is held that the Assessing Officer has rightly disallowed the devaluation of closing stock and has made addition of Rs.1,79,46.564/-. In view of the above facts and circumstances of the case, the objection raised by the assessee against the addition made on account of devaluation of closing stock is rejected.” 44. The AO in compliance of the direction of the DRP accordingly disallowance of devaluation to the extent of Rs.1,79,49,564/-. 45. Before us, the ld.counsel for the assessee reiterated contentions made before the authorities below. Briefly, his arguments were – i) Devaluation was in compliance with the AS-2 issued by the Institute of Chartered Accountants of India for accounting of valuation of inventory prescribing inventory to be valued at lower of cost or net realizable value; ii) That the assessee was consistently following the prescribed accounting standards and complied with the provision of section 145A of the Act in this regard also; iii) That devaluation of the inventory was done by a team of technical experts of the assessee-company in accordance with a system devised noting the reduction in value of stock on account of various factors and devising a method of devaluation on age-wise analysis of the assets; iv) Complete details of all the stocks so valued along with basis of devaluation was furnished to the authorities below; v) That in view of the fact the assessee had devalued the assets as per a scientifically devised system for reduction on account of passage of time, it was in accordance with the accounting standard (AS) prescribed in this regard by the ICAI was in compliance with section 145A also and complete details were also furnished to the authorities below and the devaluation had been certified by the statutory auditors also. There was no reason for making any disallowance of devaluation which was in accordance with law. 46. In this regard, our attention was drawn to the following : • Annual accounts of the company mentioning write off slow moving stock from inventory to the extent of Rs.1,79,49,564/-on the basis of technical evaluation (placed before us at page no.87). • Letter dated 20.2.2014 addressed to the AO explaining that devaluation of inventories was in accordance with AS-2 and as per provisions of section 145A of ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 16 - the Act and enclosing working of devaluation of closing stock along with submissions (placed before in paper book page nos.309 to 329). The working of the devaluation of closing stock at PB Page No.313 to 329 giving details of each item of closing stock devalued unit wise giving its value before devaluation and after devaluation. • Letter dated 24.2.2014 addressed to the AO explaining the basis evolved by the assessee for devaluation of inventory noting that its realizable value is inversely proportionate to the holding period of inventory and giving age-wise analysis for the valuation of inventory; the contents of the same was pointed out to us from page PB Page no.336 as under: …….. • Our attention was drawn to the Annexure-1 attached to the aforesaid communication addressed to the AO containing the basis of devaluation on the age-wise analysis of the inventory ineach unit of the assessee (Page No.341 of the PB). • Letter dated 26.2.2014 addressed to the AO explaining the scientific basis evolved by the assessee for working out the devaluation in the value of inventory (placed before us at page no.347 of the PB) as under: ….. • Our attention was invited further to the technical report of the devaluation of each item (placed before us at page no.351 to 495 of the PB) containing the details of item-code, its description, its quantity in stock, before and after evaluation, the last date on which the stock was received and any movement in the stock in the impugned year or preceding years. From this, it was pointed out that all the items of inventory which was devalued had shown no movement by way of receipt of impugned order and/or even by way of issue for production, thus confirming the fact that they were slow moving items and the devaluation was done in accordance with age-wise analysis method adopted by the assessee. • Letter dated 10.12.2014 addressed to the DRP pointing out all the details and explanation relating to devaluation of stock, which were also furnished to the AO and summarizing the devaluation so done by the assessee in each of its unit, thus pointing out that all necessary details and explanation also furnished before the lower authorities (placed before us at Page no.617 to 620 of the PB). 47. The ld.counsel for the assessee therefore submitted that having furnished complete details and explanation regarding devaluation of the stock, and disallowance thereof was highly unjustified and needed to be deleted. 48. The ld.DR relied on the orders of the DRP/AO. 49. We have considered contentions of both the parties and gone through the orders of authorities. We have also carefully gone through all the documents referred before us. ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 17 - 50. On going through all the orders of the authorities below, we find that the assessee’s claim of devaluation of stock to the extent of Rs.1,79,49,564/- was disallowed primarily for the reason that the assessee was unable to file any justification for devaluation in value of stock. The DRP went to the extent of stating that claim of devaluation was not allowable to the assessee since it was earning profits on sale of spare, and there was no question of any value in the value of its stock/inventory so as to justify the devaluation. We have carefully gone through the submissions made by the assessee before the lower authorities to which our attention was drawn, and we find that the assessee had explained and demonstrated to the lower authorities that devaluation of inventory so done related to the slow moving inventory. It was pointed out by the assessee to the authorities below that on account of passage of time, such inventory loses its value in terms of market price for various reasons, such as on account of new products coming into the market, demands for the same no longer remain, and so on. The assessee had contended that its technical team had devised a basis for write off the value on slow moving assets based on age-wise analysis and details thereof were also furnished. It was also pointed out that the assessee consistently following the system all along and the system was in compliance with AS-2 and section 145A of the Act also. The assessee, we have noted, had furnished details of each and every inventory which it had devalued, substantiating its basis of the devaluation on age-wise analysis giving complete details of last date on which inventory was purchased showing that they were slow moving items, and based on age-wise analysis adopted by the assessee company, assets were accordingly devalued. 51. It is a universal truth that with the passage of time most of the stock looses their value since become obsolete on account of advancement of technology in today’s time. The assessee, we have noted, has adopted a scientific basis of reduction in value of its inventory based on age-wise analysis and has been applying it universally to all its inventory consistently from year to year. We fail to understand what further evidence the assessee was required to furnish to justify its claim. The claim of the assessee being based on scientific basis, approved by the statutory auditors also, and which has been following consistently year to year, we find no reason or justification for disallowing the same. The claim of the devaluation of inventory is accordingly allowed and disallowance so made of Rs.1,79,49,564/- is directed to be deleted. This ground is allowed.” 12. In view of the above observations in the order of ITAT, the contents of which have been reproduced above, ground number 3 of the assessee’s appeal is allowed. Now we shall come to the assessee’s appeal for assessment year 2011-12: 13. The assessee has taken the following grounds of appeal: ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 18 - ITA No. 448/Ahd/2016 A.Y. 2011-12) “1. On the facts and circumstances of the case and in law the Learned Income-tax Officer. Ward-1(1)(3) Ahmedabad (Ld. AO) and the Learned Joint Commissioner of Income-tax Transfer Pricing Officer (Ld TPO) under the directions of Honourable Dispute Resolution Panel (Hon’ble DRP), erred in making an upward adjustment of Rs 2.22 61.539/- in relation to the international transaction of payment of Infrastructure Consultancy and support charges to Associated Enterprise (AE) The Appellant prays that the addition made by the Ld AO TPO in relation to the international transaction of payment of Infrastructure Consultancy and support charges to AE be deleted 2. On the facts and circumstances of the case and in law the Ld AO/TPO under the directions of Hon'ble DRP erred in making an upward adjustment of Rs 51.07.133/ in relation to international transaction of payment of Information Technology Consulting Charges to AE The Appellant prays that the addition made by the Ld AO TPO in relation to the international transaction of payment of Information Technology Consulting Charges to AE be deleted 3. On the facts and circumstances of the case and in law the Ld AD TPO under the directions of Hon'ble DRP erred in making an upward adjustment of Rs 93.10.417/-in relation to the international transaction of payment of Guarantee Fees to AE The Appellant prays that the additions made by the Ld AO/ TPO in relation to the international transaction of payment of Guarantee Fees to AE be deleted 4. On the facts and circumstances of the case and in law the Ld AO under the directions of Hon’ble DRP erred in classifying office equipment under the head \"furmture and fittings” instead of \"plant and machinery and thereby disallowing differential depreciation of Rs 10.42.795/- by restricting the claim of depreciation on office equipment to ten percent. The Appellant prays that the additions made by the Ld AO in relation to the disallowance of differential depreciation by classifying office equipment under the head \"furniture and fittings instead of \"plant and machinery be deleted 5. On the facts and circumstances of the case and in law the Ld AO under the directions of Hon'ble DRP erred in disallowing devaluation of inventory amounting to Rs 3,10,39,552/-. The