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

ITA 412/PUN/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7285 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 23-10-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 08-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SUNIL TEM BE
• Keywords: Transfer pricing; International transaction; Bad and doubtful debts
• Section: 6; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE . , , , BEFORE SHRI D. KARUNAKARA RAO , AM AND SHRI VIKAS AWASTHY, JM . / ITA NO . 282/PUN/2015 . / ITA NO . 282/PUN/2015 / ASSESSMENT YEAR : 2010 - 11 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 7, PUNE / APPELLANT / V/S. TETRA PAK INDIA PVT. LTD. MAYFAIR TOWERS, GROUND FLOOR, MUMBAI PUNE ROAD, SHIVAJI NAGAR, PUNE - 411 005 PUNE - 411 005 PAN : AAACT3467B . / RESPONDENT . / ITA NO. 412/PUN/2015 / ASSESSMENT YEAR : 2010 - 11 TETRA PAK INDIA PVT. LTD. B - 53, MIDC, PHASE - II, CHAKAN INDUSTRIAL AREA, VILLAGE : VASULI, TAL : KHED VILLAGE : VASULI, TAL : KHED PUNE - 410 501 PAN : AAACT3467B . / APPELLANT / V/S. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 7, PUNE . / RESPONDENT REVENUE BY : SHRI RAJEEV KUMAR ASSESSEE BY : SHRI NIKHIL PATHAK & SHRI SUNIL TEM BE / DATE OF HEARING : 23.10.2017 / DATE OF PRONOUNCEMENT : 27 .10.2017 / ORDER PER D. KARUNAKARA RAO , A M : THESE ARE CROSS AP PEALS FILED BY THE REVENUE AND A SSESSEE AGAINST THE ORDER/ DIRECTION OF THE AO/ DISPUTE RESOLUTION PANEL (DRP), PUNE DATED 26.12.2014. 2 ITA NO S. 282 & 412/PUN/2015 A.Y. 2010 - 11 2. THE BRIEF FACTS OF THE CASE INCLUDE THAT THE ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.122,33,03,480/ - . THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF PACKAGING MATERIALS, CAPITAL EQUIPMENTS ETC. DURING THE YEAR, THE ASSESSEE DISCLOSED INTERNATIONAL TRANSACTIONS WITH THE A SSOCIATED E NTERPRISES (IN SHORT AES). THEREFORE, AS PER THE RULES, THE SAID TRANSACTIONS WERE REFERRED TO THE TRANSFER PRICING OFFICER (TPO) FOR BENCHMARKING THE SAME . THE T PO PROPOSED CERTAIN ADJUSTMENT S AMOUNTING TO RS.16.27 CRORE. FURTHER, T HE TPO REJECTED AGGREGATION APPROACH OF TP STUDY OF THE ASSESSEE IN BENCHMARKING THE SAID TRANSACTIONS W ITH THE AES. THE TPO ADOPTED A SEGMENTAL OR SUB - SEGMENTAL APPROACH AND BENCH MARKED ACCORDINGLY. THE SAID APPROACH/BENCHMARKING GAVE RISE TO THE SAID ADJUSTMENTS AND ARE PART OF THE ASSESSMENT ORDER. IN ADDITION, THE ASSESSING OFFICER MADE A COUPLE OF CORPORATE ADDITIONS (I) ON ACCOUNT OF PROVISIONS OF WARRANTY AND (II) BAD DEBTS. THE ASSESSEE FILED AN APPLICATION BEFORE THE DRP AGAINST THE DRAFT ASSESSMENT ORDER . THE TPOS FILED AN APPLICATION BEFORE THE DRP AGAINST THE DRAFT ASSESSMENT ORDER . THE TPOS ADJUSTMENTS WERE DELETED BY DRP AND DIRECTED THE AO ACCORDINGLY. THUS THE ASSESSEES INCOME IS DETER MINING AT RS. 124,22,88,270/ - . HOWEVER, L D. DRP CONFIRMED OTHER CORPORATE ADDITIONS ON ACCOUNT OF BAD DEBTS AND PROVISION OF WARRANTY. 