M/s. De La Rue Cash Processing Solutions India Pvt. Ltd., Gurgaon V. ACIT, Gurgaon

ITA 1113/DEL/2014

• Counselvise Citation: [2018] 124 COUNSELVISE.COM (IT) 7172 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 20-06-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 26-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANCHAL KHANDELWAL
• Keywords: Transfer pricing; Principle of natural justice; International transaction; Rule of consistency
• Section: 11

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI I - 2 BENCH, NEW DELHI BEFORE SHRI N.K. BILLAIYA , ACCOUNTANT MEMBER, AND S HRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 1113 /DEL/201 4 [A.Y 20 09 - 10 ] & ITA NO. 1606 /DEL/201 5 [A.Y 20 10 - 11] DE LA RUE CASH PROCESSING VS. THE A. C.I.T SOLUTIONS INDIA PVT. L TD CIRCLE 1 ( 1 ) 1404, 14 TH FLOOR , SIGNATURE TOWER GURGAON SOUTH CITY I, GURGAON PAN : AA ACD 6217 H [APPELLANT] [RESPONDENT] DATE OF HEARING : 1 2 . 0 9 .201 8 DATE OF PRONOUNCEMENT : 2 8 .0 9 .2018 ASSESSEE BY : SHRI ROHIT TIWARI , ADV REVENUE BY : MS. ANCHAL KHANDELWAL, SR. DR ORDER PER N.K. BILLAIYA , ACCOUNTANT MEMBER, TH ESE TWO APPEAL S BY THE ASSESSEE ARE PREFERRED AGAINST THE TWO SEPARATE ORDERS FOR A.YS 2009 - 10 & 2010 - 11 FRAMED U/S 143(3)/ 144C OF THE INCOME - TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT'] . SINCE 2 COMMON ISSUES ARE INVOLVED IN BOTH THESE APP E ALS, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE APPELLANT COMPANY [DLRI] IS A COMPANY INCORPORATED IN INDIA IN SEPTEMBER 1998 UNDER THE PROVISIONS OF COMPANIES ACT, 1956 AND IS A SUBSIDIARY OF DE LA RUE BV NETHERLANDS [DLRN] EXCEPT FOR ONE SHARE HELD BY DE LA RUE INTERNATIONAL LIMITED, UK. THE APPELLANT COMPANY IS ENGAGED IN THE BUSINESS OF TRADING OF MACHINES USED FOR COUNTING, ACCEPTING, SORTING AND AUTHENTICATION OF CASH . THESE MACHINES ARE PRIMARILY USED IN BANKS. THE COMPANY ALSO RENDERS AFTER SA LES SUPPORT AND MAINTENANCE SERVICES TO ITS CUSTOMERS USING SUCH MACHINES. 3. THE FOLLOWING INTERNATIONAL TRANSACTIONS U/S 92CA(1) OF THE ACT WERE REFERRED TO THE TPO BY THE ACIT, CIRCLE - 1(1), GURGAON : SR. NO. I TRANSACTION ASSOCIATED ENTERPRISE ARM'S LENGTH PRICE (AS DETERMINED BY THE ASSESSEE) (LACS) METHOD ADOPTED 1. PURCHASE OF FINISHED GOODS DE LA RUE CASH SYSTEMS, UK 102394067 DE LA RUE CASH SYSTEMS LTD. WANCHAI HONG KONG 8905287 DE LA RUE CASH SYSTEMS INC., USA 2544902 3 DELARUE SDN BHD, MALAYSIA 182.900 DE LA RUE CASH SYSTEMS BENELUX, NETHERLAND 271030 2. CROSS CHARGES (RECEIVED) DE