Appellant prays that the additions made by the Ld AD in relation to the disallowance of devaluation of inventory be deleted ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 19 - 6. On the facts and circumstances of the case and in law the Ld AO under the directions of Hon’ble DRP erred in disallowing amount written off towards Loose tools in profit and loss account amounting to Rs 4,67,37,977/- The Appellant prays that the additions made by the Ld AO in relation to the disallowance of writing off towards Loose tools be deleted 7. On the facts and circumstances of the case and in law the Lid AO under the directions of Hon'ble DRP erred in disallowing provision for doubtful debts amounting to Rs 111 10 300/under section 36(1)(vii) of the Income-tax Act 1961 The Appellant prays that the additions made by the Ld AO in relation to the disallowance of provision for doubtful debits be deleted The Appellant craves leave to add alter amend or withdraw all or any of the Grounds of Appeal” Ground No. 1: DRP erred in making upward adjustment of Rs. 2,22,61,539/- in relation to international transaction of payment of infrastructure consultancy and support charges to AE: 14. The issue relating to this Ground of Appeal is with regards to the TPO's choice of the Comparable Uncontrolled Price (CUP) method for evaluating international transactions relating to these payments made by the Assessee. The Assessee challenged the TPO's adoption of the CUP method on the ground that it was inappropriate due to the TPO's failure to identify any actual comparable uncontrolled price. The Assessee submitted that the CUP method relies on the comparability of products and contractual terms, and significant differences in geographic markets could undermine the reliability of any price comparison. The assessee submitted that even if a third-party customer could be identified, adjustments for differences affecting price could not be reliably made. Hence, the assessee submitted that the CUP method could not substantiated as the most appropriate means of determining the arm's length nature of these transactions. In reviewing these objections, the DRP held that the TPO followed the required ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 20 - provisions of section 92C(3), which mandates the determination of the arm's length price (ALP) using prescribed methods. The DRP acknowledged relevant judicial decisions, which have held that when no expenditure is necessary, the ALP can be deemed as \"nil,\" negating the need for applying a specific method to arrive at a conclusion. Furthermore, the DRP relied on the judgment of Deloitte Consulting India Pvt. Ltd., and held that that the ALP must be determined regardless of any contractual obligations. In the said decision, the Tribunal had held that the TPO is not merely tasked with evaluating whether a payment was legally mandated but rather with ensuring that transactions are at arm's length. The DRP was of the view that the Assessee did not provide sufficient evidence to demonstrate that marketing expenses incurred were justified. DRP observed that the Assessee had no direct involvement with client interactions, nor could it substantiate that the incurred expenses had any revenue-generating effect. Accordingly, the DRPheld that the Assessee failed to demonstrate that payments correlate with the quality and volume of services rendered, and therefore the TPO's determination of the ALP at \"nil\" is justified. Thus, the DRP decided against issuing any further directions to the AO or TPO, affirming the Ld. Assessing Officer’s / TPO’s stance on the matter. 15. The assessee is in appeal before us against the aforesaid order passed by DRP confirming the aforesaid addition in the hands of the assessee. Before us, the counsel for the assessee submitted that the assessee has given substantial proof that services have been provided to the assessee/that is the proof of rendering of services to the assessee have been adequately furnished to the Tax Department. Further, the assessee has also furnished adequate documentation to prove/substantiate the benefit derived by the assessee from availing of the ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 21 - services. However, the counsel for the assessee submitted that the most important facts relating to this ground of appeal is that the expenditure relating to these services has been capitalised and hence forming part of capital work in progress, and therefore since the expenditure has not been claimed as a deductible expenditure by the assessee in the first place, there can be no question of disallowance of the same. The assessee has signed a Consultancy and Support Agreement with its Associated Enterprise (AE), Robert Bosch GmbH. Under this agreement, the assessee has reimbursed expenses incurred by Robert Bosch for infrastructure-related services, which were charged based on actual costs and time spent. A total of Rs. 22,261,539 was reimbursed to Robert Bosch, specifically for expenses related to setting up a manufacturing plant in Sanand, Ahmedabad. These costs have been capitalized, as they pertain to the infrastructure consultancy and support services provided to the assessee. The reimbursement amount reflects a recovery of costs without any markup, which aligns with the arm's length principle as outlined in Section 92C of the Act. 16. In response, DR placed reliance on the observations made by the assessing officer in the assessment order. 17. We have heard the rival contentions and perused the material on record. We observe that the counsel for the assessee has made a specific claim to the effect that since the expenses in question had been capitalised as capital work in progress in the books of accounts, then in such case there is no question of disallowing the same as the same were not claimed by the assessee in the first instance. We observe that the assessing officer/DRP has not adjudicated on this aspect at all and we also find force and the argument of the counsel for the assessee on this issue. ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 22 - 18. Accordingly, in interest of justice, ground number 2 of the assessee’s appeal is restored to the file of assessing officer for de novo adjudication in line of the arguments made by the counsel for the assessee which are to the effect that if the expenses have been capitalised as capital work in progress and that no expense has been claimed, and therefore, the expense should not be disallowed. The assessing officer is directed to verify the precise amount of expenses which have been capitalised and thereafter, taking into consideration the arguments of the assessee on this issue, pass appropriate orders in accordance with law. 19. In the result, ground number 1 of the assessee’s appeal is allowed for statistical purposes. Ground number 1: DRP erred in making upward adjustment of Rs. 51,07,133/-in relation to international transaction of payment of information Technology Consulting Charges to AE: 20. The brief facts relating to this Ground of Appeal is that objection raised by the assessee company against the action of the AO and the TPO in determining the arm's length price of IT consultancy and C/RE support payments at 'Nil', as opposed to the claimed amount of Rs. 2,73,68,672/-. The assessee’s contention is that the assessee has provided sufficient documentation to demonstrate the benefits received was unjustly rejected by the TPO/AO, who incorrectly categorized most services from the associated enterprise (AE) as stewardship activities. Additionally, the assessee submitted that the TPO exceeded his jurisdiction by denying payment for these services, which had not been challenged by the AO. The DRP reviewed the detailed findings of the TPO, specifically regarding intra-group services. The DRP was of the view that the ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 23 - assessee failed to effectively counter the TPO’s conclusions. According to the OECD guidelines on intra-group services, stewardship or shareholder activities are not eligible for charges, and the OECD guidelines list several types of expenses that qualify as such. These include costs related to the legal structure of the parent company, reporting and legal compliance, fund raising for acquisitions, management control activities, and regular performance reviews. Upon examining the services rendered, the DRP held that the management and consultancy services received by the assessee from the AE fell into the category of \"services that provide incidental benefits.\" The OECD guidelines clarify that services providing only incidental benefits do not warrant an allocation of costs. The OECD guidelines provide examples where services rendered by a parent company or sister company yield benefits to other group members without being direct intra-group services, implying that independent enterprises would not be willing to pay for such incidental benefits. Moreover, the OECD guidelines specify that \"on-call services\" do not require charging. Availability alone, without actual utilization, does not constitute a service for which payment is necessary. The justification for treating availability as a separate service hinges on common business practices, where independent enterprises often incur standby charges. However, if the likelihood of utilizing such services is low or easily accessible from other sources, the justification for the standby option becomes tenuous. The DRP held that the payment for intra-group services, including management consultancy fees, can only be deemed at arm's length if the taxpayer substantiates the necessity and receipt of such services. This is in line with the OECD's observations on intra-group services, which stipulates that the core issues are whether the services were actually provided and if the charges align with the arm's length principle. Key criteria determined by OECD ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 24 - include whether the services provide economic or commercial value to enhance the recipient's position and whether an independent enterprise would pay for similar services. The DRP held that the responsibility rests with the assessee to maintain adequate documentation to satisfy both the 'Benefit Test' and the 'Willingness to Pay Test'. In this case, the assessee did not meet the documentation requirements outlined in Rule 10D of the Income-tax Rules. The provisions require details regarding the services provided, including a functional analysis, relevant international transaction comparisons, and a method for determining ALP. In absence of sufficient documentation, DRP held that that no intra-group services were rendered. The DRP relied on several judicial precedents and noted that the assessee must provide evidence which must establish the utility of the services provided. The DRP held that mere filing of extensive correspondence without contextual relevance does not adequately discharge the burden of proof necessary to substantiate the expenditure's arm's length nature. In light of the factual and legal background, the DRP agreed with the TPO’s adjustment regarding the IT consultancy charges, and held that the ALP for these international transactions was rightly determined at 'Nil'. 