Stanley Balck and Decker India Private Limited, Bangalore V. Asst.C.I.T., Bangalore

ITA 675/BANG/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1247 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 07-08-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 30-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C H SUNDAR RAO
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Business income; Transfer pricing; Opportunity of being heard; International transaction
• Section: 92C; 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORESHRI N. V. VASUDEVAN, JUDICIAL MEMBER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER I.T. (TP) A. NO.675/BANG/2016 (ASSESSMENT YEAR:2011 - 12) M/S.STANLEY BLACK & DECKER INDIA PVT. LTD., NO. 28, AKEMPS, 3 RD MAIN, 1 ST CROSS, ASHWINI LAYOUT, KORAMANGALA, INTERMEDIATE RING ROAD, BENGALURU 560047. PAN AADCB5744Q APPELLANT VS. ACIT, CIRCLE 6 (1) (2), BANGALORE. RESPONDENT ASSESSEEBY :SHRI K. R. VASUDEVAN, ADVOCATE RE VENUE BY : S HRI C. H. SUNDAR RAO, C IT ( DR . ) DATE OF HEARING : 29.08.2018. DATE OF PRONOUNCEMENT : 07.0 9.2018. O RD E R PER SHRI A. K. GARODIA, A.M. : THIS APPEAL IS FILED BY THE ASSESSEE AND THIS IS DI RECTED AGAINST THEASSESSMENT ORDER DATED 29.01.2016 FOR A. Y. 201112 U/S 143 (3 ) R.W.S. 144C (13) AS PER DIRECTIONS OF DRP. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: - A. TRANSFER PRICING GROUNDS THE GROUNDS MENTIONED HEREINAFTER ARE WITHOUT PREJU DICE TO ONE ANOTHER. 1. THE LEARNED ASSESSING OFFICER (LEARNED AO'), LEA RNED TRANSFER PRICING OFFICER (LEARNED TPO') AND THE HONOURABLE D ISPUTE RESOLUTION PANEL (HON'BLE DRP') GROSSLY ERRED IN D ETERMINING AN ADJUSTMENT OF INR 12,43,57,634/- TO THE ARM'S LENGT H PRICE (`ALP') OF THE APPELLANT'S INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES (`AES') WITH RESPECT TO THE ADVERTISEME NT, MARKETING AND PROMOTION (AMP) EXPENSES OF THE TAXPAYER U/S 92CA O F THE INCOME- TAX ACT, 1961 (`THE ACT'). 2 ITA NO. 675/BANG/2016 2. THE LEARNED AO/HON'BLE DRP HAS GROSSLY ERRED BY GOING BEYOND THE JURISDICTION FOR PROPOSING AN ADJUSTMENT AGAINS T AMP EXPENSES WITHOUT APPRECIATING THE FACT THAT NO SUCH REFERENC E WAS MADE BY LEARNED AO TO THE LEARNED TPO IN RESPECT OF SUCH TR ANSACTION. 3. THE LEARNED AO/ LEARNED TPO/ HON'BLE DRP ERRED I N TREATING SELLING EXPENSES SUCH AS TRADE DISCOUNT, SALES DISC OUNT, WARRANTY EXPENSES AND PACKING EXPENSES AS AMP EXPENSES IN NA TURE. 4. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED AO/ LEARNED TPO/ HON'BLE DRP HAS GROSSLY ERRED IN NOT APPRECIATING T HE FACT THAT THERE IS NO MACHINERY PROVISIONS FOR TERMING AMP EXPENSES AS AN INTERNATIONAL TRANSACTIONS UNDER THE ACT. 5. THE LEARNED AO/ LEARNED TPO/ HON-WE DRP HAS GROS SLY ERRED IN NOT APPRECIATING THE FACT THAT THERE WAS NO 'AGREEM ENT' OR 'ARRANGEMENT' OR 'UNDERSTANDING' BETWEEN THE INDIAN ENTITY AND THE FOREIGN AE FOR INCURRING AMP EXPENSES BY THE FORMER ON BEHALF OF THE LATTER. 6. THE LEARNED AO/ LEARNED TPO/ HON'BLE DRP ERRED I N HOLDING THAT THE APPELLANT INCURRED AMP EXPENSES TO PROMOTE AND DEVELOP THE BRAND OF THE ASSOCIATE ENTERPRISE (`AE') WITHOUT AP PRECIATING THE NATURE OF SUCH EXPENSES. 7. THE LEARNED AO/ LEARNED TPO/ HON'BLE DRP FAILED TO APPRECIATE THAT THE EXPENSES INCURRED BY THE APPELLANT ARE PUR ELY WITH REGARD TO THE SALE OF GOODS. 8. THE LEARNED AO/ LEARNED TPO/ HON'BLE DRP ERRED I N NOT APPRECIATING THE APPELLANT'S APPROACH TO CONFINE IT SELF FOR A COMPARISON AT THE GROSS MARGIN LEVEL BY ADOPTING RE SALE PRICE METHOD (`RPM') AS THE MOST APPROPRIATE METHOD. 9. THE LEARNED AO/ LEARNED TPO/ HON'BLE DRP ERRED I N CONSIDERING THE AMP EXPENSES OF THE APPELLANT AS AN INTERNATION AL TRANSACTION, AND DETERMINING THE ALP IN RESPECT OF AMP EXPENSES BY APPLYING THE BRIGHTLINE TEST, WHICH IS NOT ONE OF THE PRESCRIBED METHODS UNDER SECTION 92C OF THE INCOME-TAX ACT. 10. THE LEARNED AO/ LEARNED TPO/ HON'BLE DRP ERRED IN CONSIDERING THE BRIGHTLINE TEST AS ONE OF THE PRESCRIBED METHOD S UNDER THE INCOME- TAX ACT, WHICH HAS ALREADY BEEN DISALLOWED BY THE V ARIOUS HIGH COURT RULINGS. 11. WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT W ISHES TO SUBMIT THAT THE LEARNED AO/ LEARNED TPO/ HON'BLE DRP ERRED ON FACTS AND IN LAW IN SELECTING INAPPROPRIATE SET OF COMPARABLE CO MPANIES FOR THE COMPUTATION OF THE 'ALLEGED EXCESSIVE' AMP SPEND BA SED ON 3 ITA NO. 675/BANG/2016 'BRIGHTLINE TEST', APPLICATION OF WHICH IN ITSELF I S INAPPROPRIATE, BEING BASED ON ERRONEOUS OR INAPPROPRIATE REASONING.' 12. THE LEARNED AO/ LEARNED TPO/ HON'BLE DRP ERRED IN CONCLUDING THAT THE APPELLANT HAS INCURRED AMP EXPENSES OF 10. 32% OF SALES AS COMPARED TO THE AVERAGE AMP EXPENDITURE OF ITS COMP ARABLE COMPANIES OF 1.89% OF SALES. B. CORPORATE TAX GROUNDS 1. DISALLOWANCE OF PROVISION FOR WARRANTY RS. 1,8 9,52,026 A. THE HON'BLE DRP/LEARNED AO ERRED IN DISALLOWING RS. 1,89,52,026 TOWARDS THE PROVISION FOR WARRANTY. B. THE HON'BLE DRP/LEARNED AO HAVE ERRED IN HOLDING THAT THERE IS NO SCIENTIFIC AND SYSTEMATIC ACCOUNTING PRACTICE FOLLO WED BY THE APPELLANT FOR CREATING PROVISIONS FOR WARRANTY EXPE NSES. C. THE HON'BLE DRP/LEARNED AO