Ford India Private Limited Vs ACIT (ITAT Chennai)
Summary: The Chennai Bench of the Income Tax Appellate Tribunal disposed of four appeals filed by Ford India Private Limited for Assessment Years 2014–15 to 2017–18 through a consolidated order. The appeals concerned transfer-pricing adjustments, taxation of advance receipts for extended vehicle warranties, alleged understatement of closing stock, excess depreciation and Employee Stock Option Plan (ESOP) expenditure. The assessee informed the Tribunal that its transfer-pricing disputes had been resolved under the Mutual Agreement Procedure (MAP) between the competent authorities of India and the United States on 12 June 2026. Accordingly, the relevant transfer-pricing grounds were withdrawn in accordance with Rule 44G(8) of the Income-tax Rules, 1962.
On the extended warranty issue, the Tribunal followed its earlier decision in Ford India’s own case for AY 2012–13. It observed that extended warranty agreements become enforceable only after expiry of the base warranty period. Amounts received in advance for these future obligations could not automatically be treated as income in the year of vehicle sale, particularly when the assessee offered the relevant receipts to tax upon maturity of the contracts. Taxing the same amounts in the year of receipt could result in double taxation. The Tribunal therefore allowed the assessee’s extended warranty grounds for all four assessment years.
For AY 2014–15, the Assessing Officer had made an addition of ₹11,58,75,188 based on a difference of 228 vehicles between production and sales figures. Ford India explained that these vehicles had been used as test cars and capitalised as fixed assets. The Tribunal restored the issue to the Assessing Officer for verification. It also remanded the depreciation reconciliation involving exchange-loss capitalisation and opening written-down value adjustments. For AY 2016–17, the ESOP expenditure issue was similarly remanded to verify whether the relevant liability had been remitted to Ford Motor Company in the United States. All four appeals were partly allowed, with certain grounds allowed on merits and others restored for fresh examination.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
These appeals filed by the assessee are directed against the separate orders dated 30.10.2018, 29.10.2019-(Form-36) passed by the Assistant Commissioner of Income Tax, LTU-1 (AO), and order dated 28.03.2021, 25.02.2022 passed by National e-Assessment Centre (NFAC), Delhi, for the assessment years 2014-15, 2015-16, 2016-17 & 2017-18, respectively.
2. Since issues raised in these appeals of the assessee are similar based on the same identical facts, with the consent of both the parties, we proceed to hear the appeals together and pass consolidated order for the sake of convenience.
First we shall take up IT(TP)A No.98/Chny/2018 for AY 2014-15:
3. Ground no.1 is general in nature, requiring no adjudication.
4. The ld.AR, Shri. Ajit Jain, CA, submits that the assessee is not interested to pursue ground nos. 2 to 5, as the same were finalised under Mutual Agreement Procedure (MAP) between the competent authorities of India and United States. He drew our attention to the letter dated 03.09.2026 and prayed to consider the requirement under Rule 44G(8) of Income-tax Rules, 1962 for withdrawal of grounds forming part of the MAP Resolution dated 12.06.2026. The ld.DR, Shri. K. Jayaganesh, CIT, reported no objection. Accordingly, ground nos. 2 to 5 relevant to transfer pricing grounds are dismissed as withdrawn.
