DCIT 8(3), MUMBAI v. ZINSER TEXTILES SYSTEMS P.LTD, MUMBAI

ITA 4851/MUM/2013 | 2008-2009
Pronouncement Date: 05-10-2016 | Result: Partly Allowed

Appeal Details

RSA Number 485119914 RSA 2013
Assessee PAN AAACZ1594R
Bench Mumbai
Appeal Number ITA 4851/MUM/2013
Duration Of Justice 3 year(s) 3 month(s) 11 day(s)
Appellant DCIT 8(3), MUMBAI
Respondent ZINSER TEXTILES SYSTEMS P.LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 05-10-2016
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted K
Tribunal Order Date 05-10-2016
Date Of Final Hearing 26-09-2016
Next Hearing Date 26-09-2016
Assessment Year 2008-2009
Appeal Filed On 24-06-2013
Judgment Text
INCOME-TAX APPELLATE TRIBUNAL -KBENCH MUMBAI BEFORE S/SHRI RAJENDRA ACCOUNTANT MEMBER AND SAKTIJIT DEY JUDICIAL MEMBER / ITA NO.4851/MUM/2013 : /ASSESSMENT YEAR-2008-09 DCIT-8(3) ROOM NO.217 AAYAKAR BHAVAN M.K. MARG MUMBAI-400 020. VS. M/S. ZINSER TEXTILE SYSTEMS PVT. LTD. 43 V.B. GANDHI MARG FORT MUMBAI-400 023. PAN:AAACZ 1594 R (APPELLANT) (RESPON DENT) / ITA NO.4898/MUM/2013 : /ASSESSMENT YEAR-2008-09 M/S. ZINSER TEXTILE SYSTEMS PVT. LTD. 43 V.B. GANDHI MARG FORT MUMBAI-023. VS. DCIT-8(3)ROOM NO.217 AAYAKAR BHAVAN M.K. MARG MUMBAI-400 020. (APPELLANT) (RESPON DENT) REV ENUE BY: SHRI SANJEEV JAIN-DR ASS ESSEE BY: SHRI RUSHABH VORA / DATE OF HEARING: 29.09.2016 / DATE OF PRONOUNCEMENT: 05.10.2016 1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT 1961(ACT) / PER RAJENDRA A.M. - CHALLENGING THE ORDER DATED 19.4.2013 OF CIT(A)-15 MUMBAI THE ASSESSEE AND THE ASSESSING OFFICER(AO)HAVE FILED CROSS APPEALS FOR THE YEAR UN DER CONSIDERATION.ASSESSEE - COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE O F TEXTILE MACHINERY AND SALE OF RELATED SPARE PARTS FILED ITS RETURN OF INCOME ON 13.9.2008 DECLARING INCOME OF RS.2.28 CRORES UNDER THE NORMAL PROVISIONS OF THE ACT AND RS.4.53 CRORES U/S.115JB.THE AO COMPLETED THE ASSESS - MENT U/S.143(3)R.W.S.144C(3)(B)OF THE ACT ON 31.1.1 2 DETERMINING THE INCOME OF THE ASSESSEE AT RS.3.85CRORES UNDER THE NORMAL PROVISIONS AND AT RS.4.76 CRORES UNDER MAT PROVISIONS. ITA NO.4851/MUM/2013 : 2. FIRST EFFECTIVE GROUND(GOA 1-6)OF APPEAL FILED BY THE AO IS ABOUT APPLYING MOST APPROPRIATE METHOD FOR BENCHMARKING ROYALTY TRANSAC TIONS. DURING THE ASSESSMENT PROCEED - INGS THE AO FOUND THAT THE ASSESSEE HAD ENTERED INT O INTERNATIONAL TRANSACTIONS(IT.S)RELATING TO PURCHASE OF COMPONENTS VALUING RS . 22.93 CRORES THAT IT HAD USED CPM AS THE MOST APPROPRIATE METHOD THAT FOR INTERNATIONAL TRANSACT IONS RELATING TO SALE OF COMPONENTS PURCHASE OF FIXED ASSETS AND PAYMENT OF ROYALTY IT HAD USED TNMM THAT THE PLI WAS AT 5.97% (OP/SALES) THAT THE MARGIN OF THE FOUR COMPARABLES WAS FOUND AT 0.15% . THE AO MADE A REFERENCE TO THE TPO WHO CALLED FOR FURTHER DETAILS IN THAT REGARD. IN ITS RESPONSE THE ASSESSEE SUBMITTED THAT THE TECHNOLOGY