3. AGGRIEVED WITH THE RELIEF GRANTED BY THE DRP, THE REVENUE FILED AN A PPEAL 3. AGGRIEVED WITH THE RELIEF GRANTED BY THE DRP, THE REVENUE FILED AN A PPEAL BEFORE US VIDE APPEAL NO. 282/PUN/2015. FURTHER, AGGRIEVED WITH THE CONFIRMATION OF ADDITION ON ACCOUNT OF PROVISION OF WARRANTY AND BAD DEBTS, ASSESSEE FILED APPEAL VIDE ITA NO. 412/PUN/2015. 4. THE GROUNDS RAISED BY THE REVENUE READS AS UNDER : 1. HON'BLE DRP HAS ERRED WHILE DIRECTING THAT ALL INTERNATIONAL TRANSACTIONS OF TETRA PAK INDIA PVT. LTD BE AGGREGATED, WHEREAS AS PER SECTION 92(1) AND RULE 10C(1), INCOME ARISING FROM AN INTERNATIONAL TRANSACTION HAS TO BE CALCULATED WITH REGARDS TO ARMS LENGTH PRICING, WHEN CLEAR SEGMENTS WERE INDENTIFIED FROM THE FINANCIAL INFORMATION BY REVENUE AND AGGREGATION 3 ITA NO S. 282 & 412/PUN/2015 A.Y. 2010 - 11 OF SUCH INTERNATIONAL TRANSACTION IS ALLOWED ONLY AS AN EXCEPTION AS PER RULE 10(D). 2. HON'BLE DRP ERRED IN NOT APPRECIATING THE APPROACH OF THE TPO FOR BENCHMARKI NG THE TRADING SEGMENT SEPARATELY WHEREIN IMPORTS OF TRADED PACKAGING MATERIAL, IMPORT OF STRAWS AND IMPORT OF CAPITAL EQUIPMENT WERE PACKAGING MATERIAL, IMPORT OF STRAWS AND IMPORT OF CAPITAL EQUIPMENT WERE TREATED AS FUNCTIONALLY DIFFERENT SEGMENTS OF INTERNATIONAL TRANSACTIONS OF THE ASSESSEE. 3. HON'BLE DRP ERRED IN HOLDING THAT SAME MARGIN OF 9.58% OF COMPARABLE COMPANIES FOR THE SAID THREE FUNCTIONALLY DIFFERENT SEGMENTS IS NOT CORRECT. 5. THE GROUNDS RAISED BY THE ASSESSEE READ AS UNDER: 1.1 THE LEARNED ASSESSING OFFICER/DRP ERRED IN DISALLOWING THE INCREMENTAL PRO VISION FOR WARRANTY OF RS. 1,04,84,520/ - . 1.2 THE LEARNED ASSESSING OFFICER/DRP ERRED IN NOT APPRECIATING THAT THE PROVISION OF WARRANTY WAS PROPERLY ASCERTAINED AND WAS NOT IN THE NATURE OF CONTINGENT LIABILITY. 1.3 THE LEARNED ASSESSING OFFICER/DRP ERR ED IN NOT FOLLOWING THE BELOW MENTIONED DECISIONS: I) ROTOK CONTROLS INDIA P. LTD. CIT (2009) 314 ITR 62 (SC) III) CIT VS. ERICSSION COMMUNICATIONS P. LTD. (2009) 318 ITR 340 (DELHI) 2.1 THE LEARNED ASSESSING OFFICER/DRP ERRED IN DISALLOWING THE CLAIM OF BAD 2.1 THE LEARNED ASSESSING OFFICER/DRP ERRED IN DISALLOWING THE CLAIM OF BAD DEBTS OF RS. 85,00,273/ - WHICH WERE WRITTEN OFF AND DEBITED TO PROFIT & LOSS ACCOUNT OF THE YEAR UNDER ASSESSMENT. HE ERRED IN NOT ALLOWING THE ABOVE CLAIM OF BAD DEBTS U/S. 36 (1)(VII) R.W.S 36(2) OF THE INCOME TAX ACT, 1961. 