21. The assessee is in appeal before us against the aforesaid order of DRP, confirming the additions made by the assessing officer. Before us, at the outset the counsel for the assessee submitted that the issue is now squarely covered in favour of the assessee by the Ahmedabad Tribunal in assessee’s own case for ITA number 930/Ahd/2015. Therefore, in view of the observations of Ahmedabad Tribunal, in relation to the same set of facts, the issue now stands decided in favour of the assessee. ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 25 - 22. In response, the learned DR placed reliance on the observations made by the DRP/assessing officer in their order, with respect to this ground of appeal. 23. We have heard the rival contentions and perused the material on record. It would be necessary to reproduce the relevant extracts of the ruling rendered by Ahmedabad Tribunal in assessee’s own case for ITA No. 930/Ahd/2015: “3. Ground No.1, 2 & 3 raised by the assessee, it was pointed out, related to the issue of adjustment made to the international transaction of payment for information technology consultancy charges to the AE of the assessee amounting to Rs.4,84,28,143/-, the ALP of which was determined by the TPO at NIL, holding, it was only in the nature of stewardship and supervisory services. All these grounds are being dealt with by us together. The said grounds read as under: 1. On the facts and in the circumstances of the case and in law, the Learned Income- tax Officer, Ward-1 (1)(3), Ahmedabad ('Ld. AO') and the Learned Deputy Commissioner of Income-tax, Transfer Pricing Officer- II ('Ld. TPO') under the directions of Honourable Dispute Resolution Panel ('Hon'ble DRP'), erred in making an upward adjustment of Rs. 1,47,36,729/- in relation to the international transaction of payment of Information Technology Consulting Charges to Associated Enterprise ('AE'). The Appellant prays that the additions made by the Ld. AO / TPO in relation to the international transactions of payment of intra-group services to AE be deleted. 2. On the facts and in the circumstances of the case and in law, the Ld. AO / TPO under the directions of Hon'ble DRP erred in making the adjustment on account of Information Technology Consulting Charges ignoring that: i. the Appellant had supported the claims for need and rendition of the services with appropriate evidences while demonstrating the benefits received therefrom; ii. there was commercial rationale and expediency in availing the services from the AEs; and iii. the Appellant is not required to establish the benefit arising out of the said services. The Appellant therefore prays that the above adjustment be deleted. 3. Without prejudice to the above, on the facts and in the circumstances of the case and in law, the Ld. AO / TPO under the directions of Hon'ble DRP erred in determining the arm's length price of the Information Technology Consulting Charges at NIL. 4. On the facts and in the circumstances of the case and in law, the Ld. AO / TPO under the directions of Hon'ble DRP, erred in making adjustment of Rs. 52,91,667/- in relation to the international transaction of payment of guarantee fees to AE. The Appellant ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 26 - prays that the additions made by the Ld. AO / TPO in relation to the international transactions of payment guarantee fees to AE be deleted. 5. On the facts and in the circumstances of the case and in law, the Ld. AO under the directions of Hon'ble DRP erred in classifying office equipment under the head \"furniture and fittings\" instead of \"plant and machinery\" and thereby disallowing differential depreciation of Rs.11,71,648 by restricting the claim of depreciation on office equipment to ten percent. Appellant prays that the aforesaid addition be deleted. On the facts and in the circumstances of the case and in law, the Ld. AO erred in disallowing seminar expenses, exhibition expenses and advertisement expenses amounting to, Rs.32,82,122 under section 40(a)(ia) of the Act without appreciating the fact that the payments were not subject to IDS. The Appellant prays that the aforesaid addition be deleted. 7. On the facts and in the circumstances of the case and in law, the Ld. AO under the directions of Hon'ble DRP erred in disallowing provision for advertisement expenses amounting to Rs. 85,500 by considering it as an ad hoc provision without appreciating the break-up of the' said expense and the fact that taxes had been withheld and deposited to the credit of government on the said provision amount. The Appellant prays that the aforesaid addition be deleted. 8. On the facts and in the circumstances of the case and in law, the Ld. AO under the directions of Hon'ble DRP erred in disallowing devaluation of inventory amounting to Rs. 1,79,46,564. While making the addition, the Ld. AO erred in law and on facts on the following: i. in disregarding the stock valuation made by the Appellant as per AS 2 and section 145A of the Act; ii. in not appreciating the fact that no adverse remark is made by the Auditors in the audit report; iii. in disregarding the contention of the Appellant that the current method of valuation of inventory has been followed consistently over the past years; The Appellant prays that the aforesaid addition be deleted. 9. On the facts and in the circumstances of the case and in law, the Ld. AO under the directions of Hon'ble DRP erred in capitalising interest expense amounting to Rs.59,12,913 to the capital work-in-progress ('CWIP') without any basis. It is prayed that the interest be allowed u/s 36(1)(iii) of the Act since it is for the purpose of business.” ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 27 - 4. The ld.counsel for the assessee before us contended that IT consultancy expenses to the tune of Rs.4,84,28,143/- were incurred by the assessee on account of support received from its AE for implementation and trouble-shooting of SAP software, RAINBOW, acquired by it . It was pointed out that this SAP software was customized for the requirement of the Bosch group. For the roll out of this software to the assessee, the regional team of consultants from US,Europe, AsiaPacific, worked on site as well as provided support from legacy system. It was pointed out that during the implementation process various meetings were held to discuss various transactions and concept for functionality of the same in SAP. As evidence, it was pointed out, the list of employees of AE working on SAP implementation was filed; copy of schedule reflecting time and agenda of various sessions conducted during the implementation of SAP for various modules; minutes of meeting reflecting trouble shoot/guidance for different types of transactions, management of various databases and procedures in day-to-day business operations, viz. outgoing payments, guarantees given, customer master, invoice processing, salary interference, vendor master were submitted. Our attention was invited to description of IT technology services submitted to the TPO vide letter dated 26.6.2013 placed before us a PB page no.119 as under: “1. Bosch Group entities are provided Information Technology solutions and support sendees so as to have economical and reliable solutions of high quality for the benefit of Bosch Group on a global basis. BRIL is also provided such support so that its activities are aligned with the Bosch Group strategy at a global level. 2. BRIL achieves cost advantage by global contracts and gets advantage of new technology. Such services are provided to BRIL and the costs of these services are allocated by the AE incurring the expense. 3. For drives and control business, this customized SAP is called Rexroth Application Integration for Business Optimisation Worldwide ('RAINBOW'). 4. During the year under consideration, BRIL was allocated charges for SAP consulting. For roll out of any SAP software, the regional team (US, Europe, Asia Pacific) of consultants work on site as well as provide the support for roll out from legacy system to RAINBOW. They charge for consultancy and travel costs of consultants. 5. It is important to note here that, these services received by BRIL are availed in both the segments i.e. Manufacturing and Trading segments. Hence the value of these international transactions has been allocated between manufacturing and trading activities by using sales value as a basis of allocation. Sales made by the manufacturing division are INR 207.57 crores and trading division is INR 185.89 crores i.e. the allocation ration being 50.89/6 and 49.11% respectively. 6. Sample invoices for the service are enclosed herewith as Annexure — K 1.1 5. Our attention was drawn to various invoices raised on account of the said services by its AE placed at PB Page No.120 to 124 and also agreement for rendering of services of AE, placed before at PB Page No.115 to 117. Our attention was also drawn to the list of ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 28 - employees who worked on the SAP project placed before us at PB page no.522; schedule of sessions conducted during the implementation of SAP at page no.523 to 524; minutes of meeting reflecting trouble shoot/guidance of different modules of SAP at PB page no.525 to 553, and certificate from hotel for stay of personal engaged in SAP implementation was also filed and placed before us at PB Page No.554 to 555, which were submitted to the DRP also. 6. The ld.counsel for the assessee contended that the above evidences sufficiently demonstrated that the assessee had actually required such support from its AE and had also received benefit from such services. He thereafter drew our attention to the finding of the DRP dismissing the assessee’s objection at para-5 of his order as under: “5. IT consulting charges_-The payment is claimed to have been made to avail support in relation to the implementation of SAP module in respect of the issues faced in initial implementation. This is in relation to the implementation of RAINBOW. This amount has not been capitalised. 