Dy. CIT, Circle-8, Pune V. M/s. Behr (India) Ltd., Pune

ITA 646/PUN/2013

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7424 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 20-09-2017
• Assessment Year: 2003-2004
• Appeal Filed On: 11-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R D ONKAR
• Keywords: Transfer pricing; International transaction; Rule of consistency; Question of law; Revenue expenditure; Capital expenditure

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.567/PUN/2013 / ASSESSMENT YEAR : 2003-04 M/S. BEHR INDIA LIMITED, 29 MILESTONE, PUNE NASHIK HIGHWAY, VILLAGE KURULI, KHED, CHAKAN, PUNE 411 501 PAN : AABCB2186L . /APPELLANT VS. ACIT (HQ) (ADMN.), PUNE 411 044 . / RESPONDENT . / ITA NO.646/PUN/2013 / ASSESSMENT YEAR : 2003-04 DCIT, CIRCLE-8, PUNE . /APPELLANT VS. M/S. BEHR INDIA LIMITED, 29 MILESTONE, PUNE NASHIK HIGHWAY, VILLAGE KURULI, KHED, CHAKAN, PUNE 411 501 PAN : AABCB2186L . / RESPONDENT / APPELLANT BY : SHRI R.D. ONKAR / RESPONDENT BY : SHRI ACHAL SHARMA, ADDL.CIT DATE OF HEARING : 20.09.2017 / DATE OF PRONOUNCEMENT: 22.09.2017 / ORDER PER D. KARUNAKARA RAO, AM : THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND T HE REVENUE AGAINST THE ORDER OF CIT(A)-IT/TP, PUNE DATED 24-12-2012 FOR TH E ASSESSMENT YEAR 2003-04. ITA NOS.567 AND 646/PUN/2013 M/S. BEHR INDIA LIMITED 2 2. GROUNDS RAISED BY THE ASSESSEE IN ITA NO.567/PUN /2013 RELATES TO TP ISSUE (GROUND NOS. 1 TO 4) AND A CORPORATE ISSUE RELATING TO ALLOWABILITY OF PROVISIONS FOR WARRANTY (GROUND NO.5). 3. BEFORE US, AT THE OUTSET, SHRI R.D. ONKAR, LD. C OUNSEL FOR THE ASSESSEE SUBMITTED THAT GROUND NOS. 1 TO 4 RELATES TO THE IS SUE OF BENCHMARKING THE INTERNATIONAL TRANSACTIONS WITH THE ASSOCIATED ENTE RPRISES INVOLVING IMPORTS AND EXPORTS RELATING TO THE MANUFACTURING SEGMENT OF TH E ASSESSEE. FURTHER, HE SUBMITTED THAT THE ASSESSEE ADOPTED TNM METHOD AS T HE MOST APPROPRIATE METHOD AND RELIED ON THE TP STUDY INVOLVING 6 COMPARABLES FOR BENCHMARKING OF THE IMPORT SUB-SEGMENT OF THE MANUFACTURING SEGMENT. ASSESSEE ARRIVED AT THE CONCLUSION THAT THE TRANSACTION OF ASSESSEE WITH ASSOCIATED EN TERPRISES ARE AT ARMS LENGTH. OFCOURSE, SOME ADJUSTMENTS ARE MADE BY THE ASSESSEE BEFORE ARRIVING TO THE SAID CONCLUSION. SIMILARLY, THE TP STUDY RELATED TO EXP ORT SUB-SEGMENT OF THE MANUFACTURING ACTIVITY WAS ALSO DONE AS PER THE TP PROVISIONS AND CAME TO THE SIMILAR CONCLUSIONS. AT THE END OF PROCEEDINGS BEF ORE THE TPO, THE SAID ADJUSTMENTS WERE NOT ALLOWED BY THE TPO. THEREFORE , THE ASSESSMENT RESULTED IN THE ADDITIONS MADE BY THE AO/TPO. 4. AGGRIEVED WITH THE SAME, ASSESSEE FILED AN APPEA L BEFORE THE CIT(A). CIT(A) PASSED A COMPOSITE ORDER FOR FOUR ASSESSMENT YEARS NAMELY, A.Y. 200203, 2003-04 AND 2007-08 AND 2008-09 VIDE HIS ORDER DATED 24-12- 2012. THE A.Y. 2002-03 WAS THE SUBJECT MATTER OF ADJUDICATION BEFORE THE TRIBU NAL WHICH WAS PASSED VIDE ITA NOS.566/PUN/2013, 645/PUN/2013 AND 2637/PUN /2016 O RDER DATED 21-04-2017. 