Nokia India Pvt. Ltd., Gurgaon V. DCIT, New Delhi

ITA 2445/DEL/2010

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3841 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I2
• Next Hearing Date: 14-06-2017
• Assessment Year: 2003-2004
• Appeal Filed On: 21-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Related party transaction; Capital asset; Depreciation; Transfer pricing; Business expenditure; Principle of natural justice; International transaction; Rule of consistency; Question of law; Working capital adjustments; Wholly owned subsidiary
• Section: 143(3); 142(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: I - 2 , NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SMT. BEENA A PILLAI, JUDICIAL MEMBER ITA NO. 2445 /DEL/2010 AY: 20 03 - 04 M/S NOKIA INDIA (P) LTD. 1 & 2 FLOOR, T OWER A SP INFOCITY PLOT NO.243 UDYOG VIHAR PH ASE I, DUNDAHERA GURGAON 122 016 PAN: AAACN2170R VS . DCIT, CIRCLE 13(1) NEW DELHI (APPELLANT) (RESPONDENT) APPELLAN T BY SH. VIKASH SRIVASTAVA, ADV. SHRI ATUL NINAWAT, ADV. MS.RASHI GUPTA, ADV. R ESPONDENT BY SH. HK CHOUDHARY, CIT, DR DATE OF HEARING 30 .11.2017 DATE OF PRONOUNCEMENT 30.01.2018 ORDER PER BEENA A PILLAI, JUDICIAL MEMBER THE PRESENT APPEAL HAS BE EN FILED BY ASSESSEE AGAINST ORDER DATED 25/03/10 PASSED BY LD.CIT(A) - XX, NEW DELHI FOR ASSESSMENT YEAR 2003 - 04 ON FOLLOWING GROUNDS OF APPEAL: ITA 2445/DEL/2010 ASSESSMENT YEAR 2003 - 04 NOKIA INDIA P.LTD., GURGAON PAGE 2 OF 23 1. THAT ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDERS PASSED BY THE LD COMMISSIONER OF INCOME TAX (APPEALS) - XX ['LD CIT (A) AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE ACT BY THE LD ADDITIONAL COMMISSIONER OF INCOME - TAX, RANGE 13 (' LD AO') IS BAD IN LAW TO EXTENT ADDITION SUSTAINED IN THE LD. CIT (A)'S ORDER. 2. THAT THE LD CIT(A) HAS GROSSLY ERRED IN CONCLUDING THAT THE REFERENCE MADE BY THE ADDITIONAL COMMISSIONER OF INCOME - TAX, RANGE 13. NEW DELHI ( LD.AO ) TO THE ADDITIONAL COMMISSIONER OF INCOME - TAX, TRANSFER PRICING OFFICER - II ('LD TPO'), UNDER SECTION 92CA(I) OF TH E INCOME - TAX ACT, 1961 ('ACT') WAS VALIDLY MADE, THEREBY FAILING TO APPRECIATE THAT THE LD AO HAD NOT RECORDED ANY REASONS UNDER SECTION 92CA OF THE ACT WHICH MADE IT EXPEDIENT AND NECESSARY FOR HIM TO MAKE A REFERENCE UNDER THAT PROVISION; 3.THAT THE LD. CIT(A) HAS GROSSLY ERRED IN CONFIRMING AN ADJUSTMENT OF RS. 14,609,814/ - OUT OF THE TOTAL ADJUSTMENT OF RS. 23,640,603/ - MADE BY THE LD. AO TO THE RETURNED INCOME OF THE APPELLANT, AND IN DOING SO, HAS GROSSLY ERRED IN: I . CONFIRMING THE ACTION OF THE LD AO/ LD TPO OF REJECTING THE BENCHMARKING ANALYSIS CARRIED OUT BY THE APPELLANT IN ITS TP STUDY AND CONDUCTING A FRESH SEARCH, USING DIFFERENT FILTRATION CRITERIA, TO SELECT COMPARABLES BASED ON H IS OWN CONJECTURES AND SURMISES; II. CONFIRMING THE ACTIO N OF THE LD AO/ LD TPO OF RELYING ON ARBITRARY FINANCIAL CRITERIA FOR SELECTING COMPARABLES, THEREBY DISREGARDING THE FUNCTIONS - ASSETS - RISK PROFILE OF THE COMPANIES BEING CONSIDERED; III. CONFIRMING THE ACTION OF THE LD AO/ LD TPO OF CONSIDERING THE CURRE NT YEAR (I.E FINANCIAL YEAR 2002 - 03) DATA FOR COMPARABILITY ANALYSIS, DESPITE THE FACT THAT SUCH DATA WAS NOT AVAILABLE TO THE APPELLANT AT THE TIME OF PREPARATION OF ITS TRANSFER PRICING DOCUMENTATION; IV. RETAINING IN THE FINAL COMPARABLE SET, COMPANIES HAVING SIGNIFICANT RELATED PARTY TRANSACTIONS ; V. NOT ALLOWING TO THE APPELLANT, THE BENEFIT OF WORKING CAPITAL ADJUSTMENT TO ACCOUNT FOR THE DIFFERENCE IN ITS WORKING CAPITAL POSITION VIS - A - VIS THAT OF THE INDEPENDENT COMPARABLE COMPANIES; VI. NOT CONF IRMING THE ACTION OF THE LD AO/ LD TPO OF ALLOWING TO THE APPELLANT, A 5 PERCENT ADJUSTMENT TO ACCOUNT FOR THE BENEFIT OF A WORKING CAPITAL ADJUSTMENT, THEREBY FAILING TO APPRECIATE THAT THE SAID ADJUSTMENT WAS ALSO ALLOWED IN THE PRECEDING YEAR (IE AY 200 2 - 03) BOTH BY THE LD TPO AND THE HONBLE CIT(A) ITA 2445/DEL/2010 ASSESSMENT YEAR 2003 - 04 NOKIA INDIA P.LTD., GURGAON PAGE 3 OF 23 VII. NOT ALLOWING TO THE APPELLANT, THE BENEFIT OF A RISK ADJUSTMENT TO ACCOUNT FOR THE DIFFERENTIAL RISK PROFILE OF ITS CAPTIVE SOFTWARE DEVELOPMENT SERVICES, AS COMPARED TO THE INDEPENDENT COMPARABLE COMPA NIES ; VIII.CONFIRMING THE ACTION OF THE LD AO/ LD TPO OF INTERPRETING THAT THE R&D ACTIVITIES OF THE APPELLANT CAN BE CATEGORIZED AS A 'HIGH END SERVICE' AND CAN BE PLACED