SUPPLIED BY THE AE WA S OF SUPERIOR QUALITY THAT IT RESULTED IN 4851/M/13 & 4898/M/13-ZINSER TEXTILE SYS.P.LTD. 2 SAVING EMPLOYEE COST AND INCREASE PROFIT MARGIN.AFT ER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE TECHNICAL KNOW-HOW AGREEMENT THE TPO HELD THAT UNDER THE AGREEMENT THE LICENSOR WAS REQUIRED TO IMPART TRANSFER AND CONVEY THE TECHNICAL KNOW-HOW THAT THE ASSESSEE HAD NOT MANUFACTURED ANY COMPONENT OR MACHINE THAT IT WAS INVOLVED ONLY IN ASSEMBLING OF THE COMPONENTS THAT CONTENTION OF THE ASSESSEE T HAT ON ACCOUNT OF THE TECHNOLOGY IT WAS ABLE TO COMMAND BETTER PRICES WAS NOT ACCEPTABLE IT HAD NOT DEMONSTRATED OF OBTAINING NEW TECHNICAL KNOWLEDGE OR DERIVING ANY BENEFIT FROM TH E SAID USE THAT THE ASSESSEE WAS NOT JUSTIFIED IN MAKING PAYMENT TO THE AE UNDER THE HEA D ROYALTY THAT IN SIMILAR CIRCUMSTANCES NO THIRD PARTY WOULD PAY ANY AMOUNT FOR ALLEGED TEC HNICAL KNOW-HOW WHICH HAD NOT RESULTED INTO ANY ECONOMIC BENEFIT TO IT. ACCORDINGLY THE AR MS-LENGTH PRICE (ALP) OF THE TRANSACTION IN QUESTION WAS TAKEN AT NIL AS AGAINST PAYMENT OF RS. 63.64 LAKHS. THE AO MADE AN ADDITION OF RS.63 64 620/- AS ADVISED BY THE TPO. 2.1. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).BEFORE HIM THE ASSESSEE M ADE ELABORATE SUBMISSIONS ABOUT TECHNICAL KNOW-HOW ON-GOING TECHNICAL SUPPORT NEW T ECHNOLOGICAL DEVELOPMENT UPGRADE FOR THE MACHINE DESIGN AND SOFTWARE AND TECHNICAL ASSIS TANCE PROVIDED BY THE AE. IT WAS FURTHER ARGUED THAT THE TPO HAD IGNORED THE FACT THAT THE N ET PROFIT OF THE COMPANY HAD INCREASED OVER A PERIOD OF TIME THAT THE FINDING OF THE TPO THAT THERE WAS NO INCREMENTAL BENEFIT FROM PAYMENT OF ROYALTY WAS FACTUALLY INCORRECT THAT AS SESSEES OPERATING MARGIN WAS HIGHER THAN ALL THE COMPARABLES THAT THE ASSESSEE HAD INCURRED AN EXPENDITURE OF 1.29% OF THE TOTAL TURNOVER UNDER THE HEAD PENALTY THAT THE TPO HAD ACCEPTED THE SAME COMPARABLES FOR EARLIER YEARS THAT TPO HAD NOT CARRIED OUT FRESH SEARCH FO R COMPARABLE WHILE REJECTING THE COMPARABLE COMPANIES SELECTED BY THE ASSESSEE. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D THE ASSESSMENT ORDER THE FAA HELD THAT SIMILAR ISSUE OF DISALLOWANCE/ADJUSTMENT OF PAYMENT MADE TOWARDS ROYALTY WAS CONSIDERED BY HIM WHILE DECIDING APPEAL FOR AY.2007-08 THAT IT WA S HELD THAT ENTITY LEVEL TNMM WAS THE MOST APPROPRIATE METHOD TO BENCH MARK THE INTERNATI ONAL TRANSACTION RELATING TO PURCHASE OF COMPONENTS SALE OF COMPONENTS AND PAYMENT OF ROYAL TY THAT THE FACTS OF THE CASE UNDER CONSIDERATION WERE SIMILAR TO THE EARLIER YEARS THA T THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE SHOULD BE BENCH MARKED ON ENTITY LEVEL AGG REGATING THEM.REFERRING TO THE EARLIER YEARS ORDERS HE HELD THAT ONLY TWO COMPANIES SHOUL D BE CONSIDERED AS COMPARABLES FOR THE BENCHMARKING PURPOSES THAT THE ARITHMETIC MEAN OF PLI.S OF THE SET OF TWO COMPARABLES WAS 