2.2 THE LEARNED ASSESSIN G OFFICER/DRP ERRED IN NOT APPRECIATING THAT THE BAD DEBTS WRITTEN OFF DURING THE YEAR UNDER ASSESSMENT SATISFIED ALL THE CONDITIONS PRESCRIBED U/S. 36(1) (VII) R.W.S. 36(2) OF THE INCOME TAX ACT, 1961. 3. THE APPELLANT COMPANY CRAVES LEAVE TO ADD TO, ALT ER, AMEND, MODIFY / OR DELETE ANY OR ALL OF THE ABOVE GROUNDS OF APPEAL. WE SHALL NOW TAKE UP THE APPEAL FILED BY REVENUE FIRST. ITA NO. 282/PUN/2015 ( BY REVENUE) ( A.Y. 2010 - 11) : 6. FROM THE GROUNDS MENTIONED ABOVE, THE ONLY ISSUE RAISED BY REVENUE RELATES TO THE DECISION OF THE DRP IN REVERSING THE DECISION OF AO AND THE TPO IN BENCHMARKING THE INTERNATIONAL TRANSACTIONS . DRP SUPPORTED THE AGGREGATION BENCHMARKING THE INTERNATIONAL TRANSACTIONS . DRP SUPPORTED THE AGGREGATION APPROACH ADOPTED BY THE ASSES SEE . ON THIS ISSUE, LD. D.R FOR REVENUE RELIED HEAVILY ON THE ORDER OF TPO AND MENTIONED THAT THE SEGMENTAL APPROACH ADOPTED 4 ITA NO S. 282 & 412/PUN/2015 A.Y. 2010 - 11 BY THE AO/TPO IS PROPER IN THIS CASE. SIMILAR APPROACH WAS ADOPTED WHILE BENCHMARKING THE INTERNATIONAL TRANSACTION S FOR A.Y. 2009 - 10. THEREFORE, FINALITY ON THE SAID DECISION OF THE AO FOR A.Y. 2009 - 10 IS RELEVANT FOR THE YEAR UNDER CONSIDERATION. 7. PER CONTRA , LD. AR FOR THE ASSESSEE SUBMITTED THAT ASSESSEE IS ENGAGED IN VARIOUS BUSINESS ACTIVITIES I.E. I) MANUFACTURING PACKAGING MATERIALS II) TRADING OF SAID MA TERIALS III) IMPORT OF STRAWS AND IV ) IMPORT OF CAPITAL EQUIPMENTS ETC. FURTHER, LD. AR SUBMITTED THAT IT IS A CASE OF THE ASSESSEE THAT ALL THESE ACTIVITIES ARE INTERLACE D AND THEREFORE, SEGMENTAL OR SUB - SEGMENTAL APPROACH IS NOT RE LIABLE ONE. FURTHER, HE MENTIONED THAT IDENTICAL ISSUES CAME UP FOR ADJUDICATION BEFORE THE TRIBUNAL FOR A.Y. 2009 - 10. EVENTUALLY, THE AGGREGATION APPROACH OF THE ASSESSEE IN BENCHMARKING THE INTERNATIONAL TRANSACTION BY AGGREGATION METHOD WAS A PPROVED BY TRIBUNAL FOR A.Y. 2009 - 10. BRINGING OUR ATTENTION TO PAGE NO. 125 OF THE PAPER BOOK , WHERE COPIES OF ORDER S OF THE TRIBUNAL VIDE ITA NO. 359/PUN/2014 AND CROSS APPEAL BEING ITA NO. 537/PUN/2014 DATED 28.09.2017 ARE PLACED , L D. COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE CONTENTS OF PARA NO. 21 AND SUBMITTED THAT THE AGGREGATION APPROACH ADOPTED BY ASSESSEE IN BENCHMARKING INTERNATIONAL TRANSACTIONS WAS APPROVED BY THE TRIBUNAL IN ASSESSEES OWN CASE . THE LD. AR EXPLAINED THAT THE FUNC TION OF MAKING OF SPECIFIED PACKING MATERIAL, IMPORTING STRAWS/CAP ITAL EQUIPMENT ETC ARE INTERLACE D AND PACKING MATERIAL, IMPORTING