HIGH IN THE VALUE CHAIN OF THE SOFTWARE DEVELOPMENT INDUSTRY IN INDIA, ON THE BASI S OF QUANTITATIVE ANALYSIS OF THE RELEVANT SEGMENT OF THE APPELLANT AND BY NOT CONSIDERING SUBMISSIONS MADE IN THIS REGARD; IX. CONFIRMING THE ACTION OF THE LD AO/ LD TPO OF CONSIDERING COMPANIES HAVING VERY HIGH/ ABNORMAL PROFIT MARGINS, THEREBY FAILING TO APPRECIATE THAT THE APPELLANT (BEING A CAPTIVE SERVICE PROVIDER) OPERATES IN A NEAR RISK - FREE ENVIRONMENT AND CONSEQUENTLY THE OPERATING PROFIT MARGINS EARNED BY COMPARABLE COMPANIES (WHICH, BEING ENTREPRENEURS IN THEIR OWN RIGHT ARE EXPOSED TO ALL THE RISKS ASSOCIATED WITH THEIR BUSINESS) NEED TO BE SUBJECTED TO A DOWNWARD ADJUSTMENT SO AS TO MAKE THEM COMPARABLE WITH THE OPERATING PROFIT MARGIN EARNED BY THE APPELLANT (WHICH, IN THE ABSENCE OF ANY SIGNIFICANT RISKS, WOULD TYPICALLY BE MUCH LOWER); X.CONFIRMING THE ACTION OF THE LD AO/ LD TPO OF APPLYING AN INCONSISTENT FINANCIAL CRITERIA FOR REJECTING OUTLIERS (IE COMPANIES HAVING VERY HIGH/ LOW/ ABNORMAL PROFIT MARGINS) BY CONSIDERING ( - )20 PERCENT AS THE LOWER LIMIT FOR THE OP/ TC MARGIN, WITHOU T CONSIDERING A CORRESPONDING 20 PERCENT AS THE UPPER LIMIT AND INSTEAD ADOPTING AN ARBITRARY/ INCONSISTENT UPPER LIMIT OF 80 PERCENT FOR THE OP/ TC MARGIN; XI. CONFIRMING THE ACTION OF THE LD AO/ LD TPO OF DENYING THE BENEFIT OF (+/ - ) 5 PERCENT [AS PER PROVISO TO SECTION 92C(2) OF THE ACT] TO THE APPELLANT; XII. DISREGARDING JUDICIAL PRONOUNCEMENTS IN INDIA. 4. THAT THE LD. CIT (A) GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF AN AMOUNT OF RS.54,886,377/ - ON ACCOUNT OF PROVISION FOR WARRANTY, WITHOU T APPRECIATING THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE APPELLANT, IN VIEW OF ORDER OF THE HON BLE ITAT FOR THE AY 2000 - 0 I & 2001 - 02 AND THAT THE SAID ORDER WAS FOLLOWED BY THE PREDECESSOR OF THE CIT(A) IN AY 2002 - 03. 4.1 THAT THE LD. CIT (A) GROSS LY ERRED ON FACTS AND IN LAW, IN CONFIRMING THE DISALLOWANCE OF AN AMOUNT OF RS. 54,886,377/ - BEING THE PROVISION FOR WARRANTY, ON THE GROUNDS THAT SUCH PROVISION WAS CONTINGENT IN NATURE AND SHOULD HAVE BEEN ALLOWED ON AN ACTUAL BASIS, IN THE YEAR OF OCCU RRENCE OF THE EVENT AND NO: IN THE YEAR IN WHICH THE PROVISION IS MADE. 4.2 THAT THE LD. CIT (A) GROSSLY ERRED IN LAW AND ON FACTS IN MERELY CONFIRMING THE CONCLUSION OF THE LD. AO THAT THE PROVISION FOR WARRANTY MADE ON THE PAST EXPERIENCE HAS NO RELEVAN CE, SINCE MOBILE TECHNOLOGY WAS IMPROVING RAPIDLY AND WENT ON TO PRESUME THAT IN VIEW OF THE IMPROVING TECHNOLOGY, THE FAILURE RATES DECREASES. ITA 2445/DEL/2010 ASSESSMENT YEAR 2003 - 04 NOKIA INDIA P.LTD., GURGAON PAGE 4 OF 23 5.THAT THE LD CIT (A) GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF AN AMOUNT OF RS.3,998,939/ - (AFTER ALLOWI NG DEPRECIATION @ 25% ON THE TOTAL EXPENSES OF RS.5,331 ,919/ - ) TOWARDS MARKETING EXPENSES INCURRED BY THE APPELLANT, ON ACCOUNT OF PROVIDING HANDSETS TO AMSC'S, DEALERS AND EMPLOYEES FOR VARIOUS PURPOSES AND TREATING THE SAME AS CAPITAL ASSETS OF THE APPE LLANT; 5.1 THAT THE LD CIT (A) GROSSLY ERRED IN NOT APPRECIATING THAT SUCH HANDSETS AS GIVEN ABOVE, DID NOT IN ANY MANNER CONFER ANY ENDURING BENEFIT TO THE APPELLANT IN ANY MANNER. 6.THAT THE LD CIT (A) GROSSLY ERRED IN CONFIRMING THE ENHANCEMENT OF VAL UE OF CLOSING STOCK OF THE APPELLANT BY RS.26,8 I 7,770/ - ( NET OF THE TOTAL VALUE OF RS.38,276,366/ - AFTER REDUCING THE MARKETING EXPENSES AMOUNTING TO RS.5,331.919/ - AS IN GROUND NO.3 ABOVE AND RS.6, 126,677/ - ON ACCOUNT OF ENHANCEMENT IN VALUE OF CLOSIN G STOCK OF EARLIER AY 2002 - 03), ON THE GROUND THAT THE HANDSETS DAMAGED DURING TRANSIT AND THOSE PROVIDED TO AMSC'S, DEALERS AND EMPLOYEES MAY BE TREATED AS A CAPITAL ASSET. 7. THAT THE LD. CIT (A) GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF AN AMOUN T OF RS.8,50,084/ - BEING AN AD - HOC 25% OF THE TOTAL AMOUNT OF PROVISION FOR OBSOLESCENCE OF RS.3,400,339/ - . THAT THE ABOVE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. THAT THE APPELLANT RESERVES ITS RIGHT TO ADD, ALTER, AMEND OR WITHDRAW ANY GROUND OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. 