1.31% ON COST AND 0.70% ON SALES AS COMPARED TO THE MARGIN 5.97% AND 6.36% RESPECTIVELY 4851/M/13 & 4898/M/13-ZINSER TEXTILE SYS.P.LTD. 3 THAT THE INTERNATIONAL TRANSACTION OF THE ASSESSEE WERE CONSISTENT WITH THE ALP STANDARD. HE FURTHER HELD THAT ASSEMBLY OF MACHINES REQUIRED VER Y HIGH LEVEL OF PRECISION AND ACCURACY THAT IT WAS A MANUFACTURING PROCESS PER SE THAT THE TPO HAD NOT CARRIED OUT SOME FACT FINDING EXERCISE IN RESPECT OF THE COMPARABLES.FINALLY HE H ELD THAT THE AO WAS NOT JUSTIFIED IN HOLDING THAT PAYMENT OF ROYALTY SHOULD BE TAKEN AT NIL THA T THE ADDITION MADE BY THE AO HAD TO BE DELETED. 2.2. BEFORE US THE DR SUPPORTED THE ORDER OF THE TPO AND STATED THAT THE TPO HAD APPLIED CUP METHOD. THE AR STATED THAT THERE WAS NO BASIS F OR REJECTING THE METHOD ADOPTED BY THE ASSESSEE. HE REFERRED TO THE CROSS APPEALS DECIDED BY THE TRIBUNAL(ITA NO.42/MUM/2012 AND 8595/MUM/2011 DT.3.7.2013-AY 2007-08.) 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT WHILE PASSING THE ORDER FOR THE LAST AY THE TPO HAD HELD THAT TNMM WAS THE MOST APPROPRIATE METHOD FOR BENCHMARKING THAT HE HAD MA DE AN ADJUSTMENT OF RS.1.50 CRORES UNDER THE HEAD ROYALTY PAYMENT THAT THE TRIBUNAL H AD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. WE FIND THAT THE TPO HAD NOT GIVEN ANY RE ASONS FOR NOT FOLLOWING THE TNMM AS MOST APPROPRIATE METHOD THE YEAR UNDER CONSIDERATIO N. NO DOUBT THE INCOME TAX AUTHORITIES ARE NOT BOUND BY THE ORDERS OF THE EARLIER YEARS B UT THEY HAVE TO PASS A REASONED ORDER FOR DEVIATING FROM THE STAND TAKEN FROM THE EARLIER YEA RS. WE FIND THAT THE TPO HAS NOT BROUGHT ON RECORD THE DIFFERENCES IF ANY OF THE FACTS OF T HE EARLIER AY.AND THE YEAR UNDER APPEAL. SECONDLY THE TRIBUNAL HAS ALREADY DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN FOLLOWING MANNER:- 7. IN VIEW OF THE ABOVE SUBMISSIONS WE FIRST TAKE UP THE ISSUE OF BENEFIT AS PER THE PROVISO TO SECTION 92C(2) OF THE INCOME TAX ACT. THE ASSESS EE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND DEALING IN TEXTILE MACHINERY A ND ITS SPARE. THE ASSESSEE IS A JOINT VENTURE BETWEEN M/S ATE ENTERPRISES PVT. LTD. AND M /S SAURER GMBH. M/S SAURER GMBH & COM. KG HOLDS 70% SHARES IN ASSESSEES COMPANY. DUR ING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS UNDER TAKEN INTERNATIONAL TRANSACT ION RELATING TO PURCHASE AND SALE OF COMPONENTS PAYMENT OF ROYALTY AND REIMBURSEMENT (P AYMENT) WITH ITS AE. THE ASSESSEE BENCH MARKED THE INTERNATIONAL TRANSACTION RELATING TO PURCHASE OF COMPONENTS VALUING RS. 22.93 CRORES BY USING COST PLUS METHOD (CPM) AS MOS T APPROPRIATE METHOD. FOR THE INTERNATIONAL TRANSACTION RELATING TO SALE OF COMPO NENTS AND PAYMENT OF ROYALTY THE ASSESSEE HAS USED TRANSACTION NET MARGIN METHOD (TN MM) AS THE MOST APPROPRIATE METHOD. THE TRANSFER PRICING OFFICER FOUND THAT ROY ALTY @ 4% ON SALE PRICE HAS BEEN PAID TO THE AE