SIRONA DENTAL SYSTEMS PRIVATE LIMITED ,MUMBAI V. ACIT, CIRCLE 14(1)(2), MUMBAI

ITA 4639/MUM/2024

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Sirona Dental Systems Private Limited appealed against the order of the AO which made a transfer pricing adjustment of INR 45,78,792 to the income declared by the company. The adjustment was based on the directions from the Dispute Resolution Panel (DRP). The appellant contested the adjustment and the procedural validity of the assessment order, including issues of limitation and non-compliance with DRP directions. The ITAT allowed the appeal for statistical purposes, remitting the matter back to the AO to re-assess the treatment of warranty provisions as operating income.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 32110 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2020-2021
• Other Referred Cases: Roca Bathroom Products of Madras High Court dated 09/06/2022
• Laws Referred To: Income-tax Act 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: UODAL RAJ SINGH
• Assessee Lawyers: PRANAY GANDHI AW ANISH
• Keywords: Set aside; Opportunity of being heard; Transfer pricing; Bad and doubtful debts
• Section: 143(3); 153; 92CA

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “H” MUMBAI BEFORE SHRI AMIT SHUKLA (JUDICIAL MEMBER) AND SHRI OMKARESHWAR CHIDARA (ACCOUNTANT MEMBER) ITA No. 4639/MUM/2024 Assessment Year: 2020-21 Sirona Dental Systems Private Limited Unit No. Ga 10 and 11, Ground Floor A Wing, Art Guild House, Phoenix Market City, Lbs Marg Kurla West, Mumbai - 400070. Vs. ACIT, Circle 14(1)(2) Aayakar Bhavan, M.K. Road, Mumbai-400020. PAN NO. AARCS1760K Appellant Respondent Assessee by : Shri Pranay Gandhi a/w Shri Anish Thacker Revenue by : Shri Uodal Raj Singh Sr. DR Date of Hearing : 17/10/2024 Date of pronouncement : 08/01/2025 ORDER PER OMKARESHWAR CHIDARA, AM This appeal by the assessee is directed against order dated 15.06.2024 passed by the Ld. Commissioner of Income-tax Mumbai (Appeals), [in short ‘the Ld. CIT(A)’] for assessment year 2020-21. 2. The above cited appellant co following Grounds of Appeal for the A.Y. 2020 “Based on the facts and circumstances of the case and in law, Sirona Dental Systems Private Limited (hereinafter referred to as the Appellant) craves leave to prefer an appeal aga passed by the learned Assessment Unt, Income (hereinafter referred to as Mamed Assessing Officer or learned AD) under section 143(3) read with section 144C(13) read with section 144(8) of the Income pursuance of the directions issued by the Hon'ble Dispute Resolution Panel-1, (hereinafter referred to as the Hon'ble DRP') on the following grounds, each of which are without prejudice On the facts and in the circumstances of the case and in law, on the directions of the Hon'ble DRP/ the learned AD/ Deputy Commissioner of Income-tax (Transfer Pricing)4(1)(1), Mumbai [learned Transfer Pricing Officer (TPO), has: Grounds of appeal General 1. erred in not accepting the returned income of INR 2,85,48,550/ declared by the Appellant in the Income making transfer pricing adjustment of INR 45,78,792. Final assessment order barred by limitation: 2. erred in not passing the final assessment order within the time limit prescribed under section 153 of the Act which is the outer time limit for passing the final assessment order and hence, the assessment proceedings is time barred and liable to be quashed; Validity of the final assessment order passed: 3. erred in not passing the final assessment order in accordance with the directions of the Hon'ble DRP, thereby, rendering the impugned order as bad in law and invalid. 4. erred in not granting opportunity enhancement in the order passed under section 92CA of the Act in pursuance of the directions issued by the Hon'ble DRP, thereby, Sirona Dental Systems Private Limited The above cited appellant company filed an appeal with the following Grounds of Appeal for the A.Y. 2020-21 : Based on the facts and circumstances of the case and in law, Sirona Dental Systems Private Limited (hereinafter referred to as the Appellant) craves leave to prefer an appeal against the order dated 19 July 2024 passed by the learned Assessment Unt, Income-tax Department (hereinafter referred to as Mamed Assessing Officer or learned AD) under section 143(3) read with section 144C(13) read with section of the Income-tax Act 1961 (hereinafter referred to as the 'Act') in pursuance of the directions issued by the Hon'ble Dispute Resolution 1, (hereinafter referred to as the Hon'ble DRP') on the following grounds, each of which are without prejudice to one another On the