5. DEVIATING FROM THE GROUND NOS. 1 TO 4 RAISED BEF ORE US RELATING TO TP ISSUES QUA THE EXPORT TRANSACTIONS, LD. COUNSEL FOR THE AS SESSEE MENTIONED THAT 3 OUT OF THE 6 COMPARABLES NAMELY, GREAVES LTD., KIRLOSKAR O IL ENGINES AND RANE BRAKE LININGS LTD., ARE FUNCTIONALLY DIFFERENT. THEREFOR E, THESE COMPARABLES WILL FAIL THE ITA NOS.567 AND 646/PUN/2013 M/S. BEHR INDIA LIMITED 3 FAR (FUNCTIONS, ASSETS AND RISKS) TEST QUA THE FUNC TIONS OF THE ASSESSEE. BASICALLY, THE ASSESSEE IS ENGAGED IN THE MANUFACTURING OF AIR CONDITIONERS, HEAT EXCHANGERS, I.E. RADIATOR, CONDENSERS, EVAPORATORS EXCLUSIVELY FOR PASSENGER CARS IN THE AUTOMOTIVE INDUSTRY. MENTIONING THAT THE SAID 3 CO MPARABLES, CONSIDERED IN THE TP STUDY OF THE ASSESSEE, WERE ERRONEOUSLY AND MISTAKE NLY TAKEN AS COMPARABLES FOR TESTING THE PLI OF THE ASSESSEE, LD. AR FOR THE ASS ESSEE MENTIONED THAT THE SAID MISTAKE IS REQUIRED TO BE REMOVED. IN THIS REGARD, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IF THESE 3 COMPARABLES WHICH ARE OBV IOUSLY INCOMPARABLE QUA THE FAR ANALYSIS, ARE EXCLUDED, THE TRANSACTIONS WITH A SSOCIATED ENTERPRISES ARE WITHIN THE ARMS LENGTH. 6. IN RESPONSE TO THE SAME, LD. DEPARTMENTAL REPRES ENTATIVE FOR THE REVENUE OPPOSED STATING THAT ASSESSEE COULD NOT ASK FOR EXC LUSION OF CERTAIN COMPARABLES AT THE STAGE OF THE APPELLATE PROCEEDINGS. IN REPLY, LD. COUNSEL FOR THE ASSESSEE FILED THE COPY OF JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. TATA POWER SOLAR SYSTEMS LTD. REPORTED IN 77 TAXMAN N.COM 326 (BOMBAY). FURTHER, BRINGING OUR ATTENTION TO PARA NO.29 OF TH E ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE, LD. COUNSEL SUBMITTED THAT ON SIMILAR FACTS, AND IN CONNECTION WITH THE ASSESSEES REQUEST FOR EXCLUSION OF CERTAI N COMPARABLES, I.E. BANCO PRODUCTS (INDIA) LTD., THE TRIBUNAL REMANDED THE IS SUE TO THE FILE OF THE AO FOR DECIDING THE ISSUE AFRESH. THEREFORE, IT IS THE CA SE OF THE ASSESSEE THAT CERTAIN COMPARABLES WHICH WERE MISTAKENLY TAKEN AS COMPARAB LES TO THE ASSESSEES CASE FOR STUDYING THE FAR ANALYSIS, ARE REQUESTED FOR TH E FIRST TIME, FOR EXCLUSION IN ORDER TO BENCHMARK THE TRANSACTION OF THE ASSESSEE WITH T HE ASSOCIATED ENTERPRISES. 7. NOW, THE LEGAL ISSUE THAT ARISES FROM THE ARGUME NTS RELATE TO WHETHER THE ASSESSEE HAS VALIDLY ASKED FOR EXCLUSION OF CERTAIN COMPARABLES AT THIS POINT OF TIME OF 2 ND APPELLATE PROCEEDINGS ITAT. ITA NOS.567 AND 646/PUN/2013 M/S. BEHR INDIA LIMITED 4 8. ON HEARING BOTH THE SIDES ON THIS LEGAL ISSUE, W E ARE OF THE VIEW THAT, ON THE SIMILAR ISSUE THE TRIBUNAL IN THE ASSESSEES OWN CA SE AS PER THE FOLLOWING DISCUSSION IN PARA 29 OF THE ORDER OF THE TRIBUNAL FOR A.Y. 20 02-03 (SUPRA) HELD AS UNDER : 29. THE MARGINS OF THE OTHER CONCERN WHICH WAS APP LIED TO BENCHMARK THE INTERNATIONAL TRANSACTION OF THE ASSESSEE WAS BANCO PRODUCTS (INDIA) LTD. THE SAID CONCERN