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TMI Blog2020 (10) TMI 1093X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 2001-02 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 65,17,570 (i.e. after allowing depreciation @25% on the total expenses of INR 86,90,093),claimed as revenue e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 basis. 5.2. 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 disregarding the fact that such provision is made on a scientific basis, in accordance with Global Company Policy of the appellant which is being consistently followed over the years. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 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 disallowing marketing expenditure amounting to INR 35,649,818 by assuming that the ownership of the handsets issued on FOC basis and scrapped handsets is vested with the appellant and not transferred to the employees, dealers, AMSCs etc. 3.3. Without prejudice to other grounds, the Ld. CIT(A) erred on facts and in law in not allowing depreciation on the closing written down value of FOC h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 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 Rs. 1,133,587,905/- wherein following additions/disallowances/adjustments were made:- a. foreign travel expenditure disallowed Rs. 6,408,328/- b. disallowance of warranty provisions of Rs. 184,708,697 c. disallowance of marketing expenditure of Rs. 6,517,570 d. addition on account of valuation of closing stocks 7,69,56,677/- e. disallowance on account of provision for obsolescence of inventory Rs. 4,280,732 f. disallowance of excess depreciation on UPS , stabilizer, LAN /Wan Rs. 2,712 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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 and loss account the assessee has claimed warranty expenditure of Rs. 417,694,333/-, assessee also submitted a note for computing book profit Under the minimum alternative tax u/s 115JB with respect to the warranty expenditure stating that provision of the warranty debited in the profit and loss account represents estimated provision on scientific basis in respect of mobile phone handsets. The learned assessing officer after examination of the claim of the assessee and held that the claim of the assessee is not an ascertained liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 learned departmental representative could not show us any reason or change in the facts and circumstances of the case compared to the facts in the case of the assessee for assessment year 2003 - 04 wherein the honourable High Court has dismissed the appeal of the revenue on this count. Therefore, respectfully following the decision of the honourable High Court in assessee's own case for assessment year 2003 - 04, we allow ground number 2 of the appeal of the assessee for assessment year 2004 - 05. 10. As both the parties before us that ground number 2 of the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 assessment year 2003 -04 , wherein claim of the assessee was allowed and the issue reached to the doorstep of the honourable High Court and order of the coordinate bench was confirmed. The honourable High Court PRINCIPLE COMMISSIONER OF INCOME TAX VERSUS NOKIA INDIA (P) LTD (2018) 98 TAXMANN.COM 415 (DELHI) held that:- "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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 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 same should not be added to the closing stock of the assessee. The assessee submitted that same has been incurred as revenue expenditure and therefore same cannot be now considered in the closing stock. The learned assessing officer held that Rs. 85,646,770 was reduced on account of free of cost handset issued including damages from the closing stock. According to the AO it cannot be written off in the books of accounts but required to be included in the closing stock inventory of the assessee. Therefore he rejected the method of the assessee of reducing the closing stock with reference to the value of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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 of Rs. 1,71,22,928/- as provision for obsolescence of inventory. The learned assessing officer proposed that why 25% of such obsolescence loss debited should not be disallowed. The learned assessing officer noted that in assessee's own case for assessment year 2001 - 02 the learned CIT - A has allowed 75% of the total provision for obsolescence of inventory being likely to become obsolete and confirmed the balance addition of 25%. The revenue has accepted the decision of the CIT - A and no further appeal before the coordinate bench was recommended on this ground. He held that since the facts and circumstances of the case for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... low 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 dismissed as not pressed. 23. The ground number 8 of the appeal is with respect to the non consideration of the foreign exchange gain while computing the deduction u/s 80 HHE of the income tax act. 24. The learned authorised representative submitted that this issue is squarely covered in favour of the assessee by decision of the Honourable Karnataka High Court In CIT Versus Infosys Technologies Ltd (2012) 349 ITR 606 and CIT Versus Novel Software Development Private Limited (2013) 355 ITR 339. The issue is also been decided in favour of the assessee by the coordinate bench in Sujata Grover V DCIT (2002) 74 TTJ 347 Delhi. 25. The learned departmental r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 Supreme Court in the case of Liberty India Ltd. v. CIT [2009] 317 ITR 218/183 Taxman 349 and following its earlier view taken in CIT v. Sterling Foods [1999] 237 ITR 579/104 Taxman 204 and having held that the profit should be directly' attributable to the export activity and in the instant case it having been attributed directly to the fluctuation in the exchange rate, the assessee could not have got the benefit and the Tribunal is in error in answering this issue against the revenue and in favour of the assessee. 12. The distinction made between the words 'derived from' and 'attributable to' is emphasised to submit derived from is a narrow word and therefore, ought to be stri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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-exchange rate forms part of the value of the export goods and cannot be distinguished there from. In fact the converse of this viz., if the fluctuation in foreign exchange brought down the value, an assessee cannot claim that this amount should be excluded and the export value maintained at a higher figure. 17. Though it may be an aspect beyond the control of the assessee or the revenue, it does affect the actual value of the exported goods either way. We are of the opinion that the tribunal has not committed any error on this aspect. Therefore, there is no occasion to exclude 90% of the amount attributable to export gains from the foreign exchange rate fluctuation and accordingly, we answer the first question ..... X X X X Extracts X X X X X X X X Extracts X X X X
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