LA RUE CASH SYSTEMS UK 12779478 DE LA RUE CASH SYSTEMS, DUBAI 1149323 DE LA RUE CASH SYSTEMS, THE NETHERLANDS 1399633 3 . MANAGEMENT CHARGES IS SERVICE COST GROUP INSURANCE CHARGES (PAID) DE LA RUE CASH SYSTEMS, UK 11876701 4 . BANK CHARGES OTHER CHARGES (PAID) DE LA RUE CASH SYSTEM, UK 1357453 5 . PAYABLES TO A.E.'S - DO - 296740992 6. RECEIVABLES FROM AE'S - DO - 5644009 4. THE BUSINESS ACTIVITIES OF THE AES AND THEIR NATURE OF RELATIONSHIP WITH THE ASSESSEE COMPANY ARE TABULATED AS UNDER: SR. NO. NAME OF THE ASSOCIATED ENTERPRISE NATURE OF THE RELATIONSHIP WITH THE ASSOCIATED ENTERPRISE AS REFERRED TO IN SEC. 92A(2) BRIEF DE SCRIPTION OF THE BUSINESS CARRIED ON BY THE ASSOCIATED ENTERPRISE. 1. DE LA RUE CASH SYSTEMS, UK HOLDING COMPANY MANUFACTURING & TRADING OF MACHINES & SPARES 2. DE LA RUE NORTH AMERICA INC., USA GROUP COMPANY MANUFACTURING & TRADING OF MACHINES & SPARES 3 - DE LA RUE CASH SYSTEMS, HONGKONG GROUP COMPANY TRADING OF MACHINES & SPARES 4 - DE LA RUE (MALAYSIA), SDN, BHD GROUP COMPANY TRADING OF MACHINES & SPARES 5 - DE LA RUE CASH SYSTEMS, THE NETHERLANDS GROUP COMPANY TRADING OF MACHINES & SPARES 6. DE LA RUE CASH SYSTEMS, DUBAI GROUP COMPANY TRADING OF MACHINES & SPARES 4 5. THE COMPARABLES SEL EC TED BY THE APPELLANT ARE AS UNDER: A) PRIYA LIMITED B) CCS INFOTECH LTD C) COMPUAGE INFORCOM LTD D) IACI INFOCOM LTD E) CMS COMPUTERS LTD F) IRIS COMPUTERS LTD G) KILBURN OFFICE AUTOMOTION LTD 6. OUT OF THE ABOVE COMPARABLES, THE TPO REJECTED THE FOLLOWING COMPARABLES: A) ACI INFOCOM LTD B) CCS INFOTECH LTD C) COMPUAGE INFORCOM LTD D) IRIS COMPUTERS LTD E) PRIYA LIMITED F) CMS COMPUTERS LTD 7. WHEN OBJECTION WAS RAISED BEFORE THE DRP IN A.Y 2009 - 10, THE DRP DIRECTED FOR INCLUSION OF COMPUAGE INFORCOM LTD AND PRIYA LIMITED. SURPRISINGLY, THE DRP DID NOT DIRECT FOR INCLUSION OF THESE TWO COMPARABLES IN A.Y 2010 - 11. MORE SURPRISINGLY, ALL THE AFO RESAID COMPARABLES WERE ACCEPTED AS GOOD COMPARABLES BY THE TPO I N A.YS 5 2007 - 08 AND 2008 - 09. THE FOLLOWING CHART GIVES A BIRDS EYE VIEW OF THE INCONSISTENT APPROACH TAKEN BY THE TPO/DRP: SL . N O COMPARABLE A.Y 2007 - 08 A.Y 2008 - 09 A.Y 200 9 - 1 0 A.Y 20 1 0 - 11 NPM ACCE PTED BY TPO NPM ACC EPTE D BY TPO NPM ACC EPT ED BY TP O ACC EPT ED BY DRP NPM ACCEP TED BY TPO ACCEPT ED B BY DRP 1 ACI INFOCOM LTD 8.43% YES NOT SELECTED CONSISTENT LOSSES 1.79% NO NO 3.33% NO NO 2 CCS INFOTECH LTD 0.84% YES 0.92% YES - 0.02% NO NO 0.08% NO NO 3 COMPUAGE INFOCOM LTD 2.32% YES 2.19% YES 2.51% NO YES 1.62 NO NO 4 IRIS