AND ACCORDINGLY THE ASSESSEE WAS ASKED TO PR ODUCE THE DETAILS IN RESPECT OF BENEFIT DERIVED FROM THE USE OF TECHNICAL KNOW-HOW ALONG WI TH THE ECONOMIC BENEFIT DERIVED BY THE ASSESSEE AGAINST THE PAYMENT OF ROYALTY. AFTER CONS IDERING THE REPLY AND SUBMISSION OF THE ASSESSEE THE TPO HELD THAT THE PAYMENT OF ROYALTY M ADE BY THE ASSESSEE IS NOT AT ARMS 4851/M/13 & 4898/M/13-ZINSER TEXTILE SYS.P.LTD. 4 LENGTH. THE TPO HAS APPLIED TNMM AS MOST APPROPRIAT E METHOD FOR BENCH MARKING THE INTERNATIONAL TRANSACTION AND WORKED OUT AN ADJUSTM ENT AT RS. 1.80 CRORES BUT SINCE THE PAYMENT OF ROYALTY BEING ONLY AT RS. 1.50 CRORES T HE ALP OF SUCH PAYMENT OF ROYALTY HAS BEEN DETERMINED BY THE TPO AT NIL AND ACCORDINGLY M ADE AN ADJUSTMENT OF RS. 1.50 CRORES. ON APPEAL THE COMMISSIONER OF INCOME TAX(APPEALS) ENHANCE THE ASSESSMENT BY MAKING THE ADJUSTMENT IN RESPECT OF THE INTERNATIONAL TRAN SACTION OF PURCHASE OF COMPONENTS. THE COMMISSIONER OF INCOME TAX(APPEALS) HAS BENCH MARKE D ALL THE INTERNATIONAL TRANSACTION OF THE ASSESSEE BY USING TNMM AS MOST APPROPRIATE M ETHOD AND OPERATING PROFIT TO SALE AS PLI AND CONSIDERING ONLY TWO COMPARABLES. THE COMMI SSIONER OF INCOME TAX(APPEALS) HAS DETERMINED THE ARITHMETIC MEAN AT 8.33% AS AGAINST THE ASSESSEES OPERATING PROFIT/SALE AT 4.71%. ACCORDINGLY THE COMMISSIONER OF INCOME TAX( APPEALS) HAS ENHANCED AN ADJUSTMENT TO RS. 2 56 62 326/- AS AGAINST THE ADJU STMENT MADE BY THE TPO AT RS. 1 50 68 228/-. CONSEQUENTLY A DIFFERENTIAL AMOUNT OF RS. 1 05 94 098/- WAS DIRECTED TO BE ENHANCED. 8. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND C ONSIDERED THE RELEVANT MATERIAL ON RECORD. THOUGH THE ASSESSEE HAS CARRIED OUT VARIOUS INTERNATIONAL TRANSACTION REGARDING PAYMENT OF ROYALTY PURCHASE OF COMPONENT AND SALE OF COMPONENT HOWEVER THE TPO MADE ADJUSTMENT ONLY WITH RESPECT TO ROYALTY PAYMENT BY TREATING THE ALP OF ROYALTY AT NIL. THE COMMISSIONER OF INCOME TAX(APPEALS) THOUGH CONFIRM THE ADJUSTMENT MADE BY THE TPO IN RESPECT OF ROYALTY PAYMENT BUT ALSO ENHANCED THE AS SESSMENT BY MAKING ADJUSTMENT IN RESPECT OF PURCHASE OF COMPONENT. THE COMMISSIONER OF INCOME TAX(APPEALS) HAS DETERMINED THE ALP BY TAKING THE TNMM AS MOST APPRO PRIATE METHOD BUT AT THE ENTITY LEVEL OF THE ASSESSEE. THE COMMISSIONER OF INCOME TAX(APP EALS) HAS ARRIVED AT THE ARITHMETIC MEAN OF THE COMPARABLES OPERATING PROFIT AT 8.33% A GAINST THE OPERATING PROFIT AT THE ENTITY LEVEL OF THE ASSESSEE AT 4.71%. THOUGH WE DO NOT AP PROVE THE APPROACH OF THE COMMISSIONER OF INCOME TAX(APPEALS) FOR BENCH MARKI NG THE PURCHASE OF COMPONENT BY TAKING THE ENTITY LEVEL RESULTS OF THE ASSESSEE INS TEAD OF CONSIDERING THE DATA OF INTERNATIONAL TRANSACTIONS ONLY. EVEN OTHERWISE AS PER THE TRANSF ER PRICING PROVISIONS/REGULATION EACH AND EVERY INTERNATIONAL TRANSACTION HAS TO BE BENCH MAR KED BY COMPARING INDEPENDENT UNCONTROLLED