Principal Commissioner Ofincome Tax-1, Kolkata v. M/S. Landis Gyr

OD – 6 ITAT/10/2021 IA No.GA/2/2021 IN THE HIGH COURT AT CALCUTTASpecial Jurisdiction (Income Tax)ORIGINAL SIDE PRINCIPAL COMMISSIONER OFINCOME TAX-1, KOLKATA -Versus- M/S. LANDIS GYR BEFORE : THE HON’BLE ACTING CHIEF JUSTICE T.S. SIVAGNANAMAndTHE HON’BLE JUSTICE HIRANMAY BHATTACHARYYADate : 3[rd] April, 2023 Appearance :Mr. Soumen Bhattacharjee, Adv....for the appellant Mr. Asim Choudhury, Adv.Mr. Soham Sen, Adv....for the respondent. The Court : This appeal filed by the revenue underSection 260A of the Income Tax Act, 1961 (the ‘Act’ forbrevity) is directed against the order dated October 17, 2018passed by the Income Tax Appellate Tribunal, “C” Bench, Kolkata(the Tribunal) in ITA No.524/Kol/2017 for the assessment year2012-13. The revenue has raised the following substantialquestions of law for consideration: (i)Whether the Learned Income Tax AppellateTribunal erred in law in determining thepayment under the head of management supportservice at Arm’s Length Price when theprovision of Section 92C of the Income Tax Act,1961, and read with rule 10B & Rule 10C of theIncome Tax Rules, 1962, allows for “Reliableand accurate adjustment” to account fordifference between intonated transaction andcomparable uncontrolled transactions ? (ii)Whether the Learned Income Tax AppellateTribunal erred in law in allowing thedepreciation on Intellectual property rightsunder Section 32 of the Income Tax Act, 1961,considering Intellectual property Rights astechnical known now ?(iii)Whether the Learned Income Tax AppellateTribunal erred in law in treating the provisionof obsolescence of inventory or ascertainedliability where are no cogent material isunavailable to sustainable the valuation ofinventory ?(iv)Whether on the facts and circumstances of thecase and on law the Learned Tax AppellateTribunal was justified in granting relief tothe assessee on the addition of ₹5,03,65,604/-on the issue of “Adjustment in Transfer Pricingin respect of International Transactions” byTPO relied upon the decision in assessee’s owncase for Assessment Year 2007-08 and 2008-09? (v)Whether on the facts and circumstances of thecase and on law Learned Income Tax AppellateTribunal was justified in granting relief tothe assessee on addition of ₹34,05,322/- on theissue of “Depreciation on Intellectual propertyAssets”?case and on law Learned Income Tax AppellateTribunal was justified in granting relief tothe assessee on addition of ₹34,05,322/- on theissue of “Depreciation on Intellectual propertyAssets”? (vi)Whether on the facts and circumstances of thecase and on law Learned Income Tax AppellateTribunal was justified in granting relief to theassessee on the addition of ₹10,63,042/- on theissue of “Provision on obsolescence ofinventory?case and on law Learned Income Tax AppellateTribunal was justified in granting relief to theassessee on the addition of ₹10,63,042/- on theissue of “Provision on obsolescence ofinventory? (vii)Whether on the facts and circumstances of thecase and on law Learned Income Tax AppellateTribunal was justified in granting relief of₹1,16,000/- to the assessee on account of anunascertained liability, “Provision forWarranty” which is Contingent in nature?case and on law Learned Income Tax AppellateTribunal was justified in granting relief of₹1,16,000/- to the assessee on account of anunascertained liability, “Provision forWarranty” which is Contingent in nature? We have heard Mr. Soumen Bhattacharjee, learnedstanding counsel assisted for the appellant/revenue and Mr.Asim Choudhury, learned counsel assisted by Mr. Soham Sen,learned advocate for the respondent/assessee.The above substantial questions of law can be groupedinto four categories. The substantial questions of law (i) and(iv) are on the same issue, substantial questions of law (ii)and (v) are on the same issue, substantial questions of law We have heard Mr. Soumen Bhattacharjee, learnedstanding counsel assisted for the appellant/revenue and Mr.Asim Choudhury, learned counsel assisted by Mr. Soham Sen,learned advocate for the respondent/assessee.The above substantial questions of law can be groupedinto four categories. The substantial questions of law (i) and(iv) are on the same issue, substantial questions of law (ii)and (v) are on the same issue, substantial questions of law (iii) and (vi) are on the same issue and (vii) is an individualquestion.So far as substantial questions of law (i) and (iv)are concerned, it is a recurrent issue and in the assessee’sown case for the financial years 2007-08, 2008-09 and 2012-13,the Tribunal has held in favour of the assessee and thoseorders have become final. In the impugned order, the Tribunalhas followed its decisions and before us the revenue has notbeen able to point out any distinctive feature for us to take adeparture from the consistent manner in which the relief wasgranted in favour of the assessee. Therefore, substantialquestions of law (i) and (iv) having been answered in favour ofthe assessee in the earlier assessment years, the same isrequired to be answered in favour of the assessee and againstthe revenue. Similarly, substantial questions of law (ii) and (v)have been answered in favour of the assessee for the assessmentyears 2007-08, 2008-09 and those orders have attained finalityand following the said orders the Tribunal has granted reliefto the assessee in the impugned order. Thus, in the absenceof any distinguishing feature pointed out by the revenue beforeus, the order impugned passed by the Tribunal on those issuesdoes not call for interference. With regard to substantial questions of law (iii) and(vi), those deal with the provision of ‘obsolescence ofinventory’. The Tribunal has examined the facts of the caseand found from the workings that the assessee has clearlymentioned the item code, description of item available in theinventories, date of last transaction, quantity, rate per unitand the value together with the time periods from the date ofsale to decide the relevant provision percentage. Therefore,the Tribunal concluded that the assessee has made scientificcalculation for making provision based on commerciallyacceptable methods and the Tribunal also found that thevaluation of the cost to be in accordance with AS-2 issued bythe ICAI being one of the standards recognised under Section145(2) of the Act wherein the closing stock is to be value atlower of cost or not realizable value. The Tribunal also tooknote of the decision of the Hon’ble Delhi High Court in thecase of CIT vs. Hotline Teletube & Components Ltd. reported in(2008) 175 taxmann 286 (Delhi) wherein the Court took note ofthe more or less identical factual circumstances and dismissedthe appeal filed by the revenue on the ground of no substantialquestion of law arises for consideration as the Tribunal hasreturned the finding of fact. In our view, the Tribunal havingexamined the factual position and rendered a decision, we are of the view that no substantial questions of law arises forconsideration in so far as substantial questions of law (iii)and (vi) as suggested by the revenue and accordingly the sameare rejected. of the view that no substantial questions of law arises forconsideration in so far as substantial questions of law (iii)and (vi) as suggested by the revenue and accordingly the sameare rejected. This leaves us with substantial question of law (vii)which is a provision for warranty. The Department before theTribunal objected to the allowaibility of provision forwarranty on the ground that in the agreement the clause onlymentioned about guarantee and there is no clause for warrantyin the terms and conditions. The Tribunal has examined therelevant clause in the terms and conditions; more particularlycondition no.19(a) and (b) and found that the warranty clauseis in-built in the guarantee clause itself as the assessee, inthe event of any defective supply within a period of 5-1/2years has to replace the meters and in the event of the metersnot getting replaced, the assessee has to pay twice the cost ofmeters. Therefore, the Tribunal on facts concluded that theassessee had agreed for both warranty (i.e., replacement ofdefective meters) as well as the guarantee (paying twice thecost of meters if meters are not replaced). Thus, the learnedTribunal was convinced on facts that the clause in the termsand conditions has an in-built warranty clause. Thus, we are of the view that no substantial questionof law arises on the said issue as the Tribunal has decided infavour of the assessee by returning ‘finding of fact’. In the result, the substantial questions of law (i)and (iv) are decided against the revenue following the decisionin the assessee’s own case for the assessment years 2007-08,2008-09 and 2012-13. Substantial questions of law (ii) and (v)are decided against the revenue following the decision of theTribunal in the assessee’s own case which has attained finalityfor the assessment year 2007-09, 2008-09. Substantial questionsof law (iii), (vi) and (vii) being entirely factual and theTribunal having decided in favour of the assessee by returninga finding on fact, we are of the view that no such substantialquestions of law arise for consideration. In the result, the appeal (ITAT/10/2021) standsdismissed. Consequently, the connected application for stay (IANo.GA/2/2021) also stands closed. (T.S. SIVAGNANAM) ACTING CHIEF JUSTICE (HIRANMAY BHATTACHARYYA, J.)