WAS PICKED UP BY THE ASSESSEE IN ITS TP STU DY REPORT TO BE COMPARABLE WHICH WAS ACCEPTED BY THE TPO. HOWEVER, THE ASSESS EE BEFORE US CLAIMS THAT THERE WERE DISTINCTIVE FACTORS WHICH AFFECTED THE COMPARA BLE BANCO PRODUCTS (INDIA) LTD. WITH THE ASSESSEE. THE FIRST DIFFERENCE IS THE APP LICATION OF THE PRODUCTS MANUFACTURED BY THE SAID CONCERN AND BY THE ASSESSE E. THE SECOND ASPECT IS THE NON-AVAILABILITY OF THE SEGMENTAL INFORMATION IN RE SPECT OF MANUFACTURE OF RADIATORS. THE ASSESSEE HAS FILED TABULATED DETAILS IN THIS RE GARD AND HAS POINTED OUT THAT IN THE AFORESAID FACTS AND ON ANALYSIS OF FUNCTIONS, A SSETS AND RISK OF THE SAID CONCERN, THE SAME WAS NOT COMPARABLE WITH THE ASSESSEE. THE ASSESSEE FURTHER POINTED OUT THAT IN VIEW OF THE DECISION OF SPECIAL BENCH OF CH ANDIGARH BENCH OF THE TRIBUNAL IN DY. COMMISSIONER OF INCOME TAX VS. QUARK SYSTEMS (P ) LTD. REPORTED IN 132 TTJ 1 (SB)(CHD.) AND THE DECISION OF HONBLE DELHI HIGH C OURT IN CHRYSCAPITAL INVESTMENT ADVISORS (INDIA) (P.) LTD. REPORTED IN 376 ITR 183, WHEREIN IT HAS BEEN HELD THAT IF ANY ENTERPRISES WERE WRONGLY TAKEN AS A COMPARABLE THEN THE ASSESSEE COULD NOT BE ESTOPPED FROM POINTING OUT THE MISTAKE IN TAKING UP THE SAME COMPARABLE. APPLYING THE PRINCIPLE LAID DOWN IN DY. COMMISSIONE R OF INCOME TAX VS. QUARK SYSTEMS (P) LTD. (SUPRA) AND CHRYSCAPITAL INVESTMEN T ADVISORS (INDIA) (P.) LTD. (SUPRA) THE ASSESSEE CAN ESTABLISH ITS CASE OF POIN TING OUT THAT A COMPARABLE WHICH WAS INITIALLY SELECTED BY IT TO BE FUNCTIONALLY COM PARABLE, IS IN FACT NOT COMPARABLE, AS NOT FUNCTIONALLY COMPARABLE. THE ASSESSEE IN TH E TP STUDY REPORT HAS PICKED UP BANCO PRODUCTS (INDIA) LTD. TO BE COMPARABLE BUT NO W AT THIS JUNCTURE CLAIMS THAT THE SAID CONCERN IS NOT COMPARABLE. THE TPO HAD AP PLIED THE MARGINS OF BANCO PRODUCTS (INDIA) LTD. AND M/S. SUBROS LTD. TO BENCH MARK THE INTERNATIONAL TRANSACTION IN THE MANUFACTURING SEGMENT. HOWEVER, THE ASPECTS POINTED OUT BY THE ASSESSEE BEFORE US HAVE NOT BEEN PLACED BEFORE THE ASSESSING OFFICER/TPO, WHO HAD PROCEEDED ON THE GROUND THAT THE ASSESSEE HAD P ICKED UP SAID CONCERN TO BE FUNCTIONALLY COMPARABLE. ACCORDINGLY, WE DEEM IT FIT TO ADMIT THE ADDITIONAL GROUND OF APPEAL RAISED BY THE ASSESSEE. IN THIS R EGARD, WE REMIT THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER/TPO TO DETERMINE WHETHER THE SAID CONCERN BANCO PRODUCTS (INDIA) LTD. IS FUNCTIO NALLY COMPARABLE TO THE ASSESSEE OR NOT. REASONABLE OPPORTUNITY OF HEARING SHALL BE ALLOWE D TO THE ASSESSEE IN THIS REGARD. ACCORDINGLY, THE GROUND O F APPEAL NO. 1 RAISED BY THE ASSESSEE AND THE ADDITIONAL GROUND RAISED BY THE AS SESSEE ARE ALLOWED. 