5. Ground no.6 raised by the assessee challenging the final assessment order in treating the advance warranty as income of the assessee during the year of receipt. We find the present issue is covered by the order of this Tribunal in assessee’s own case which is at page no.49 of the paper book. We find the Tribunal discussed the issue in para no.8.1 of the said order which is reproduced herein below:
“8.1 We have heard the rival submissions in the light of material available on records. It is an undisputed fact of the case that the appellant has received amounts qua extended warranty and which have not been offered as income of the year under consideration. It is also an admitted fact of the case that the amounts in respect of unfulfilled extended warranty commitments would be offered to tax in the year of its completion. This brings us to the issue of examination of the concept of warranty including two types of warranty germane to the dispute. Warranty is a form of quality assurance offered by a manufacturer to its customers in the form that in the event of any manufacturing defects etc the seller would rectify the defects during the warranty period. Even though in market the warranties are projected as free rectifications the fact of the matter is that every seller collects some amount in the sale price itself to offset costs arising in any future claims. As fairly conceded by the assesse, it is collecting an amount qua base warranty from the customers at the time of sales. The assesse over and above the base warranty period, let us say for two years as in this case, offers another warranty known as extended warranty to the customers with the promise that in case a defect comes in the product even after two years then it shall rectify the same. In lieu of this assurance, the assesse collects as an advance payment the extended warranty amount from its customers. As per terms of contract, the extended warranty contract comes to force only after the completion of base warranty agreement. Naturally the extended warranty receipts taken during the year of sales would become income of the assesse, if any in the year when such warranty agreements becomes enforceable. At this stage it is also pertinent to point out that not all receipts received on account of extended warranty contracts would become income of the assesse even in the year when such warranty agreements becomes enforceable. Simply because only those components of extended warranty receipts would be income of the assesse which have not been claimed by the customers. The amounts received qua extended warranty contracts are akin to prepaid expenses for repairs of cars. Naturally assesse will deem only those amounts as its income in respect of which no claims arose by the customers. Wherever warranty claims were made by customers pointing out some defect in the car, the assesse would not be showing the same as its income.”
6. On perusal of the above, we note that the assessee has already been offering said amounts in the year of maturity of such contracts, there taxation in the year of sale of car would certainly tantamount to a case of double taxation. Therefore, the Tribunal held that the amount received by the assessee as advance from customers towards extended warranty which was added by the AO, is not justified. We find no other view brought on record by the revenue, therefore, following the order of ITAT in assessee’s own case for AY 2012-13, we hold the order of AO in treating amounts received towards extended warranty as income, is not justified. Thus, ground no.6 raised by the assessee is allowed.
7. Ground no.7 raised the assessee challenging the action of AO in making addition on account of understated stock value. The ld.AR submits that during the subjected AY, the company has reported quantitative data in the tax audit report vis-à-vis cost audit report, wherein the difference between tax audit report and cost audit report recorded as understatement of stock and the AO treated the said difference as income of the assessee. Further, he submits the difference in the quantity of units manufactured and sold is on account of certain vehicles used as ‘test cars’ and used for own purposes. During the relevant AY, the assessee has capitalised certain units of vehicles manufactured that were used for its business requirements. The assessee capitalised the said test vehicles by raising the invoice in its own name and referred to page no.652 to 662 of the paper book. He vehemently argued that the said units are removed from inventory and added to fixed assets. Further, the same were considered as a removal and applicable excise duty has been remitted by the company for the purpose of excess loss. Further, he submits that the test cars/used cars are disposed off subsequently as old units for nominal value and sales tax was levied and collected from customers, referred to page no. 652 to 662. He submits that the said sale is accounted in the books by reducing the sale value from fixed asset block and for the purpose of disclosure in TAR/ITR, the assessee has reported the total units on finished products sold during the relevant AY by including the quantity of aforesaid sale of test cars/ used cars. He argued that the difference in quantitative figures represents those units which has been capitalised in the books of accounts and consequently there is no undervaluation of inventories by the company. Further, that the difference in quantity of stock manufactured/sales effected is on account of difference in disclosure policies of car vis-à-vis accounting standards.
8. The ld.DR relied on the order of the AO.
9. We have heard both the parties. During the course of assessment proceedings, the AO found discrepancy in the number of motor cars manufactured and the number of cars sold and found that there was a difference of 228 vehicles and cost of production per unit was estimated at 5,08,225/- and therefore, same was included as part of closing stock, accordingly made addition of Rs.11,58,75,188/-. However, during the course of proceedings before the DRP, the assessee stated that the differential number of cars were used as test vehicles for the business of the assessee. However, the DRP directed the AO to consider as part of closing stock and allow same as part of the opening stock in the subsequent year.