5.1 We find from the details furnished by the assessee that the description of the services rendered under this head is sketchy, the payment has been made to more than one AE. The assessee has not been able to explain as to how the maintenance cost of a software purchased for Rs.2.91 cr can be as high as 1.47 cr in a single year. Further it is seen from the annual accounts of the assessee company that a huge amount of Rs 3.10 cr. has been shown as paid to Robert Bosch Engineering and services Ltd on account of IT support including online support for SAP implementation, as per the details furnished before the AO. Besides the TPO has already allowed the charges paid in the name of I.T. Support charges amounting to Rs 1.46 cr. In such circumstances we agree with the TPO that services under this head were either not delivered at all or were merely in the nature of supervisory guidance to ensure alignment of the systems with the group's integrated system. Therefore we reject the assesee's objections in this regard and confirm the adjustment proposed by the TPO to this extent.” 7. Referring to the above, the ld.counsel for the assessee pointed out that the DRP held that the services were not delivered and in any case were only in the nature of supervisory and support services and accordingly upheld the findings of the TPO determining the ALP of these transactions to be NIL. Ld. Counsel for the assessee argued that in view of all the evidences and explanation filed by the assessee as above the DRP was incorrect in holding that no services were rendered to the assessee. He further pointed out that the DRP concurred with the finding of the TPO that no services were rendered on this count or they were merely supervisory services ,on the basis that quantum of charges paid by the assessee for these services was disproportionately higher in relation to the cost of the software for the implementation of which these services were procured by the assessee. He pointed out that the DRP had taken note that while software purchased for Rs.2.91 crores, the maintenance cost claimed by the assessee as IT consultancy charges, was as high as Rs.1.47 crores, and based on this, the ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 29 - DRP held that the assesseeactually hadnot received any benefit on this count. The ld.counsel for the assessee contended that this cannot be the basis for holding that the assessee had not procured any service on account of IT consultancy, more particularly, when all evidences in this regard, as noted above, were filed by the assessee. The ld.DR on the other hand relied on the order of the DRP/TPO. 8. We have heard both the parties; we have also carefully considered submissions made by the assessee to the TPO/DRP .We find merit in the contention of the Ld.Counsel for the assessee that the AO/DRP had erred in determining the ALP of the international Transaction of Information Technology Consulting Charges at NIL as opposed to Rs. 1,47,36,729/- claimed by the assessee. The basis for determining the ALP at Nil by the AO/DRP , being that no services as such were rendered by the AE ,we find is totally contrary to facts and in fact is without considering and addressing the voluminous evidences filed by the assessee demonstrating the fact of having received services for implementation of SAP software. All the evidences filed by the assessee in this regard, as noted above by us, are to the effect that there was an agreement entered into by the AE for provision for these services; the evidences demonstrate rendering services, by way of bills raised on the assessee by the AE; the fact of the services rendered are also demonstrated by the minutes of the meeting, and engagement of employees of the AE for the implementation of SAP projects. The assessee has also provided list of employees who had come to render these services. Both the TPO/DRP we find, have chosen to ignore all these evidences and not even cared to comment on the same either by pointing out any infirmity or otherwise. The DRP has only stated that the description of the services was very sketchy, without pointing out how it arrived at this finding from the evidences filed by the assessee before it. All evidences taken together cannot in our view be said to giving sketchy description of the services rendered by the assessee to the AE. Further, we also agree with the ld.counsel for the assessee that merely because cost paid by the assessee for the implementation of the SAP software was disproportionately high, as compared to the cost of software itself, that alone cannot be basis for arriving at the conclusion that no services were rendered by the AE to the assessee. Such high cost for services rendered for implementing asoftware does raise doubts, but mere suspicion cannot be the basis for holding that no services were rendered by the AR for the said purpose , more particularly when the assessee had filed evidences showing rendering of services. It is for the Department to make further inquiry to find out whether any constructive services as such wasrendered by the AE or not to the assessee. Without pointing out any infirmity in the evidences furnished by the assessee, demonstrating rendering of IT services, the Revenue authorities, we hold could not have casually gone on to state that no services were rendered by the AE to the assessee, and that the evidences did not establish nature of services rendered. 9. In view of the same, we do not agree with the AO/DRP that no services were rendered by the AE to the assessee on account of IT consultancy services, and we therefore, direct the deletion of the adjustment made to the same by treating the ALP of the said services at NIL as opposed to Rs.1,47,36,729/- claimed by the assessee. ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 30 - In view of the above, ground nos.1, 2 & 3 raised by the assessee are allowed.” 24. We observe that since the matter is covered on this issue in favour of the assessee, and the relevant observations which have been reproduced above. 25. Accordingly, ground number 2 of the assessee’s appeal is allowed. Ground number 3: DRP erred in making upward adjustment of ₹ 93,10,417/- in relation to international transaction of payment of guarantee fees to AE 26. The brief facts in relation of this Ground of Appeal pertains to the determination of the arm's length price for guarantee fees at 'Nil' in connection with the international transactions of the assessee company. In the financial year 2010-11, the assessee secured a short-term loan of Rs. 120 crores and a long-term loan of Rs. 50 crores from its group company, Bosch Limited, Bangalore. The interest rates on these loans were set at 11% and 12%, depending on the duration of the borrowing. Robert Bosch GmbH (RBG), another associated enterprise, acted as the guarantor for these loans, charging a guarantee fee of 0.75% per annum. The TPO's findings highlighted several critical points: first, he noted that the guarantee service was provided unilaterally by the AE, without any explicit demand from the lender or necessity from the borrower. TPO observed that the assessee's current assets, such as sundry debtors and inventory, could have adequately secured the loan, thus indicating that a guarantee was unnecessary. The TPO further observed that there was no distinct benefit to the company from the guarantee and was of the view that considering the unilateral nature of the group policy that imposed the guarantee fee, the TPO was of the view that guarantee fee did not constitute a legitimate service. In response, the assessee ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 31 - objected to the TPO's conclusions, and submitted that the guarantee fee should not have been disregarded. The assessee submitted that the guarantee fee rate of 0.75% was derived from a 'country risk chart' formulated by the group and was applied consistently across group companies as needed. The assessee further submitted that the guarantee was a prerequisite from the lender, as evidenced by the board meeting minutes. The assessee also submitted that the company enjoyed a reduced effective interest rate of 11.75% and 12.75% due to the guarantee, which was favorable compared to the State Bank of India’s Prime Lending Rates during the same period. The assessee further contended that using current assets as collateral was a strategic business decision and should not be questioned by tax authorities. The assessee argued that the need for the guarantee was justified based on business considerations and that dismissing the guarantee fee as 'Nil' was inappropriate. The assessee highlighted that safe harbor rules suggested a guarantee fee of 2% for amounts up to Rs. 100 crores and 1.75% for amounts exceeding that threshold. The DRP observed that the TPO had correctly observed that the assessee was effectively debt-free, with sufficient reserves and current assets that could have secured the loans independently. Accordingly, DRP held that that the guarantee was not required, and therefore, no benefit was derived from by the assessee it. The DRP held that the TPO's determination of the ALP at 'Nil' was justified and upheld the adjustment, rejecting the objections raised by the assessee. 27. The assessee is in appeal before us against the aforesaid order passed by the DRP confirming the additions in the hands of the assessee on this issue. Before us, the counsel for the assessee submitted that the of payment of guarantee fee is covered by the honourable Tribunal in the assessee is case for assessment ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 32 - year 2010-11 in ITA number 930/Ahd/2015, wherein the assessee’s appeal has been allowed in it’s favour by the Tribunal on this issue, vide the aforesaid order. Further, the counsel for the assessee submitted that the Gujarat High Court has also confirmed the position for assessment year 2009-10. Accordingly, in view of the offer aforesaid order, the issue may be decided in favour of the assessee. 