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TMI Blog2019 (4) TMI 261X X X X Extracts X X X X X X X X Extracts X X X X ..... ited [2014 (3) TMI 104 - ITAT DELHI], we hold that it is not unlikely that some of the items may have been damaged or lost during transit, therefore, such a shortage due to damage or loss has to be considered reasonably keeping in view the magnitude of such short is being 0.31% of the total turnover and hence cannot be held as an unusual loss. Further, we are convinced with the argument that if valuation of closing stock is changed then the value of opening stock should also be changed on the same basis or method and the closing stock of a particular year is the opening stock of the subsequent year as such it does not materially affected the accounts and profits disclosed by the assessee. the adjustment now sought to be made is revenue neutral and at best may result in requirement or postponement of revenue and in view of the concept of materiality which is well recognized both in accountancy and the law. Accounting standards notified by the CBDT under section 145(2) mandates that the concept of materiality be taken into consideration when finalizing the accounts of an assessee. Keeping in view all these things we are of the considered opinion that no addition on account of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, remanded the matter to the Tribunal for fresh consideration on the ground that ITAT summarily dismissed the arguments of the appellant. Subsequently, ITAT in its order dated 22/09/2011 remitted back the matter to the AO to consider the issues relating to the addition of ₹ 44,53,700/- on account of disallowance of marketing expenses and ₹ 80,03,258/-on account of closing stock afresh after providing an opportunity of being heard to the appellant. Ld. AO, however, in its order dated 31/03/2013 passed under section 143(3) of the Act and 254 of the Act repeated the following additions: (i) Disallowance on account of handsets issued on FOC basis to employees, dealers and After Market Service Centers ( AMSCs ) amounting to INR 44,53,700 [ 1NR 59,38,347 - 25% depreciation]. (ii) Addition to closing stock amounting t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses incurred by the appellant during the relevant year pertaining to handsets issued free of cost were ₹ 59,38,347/- which is only 0.89% of the appellant s turnover for the year of ₹ 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 tribunal in assessee s own case in AY 2003-04 in M/s Nokia India (P) Ltd. vs. DC1T, Circle 13(1) [ITA No. 2445/Del/2010] allowed the entire marketing expenditure on account of FOC handsets with the following observation that,- 9.8. We have perused the submissions advanced by both the sides and the light of the records placed before us and the orders of this Tribunal in assessee s own case relied upon by both the sides. Ld.AR while contestin s the issue had categorically submitted that assessee do not have bills of havine been issued to its employees/dealers etc free of cost. He thus submitted that settins aside the issue back to Ld.AO for verification would not serve any purpose. 9.9 Under such circumstances in our considered opinion we find it fit and proper to decide the issue in the lihht of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner 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 personnel. The respondent- assessee had transferred title or ownership of the mobile handsets to the employees, dealers, sales personnel etc., who were given mobile handsets free of cost and were no longer owned by the respondent-assessee. These mobile phones were not to be returned to the respondent-assessee. Accordingly, the cost of the mobile phones was business expenditure and was rightly reduced from the inventory. Thus, the respondent-assessee was justified in treating these mobile phones as expenditure incurred. The amount cannot be capitalized. 10. The aforesaid finding regarding capitalization or business expenditure is a finding of fact. Obviously, respondent-assessee could not have claimed title and depreciation, once the mobile phones etc. had been given and owner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 ₹ 59,38,347/- on account of FOC handsets by treating it as capital expenditure and again by making an addition to closing stock of ₹ 80,03,258/- which also includes the aforesaid FOC handsets of ₹ 59,38,347/-, and the double addition cannot be made by the AO in view of the decisions in CIT Vs, SAK Industries (P.) Ltd. (1994) 49 TTJ (Del) 457 (Delhi HC); Laxmipat Singhania vs. CIT (1969) 72 ITR 291 (SC). 15. He further submitted that without prejudice to the above, even if the handsets damaged in transit are treated as stock owned by the appellant, the same should be allowed to be written off and reduced from total income of the appellant in view of the provisions under Section 145-A of the Act. Therefore, these handsets should be valued at lower of cost or net realizable value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... low. Insofar as the grievance of the assessee that this particular amount of ₹ 80,03,258/- is concerned, it includes the amount of ₹ 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 year, amounted to ₹ 20,64,911/- and this constitutes only 0.31 % of the assessee s turnover for the assessment year 2001-02 where the total turnover for the year was ₹ 66,56,99,042/-. At the outset, we are of the considered opinion that the addition of the amount of ₹ 80,03,258/- includes the amount of ₹ 44,53,700/- decided (supra) vide first issue. 21. Even in respect of the value of the handsets damaged in transit is concerned, it comes only to ₹ 20,64,911/-which constitutes only 0.31% of appellant s total turnover for the year and while respectfully following the order dated 21st of February 2014 of a coordinate bench of this tribunal in ACIT vs. Grohe India private limited in ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X
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