facts and in the circumstances of the case and in law, on the directions of the Hon'ble DRP/ the learned AD/ Deputy Commissioner of tax (Transfer Pricing)4(1)(1), Mumbai [learned Transfer Pricing erred in not accepting the returned income of INR 2,85,48,550/ declared by the Appellant in the Income-tax return of AY 2020 making transfer pricing adjustment of INR 45,78,792. Final assessment order barred by limitation: red in not passing the final assessment order within the time limit prescribed under section 153 of the Act which is the outer time limit for passing the final assessment order and hence, the assessment proceedings is time barred and liable to be quashed; Validity of the final assessment order passed: erred in not passing the final assessment order in accordance with the directions of the Hon'ble DRP, thereby, rendering the impugned order as bad in law and invalid. erred in not granting opportunity of being heard before making enhancement in the order passed under section 92CA of the Act in pursuance of the directions issued by the Hon'ble DRP, thereby, Sirona Dental Systems Private Limited 2 ITA No. 4639/MUM/2024 filed an appeal with the Based on the facts and circumstances of the case and in law, Sirona Dental Systems Private Limited (hereinafter referred to as the Appellant) inst the order dated 19 July 2024 tax Department (hereinafter referred to as Mamed Assessing Officer or learned AD) under section 143(3) read with section 144C(13) read with section tax Act 1961 (hereinafter referred to as the 'Act') in pursuance of the directions issued by the Hon'ble Dispute Resolution 1, (hereinafter referred to as the Hon'ble DRP') on the following On the facts and in the circumstances of the case and in law, on the directions of the Hon'ble DRP/ the learned AD/ Deputy Commissioner of tax (Transfer Pricing)4(1)(1), Mumbai [learned Transfer Pricing erred in not accepting the returned income of INR 2,85,48,550/- tax return of AY 2020-21 and red in not passing the final assessment order within the time limit prescribed under section 153 of the Act which is the outer time limit for passing the final assessment order and hence, the assessment erred in not passing the final assessment order in accordance with the directions of the Hon'ble DRP, thereby, rendering the impugned of being heard before making enhancement in the order passed under section 92CA of the Act in pursuance of the directions issued by the Hon'ble DRP, thereby, rendering the impugned order as bad in law and arbitrary, contrary to facts, law and circumstance Profit level indicator (\"PLI\") computation: 5. erred in making TP adjustment of Rs. 45,78,792, in respect of purchase of goods from AE by: 5.1 failure to consider the audited computing the PLI of the Appellant: 5.2 erroneously considering the value of operating assistance at INR 4,65,54,272 instead of INR 4,75,39,584; 5.3 not considering prior period expenditure, penalty interest and loss on sale of assets as non classified as non-operating in the original transfer pricing order; and 5.4 not considering \"warranty provision written back\" amounting to INR 31,81,643 credited to profit & loss account as operating in nature without appreciating that \"provision written back\" amounting to INR 3,58,485 was considered to be operating in nature. 6. erred in rejecting Systopic Laboratories Pvt Ltd as an inappropriate comparable without providing any reason for rejection. 7. Without prejudice to the ground no. 5, where warranty provision written back is considered to be non prays that the \"provision for doubtful debts\" amount to INR 23,43,491 and \"provision for doubtful balances with governm amount to INR 4,92,230, debited to profit & loss account, ought to also be considered as non 8. erred in initiating penalty proceedings u/s 270A of the Act mechanically and without recording any adequate satisfaction initiation. The above grounds are without prejudice to each other. The Appellant craves to leave to add, withdraw, alter, modify, amend or vary the above grounds of appeal before or at the time of hearing. 