IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : I : NEW DELHI
BEFORE SHRI R.S. SYAL, AM AND SHRI A.T. VARKEY, JM
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.
PAN : AABCT4829N
(Appellant) (Respondent)
Assessee By : Smt. Rashmi Chopra &
Smt. Vriti Anand, Advocates
Department By : Shri Peeyush Jain, CIT, DR &
Shri Yogesh K. Verma, CIT, DR
ORDER
PER R.S. SYAL, AM:
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
expenses.
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
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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
under:-
"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
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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
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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
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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 `
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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
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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.
dk
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR, ITAT
AR, ITAT, NEW DELHI
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