9. THE ABOVE RATIO IN THIS CASE HELD BY THE TRIBUNA L IS IN TUNE WITH THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. TATA POWER SOLAR SYSTEMS LTD. (SUPRA) WHICH IS RELEVANT FOR THE FOLLOWING PR OPOSITION : HELD : THE IMPUGNED ORDER OF THE TRIBUNAL HOLDING THAT A PARTY IS NOT BARRED IN LAW FROM WITHDRAWING FROM ITS LIST OF COMPARABLES, A CO MPANY, IF THE SAME IS FOUND TO HAVE BEEN INCLUDED ON ACCOUNT OF MISTAKES AS ON FAC TS, IT IS NO COMPARABLE. THE TRANSFER PRICING MECHANISM REQUIRES COMPARABI LITY ANALYSIS TO BE DONE BETWEEN LIKE COMPANIES AND CONTROLLED AND U NCONTROLLED TRANSACTIONS. THIS COMPARISON HAS TO BE DONE BETWEEN LIKE COMPANIES AN D REQUIRES CARRYING OUT OF FAR ANALYSIS TO FIND THE SAME. MOREOVER, THE ASSES SEES SUBMISSION IN ARRIVING AT ITA NOS.567 AND 646/PUN/2013 M/S. BEHR INDIA LIMITED 5 THE ALP IS NOT FINAL. IT IS FOR THE TPO TO EXAMINE AND FIND OUT THE COMPA NIES LISTED AS COMPARABLES WHICH ARE, IN FACT COMPARABLE . THE IMPUGNED ORDER HAS ON FAR ANALYSIS FOUND THAT INDOWIND ENERGY LTD. AND B.F. UTILITIES LTD. ARE NOT COMPARABLE. THEY ARE IN A DIFFERENT A REA I.E. WIND ENERGY WHILE THE RESPONDENT ASSESSEE IS IN THE FIELD OF SO LAR ENERGY. [PARA 3(D)]. 10. FURTHER, THE ABOVE CONCLUSION IS EMANATED FROM THE CONTENTS OF SUB-PARA (D) AND (E) OF PARE NO.3 OF THE SAID JUDGMENT. WE PROC EED TO EXTRACT THE SAME AS UNDER : (D) WE FIND THAT THE IMPUGNED ORDER OF THE TRIBUNA L HOLDING THAT A PARTY IS NOT BARRED IN LAW FROM WITHDRAWING FROM ITS LIST OF COM PARABLES, A COMPANY, IF THE SAME IS FOUND TO HAVE BEEN INCLUDED ON ACCOUNT OF MISTAK E AS ON FACTS, IT IS NO COMPARABLE. THE TRANSFER PRICING MECHANISM REQUIRE S COMPARABILITY ANALYSIS TO BE DONE BETWEEN LIKE COMPANIES AND CONTROLLED AND UN- CONTROLLED TRANSACTIONS. THIS COMPARISON HAS TO BE DONE BETWEEN LIKE COMPANIES AN D REQUIRES CARRYING OUT OF FAR ANALYSIS TO FIND THE SAME. MOREOVER, THE ASSES SEES SUBMISSION IN ARRIVING AT THE ALP IS NOT FINAL. IT IS FOR THE TPO TO EXAMINE AND FIND OUT THE COMPANIES LISTED AS COMPARABLES WHICH ARE, IN FACT COMPARABLE. THE IMPUGNED ORDER HAS ON FAR ANALYSIS FOUND THAT M/S. INDOWIND ENERGY LTD. AND B .F. UTILITIES LTD. ARE NOT COMPARABLE. THEY ARE IN A DIFFERENT AREA I.E. WIND ENERGY WHILE THE RESPONDENT- ASSESSEE IS IN THE FIELD OF SOLAR ENERGY. (E) IN THE ABOVE VIEW, QUESTION (A) AS PROPOSED DO ES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. THUS, NOT ENTERTAINED . 11. THUS, WE HAVE ALSO CONSIDERED THE FACTS RELATIN G TO THE FUNCTIONS OF THE SAID 3 COMPANIES WHICH ARE BEING REQUESTED FOR EXCLUSION . (A) SO FAR AS THE KIRLOSKAR OIL ENGINES LTD., IS CONCER NED, FUNCTIONS OF THIS COMPANY INCLUDE MANUFACTURING AND ASSEMBLY OF POWER GENERATING DIESEL ENGINES USED IN FARM MACHINERY, GENSETS AND CONSTRUCTION MACHINERY. THIS COMPANY IS ALSO A TRADER OF DIESEL ENGINES APART FROM MANY OTHER ACTIVITIES AND THE SAME IS NOT CERT AINLY ENGAGED IN THE MANUFACTURING OF AIR CONDITIONERS, HEAT EXCHANG ERS AND RELATED COMPONENTS. AS SUCH, THE KIRLOSKAR OIL ENGINES IS SAID TO BE OF 57 YEARS AGE UNLIKE THE ASSESSEE WHICH IS MERELY A 5 Y EARS AGE ENTITY. OTHER DIFFERENCES WERE ALSO NARRATED BY THE ASSESSE E IN THE CHART FILED BEFORE US. ITA