TaxTMI 
TaxTMI 
TaxTMI 
2021 (11) TMI 967
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....d equipment. It also provides customer services such as, supplying spare parts, optimization of cement plants, and training plant personnel round out KHD's service portfolio. HW India is engaged in providing services such as designing and engineering, project management, supply of technology and equipment, and supervision of erection and commissioning of cement plants and related equipment. 3. During AY 2014-15, the Appellant has undertaken various international transactions with its associated enterprises ('AEs'). For the purpose of benchmarking the prices of the international transactions, the Appellant in its transfer pricing documentation, has followed the transaction-by-transaction approach. 4. The assessee paid Rs. 8.28 lacs for supervising charges, and Rs. 14.25 Crores for central services. On supervision services, the AE charged a net profit markup of 4% on the internal cost incurred on the basis of number of hours spent by its personal in providing such services. On the central services, the AE charged 5% profit markup on internal cost while third party costs are charged on cost to cost basis. 5. The markup of 4% and 5% has been disallowed by the TPO and accordingly enh....
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...., was not justified in charging any mark up on the cost of services. The arm's length price of the services is therefore decided at the actual cost. The adjustment is therefore sustained to the extent of mark up only. The TPO is directed to reduce the adjustment accordingly." 6. The main argument of the ld. AR was that these transactions are benchmarked by using TNMM and furnished that TP documentation whereas the TPO did not follow any prescribed method and the entire markup is disallowed without giving any reasons. The observation of the revenue that the parent company gets benefited by better synergies, scale of economy, better coordination and reporting cannot be accepted. 7. While the assessee avails supervision services from its AEs and pays markup charges, it also provides such services to the AEs for their third party contracts and receives markup charges. The pricing basis and the results arising from the same have been accepted by the TPO. Disallowing the mark-up on receipt of services while in-principle accepting the provision of similar services rendered having similar intent and basis of pricing cannot be valid ground to disallow the markup. It is not out of contest ....
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....ctual expenditure during the year, earlier provision utilized, the balance provision carried forward. AY Opening balance Additions Reversal Utilization Closing balance Contract revenue 2009-10 35,58,78,785 10,22,90,817 5,13,94,994 25,54,00,584 15,13,74,024 3,92,60,86,075 2010-11 15,13,74,024 28,81,12,854 4,50,43,319 9,11,22,433 30,33,21,126 3,55,32,53,339 2011-12 30,33,21,126 18,76,87,197 3,24,89,702 9,49,25,941 36,35,92,680 4,60,22,79,741 2012-13 36,35,92,680 23,89,75,515 6,28,00,944 24,32,96,504 29,64,70,747 3,39,46,41,837 2013-14 29,64,70,747 41,88,64,157 2,02,09,842 20,55,67,885 48,95,57,177 2,57,40,20,904 2014-15 48,95,57,177 5,02,88,810 2,68,65,259 5,68,84,319 45,60,96,407 3,99,17,38,396 2015-16 45,60,96,407 13,99,70,672 15,15,91,912 18,70,47,392 25,74,27,775 2,37,98,26,136 15. Further, we also find that the Co-ordinate Bench of ITAT vide order dated October 31, 2017 for AY 2008-09, has dismissed the Revenue's appeal filed against the order of ld. CIT(A) allowing the deduction for provision for warranty. The relevant extract from the order is as follows: "14. So fa....
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.... factor with respect to the facts in the proceedings before us. In the circumstances, we find no reason to interfere and dismiss ground no. 3." For AY 2011-12 "13.3 Ground No. 4 challenges the direction of the Ld. DRP in deleting the disallowance pertaining to provision of warranty amounting to Rs. 187,687,197/-. We find that a similar issue had come up in Assessment Years 2008-09 and 2010-11 and the department's ground challenging the deletion had been dismissed by the ITAT in ITA Nos. 2295/Del/2013 and 567/Kol/2015 respectively. The Department has not been able to bring out any distinguishing factor with respect to the facts in the proceedings before us. In the circumstances, we find no reason to interfere and dismiss ground no. 4." 17. The Co-ordinate Bench of ITAT vide combined order dated April 7, 2021 for AY2012-13 and AY 2013-14, has dismissed the Revenue's appeal filed against the order of ld. CIT(A) allowing the deduction of provision for warranty, following their order for AY 2008-09. The relevant extract from the order is as follows: "13. Since, the matter stands adjudicated and allowed for several years prior, in the absence of any material change, we hereby hold....
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..... For the sake of ready reference, the operative part of the earlier order is reproduced below: "13 ... The Id. CIT(A) has categorically noted that assessee has provided for liquidated damages based on the period of delay which occurred during the end of the year and on the basis of percentage of the contract the value payable as damages in terms of the agreement. Apart from that, assessee has also reversed the provision for liquidated damages in the year in which clients waived the said liquidated damages and the write back amount has been offered to tax by the assessee. Whence a provision is arising out of a contractual obligation and the basis of providing the provision is based on past experience and such a reasonable basis of estimation has been regularly followed by the assessee in the past, then ostensibly it cannot be held that the basis of estimation or working of the provision is not correct. Further, once it is brought on record that assessee on the year of reversal has paid taxes on excess provision and similar feature appeared in the earlier years and assessee had payments for liquidated damages on delay in delay of deliverables, then no adverse view can be taken, be....
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....n purpose of taxation is usually to raise revenue but it is also used as an instrument of government economic and social policy. For a tax system to operate successfully within the law it requires a degree of certainty that may not always be appropriate for commercial accounting. Furthermore there alternative methods of preparing accounts that are equally acceptable in terms of accounting standards but the choice of which is not accepted for the taxation purpose. There are several reasons why financial reporting rules and practices might not always be appropriate for determining final tax liability. The primary goal of financial accounting is to provide useful information to management, shareholders, creditors, and others properly interested; the major responsibility of the accountant is to protect these parties from being misled. The primary goal of the income tax system, in contrast, is the equitable collection of revenue, the major responsibility of the state is to protect the public finance. Hence, any presumptive equivalency between tax and financial accounting would be unacceptable. 32. Furthermore, there are other reasons why taxation might deviate from accounting concepts ....