10. Being aggrieved, Assessee is in appeal before us. We perused the material on record and the orders passed by the Lower Authorities. It is an admitted position that there was difference between number of vehicles manufacture and sold. The assessee had explained before the DRP that the differential number of vehicles were used as test vehicles in the business of the assessee. Therefore, the question of including these vehicles as a part of closing stock does not arise. However, the DRP without dealing with these submissions of the assessee, had directed the AO to include as a part of closing stock and allow the same as a part of opening stock for subsequent assessment year. In our considered opinion, the submission of the assessee requires verification of the facts and evidence on record. Therefore, we are of the considered opinion that the matter requires to be remanded to the file of AO for due verification of the submissions of the assessee. Accordingly, the matter is restored to the file of AO. Therefore, this Ground of appeal No.7 is partly allowed for statistical purpose.
11. Ground no.8 raised by the assessee challenging the action of the AO in making disallowance on account of excess depreciation claimed. The Ld.AR drew our attention to the page no. 763 of the paper book and submits that the assessee filed reconciliation which was not considered by the AO. The Ld.AR prayed to remand the matter to the file of AO for his fresh consideration.
12. The Ld.DR reported no objection.
13. We have heard both the parties. We find the difference in fixed asset addition as per Companies Act vis-a-vis Income Tax Act is due to exchange loss capitalisation and adjustment to opening WDV of the block. We find the assessee filed reconciliation of difference in respect of particulars, addition to the fixed assets as per the Income-tax Act by adding exchange loss less adjustments to opening WDV as per block. On perusal of the page no. 763 of the paper book vol-II. We note that the said details considered by the assessee were not approved by the AO. Therefore, considering the request of the ld.AR and no objection of the ld.DR, we deem it proper to remand the matter to the file of the AO for his consideration of the reconciliation as placed on record at page 763 of the paper book vol-II. The assessee is liberty to file evidences in this regard and ground no. 8 raised by the assessee is allowed for statistical purposes.
14. In the result, appeal filed by the assessee is partly allowed.
Now we take up IT(TPA) No: 90/Chny/2019 for AY 2015-16:
15. Ground no.1 is general in nature, requiring no adjudication.
16. The ld.AR, submits that the assessee is not interested to pursue ground nos. 2 to 4, as the same were finalised under Mutual Agreement Procedure (MAP) between the competent authorities of India and United States. He drew our attention to the letter dated 03.09.2026 and prayed to consider the requirement under Rule 44G(8) of Income-tax Rules, 1962 for withdrawal of grounds forming part of the MAP Resolution dated 12.06.2026. The ld.DR, reported no objection. Accordingly, ground nos. 2 to 4 relevant to transfer pricing grounds are dismissed as withdrawn.
17. With regard to ground no. 5, we find the issue is similar to the ground no.6 raised in IT(TP)A 98/chny/2018 for AY 2014-15, we find by following ITAT’s order in assessee’s own case we held the order of AO in treating the advance received from customers on extended warranty is not an income. The ld. AR and ld. DR reported facts and circumstances for the year under consideration is similar and based on same identical facts to AY 2014-15, therefore, we hold the view taken by us in AY 2014-15 in the aforesaid paragraph is equally applicable to the facts on hand. Thus, ground no.5 raised by the assessee is allowed.
18. Ground no.6 raised by the assessee regarding the initiation of penalty proceedings u/s. 271(1)(c)/ 270A of the Act. Since it is consequential in nature, therefore, ground no.6 raised by the assessee is dismissed as infructuous.
19. In the result, appeal filed by the assessee is partly allowed.
20. We find that this appeal was filed with a delay of 10 days. The assessee filed an affidavit explaining the reasons to condone the said delay. On perusal of the same and upon hearing both the parties, we find the reasons stated by the assessee are bonafide which really prevented the assessee in filing the appeal in time. Thus, delay of 10 days condoned.