NOS.567 AND 646/PUN/2013 M/S. BEHR INDIA LIMITED 6 (B) REFERRING TO RANE BRAKE LININGS LTD. IT IS INFORMED THAT THE SAID COMPANY IS OF 38 YEARS AGE AND THE SAME IS ENGAGED IN THE MANUFACTURING OF COMPOSITE BRAKE BLOCKS FOR RAILWAY S AND OTHER ACTIVITIES UNLIKE THE ASSESSEE WHICH IS PRIMARILY E NGAGED IN THE MANUFACTURING OF AIR CONDITIONERS. (C) COMING TO THE GREAVES LTD., IT IS THE CASE OF THE A SSESSEE THAT THE SAME IS OF 84 YEARS AGE AND IT HAS 9 UNITS AND 4 OF SUCH UNITS DEALS WITH THE DIESEL ENGINES. THIS COMPANY IS ALSO NOT ENGAGED IN MANUFACTURING AND SALE OF AIR CONDITIONERS. 12. SIMILARLY, REGARDING THE EXPORT SUB-SEGMENT OF THE MANUFACTURING ACTIVITY, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE I S A NEED FOR EXCLUSION OF COUPLE OF COMPARABLES, I.E. (1) RING PLUS AQUA LTD., AND ( 2) SUPER AUTO FORGE LTD. IT IS THE CASE OF THE ASSESSEE THAT THE SAID COMPARABLES ARE FUNCTIONALLY DIFFERENT FROM THAT OF THE AIR CONDITIONERS MANUFACTURING ACTIVITY OF T HE ASSESSEE. 13. EXPLAINING THE SAID FUNCTIONAL DIFFERENCES, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT RING PLUS AQUA LTD. IS ENGAGED IN TH E MANUFACTURING OF SHAFT BEARINGS, RING GEARS, SHEET METAL PULLEYS AND FLEX PLATES. THIS IS IN ADDITION TO MANY OTHER DIFFERENCES WHICH ARE ENLISTED IN THE CH ART FILED BEFORE US. 14. SIMILAR FUNCTIONAL DIFFERENCES WERE MADE OUT FR OM THE SUPER AUTO FORGE LTD., WHICH IS STATED TO BE ESSENTIALLY ENGAGED IN THE MA NUFACTURING OF FORGED COMPONENTS USING EXTRUSION TECHNOLOGY. RELYING ON THE ABOVE REFERRED ARGUMENTS AS WELL AS THE CITATIONS, LD. COUNSEL FOR THE ASSES SEE REQUESTED FOR SETTING ASIDE THE EXERCISE OF BENCHMARKING OF THESE EXPORT RELATED IN TERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISES TO THE FILE OF AO/TPO FOR FR ESH ADJUDICATION. ITA NOS.567 AND 646/PUN/2013 M/S. BEHR INDIA LIMITED 7 15. CONSIDERING THE ABOVE FUNCTIONAL DIFFERENCES, W E ARE OF THE VIEW THAT THERE IS PRIMA-FACIE MISTAKE IN COMPARING THE ABOVE SAID COM PANIES TO THAT OF THE ASSESSEE. CONSIDERING THE SAID MISTAKES, WE ARE OF THE VIEW T HAT THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. TA TA POWER SOLAR SYSTEMS LTD., IS APPLICABLE TO THE ABOVE REFERRED LEGAL PROPOSITION AND IN SUPPORT OF REMANDING THE ISSUE TO THE FILE OF THE AO/TPO. FOLLOWING THE PRE CEDING IN THE ASSESSEES OWN CASE FOR THE A.Y. 2002-03, WE ARE OF THE VIEW THAT THE A SSESSEES REQUEST FOR REMANDING THIS ISSUE FOR EXCLUSION OF THESE 3 COMPARABLES TO THE FILE OF THE AO WITH IDENTICAL DIRECTIONS IS APPROVED. ACCORDINGLY, WITHOUT ADJUD ICATING GROUND NOS. 1 TO 4 ON MERITS, WE REMAND THE SAID ISSUE TO THE FILE OF THE AO TO RE-ADJUDICATE THE ISSUE OF BENCHMARKING THE INTERNATIONAL TRANSACTIONS OF THE IMPORT SUB-SEGMENT OF THE MANUFACTURING SEGMENT OF THE ASSESSEE. ACCORDINGLY , GROUND NOS. 1 TO 4 BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 16. REFERRING TO GROUND NO.5 RELATING TO ALLOWABILI