2. BRIEF FACTS OF THE CASE ARE AS UNDER: ASSESSEE FILED ITS RETURN OF INCOME ON 02/12/03 DECLARING TOTAL INCOME OF RS.70,62,48,750/ - . THE CASE WAS SELECTED FOR SCRUTINY AND NOTICES U NDER SECTION 142(1) WERE ISSUED. IN RESPONSE TO THE STATUTORY NOTICES, REPRESENTATIVE OF ASSESSEE APPEARED AND FILED NECESSARY DETAILS AS CALLED FOR AND THE CASE WAS DISCUSSED WITH LD. AO. 2.1. DURING THE ASSESSMENT PROCEEDINGS LD.AO OBSERVED THAT ASSESSEE IS 100% SUBSIDIARY OF FINLAND CORPORATION AND IS INCORPORATED UNDER COMPANIES ACT, 1956. IT WAS OBSERVED THAT ASSESSEE HAS ITS REGISTERED OFFICE AT DELHI AND BRANCHES AT BANGALORE, MUMBAI, HYDERABAD AND AHMADABAD. LD.AO OBSERVED ITA 2445/DEL/2010 ASSESSMENT YEAR 2003 - 04 NOKIA INDIA P.LTD., GURGAON PAGE 5 OF 23 THAT ASSESSEE IS ENGAGED IN TRADING OF MOBILE PHONES AND THEIR ACCESSORIES AND INSTALLATION OF NETWORK EQUIPMENTS. IN ADDITION TO THIS, ASSESSEE ALSO HAS RESEARCH AND DEVELOPMENT CENTRE AT HYDERABAD AND BANGALORE. LD.AO AFTER CONSIDERING THE SUBMISSIONS AND DETAILS ADVANCED BY AS SESSEE, PASSED ASSESSMENT ORDER MAKING FOLLOWING ADDITIONS/DISALLOWANCES: SL. NO. PARTICULARS AMOUNT IN RS. 1. ADDITION ON ACCOUNT OF FOREIGN TRAVELLING EXPENSES 57,23,201 2. ADDITION ON ACCOUNT OF PROVISIONS FOR WARRANTY 5,48,86,377 3. ADDITION ON ACCOUNT OF MARKETING EXPENSES 39,98,939 4. ADDITION ON ACCOUNT OF CLOSING STOCK 2,68,17,770 5. ADDITION ON ACCOUNT OF PROVISION FOR OBSOLESCENCE OF INVENTORY 8, 50, 084 6. TRANSFER PRICING ADDITION IN PURSUANCE OF ORDER UNDER SECTION 92CA (3 ) OF THE ACT 2,36,40,603 LD. CIT (A) CONFIRMED ADDITION MADE BY LD. AO BY RELYING UPON ORDER OF HIS PREDECESSOR FOR ASSESSMENT YEAR 2000 - 01 AND 2001 - 02. ITA 2445/DEL/2010 ASSESSMENT YEAR 2003 - 04 NOKIA INDIA P.LTD., GURGAON PAGE 6 OF 23 3. AGGRIEVED BY THE ORDER PASSED BY LD. AO, ASSESSEE PREFERRED APPEAL BEFORE LD.CIT(A) WHO ALLOW ED THE CLAIM OF ASSESSEE IN RESPECT OF TRANSFER PRICING ADDITION, AND FOREIGN TRAVEL EXPENSE. THE ADDITION MADE BY LD.AO IN RESPECT OF MARKETING EXPENSES, PROVISION FOR WARRANTY, PROVISION FOR OBSOLESCENCE OF INVENTORY AND CLOSING STOCK WAS CONFIRMED BY LD . CIT (A). 4. AGGRIEVED BY THE ORDER OF LD. CIT (A) ASSESSEE IS IN APPEAL BEFORE US NOW. 5. AT THE OUTSET LD. AR SUBMITTED THAT GROUND NO. 1 AND 2 ARE GENERAL IN NATURE, GROUND NO. 3 (I) - (IV) ARE NOT PRESSED. 6. GROUND NO. 3 ( V ) - (V I ) : LD. AR SUBMITTED TH AT BY THESE GROUNDS ASSESSEE IS CLAIMING WORKING CAPITAL ADJUSTMENT AND RISK ADJUSTMENT IN THE COMPARABLES, VIS - A - VIS ASSESSE. 6.1. WORKING CAPITAL ADJUSTMENT LD .A R SUBMITTED THAT ASSESSEE HAD CLAIMED A WORKING CAPITAL ADJUSTMENT AND THE TRANSFER PRICING STUDY FOR THE YEAR UNDER CONSIDERATION. HE SUBMITTED THAT AT 5% ON AD HOC BASIS BY PLACING RELIANCE UPON HIS PREDECESSORS ORDER FOR ASSESSMENT YEAR 2002 - 03. HOWEVER LD. CIT (A) REJECTED THE ADJUSTMENT GRANTED ON ACCOUNT OF WORKING CAPITAL TO THE COMPARABLE AS HE WAS OF THE OPINION THAT LD. TPO HAD NOT DONE ANY CALCULATION TO CHECK WHETHER THERE IS AN DIFFERENCE IN THE WORKING CAPITAL BETWEEN THE COMPARABLE AND THAT OF THE ASSESSEE. ITA 2445/DEL/2010 ASSESSMENT YEAR 2003 - 04 NOKIA INDIA P.LTD., GURGAON PAGE 7 OF 23 6.2. LD. AR AT THE OUTSET SUBMITTED THAT THE ISSUE NOW STANDS SETTLED IN FAV OUR OF ASSESSEE BY VARIOUS ORDERS OF THIS TRIBUNAL IN ASSESSEE S OWN CASE FOR SUBSEQUENT ASSESSMENT YEAR, BEING 2007 - 08 AND TPO HIMSELF HAS ACCEPTED THE WORKING CAPITAL ADJUSTMENT FOR PREVIOUS ASSESSMENT YEARS BEING 2004 - 05, 2005 - 06, 2007 - 08 AND 2010 - 11. H E PLACED REFERENCE TO VARIOUS PAGES OF PAPER BOOK VOLUME 3 WHEREIN THE RELEVANT EXTRACTS IN RESPECT OF THESE ISSUE IN THE ORDER PASSED BY THIS TRIBUNAL ARE MENTIONED. 6.3. LD. AR ALSO PLACED RELIANCE UPON THE DECISION OF HON BLE DELHI HIGH COURT IN THE CAS E OF CHRIS C APITAL I NVESTMENT A DVISORS (INDIA) PVT. LTD. VERSUS DCIT REPORTED IN 376 ITR 183. 6.4. LD. AR FURTHER SUBMITTED THAT TO COMPUTE THE WORKING CAPITAL ADJUSTMENT IN RESPECT OF THE COMPARABLES VIS - A - VIS ASSESSEE THERE IS A SCIENTIFIC BASIS THAT NE EDS TO BE FOLLOWED. LD. TPO IN THE PRESENT CASE HAS GRANTED ADJUSTMENT OF 5% ON AD HOC BASIS. 6.5. ON THE CONTRARY LD. CIT DR HAS PLACED RELIANCE UPON THE ORDERS PASSED BY AUTHORITIES BELOW. 6.6. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH THE SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US AND THE RELIANCE PLACED BY LD. AR O N THE ORDER PASSED BY THIS TRIBUNAL IN ASSESSEE S OWN CASE FOR PREVIOUS AND SUBSEQUENT ASSESSMENT YEARS. 6.7. IT IS OBSERVED THAT THIS TRIBUNAL V IDE ORDER DATED 18/05/12 , FOR A SSESSMENT YEAR 2007 - 08 IN ITA NO. 4559/DEL/2011 , HELD AS UNDER: 20. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. ITAT DELHI BENCH E IN THE CASE OF ASSESSEE FOR ITA 2445/DEL/2010 ASSESSMENT YEAR 2003 - 04 NOKIA INDIA P.LTD., GURGAON PAGE 8 OF 23 ASSESSMENT YEAR 2006 - 07 IN ITA NO.551/DEL/2010 DT. 24.1 1.2011 AFTER CONSIDERING PROVISIONS OF SEC.92C HAS HELD AS UNDER. 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. IT IS AN UNDISPUTED FACT THAT ON THE SAME SET OF FACTS AND IN THE SAME BUSINESS MODEL THE ASSESSEE HAS BEEN PROVIDED THE WORKING CAPITAL ADJUSTMENTS IN THE PRECEDING ASSESSMENT YEARS. UNDER THE CIRCUMSTANCES, IN OUR CONSIDERED OPINION, IT WAS INCUMBENT UPON THE TPO TO CONSIDER THE SAME IN THE CURRENT YEAR. 6.1. IN THIS REGARD WE PL ACE RELIANCE UPON THE DECISION OF TH E HON ' BLE JURISDICTIONAL HIGH COURT IN THE CASE CIT VS . DALMIA PROMOTERS DEVELOPERS (P) LTD. 281 ITR 346 WHEREIN IT WAS HELD THAT FOR REJECTING TH E VIEW TAKEN IN EARLIER ASSESSMENT Y EARS , THERE MUST BE MATERIAL CHANG E IN THE FACT, SITUATION OR IN LA W . IN THIS CASE, CLEARL Y THERE IS NEITHER ANY CHANGE IN THE FACT , SITUATION OR I N LA W . HENCE , ON THE ANVIL OF ' THE HON ' BL E JURISDICTIONAL HIGH COURT DECISION (SUPRA), THE TPO SHOULD GRANT THE ASSESSEE APPROPRIATE WORKIN G CAPITAL ADJUSTMENT. ACCORDINGLY , THE MATTER IS REMITTED TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHOULD REMIT THE MATTER TO TH E TPO TO CONSIDER THE SAME IN LIGHT OF THE DIRECTIONS AS ABOVE . ' 21. THE FACTS OF THE CASE ARE IDENTICA L TO THE FACTS OF ASSESSMENT YEAR 20 06 - 07 . SINCE DRP HAS NOT GIVEN THE BENEFIT OF WORKING CAPITAL ADJUSTMENT WHILE COMPUTING THE ARM'S LENGTH PRICE IN RESPECT OF INTERNATIONAL TRANSACTION , WE SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH T HE DIRECTION TO EXAMINE THE CASE OF THE ASSESSEE AND DECIDE THE ISSUE AFRE S H IN ACCORDANCE WITH THE PROVISIONS OF LAW. THE A.O. WILL PROVIDE NECESSARY OPPORTUNITY TO THE ASSESSEE OF BEING HEARD. ITA 2445/DEL/2010 ASSESSMENT YEAR 2003 - 04 NOKIA INDIA P.LTD., GURGAON PAGE 9 OF 23 6.8. IT HAS BEEN SUBMITTED BY THE LD. AR THAT THERE HAS BE EN NO MATERIAL CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE FOR THE YEAR UNDER CONSIDERATION AND THEREFORE WE ARE INCLINED TO FOLLOW THE VIEW TAKEN BY THIS TRIBUNAL IN ASSESSEE S OWN CASE. 6.9. ACCORDINGLY WORKING CAPITAL ADJUSTMENT CLAIM IS SET ASID E TO THE FILE OF LD.TPO . LD. TPO IS DIRECTED TO FOLLOW THE SCIENTIFIC BASIS OF COMPUTING WORKING CAPITAL. 7. GROUND NO. 3 (VII) - (IX) 7.1. RISK ADJUSTMENT T HE LD. AR SUBMITTED THAT LD. CIT (A) HAS ERRED IN NOT ALLOWING THE BENEFIT OF RISK ADJUSTMENT FOR THE DIFFERENTIAL RISK PROFILE OF ITS C APTIVE S OFTWARE D EVELOPMENT S ERVICES AS COMPARED TO THE INDEPENDENT COMPARABLE COMPANIES. HE SUBMITTED THAT IT WAS UNACCEPTED POSITION BY LD. TPO THAT ASSESSEE IS A CONTRACT RESEARCH SERVICE PROVIDER IS A RISK INSULATED E NTITY WOULD AND THAT IN PRINCIPLE LD. TPO HAD AGREED FOR THE RISK ADJUSTMENT. HE SUBMITTED THAT LD. TPO HOWEVER DUE TO ABSENCE OF ROBUST DATA, DID NOT GRANT ANY RISK ADJUSTMENT. 7.2. ON THE CONTRARY LD. DR SUBMITTED THAT ASSESSEE HAD NOT MADE CLAIM OF RIS K ADJUSTMENT IN TP DOCUMENTS AT ALL. HE SUBMITTED THAT UNDER SUCH CIRCUMSTANCES ASSESSEE IS NOT ELIGIBLE TO GET THE RISK ADJUSTMENT. 7.3. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH THE SIDES AND IN THE LIGHT OF THE RECORDS PLACED BEFORE US. 7.4. IT I S OBSERVED FROM PARAGRAPH 10 AND 11 OF ORDER PASSED BY L D. TPO , THAT THERE IS NO DISPUTE REGARDING THE RISK FACTORS THAT ITA 2445/DEL/2010 ASSESSMENT YEAR 2003 - 04 NOKIA INDIA P.LTD., GURGAON PAGE 10 OF 23 SHOULD BE TAKEN INTO ACCOUNT BY GRANTING CERTAIN ADJUSTMENTS TO THE MAIN MARGIN OF COMPARABLES. LD. TPO HAS OBSERVED THAT ASSESSEE IS A CONTRACT RESEARCH SERVICE PROVIDE R TO ITS PARENT GROUP AND ARE NOT DEPENDENT ON MARKET SITUATIONS. IT IS ALSO BEEN OBSERVED BY LD. TPO THAT ASSESSEE IS ASSURED OF A FIXED RETURN ON COST AND THEREFORE THEY ARE RISK INSULATED ENTITY WHEREAS THE COMPARABLES C HOSEN ARE INDEPENDENT COMPANIES AND THERE S FULL RISK ASSOCIATED WITH THE NORMAL ENTERPRISE REAL VENTURE. AS ROBUST DATA WAS NOT AVAILABLE BEFORE LD. TPO, HE DID NOT GRANT ANY ADJUSTMENT IN REGARD TO THE RISK UNDERTAKEN BY THE COMPARABLES VIS - A - VIS NO RIS K UNDERTAKEN BY ASSESSEE. 7.5. LD. CIT (A) IS SILENT ON THE ISSUE. THE COMPARABLES THAT HAS BEEN RETAINED BY LD. CIT (A) DOES HAVE VERY HIGH/ABNORMAL PROFIT MARGINS. 