COMPUTERS LTD NOT SELECTED INSUFFICIENT 2.31% INFORMATION YES 2.21% NO NO 1.83 NO NO 5 PRIYA LTD 1.81% YES 2.38% YES 3.82% NO YES 2.90 NO NO 6 CMS COMPUTERS LTD 1.71% YES 1.24% YES 17.05% NO NO - 6.50 NO NO 7 KILBURN OFFICE AUTOMATION LTD 16.52% YES 20.82 % YES 15.77% NO YES 17.56 YES YES AVER AGE 1.29 2.98 8. IT WOULD BE PERTINENT TO MENTION HERE THAT NOT ONLY THE BUSINESS PROFILE OF THE ASSESSEE HAS NOT CHANGED DURING THE YEAR UNDER APPEAL, BUT ALSO THE BUSINESS PROFILE OF ALL THE AFORESAID COMPARABLES IS SAME AS THEY WERE IN A.YS 2007 - 08 AND 2008 - 09. WE COULD NOT FIND ANY JUSTIFIABLE REASON FOR NOT ACCEPTING THE COMPARABLE S WHICH WERE CONSIDERED BY THE TPO HIMSELF IN EARLIER A.YS. MOREOVER, TWO COMPARABLES, NAMELY, COMPUAGE INFORCOM LTD AND PRIYA LIMITED , 6 WHICH WERE DIRECTED TO BE INCLUDED IN LIST OF COMPARABLES BY THE DRP HAVE NOT BEEN DIRECTED SO IN A.Y 2010 - 11 BY THE DRP ITSEL F. ONCE AGAIN, NO JUSTIFIABLE REASONING HAS BEEN GIVEN. 9. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE BUSINESS PROFILES OF THE AFORESAID COMPARABLES. WE FIND THAT ALL THE COMPANIES ARE IN SIMILAR LINE OF BUSINESS AND FULFIL ALL THE RELEVANT CONDITIO NS TO FIND PLACE IN THE FINAL LIST OF COMPARABLES. 10. CONSIDERING THE FACTS IN TOTALITY, IN THE LIGHT OF FINAL LIST OF COMPARABLES CONSIDERED IN A.YS 2007 - 08 AND 2008 - 09, WE HAVE NO HESITATION IN DIRECTING THE ASSESSING OFFICER/TPO TO ACCEPT ALL THE AFOR E - LISTED COMPARABLES IN THE FINAL LIST OF COMPARABLES FOR DETERMINATION OF ARMS LENGTH PRICE. 11. ACCORDINGLY, ALL THE TRANSFER PRICING GROUNDS ALONGWITH SUB - GROUNDS ARE ALLOWED. 12. THE NEXT GRIEVANCE RELATING TO COMPUTATION OF OPERATING PROFIT MARGIN RELATES TO FOREIGN EXCHANGE LOSS AND LIABILITIES AND PROVISIONS NO LONGER REQUIRED WRITTEN BACK. 7 13. IN SO FAR AS THE TREATMENT OF FOREIGN EXCHANGE/LOSS IS CONCERNED, WE FIND THAT ON THIS COUNT, THE APPELLANT COMPANY HAS TAKEN INCONSISTENT VIEW OVER THE Y EARS. IN A.YS 2007 - 08 AND 2008 - 09, THE APPELLANT COMPANY TREATED THE FOREX GAIN AS PART OF OPERATING PROFIT AND THE SAME WAS ACCEPTED AS SUCH BY THE TPO/DRP. SURPRISINGLY, IN A.Y 2009 - 10, SINCE THERE WAS A FOREX LOSS, THE ASSESSEE TREATED THE SAME AS NON - OPERATING WHEREAS IN A.Y 2010 - 11, WHERE THERE WAS FOREX GAIN, ONCE AGAIN THE ASSESSEE TREATED IT AS PART OF OPERATING PROFIT. 