28. It would be useful to reproduce the relevant extracts of the order of ITAT dated 12-07-2024, wherein this issue has been decided in favour of the assessee, for ready reference: “2. The present appeal filed by the assessee deals with the matter for A.Y. 2010-11, recalled vide order of the Tribunal dated 24-1-2024 in MA No.85/Ahd/2023 in IT(TP)AO.930/Ahd/2015. In the said MA, it was pointed out that the assessee had raised the issue of addition made by the AO/TPO on account of adjustment of Rs.52,91,667/- in relation to the international transaction of payment of guarantee fees to AE and the assessee sought the deletion of the same before the Tribunal in its above appeal. This issue was raised in ground no.4 in ITA No.930/Ahd/2015. However, the Tribunal vide impugned order dated 31-5-2023 confirmed the upward adjustment so made by the lower authorities and dismissed the claim of the assessee. It was further pointed out that the Tribunal while confirming the order of the lower authorities did not appreciate the fact that similar addition made by the Department for the A.Y. 2009-10 was deleted by the ITAT by holding that the payment for guarantee commission was justifiable, and therefore, the finding of the Tribunal for the impugned year is contrary to its earlier decision on the similar issue. Therefore, this being a mistake apparent on record of the case and the Tribunal found merit in the contention of the assessee decided to reconsider the issue and decided to recall the order of Tribunal qua ITA No.930/Ahd/2015 dated 31-5-2023 to the limited purposed of adjudication of Ground No. 4 only. 3. Therefore, now we decide on the ground number 4 with this order which is as follows: “4. On the facts and in the circumstances of the case and in law, the Ld. AO/ TPO under the directions of Hon'ble DRP, erred in making adjustment of Rs. 52,91,667/- in relation to the international transaction of payment of guarantee fees to AE.” The Appellant prays that the additions made by the Ld. AO / TPO in relation to the international transactions of payment guarantee fees to AE be deleted. ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 33 - On the Ground of appeal: 4. The issue involved in this ground relates to the TP adjustment made in relation to international transactions of payment of guarantee fees by the assessee to its AE amounting to Rs.52,91,667/- the Arm’s Length Price(ALP) of which was determined at NIL by AO/TPO, objection of the assessee to which, was dismissed by the DRP. 4.1. The facts relating to the issue are that during the impugned year, the assessee has availed Rs.100 crores borrowing from its group company viz. Bosch Ltd., Bangalore, and interest rate charged thereon was at the rate of 11%. For the said purpose, one of the AEs of the assessee i.e. Robert Bosch Gmbh acted as guarantor and charged guarantee fee at the rate of 0.75% per annum to the assessee for the guarantee provided. During the impugned year, the assessee accordingly paid guarantee charges of Rs.52,91,667/-. The TPO found that no services for guarantee had been rendered by the AO; no distinct benefit had accrued to the assessee in form of reduction in the interest rate on account of guarantee and the transaction sought to be propagated by the assessee as comparable adopting CUP method was not comparable. Accordingly, the transaction of the AE giving guarantee on behalf of the assessee company was benchmarked at NIL, as no service of any value was found rendered and upward adjustment to the extent of Rs.52,91,667/- was proposed to be made by the TPO. The relevant finding of the TPO in this regard at para 6 of his order are as under: “6. As clearly brought out in the show cause letter issued to the assessee and the discussion made above following distinct features are noted in respect of this transaction. i. The loan has been taken from a related party Bosch India. The guarantee has also been supplied by a group entity Robert Bosch GmbH, Germany. ii. There does not appear to have been any distinct insistence by the lender for guarantee. No evidence of this nature was furnished by the assessee to this office. iii. There is no evidence of third parties also insisting on guarantee for giving loan to the assessee. iv. The assessee had sufficient reserves as well as assets to support the loan and a collateral guarantee was neither needed nor demanded. It had no other charge on these assets. v. A unilateral group policy imposing guarantee on the assessee and seeking charges for the same cannot be regarded as a service rendered to the assessee. vi. Since no service has been rendered by the AE, no charge can be attributed to the transaction of giving guarantee to the assessee company. vii. No distinct benefit has accrued to the assessee in the form of reduced interest rate on account of guarantee. ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 34 - viii. The loan was to acquire capital assets which itself would have served as a collateral. Hence, an additional guarantee did not serve any purpose. ix. The transaction sought to be propagated as CUP is incomparable due to the following reasons: a. The loan transaction is not a simple transaction. it is a composite transaction with short term funding along with the funding in the nature of guarantee to be provided by the bank to the assessee. b. The loan transaction is for working capital purposes while the loan obtained on the strength of guarantee was utilised for capex. c. The nature of the loan transaction was short term funding while the loan from related party is in the nature of long-term funding. x. Without prejudice, it is seen that the bank has provided the funds in the nature of guarantee for bank guarantees, shipping guarantees, bid bonds, performance bonds and export guarantees to the assessee, after obtaining the counter guarantee from the assessee. This clearly means that the bank has covered is risk and after coverage of such-risk, no guarantee fees has been charged from the assessee. In the case of loan from related party it is very clear that the risk of granting the loan to the assessee was negligible on account of the healthy reserves, and working capital position of the assessee and thus the risk of the lender was adequately covered. Therefore, on the same lines on which no guarantee fee was charged by the bank no guarantee should have been charged from the assessee also. 6.1 In light of the above discussion, the transaction of the AE giving guarantee on behalf of the assessee company is benchmarked at NIL' as no service of any value as been rendered. Hence, a downward adjustment in the payment for guarantee to the extent of Rs 52,91,667/- is required to be made. Accordingly, the income of the assessee, is required to be adjusted upwards to the extent of Rs.52,91,667/-.” 4.2. The Ld.DRP confirmed the finding of the Ld.TPO and, accordingly, rejected the objection filed by the assessee. 4.3. Upon reconsideration of Ground No. 4 in the present appeal for the assessment year (A.Y.) 2010-11, we are required to adjudicate the matter concerning the Transfer Pricing (TP) adjustment made by the Assessing Officer (AO)/Transfer Pricing Officer (TPO) and upheld by the Dispute Resolution Panel (DRP) concerning the payment of guarantee fees to the Associated Enterprise (AE). 5. During the course of hearing before us, the Ld. Senior Counsel for the assessee highlighted the fact that during the F.Y. 2009-10 the assessee availed a short-term loan of Rs.10 crore from Deutsche Bank bearing an interest rate of 16% p.a. While for further short-term fund requirements totalling to Rs.100 Cr, assessee opted for extending the ongoing short-term borrowing @ 11% from the group company Bosch Ltd. Lender being ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 35 - listed company wanted guarantee / security. The assessee availed this guarantee from the AE - Robert Bosch Gmbh by paying 0.75% guarantee fees. Thus, the effective rate of interest at which it paid interest to the group company was 11.75% including guarantee fee of 0.75% paid to AE. This arrangement has which has benefited the assessee. 5.1. The Ld.Senior Counsel for the assessee also contended that the Tribunal has deleted the addition made by the Department in A.Y. 2009-10 on similar facts in assessee’s own case. He further stated that the said order of tribunal was challenged by the Revenue in Hon’ble Jurisdictional High Court in Tax Appeal No. 886 of 2018 and the Hon’ble High Court vide order dated 23.7.2018 upheld the order of the Tribunal, and in the light of the same, the inconsistent findings in the present comparable issue requires to be relooked into. A copy of decision of the Hon’ble High Court is placed on record. 6. The Ld.Departmental Representative supported the finding of the Tribunal on the impugned issue. 7. We have heard both the parties and perused the material available on records. We have also gone through the order of Hon’ble High Court dated 23-7-2017. The relevant para of the said order is reproduced here for ready reference: “7. Now so far as the proposed Question (C), i.e. deleting the addition made on account of Transfer Pricing Adjustment of Rs.23,51,667/- is concerned, apart from the fact that in the case of the very assess in earlier year, similar addition was deleted, even on merits also, the learned ITAT has observed as under:- “17. There is no dispute that all the three entities that is the assessee company, the lender company and the guarantor company are Associated Enterprises. There is also on dispute that the assessee has borrowed the money on interest of 12.25% per annum as against interest of 15% quoted by the Bank. Considering the guarantee commission of 0.75% paid by the assessee, the total cost of borrowing comes to 13% which is still lower than the rate of 15% quoted by the Bank. This in itself justifies the payment of guarantee commission. Further, the First Appellate Authority has given a categorical finding in relation to similar transactions in earlier assessment year, where no adjustment was made by the AO / TPO. Another undisputed fact is that the operating margin of the assessee company is at 18.21% which is much better as compared to the average margin of 10.36% of the other comparables. On this account also, the payment of guarantee commission is justifiable. Considering the facts in totality in the light of the previous history of the assessee, we do not find any reason to interfere with the findings of the ld. CIT(A). Ground no.4 is accordingly dismissed.” Considering the aforesaid facts and circumstances, it cannot be said that the learned ITAT has committed any error in deleting the addition made on account of Transfer Pricing Adjustment of Rs.23,51,667/- . No substantial question of law arises. ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 36 - 8. In view of the above and for the reasons stated above, we concur with the orders passed by the learned CIT(A) as well as learned ITAT. As observed hereinabove, no substantial questions of law arise. Under the circumstances, the present appeal deserves to be dismissed. It is, accordingly dismissed.” 7.1. We observe that the assessee demonstrated that the effective borrowing cost, including the guarantee fee, was (11.75%) lower than the bank's quoted interest rate (16%), thus justifying the economic rationale for the guarantee fee. 7.2. The TPO did not present compelling evidence to establish that the guarantee fee was unwarranted. The benefits derived, as seen in lower interest rates and favorable operating margins, substantiate the transaction's arm's length nature. 7.3. For A.Y. 2009-10, the Tribunal had deleted a similar addition, justifying the payment of guarantee commission. This decision was upheld by the Hon’ble Gujarat High Court, which noted the consistency of the assessee's operating margin and the benefit of lower borrowing costs compared to bank rates, thereby justifying the guarantee fee. 7.4. The present case mirrors the facts and circumstances of A.Y. 2009-10, where the addition was deleted by the Tribunal and upheld by the Hon’ble Gujarat High Court. Consistency in judicial decisions is crucial to maintain legal certainty and fairness. 7.5. In light of the above considerations, we find that the TP adjustment made by the AO/TPO and upheld by the DRP is unjustified. The addition of Rs.52,91,667/- on account of the guarantee fee payment to AE is hereby deleted. Accordingly, ground raised by the assessee is allowed. 8. In the result, the appeal of the Assessee is allowed.” 29. We observe that since the matter is covered on this issue in favour of the assessee and the relevant observations which have been reproduced above. 30. Accordingly, ground number 3 of the assessee’s appeal is allowed. 31. Ground number 4 (depreciation on office equipment) and ground number 5 (disallowance of the valuation of inventory) has already been discussed and decided in favour of the assessee by dealing with ground numbers 1 and 3 of the assessee’s appeal for assessment year 2010-11. ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 37 - 32. Accordingly, ground number 4 and 5 of the assessee’s appeal for assessment year 2011-12 are allowed. Grounds of Appeal Number 6: DRP erred in disallowing amount of towards used tools in the profit and loss account amounting to ₹ 4,67,27,977/- 33. The brief facts in relation to this Grounds of the assessee company had been following a practice of inventorizing loose tools and amortizing their cost over a period of five years. In the current financial year, the assessee made a significant change to this accounting policy. Specifically, machinery spares that are regularly used but not directly associated with fixed assets were reclassified as loose tools, leading to their immediate expensing upon issue to production. Additionally, the unamortized portion of loose tools from previous years, which had been amortized proportionally over five years, was fully expensed in the current year, resulting in an additional charge of Rs. 4,67,37,977/-. The assessing officer disallowed this additional charge. In presenting its case before the AO, the assessee submitted that, according to Section 145(2) of the Income Tax Act and Notification SO 69(E) dated January 25, 1996, a change in accounting policy is permissible if it leads to a more appropriate presentation of financial statements. The Appellant submitted that the change was genuine and would be consistently applied in the future. To support its position, the Appellant cited several judicial precedents, including Chainrup Sampatram v. CIT, CIT vs. Andhra Prabha Ltd., Indo-Commercial Bank Ltd. v. CIT, and ACIT vs. Shree Balkrishna Jewellers. The AO, in the draft order, raised several objections to the change in accounting policy. Firstly, the Assessing Officer contended that a method of accounting once established must be consistently followed in subsequent years, implying that changes were not permissible. The ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 38 - assessee countered this by arguing that the change was made for better financial presentation, and failing to allow such adjustments would render Section 145 ineffective. The AO was also of the view that the consistency of the accounting method is crucial, since the method employed in the past should continue. The assessee responded by clarifying that the phrase \"method of accounting regularly employed\" encompasses both past methods and any newly adopted methods, as long as they are consistently followed. The assessee submitted that restricting the interpretation of this phrase would negate the intention of the Statute allowing for accounting policy changes. Another contention from the AO was that the change in accounting policy was not permissible since it resulted from a shift in the accounting system. The assessee clarified that there was no change in the valuation method for loose tools; they had been valued at the lower of cost or net realizable value both before and after the transition to a new software system (i.e. SAP). In additional submissions to the DRP, the assessee reiterated that the change in accounting policy was justified as it led to a more appropriate financial representation, which had not been feasible under the limitations of the previous accounting system. The assessee submitted that the valuation method for loose tools had not altered, and therefore, the conclusions drawn by the AO and DRP regarding the change in valuation were incorrect. However, the DRP agreed with the view of the AO, and held that there had indeed been a change in the valuation method and that the transition to a new ERP system did not justify altering the accounting treatment of closing stock. The DRP upheld the AO's position and in view of findings from the Luxor Writing Instruments judgment, thereby rejecting the assessee's claims. ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 39 - 34. The assessee is in appeal before us against the aforesaid order passed by DRP, disallowing the claim of the assessee. The counsel for the assessee reiterated the submissions made before the lower authorities and submitted that the change was essential for accurate financial reporting. The Ld. Counsel for the assessee submitted that historically, the Company had a practice of inventorizing loose tools and amortizing their cost over five years. Starting from the financial year 2010-11, the Company reclassified machinery spares frequently used and not directly associated with fixed assets as loose tools. This led to expensing these tools in the accounts when issued to production, rather than amortizing them. Consequently, the Company recognized an additional charge of ₹4,67,37,977/- in the profit and loss account, which was subsequently disallowed by the Ld. Assessing Officer (AO) on multiple grounds. Regarding the non-permissibility of changing the accounting methods, the assessee submitted that Section 145(2) of the Act allows changes in accounting policy when they lead to a more appropriate financial statement. The Assessee referred to relevant Notification SO 69(E) dated January 25, 1996, and submitted that any significant change must be disclosed in the financial statements. This assertion was supported by various judicial precedents, including the judgment of the Hon’ble Madras High Court in CIT vs. Andhra Prabha Ltd., where a change in accounting practice was deemed acceptable when it was bona fide and consistently followed. Ld. Counsel for the assessee further argued that the AO’s interpretation of \"regularly employed method\" was flawed. The Assessee submitted that the term includes both historical methods and any new method adopted, as long as it is consistently followed thereafter. This is pivotal because if the AO's argument were valid, it would invalidate the provisions allowing for changes in accounting policy, contrary to legislative intent. Ld. Counsel for the assessee relied on several case ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 40 - laws to support its position that a bona fide change in accounting method, even if it temporarily affects revenue, should be accepted as it aligns with accepted accounting practices. Ld. Counsel for the assessee further submitted that the change in the accounting system resulted in an inappropriate reduction in stock valuation. Ld. Counsel for the assessee submitted that there was no actual change in the valuation method of loose tools; rather, the change pertained to the timing of expenses recorded in the profit and loss account. The method of valuation remained consistent, where inventories were valued at the lower of cost or net realizable value, corroborated by notes in the financial statements from prior years. Further, Ld. Counsel for the assessee distinguished the case of Luxor Writing Instruments Pvt. Ltd. vs. DCIT, on the ground that this case was distinguishable, as the change in Luxor was linked to an ERP transition that altered valuation methods fundamentally, unlike the Assessee's situation where the underlying valuation principle remained unchanged. Furthermore, Ld. Counsel for the assessee submitted that the decision to amend its accounting policy was influenced by the transition to a new ERP system (SAP), which allowed for better tracking of consumables. Previously, under an outdated system (FOXPRO), it was impractical to monitor loose tools after issuance. The switch to SAP facilitated accurate accounting practices, making it sensible to treat issued tools as consumables and expense them accordingly. Ld. Counsel for the assessee submitted that this change aligns with industry standards and does not adversely affect revenue. The new policy emphasized adherence to Accounting Standard 1, ensuring proper disclosure of the change in accounting policy in the financial statements, and noted the absence of any adverse comments from statutory auditors regarding this matter. Accordingly, Ld. Counsel for the assessee ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 41 - contended that the shift in accounting practice complies with Section 145 of the Act, warranting allowance of the related expense in its entirety. 