7.6. IN ANYWAYS WE HAVE ALREADY SET ASIDE THE ISSUE REGARDING COMPARABLES SELECTED/RETAINE D BY LD. CIT (A) BACK TO THE FILE OF LD. TPO IN THE APPEAL FILED BY THE REVENUE FOR ASSESSMENT YEAR 2003 - 04 IN ITA NO. 2380/DEL/2010 VIDE ORDER DATED 06/12/2017 . A CCORDINGLY IT WOULD BE JUST TO SET ASIDE THIS ISSUE REGARDING GRANTING OF WORKING CAPITAL AND RISK ADJUSTMENT BACK TO THE FILE OF LD. TPO FOR RE - COMPUTATION, ON THE BASIS OF DATA MADE AVAILABLE TO HIM. 7.7. ACCORDINGLY THESE GROUND RAISED BY THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. 8. GROUND NO. 4 - 4.2 ITA 2445/DEL/2010 ASSESSMENT YEAR 2003 - 04 NOKIA INDIA P.LTD., GURGAON PAGE 11 OF 23 T HIS GROUND RAISED BY THE ASSES SEE RELATES TO THE DISALLOWANCE OF WARRANTY EXPENSES CLAIMED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. 8.1. DURING THE ASSESSMENT PROCEEDINGS ASSESSEE WAS REQUIRED TO FURNISH THE DETAILS IN RESPECT OF THE PROVISION FOR WARRANTY. LD. AR SUBMITTED T HAT EVEN AFTER FILING ALL THE NECESSARY DETAILS LD. AO FOLLOWED THE ORDER PASSED BY THE 1 ST APPELLATE AUTHORITY IN THE PRECEDING ASSESSMENT YEARS AND HELD THAT THE PROVISION FOR WARRANTY BEING A CONTINGENT LIABILITY WAS NOT ALLOWABLE AS BUSINESS EXPENDITUR E UNDER SECTION 37 (1) OF THE ACT. 8.2. AGGRIEVED BY THE ORDER OF LD. AO, ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT (A). BEFORE LD. CIT (A) ASSESSEE SUBMITTED THAT SIMILAR ISSUE CAME UP FOR HEARING BEFORE THIS TRIBUNAL IN ASSESSEE S OWN CASE FOR ASSESSM ENT YEAR 2000 - 01 AND 2001 - 02 WHEREIN THIS TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF ASSESSEE ALLOWING THE WARRANTY PROVISION. STILL LD. CIT (A) UPHELD THE FINDINGS OF LD. AO AND DISALLOWED THE PROVISION. 8.3. AGGRIEVED BY THE ORDER OF LD. CIT (A) ASSESSEE IS IN APPEAL BEFORE US NOW. 8.4. LD. AR SUBMITTED THAT THE ASSESSEE PROVIDES WARRANTY ON MOBILE HANDSETS IT SELLS FOR A PERIOD OF 12 MONTHS DURING WHICH IT EITHER REPAIRS OR REPLACES THE HANDSETS. HE SUBMITTED THAT THE PROVISION FOR WARRANTY IS MADE ON A SCI ENTIFIC BASIS WHICH HAS BEEN PUT DOWN IN DETAIL IN SUBMISSIONS FILED BEFORE LD. CIT (A) V IDE LETTER DATED 07/12/07 (PAPER BOOK VOLUME 2 PAGE 524 PARAGRAPH 4.4). HE SUBMITTED THAT ASSESSEE MAINTAINS ITS ACCOUNTS ON MERCANTILE BASIS ITA 2445/DEL/2010 ASSESSMENT YEAR 2003 - 04 NOKIA INDIA P.LTD., GURGAON PAGE 12 OF 23 AND THE LIABILITY WHICH A RE CLOSED DURING THE YEAR CAN BE CLAIM ED AS PROPER D EDUCTION AND CANNOT BE REGARDED AS A CONTINGENT LIABILITY. HE PLACED RELIANCE UPON THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF ROTORK CONTROL INDIA PVT.LTD., VS. CIT, REPORTED IN 314 ITR 62 ALONG WITH VARIOUS DECISIONS OF THIS TRIBUNAL IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2000 - 01 AND 2001 - 02. HE SUBMITTED THAT THE ORDER OF THIS TRIBUNAL FOR THESE ASSESSMENT YEARS HAS BEEN UPHELD BY HON BLE DELHI HIGH COURT V IDE ORDER DATED 19/10/10 AND 06/05 /10. HE SUBMITTED THAT NOW THE ISSUE HAS COME TO REST AS HON BLE DELHI HIGH COURT HAS UPHELD THE ORDER OF THIS TRIBUNAL ON THIS ISSUE. 8.5. ON THE CONTRARY LD. DR PLACED RELIANCE UPON THE ORDER OF AUTHORITIES BELOW. 8.6. IT IS OBSERVED THAT THE ISSUE HAS N OW COME TO REST BY THE DECISION OF HON BLE DELHI HIGH COURT IN ASSESSEE S OWN CASE IN 84 1/2009 & 842/2009 VIDE ORDER DATED 19.10.2010 . HON BLE COURT HAS DEALT WITH THE ISSUE AS UNDER: WE FIND FROM THE ORDER OF THE C I T AS WELL AS I TAT THAT THE EXPLANATION GIVEN BY THE ASSESSEE WAS THAT THIS PROVISION WAS MADE ON TH E BASIS OF PAST EXPERIENCE AND OTHER RELEVANT CONSIDERATION. THE VERY FACT THAT THE PROVISION FOR LESSER AMOUNT IS MADE IN SPITE OF THE FACT TH AT AS WELL AS HAD INDICATES IN THIS ISSUE WOULD ITSELF DEMONSTRATE THAT THERE WAS A PROPER APPLICATIO N OF MIND ON THE PART OF THE ASSESSEE IN MAKING THIS PROVISION. MERELY ON THIS GROUND, THE ASSESSING OFFICER COULD NOT HAVE DISALLOWED THE PROVISION TO THE ITA 2445/DEL/2010 ASSESSMENT YEAR 2003 - 04 NOKIA INDIA P.LTD., GURGAON PAGE 13 OF 23 EXTENT OF 25% AND THUS THE INCOME TAX APPELLATE TRIBUNAL RIGHTLY ALLOWED THE ENTIRE PROVISION TOWA RDS WARRANTY. WE MAY ALSO OBSERV E HERE THAT SUCH PROVISION HAS BEEN MADE IN PRECEDING AS WELL AS SUBSEQUENT ASSESSMENT YEARS AND HAS BEEN ALLOWED IN FULL BY THE ITAT AND AFFIRMED BY THIS COURT. THEREFORE, NO QUESTION OF LAW ARISES. 