3. The appellant company, Sirona Dental, 16/02/2012 is engaged in trading and distribution of dental equipment in India. The company is also engaged in limited product support services in the form of Armal Maintenance Contracts. Sirona Dental Systems Private Limited rendering the impugned order as bad in law and arbitrary, contrary to facts, law and circumstances of the case and liable to be quashed. Profit level indicator (\"PLI\") computation: erred in making TP adjustment of Rs. 45,78,792, in respect of purchase of goods from AE by: failure to consider the audited financials of the Appellant for ing the PLI of the Appellant: erroneously considering the value of operating assistance at INR 4,65,54,272 instead of INR 4,75,39,584; not considering prior period expenditure, penalty interest and loss on sale of assets as non-operating expenses though the same were operating in the original transfer pricing order; and not considering \"warranty provision written back\" amounting to INR 31,81,643 credited to profit & loss account as operating in nature ng that \"provision written back\" amounting to INR 3,58,485 was considered to be operating in nature. erred in rejecting Systopic Laboratories Pvt Ltd as an inappropriate comparable without providing any reason for rejection. Without prejudice to the ground no. 5, where warranty provision written back is considered to be non-operating in nature, the appellant prays that the \"provision for doubtful debts\" amount to INR 23,43,491 and \"provision for doubtful balances with government authorities\" amount to INR 4,92,230, debited to profit & loss account, ought to also be considered as non-operating in nature. erred in initiating penalty proceedings u/s 270A of the Act mechanically and without recording any adequate satisfaction The above grounds are without prejudice to each other. The Appellant craves to leave to add, withdraw, alter, modify, amend or vary the above grounds of appeal before or at the time of hearing.” The appellant company, Sirona Dental, was incorporated on 16/02/2012 is engaged in trading and distribution of dental equipment in India. The company is also engaged in limited product support services in the form of Armal Maintenance Contracts. Sirona Dental Systems Private Limited 3 ITA No. 4639/MUM/2024 rendering the impugned order as bad in law and arbitrary, contrary to s of the case and liable to be quashed. erred in making TP adjustment of Rs. 45,78,792, in respect of financials of the Appellant for erroneously considering the value of operating assistance at INR not considering prior period expenditure, penalty interest and loss ses though the same were operating in the original transfer pricing order; and not considering \"warranty provision written back\" amounting to INR 31,81,643 credited to profit & loss account as operating in nature ng that \"provision written back\" amounting to INR erred in rejecting Systopic Laboratories Pvt Ltd as an inappropriate comparable without providing any reason for rejection. Without prejudice to the ground no. 5, where warranty provision operating in nature, the appellant prays that the \"provision for doubtful debts\" amount to INR 23,43,491 ent authorities\" amount to INR 4,92,230, debited to profit & loss account, ought to also erred in initiating penalty proceedings u/s 270A of the Act mechanically and without recording any adequate satisfaction for such The above grounds are without prejudice to each other. The Appellant craves to leave to add, withdraw, alter, modify, amend or vary the was incorporated on 16/02/2012 is engaged in trading and distribution of dental equipment in India. The company is also engaged in limited product support services in the form of Armal Maintenance Contracts. 4. In the assessment order, the Ld. AO made an adju Rs. 45,78,792/- while giving effect to the Ld. DRP towards “ALP adjustment for purchase of goods after operating assistance received”, at the time of completing scrutiny assessment. Originally, the TPO has made an adjustment of Rs. 3 the reasons mentioned TP order, same at Rs. 45,78,792/ amount of Rs. 45,78,792/ 5. Aggrieved by this order of Ld. A.O, the appellant filed an appeal to ITAT with the grounds of appeal mentioned in page of this order. 6. As far as the limitation issue is concerned, the Ld. AR of appellant has filed a letter dated 16/10/2024, during the proceedings before ITAT, stating that the appellant is withdrawing this legal ground based pvt. ltd. of Madras High Court dated 09/06/2022, as it would prolong the appeal process. In view of the same this ground relating to limitation is dismissed, as “withdrawn”. 