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2018 (10) TMI 416 - AT - Income TaxDeferment of income - Denial of deduction on Provision for warranty - whether the methodology of the assessee-company for computation of provision for warranty is ad hoc and not consonance with parameters laid down by the Hon’ble Supreme Court in the case of Rotork Controls India (P) Ltd. [2009 (5) TMI 16 - SUPREME COURT OF INDIA] or not? - Held that:- In the present case there was no system of reversal of provision created earlier and the percentage of sales adopted for computation of provision for warranty expenditure goes on increasing from year to year, thereby resulting in accumulation of provision for warranty expenditure. In the light of above factual situation, we are of the considered opinion that the assessee derived advantage by deferring its income to the extent of excess warranty provision to subsequent years. Therefore, such excess provision cannot be allowed as a deduction. Therefore, in our considered opinion, the provision made for warranty cannot be said to be reliable. The AO, as confirmed by the ld.CIT(A) had rightly restricted the amount of allowable provision for warranty at the rate of 2.14% of sales. Therefore, we do not find any fallacy in the reasoning of the order of the ld.CIT(A). Accordingly, the grounds of appeal of the assessee are dismissed.
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