TY OF INCREMENTAL PROVISIONS FOR WARRANTY, IT IS THE CASE OF THE ASSESSEE THAT THE S AID PROVISION IS ALLOWABLE AS DEDUCTION SINCE IT IS CREATED ON INCREMENTAL BASIS. THE FINDING OF THE AO THAT THE SAME WAS CREATED ON ADHOC BASIS AND IT HAS FAILED T HE TEST LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF ROTORK CONTROLS INDIA P. LTD. V CIT (2009) 314 ITR 62 (SC). SHRI R. D. ONKAR, LD. COUNSEL FOR THE ASSESS EE DREW OUR ATTENTION TO THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR TH E A.Y. 2002-03 AND MENTIONED THAT SIMILAR ISSUE WAS SUBJECT MATTER OF ADJUDICATI ON BY THE TRIBUNAL AND EVENTUALLY THE TRIBUNAL DELETED THE DISALLOWANCE. HE RELIED O N THE CONTENTS OF PARA NOS. 44 AND 45 OF THE ORDER OF THE TRIBUNAL (SUPRA). 17. ON HEARING BOTH THE PARTIES ON THIS ISSUE, WE P ERUSED THE SAID PARAGRAPHS. ON FINDING RELEVANCE OF THE SAME, THE SAME ARE EXTR ACTED AS UNDER : ITA NOS.567 AND 646/PUN/2013 M/S. BEHR INDIA LIMITED 8 44. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORD. THE ISSUE ARISING BY WAY OF GROUND OF APPEAL NO.5 RAISED BY T HE ASSESSEE IS AGAINST THE DISALLOWANCE OF PROVISION MADE FOR WARRANTY. THE A SSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF AIR-CONDITIONER S, HEAT EXCHANGERS, ITS PARTS AND COMPONENTS. AGAINST THE SALE OF AIR-CONDITIONERS A ND HEAT EXCHANGERS MANUFACTURED BY IT, THE ASSESSEE WAS MAKING PROVISI ON FOR WARRANTY ON SCIENTIFIC BASIS. IF ANY EXPENDITURE WAS ACTUALLY INCURRED FO R WARRANTY, THEN THE SAME WAS DEBITED AGAINST THE PROVISION. THE ASSESSING OFFIC ER WAS OF THE VIEW THAT THE SAID EXPENDITURE IS NOT ALLOWABLE IN THE HANDS OF ASSESS EE, PLACING RELIANCE ON THE DECISION OF THE PUNE BENCH OF TRIBUNAL IN THE CASE OF THERMAX BABCOCK & WILCOX LTD. (SUPRA) RELATING TO ASSESSMENT YEAR 1990-91. FIRST OF ALL, WHERE THE ASSESSEE IS FOLLOWING SYSTEMATIC BASIS FOR MAKING THE SAID PROV ISION FOR WARRANTY WHICH HAS BEEN CONSISTENTLY FOLLOWED BY THE ASSESSEE, THEN TH E SAME MERITS TO BE ALLOWED IN THE HANDS OF ASSESSEE. IN THIS REGARD, WE FIND SUP PORT FROM THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN ROTORK CONTROLS INDIA P. LTD. VS. CIT (SUPRA). 45. NOW, COMING TO THE STAND OF THE ASSESSING OFFIC ER THAT IN ASSESSMENT YEAR 1990-91 IN THE CASE OF THERMAX BABCOCK & WILCOX LTD . (SUPRA), DISALLOWANCE WAS MADE SINCE THE ASSESSEE HAD NOT SOLD SINGLE UNIT OF MANUFACTURED PRODUCT IN THE SAID YEAR. THE TRIBUNAL IN THE LATER ASSESSMENT YE ARS 1992-93 AND 1993-94 IN ITA NOS.1246/PN/1995, 157/PN/1997 AND 158/PN/1997, VIDE CONSOLIDATED ORDER DATED31.05.2005 IN THE SAID CONCERN HAD ALLOWED THE CLAIM OF PROVISION FOR WARRANTY. ACCORDINGLY, WE REVERSE THE ORDER OF CIT (A) IN THIS REGARD AND DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSE E VIS--VIS PROVISION FOR WARRANTY. 