TRANSACTION. SINCE THE REVENUE HAS NO T CHALLENGED FINDING OF COMMISSIONER OF INCOME TAX(APPEALS) ON THE ISSUE OF TRANSFER PRI CING ADJUSTMENT THEREFORE WE DO NOT PROPOSE TO GO INTO THE ISSUE WHICH HAS NOT BEEN RAI SED BEFORE US. AT THE OUTSET WE NOTE THAT THE SALE PRICE OF THE ASSESSEE IS WITHIN THE TOLERA NCE LIMIT OF 5% AS PER THE PROVISO TO SECTION 92C(2) OF THE INCOME TAX ACT WHICH IS CLEAR FROM T HE WORKING OF THE COMMISSIONER OF INCOME TAX(APPEALS) AT PAGE NO. 22 OF THE IMPUGNED ORDER AS UNDER: SL.NO. PARTICULARS AS PER ASSESSEE (FORM 3CEB) AS PER TPO ALP DETERMINED AS PER APPELLATE ORDER 1. OPERATING INCOME(OI) 62 30 58 589 62 30 58 589 6 2 30 58 589 2. PLI(OP/SALES) 4.71% 7.61% 8.83 3. OPERATING PROFIT (OP) 2 93 53 747 4 74 14 758 5 50 16 073 4. OPERATING COST 59 37 04 842 57 56 43 831 56 80 4 2 516 ADJUSTMENT RS.256 62 326(RS.59 37 04 842-RS.56 80 4 2 516) 9.THE COMMISSIONER OF INCOME TAX(APPEALS) APPEA L HAS DETERMINED THE ALP BEING OPERATING COST AT RS. 56 80 42 516/- AS AGAINST THE OPERATING COST OF THE ASSESSEE AT RS. 59 37 04 842/- AND ACCORDINGLY MADE THE ADJUSTMENT OF THE DIFFERENCE AMOUNT INTO RS. 256 62 326/-. THE OPERATING COST OF THE ASSESSEE IS WITHIN THE 5% TOLERANCE RANGE OF THE ALP DETERMINED BY THE COMMISSIONER OF INCOME TAX(APPEAL S) THEREFORE NO ADJUSTMENT IS CALLED FOR ON THIS ACCOUNT. IT IS PERTINENT TO NOTE THAT T HE COMMISSIONER OF INCOME TAX(APPEALS) HAS DETERMINED THE ARMS LENGTH BY CONSIDERING THE ENTITY LEVEL RESULTS OF THE ASSESSEE WHICH 4851/M/13 & 4898/M/13-ZINSER TEXTILE SYS.P.LTD. 5 INCLUDES ALL THE INTERNATIONAL TRANSACTIONS THEREF ORE WHEN THE OVER ALL PRICE OF THE ASSESSEE IS WITHIN THE RANGE OF 5% OF ALP BEING THE ARITHMET IC MEAN THEN NO ADJUSTMENT IS PERMITTED. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE TRIBU NAL FOR THE AY 2007-08 (SUPRA) WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE A O. 3. NEXT EFFECTIVE GROUND OF APPEAL IS ABOUT DELETING T HE ADDITION OF RS.22.38 LAKHS UNDER THE HEAD PROVISION FOR WARRANTY (GOA-7-9). IT WAS BROUG HT TO OUR NOTICE THAT THE TRIBUNAL WHILE DECIDING THE APPEAL FOR THE EARLIER YEAR HAD DEALT WITH THE ISSUE. WE ARE REPRODUCING THE RELEVANT PORTION OF THE SAID ORDER AND SAME READS A S UNDER :- 20. WE HAVE CONSIDERED THE RIVAL SUBMISSION AS WE LL AS RELEVANT MATERIAL ON RECORD. THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF THE A SSESSEE ON THE GROUND THAT THE ESTIMATION OF PROVISION FOR WARRANTY IS NOT BASED ON ANY PREVIOUS DATA. ON APPEAL THOUGH THE ASSESSEE HAS FURNISHED CONCERNED DETAILS AND CLAIM THAT THE PROV ISION FOR WARRANTY IS BASED ON THE ACTUAL EXPENSE INCURRED IN THE EARLIER YEARS HOWEVER THE COMMISSIONER OF INCOME TAX(APPEALS) HAS NOT DISCUSSED THE FACT AND ASPECT WHETHER THE PROVI SION IS BASED ON RELIABLE ESTIMATES OR NOT. THE DECISION OF HONBLE SUPREME COURT IN CASE OF RO TORK CONTROLS