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2016 (5) TMI 1524 - ITAT BANGALORETP Adjustment - Tribunal had directed the AO to accept the pricing of thee international transaction of the assessee for the impugned year to be at arms length, if similar transactions with AEs were accepted by the TPO to be at arms length for previous years relevant to A. Ys. 2007-08 and 2008-09 - TPO had pursuant to the DRP directions passed an order not complying with the directions of the DRP and AO had therefore persisted with the same adjustment that he had done earlier - HELD THAT:- It is clear that the directions of the DRP is binding on the AO. No doubt as per Section 92CA(4) of the Act, an AO has to compute total income in conformity with the arms length price determined by the TPO. However, once there is an order of DRP, AO is bound by the directions of the DRP by virtue of sub-section (1) to Section 144C of the Act. AO is not required to refer the matter which has been decided by the DRP to the TPO again. We are therefore of the opinion that the addition made by the AO without considering the directions of the DRP reproduced by us above cannot stand in the face of the clear legal mandate. We delete such additions. Disallowance of warranty provision - whether assessee had made the provisioning for warranty in a scientific manner - assessee doing the business of sale of laptops and desktops - HELD THAT:- Expenditure incurred against warranty given on sales made in any given year would be reflected in the succeeding year, when the provisioning is done on the basis of machine months. Assessee had done the provisioning based on machine months. If by application of the formula of multiplying machine months with repair action rate and cost per claim, an excessive warranty provisioning had resulted, then definitely in the succeeding year the expenditure incurred on warranty would be much less. The table above would show that expenditure on warranty was higher in almost all succeeding years except financial year 2009-09. We cannot say that assessee had followed a method which was not scientific. We are of the opinion that the three conditions set out in the case of Rotork Controls India (Pvt) Ltd [2009 (5) TMI 16 - SUPREME COURT] have been satisfied by the assessee, viz., establishing that there is a present obligation on account of a past event, working out the probable estimate of the outflow of the resources required and substantiating the reliability of such estimate. Especially so since the assessee was mandatorily required to follow AS-I and principles of prudence stipulated in such AS-I required provisioning for all known liabilities even if it could not be determined with certainty, but was made based on available data. We therefore delete the addition made by the AO disallowing the provision for warranty. - Decided in favour of assessee.
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