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2013 (2) TMI 94 - ITAT BANGALORETransfer pricing adjustment - whether to determine ALP in respect of business activity relating to distribution segment of the assessee with the AE is to be considered by RPM or TNMM - Held that:- ALP in respect of international transactions whereby the assessee imports equipments from its AE and re-sells them without any value addition to the Indian customers the RPM would be the most appropriate method for determining the ALP as decided in in the case of L'Oreal India Pvt. Ltd. (2012 (11) TMI 175 - ITAT MUMBAI) referring to the OECD guidelines wherein a view has been expressed that RPM would be the best method when a re-sale takes place without any value addition to a product. In the present case, the assessee buys products from the AE and sells it without any value addition to the Indian customers in that event, the GP as a percentage of sales arrived at by the TPO insofar as trading activity of comparables identified by the TPO at 12.90%. The GP as a percentage of sales of the assessee is at 35.6% which is much above the percentage of comparables identified by the TPO. In such circumstances no adjustment could be made by way of ALP. Therefore, accept the alternative plea of the assessee and delete the addition made by the AO - in favour of assessee. Disallowing the provision for warranty expenses - Held that:- The assessee has given a detailed basis on which provision for warranty has been arrived at. As seen from the methodology that the assessee takes into account the warranty liability for the accounting period after bifurcating the likely cost on account of labour, material etc. & the summary of the provision also shows that wherever excess provision was made in an earlier year, the same is reversed in the subsequent period. The claim made by the assessee prima facie shows that the estimate is made by the assessee on scientific basis and reasonable basis. Since neither the AO nor the DRP have given any contrary findings with regard to the methodology adopted by the assessee in making provision the claim made by the assessee should be accepted. Assessee satisfies the criteria for claiming deduction on account of provision for warranty as laid down by in the case of Rotork Controls (P.) Ltd. (2009 (5) TMI 16 - SUPREME COURT OF INDIA) and Ericssion Communications (P.) Ltd (2009 (9) TMI 710 - DELHI HIGH COURT) - in favour of assessee.
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