INDIA PVT. LTD. VS CIT (SUPRA) HAS BEEN CONSIDERED BY THE HONBLE MADRAS H IGH COURT IN THE RECENT DECISION IN CASE OF RENOWNED AUTO PRODUCTS MFRS. LTD. VS ITO 354 IT R 127 IN PARA 12 & 13 AS UNDER: NO DOUBT THE LEARNED COUNSEL FOR THE ASSESSEE REL IED ON THE DECISION OF THE APEX COURT REPORTED IN ROTORK CONTROLS INDIA P. LTD. V. CIT [2009] 314 1TR 62 (SC) TO SUBSTANTIATE HIS CONTENTION THAT THE ESTIMATED PROVISION FOR WARRANTY COST IS ALLOWA BLE. THE VERY SAME DECISION WAS CONSIDERED BY THE DIVISION BENCH OF THIS COURT IN CIT V. FORBES C AMPBELL FINANCE LTD. CF. C. (A.) NOS. 148 TO 155 OF 2005 DATED JULY 9 2012) SINCE REPORTED IN [2013] 352 ITR 602 (MAD) WHEREIN IT WAS OBSERVED AT PARAGRAPHS 14 AND 16 AS FOLLOWS (PAGES 607 AND 608): WE REJECT THE CLAIM OF THE ASSESSEE ON BOTH COUNTS . AS FAR AS THE RELIANCE PLACED ON THE DECISION REPORTED IN ROTORK CONTROLS INDIA P. LTD. V. CIT [2 009] 314 1TR 62 (SC) IS CONCERNED IN CONSIDERING THE CLAIM ON A PROVISION MADE FOR WARRA NTY CLAIM THE APEX COURT HELD THAT A PROVISION IS RECOGNISED WHEN: (A) AN ENTERPRISE HAS A PRESENT OBLIGATION AS A RESULT OF A PAST EVENT; (B) IT IS PROBABLE THAT AN OUTFLOW OF RESOURCES WIL L BE REQUIRED TO SETTLE THE OBLIGATION; AND (C) A RELIABLE ESTIMATE CAN BE MADE OF THE AMOUNT OF THE OBLIGATION. IF THESE CONDITIONS ARE NOT MET NO PROVISION CAN BE RECOGNIZED.. THUS THE APEX COURT POINTED OUT THAT THE PROVISION HAS TO BE MADE BASED ON RELIABLE ESTIMATION OF THE OBLIGATIONS. UNLESS THE THREE CONDITIONS RECOGN ISING THE LIABILITY ARE SATISFIED THE CLAIM COULD NOT BE AUTOMATICALLY ALLOWED AS A PROVISION MADE ON A HISTORICAL TREND. AFTER OBSERVING SO THE HONBLE DIVISION BENCH FUR THER HELD AT PARAGRAPH 18 THAT THE PROVISION FOR SERVICE CHARGES PAYABLE BY THE ASSESSEE BY WAY OF W ARRANTY PROVISION WAS NOT MADE ON ANY SCIENTIFIC DATA. BY APPLYING THE FACTS OF THE CASE TO THE LAW DECLARED BY THE APEX COURT IT WAS FURTHER OBSERVED THEREIN THAT THE PROVISION MADE WA S ONLY ON AD HOC BASIS WHICH WAS A FACT RECORDED BY THE TRIBUNAL. HERE ALSO THE COMMISSION ER AS WELL AS THE TRIBUNAL CATEGORICALLY FOUND THAT THE ASSESSEE HAD NOT PROVED THE PROVISION OF W ARRANTY EXPENSES BASED ON ANY SCIENTIFIC METHOD IN SUCH CIRCUMSTANCES THE ASSESSEE CANNOT P LACE RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT REPORTED IN ROTORK CONTROLS INDIA P. LTD. V. CIT [2009] 314 ITR 62 (SC) AS THE FACTS ARE TOTALLY DISTINGUISHABLE. EVEN OTHERWISE T HE ASSESSEE HAS TO PASS THROUGH THE TRIPLE TEST AS DECLARED THEREIN IN ORDER TO SUCCEED IN HIS CLAIM O N PROVISION FOR WARRANTY. IN THE ABSENCE OF ANY SUCH FINDING IN ITS FAVOUR SATISFYING THE SAID TRIP LE TEST THE ASSESSEE CAN NOT RELY ON THE SAID DECISION OF THE APEX COURT. WE DO NOT FIND ANY MERI TS IN THE APPEAL AND THEREFORE BOTH THE QUESTIONS OF LAW ARE ANSWERED AGAINST THE ASSESSEE. ACCORDINGLY THE TAX CASE APPEAL IS DISMISSED. NO COSTS. 21. ACCORDINGLY WE SET ASIDE THIS ISSUE TO THE REC ORD OF THE ASSESSING OFFICER TO DECIDE THIS ISSUE AFTER EXAMINATION OF RELEVANT FACTS AS WELL A S IN LIGHT OF THE DECISION ON THIS POINT. SINCE THE FINDING ON THE ISSUE OF WARRANTY PROVISION UNDE R NORMAL COMPUTATION OF INCOME WILL HAVE 4851/M/13 & 4898/M/13-ZINSER TEXTILE SYS.P.LTD. 6 BEARING ON THE COMPUTATION OF BOOK PROFIT U/S 115JB THEREFORE WE REMIT THIS ISSUE OF ADJUSTMENT U/S 115JB TO THE RECORD OF AO FOR DECISI ON THE SAME AS PER LAW. RESPECTFULLY FOLLOWING THE SAME WE RESTORE BACK TH E MATTER TO THE FILE OF THE AO FOR FRESH ADJUDICATION AND DECIDE THE SECOND EFFECTIVE GROUND IN FAVOUR OF THE AO IN PART. ITA NO.4898/MUM/2013 4. EFFECTIVE GROUND OF APPEAL IS ABOUT CONFIRMING THE ADDITION OF RS.17.06 LAKHS TO THE INCOME OF THE ASSESSEE IN RESPECT OF PURCHASE OF F IXED ASSETS. DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD PURC HASED ONE USED MACHINING CENTRE AND ACCESSORIES AMOUNTING TO RS.45.06LAKHS FROM OWN GR OUP ENTITIES.DURING THE TP PROCEEDINGS THE ASSESSEE WAS ASKED TO PROVIDE COST OF ASSETS RE CORDED IN THE BOOKS OF THE AE IN RESPECT OF THE ASSET.THE TPO OBSERVED THAT INSPITE OF SUFFICIE NT TIME PROVIDED THE ASSESSEE FAILED TO PROVIDE REQUISITE INFORMATION THAT IT CONTENDED THA T BEFORE ACQUIRING THE MACHINE IT HAD OBTAINED A CERTIFICATE FROM INDEPENDENT CHARTERED E NGINEER THAT THE VALUATION REPORT REVEALED THAT THE MACHINE WAS CONSTRUCTED IN 1986 THAT ITS PURCHASE PRICE WAS 2.29 LAKHS EURO THAT ITS ACTUAL VALUE AS ON AUGUST 2007 WAS SHOWN EURO 50 50 0. APPLYING THE EURO RATE OF AUGUST 2007 THE TPO DETERMINED THE VALUE OF THE MACHINE AT RS.28.02 LAKHS.ACCORDINGLY THE PAYMENT OF RS.45.06 LAKHS WAS NOT FOUND TO BE AT AL P. FINALLY HE MADE AN ADJUSTMENT OF RS. 17 06 492/-(RS.45.06 LAKHS-RS.28.00 LAKHS).THE AO W HILE PASSING THE ORDER MADE AN ADJUST - MENT OF RS.17.06 LAKHS TO THE TOTAL INCOME OF THE A SSESSEE. 4.1. DURING THE APPELLATE PROCEEDINGS BEFORE THE FAA TH E ASSESSEE CONTENDED THAT ADJUSTMENT MADE BY THE AO WOULD NOT HAVE ANY IMPACT ON THE TAX ABLE INCOME FOR THE YEAR THAT THE MACHINERY IN QUESTION WAS PART OF THE CAPITAL WORK IN PROGRESS (CWIP) AS ON 31.3.2008 THAT THE ADJUSTMENT PROPOSED BY THE TPO WOULD ONLY REDUC E THE VALUE OF CWIP TO BE CARRIED FORWARD TO FOLLOWING YEAR THAT THE ASSESSEE HAD N OT CLAIMED ANY DEDUCTION ON ACCOUNT OF DEPRECIATION FOR THE SAME IN THE AY 2008-09 THAT T HERE WAS NO IMPACT ON PROFIT/LOSS OF THE ASSESSEE ON ACCOUNT OF THE ADJUSTMENT THAT THE ASS ESSEE HAD FILED RECTIFICATION APPLICATION BEFORE THE AO IN THAT REGARD VIDE ITS LETTER DT. 16 .3.12. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE THE ORDER OF THE TPO AND THE AO HE HELD T HAT THE PURCHASE OF FIXED ASSET WAS AN INTERNATIONAL TRANSACTION IT WAS IMPERATIVE TO DETE RMINE THE INCOME ARISING FROM THE TRANSACTION THAT THE ASSESSEE ITSELF HAD REFLECTED THE TRANSACTION AS IT IN ITS AUDIT REPORT AND HAD DETERMINED ALP FOLLOWING TNMM THAT AS PER THE PROVISIONS OF SECTION 92(1) OF THE ACT ASSESSEES IT UNDERTAKING HAD TO BE TAXED AS P ER THE NORMAL PROVISIONS OF THE ACT AND IN 4851/M/13 & 4898/M/13-ZINSER TEXTILE SYS.P.LTD. 7 ADDITION TO THE SAME HAD TO BE GOVERNED BY THE PRIN CIPLES OF ARMS-LENGTH PRICE (ALP) THAT IN SECTION 92-92F OF THE ACT OR RULE-10B-10C THERE WAS NO DIFFERENTIATION IN RESPECT OF THE TREATMENT TO CAPITAL ACCOUNT TRANSACTION OR TRADING TRANSACTION THAT IT WAS NOWHERE MENTIONED THAT IF CAPITAL ACCOUNT TRANSACTION UNDERTAKEN WERE NOT AT ARMS-LENGTH THEN TP PROVISIONS WOULD NOT BE APPLICABLE THAT THERE WAS NO SUCH MAND ATE OF LAW THAT IF THERE WAS NO IMPAIR MENT OF COST/EXPENSES DEBITED IN THE TAX PAYERS P&L ACCOUNT THEN THE PROVISIONS OF SECTION 92CA(4) WOULD NOT BE APPLICABLE TO SUCH IT. ACCORDI NGLY HE REJECTED THE CLAIM ABOUT CWIP AND UPHELD THE ORDER OF THE AO/TPO. 4.2. BEFORE US THE AR ARGUED THAT THE MACHINERY WAS PAR T OF WIP THAT THE ASSESSEE HAD NOT CLAIMED ANY DEPRECIATION ON THE MACHINERY FOR THE Y EAR UNDER APPEAL THAT IN TP ADJUSTMENT ONLY DEPRECIATION CAN BE DISALLOWED THAT THE CHARTE RED ENGINEER HAD ISSUED A CERTIFICATE ABOUT THE VALUE OF THE MACHINE THAT THERE WAS NO JUSTIFIC ATION FOR DISBELIEVING THE CERTIFICATE.HE REFERRED TO THE CASES OF CIENA INDIA (P.)LTD.(59TAX MANN.COM92)AND VODAFONE(368ITR1).THE DR SUPPORTED THE ORDER OF THE FAA. 4.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE MACHINE PURCHASED BY THE ASSESSEE WAS INCLUDED IN T HE WIP.IN THE CASE OF CIENA INDIA (P.)LTD.(SUPRA)IT HAS BEEN CLEARLY HELD THAT IN CAS E OF PURCHASE OF FIXED ASSETS FROM AE IT IS AMOUNT OF DEPRECIATION ON PURCHASE OF FIXED ASSETS WHICH WILL BE CONSIDERED FOR MAKING ADDITION AND NOT DIFFERENCE BETWEEN THE TRANSACTED VALUED THE ALP DETERMINED AT NIL (PARAGRAPHS 15.1-15.6).WE HOLD THAT THE FAA WAS NOT JUSTIFIED IN MAKING THE ADDITION OF RS. 17.06 LAKHS.HE SHOULD HAVE ADDED ONLY THE DEPRECIAT ION-AMONT.IT WILL AFFECT THE COMPUTATION OF DEPRECIATION FOR SUBSEQUENT YEARS.THEREFORE WE A RE OF THE OPINION THAT MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE AO FOR DETERMINE T HE DEPRECIATION AND RESTRICT THE DISALLOWANCE TO THAT EXTENT ONLY.EFFECTIVE GROUND O F APPEAL RAISED BY THE ASSESSEE IS DECIDED IN ITS FAVOUR IN PART. AS A RESULT APPEALS FILED BY THE AO AND THE ASSESS EE STAND PARTLY ALLOWED. ORDER PRONOUNCED IN THE OP EN COURT ON 05 TH OCTOBER 2016. 05 2016 SD/- SD /- ( / SAKTIJIT DEY ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 05.10.2016. JV.SR.PS. 4851/M/13 & 4898/M/13-ZINSER TEXTILE SYS.P.LTD. 8 / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ 4. THE CONCERNED CIT / 5. DR K BENCH ITAT MUMBAI / . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER / DY./ASST. REGISTRAR /ITAT MUMBAI.