14. IN OUR CONSIDERED OPINION, ONCE IT HAS BEEN HELD THAT THE BUSINESS PROFILE OF THE APPELLANT COMPANY HAS NOT CHANGED FROM THE PAST YEAR, MERELY BECAUSE THERE WAS A FOREX LOSS ON ACCOUNT OF FALL IN RUPEE, THE SAME CANNOT JUSTIFY THE TREATMENT OF FOREX LOSS AS NON - OPERATING IN A.Y 2009 - 10. IN OUR CONSIDERED VIEW, THERE SHOULD BE CONSISTENCY IN THE APPROACH OF THE ASSESSEE AND SIN CE THE ASSESSEE HAS TAKEN A VERY INCONSISTENT VIEW IN A.Y 2009 - 10 AND THE DRP HAS RIGHTLY TREATED THE FOREX LOSS AS PART OF OPERATING PROFIT, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE SAME. GROUND NO. 2.5(A) OF A.Y 2009 - 10 IS DISMISSED. 8 15. THOUGH THE APPELLANT HAS RELIED UPON SEVERAL JUDICIAL DECISIONS, BUT AS MENTIONED ELSEWHERE, WE HAVE DISMISSED THIS G R OUND ON THE RULE OF CONSISTENCY, HENCE THE JUDICIAL DECISIONS RELIED UPON BY THE ASSESSEE HAVE NOT BEEN CONSIDERED ON THE FACTS OF THE CASE IN HA ND. 16. IN A.Y 2010 - 11, AS MENTIONED ELSEWHERE, THE ASSESSEE HAS TAKEN THE FOREX GAIN AS OPERATING PROFIT BUT THE DRP HAS TREATED THE SAME AS NON OPERATING. ONCE AGAIN, THERE IS A INCONSISTENT APPROACH BY THE DRP THIS TIME. ONCE IT HAS BEEN DECIDED THAT FOREX GAIN/LOSS IS PART OF THE OPERATING PROFIT, THE SAME VIEW HAS TO BE TAKEN FOR AY 2010 - 11 ALSO. WE ACCORDINGLY, DIRECT THE ASSESSING OFFICER/T PO TO TREAT THE FOREX GAIN IN A Y 2010 - 11 AS PART OF OPERATING PROFIT FOR DETERMINATION OF OPERATING PROFIT M ARGIN. GROUND NO. 2.1(A) OF AY 2010 - 11 IS ALLOWED. 17. GROUND NO. 2.5(B) IN A.Y 2009 - 10 RELATES TO LIABILITIES AND PROVISIONS WRITTE N BACK. 18. THE LOWER AUTHORITIES HAVE TREATED THE SAME AS NON - OPERATING IN NATURE PLACING RELIANCE ON SAFE HARBOR RULES. THE NOTIFICATION OF CBDT ISSUED ON 18.09.2013 ON SAFE HARBOR RULES DEFINE CONCEPT OF OPERATING EXPENSE, OPERATING REVENUE AND OPERATING PROFIT RESPECTIVELY. 9 19. IN OUR CONSIDERED VIEW, THE LIABILITIES AND PROVISIONS WRITTEN OFF IN EARLIER YEARS W ERE TAKEN AS PART OF OPERATING PROFIT, THEREFORE, WHEN THE SAME ARE WRITTEN BACK, THEY MUST BE CONSIDERED AS OPERATING IN NATURE FOR COMPUTATION OF OPERATING PROFIT MARGIN. WE DIRECT ACCORDINGLY. 20. IN A.Y 2010 - 11, GROUND NO. 2.1(B) AND (C) RELATE TO TR EATMENT OF INCOME OF RS. 1,0 5 , 07,777/ - RECEIVED BY THE ASSESSEE FROM RENDERING MANAGEMENT SUPPORT SERVICES TO ITS AES AS NON - OPERATING IN NATURE AND NOTIONALLY ATTRIBUTING RS. 60,114/ - AS NON - OPERATING EXPENSES TO THE MANAGEMENT SUPPORT SERVICE INCOME. 