ERRED IN COMPARING TH E PROVISION CREATED DURING THE YEAR AGAINST THE ACTUAL WARRANTY EXPENDITURE DURING THE YEAR AND ACCORDINGLY ERRED IN STATING TH AT THERE IS NO CORRELATION BETWEEN THE AMOUNT OF PROVISION MADE DU RING THE YEAR AND THE ACTUAL AMOUNT OF ACTUAL EXPENDITURE INCURRE D DURING THE YEAR. D. THE HON'BLE DRP/LEARNED AO OUGHT TO HAVE APPRECI ATED THAT PERIOD OF WARRANTY ON THE PRODUCT VARIES FROM SIX M ONTHS TO ONE YEAR DEPENDING ON THE PRODUCT AND THUS THE ACTUAL EXPEND ITURE INCURRED DURING THE YEAR WILL INCLUDE THE AMOUNT ON WHICH PR OVISION WAS CREATED DURING THE PRECEDING YEAR. E. THE HON'BLE DRP/LEARNED AO HAVE ERRED IN HOLDING THAT THE CONDITIONS LAID DOWN BY THE HON'BLE SUPREME COURT I N THE CASE OF ROTORK CONTROL INDIA PRIVATE LIMITED [2009] (314 IT R 62) IS NOT SATISFIED IN THE CASE OF APPELLANT. 2. LEVY OF INTEREST UNDER SECTION 234B OF THE ACT RS. 2,49,45,626 THE LEARNED AO ERRED IN LEVYING INTEREST UNDER SECT ION 234B OF THE ACT WHICH IS CONSEQUENTIAL IN NATURE. THE APPELLANT CRAVES LEAVE TO ADD, ALTER AND MODIFY THE ABOVE GROUNDS DURING THE COURSE OF THE APPEAL. FOR THE ABOVE AND ANY OTHER GROUNDS WHICH MAY BE RA ISED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEAR NED AO BE SET ASIDE. 3. LEARNED AR OF THE ASSESSEE SUBMITTED THAT GROUND NO. 1 & 2 ARE GENERAL AND IN GROUND NO. 3 TO 12, THE ISSUE INVOLVED IS ABOUT TP ADJUSTMENT MADE BY THE TPO/AO. HE POINTED OUT THAT IN PARA 8.1 TO 8.3 OF H IS ORDER, THE TPO HAS STATED THAT THE ASSESSEE HAS NOT FILED ANY SUBMISSIONS IN RESPONSE TO SHOW CAUSE 4 ITA NO. 675/BANG/2016 NOTICE DATED 03.11.2014, WHICH WAS REQUIRED TO BE F ILED BY 18.11.2014 AND EVEN IN REPLY TO ANOTHER LETTER DATED 20.11.2014 AS KING THE ASSESSEE TO FILE SUBMISSIONS/OBJECTIONS IF ANY, TO THE PROPOSED ADJU STMENTS LATEST BY 04.12.2014, NO SUBMISSION WAS RECEIVED BY 04.12.201 4. AT THIS JUNCTURE, IT WAS OBSERVED BY THE BENCH THAT UNDER THESE FACTS AND IN THE INTEREST OF JUSTICE, THE MATTER MAY BE RESTORED TO AO/TPO FOR A FRESH DECISI ON. IN REPLY, LEARNED AR OF THE ASSESSEE SUBMITTED THAT HE SHOULD BE ALLOWED TO MAKE DETAILED SUBMISSIONS INCLUDING THIS ASPECT OF COMPLIANCE BEF ORE TPO AND ONLY THEREAFTER, THE MATTER SHOULD BE DECIDED. HE WAS HE ARD IN DETAIL. ON THIS ASPECT OF COMPLIANCE BEFORE TPO, HE SUBMITTED THAT AS PER PAGE NO. 85 OF THE PAPER BOOK, LETTER DATED 08.12.2014 ADDRESSED TO DCIT (TR ANSFER PRICING IV) WAS SUBMITTED ON 09.12.2014 AND THE ORDER OF TPO IS DAT ED 09.01.2015 AND THEREFORE, IT SHOULD BE ACCEPTED THAT COMPLIANCE WA S MADE BEFORE TPO. THEREAFTER, HE MADE