STRAWS/CAP ITAL EQUIPMENT ETC ARE INTERLACE D AND INTEGRATED ACTIVITIES OF THE ASSESSEE. THESE DETAILS ARE DISCUSSED AT LENGTH BY THE TRIBUNAL FOR THE A.Y. 2009 - 10. THEREFORE, THE CLAIM RELATING TO CORR ECTNESS OF THE AGGREGATION APPROACH IS UPH E LD BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE. THUS, THE DECISION OF THE DRP IS FAIR AND REASONABLE. LD. AR PRAYED FOR DISMISSING THE APPEAL OF THE REVENUE. 8. WE HEARD BOTH THE PARTIES ON THE ISSUE RAISED BY RE VENUE THAT RELATES TO CORRECTNESS OF AGGREGATION APPROACH IN BENCHMARKING INTERNATIONAL TRANSACTIONS. WE FIND THAT SIMILAR ISSUE WAS RAISED BY REVENUE AS PER GROUND IN PARA 3 OF THE 5 ITA NO S. 282 & 412/PUN/2015 A.Y. 2010 - 11 TRIBUNAL ORDER (SUPRA.) AND AFTER ELABORATELY DISCUSSING IN PARA 14 OF THE ORDER OF TRIBUNAL, WE FIND THAT AGGREGATION APPROACH WAS APPROVED AS PER DISCUSSION GIVEN IN PARA NO. 21 OF THE SAID ORDER OF TRIBUNAL. FOR THE SAKE OF COMPLETENESS, THE SAID PARA NO. 21 IS EXTRACTED AND PLACED HERE IN BELOW: 21. IN VIEW THEREOF, WE UPHOLD THE BUSINESS STRATEGY ADOPTED BY THE ASSESSEE WHICH WOULD FOLLOW THAT SALE OF MACHINERY, PACKAGING MATERIAL AND STRAWS ETC. WERE CLOSELY INTERLINKED AND THE SAME COULD NOT BE EVALUATED SEPARATELY. THE AGGREGATION APPROACH ADO PTED BY THE ASSESSEE IN BENCHMARKING ITS INTERNATIONAL TRANSACTIONS OF CLOSELY INTERLINKED TRANSACTION IS, THUS, ACCEPTED . 9. FURTHER, ON PERUSAL OF PARA NO. 14 OF THE SAID ORDER OF THE TRIBUNAL, WE FIND 9. FURTHER, ON PERUSAL OF PARA NO. 14 OF THE SAID ORDER OF THE TRIBUNAL, WE FIND THAT THE TRIBUNAL DISCUSSED ELABORATELY THE FACTS OF THE CASE WHICH ARE IDENTICAL FOR TH E YE AR UNDER CONSIDERATION ALSO. TRIBUNAL DISCUSSED THE TP GUIDELINES RELATING TO AGGREGATION OF INTERNATIONAL TRANSACTIONS BEFORE GRANTING RELIEF TO THE ASSESSEE . THE TRIBUNAL ALSO DISCUSSED ICAI GUIDELINES ON THIS I SSUE BEFORE APPROVING THE AGGREGATION APPROACH OF THE ASSESSEE. CONSIDERING THE COVERED NATURE OF THE ISSUE , WE ARE OF THE OPINION THAT THE ISSUE IN THE PRESENT CASE IS SQUARELY COVERED ISSUE , WE ARE OF THE OPINION THAT THE ISSUE IN THE PRESENT CASE IS SQUARELY COVERED AND IN FAVOUR OF THE ASSESSEE. THEREFORE, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 10. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ITA NO. 412/PUN/2015 ( BY ASSESSEE) (A.Y. 2010 - 11) : 11. THERE ARE TWO ISSUES THAT REQUIRE ADJUDICATION BY THE TRIBUNAL . THE FIRST ISSUE RELATES TO THE PROVISION FOR WARRA NTY . ON THIS ISSUE, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE NOW STANDS COVERED BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE FOR A.YS. 2002 - 03 & 2004 - 05 IN ITA NOS. 1586 & 1587/PUN/ 2014 AND CROSS OBJECTION NO S . 