8.7. WE DO NOT FIND ANY MATERIAL DIFFERENCE IN THE FACTUAL CIRCUMSTANCES FOR THE YEAR UNDER CONSIDERATION VIS - A - VIS ASSESSMENT YEAR 2000 - 01 AND 2001 - 02. THEREFORE APPLYING THE PRINCIPLE OF CONSISTENCY, RESPECTFULLY FOLLOWING THE DECISION OF HON BLE DELHI HIGH COURT IN ASSESSE E S OWN CASE IN THE PRECEDING ASSESSMENT YEARS WE ALLOW THE CLAIM OF PROVISION FOR WARRANTY AS BUSINESS EXPENDITURE. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STAND ALLOWED. 9. GROUND NO. 5 AND 5 (I) T HIS ISSUE HAS BEEN RAISED BY ASSESSEE IN RESPECT OF T HE DIS ALLOWANCE ON MARKETING EXPENSES INCURRED BY ASSESSEE ON ACCOUNT OF PROVIDING HANDSETS TO ITS DEALERS AND EMPLOYEES, TREATING THE SAME AS CAPITAL ASSET. 9.1. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS LD. AO CALLED FOR DETAILS OF MARKETING EXPEN SES WHEREIN LD. AO OBSERVED THAT THE EXPENSES HAVE BEEN INCURRED ON ACCOUNT OF MOBILE PHONE HANDSETS ISSUED TO DEALERS EMPLOYEES WHICH WAS DISCLOSED UNDER THE HEAD PRODUCTS FOR MARKETING. LD. AO OBSERVED THAT THE OWNERSHIP OF THESE PHONES LIES WITH ASSESSE E AND THEREFORE ITA 2445/DEL/2010 ASSESSMENT YEAR 2003 - 04 NOKIA INDIA P.LTD., GURGAON PAGE 14 OF 23 ASSESSING OFFICER HELD THAT THESE EXPENSES WERE CAPITAL IN NATURE. HOWEVER LD. AO ALTERNATIVELY ALLOW ED DEPRECIATION ON THESE HANDSETS. 9.2. AGGRIEVED BY THE ORDER OF LD. AO ASSESSEE PREFERRED APPEAL BEFORE LD. CIT (A) WHO UPHELD THE OBS ER VATIONS AND FINDINGS OF LD. A O. 9.3. AGGRIEVED BY THE ORDER OF LD. CIT (A) ASSESSEE IS IN APPEAL BEFORE US NOW. 9.4. AT THE OUTSET LD. AR SUBMITTED THAT THIS ISSUE IS PENDING BEFORE LD. AO FOR ASSESSMENT YEAR 1998 - 99 AS IT WAS REMANDED BY THIS TRIBUNAL . IT HAS BEEN SUBMITTED BY LD. AR THAT HON BLE DELHI HIGH COURT FOR ASSESSMENT YEAR 2000 - 01 AND 2001 - 02 HAS REMITTED THE ISSUE BACK TO THIS TRIBUNAL TO CONSIDER ARGUMENTS ADVANCED BY ASSESSEE AND DEAL WITH THE SAME. HE SUBMITTED THAT THEREAFTER SUBSEQUENTLY FO R ALL THE ASSESSMENT YEARS THE I SSUE WAS REMITTED BACK TO LD. A O FOR FRESH CONSIDERATION . 9.5. LD. AR SUBMITTED THAT ASSESSING OFFICER HAD CALLED FOR PROOF O F HANDSETS BEING HANDED OVER TO THE EMPLOYEES, DEALERS ETC WHICH ARE NOT AVAILABLE WITH THE ASSESSE E. HE SUBMITTED THAT THE MOBILE PHONES PURCHASED BY ASSESSEE FORMS PART OF ITS STOCK IN TRADE AND THE UNSOLD PHONES AT THE END OF THE YEAR FORMS PART OF ITS CLOSING STOCK. LD. AR SUBMITTED THAT WHEN THE PHONES ARE ISSUED ON FREE OF COST BASIS , CORRESPONDING ADJUSTMENT IS MADE IN STOCK IN TRADE , AND ANY REDUCTION/ADJUSTMENT IN THE STOCK IN TRADE DUE TO DISTRIBUTION OF PHONES ON FREE OF COST BASIS SHOULD BE CONSIDERED AS REVENUE EXPENSES. ITA 2445/DEL/2010 ASSESSMENT YEAR 2003 - 04 NOKIA INDIA P.LTD., GURGAON PAGE 15 OF 23 9.6. HE SUBMITTED THAT SIMILAR ISSUE HAS BEEN SET ASIDE TO LD. AO BY THI S TRIBUNAL FOR ASSESSMENT YEAR 1998 - 99, HAS NOW BECOME TIME - BARRED AND LD. AO HAS NOT YET PASSED ANY ORDER IN RESPECT OF THE SAME. ATTENTION WAS INVITED TO THE COPIES OF THE ORDERS PLACED IN THE PAPER BOOK. HE SUBMITTED THAT UNLESS THIS ISSUE IS DECIDED BY THIS T RIBUNAL IT WOULD NEVER REACH TO A LOGICAL CONCLUSION. HE SUBMITTED THAT IN THE INTEREST OF NATURAL JUSTICE THE ISSUE MAY BE CONSIDERED AND DECIDED FOR THE YEAR UNDER CONSIDERATION SO AS TO ATTAIN SOME CERTAINTY. 9.7. ON THE CONTRARY LD. DR PLACED RE LIANCE UPON THE ORDERS OF LD. AO AND SUBMITTED THAT THE ISSUE MAY BE SET ASIDE TO THE FILE OF LD. AO FOR VERIFICATION OF THE ISSUE AS HAS ALWAYS BEEN CONSISTENTLY DONE BY THIS TRIBUNAL IN THE OTHER ASSESSMENT YEARS. 9.8. WE HAVE PERUSED THE SUBMISSIONS ADV ANCED 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 CONTESTING THE ISSUE HAD CATEGORICALLY SUBMITTED THAT ASSESSEE DO NOT HAVE BILLS OF HAVI NG BEEN ISSUED TO ITS EMPLOYEES/DEALERS ETC FREE OF COST. HE THUS SUBMITTED THAT SETTING 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 DE CIDE THE ISSUE IN THE LIGHT OF THE RECORDS PLACED BEFORE US, ORDERS PASSED BY AUTHORITIES BELOW AS WELL AS THE SUBMISSIONS ADVANCED BY BOTH THE SIDES . ITA 2445/DEL/2010 ASSESSMENT YEAR 2003 - 04 NOKIA INDIA P.LTD., GURGAON PAGE 16 OF 23 9.10. IT IS OBSERVED THAT ASSESSEE HAS SHOWN MARKETING EXPENSES TO THE TUNE OF RS. 53, 31, 919/ - ON ACCOU NT OF MOBILE PHONE HANDSETS ISSUED TO AM SC, DEALERS AND EMPLOYEES ETC. LD. AR HAS SUBMITTED IN HIS WRITTEN SUBMISSION DATED 04/12/2017 THAT THE HANDSET GIVEN ON FREE OF COST BASIS TO AM SC, DEALERS AND EMPLOYEES ARE NO LONGER OWNED BY ASSESSEE. HE IT HAS BEEN SUBMITTED THAT THE TITLE IN THE MOBILE PHONES IS ALSO TRANSFERRED. UNDISPUTEDLY