21 . THE APPELLANT COMPANY RENDERED MANAGEMENT SUPPORT SERVICES TO ITS AES AND RECOVERED AN AMOUNT OF RS. 10,507,777/ - AFTER CHARGING A MARK UP OF 10% ON THE COST. THE EXPENSES INCURRED IN RELATION TO PROVISIONS OF SUCH MANAGEMENT SUPPORT SERVICES AMOUNTED T O RS. 97 , 15 , 490/ - . WE FIND THAT ON THE ONE HAND THE TPO HAS TREATED THE MANAGEMENT SUPPORT SERVICE INCOME OF RS. 10,507,777/ - AS NON OPERATING AND CORRESPONDING EXPENSES OF RS. 97,15,490/ - HAVE BEEN CONSIDERED AS OPERATING IN NATURE, THEREBY BLOWING HOT A ND COLD IN THE SAME BREATH. IF MANAGEMENT SUPPORT SERVI CES INCOME IS CONSIDERED AS 10 NON - OPERATING, THEN CORRESPONDING EXPENSES INCURRED WHILE RENDERING SUCH SERVICES SHOULD BE CONSIDERED AS NON OPERATING INSTEAD OF NOTIONAL AMOUNT OF RS. 60,114/ - . 22. WHI LE DECIDING THIS GROUND AGAINST THE ASSESSEE, WE DIRECT THE TPO/ASSESSING OFFICER TO CONSIDER THE ACTUAL EXPENDITURE OF 97,15,490/ - FOR ALLOCATION TOWARDS MANAGEMENT SUPPORT SERVICE INCOME OF RS. 1,05,07,777/ - CONSIDERED AS NON OPERATING. THIS GROUND IS P ARTLY ALLOWED. 23. THE OTHER COMMON ISSUES IN THE APPEALS UNDER CONSIDERATION RELATE TO DISALLOWANCE OF PROVISIONS FOR WARRANTEE AND DISALLOWANCE OF LIQUIDATION DAMAGES. THE QUANTUM MAY DIFFER IN BOTH THE APPEALS. 24. IN SO FAR AS DISALLOWANCE OF PROVIS IONS FOR WARRANTEE IS CONCERNED, THE FACTS ON RECORD SHOW THAT AS PER THE PURCHASE ORDERS AND AGREEMENT FOR SALE OF CASH SORTING AND COUNTING MACHINES, THE APPEL LAN T IS UNDER OBLIGATION TO PROVIDE WARRANTEE ON SALE OF MACHINES WHICH VARIES FROM 1 - 2 - 3 YEARS . THUS, THE APPELLANT COMPANY IS OBLIGED TO MEET ITS OBLIGATIONS FOR WARRANTEE AND PROVIDE FREE SERVICE WHICH REQUIRES INCURRENCE OF EXPENSES ON VARIOUS ACCOUNTS. THE ASSESSING 11 OFFICER HAS DISALLOWED THE PROVISIONS FOR WARRANTEE BY ALLEGING THAT NO HISTO RICAL TRENDS WERE AVAILABLE FOR MAKING WARRANTEE PROVISION DURING THE YEAR UNDER CONSIDERATION AND SINCE THE AMOUNT ACTUALLY UTILISED IS FAR LESS THAN THE PROVISIONS, THE REASONABLENESS OF QUANTUM IS ALSO NOT ESTABLISHED NOR ANY SCIENTIFIC METHOD HAS BEEN BROUGHT ON RECORD BY WHICH THE SAID PROVISION AMOUNT HAS BEEN ARRIVED AT. WAR R ANTEE PROVISION IS MERELY AN ADHOC PROVISION AND, THEREFORE, CANNOT BE ALLOWED. 25. WHEN THE ABOVE OBJECTION WAS RAISED BEFORE THE DRP, THE DRP PARTLY ALLOWED THE CLAIM FOR PROVISION OF WARRANTEE TO THE EXTENT OF 1.25% OF THE SALES AS AGAINST THE PROVISION MADE AT 5%. 26. BEFORE US, THE LD. AR VEHEMENTLY STATED THAT THE WARRANTEE IS IN - BUILT IN THE PURCHASE ORDER/AGREEMENT AND THE LIABILITY ON ACCOUNT OF WARRANTEE IS INTEGRA L PART OF SALES REVENUE. IT IS THE SAY OF THE LD. AR THAT SINCE THE ENTIRE SALES REVENUE IS ACCOUNTED AS REVENUE, THEREFORE, CORRESPONDING DEDUCTION FOR WARRANTEE PROVISION SHOULD ALSO BE ALLOWABLE. THE LD. AR FURTHER POINTED OUT THAT ON SIMILAR FACTS IN ASSESSEES OWN CASE, THE TRIBUNAL HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE IN ITA NO. 5017/DEL/2012 FOR A.Y 2007 - 08. 