7. Coming to the merits of the case are considered, the Ld. AR of appellant company has argued that since the warranty provision created in earlier years was treated as provisions written back during this year “operative” in nature. It was submitted that if the warranty Sirona Dental Systems Private Limited In the assessment order, the Ld. AO made an adju while giving effect to the Ld. DRP towards “ALP adjustment for purchase of goods after operating assistance received”, at the time of completing scrutiny assessment. has made an adjustment of Rs. 3 the reasons mentioned TP order, but the Ld. DRP computed the same at Rs. 45,78,792/- and considering the directions of DRP, an amount of Rs. 45,78,792/- was added. Aggrieved by this order of Ld. A.O, the appellant filed an h the grounds of appeal mentioned in page As far as the limitation issue is concerned, the Ld. AR of appellant has filed a letter dated 16/10/2024, during the proceedings before ITAT, stating that the appellant is withdrawing al ground based on the decision of Roca Bathroom Products of Madras High Court dated 09/06/2022, as it would prolong the appeal process. In view of the same this ground relating to limitation is dismissed, as “withdrawn”. Coming to the merits of the case are considered, the Ld. AR of appellant company has argued that since the warranty provision created in earlier years was treated as “operative” provisions written back during this year also should be taken ” in nature. It was submitted that if the warranty Sirona Dental Systems Private Limited 4 ITA No. 4639/MUM/2024 In the assessment order, the Ld. AO made an adjustment of while giving effect to the Ld. DRP’S directions towards “ALP adjustment for purchase of goods after operating assistance received”, at the time of completing scrutiny assessment. has made an adjustment of Rs. 32,44,059/- for the Ld. DRP computed the and considering the directions of DRP, an Aggrieved by this order of Ld. A.O, the appellant filed an h the grounds of appeal mentioned in page 2 & 3 As far as the limitation issue is concerned, the Ld. AR of appellant has filed a letter dated 16/10/2024, during the proceedings before ITAT, stating that the appellant is withdrawing on the decision of Roca Bathroom Products of Madras High Court dated 09/06/2022, as it would prolong the appeal process. In view of the same this ground relating Coming to the merits of the case are considered, the Ld. AR of appellant company has argued that since the warranty provision ” in nature the also should be taken ” in nature. It was submitted that if the warranty provisions are written back is considered as revised margin computation of OP/OR would be 6.01% and as the Ld. TPO determined the range to be 5.29% to 6.82%, it would be within the Arm’s length range computed by TPO. In support of the same, the Ld. AR of appellant has filed the financials and adjustment to be made as follows : Particulars Income Revenue from operations: Sale of products Sale of services Other operating revenue: Operating Assistance Other income: Warranty provision written back Total Operating Income [A] Total operating Cost [B] Operating Profit C = [A - Operating Profit / Operating Revenue D = [C / A] 8. Finally, the AR of appellant has submitted that, Ld. TPO may be directed to include the warranty provision written back as operating revenue, as this treatment was followed by appellant company consistently in prior years also judicial precedents. 9. Per contra, the Ld. AR has argued that the Ld. AO has computed the PLI using draft financials provided by Company. The Ld. DRP has directed the TPO to compute PLI only after considering the figures as per audited financials based on Sirona Dental Systems Private Limited provisions are written back is considered as operating income revised margin computation of OP/OR would be 6.01% and as the Ld. TPO determined the range to be 5.29% to 6.82%, it would be length range computed by TPO. In support of the same, the Ld. AR of appellant has filed the financials and adjustment to be made as follows : Amount (In INR) Revenue from operations: Sale of products ale of services Other operating revenue: Operating Assistance Warranty provision written back Total Operating Income [A] 18,60,04,837 72,64,920 19,32,69,757 4,75,39,584 31,81,643 B] Operating Profit / Operating Revenue D = [C / A] Finally, the AR of appellant has submitted that, Ld. TPO may be directed to include the warranty provision written back as as this treatment was followed by appellant company consistently in prior years also, which was supported by Per contra, the Ld. AR has argued that the Ld. AO has computed the PLI using draft financials provided by . The Ld. DRP has directed the TPO to compute PLI only after considering the figures as per audited financials based on Sirona Dental Systems Private Limited 5 ITA No. 4639/MUM/2024 operating income, the revised margin computation of OP/OR would be 6.01% and as the Ld. TPO determined the range to be 5.29% to 6.82%, it would be length range computed by TPO. In support of the same, the Ld. AR of appellant has filed the financials and Amount (In INR) 18,60,04,837 72,64,920 19,32,69,757 4,75,39,584 31,81,643 24,39,90,984 22,93,26,150 1,46,64,834 6.01% Finally, the AR of appellant has submitted that, Ld. TPO may be directed to include the warranty provision written back as as this treatment was followed by appellant which was supported by Per contra, the Ld. AR has argued that the Ld. AO has computed the PLI using draft financials provided by Assessee . The Ld. DRP has directed the TPO to compute PLI only after considering the figures as per audited financials based on which the income was computed by appellant company. As there were no specific directions in Ld. DRP’s order with respect to “Warranty Provisions” written back raised by the appellant before the Ld. DRP. The Ld. DR has finally argued that since this ground of “Warranty Provisions” was not raised before the Ld. DRP, the ap the matter to the Ld. TPO with the direction to look into warranty provisions, should not be entertained by ITAT. 10. Considering the facts and circumstances of the case, it is decided that an opportunity is given to appellant company to demonstrate its case relati before the Ld. AO, as all the facts are borne out of record and no fresh evidences were filed by the appellant company. Accordingly, the appeal is remitted back to the Ld. AO, for the limited purpose of “Warranty Provisions” was included in earlier years to “operative income” and determine the ALP. No other grounds should be entertained before the Ld. AO because this is the only issue agitated by the Ld. AR of appellant before ITAT. 11. The Ld. AO is directed to give company and complete the assessment Sirona Dental Systems Private Limited which the income was computed by appellant company. As there were no specific directions in Ld. DRP’s order with respect to ovisions” written back, because this ground was not raised by the appellant before the Ld. DRP. The Ld. DR has finally argued that since this ground of “Warranty Provisions” was not raised before the Ld. DRP, the appellant company’s plea atter to the Ld. TPO with the direction to look into warranty provisions, should not be entertained by ITAT. Considering the facts and circumstances of the case, it is decided that an opportunity is given to appellant company to demonstrate its case relating to issue of “Warranty Provisions” before the Ld. AO, as all the facts are borne out of record and no fresh evidences were filed by the appellant company. Accordingly, the appeal is remitted back to the Ld. AO, for the limited purpose of ions” was included in earlier years to “operative income” and determine the ALP. No other grounds should be entertained before the Ld. AO because this is the only issue agitated by the Ld. AR of appellant before ITAT. The Ld. AO is directed to give an opportunity to the appellant company and complete the assessment at the earliest. Sirona Dental Systems Private Limited 6 ITA No. 4639/MUM/2024 which the income was computed by appellant company. As there were no specific directions in Ld. DRP’s order with respect to because this ground was not raised by the appellant before the Ld. DRP. The Ld. DR has finally argued that since this ground of “Warranty Provisions” was not pellant company’s plea to set aside atter to the Ld. TPO with the direction to look into warranty Considering the facts and circumstances of the case, it is decided that an opportunity is given to appellant company to ng to issue of “Warranty Provisions” before the Ld. AO, as all the facts are borne out of record and no fresh evidences were filed by the appellant company. Accordingly, the appeal is remitted back to the Ld. AO, for the limited purpose of ions” was included in earlier years to reckon “operative income” and determine the ALP. No other grounds should be entertained before the Ld. AO because this is the only issue an opportunity to the appellant at the earliest. 12. The appeal of appellant company is allowed for statistical purposes. Order pronounced in the open Court on Sd/- (AMIT SHUKLA JUDICIAL MEMBER Mumbai; Dated: 08/01/2025 Poonam Mirashi, Stenographer Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// Sirona Dental Systems Private Limited The appeal of appellant company is allowed for statistical Order pronounced in the open Court on 08/01 Sd/ AMIT SHUKLA) (OMKARESHWAR CHIDARA JUDICIAL MEMBER ACCOUNTANT MEMBER Copy of the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai Sirona Dental Systems Private Limited 7 ITA No. 4639/MUM/2024 The appeal of appellant company is allowed for statistical /01/2025. Sd/- OMKARESHWAR CHIDARA) ACCOUNTANT MEMBER BY ORDER, (Assistant Registrar) ITAT, Mumbai "