TMI Blog2020 (10) TMI 1093X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts and circumstances of the case and in law, the order dated December 26, 2017, passed by the Ld. CIT(A) under Section 250 of the Act, to the extent the additions made by the Ld. AO in the assessment order under Section 143(3) are sustained, is erroneous and bad in law and is liable to be set aside. 2. The Ld. CIT(A) erred on facts and in law in confirming the action of the Ld. AO in disallowing an amount of INR 18,47,08,697 being the provision for warranty. The sub-grounds in this respect are as under: 2.1. The Ld. CIT(A) erred on facts and in law in confirming the action of the Ld. AO in disallowing an amount of INR 184,708,697 being the provision for warranty by stating that such provision was contingent in nature. 2.2. The Ld. CIT(A) erred on facts and in law in confirming the action of the Ld. AO by not appreciating the fact that the provision for warranty was made by the appellant on a scientific basis 2.3. The Ld. CIT(A) has erred in confirming the action of the Ld. AO in disallowing INR 184,708,697 being the provision for warranty by erroneously placing reliance on CIT(A) order of AY 2003-04 instead of order of the High Court for AY 2000-01 and 2001 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss or resale. 4.3. Without prejudice to other grounds, the Ld. CIT(A) erred on facts and in law in not allowing deprecation on the closing written down value of these handsets , that were added to closing stock in the preceding assessment years, which would have a consequential impact on the computation of depreciation for the year under consideration. 4.4. The Ld. CIT (A) erred on facts and in law in not providing a deduction of INR 26,817,770, by way of increase in the value of opening stock of AY 2004-05, on account of similar enhancement in the value of closing stock of AY 2003-04 by the AO by INR 26,817,770, despite the fact that similar deduction has been provided by the Ld. AO himself in preceding AY i.e. AY 2003-04. 5. The Ld. CIT(A) erred on facts and in law in confirming the action of the Ld. AO in disallowing 25% of the provision for stock obsolescence, amounting to INR 42,80,732, on an ad hoc basis. The sub-grounds in this respect are as under: 5.1. The Ld. CIT(A) erred on facts and in law in confirming the action of the Ld. AO in disallowing 25% of the provision for stock obsolescence by treating the same as unascertained liability, on an ad hoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty was made by the appellant on a scientific basis 2.3. The Ld. CIT(A) has erred in confirming the action of the Ld. AO in disallowing the provision for warranty to the extent of INR 320,285,550, by erroneously placing reliance on CIT(A) order of AY 2004-05 instead of order of the High Court for AY 2000-01 and 2001-02 and ITAT in AY 2002-03 in the appellant s own case. 3. The Ld. CIT (A) erred on facts and in law in confirming the action of the Ld. AO in disallowing marketing expenditure amounting to INR 35,649,818 (i.e. after allowing depreciation @15% on the total expenses of INR 41,940,962), claimed as revenue expenditure by the appellant in respect of handsets issued on a free of cost ( FOC ) basis to employees, dealers and After Marketing Service Centres ( AMSCs ) and scrapped handsets. The sub-grounds in this respect are as under: 3.1. The Ld. CIT(A) erred on facts and in law in confirming the action of the Ld. AO in disallowing marketing expenditure amounting to INR 35,649,818 , by treating it as capital expenditure in the hands of the appellant. 3.2. The Ld. CIT(A) grossly erred on facts and in law in confirming the action of the Ld. AO in disallowin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming the action of the Ld. AO /Ld. TPO in not making an adjustment to account for differences between the risk profile of the appellant, and independent comparable companies, while determining the arm s length price in relation to contract software development services. 7. The above grounds of appeals are independent and without prejudice to one another. 8. The appellant craves leave to add / withdraw or amend any ground of appeal at the time of. 4. The facts as called out from assessment year 2004 05 shows that assessee is a whollyowned subsidiary company of Nokia Corporation, Finland, engaged in the business of providing installation/commissioning services and direction of telecommunication equipment, sale of mobile handsets and carrying out the research and development activity through its centers at Hyderabad and Bangalore. It filed its return of income on 1 November 2000 for declaring income of ₹ 81,584,4500/-. Assessment u/s 143 (3) of the income tax act, 1961 was passed by the assessing officer on 19th of December 2006 wherein the income of the assessee was assessed at ₹ 1,133,587,905/ wherein following additions/disallowances/adjustments were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in different grounds, therefore same is dismissed. Similarly ground number 9 and 10 of the appeal are also general in nature and hence those are also dismissed. 7. Ground number 2 of the appeal is against the provision for warranty upheld by the learned CIT A. The learned authorised representative referred to page number 4 7 of the assessment order and page number 71 72 of the order of the learned CIT A and submitted that the learned assessing officer and the Commissioner appeals have relied on the orders of the assessment year 2003 04 wherein the coordinate bench have decided the issue in favour of the assessee. He further submitted that the order of the coordinate bench has been upheld by the honourable High Court. He further referred to the findings of the honourable High Court on the issue of provisions of the warranty at para number 7 and stated that this issue is squarely covered in favour of the assessee. 8. The learned departmental representative vehemently supported the order of the learned lower authorities. 9. We have carefully considered the rival submission and perused the order of the lower authorities. The fact shows that in schedule 13 to profit a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le above. In the present case, we are only concerned with the Assessment Year 2003-04 in which the percentage of closing provision to sales was only 0.81%. Variation in figure would indicate that no thumb rule was applied. Moreover 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. 