DETAILED ARGUMENTS ON MERIT. LE ARNED DR OF THE REVENUE SUBMITTED THAT THE MATTER MAY BE RESTORED TO TPO FO R FRESH DECISION BECAUSE VARIOUS ASPECTS COULD NOT BE EXAMINED BY HIM BECAUS E DETAILS WERE NOT FURNISHED IN TIME AND TPO WAS HAVING PRESSURE OF TI ME BARRING MATTERS. HE SUBMITTED THAT ON PAGE 3 OF THE ORDER OF TPO, IT IS NOTED THAT THE ASSESSEE HAS CLAIMED DEDUCTION OF TRADE & OTHER DISCOUNT RS. 744 .48 LACS IN ADDITION TO DISCOUNT RS. 225.30 LACS. HE SUBMITTED THAT THIS HA S TO BE EXAMINED AS TO WHETHER DISCOUNTS WERE GIVEN ON SALE OF MATERIALS P URCHASED FROM AE ONLY OR ON TOTAL SALES INCLUDING SALE OF GOODS PURCHASED FR OM OTHERS. HE POINTED OUT THAT PURCHASE FROM AE WAS OF RS. 4718.90 LACS AS NO TED BY TPO ON PAGE 2 OF HIS ORDER BUT AS PER PAGE 129 OF THE PAPER BOOK, TO TAL PURCHASES WERE RS. 8833.20 LACS AND HENCE, THERE IS LARGE AMOUNT OF PU RCHASE FROM OTHERS EVEN IF IT IS CONSIDERED THAT THIS TOTAL PURCHASES OF RS. 8 833.20 LACS INCLUDES CUSTOM DUTY ETC. HE ALSO POINTED OUT THAT AS PER PAGE 195 OF THE PAPER BOOK, SALE OF GOODS PURCHASED FROM AE IS OF RS. 8642.14 LACS OUT OF TOTAL SALES OF RS. 12181.50 LACS AS NOTED BY TPO ON PAGE 2 OF HIS ORDE R. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS.WE FEEL IT PROPER THAT WE SHOULD DECIDE THIS ASPECT FIRST AS TO WHETHER IN THE FACTS OF THE PRESENT CASE, MATTER SHOULD BE DECIDED BY US ON MERIT OR IT SHOULD BE RE STORED BACK TO AO/TPO FOR FRESH DECISION BECAUSE AS PER THE TPO, NO COMPLIANC E WAS MADE BEFORE HIM. 5 ITA NO. 675/BANG/2016 IN THIS REGARD, WE FIRST TAKE NOTE OF THE ROLE OF A O/TPO. THIS IS UNDISPUTED THAT THE ROLE OF AO/TPO IS DUAL. BOTH OF THEM ARE INVEST IGATORS AS WELL AS ADJUDICATOR ALSO. NON FURNISHING OF REQUIRED DOCUME NTS BEFORE AO/TPO IN TIME AMOUNTS TO BLOCKING OF INVESTIGATION BY THEM AND TH IS APPROACH OF ANY ASSESSEE WHETHER INTENTIONAL OR UNINTENTIONAL SHOUL D NOT BE ENCOURAGED. THIS IS UNDISPUTED THAT NO COMPLIANCE WAS MADE BEFORE TP O UP TO 04.12.2014 BEING THE LAST DATE GIVEN BY THE TPO FOR COMPLIANCE . AS PER THE LEARNED AR OF THE ASSESSEE, COMPLIANCE WAS MADE ON 09.12.2014 BY FILING A LETTER DATED 08.12.2014 IN TAPAL. THIS IS ALSO ADMITTED POSITION OF FACT THAT ALTHOUGH THE ORDER OF TPO IS DATED 09.01.2015, THIS REPLY FILED ON 09.12.2014 DID NOT FIND ANY MENTION IN THE ORDER OF TPO. THIS MAY BE DUE TO THI S REASON THAT IT HAS NOT REACHED TO THE FILE OF TPO BEFORE 09.01.2015 OR FOR THIS REASON THAT BECAUSE OF THE PRESSURE OF TIME BARRING, THE TPO DID NOT FIND TIME TO CONSIDER AND ACT UPON THIS BELATED REPLY. BE THAT AS