ASSESSEE IS A COMPANY WHICH IS ENGAGED IN IMPORT AND SALE OF MOBILE HANDSETS. IT HAS A WIDE TEAM OF DEALERS AND SALES PERSONNEL. ASSESSEE HAS GIVEN FREE OF COST MOBILE TO ALL THESE PERSONS FOR COMMUNICATION AMONGST THEMSELVES FOR THE BUSINESS OF ASSESSEE. ASSESSEE HAS THEREFORE DEBITED THE COST OF THESE PHONES AS MARKETING EXPENSES AND REDUCED IT FROM ITS INVENTORY. APPARENTLY ASSESSEE DO NOT OWN A THESE PHONES AND AS IT H AS BEEN REDUCED FROM THE STOCK AND NO BILL IS REQUIRED TO BE PREPARED. APPARENTLY THE MOBILE PHONES WILL NOT BE RETURNED TO ASSESSEE AS THEY WOULD BE USED BY THE RECIPIENTS EFFECTIVE USEFUL LIFE. THEREFORE NATURALLY THE EXPENDITURE OF GIVING PHONES TO SALE S TEAM IS AN EXPENDITURE INCURRED BY ASSESSEE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF ASSESSEE. ASSESSEE HAS ALSO NOT CAPITALISED THESE PHONES FOR THE OBVIOUS REASONS THAT PHONES ARE NOT OWNED BY ASSESSEE AND THEREFORE THERE IS NO REQUIREMENT OF CLAIM OF DEPRECIATION THEREON. IN OUR VIEW AS EXPENDITURE IS REVENUE IN NATURE, ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 37 (1) ONLY. HENCE THE GROUND RAISED BY ASSESSEE STANDS ALLOWED. ITA 2445/DEL/2010 ASSESSMENT YEAR 2003 - 04 NOKIA INDIA P.LTD., GURGAON PAGE 17 OF 23 10. G ROUND NO. 6 T HIS GROUND HAS BEEN RAISED BY ASSESSEE AGAINST ENHANCEMENT OF VALUE OF CLOSING STOCK ON THE GROUND THAT THE HANDSETS DAMAGED DURING THE TRANSIT AND THOSE PROVIDED TO ASSESSEE S EMPLOYEES AND DEALERS ETC ARE TO BE TREATED AS CAPITA L ASSETS. IN THE FOREGOING PARAGRAPHS IN RESPECT OF GROUND NUMBERS 5 AND 5.1 THE COST OF HANDSETS GIVEN AWAY TO EMPLOYEES AND SALES TEAM HAVE BEEN TREATED TO BE REVENUE IN NATURE. FURTHER ADMITTEDLY ASSESSEE HAS NOT CAPITALISED SUCH HANDSETS GIVEN AWAY TO THE SALES TEAM AND EMPLOYEES BY REDUCING IT FROM THE INVENTORY STOCK. AS THESE HANDSETS ARE HELD TO BE NOT OWNED BY ASSESSEE VALUE OF SUCH HANDSETS CANNOT BE ADDED BACK TO THE CLOSING STOCK. THIS WOULD AMOUNT TO DOUBLE EDITION. ACCORDINGLY THIS GROUND RAIS ED BY ASSESSEE STANDS ALLOWED. 10. 1 . THIS GROUND RAISED BY ASSESSEE STANDS ALLOWED. 11. GROUND NO. 7 T HIS GROUND HAS BEEN RAISED AGAINST THE DISALLOWANCE OF 25% OF PROVISION FOR STOCK OBSOLESCENCE BY TREATING THE SAME AS UNEXPLAINED. 11.1. LD. AR SUBMITTE D THAT ASSESSEE HAD DEBITED A SUM OF RS. 3, 400, 339/ - AS PROVISION FOR OBSOLETE INVENTORY. IT WAS SUBMITTED BY ASSESSEE BEFORE THE AUTHORITIES BELOW THAT THE PROVISION REPRESENTS THE VALUE OF NON - MOVING INVENTORY OF SPARE PARTS AND ACCESSORIES OF ITA 2445/DEL/2010 ASSESSMENT YEAR 2003 - 04 NOKIA INDIA P.LTD., GURGAON PAGE 18 OF 23 THE MOBIL E HANDSETS WHICH HAD BEEN FACED OUT OF THE MARKET DUE TO TECHNOLOGICAL ADVANCEMENTS. ASSESSEE HAD THEREFORE MADE 100% PROVISION FOR THE VALUE OF NON - MOVING INVENTORY OF SPARE PARTS/ACCESSORIES OF PHONE MODELS WHICH HAS BEEN FACED OUT. LD. AR FURTHER SUBMITT ED THAT THE PROVISION TOWARDS OBSOLETE INVENTORY WAS IN ACCORDANCE WITH GLOBAL COMPANY POLICY FOR OBSOLESCENCE OF ASSESSEE WHICH HAS BEEN SUBMITTED BEFORE THE AUTHORITIES BELOW. OUR ATTENTION WAS DRAWN AT PAGE S 539 - 540 WHERE THE SUBMISSIONS ADVANCED BY ASS ESSEE BEFORE LD. CIT (A) WAS MADE V IDE LETTER DATED 07/12/07. 11.2. IT HAS BEEN SUBMITTED BY LD. AR THEREIN THAT THE METHOD HAS BEEN CONSISTENTLY FOLLOWED OVER THE PERIOD OF YEARS AND THE ACTUAL OBSOLESCENCE DURING THE YEAR IS CHARGED TO SUCH PROVISION FOR OBSOLESCENCE ACCOUNT. 11.3. LD. CIT DR PLACES RELIANCE UPON THE ORDERS OF AUTHORITIES BELOW. 11.4. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH THE SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US. 11.5. IT IS OBSERVED THAT ACCOUNTING STANDARDS 2 IS SUED BY ICAI REQUIRES THE VALUATION OF INVENTORY TO BE VALUED AT LOWER OF COST OR NET REALISABLE VALUE. IN THE FACTS OF THE PRESENT CASE AS CERTAIN HANDSETS HAVE BECOME OBSOLETE DUE TO TECHNOLOGICAL ADVANCEMENTS, ASSESSEE TREATED THE VALUE OF SUCH STOCK AT NI L AND A PROVISION FOR OBSOLESCENCE OF STOCK HAS BEEN CREATED. LD. AO MADE AN AD HOC ADDITION OF 25% OF PROVISION OF OBSOLESCENCE IN THE HANDS OF ASSESSEE WHICH WAS SUBSEQUENTLY CONFORMED BY LD. CIT (A). ITA 2445/DEL/2010 ASSESSMENT YEAR 2003 - 04 NOKIA INDIA P.LTD., GURGAON PAGE 19 OF 23 11.6. LD. CIT (A) IN HIS REASONING HAS PLACED RELIANC E UPON THE DECISION OF THIS TRIBUNAL IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2000 - 01 AND 2001 - 02. HE WAS OF THE OPINION THAT AS ASSESSEE WAS UNABLE TO ESTABLISH THE GOODS AS PER THE LIST FURNISHED HAD GONE OBSOLETE BASED ON SOME MARKET SURVEYS OR REPORT S FROM ITS MARKETING DEPARTMENT THE SAME COULD NOT BE ALLOWED. 