Continental Automotive Components (India) Private Limited, Bangalore V. Asst.C.I.T., Bangalore

ITA 473/BANG/2015

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6465 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 27-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K R VASUDEVAN SHRI PRAMOD KU
• Keywords: Transfer pricing; Set aside
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI B.R BASKARAN , ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER IT(TP)A NOS.473/BANG/2015 ASSESSMENT YEARS : 2010-11 M/S CONTINENTAL AUTOMOTIVE COMPONENTS INDIA PVT. LTD., PHASE-1, HOSUR ROAD, 53B, BOMMASANDRA INDL. AREA, BENGALURU-560 099. PAN AAKCS 9578 C. VS. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-2(1)(1), BENGALURU. APPELLANT RESPONDENT IT(TP)A NOS.500/BANG/2015 ASSESSMENT YEARS : 2010-11 THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-2(1)(1), BENGALURU. VS. M/S CONTINENTAL AUTOMOTIVE COMPONENTS PVT. LTD., PHASE-1, HOSUR ROAD, 53B, BOMMASANDRA INDL. AREA, BENGALURU-560 099. PAN AAKCS 9578 C. APPELLANT RESPONDENT CO NO.132/BANG/2015 ASSESSMENT YEARS : 2010-11 (BY ASSESSEE) ASSESSEE BY : SHRI K.R VASUDEVAN, ADVOCATE REVENUE BY : SHRI PRAMOD KUMAR, CIT (DR) DATE OF HEARING : 14.10.2019 DATE OF PRONOUNCEMENT : 16.10.2019 IT(TP)A NOS.473 & 500 /BANG/2015 CO NO.132/BANG/2015 PAGE 2 OF 9 O R D E R PER B.R BASKARAN, ACCOUNTANT MEMBER THE CROSS APPEALS AND THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER FOR AY 2010-11 U/S 143(3) R.W.S. 144C(13) OF THE ACT IN PURSUANCE OF DIRECTIONS GIVEN BY LD DISPUTE RESOLUTION PANEL (DRP). 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF M ANUFACTURE AND SALE OF DASHBOARD INSTRUMENTS, SENSORS AND OTHER AL LIED COMPONENTS RELATING TO AUTOMOBILE INDUSTRY. IT IS S UBSIDIARY OF CONTINENTAL AUTOMATIVE GMBH, GERMANY. 3. THE GROUND NUMBERS 1 TO 16 IN THE APPEAL OF T HE ASSESSEE AND THE GROUND NO.3 TO 12 IN THE APPEAL OF THE REVENUE RELATE TO THE ADDITION MADE ON ACCOUNT OF TRANSFER PRICING ADJUST MENT. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS PROVIDED ENGINE ERING SERVICES IN THE FORM OF APPLICATION/SPECIFIC CONTRACT R & D SERVICES TO ITS ASSOCIATED ENTERPRISES (AE). HOWEVER, THE TPO HAS RE- CHARACTERISED THE SAME AS ITES AND ACCORDINGLY MA DE THE TRANSFER PRICING ADJUSTMENT. THE LD A.R SUBMITTED THAT THE TPO HAD MADE SIMILAR KIND OF T.P ADJUSTMENT IN THE IMME DIATELY PRECEDING YEAR, I.E., AY 2009-10 ALSO BY RE-CHARACT ERISING THE SERVICES AS ITES. HENCE THE CO-ORDINATE BENCH OF T RIBUNAL HAS RESTORED THE MATTER TO THE FILE OF THE TPO FOR EXAM INING THE ISSUE IT(TP)A NOS.473 & 500 /BANG/2015 CO NO.132/BANG/2015 PAGE 3 OF 9 AFRESH IN AY 2009-10. ACCORDINGLY, THE LD A.R SUBM ITTED THAT THIS ISSUE MAY BE RESTORED TO THE FILE OF TPO AS DONE IN AY 2009-10. 4. THE LD D.R DID NOT OBJECT TO THE FACTUAL ASPE CTS PRESENTED BY LD A.R. WE HAVE GONE THROUGH THE ORDER PASSED BY T HE CO-ORDINATE BENCH IN THE HANDS OF THE ASSESSEE IN AY 2009-10 IN IT(TP)A NO. 165/BANG/2014 DATED 28-09-2017 AND NOTICE THE CO-OR DINATE BENCH HAS RESTORED ENTIRE T.P ISSUE TO THE FILE OF TPO. SINCE THE FACTS PREVAILING IN THE CURRENT YEAR ARE IDENTICAL AND SINCE THE ASSESSEE IS OBJECTING TO THE RE-CHARACTERISATION OF THE SERVICES RENDERED BY IT TO ITS AE, FOLLOWING THE DECISION RE NDERED BY THE CO- ORDINATE BENCH, WE SET ASIDE THE ORDER PASSED BY