TaxTMI 
TaxTMI 
2019 (4) TMI 261
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 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 carried to the Hon'ble Delhi High Court and Hon'ble High Court, by order dated July 14, 2009, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 materiality also. 9. Lastly, he brought it to our notice that by Order dated 30/01/2018, a coordinate bench of this tribuna....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y 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-assessee was engaged in the manufacture, import and sale of mobile handsets. They had a large number of employees, a wide team of dealers and sales perso....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 the Ld. AO has erred in making addition on account of FOC handsets twice, first by disallowing the marketing expenditure of Rs. 59,38,347/- on account of FOC handsets by trea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he 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 the assessee shall be allowed the direction on account of the handsets damaged in transit. The meaning of the fact that the damaged handsets, reduced from the closing stock during the ....