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2020 (10) TMI 1093 - AT - Income TaxProvision for warranty - allowable revenue expenditure - HELD THAT:- In case of doubt and debate, Income Tax Authorities should have asked for the basis and the formula/criteria applied by the respondent/assessee to compute provision for warranty. On the other hand without disputing the computation, disallowance was made by holding that actual expenditure on warranty claims and not provision for warranty was allowable as expenditure. This proposition is wrong and incorrect. Improvement in technology would not justify disallowance of claim/expenditure on account of provision for warranty, though in a given case on basis of data it could be relevant factor in making the calculations. In view of the decision of the Supreme Court in Rotork Controls India (P.) Ltd.'s case [2009 (5) TMI 16 - SUPREME COURT] and decision in respondent-assessee's case we do not find any good ground or reason to accept the aforesaid contention of the Revenue. Marketing expenditure - whether above expenditure is allowable as a revenue expenditure incurred wholly and exclusively for the purposes of the business u/s 37 (1) - HELD THAT:- On examination of the issue before the lower authorities it is apparent that identical issue has been entered by the coordinate bench in assessee’s own case for assessment year 2003 –04 , wherein claim of the assessee was allowed and the issue reached to the doorstep of the honourable High Court [2018 (9) TMI 877 - DELHI HIGH COURT] and order of the coordinate bench was confirmed. DR could not show us any reason or change in the facts and circumstances of the case. Therefore, respectfully following the decision of the coordinate bench which is been upheld by the honourable High Court on the identical circumstances and facts of the case, we allow ground wherein the marketing expenses on free of cost phones issued to the employees as well as the service centre dealers claimed by the assessee as revenue expenditure, disallowed by the AO holding it to be capital expenditure, direct the learned assessing officer to delete the disallowance of the whole expenditure and also Simultaneously to withdraw grant of 25% depreciation thereof. Addition on account of closing stock of free of cost phones - closing stock of the assessee has been computed after excluding free issue of phones of 15,554 numbers - HELD THAT:- Respectfully following the decision of the coordinate bench in assessee’s own case for earlier years, where revenue could not show any change in the facts and circumstances of the case of the minuscule amount in comparison to the total turnover of disputed stock, we allow ground number 4 of the appeal of the assessee and direct the learned assessing officer to delete the addition on account of inclusion of closing stock of free of cost phones issued. Addition on account of provision for obsolescence of inventory - HELD THAT:- Assessing officer has not done any exercise on his part, the disallowance proposed by the AO constantly being deleted by the learned dispute resolution panel in subsequent years also, we allow ground number 5 of the appeal for assessment year 2004 – 05 and ground number 4 for assessment year 2005 – 06 direct the learned assessing officer to delete the disallowance of 25% of the provision for obsolescence of inventory for both the years. Non consideration of the foreign exchange gain while computing the deduction u/s 80 HHE - HELD THAT:- The issue squarely covered in favour of the assessee by the decision of Novell Software Development (I) (P.) Ltd. [2013 (7) TMI 120 - KARNATAKA HIGH COURT] 90% of the foreign-exchange gain cannot be reduced from the profits and gains of the business of the export of software while calculating deduction u/s 80 HHE of the income tax act. Accordingly ground number 8 of the appeal for assessment year 2004 – 05 filed by the assessee is allowed.
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