12 27. PER CONTRA, THE LD. DR STRONGLY SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. 28. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW QUA THE ISSUE. IN OUR UNDERSTANDING OF THE FACTS, WE FIND THAT THE MACHINES ARE SUPPLIED TO VARIOUS PARTS OF THE COUNTRY AND THERE ARE DIFFERENT COSTS OF PROVIDING WARRANTEE SERVICES IN DIFFERENT PARTS, WHICH MEAN THAT IN SOME REG IONS THERE ARE FEW MACHINE S BUT TO MEET THE WARRANTEE OBLIGATIONS , ENGINEERS HAVE TO BE STATIONED THERE. THE DISTANCE OF THE MACHINE FROM THE ENGINEERS LOCATION IS ALSO A RELEVANT FACT OR , SINCE LONG DISTANCE TRANSFER S REQUIRE ADDITIONAL EXPENDITURE TO BE INCURRED. FURTHER, IN OUR VIEW, USAGE OF THE MACHINES DIFFER FROM CUSTOMER TO CUSTOMER. THERE IS NO DISPUTE THAT THE WARRANTEE OBLIGATION IS INBUILT IN THE PURCHASE ORDER/AGREEMENT AND THE WARRANTEE PROVISION IS NOT A CONTINGENT LIABILITY AND IT IS QUIT E CERTAIN THAT THE EXPENSES WOULD BE INCURRED IN MEETING THE WARRANTEE OBLIGATION LINKED TO THE SALES OF THE CURRENT YEAR IN THE FOLLOWING YEAR. THE HON'BLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS VS. CIT 245 ITR 428 HAS LAID DOWN THAT IF A BUSI NESS LIABILITY HAS ARISEN IN AN ACCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWED ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED ON A FUTURE DATE. A SIMILAR 13 ISSUE WAS CONSIDERED BY THE COORDINATE BENCH IN ITA NO. 5017/DEL/2017 VIDE GROUND NO. 1 OF THAT APPEAL. RELEVANT FINDING OF THE ORDER READS AS UNDER: 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RECORDS. GROUND NO. 1 AND 1.1 IS RELATING TO DISALLOWANCE OF RS.1,76,90,14/ - ON ACCOUNT OF WARRANTY PROVISIONS WHICH WAS ESTIMATED AT 10% OF SALES. IT IS SETTLED POSITION THAT PROVISIONS FOR WARRANTY IS A BUSINESS NECESSITY AND SUCH PROVISION IS AN ALLOWABLE EXPENSES. THE CIT(A) IN 2006 - 07 HELD THAT THE WARRANTY PROVISION PROVIDED AT 10% OF SALES WAS ACTUALLY UTILIZED ONLY TO THE EXT ENT OF 1.16% BY THE COMPANY AND THE REST WAS REVERSED. THUS, THE CIT(A) HELD THAT IT IS CONSIDERED FAIR AND REASONABLE THAT WARRANTY PROVISION TO THE EXTENT OF 1.50% OF THE SALES WOULD JUSTIFIABLE AND REMAINING PROVISION NEEDS TO BE ADDED BACK. THE CONTENT ION OF THE LD. AR THAT WARRANTY OBLIGATION IS INBUILT IN THE PURCHASE ORDER/AGREEMENT AS MENTIONED IN CLAUSE 6 & CLAUSE 3. THUS, THE LIABILITY ON ACCOUNT OF WARRANTY IS INTEGRAL PART OF THE SALES REVENUE. SINCE, THE ENTIRE SALES REVENUE IS ACCOUNTED AS REVENUE BY THE ASSESSEE. THEREFORE, CORRESPONDING DEDUCTION FOR WARRANT PROVISION WHO ALSO BE ALLOWED. THE TRIBUNAL FOR A.Y. 2006 - 07 BEING ITA NO.7056/DEL/2010 ORDER DATED 02.02.2016 HELD AS UNDER: '6. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIE S AND PERUSED THE RECORDS OF THE CASE. WE ARE IN AGREEMENT 14 WITH THE REASONING GIVEN BY LD. CIT(A) FOR WHICH HE HAS GIVEN REASONS IN HIS ORDER, ITA NOS. 2671/DEL/2013 & 5017/DEL/2012 ENUMERATED ABOVE. MERELY BECAUSE THE ASSESSEE HAD WRITTEN BACK THE PROVISI ON IN SUBSEQUENT YEAR CANNOT BE A BASIS FOR DISALLOWING THE ASSESSEE'S CLAIM IN THE CURRENT YEAR, PARTICULARLY WHEN ASSESSEE HAD GIVEN SPECIFIC BASIS FOR MAKING THIS WARRANTY PROVISION. ASSESSEE'S CLAIM IS FORTIFIED BY THE DECISION RELIED UPON BY LD. CIT(A ). ACCORDINGLY, WE SEE NO REASON TO INTERFERE IN THE ORDER OF LD. CIT(A) ON THE ISSUE IN QUESTION. ACCORDINGLY, ORDER OF ID. CIT(A) IS UPHELD.' AFTER LOOKING TO THE ORDER OF THE ITAT FOR ASSESSMENT YEAR 2007 - 08, THE ITAT HAVE DISMISSED APPEAL OF THE REVENU ES BY HOLDING THAT MERELY BECAUSE THE ASSESSEE HAD RETURNED BACK THE PROVISIONS IN SUBSEQUENT YEAR CANNOT BE A BASIS FOR DISALLOWING THE ASSESSEE'S CLAIM IN THE CURRENT YEAR, PARTICULARLY WHEN THE ASSESSEE HAD GIVEN SPECIFIC BASIS FOR MAKING WARRANTY PROVI SIONS. THE HON'BLE APEX COURT IN CASE OF ROTORK CONTROLS INDIA (P) LTD. (SUPRA) HAS GIVEN THE CRITERIA WHICH ARE FULFILLED BY THE ASSESSEE HEREIN. THUS, ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND, THEREFORE, GROUND NO. 1 AND 1.1 OF THE ASSESSE E'S APPEAL IS ALLOWED. 29. AS NO DISTINGUISHING DECISION HAS BEEN BROUGHT IN FAVOUR OF THE REVENUE, RESPECTFULLY FOLLOWING THE FINDINGS OF THE COORDINATE BENCH [SUPRA] , THIS GROUND IS DECIDED IN FAVOUR OF THE ASSESSEE. 15 30. NEXT ISSUE RELATES TO DISALLOW ANCE OF LIQUIDATED DAMAGES. 31. WE FIND THAT A SIMILAR ISSUE AROSE BEFORE THE TRIBUNAL IN ITA NO. 5017/DEL/2012 VIDE GROUND NO. 2 IN THAT APPEAL. THE RELEVANT FINDINGS OF THE COORDINATE BENCH READ AS UNDER: 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT RECORDS. GROUND NO. 2 AND 2.1 IS REGARDING DISALLOWANCE OF RS. 1,34,98,850/ - BEING THE LIQUIDATED DAMAGES PROVIDED ON ACCOUNT OF DELAY AND SUPPLY OF MACHINES. IT IS PERTINENT TO NOTE THAT AS PER THE PURCHASE ORDERS AGREEMENTS, THE COMPANY IS LIABLE TO PAY LIQUIDATED DAMAGES FOR THE FAILURE TO SUPPLY THE MACHINES TO THE BANKS