Expense related to warranty & After sales services must be considered to compute margin of assessee

Toyoda Micromatic Machinery India Private Ltd. Vs DCIT (ITAT Delhi)

It is a fact that the learned assessing officer has not challenged the order of the learned CIT – A stating that resale price method is the most appropriate method as assessee does not engage in any deemed manufacturing or further value addition. It is also the method selected by assessee as MAM. Therfore only issue is how to compute PLI when RSP Method is applied in this peculiar case. According to the provisions of rule 10 B for the determination of the arm’s-length price u/s 92C, the resale price method computation shall be determined according to sub rule (1) (b) of the income tax rules. Mostly looking at the profile of the expatriates provided by the ld AR, it is apparent that either those are for providing Warranty services or after sales services. When the goods are sold all the price of theses items/ services are already embedded in the sales price. Therefore naturally when sales price consists of price for warranty and After sales services, which are promised at the time of sales, naturally corresponding expenses are also to be considered while computing the margin of the assessee. After sale support services, training to customers and local staff for troubleshooting and service coordination expenses are thus, required to be included for determining the gross profit margin in resale price method. In view of this, we do not find any infirmity in the order of the ld TPO and CIT (A).

FULL TEXT OF THE ITAT JUDGEMENT

1. This appeal is filed by the assessee against the order of The Commissioner Of Income Tax (Appeals) – 44, New Delhi [ The ld CIT A] dated 27t^h of December 2016 for assessment year 2011 – 12 wherein the appeal filed by the assessee against the order of The Deputy Commissioner Of Income Tax, Circle – 25 (2) New Delhi [ The Ld AO] passed u/s 143 (3) read with Section 144C of the income tax act 1961 [ The Act] dated 28^th of April 2015, was partly allowed.

2. The assessee has raised the following grounds of appeal :-

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