IT MAY BUT THIS IS U NDISPUTED THAT THIS BELATED REPLY OF THE ASSESSEE COULD NOT BE CONSIDERED AND ACTED U PON BY THE TPO. ALTHOUGH THERE IS NO RESTRICTION ON THE TRIBUNAL TO INVESTIG ATE THE FACTS AS THE TRIBUNAL HAS ENOUGH POWERS TO DO SO BUT THE PRIMARY ROLE OF THE TRIBUNAL IS OF ADJUDICATOR AND NOT OF AN INVESTIGATOR. IN OUR CONSIDERED OPINION, IF IT IS FOUND THAT THE AO/TPO DID NOT HAVE ENOUGH OPPORTUNITY OF MAKING REQUIRED INVESTIGATIONS BECAUSE OF DELAY ON THE PART OF THE ASSESSEE TO MAKE TIMELY CO MPLIANCE BEFORE THEM, THE MATTER SHOULD BE RESTORED TO AO/TPO AS THE CASE MAY BE, TO ENABLE THEM TO CONSIDER THE MATERIAL AND MAKE UP THEIR MIND AS TO WHETHER ANY INVESTIGATION IS REQUIRED AND TO MAKE SUCH REQUIRED INVESTIGATION, I F ANY. HENCE, IN THE FACTS OF THE PRESENT CASE, WE FEEL IT PROPER TO RESTORE THE MATTER BACK TO AO/TPO FOR FRESH DECISION AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND AFTER CONSIDERING THE MATERIAL BROUGHT ON RECORD BY THE ASSESSEE AS PER LETTER DATED 08.12.2014 FILED ON 09.12.2014. IF THE ASSESSEE WANTS TO BRING SOME MORE MATERIAL OR IF THE AO/TPO REQUIRES SOME MORE DETAIL, THE ASSESSEE SHOULD BRING THAT ON RECORD WITHIN THE TIM E ALLOWED BY AO/TPO. WE ORDER ACCORDINGLY. IN VIEW OF THIS DECISION, NO ADJ UDICATION ON MERIT IS CALLED FOR AT THE PRESENT STAGE. 5. REGARDING THE CORPORATE TAX ISSUE I.E. DISALLOWA NCE OF RS. 189,52,026/- CLAIMED BY THE ASSESSEE AS PROVISION FOR WARRANTY, LEARNED AR OF THE 6 ITA NO. 675/BANG/2016 ASSESSEE SUBMITTED A COPY OF TRIBUNAL ORDER IN ASSE SSEES OWN CASE FOR A. Y. 2010 11 IN ITA NO. 518 & 967/BANG/2015 DATED 07.0 3.2016 ALONG WITH A CORRIGENDUM AND SUBMITTED THAT IN THIS YEAR, THIS I SSUE WAS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE. HE DRAWN OUR AT TENTION TO PARA 14 OF THIS TRIBUNAL ORDER AND SUBMITTED THAT IN THIS YEAR, THE TRIBUNAL HELD THAT IN EACH YEAR, THE ACTUAL CLAIM IS VERY CLOSE TO PROVISION MADE IN THE PRECEDING YEAR AND ON THIS BASIS, THE TRIBUNAL CAME TO THIS CONCLUSION TH AT THE PROVISION FOR WARRANTY WAS CREATED ON A RELIABLE ESTIMATE BASIS AND IT IS IN LINE WITH THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF ROTORK C ONTROL PRIVATE LIMITED AS REPORTED IN 314 ITR 62. AS AGAINST THIS, LEARNED DR OF THE REVENUE SUBMITTED THAT THERE IS CATEGORICAL FINDING OF THE AO IN PARA 3.3 OF THE ASSESSMENT ORDER THAT THERE IS NO SCIENTIFIC BASIS OF MAKING PROVISI ON AND IN THE TRIBUNAL ORDER FOR A. Y. 2010 11 ALSO, THIS FINDING IS NOT THERE THA T THE BASIS OF MAKING PROVISION BY THE ASSESSEE IS SCIENTIFIC. HE SUBMITTED THAT UN DER THESE FACTS, THIS ISSUE SHOULD BE RESTORED TO AO FOR FRESH DECISION WITH TH E DIRECTION TO THE ASSESSEE TO BRING MATERIAL ON RECORD TO ESTABLISH THAT THE PROV ISION FOR WARRANTY WAS MADE ON A SCIENTIFIC BASIS. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRST OF ALL, WE REPRODUCE PARA 14 & 15 FROM THE TRIBUNAL ORDER IN ASSESSEES OWN CASE F OR A. Y. 2010 11. THE SAME READ AS UNDER:- 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ONRECORD. DURING THE COURSE OF HEARING OF THE APPEA L, A CHART SHOWING THE PROVISIONS CREATED AND ACTUAL CLAIMS FOR THE FY S 2008-09 TO 2012- 13 WAS PLACED BEFORE US WHICH READ AS UNDER:- FINANCIAL YEAR 2008-09 2009-10 2010-11 2012-13 OPENING PROVISION 27,48,18,817 86,30,76,632 1,21,81,49,898 1,88,19,33 ,023 PROVISION MADE DURING THE YEAR 66,24,970 1,29,27,237 1,94,83,031 1,77,52,602 PERCENTAGE OF SALES 2.41% 1.50% 1.60% 0.94% ACTUAL CLAIMS DURING THE YEAR 28,35,266 51,38,524 1,21,09,422 2,03,55,214 PERCENTAGE OF PREVIOUS YEAR SALES 1.87% 1.40% 1.67% CLOSING PROVISION 37,89,704 1,15,78,417 1,89,52,026 1,63,49,414 7 ITA NO. 675/BANG/2016 15. A PERUSAL OF THE ABOVE CHART REVEALS THAT PROVI SION WAS BASED IN TERMS OF PERCENTAGE OF SALES AND THE ACTUAL CLAIMS MADE DURING THE YEAR WERE ALSO SHOWN. THE PROVISION WAS MADE AT A P ERCENTAGE OF SALES AND PERCENTAGE OF SALES VARIES FROM YEAR TO Y EAR DEPENDING UPON THE PAST TREND. ASSUMING THAT THE CLAIMS FOR WARRAN TY ARE MADE IN THE NEXT YEAR, THE ACTUAL CLAIMS ARE ALMOST NEAR TO THE PROVISION CREATED IN THE IMMEDIATELY PRECEDING YEAR. E.G., IN THE FY 2009-10, ACTUAL CLAIMS MADE WERE RS.51,38,524 AS AGAINST PROVISION CREATED OF RS.66,24,970. SIMILARLY, IN FY 2010-11, ACTUAL CLAI MS OF RS.1,21,09,422 WAS MADE AS AGAINST PROVISION OF RS. 1,29,27,237 AND SO ON. THIS ONLY GOES TO SHOW THAT THE PROVISION MA DE IS NOT FAR IN EXCESS OF THE ACTUAL CLAIMS MADE IN THE SUCCEEDING YEAR. THEREFORE, IT CAN BE SAFELY PRESUMED THAT THE PROVISION FOR WARRA NTY WAS CRATED ON A RELIABLE ESTIMATE BASIS AND BASED ON HISTORICAL T REND AND THE RATIO OF THE HONBLE SUPREME COURT IN THE CASE OF ROTORK CON TROLS PVT. LTD. (SUPRA) IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE. THEREFORE, WE ARE OF THE OPINION THAT THE DRP WAS R IGHT IN DIRECTING THE AO TO DELETE THE ADDITION ON ACCOUNT OF PROVISI ON FOR WARRANTY EXPENDITURE. HENCE THE GROUNDS OF APPEAL FILED BY T HE REVENUE ARE REJECTED AND THE APPEAL IS DISMISSED. 