TH E AO ON THIS ISSUE AND RESTORE ENTIRE TRANSFER PRICING ISSUE TO THE FILE OF AO/TPO FOR EXAMINING IT, AFRESH AFTER PROVIDING ADEQUATE O PPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE ASSESSEE IS ALSO DIRECTED TO PROVIDE ALL THE DETAILS IN SUPPORT OF ITS CONTENTIO NS AND ALSO THAT MAY BE CALLED FOR BY THE AO/TPO. 5. THE NEXT ISSUE CONTESTED BY THE ASSESSEE IN G ROUND NOS. 17 TO 24 RELATES TO THE DISALLOWANCE OF RESEARCH AND DEVE LOPMENT EXPENDITURE. THE ASSESSEE CLAIMED A SUM OF RS.1151 .74 LAKHS AS EXPENDITURE INCURRED TOWARDS RESEARCH AND DEVELOPME NT ACTIVITIES. SINCE THE ASSESSEE DID NOT OBTAIN ANY APPROVAL FROM GOVERNMENT AUTHORITIES AND SINCE THE ASSESSEE DID NOT FURNISH ANY EVIDENCE SUPPORTING THE R & D ACTIVITY, THE AO DISALLOWED TH E CLAIM OF THE ASSESSEE. IT(TP)A NOS.473 & 500 /BANG/2015 CO NO.132/BANG/2015 PAGE 4 OF 9 6. THE LD A.R SUBMITTED THAT THE ASSESSEE HAD M ADE IDENTICAL CLAIM IN AY 2009-10 ALSO AND THE TRIBUNAL HAS RESTO RED THE MATTER TO THE FILE OF THE AO FOR EXAMINING THIS ISSUE AFRE SH. ACCORDINGLY, HE SUBMITTED THAT THIS ISSUE MAY BE RESTORED TO THE FI LE OF THE AO. 7. WE HEARD THE LD DR AND PERUSED THE RECORD. WE N OTICED THAT THE COORDINATE BENCH HAS CONSIDERED AN IDENTICAL IS SUE IN ASST. YEAR 2009-10 (REFERRED SUPRA) AND THE MATTER HAS BEEN RE STORED TO THE FILE OF AO FOR EXAMINING IT AFRESH AFTER CONSIDERIN G THE COMPLETE DETAILS AND EVIDENCE SUPPORTING THE CLAIM OF RESEAR CH AND DEVELOPMENT ACTIVITY. ACCORDINGLY, FOLLOWING THE S AID DECISION, WE SET ASIDE THE ORDER PASSED BY THE AO ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO FOR EXAMINING IT AFRESH. WE ALSO DIRECT THE ASSESSEE TO FURNISH ALL DETAILS AND EVIDENCES PUT T O THE SATISFACTION TO THE AO IN SUPPORT OF ITS CLAIM. 8. IN THE APPEAL OF THE REVENUE, THE DECISION OF LD DRP IN ALLOWING DEDUCTION OF PROVISION FOR WARRANTY IS BEI NG CONTESTED. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HA S CLAIMED SUM OF RS. 87.37 LAKHS UNDER THE HEAD PROVISION FOR WA RRANTY. IN THE DRAFT ASST. ORDER THE AO PROPOSED TO DISALLOW THE A BOVE SAID CLAIM ON THE REASONING THAT THE PROVISION IS CREATED ON E STIMATION BASIS AND FURTHER THE ASSESSEE HAS ALSO DEBITED PROFIT AN D LOSS ACCOUNT WITH THE ACTUAL WARRANTY CLAIMS. THE LD DRP, HOWEV ER HELD THAT THE PROVISION MADE BY THE ASSESSEE IS REASONABLE AND AC CORDINGLY DIRECTED THE AO NOT TO MAKE THE ADDITION. THE REVE NUE IS AGGRIEVED. IT(TP)A NOS.473 & 500 /BANG/2015 CO NO.132/BANG/2015 PAGE 5 OF 9 9. WE HEARD THE PARTIES ON THIS ISSUE IN THIS REGAR D AND PERUSED THE RECORD. IN ASST. OF 2009-10 AN IDENTICAL ISSUE WAS CONSIDERED BY THE COORDINATE BENCH AND THE MATTER HAS BEEN RES TORED TO THE FILE OF THE AO FOR EXAMINING IT AFRESH. 10. THE LD AR SUBMITTED THAT THE HONBLE SUPREME CO URT, IN THE CASE OF ROTORK CONTROLS INDIA PVT. LTD., VS. CIT 31 4 ITR 62, HAS HELD THAT IF THE ESTIMATION OF THE LIABILITY ON ACCOUNT OF WARRANTY IS RELIABLE, THEN IT SHOULD BE ALLOWED. ADVERTING OUR ATTENTION TO PAGES 1073 TO 1078 OF THE PAPER BOOK, THE LD AR SUBMITTED THAT THE ASSESSEE HAS FURNISHED THE DETAILS AND MANNER OF DE TERMINING THE AMOUNT TOWARDS PROVISION FOR WARRANTY, THE METHOD OLOGY ADOPTED FOR ESTIMATION ETC. TO THE AO. THE LD AR FURTHER S UBMITTED THAT THE ASSESSEE IS ESTIMATING THE WARRANTY PROVISION ON A SCIENTIFIC BASIS AND THE SAME METHODOLOGY HAS BEEN FOLLOWED