18. FROM THE ABOVE, IT IS EVIDENT THAT THE ASSESSEE IS CONSISTENTLY FOLLOWING THE INCREMENTAL METHOD OF CREATING A PROVISION FOR WARR ANTY. THE TRIBUNAL RELYING ON ITS DECISIONS IN THE ASSESSEES OWN CASE FOR THE A. YRS. 1992-93 AND 1993-94 VIDE ITA NOS.1246/PN/1995, 157/PN/1997 AND 158/PN/1997, CONSOLIDATED ORDER DATED 31-05-2005 ALLOWED THE CLAIM OF THE PROVISION FOR WARRANTY. IN OUR OPINION, THE SAME IS IN TUNE WITH THE RULE OF CONSISTENCY. THER EFORE, THE GROUND NO.5 BY THE ASSESSEE IS ALLOWED. 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.646/PUN/2013 BY REVENUE : 20. THE ONLY GROUND RAISED BY THE REVENUE READS AS UNDER : WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE CIT(A)-IT/TP WAS JUSTIFIED IN HOLDING PRODUCT DEVELOPMENT EXPENSES AS REVENUE EXPENDITURE WITHOUT ANALYZING THE NATURE OF EXPENDITURE DESPITE HIS OBS ERVATION THAT A DETAILED STUDY IS ITA NOS.567 AND 646/PUN/2013 M/S. BEHR INDIA LIMITED 9 REQUIRED TO INFER AS TO WHETHER DEVELOPMENT EXPENDI TURE OF A PARTICULAR PRODUCT CONFERRED ENDURING BENEFIT TO THE ASSESSEE. 21. FROM THE ABOVE, IT IS EVIDENT THAT THE ALLOWABI LITY OF THE PRODUCT DEVELOPMENT EXPENSES IS THE ISSUE RAISED BEFORE US. AS PER THE REVENUE, THE SAID EXPENSES CONSTITUTES CAPITAL EXPENDITURE. HOWEVER, THE CIT(A) TREATED THE SAME AS REVENUE EXPENDITURE AND DECIDED THE APPEAL ON THIS ISSUE IN FAVOUR OF THE ASSESSEE. AGGRIEVED WITH THE SAME, THE REVENUE FIL ED THE PRESENT APPEAL BEFORE US. 22. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE MEN TIONED THAT THE SAID ISSUE WAS A COMMON ONE IN A.Y. 2002-03 ALSO AND THE SAME WAS ADJUDICATED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE VIDE ITA NOS.566 /PUN/2013, 645/PUN/2013 AND 2637/PUN /2016 ORDER DATED 21-04-2017 AND READ OUT THE CONTENTS OF RELEVANT OPERATIONAL PARAS ON THE ISSUE OF PRODUCT DEVELOPME NT EXPENSES. 23. ON HEARING BOTH THE SIDES, WE PERUSED THE CONTE NTS OF PARA NO.10 OF THE TRIBUNAL AND FOUND THE RELEVANCE ON THIS ISSUE. FO R THE SAKE OF COMPLETENESS, WE PROCEED TO EXTRACT THE SAME AS UNDER : 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORD. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF AIR CONDITIONERS AND ITS COMPONENTS WHICH WERE IN TURN USED IN THE AUTOMOTIV E INDUSTRIES. THE ASSESSEE IN ORDER TO TEST THE VALIDATION OF THE PRODUCT INCURRE D EXPENDITURE ON A REGULAR BASIS TO BRING IN IMPROVISATION AND MODIFICATIONS IN THE PRO DUCT AS PER THE REQUIREMENTS OF THE CUSTOMERS. THE SAID EXERCISE WAS CARRIED OUT B Y THE ASSESSEE IN ORDER TO TEST THE MARKET SUITABILITY OF THE PRODUCTS WHEREIN THE PRODUCTS WERE SENT TO GERMANY IN ORDER TO TEST ITS VALIDATION, SINCE, THE FINAL PROD UCT WAS BEING SOLD TO AE. IN THE FIRST ROUND OF ASSESSMENT PROCEEDINGS THE SAID EXPENDITUR E WAS CONNECTED WITH THE EXPENDITURE INCURRED IN THE FIRST YEAR OF COMMENCEM ENT OF BUSINESS ON PRODUCT DEVELOPMENT AND HENCE, THE EXPENDITURE WAS HELD TO BE CAPITAL IN NATURE. HOWEVER, WHERE EXPENDITURE ON TESTING OF THE PRODUC T WHICH IS REQUIRED TO BE INCURRED ON A REGULAR BASIS AND WHICH DOES NOT RESU LT INTO CREATION OR ACQUISITION OF ANY ASSETS, THEN THERE IS NO MERIT IN HOLDING THE E XPENDITURE TO BE OF ENDURING BENEFIT. THE ASSESSEE IS CARRYING OUT THIS EXERCIS E OF MODIFICATION AND IMPROVISATION IN THE PRODUCTS IN ORDER TO TEST SUITABILITY IN THE ENVIRONMENT IN WHICH IT IS TO BE USED AND HENCE, THE SAID EXPENDITURE IS DULY ALLOWA BLE IN THE HANDS OF THE ASSESSEE AS REVENUE EXPENDITURE. THE BILL WISE NATURE OF EX PENSES ARE TABULATED AT PAGE 6 OF THE ORDER OF CIT(A) AND PERUSAL OF THE SAME REFL ECTS EXPENDITURE TO BE REVENUE IN NATURE. ONCE, THE EXPENDITURE HAS NOT BEEN INCURRE D FOR THE DEVELOPMENT OF NEW PRODUCT BUT IS FOR THE IMPROVISATION OF THE PRODUCT S ALREADY BEING MANUFACTURED BY ITA NOS.567 AND 646/PUN/2013 M/S. BEHR INDIA LIMITED 10 THE ASSESSEE, THEN SUCH AN EXPENDITURE WHICH IS A R EGULAR EXPENDITURE INCURRED BY THE ASSESSEE FOR SMOOTH AND EFFICIENT WORKING OF IT S BUSINESS, IS TO BE ALLOWED AS REVENUE EXPENDITURE IN ITS HANDS. WE ALSO FIND SUP PORT FROM THE RATIO LAID DOWN BY THE TRIBUNAL IN ASSTT. CIT VS. SPICER INDIA LTD. (S UPRA) WHEREIN SIMILAR EXPENDITURE WAS ALLOWED AS REVENUE EXPENDITURE IN THE HANDS OF THE SAID ASSESSEE. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE HAS PLA CED RELIANCE ON THE RATIO LAID DOWN IN COMMISSIONER OF INCOME TAX VS. SARAVANA SPG . MILLS (P.) LTD. (SUPRA) WHICH WAS A CASE OF CURRENT REPAIRS TO THE PLANT AN D MACHINERY WHICH STAND ON A DIFFERENT FOOTING AND THE SAID RATIO IS NOT APPLICA BLE TO THE FACTS OF THE PRESENT CASE. UPHOLDING THE ORDER OF CIT(A), WE DISMISS THE GROUN DS OF APPEAL RAISED BY THE REVENUE. 24. FROM THE ABOVE, IT IS EVIDENT THAT RELYING ON T HE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. SARAVANA SPINNING MILLS (P.) LTD. REPORTED IN 292 ITR 201 AND THE DEC ISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ASSTT. CIT VS. SPICER I NDIA LTD. IN ITA NOS. 1191/PN/2007, 1192/PN/2007 AND 102/PN/2008 RELATING TO A.YRS 2001-02, 2003-04 AND 2002-03, ORDER DATED 24-04-2008, TRIBUNAL DISMI SSED THE GROUNDS OF THE REVENUE AS PER THE DISCUSSION GIVEN IN PARA NO.10 A BOVE. CONSIDERING THE COMMONALITY OF THE FACTS AND THE REVENUE FAILED TO BRING ANY OTHER DIVERGENT DECISIONS ON THE SUBJECT, WE ARE OF THE VIEW THAT T HE GROUND NO.5 RAISED BY THE REVENUE SHOULD BE DISMISSED. 25. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. 26. TO SUM UP, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL FILED BY THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 22 ND DAY OF SEPTEMBER, 2017. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) /JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE; DATED : 22 ND SEPTEMBER, 2017. ITA NOS.567 AND 646/PUN/2013 M/S. BEHR INDIA LIMITED 11 / COPY OF THE ORDER FORWARDED TO : BY ORDER // TRUE COPY // //TRUE COPY// SENIOR PRIVATE SECRETARY , / ITAT, PUNE THE APPELLANT THE RESPONDENT THE CIT(A) - IT/TP, PUNE CIT - IT/TP, PUNE , , A BENCH PUNE; / GUARD FILE.