35. In response, DR placed reliance on the observations made by the DRP/assessing officer in their respective orders. 36. We have heard the rival contentions and perused the material on record. In our considered view, we agree with the contention of the learned counsel for the assessee, which have given a clear basis as to why and under what circumstances, there was change in the accounting policy of the assessee, which was subsequently consistently followed by the company as well. In the case of CIT vs. Andhra Prabha Ltd. [1998] 231 ITR 81 (MAD.), the Assessee used special type of alloy for making types for printing. The assessee was following method under which alloy sent to press room was valued as part of closing stock. In assessment year under consideration assessee changed his method of accounting treating issue of metal from store room to press room as consumption so as to exclude value of such alloy in press room from valuation. The High Court held that if change in method of accounting as in stock valuation, is bona fide and is not adopted merely to reduce tax liability, said change in method of accounting is acceptable. Since, in instant case, there were no mala fides in method of accounting by way of change adopted by assessee in not valuing closing stock in press room, Tribunal was justified in accepting method of accounting adopted by assessee and thereby deleting disallowance made by ITO. 37. Accordingly, in light of the detailed submissions made by the assessee in support of the change in accounting policy and the judicial precedents on the subject, we are of the considered view that the asessee is justified in effecting ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 42 - change in it’s accounting system. Accordingly, ground number 6 of the assessee’s appeal is allowed. Ground number 7: DRP erred in disallowing provision for doubtful debts amounting to ₹ 1, 11, 19, 399/-under section 36(1)(vii) of the Act: 38. The brief facts relating to this Grounds of Appeal are that the Assessing Officer disallowed the Assessee's claim regarding a provision for doubtful debts amounting to Rs. 1,11,19,399, on the ground that simply debiting this provision to the profit and loss account does not equate to an actual write-off. The AO held that a write-off of each individual account under debtors is necessary to qualify for a deduction under section 36(1)(vii) of the Income Tax Act. In response, the Assessee contended that it had indeed established this provision by identifying specific doubtful debts, subsequently debiting the amount to the profit and loss account and reducing the corresponding debtor balance in its financial statements. The Assessee provided detailed documentation of this process. The Assessee placed reliance on the Supreme Court ruling in Vijaya Bank vs. CIT (323 ITR 166), which clarified that after the introduction of Explanation to section 36(1)(vii), it is not only necessary to debit the profit and loss account but also to reduce the debtors on the balance sheet accordingly. The Supreme Court emphasized that this dual action constitutes an actual write-off of the debt. The Assessee submitted that its actions closely mirrored the precedent established in this case, where the debtors were presented net of the provisions for doubtful debts. During the assessment proceedings, the AO raised concerns regarding potential income escapement should the Assessee recover debts after having already written them off. However, the Assessee submitted that any recoveries exceeding the written-off amounts would be declared as income in the ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 43 - appropriate tax period, referencing the stipulations under section 41(4) of the Act. This section ensures that if a previously deducted bad debt is recovered in a future year, the excess over the previously allowed deduction is considered taxable income. The Assessee also placed reliance on the Karnataka High Court decision in the case of CIT vs. Sandvik Asia Limited, where it was held that the act of debiting doubtful debts to the profit and loss account suffices to meet the write- off criteria, even if individual debtor accounts are not directly credited. However, the Dispute Resolution Panel held that while section 36(1)(vii) allows deductions for bad debts that are actually written off, it explicitly excludes provisions made for bad debts. The DRP concurred with the AO's view and held that that provisions for doubtful debts do not meet the threshold for allowable deductions. Consequently, DRP upheld the disallowance of the provision amounting to Rs. 1,11,19,399 without issuing any directives to the AO on this matter. 39. The assessee is in appeal before us against the aforesaid order passed by DRP, disallowing the claim of the assessee. We observe that the Bangalore Tribunal in the case of M/s. Robert Bosch Engineering and Business Solutions Pvt. Ltd in ITA No.1637/Bang/2018 while dealing with an identical situation, made the following observations: The brief facts of the case are as follows: The assessee is a company engaged in the business of development software, dealing in automotive components, etc. For the assessment year 2011-2012, the return of income was filed on 25.11.2011, admitting total income of Rs.62,89,17,687. The assessment u/s 143(3) r.w.s. 144C of the Act was completed vide order dated 28.01.2016, wherein the assessment was completed at Rs.174,07,49,300. Subsequently, the CIT issued notice dated 12.09.2016 u/s M/s.Robert Bosch Engineering and Business Solutions Pvt.Ltd. 263 of the Act. The reasons for issuance of the notice was regarding the claim of provision for bad and doubtful debts amounting to Rs.45,54,137. According to the CIT, the AO has not considered the allowability of a sum of Rs.45,54,137, which was debited to the profit and ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 44 - loss account as doubtful advances. The reasons given in the show cause notice, reads as follows:- \"An amount of Rs.45,54,137/- being provision or doubtful debts was debited to P & L a/c (schedule M) and the same was not an allowable expenditure. Hence, the provision or doubtful advance should have been added back to the taxable income.\" 4. The assessee filed objections vide its letter dated 21.09.2017. The assessee stated as follows:- \".......As stated earlier, the assessee has not only charged to its P&L account amount of Rs.45.54 as provision for Doubtful debts, but has also simultaneously reduced i.e. obliterated the provision from the value of Debtors in its Balance Sheet. Accordingly, what emerges is that the assessee has effectively written of its Debtors value to the extent of Rs.45.54 lakhs from its Balance Sheet as irrecoverable. Hence, the assessee submits that such amount should be allowed as deduction for the purpose of computation of income of the assessee as envisaged under section 36(1)(va) of the Act.\" 5. In this context, the assessee stated that it amounts actual of write off of debts and relied on the following judicial pronouncements:- (i) CIT v. M/s.Sandvik Asia Limited [ITA Nos.563 C/w 564/2006 (judgment dated 21st February, 2012)] - Karnataka High Court. (ii) Vijaya Bank v. CIT [(2010) 323 ITR 166 (SC)] M/s.Robert Bosch Engineering and Business Solutions Pvt.Ltd. 6. However, the CIT rejected the contentions raised by the assessee and passed the impugned order directing the A.O. to duly verify the claim of provision for bad and doubtful debts, afresh. The relevant finding of the CIT, reads as follows:- \"5................. It is clear from the P & L A/c that the issue in question is clearly mentioned as provision for doubtful debts and the facts in the case laws cited are distinguishable from the facts of the present case. 6. From the foregoing facts as narrated above, it is obvious that the claim of the assessee has not been duly verified and the claim of provision of doubtful debts is set aside and remitted back to the file of the assessing officer for considering it afresh after giving due opportunity of being heard to the assessee and pass an order in accordance with law. With the above directions, the proceedings u/s 263 of the Act is disposed of.\" 7. Aggrieved by the order of the CIT, passed u/s 263 of the Act, the assessee has filed this appeal before the Tribunal. The assessee has filed a paper book enclosing therein the show cause notice u/s 263 of the Act, objections raised to the show cause notice, the extract of audited financial statements, the details of provisions for bad and doubtful debts and the ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 45 - judicial pronouncements relied on. The learned AR submitted that the issue in question is squarely covered by the judgment of the Hon'ble jurisdictional High Court in the case of CIT v. M/s.Sandvik Asia Limited (supra), which was followed by the Tribunal in assessee's own case for assessment year 2010-2011 in IT(TP)A No.1556 & 1582/Bang /2014 (order dated 16.09.2020). 8. The learned Departmental Representative strongly supported the orders of the Income Tax Authorities. 