YEAR AFT ER YEAR. ACCORDINGLY HE SUBMITTED THAT, AS PER THE DECISION OF THE HONBLE SUPREME COURT REFERRED ABOVE, THE CLAIM OF THE ASSE SSEE SHOULD BE ALLOWED. THE LD DR, ON THE CONTRARY, SUBMITTED THA T THE CASE OF THE AO IS THAT THE ASSESSEE IS CLAIMING DEDUCTION OF BO TH PROVISION FOR WARRANTY AND ACTUAL WARRANTY EXPENSES. HE SUBMITT ED THAT , IF THE CLAIM OF PROVISION FOR WARRANTY IS ALLOWED THEN THE ASSESSEE MAY BE ENTITLED FOR DEDUCTION OF ACTUAL WARRANTY EXPENSES TO THE EXTENT IT IS MORE THAN THE PROVISION AMOUNT. HE FURTHER SUBMIT TED THAT THE PROVISION FOR WARRANTY ALREADY ALLOWED SHOULD BE OF FERED TO TAX, IF THE ACTUAL WARRANTY EXPENSE IS LESS THAN THE PROVIS ION AMOUNT. HE IT(TP)A NOS.473 & 500 /BANG/2015 CO NO.132/BANG/2015 PAGE 6 OF 9 FURTHER SUBMITTED THAT IT IS NOT CLEAR AS TO WHETHE R THE ASSESSEE HAS REVERSED BACK THE EXCESS AMOUNT OF PROVISION. 11. HAVING HEARD THE RIVAL SUBMISSIONS ON THIS ISSU E, WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES FRESH EXAMINING A T THE END OF THE AO. ON A PERUSAL OF THE DETAILS FURNISHED BY THE A SSESSEE IN PAGE 1073 TO 1078 OF THE PAPER BOOK, WE NOTICED THAT THE ASSESSEE IS FOLLOWING A SCIENTIFIC METHODOLOGY FOR DETERMINING THE PROVISION OF WARRANTY. IT WAS SUBMITTED THAT THE VERY SAME METH OD IS FOLLOWED YEAR AFTER YEAR. HOWEVER, AS SUBMITTED BY LD DR, I T IS NOT CLEAR AS TO WHETHER THE ACTUAL WARRANTY EXPENSES CLAIMED BY THE ASSESSEE BY DEBITING TO THE PROFIT AND LOSS ACCOUNT IS OVER AND ABOVE THE AMOUNT OF PROVISION CREATED IN EARLIER YEARS. IT I S ALSO NOT CLEAR AS TO WHETHER THE ASSESSEE IS REVERSING THE EXCESS PRO VISION, IF ANY OR ADJUSTING THE SAME AGAINST THE FUTURE PROVISION. W E NOTICE THAT THE ASSESSEE HAS ALSO NOT FURNISHED LEDGER ACCOUNT COPY OF PROVISION FOR WARRANTY AND WARRANTY EXPENSES, WHICH MAY EN ABLE TO ASCERTAIN THESE ASPECTS. ACCORDINGLY WE ARE OF THE VIEW THAT THIS ISSUE ALSO REQUIRES FRESH EXAMINATION AT THE END OF THE AO. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY THE AO ON THIS ISSUE AND RESTORE THE SAME TO HIS FILE FOR EXAMINING IT A FRESH IN THE LIGHT OF THE DISCUSSIONS MADE (SUPRA). 12. IN THE CROSS OBJECTIONS THE ASSESSEE HAS RAISED CERTAIN ISSUES RELATING TO TRANSFER PRICING AND DISALLOWANCE OF PR OVISION FOR WARRANTY. IN VIEW OF THE DECISION RENDERED ON BOTH ISSUES IN IT(TP)A NOS.473 & 500 /BANG/2015 CO NO.132/BANG/2015 PAGE 7 OF 9 PRECEDING PARAGRAPHS, THE CROSS OBJECTIONS FILED BY THE ASSESSEE SHALL BECOME INFRUCTUOUS. 13. IN THE RESULT, APPEAL FILED BY THE ASSESSEE AND REVENUE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES AND THE CROSS-OBJECTIONS IS DISMISSED AS INFRUCTUOUS. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH OCTOBER, 2019. SD/- (PAVAN KUMAR GADALE) JUDICIAL MEMBER SD/- (B.R BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED, 16 TH OCTOBER, 2019. / VMS / IT(TP)A NOS.473 & 500 /BANG/2015 CO NO.132/BANG/2015 PAGE 8 OF 9 COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE. IT(TP)A NOS.473 & 500 /BANG/2015 CO NO.132/BANG/2015 PAGE 9 OF 9 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR.P.S .. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE.. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DICTATION NOTE ENCLOSED DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER . 13. DATE OF DESPATCH OF ORDER. .. 14. DICTATION NOTE ENCLOSED