AS PER THE AGREED DELIVERY SCHEDULE. DURING THE PRESENT ASSESSMENT YEAR THE ASSESSEE COMPANY HAD DEBITED LIQUIDATED DAMAGES AMOUNTING TO RS.1,34,98,850/ - IN ITS PROFIT AND LOSS ACCOUNT FOR DELAY IN SUPPLY OF MACHINES TO BANKS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE COMPANY HAS SUBMITTED PARTY WISE DETAILS OF LIQUIDATED DAMAGES INCURRED ALONG WITH SAMPLE PURCHASE ORDERS/AGREEMENTS CONTAINING THE LIQUIDATED DAMAGES CLAUSE AND ALSO SAMPLE COPIES OF CORRESPONDENCES RECEIVED BY THE COMPANY FROM BANKS ON LEVY OF LIQUIDATED DAMAGES ALL 16 THESE DOCUMENTS WERE PRODUCED BEFORE THE ASSESSING OFFICER BUT THE SAME WAS NOT PROPERLY VERIFIED BY THE ASSESSING OFF ICER. THE CLAUSE PRESCRIBING THE LIABILITY TO PAY LIQUIDATED DAMAGES AROSE AT THE POINT OF TIME WHEN THE COMPANY FAIL TO DELIVER THE MACHINES ON THE DUE DATE AND AT THAT POINT OF TIME THE LIABILITY AGREED WHICH IS A PRUDENT TRADER IT COULD QUANTIFY AND TAK E INTO ACCOUNT BY MEANS OF TRADER. THE ASSESSING OFFICER AS WELL AS THE CIT(A) HAS NOT TAKEN CORRECT COGNIZANCE AS TO LIQUIDATED DAMAGES INCURRED BY THE COMPANY AND ACCORDINGLY DEDUCTED BY THE CUSTOMERS FROM THE PAYMENT OF SALE PROCEEDS IS AS PER THE AGREE D TERMS AND CONTRACT. ALL THESE FACTORS HAVE NOT BEEN PROPERLY ASSESSED BY THE ASSESSING OFFICER AS WELL AS CIT(A). THE LD. AR'S CONTENTION THAT THESE PROVISIONS HAVE BEEN SET OFF IN THE ITA NOS. 2671/DEL/2013 & 5017/DEL/2012 NEXT ASSESSMENT YEAR I.E. 2008 - 09 THE SAME HAS TO BE VERIFIED AT THE LEVEL OF THE ASSESSING OFFICER. THEREFORE, WE DIRECT THE ASSESSING OFFICER TO VERIFY ALL THESE DOCUMENTS ALONG WITH THE CLAIM OF SET OFF OF THIS CLAIM IN THE YEAR 2008 - 09. THEREFORE, THIS ISSUE IS RESTORED TO THE FIL E OF THE ASSESSING OFFICER. NEEDLESS TO SAY, THE ASSESSING OFFICER HAS TO GIVE PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE 17 BY FOLLOWING PRINCIPLES OF NATURAL JUSTICE. THEREFORE, GROUND NO. 2 AND 2.1 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 32. RESPE CTFULLY FOLLOWING THE FINDINGS OF THE COORDINATE BENCH [SUPRA], WE DIRECT ACCORDINGLY. THIS GROUND IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 3 3 . IN THE RESULT, THE APPEAL S FILED BY THE ASSESSEE IN ITA NO. 1113/DEL/2014 AND 1606 /DEL/201 5 ARE PARTLY ALLOWED . THE ORDER IS PRON OUNCED IN THE OPEN COURT ON 2 8 . 0 9 .2018. SD/ - SD/ - / - [ SUDHANSHU SRIVASTAVA, ] [ N.K. BILLAIYA ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 8 T H SEPTEMBER , 2018 VL/ 18 COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER