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2018 (2) TMI 2020 - AT - Income TaxDisallowance of provision for warranty - whether there is an obligating event for creating the provisions, whether there is any outflow of resources to settle the obligations and whether any reliable estimate was made to quantify the obligations - HELD THAT:- n the instant case, it is evident from the aforesaid table that in earlier years, no provision of warranty was created. It was created for the first time in the assessment year 2009-10 but there was no utilization nor reversal in that year. In subsequent year, i.e., 2010-11, further provision was created but there was no utilization and only reversal of earlier provisions was done. Similarly, in the assessment year 2011-12, no further provision was made and no utilization was done. Only reversal of the earlier provision was done. In the light of details available, we find that there was no obligating events which requires the provisions for liability. Moreover, there is no outflow of the resources required to settle the obligation. In the absence of the obligating event and the outflow of resources required to settle the obligations, we are of the view that estimate of provisions made by the assessee is not on scientific basis and also not reliable. It is also important to note that from assessment year 2011-12, assessee stopped creating provision of warranty. Under these circumstances, we are of the view that in the absence of any claim of warranty in earlier year, provisions of warranty was not required at all. Therefore, it cannot be allowed. We accordingly find force in the observations of the AO though he was required to allow the claim on account of directions of DRP. Therefore, we reverse his findings and direct the AO to disallow the claim of provisions of warranty. TP Adjustment - MAM selection - TNMM or RPM - HELD THAT:-Undisputedly, assessee is a distributor of AO Smith China which is involved in the manufacture of water heaters and sells the water heater imported from AO Smith China in India without making any value addition to the product, in a similar type of case, it has been repeatedly held by the Tribunal and the Hon'ble High Court of Bombay that in case of distributor, whether the product is being sold to the uncontrolled entities without making any value addition RPM is the most appropriate method and should be preferred over TNMM. Accordingly, we set aside the order of the AO, passed consequent to the direction of the DRP in this regard and direct the AO/TPO to adopt the RPM as the most appropriate method.
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