9. We have heard rival submissions and perused the material on record. On perusal of the assessment order, which was subjected to revision u/s 263 of the Act, we notice that there is no inquiry conducted by the A.O. in allowing the provision for bad and doubtful debts. Therefore, the CIT was correct in invoking his revisionary powers u/s 263 of the Act. However, on merits, we notice that the assessee has charged off to its profit and loss account provision for doubtful debts amounting to Rs.45,54,370 and has simultaneously reduced the same from the value of total sundry debtors in its audited balance sheet. The details of the same are placed from pages 7 to 10 of the paper book filed by the assessee. The Hon'ble jurisdictional High Court in the case of CIT v. M/s.Sandvik Asia Limited (supra) by following the judgment of the Hon'ble Apex Court in the case of Vijaya Bank (supra), held that provision for doubtful debts, which has been debited to the profit and loss account and simultaneously been reduced from the value of the total sundry debtors in its audited balance sheet would be sufficient requirement for write off of bad debts. The relevant finding of the Hon'ble jurisdictional High Court, reads as follow:- \"2. The assessee claimed deduction in respect of doubtful debts for the assessment years 1996-97 and 1998-99. The assessee had adopted in the P & L account provision for doubtful debts of Rs. 16.94.455/- for the assessment year 1996-97 and Rs. 8,32,905/- for the assessment year 1998-99. Since the methodology followed by the assessee to write off was not in accordance with the provisions of Section 36(1)(vii) of the Income Tax Act, 1961, it's claim was not allowed. Aggrieved by the said order, the assessee preferred appeal to the Commissioner of Income Tax (Appeals). The appellate Commissioner held the writing off does not necessarily require credit to be given to each debtor's account. If bad debts are debited in profit and loss account and credited to another account named as \"bad debt reserve account, bad debt suspense account etc,\" the M/s.Robert Bosch Engineering and Business Solutions Pvt.Ltd. requirement of writing off is met even though individual debtor's accounts are not credited. Therefore, he held, the Assessing Officer was not justified in disallowing the provision for doubtful debts in each assessment year. 3. Aggrieved by the said order, the Revenue preferred appeal to the Tribunal, which has confirmed the said order. However, the Tribunal held that it is not made mandatory that the write off can be only by squaring-up the account of debtors, The law is that the write off should be made in the accounts. In this case the assessee has debited the profit and loss account and order entry is by way of reduction of such sum from the total debtors account. Thus, the provision of Section 36(1)(vii) of the Act is duly complied with and therefore the appellate ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 46 - Commissioner was justified in allowing the claim of bad debt. Aggrieved by the said order the Revenue has preferred these appeals. 4. The Apex Court in the case of VIJAYA BANK v. COMMISSIONER OF INCOME TAX reported in (2010) 323 ITR 166 (SC) Volume 323 has held as under:- \"6. The first question is no more res integra. Recently, a Division Bench of this Court in the case of Southern Technologies Limited v. Joint Commissioner Of Income Tax, Coimbatore reported in (2010) 320 ITR 577, (in which one of us S.H Kapadia J. was a party) had an occasion to deal with the first question and it has been answered, accordingly, in favour of the assessee, vide paragraph 25, which reads as under (page \"Prior to April 1, 2989, the law, as it then stood, took the view that even in cases in which the asssssee(s) makes only a provision in its accounts for bad debts and interest thereon and even though the amount is not actually written off by debiting the profit and loss account of the assessee and crediting the amount to the account of the debtor, the assessee was still entitled to deduction under section 36(1)(vii), (See CIT v. Jwala Prasad Tiwarl (1953) 24 ITR 537 (Bom) and Vithaladas H. DhanjibhaiBardanwaia v. CIT (1981) 130 ITR 95 (Guj), Such state of law prevailed up to and including the assessment year 1988- 1989, However, by insertion (with effect from April 1, 1989) of a new Explanation in Section 36(2)(vii), it has been clarified that any bad debt written off as irrecoverable in the account of the assessee will not include any provision for bad and doubtful debt made in the accounts of the assessee. The said amendment indicates that before April 1, 1989, even a provision could be treated as a write off. However, after April 1, 1989, a distinct dichotomy is brought in by way of the said Explanation to Section 36(1)(vii). Consequently, after April 1, 1989, a mere provision for Bangalore bad debt would not be entitled to dichotomy, one must understand \"how to write off\". If an assessee debits an amount of doubtful debt to the profit and loss account and credits the asset account like sundry debtor's account, it would constitute a write off of an actual debt. However, if an assessee debits \"provision for doubtful debt\" to the profit and loss account and makes a corresponding credit to the \"current liabilities and provisions\" on the liabilities side of the balance sheet, then M/s.Robert Bosch Engineering and Business Solutions Pvt.Ltd. it would constitute a provision for doubtful debt. In the latter case, the assessee would not be entitled to deduction after April 1, 1989\". \"8. Coming to the second question, we may reiterate that it is not in dispute that Section 36(1)(vii) of the 1961 Act applies both to banking and non-banking businesses. The manner in which the write off is to be carried out has been explained hereinabove. It is important to note that the assessee Bank has not only been debiting the profit and loss account to the extent of the impugned bad debt, it is simultaneously reducing the amount of loans and advances or the debtors at the year-end, as stated hereinabove. In other words, the amount of loans and advances or the debtors at the year end in the balance sheet is shown as net of the provisions for the impugned debt. However, what is being insisted upon by the Assessing Officer is that mere reduction of the amount of loans and advances or the debtors at the year end would not suffice and in the interest of transparency, it would be ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 47 - desirable for the assessee bank to close each and every individual account of loans and advances or debtors as a pre condition for claming deduction under Section 36(1)(vii) of the 1961 Act. This view has been taken by the Assessing Officer because the Assessing Officer apprehended that the assessee-Bank might be taking the benefit of deduction under section 36(1)(vii) of the 1961 Act, twice over. (See order of the Commissioner of Income-Tax Appeals) at pages 66, 67 and 72 of the paper book, which refers to the apprehensions of the Assessing Officer). In this context, it may be noted that there is no finding of the Assessing Officer that the assesses had unauthorisedly claimed the benefit of deduction under section 36(1)(vii) twice over. The order of the Assessing Officer is based on an apprehension that, if the assessee fails to close each and every individual account of its debtor, it may result in the assessee claiming deduction twice over. In this case, we are concerned with the interpretation of Section 36(1)(vii) of the 1961 Act. We cannot decide the matter on the basis of apprehension/desirability. It is always open to the Assessing Officer to call for details of individual debtor's account if the Assessing Officer has reasonable grounds to believe that the assessee has claimed deduction, twice over. In fact, that exercise has been undertaken in subsequent years. There is also a flip side to the argument of the Department. The assessee has instituted recovery suits in courts against its debtors. If individual accounts are to be closed, then the debtor/defendant in each of those suits would rely upon the bank statement and contend that on amount is due and payable in which event the suit would be dismissed.\" In the light of the judgment of Apex Court, there is no merit in this appeal. 5. The appeals are dismissed answering the substantial question of law in favour of the assessee and against the Revenue.\" 9.1 The CIT in the impugned order has not mentioned, how the decision relied on by the assessee is not applicable to the instant case (The Hon'ble Karnataka High Court judgment in M/s.Robert Bosch Engineering and Business Solutions Pvt.Ltd. the case of CIT v. M/s.Sandvik Asia Limited (supra) was relied by the assessee in its objection dated 21.09.2017). As mentioned earlier, in the instance, the assessee has reduced the amount of provision for bad and doubtful debts from the amount of sundry debtors in the balance sheet, which is sufficient compliance of write off of bad debts going by the dictum laid down by the Hon'ble jurisdictional High Court, cited supra. Therefore, the A.O. cannot make the addition of provision for bad debts in view of the Hon'ble jurisdictional High Court judgment in the case of CIT v. M/s.Sandvik Asia Limited (supra). Hence, there cannot be any prejudice caused to the Revenue. In such circumstances, we hold that the order passed u/s 263 of the Act is to be quashed and we do so. 10. In the result, the appeal filed by the assessee is allowed. 40. We observe that the assessee set of facts and the issue for consideration are identical to the aforesaid decision cited above. On going through the facts of the assessee’s case and the judicial precedents on the subject, we find merit in ITA No. 931/Ahd/2015 & 448/Ahd/2016 Hagglunds Drives (India) Pvt. Ltd./ Bosch Rexroth (India) Pvt. Ltd. vs. DCIT&ITO Asst. Year –2010-11 & 2011-12 - 48 - the contention of the learned counsel for the assessee that in the instant facts it is a fit case where provisions for doubtful debts are allowable in the case of the assessee. 41. Accordingly, looking into the facts of the assessee’s case and the judicial precedents on the subject cited above, ground number 7 of the assessee’s appeal is allowed. 42. In the combined result, the assessee’s appeal are allowed for statistical purposes. This Order pronounced in Open Court on 14/10/2024 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 14/10/2024 TANMAY, Sr. PS TRUE COPY आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent. 3. संबंिधत आयकर आयुƅ / Concerned CIT 4. आयकर आयुƅ(अपील) / The CIT(A)- 5. िवभागीय Ůितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाडŊ फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 07.10.2024 2. Date on which the typed draft is placed before the Dictating Member 07.10.2024 3. Other Member………………… 4. Date on which the approved draft comes to the Sr.P.S./P.S 08.10.2024 5. Date on which the fair order is placed before the Dictating Member for pronouncement .10.2024 6. Date on which the fair order comes back to the Sr.P.S./P.S 14.10.2024 7. Date on which the file goes to the Bench Clerk 14.10.2024 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order…………………………………… "