13 & 14/PUN/2016 DATED 24.0 8.2017. BY FILING THE SAID COPY OF ORDER OF THE TRIBUNAL (SUPRA.), LD. COUN SEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO PARA - 21 OF THE SAID ORDER AND SUBMITTED THAT 6 ITA NO S. 282 & 412/PUN/2015 A.Y. 2010 - 11 THE ISSUE IS CONSISTENTLY COVERED BY THE ORDER OF THE TRIBUNAL BEING COMMONNESS OF THE FA CTS RELATING THE ISSUE OF PROVISION OF WARRANTY. 12. WE HEARD BOTH SIDES AND PERUSED THE CONTENTS OF PARA NO. 21 TO 23 OF THE SAID ORDER AND THE SAME ARE EXTRACTED HERE IN BELOW : 21. REGARDING GROUND NO.2 RELATING TO ALLOWING OF WARRANTY PROVISIONS IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE SAID ISSUE NOW STANDS COVERED IN ASSESSEES OWN CASE IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL VIDE ITA NO.1545/PUN/2014 ORDER DATED 23 - 12 - 2016. BRINGING OUR ATTENTION TO PARA NO.9 OF THE ORDER OF TRIBUNAL (SUPRA) THE ALLOWABILITY OF WARRANTY PROVISION WAS SAID TO HAVE BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN THE SAID PARAGRAPH. 22. AFTER HEARING BOTH THE SIDES AND ON PERUSING THE FACTS OF THE PRESENT CASE, WE NOW FIND THE DE CISION OF THE TRIBUNAL GIVEN IN PARA NO.9 HELD THE ASSESSEE AND THE ISSUE HAS TO BE DECIDED IN FAVOUR OF THE ASSESSEE. FOR THE SAKE OF COMPLETENESS OF THE ORDER, WE PROCEED TO EXTRACT THE SAME AS UNDER : 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS AGAINST THE CLAIM OF DEDUCTION ON ACCOUNT OF PROVISION MADE FOR WARRANTY. THE ASSESSEE DEDUCTION ON ACCOUNT OF PROVISION MADE FOR WARRANTY. THE ASSESSEE WAS ENGAGED IN THE MANUFACTURE AND SALE OF PROCESSING EQUIPMENTS AND FILLING MACHINES FOR BOTH DAIRY AND BREAD PROCESSING INDUSTRIES. THE MACHINERIES WHICH WERE BEING MANUFACTURED BY THE ASSESSEE WERE HEAVY PACKAGING MACHINERIES AND FOR THE SUPPLY OF SAME, THE ASSESSEE WAS ENTERING INTO AGREEMENT WITH THE PROSPECTIVE BUYERS. THE COPY OF ONE SUCH AGREEMENT IS PLACED ON RECORD BY THE ASSESSEE AT PAGES 70 TO 79 OF THE PAPER BOOK. AS PER WARRANTY CLAUSE 7 OF THE AGREEMENT, IT IS PROVIDED THAT THE EQUIPMENT IS SOLD SUBJECT TO EXPRESS WARRANTY, WHEREIN THE SELLER WARRANTS THAT THE EQUIPMENTS SHALL BE FREE FROM MATERIAL DEFECTS IN WORKMANSHIP, MATERIALS AND DESIGN FOR PERIOD OF 12 MONTHS FROM THE DATE OF MATERIALS AND DESIGN FOR PERIOD OF 12 MONTHS FROM THE DATE OF COMMENCEMENT OF USE OR PERIOD OR 18 MONTHS FROM THE DELIVERY, WHICHEVER IS SHORTER. IT WAS UNDERTAKEN BY THE ASSESSEE TO REPAIR OR REPLACE FREE OF CHARGE TO THE PURCHASER ANY PART OF EQUIPMENT WHICH CONTAINS A DEFECT OR ACTUAL REFUND TO THE