TaxTMI 
TaxTMI 
2019 (4) TMI 261
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....total income of Rs. 12,20,00,470/-by order dated 29/03/2004 and the appeal against the said order was partly allowed by the 1st appellate authority. 3. The assessee claimed Rs. 7,48,62,367/- as marketing expenses during the Financial Year 2000-01 which included Rs. 59,38,347/- incurred on account of FOC handsets issued to employees, dealers and AMSCs. Details of such FOC handsets issued during the year is as under: S No. FOC handsets issued to Amount in Rs. 1. Dealers 41,20,881 2. Employees 17,51,235 3. AMSCs 66,231 Total 59,38,347 Less: Depreciation @25% on Sr. 1,2 and 3 14,84,586 Addition 44,53,700 4. Ld. AO in his assessment order dated March 29, 2004 i.e., original order u/s 143 (3) of the Act held that these handsets were capital assets of the appellant and disallowed aforementioned expenditure after allowing depreciation @ 25%. Such an addition of the AO was upheld by the Ld. CIT(A) in his order. In the Second Appeal, a coordinate Bench of this Tribunal in its order dated December 5, 2008 summarily rejected the contentions of the appellant and upheld the order of the CIT(A). Matter was c....
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....anty; that these handsets given as a replacement within the warranty period constitute a contractual obligation for the company and the expenditure is necessarily business expenditure allowable under section 37(1) of the Act. 7. Ld. AR further submits that the Display and Promotional Handsets issued to the dealers are the sample cellular handsets provided to such dealers for display and promotional purposes and these handsets are never received back by the appellant and the ownership is transferred to employees, dealers and AMSCs without any intention of repossessing them. The appellant vide CIT(A) submission dated June 3, 2015 (second round) submitted confirmations from its employees on a sample basis that they received phones free of cost to support the business of the appellant. 8. He further submitted that the disallowance should be deleted on grounds of materiality but in view of the fact that the marketing expenses incurred by the appellant during the relevant year pertaining to handsets issued free of cost were Rs. 59,38,347/- which is only 0.89% of the appellant's turnover for the year of Rs. 66,56,99,042/-, the disallowance needs to be deleted on grounds of materiali....
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..... In our view as expenditure is revenue in nature, assessee is eligible for deduction under section 37 (1) only. Hence the ground raised by assessee stands allowed. " And that the said order of the Tribunal was upheld by the Hon'ble High Court and the Tax Department's appeal on this issue has been dismissed. Relevant extracts from the order of the Hon'ble High Court are reproduced below: "8. Second issue raised by the Revenue relates to capitalization of marketing expenses to the extent of Rs. 39.98 lakhs. Assessing Officer had observed that the respondent- assessee had provided mobile handsets to their dealers, employees and after-sale- service centres. He held that these mobile handsets should be considered as capital assets used by the respondent-assessee for its business and accordingly the respondent- assessee was entitled to claim deprecation on these mobile handsets. This addition was upheld by the Commissioner of Income Tax (Appeals) holding his predecessors in the Assessment Years 2000-01, 2001-02 and 2002-03 had upheld the said decision, though appeals were pending before the Tribunal. 9. The Tribunal in the impugned order has held that the respondent....
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....itten off in the books of the appellant and held that they are for business use and appellant can only claim depreciation on such handsets. The aforesaid addition of the AO was upheld by the Ld. CIT(A) in his order. 13. Ld, CIT(A), however, in his order noted that appellant has submitted the detailed breakup of Rs. 80,03,258/-. A coordinate Bench of this Tribunal in its order dated 05/12/2008 summarily rejected the contentions of the appellant and upheld the order of the CIT(A). Hon'ble High Court, however, by order dated July 14, 2009 directed the appellant to move an application before ITAT as the said ground has not been discussed in the ITAT order. Subsequently the ITAT in its order dated September 22, 2011, in Miscellaneous Application No. 391/Del/09 filed by appellant in respect of said issue, referred back this issue to the AO as it was inter-connected to the other grounds of appellant related to marketing expenditure which had also been sent back to AO. Ld. AO, however, in the second round of proceedings also upheld the same additions as made in his original assessment order, and confirmed in the appeal by the Ld. CIT(A). 14. It is the argument of the Ld. AR that t....
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....in the long run as the addition made to the closing stock in one year will correspondingly lead to an increase in the opening stock of the next year and will not materially affect the profits of the appellant. Hence, such an adjustment should not be made when the appellant has consistently followed the same method for valuing its closing stock throughout the years. 19. Lastly, he submitted that such an adjustment was accepted by the Ld. AO in AY 2003-04 and the Ld. AO while making the addition for AY 2003- 04 gave relief of adjustment made in closing stock in AY 2002-03. The Ld. AO in his order for AY 2003-04, while making an addition in closing stock of appellant for damaged handsets, reduced the addition made in the closing stock of the appellant in the preceding AY i.e. AY 2002-03 from the total addition in closing stock in AY 2003-04. 20. Ld. DR places reliance on the orders of the authorities below. Insofar as the grievance of the assessee that this particular amount of Rs. 80,03,258/- is concerned, it includes the amount of Rs. 44,53,700/-on account of disallowance of marketing expenditure. On this aspect record speaks that it is a fact. Now turning to the issue whether....