7. NOW WE TAKE NOTE OF THE RATIO IN THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF ROTORK CONTROL PRIVATE LIMITED (SUPRA). THE RATIO OF THIS JUDGMENT IS THIS THAT IF LARGE NUMBER OF SOPHISTICATED GOODS AR E MANUFACTURED AND SOLD WITH WARRANTY, AND THE PAST RECORDS SHOW THAT DEFECTS EX ISTED IN SOME OF THE ITEMS, THE PROVISION MADE BY THE ASSESSEE FOR WARRANTY CLA IMS ON THE BASIS OF PAST EXPERIENCE IS ALLOWABLE AS DEDUCTION UNDER S. 37. I N A. Y. 2010 11, THE TRIBUNAL HAS CONSIDERED THE EXPENSES INCURRED IN A YEAR WITH THE PROVISION MADE IN THE PRECEDING YEAR. BUT THIS FACT IS NOT CO MING OUT AS TO WHETHER THE EXPENSES INCURRED IN THE PRESENT YEAR IS ONLY IN RE SPECT OF THE SALES MADE AND PROVISION CREATED IN THE PRECEDING YEAR MEANING THE REBY THAT THE WARRANTY PERIOD IS ONLY ONE YEAR. IF THAT BE THE FACT, THEN IT CAN BE CONCLUDED THAT WHERE THE EXPENSES INCURRED IN THE PRESENT YEAR IS CLOSE TO THE AMOUNT OF PROVISION IN THE PRECEDING YEAR, THE PROVISION IS ON SCIENTIFIC BASIS BUT IF THE WARRANTY PERIOD IS OF MORE THAN ONE YEAR THAN THE PAYMENT IN THE PR ESENT YEAR MAY BE IN RESPECT OF PROVISION FOR WARRANTY CREATED IN EARLIE R TWO/THREE YEARS AND IN THAT SITUATION. IT HAS TO BE EXAMINED AFTER BIFURCATING THE PAYMENT IN THE PRESENT YEAR ON THE BASIS OF YEAR OF SALE AND IT HAS TO BE SEEN THAT TOTAL PAYMENTS IN RESPECT OF SALE OF EACH YEAR DURING THE ENTIRE WARR ANTY PERIOD IS NEAR TO THE AMOUNT OF PROVISION MADE FOR THAT YEAR. SINCE, THE TRIBUNAL ORDER IS SILENT ON THIS 8 ITA NO. 675/BANG/2016 ASPECT, WE FEEL THAT THIS TRIBUNAL ORDER IS NOT A B INDING PRECEDENCE AND HENCE, WE RESTORE THE MATTER BACK TO AO FOR A FRESH DECISI ON WITH THE DIRECTION THAT THE ASSESSEE SHOULD BRING ON RECORD THE WARRANTY PERIOD AND SHOULD ALSO BRING ON RECORD THE COMPARISON CHART OF WARRANTY PROVISION I N ONE YEAR WITH THE CLAIM MADE IN THE WHOLE WARRANTY PERIOD OF THAT YEAR. IF IT IS FOUND THAT THE PAYMENT MADE IN THE WHOLE WARRANTY PERIOD IS EQUAL OR MORE THAN THE AMOUNT OF PROVISION IN THE YEAR OF SALE, IT SHOULD BE ACCEPTE D THAT THE PROVISION IS ON SCIENTIFIC BASIS. OTHERWISE, THE DEDUCTION ON ACCOU NT OF PROVISION SHOULD BE RESTRICTED TO THE EXTENT OF PERCENTAGE OF ACTUAL CL AIM IN THE TOTAL WARRANTY PERIOD TO THE AMOUNT OF SALE VALUE. THIS IS POSSIBLE NOW B ECAUSE DATA FOR SEVERAL YEARS ARE NOW AVAILABLE TO MAKE THIS COMPARISON. TH E INTEREST ISSUE IS CONSEQUENTIAL. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ONTHE DA TE MENTIONED ON THE CAPTION PAGE. SD/- SD/- (N.V. VASUDEVAN) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMB ER BANGALORE, DATED, THE 07 TH SEPTEMBER, 2018. /MS/ COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.