PURCHASER THE PORTION OF PRICE ATTRIBUTABLE TO THE DEFECTIVE PART. THE REPLACEMENT OR REPAIR PRICE WERE ALSO SUBJECT TO SOME WARRANTY F OR THE REMAINDER OF ORIGINAL WARRANTY PERIOD OR SIX MONTHS FROM THE DATE OF REPAIR OR INSTALLATION OF REPLACEMENT PART, WHICHEVER IS SHORTER. IT WAS AGREED THAT THE PURCHASER HAD TO BEAR THE COST AND RISK OF TRANSPORT OF DEFECTIVE PART TO THE SELLER, WHO IN TURN, HAD TO REPAIR OR REPLACE THE SAME ON THE SAME TERMS AS THE EQUIPMENT WAS OR REPLACE THE SAME ON THE SAME TERMS AS THE EQUIPMENT WAS SUPPLIED. AS PER CLAUSE 7.4, THE SELLER I.E. THE ASSESSEE HAD NO LIABILITY FOR ANY DEFECT IN THE EQUIPMENT BECAUSE OF ORDINARY WEAR AND TEAR, MISUSE OR ABUSE AND OTHER CONDI TIONS. IN VIEW OF UNDERTAKING GIVEN BY THE ASSESSEE BY WAY OF WARRANTY ON THE EQUIPMENT SOLD BY IT TO THE PROSPECTIVE PURCHASERS, THE ASSESSEE 7 ITA NO S. 282 & 412/PUN/2015 A.Y. 2010 - 11 WAS MAINTAINING A SYSTEMATIC METHOD, WHEREIN THE PROVISION WAS MADE ON ACCOUNT OF WARRANTY. IN CASE ANY PART OF THE WARRANTY WAS UTILIZED, THEN THE SAME WAS SO DEBITED OR / AND THE BALANCE ON EXPIRY OF PERIOD OF WARRANTY WAS WRITTEN BACK. THIS METHOD WAS REGULARLY AND SYSTEMATICALLY FOLLOWED BY THE ASSESSEE. THE CIT(A) HAS REFERRED TO THE FACTUAL ASPECTS OF THE C ASE AND POINTED OUT THAT THE MACHINERY SOLD BY THE ASSESSEE WAS IN THE RANGE OF RS.4 - 6 CRORES AND THERE WERE LIMITED BUYERS OF SAID MACHINERY. IN VIEW OF SAID FACTS AND CIRCUMSTANCES, WHERE THE ASSESSEE WAS ENGAGED IN THE MANUFACTURE OF SPECIALIZED MACHIN ERY FOR PACKAGING AND THE ASSESSEE HAD WARRANTY CLAUSE AGAINST SUPPLY OF THE SAID MACHINERY, THEN THE RECOGNITION OF APPLICATION OF WARRANTY BY WAY OF MAKING THE PROVISION IN THE BOOKS OF ACCOUNT IS ACCEPTED ACCOUNTING PRACTICE AND SUCH A LIABILITY RECOGNI ZED BY THE ASSESSEE IS CONTINGENT LIABILITY. FOLLOWING THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN ROTORK CONTROLS INDIA P. LTD. VS. CIT (SUPRA), WE HOLD THAT THE VALUE OF CONTINGENT LIABILITY BY WAY OF RECOGNIZING THE WARRANTY LIABILITIES, BY MAK ING A PROVISION AND ALSO FOLLOWING SYSTEMATIC METHOD OF ITS WRITE BACK AND / OR UTILIZATION IS AN ACCEPTED ACCOUNTING METHOD ADOPTED BY THE ASSESSEE AND THE PROVISION MADE BY THE ASSESSEE IS TO BE ALLOWED AS DEDUCTION IN THE HANDS OF ASSESSEE. IT MAY BE C LARIFIED HEREIN THAT THE CIT(A) HAD REJECTED THE CLAIM OF ASSESSEE IN ASSESSMENT YEAR 2008 - 09 OBSERVING THAT THE ASSESSEE HAD MADE PROVISION TO THE EXTENT OF RS.32.74 CRORES, WHEREAS NONE OF THE PROVISIONS MADE IN THE EARLIER YEARS WERE MUCH UTILIZED. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD HAS CLARIFIED THAT INADVERTENTLY, THE SAME WAS CREATED AT RS.32.74 CRORES BUT RS.31.07 CRORES WAS SAME WAS CREATED AT RS.32.74 CRORES BUT RS.31.07 CRORES WAS WRITTEN BACK AND THE DEDUCTION BY WAY OF PROVISION OF WARRANTY WAS CLAIMED ONLY AT RS.1.67 CRORES. THE ASSESSING OFFICER HAD ALSO DISALLOWED SUM OF RS.1.67 CRORES ONLY. IN VIEW THEREOF, WE FIND NO MERIT IN THE OBSERVATIONS OF CIT(A) IN DENYING THE CLAIM OF ASSESSEE. APPLYING THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN ROTORK CONTROLS INDIA P. LTD. VS. CIT (SUPRA), THE ASSESSEE HAVING FULFILLED THE CONDITIONS LAID DOWN BY THE APEX COURT, WE FIND MERIT IN THE CLAIM OF ASSESSEE AND ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCTION ON ACCOUNT OF PROVISION FOR WARRANTY MAD E AT RS.1.67 CRORES. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, ALLOWED. THE ASSESSEE ARE THUS, ALLOWED. 23. FROM THE ABOVE, IT IS EVIDENT THAT THE CLAIM OF THE ASSESSEE ON ACCOUNT OF WARRANTY PROVISION IS ALLOWED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN THE A.Y. 2003 - 04. LD. DEPARTMENTAL REPRESENTATIVE HAS NOT BROUGHT ANYTHING ON RECORD TO CONTROVERT THE ABOVE FIN DING OF THE TRIBUNAL. THEREFORE, WE FIND THAT THE ORDER OF CIT(A) IS IN TUNE WITH THE DECISION OF THE TRIBUNAL. THEREFORE, THE DECISION OF THE CIT(A) GIVEN IN PARA NO.3.5.3 IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, G ROUND NO.2 RAISED BY THE REVENUE IS DISMISSED. 13. CONSIDERING THE ABOVE, COVERED NATURE OF THE ISSUE AND COMMONNESS OF THE FACTS, WE ARE OF THE OPINION THAT THE PRESENT ISSUE IS SQUARELY COVERED BY THE ORDER 8 ITA NO S. 282 & 412/PUN/2015 A.Y. 2010 - 11 OF TRIBUNAL. ACCORDINGLY, THE SAID ISSUE OF P ROVISION OF WARRANTY (GROUND NOS. 1.1, 1.2 & 1.3) RAISED BY THE ASSESSEE IS ALLOWED. 14. THE SECOND ISSUE RAISED RELATES TO BAD DEBTS . RELEVANT FACTS ON THIS ISSUE INCLUDE THAT THE ASSESSEE CLAIMS BAD DEBTS OF RS. 85,00,273/ - . THE ASSESSING OFFICER CALL ED FOR EXPLANATION FOR JUSTIFICATION OF CLAIM OF BAD DEBTS INVOLVING THIRTEEN DEBTS. THE DETAILS ARE GIVEN IN PARA NO. 6 OF THE ORDER OF AO. THE ASSESSING OFFICER FOUND THAT AS PER SECTION 36(2) OF THE INCOME TAX ACT, 1961 , THE DEDUCTION FOR CLAIM OF BAD D EBTS WRITTEN OFF DURING THE YEAR WAS AVAILABLE TO THE ASSESSEE . FOR THIS, HE RELIED ON THE DECISIONS OF HON'BLE SUPREME COURT IN THE CASE OF T.R.F LTD. VS. CIT REPORTED IN 323 ITR 397(SC) AND MANY OTHERS DECISIONS. EVENTUALLY, ON FINDING THAT THE ASSESSEE HAD BUSINESS TRANSACTIONS WITH THE SAID DEBT OR S IN THE LATER PERIOD, ASSESSING OFFICER SUSPECTED TO THE CLAIM OF ASSESSEE AND MADE AN ADDITION ON ACCOUNT OF BAD DEBTS AS PER DISCUSSION GIVEN IN PARA NO. 7 OF HIS ORDER. THE DRP CONFIRMED THE SAME STATING CERTAIN DEBTS CANNOT BE WRITTEN OFF WHEN THE ASSESSEE IS STILL IN BUSINESS WITH THE DEBTORS EVEN AFTER THE DEBTS BECAME BAD . REFERRING TO THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF SOUTH SURGICAL LTD. VS. ACIT REPORTED IN 287 ITR 62 AND DISTINGUISHING THE DECISION OF T.R.F. LTD. VS. CIT (SUPRA.), THE DRP CONFIRMED THE ORDER OF AO IN THIS REGARD. LD. DRP IGNORED THE FACT THAT THE SAID JUDGMENT WAS DELI VERED IN THE CONTEXT OF GOVT. AS A DEBTOR. CONTEXT OF GOVT. AS A DEBTOR. 15. AGGRIEVED WITH THE ORDER OF DRP, THE ASS ESSEE FILED AN APPEAL BEFORE THE TRIBUNAL. 16. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN VIEW OF THE PROVISION OF SECTION 36 (2) OF THE ACT , THE DECISION IN THE CASE OF T.R.F. LTD. VS. CIT (SUPRA) ETC , THE ASSESSING OFFICER HAS NO JURISDICTION TO TRAVEL INTO CORRECT NESS OF BAD DEBTS WHEN THE ASSESSEE COMPLIED WITH THE OTHER CONDITIONS RELATING TO WRITTEN OFF OF THE DEBTS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE . CITED JUDGMENT S RELIED UPON BY 9 ITA NO S. 282 & 412/PUN/2015 A.Y. 2010 - 11 THE AO & DRP HAS NO RELEVANCE TO THE FACTS OF THE PR ESENT CASE. LD. AR RELIED HEAVILY ON THE JUDGMENT IN THE CASE OF T.R.F. LTD. (SUPRA.) 17. ON THE OTHER HAND, LD. DR HEAVILY RELIED ON THE ORDER/GUIDELINES OF AO AND DRP. 18. ON HEARING BOTH THE PARTIES ON THIS ISSUE, WE FIND THAT THE DRP HAS NOT APPRECI ATED THE FACT THAT THE ASSESSEE COMPLIED WITH THE CONDITION OF WRITING OFF OF THE DEBTS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AS IRRE COVERABLE. THEY MADE AN ELABORATE DISCUSSION DISTINGUISHING THE SUPREME COURT JUDGMENT IN THE CASE OF T.R.F. LTD VS. CIT (SUPRA.). IN OUR VIEW, THE DECISION OF DRP IS REQUIRED TO BE REVERSED ON THIS ISSUE CONSIDERING THE BINDING OF JUDGMENTS OF HON'BLE SUPREME COURT (SUPRA) READ WITH SECTION 36(1) (VII) OF THE ACT. ACCORDINGLY, GROUNDS NO. 2.1 & 2.2 RAISED BY THE ASSESSEE ARE ALLOWED. 19. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. 20. TO SUM UP, APPEAL OF THE REVENUE IS DISMISSED AND APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 27 TH DAY OF OCTOBER , 2017. SD / - SD/ - ( / VIKAS AWASTHY) ( . / D. KARUNAKARA RAO ) ( / VIKAS AWASTHY) ( . / D. KARUNAKARA RAO ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; / DATED : 27 TH OCTOBER , 2017 SB 10 ITA NO S. 282 & 412/PUN/2015 A.Y. 2010 - 11 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT (A) - 13, PUNE. 4. THE CIT (IT - TP) , PUNE. 5 . , , , / DR, ITAT, A BENCH, PUNE. 6 . / GUARD FILE. // TRUE COPY // / BY ORDER, / PRIVATE SECRETARY , / ITAT, PUNE.