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2021 (11) TMI 967 - AT - Income TaxTP Adjustment - markup of 4% and 5% has been disallowed by the TPO and accordingly enhanced the income of the assessee - 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 - HELD THAT:- The observation of the revenue that the parent company gets benefited by better synergies, scale of economy, better coordination and reporting cannot be accepted. 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 to note that no such disallowance has been made on the markup in the case of the assessee AY 2007-08 to 2012-13 and AY 2015-16. Hence, keeping in view, the entire facts and circumstances, the contention of the revenue that the AE invariably derives some benefit and hence no markup should be charged, cannot be accepted. Provision for warranty disallowance - assessee contended that the issue of warranty is a recurring provision made in the past several years - DRP for both the years in question directed the AO to modify the disallowance after verifying the provisions made in the earlier years, its actual utilization and writing back of unutilized provision for taxation - HELD THAT:- Since, the provision for warranties has been made @ 3% and the unutilized portion has been reversed at a regular intervals from year to year, the appellant has been consistently following the policy of making provision for warranty as per the terms of the contract, the ITAT for AY 2008-09, AY 2010-11, AY 2011-12, AY 2012-13 & AY 2013-14 has allowed provision for warranty, the provision made during AY 2014-15 is on same basis as in earlier years is hereby allowed. Allowability of provision for liquidated damages - HELD THAT:- Since, the provision for liquidated damages has been made regularly and allowed in P&L account and since the unutilized portion has been reversed at a regular intervals from year to year, since, the ITAT for AY 2008-09, AY 2010-11, AY 2011-12, AY 2012-13 & AY 2013-14 has allowed provision for liquidated damages, the provision made during AY 2014-15 is on same basis as in earlier years is hereby allowed. Provision for anticipated losses - HELD THAT:- 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. There are other reasons why taxation might deviate from accounting concepts of income. While the most obvious purpose of taxation is to finance public expenditure, the extent and magnitude of taxation in modern economies also makes it a powerful instrument of government economic and social policy in its own right. While it is true that some taxation measures might be introduced to improve economic decision making, others are implemented for very different reasons. The concept of tax expenditures ably describes the situation that those provisions of the income tax containing special exemptions, deductions and other tax benefits were really methods of providing benefits by deviating from the system of profits derived following accounting standards. Thus, we find that wherever exemption or deductions are called for, the same has been provided explicitly in the provision of the Income Tax Act. Even, the provision for warranty, liquidated damages have been allowed taking into consideration the matching principle of revenue accounting. In the instant case, we further find that no cogent evidences have been furnished by the assessee as to how this loss has been arrived at. Charging of interest u/s 234A - HELD THAT:- We hereby direct the AO to verify the date of filing of return by the assessee with regard to the timeline extended for the instant year and charge interest accordingly.
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