7. In the aforesaid factual matrix and in view of the decision of the Supreme Court in Rotork Controls India (P.) Ltd.'s case (supra) and decision of this Court in respondent-assessee's case in ITA Nos.841/2009 and 842/2009, we do not find any good ground or reason to accept the aforesaid contention of the Revenue. The learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epreciation at the rate of 25%. Therefore he made the net disallowance of ₹ 6,517,570. The issue reached the learned CIT A, he confirmed the disallowance following his own order for assessment year 2003 04 holding that handsets which are damaged during the transit and those issued to the employees/dealers and AMSC did not qualify as stock of the appellant were in the nature of the capital assets on which depreciation was to be allowed u/s 32 (1) of the act. 12. The learned authorised representative submitted that for assessment year 2003 zero for the identical issue has been decided by the honourable Delhi High Court in assessee s own case wherein the claim of the assessee allowed by the coordinate bench has been upheld. He further stated that identical ground is ground number 3 for assessment year 2005 06. 13. The learned departmental representative supported the orders of the lower authorities. 14. We have carefully considered the rival contentions and perused the orders of the lower authorities. 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 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son 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 number 3 for assessment year 2004 05 and assessment year 2005 06 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. 15. Ground number 4 of the appeal of the assessee for assessment year 2004 05 is with respect to the addition on account of closing stock of free of cost phones of ₹ 76,956,677/ . The brief fact shows that the closing stock of the assessee has been computed after excluding free issue of phones of 15,554 numbers. The assessee was asked to furnish the details of mobile phones issued free of cost to employees and others and value adjusted from closing stock and show cause as to why the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he earlier years wherein it has been held that since the value of goods damaged/lost during transit is miniscule in comparison to the total turnover (0.31% in the subject year), such loss is not an unusual loss. Also, the adjustment shall be revenue neutral as the increase in closing stock shall consequently increase the value of opening stock of the following year. Therefore, 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. 19. The ground number 5 of the appeal for assessment year 2004 05 and ground number 4 of the appeal for assessment year 2005 06 is also on identical facts with respect to the addition on account of provision for obsolescence of inventory. The learned assessing officer noted that schedule 13 to the profit and loss account the assessee has debited and amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for tax purposes even though the narrative part of the assessee submissions have been quoted by him in the order at paragraph number 6.4. We have considered the submissions of the assessee; on similar facts the DRP directed deletion of similar addition in case of the assessee for assessment years 2011 12, 2012 13 and 2013 14. Following the same facts being the same, the AO is directed to delete the addition. As in the current year also the learned 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. 22. The ground number 6 and 7 of the appeal for assessment year 2004 05 and ground number 5 and 6 for AY 2005-06 are related to the transfer pricing adjustments which are not pressed by the learned authorised representative as submitted in his chart of the issues, those grounds are dism ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned CIT appeal has not followed the decision of the coordinate bench in case of Sujatha Grover (Supra) holding that same is rendered in the context of Section 80 HHC of the income tax act. Now the issue squarely covered in favour of the assessee by the decision of the honourable Karnataka High Court in Commissioner of Income-tax, Central Circle v. Novell Software Development (I) (P.) Lt [2013] 35 taxmann.com 414 (Karnataka)/[2013] 219 Taxman 32 (Karnataka)(MAG.)/[2013] 355 ITR 339 (Karnataka)/[2013] 260 CTR 372 (Karnataka) wherein it has been held as Under::- 11. Appearing on behalf of revenue, the submission of Sri Aravind, learned standing counsel is that with reference to Section 80HHC(i) now read as Section 80HHC(iv), the assessee is entitled for the benefit of Section 80HHE deduction from the gains that is derived by the assessee from the business of export activity; that the gains attributable to fluctuation in foreign exchange rate is not precisely derived from the export business but because of the fortuitous circumstance of the exchange rate being not the same throughout and the word 'derived' having come in for interpretation and noticed by the Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... graph 14, which is also read upon by the learned counsel for the revenue that as far as the present appeal is concerned, the only activity of the assessee is to produce software and export and assessee has no other business activity or profits and the fluctuation in exchange rate is an incidental aspect but it is the entire amount that is received inclusive of difference attributable to the fluctuation in the foreign exchange rate that is treated as the value of the exports and therefore, no distinction can be made as between the actual value of the export of the goods and the amount attributable to the gains from fluctuation of the foreign exchange rates etc. 16. In view of the submissions at the bar, we have examined the questions. The amount which is sought to be attributed as gain from fluctuation of foreign exchange no-doubt might have been due to some fluctuation but as these are amounts received in Indian currency as the total amount that an exporter receives ultimately for the export of the goods,- it should be taken together with the value of the goods itself in which event, in our opinion, even the amount said to be attributable to the fluctuation in the foreign-exc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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