21. Ground no.1 is general in nature, requiring no adjudication.
22. The ld.AR, submits that the assessee is not interested to pursue 2ground nos. 2 to 4, as the same were finalised under Mutual Agreement Procedure (MAP) between the competent authorities of India and United States. He drew our attention to the letter dated 03.09.2026 and prayed to consider the requirement under Rule 44G(8) of Income-tax Rules, 1962 for withdrawal of grounds forming part of the MAP Resolution dated 12.06.2026. The ld.DR, reported no objection. Accordingly, ground nos. 2 to 4 relevant to transfer pricing grounds are dismissed as withdrawn.
23. With regard to ground no. 5, we find the issue is similar to the ground no.6 raised in IT(TP)A 98/chny/2018 for AY 2014-15, we find by following ITAT’s order in assessee’s own case we held the order of AO in treating the advance received from customers on extended warranty is not an income. The ld. AR and ld. DR reported facts and circumstances for the year under consideration is similar and based on same identical facts to AY 2014-15, therefore, we hold the view taken by us in AY 2014-15 in the aforesaid paragraph is equally applicable to the facts on hand. Thus, ground no.5 raised by the assessee is allowed.
24. Ground no.6 raised by the assessee challenging the action of AO in making disallowance on account of Employee Stock Option expenses (ESOP). The ld.AR prayed to remand the matter to the file of AO for his fresh examination as to whether the assessee remitted to the parent entity of Ford Motor Company during the financial year 2015-16.
25. The ld.DR reported no objection.
26. We heard both the parties. On perusal of the finding in page no.9 of the assessment order, we note that the assessee itself accepted that recognised liability on account of ESOP was not remitted to the parent entity in USA and therefore, considering the submissions of the ld.AR we deem it proper to remand the matter to the file of AO for his fresh consideration. The assessee is liberty to file evidences in support of its claim. Thus, ground no.6 raised by the assessee is allowed for statistical purposes.
27. Ground no.7 raised by the assessee regarding the initiation of penalty proceedings u/s. 271(1)(c)/ 270A of the Act. Since it is consequential in nature, therefore, ground no.7 raised by the assessee is dismissed as infructuous.
28. In the result, appeal filed by the assessee is partly allowed.
Now let us take up IT(TP)A No. 20/Chny/2022 for AY 2017-18:
29. Ground no.1 is general in nature, requiring no adjudication.
30. The ld.AR, submits that the assessee is not interested to pursue ground nos. 2 to 6, as the same were finalised under Mutual Agreement Procedure (MAP) between the competent authorities of India and United States. He drew our attention to the letter dated 03.09.2026 and prayed to consider the requirement under Rule 44G(8) of Income-tax Rules, 1962 for withdrawal of grounds forming part of the MAP Resolution dated 12.06.2026. The ld.DR, reported no objection. Accordingly, ground nos. 2 to 6 relevant to transfer pricing grounds are dismissed as withdrawn.
31. With regard to ground no. 7, we find the issue is similar to the ground no.6 raised in IT(TP)A 98/chny/2018 for AY 2014-15, we find by following ITAT’s order in assessee’s own case we held the order of AO in treating the advance received from customers on extended warranty is not an income. The ld. AR and ld. DR reported facts and circumstances for the year under consideration is similar and based on same identical facts to AY 2014-15, therefore, we hold the view taken by us in AY 2014-15 in the aforesaid paragraph is equally applicable to the facts on hand. Thus, ground no.7 raised by the assessee is allowed.
32. Ground no.8 raised by the assessee regarding the initiation of penalty proceedings u/s. 271(1)(c)/ 270A of the Act. Since it is consequential in nature, therefore, ground no.8 raised by the assessee is dismissed as infructuous.
33. In the result, appeal filed by the assessee is partly allowed.
Order pronounced on 08th October, 2026 at Chennai.