11.7. WE HAVE PERUSED THE ORDER PASSED BY THIS TRIBUNAL FOR ASSESSMENT YEAR 2000 - 01 AND 2001 - 02. THIS TRIBUNAL HAD DECIDED THIS ISSUE AS UNDER: WE FIND THAT WHAT HAS BEEN PROVIDED BY ASSESSEE IS MERELY LIST OF ITEMS SAID TO BE TREATED AS OBSOLETE AND NAMES OF THE MODEL WHICH HAD GONE OUT OF MARKET. ASSESSEE COULD NOT EXPLAIN QUERIES OF THE AO AND COULD NOT JUSTIFY FROM MARKET SURVEY OR REPORTS FROM THE QUALITY CONTROL AND MARKETING DEPARTMEN TS PREPARED IN REGULAR COURSE OF BUSINESS SUGGESTING PHASING OUT THE MODEL FROM T IME TO TIME. IN OUR VIEW, CIT(A ) HAS APPRECIATED THE MATTER PROPERLY IN HOLDING THAT LIST OF SUCH ITEMS WOULD NOT JUSTIFY ALLOWABILITY OF ENTIRE CLAIM OF OBSOLESCENCE. THERE FORE, WE UPHOLD 25% REDUCTION IN THE CLAIM. THIS GROUND OF ASSESSEE IS DISMISSED. 12. ON APPEAL BEFORE HON BLE HIGH COURT, THE COURT HELD AS UNDER: 9. FROM THE READING OF THE ORDERS OF THE AO AS WELL AS CIT(A), WE FIND THAT IN RESPECT OF THIS CLAIM, T HE ASSESSING AUTHORITY HAD SENT QUESTIONNAIRE TO THE ASSESSEE TO FURNISH DETAILS AND JUSTIFICATION OF THE CLAIM OF PROVISION OF OBSOLESCENCE OF INVENTORY. NO DOUBT, THE ASSESSEE HAD SUPPLIED CERTAIN INFORMATION IN REPLY TO SUCH ITA 2445/DEL/2010 ASSESSMENT YEAR 2003 - 04 NOKIA INDIA P.LTD., GURGAON PAGE 20 OF 23 QUESTIONNAIRE, HOWEVER, AS A FACT THE AO FOUND THAT THE ASSESSEE HAD NOT FURNISHED ANY PAPERS/DOCUMENTS IN SUPPORT OF CLAIM MADE IN PROVISION ACCORDING TO THE OBSOLESCENCE OF INVENTORY. THUS, THE CLAIM WAS DISALLOWED ONLY ON ACCOUNT OF NON FURNISHING OF THE REQUISITE INFORMATION I N THIS REGARD. HAVING REGARD TO THE AFORESAID FACTS, INSOFAR AS THESE TWO ASSESSMENT YEARS IS CONCERNED AND THE AMOUNT INVOLVED, SO FAR THE ISSUE OF THE CLAIM FOR OBSOLESCENCE IS CONCERNED, WE ARE OF THE OPINION THAT NO SUBSTANTIAL QUESTION OF LAW ARISES FOR OUR CONSIDERATION. WE MAY, HOWEVER, MAKE IT CLEAR THAT SINCE THE ASSESSMENTS ORDER WERE PASSED, WHICH WAS MODIFIED TO THE EXTENT MENTIONED ABOVE BY THE CIT(A) TAKING INTO CONSIDERATION THE FACTUAL POSITION APPEARING IN THESE TWO ASSESSMENT YEARS, IT WOULD NOT PRECLUDE THE ASSESSEE FOR GIVING REQUISITE INFORMATION IN THIS BEHALF FOR SUCCEEDING YEARS FOR SUSTAINING THEIR CLAIM IN THIS REGARD. ONCE SUCH AN INFORMATION IS PROVIDED WHILE MAKING ASSESSMENT, AO WOULD GIVE DUE CONSIDERATION. 12.1. BEFORE US LD. AR HAS SUBMITTED THAT ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING THE GLOBAL POLICY FOR OBSOLESCENCE FORMULATED BY ASSESSEE. HE SUBMITTED THAT THERE CANNOT BE ANY MARKET SURVEY REPORTS ETC TO SHOW THAT CERTAIN HANDSETS, AND ACCESSORIES USED BY ASSESSEE HAS BECOME OBSOLETE DUE TO ADVANCEMENT OF MOBILE COMMUNICATION TECHNOLOGY AND SUBSTANTIAL CHANGE IN MODELS AND DESIGNS. HE HAD SUBMITTED THAT THE DETAILS THAT WAS CALLED FOR BY AUTHORITIES BELOW WAS IN RESPECT OF ANY DOCUMENTATION TO PROVE THAT THE HANDSE TS HAVE BECOME OBSOLETE. ITA 2445/DEL/2010 ASSESSMENT YEAR 2003 - 04 NOKIA INDIA P.LTD., GURGAON PAGE 21 OF 23 12.2. IN OUR CONSIDERED OPINION ASSESSEE HAS CREATED THE PROVISION FOR OBSOLESCENCE WITH THE VIEW THAT IN THE EVENT FOR ANY REASON THESE HANDSETS/ACCESSORIES BECOME SALEABLE IT WOULD ANYWAYS FORM PART OF PROFITS. 12.3. WE T HEREFORE SET ASIDE THIS ISSUE TO LD. AO FOR VALUING SUCH OBSOLETE STOCK AT NET REALISABLE VALUE. HE SHOULD GIVE DUE CONSIDERATION TO THE INFORMATION IF ANY, PROVIDED BY THE ASSESSEE. 12.4. THIS GROUND RAISED BY THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. 13. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30.01.2018. SD/ - S D/ - (N.K.SAINI) (BEENA A PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 30 TH JANUARY, 2018 MV ITA 2445/DEL/2010 ASSESSMENT YEAR 2003 - 04 NOKIA INDIA P.LTD., GURGAON PAGE 22 OF 23 COPY FORWARDED TO: - 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR, ITAT - TRUE COPY - BY ORDER, ASSISTANT REGISTRAR ITAT DELHI BENCHES ITA 2445/DEL/2010 ASSESSMENT YEAR 2003 - 04 NOKIA INDIA P.LTD., GURGAON PAGE 23 OF 23 S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON DRAGON SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR. PS/PS 6 KEPT FOR PRONOUNCEMENT 30.01.2018 SR. PS/PS 7 FILE SENT TO BENCH CLERK SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER