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Toshiba India Pvt. Ltd., E-20, 1st & 2nd Floor, Hauz Khas, New Delhi. Vs. DCIT, Circle-16(1), New Delhi.
July, 16th 2014
               DELHI BENCHES : I : NEW DELHI


                       ITA No.1053/Del/2014
                     Assessment Year : 2009-10

Toshiba India Pvt. Ltd.,       Vs.   DCIT,
E-20, 1st & 2nd Floor,               Circle-16(1),
Hauz Khas,                           New Delhi.
New Delhi.


  (Appellant)                           (Respondent)

          Assessee By      :   Smt. Rashmi Chopra &
                               Smt. Vriti Anand, Advocates
          Department By    :   Shri Peeyush Jain, CIT, DR &
                               Shri Yogesh K. Verma, CIT, DR



      This appeal by the assessee is directed against the order

passed by the AO on 21.01.2014 u/s 143(3) read with Section

144C of the Income-tax Act, 1961 (hereinafter also called `the

Act') in relation to the assessment year 2009-10.
                                                     ITA No.1053/Del/2014

2.   All the grounds taken in the Memorandum of Appeal are

against the transfer pricing adjustment on account of AMP


3.   We have heard the rival submissions and perused the

relevant material on record. At the outset, it was admitted by the

ld. AR that the issue in this case is fully covered by the Special

Bench order in the case of LG Electronics Pvt. Ltd. vs. ACIT (2013)

140 ITD 41 (Del) (SB). The ld. AR contended that similar direction

be given to the AO/TPO for deciding this issue afresh and

restricting the transfer pricing adjustment, if any, in the light of

the Special Bench decision, after excluding the selling expenses

out of the amount considered by the AO under AMP expenses.

The ld. DR was fair enough to concede the position stated on

behalf of the assessee.

4.   It is observed that the Special Bench in the case of LG

Electronics (supra) has held that the AMP expenses refer only to

advertisement, marketing and publicity and, as such, the selling

expenses which are specific to sales cannot be considered within

the ambit of AMP expenses.      Some of the instances of selling

                                                    ITA No.1053/Del/2014

expenses considered in that case, are commission paid to the

dealers and sales agents. In the same category would fall rebate

and discount, etc. allowed to the parties in connection with

boosting sales. The crux of the matter is that the expenses for

the promotion of sales are to be considered within the purview of

AMP expenses, whereas the expenses in connection with the sales

which are simply sales specific, are outside the scope of AMP

expenses. We, therefore, set aside the impugned order and remit

the matter to the file of AO/TPO for deciding the question transfer

pricing adjustment on account of AMP expenses, if any, in

conformity with the view taken by the Special Bench in the case

of LG Electronics (supra).

5.   The assessee has raised an additional ground reading as


     "Ground        17: That based on the facts and
     circumstances and in law, the Ld. AO has erred in not
     treating as deductible the provision for warranty,
     incurred in the normal course of business, in view of the
     settled position in the case of Rotork Controls India (P)
     Ltd. vs. CIT (2009) 314 ITR 62 (SC)."
6.   In support of the admission of this ground, the ld. AR

contended that though no such issue was taken before the

                                                     ITA No.1053/Del/2014

authorities below, but the assessee was entitled to claim that the

deduction on account of provision for warranty be allowed in

conformity with the decision of the Hon'ble Supreme Court in the

case of Rotork Controls India (P) Ltd. vs. CIT (2009) 314 ITR 62

(SC). On the other hand, the ld. DR relied on the judgment of the

Hon'ble Calcutta High Court in Indian Steel and Wire Products VS.

CIT (1994) 208 ITR 740 (Cal) for opposing the admission of

additional ground by contending that all the material facts

necessary for adjudication of this ground were not available

before the AO and further this ground does not arise out of the

impugned order.

7.   We have heard the rival submissions and perused the

relevant material on record. The Hon'ble Supreme Court in the

case of National Thermal Power Company Ltd. Vs. CIT (1998) 229

ITR 383 (SC) has held that the Tribunal has the jurisdiction to

examine a question of law which arises from the facts as found by

the authorities below and having a bearing on tax liability of the

assessee notwithstanding the fact that it was not raised before

the learned CIT(A). The purpose of assessment proceedings is to

assess correctly the tax liability of an assessee in accordance with
                                                   ITA No.1053/Del/2014

law. When we consider the judgment of the Hon'ble Supreme

Court in Goetze (India) Ltd. (supra) in juxtaposition to National

Thermal Power Company Ltd. (supra), it becomes patent that

although the assessee cannot make a claim before the Assessing

Officer otherwise than through the return of income, but there are

no restrictions on the powers of the Tribunal to entertain such

claim for examination provided the facts exists on record. As the

assessee did not make claim for deduction of provision for

warranty and claimed it on actual basis, the addition ground of

the assessee for allowing deduction on the basis of the Hon'ble

Supreme Court judgment in the case of Rotork Controls India (P)

Ltd. (supra) deserves to be admitted. We, therefore, admit this

additional ground raised by the assessee.

8.   Now, we take up the issue on merits. It is noticed from the

Annual accounts of the assessee that a provision was created for

warranty at ` 8.70 crore with the opening balance of such

provision at ` 1.06 crore. A sum of ` 1.43 crore was used during

the year and the closing balance of ` 8.32 crore was allowed to be

carried forward.    The assessee's computation of income is

available at page 503 of the paper book from which it can be seen
                                                    ITA No.1053/Del/2014

that a sum of ` 8.70 crore was added to the net adjusted profit

taken as the starting point for computation of total income with

the remarks `Provision for warranty created during the year' and,

thereafter, deduction was claimed for a sum of ` 1.43 crore with

the remarks `Warranties used during the year.' It shows that the

assessee added back the amount of provision debited to the Profit

& Loss Account and claimed deduction for warranties actually

used during the year. The Hon'ble Supreme Court in the case of

Rotork Controls India (P) Ltd. (supra) has held that : "if large

number of sophisticated goods are manufactured and sold with

warranty and the past record show that the defects existed in

some of the items, the provision made by the assessee for

warranty claims on the basis of past experience is allowable as

deduction u/s 37 of the Act." From the above judgment of the

Hon'ble Supreme Court, it is clear that there is no mandate for the

automatic grant of deduction on account of provision for

warranties. There are certain things to be considered in the light

of this judgment and only thereafter the deduction can be

allowed. There is another factor which needs consideration. The

assessee had opening balance of provision for warranties at `

                                                   ITA No.1053/Del/2014

1.06 crore. After adding the provision for the current year at `

8.70 crore and reducing the amount used during the year at `

1.43 crore, the closing balance of provision at ` 8.33 crore has

been carried forward. When the assessee is claiming deduction in

the computation of total income for the amount used during the

year only and the balance amount of provision is carried forward,

it is natural that the carried forward amount of the provision

which would become brought forward balance in the subsequent

year would become relevant for claiming deduction towards the

amount used during the year. This process would goes on until

the provision is reversed or exhausted. Since the assessee is now

claiming before us that the deduction should be granted on the

amount of provision for warranties which is in accordance with the

judgment of the Hon'ble Supreme Court in the case of Rotork

Controls India (P) Ltd. (supra), we direct the AO to consider and

examine the assessee's claim in this regard on the touchstone of

the prescription given by the Hon'ble Supreme Court in that very

case.   Before jumping to any conclusion for allowing deduction

towards provision for warranty for this year at ` 8.70 crore, the

AO should keep in mind that this amount of provision should not

                                                        ITA No.1053/Del/2014

lead to double deduction, firstly at the time of creation of

provision in the current year and then at the time of actual use of

the amount in subsequent years.         In other words, the AO would

examine the claim for deduction of provision for warranties during

the year only to the extent for which no deduction has been

claimed on actual basis in this year or subsequent years out of

such provision.

9.     In the result, the appeal is allowed for statistical purposes.

       The order pronounced in the open court on 15.07.2014.

              Sd/-                                       Sd/-

       [A.T. VARKEY]                              [R.S. SYAL]
     JUDICIAL MEMBER                          ACCOUNTANT MEMBER

Dated, 15th July, 2014.


Copy forwarded to:
     1. Appellant
     2. Respondent
     3. CIT
     4. CIT (A)
     5. DR, ITAT
                                                 AR, ITAT, NEW DELHI

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