Nokia India Sales Pvt. Ltd., New Delhi V. Addl.CIT, Special Range-6, , New Delhi

ITA 2527/DEL/2018

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 8812 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-01-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2014-2015
• Appeal Filed On: 11-04-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: AND AGAINST DATED PASSED
• Keywords: Capital asset; Business income; Depreciation; Double taxation relief; Principle of natural justice; Application of stay; Additional evidence; Wholly owned subsidiary; Non-deduction of tax; Corroborative evidences; Commercial expediency; Revised return; Revenue expenditure; TDS
• Section: 40(a)(ia); 133(6); 37(1); 195; 250; 194J; 13; 22

Judgement Text

1 ITA NOS. 2527/DEL/2018 & 4425/DEL/201 8 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D NEW DELHI BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A. NO. 2527/DEL/20 18 (A.Y 2014-15) A/W STAY NO. 366/DEL/2020 (A.Y 2014-15) (THROUGH VIDEO CON FERENCING) NOKIA INDIA SALES PVT. LTD. 807, NEW DELHI HOUSE, BARAKHAMBA ROAD, NEW DELHI PAN: AACCN9141L (APPELLANT) VS ADDL. CIT SPECIAL RANGE-6 ROOM NO. 352, C. R. BUILDING, I. P. ESTATE, NEW DELHI (RESPONDENT) I.T.A. NO. 4425/DEL/ 2018 (A.Y 2014-15) NOKIA INDIA SALES PVT. LTD. 807, NEW DELHI HOUSE, BARAKHAMBA ROAD, NEW DELHI PAN: AACCN9141L (APPELLANT) VS ADDL. CIT SPECIAL RANGE-6 ROOM NO. 352, C. R. BUILDING, I. P. ESTATE, NEW DELHI (RESPONDENT) ORDER PER SUCHITRA KAMBLE, JM THESE TWO APPEALS ARE FILED BY THE ASSESSEE AND THE REVENUE AGAINST THE ORDER DATED 22/2/2018 PASSED BY CIT(A) -19, NEW DEL HI FOR ASSESSMENT YEAR 2014-15. APPELLANT BY SH. NAGESHWAR RAO, ADV & SH. PURUSHATTAM ANAND, ADV. RESPONDENT BY SH. PRABHA KANT, CIT(DR) DATE OF HEARING 05.01.2021 DATE OF PRONOUNCEMENT 12.01.2021 2 ITA NOS. 2527/DEL/2018 & 4425/DEL/201 8 2. THE GROUNDS OF APPEAL ARE AS UNDER:- I.T.A. NO. 2527/DEL/2018 (ASSESSEES APPEAL) APPEAL AGAINST THE ORDER PASSED UNDER SECTION 250 OF THE INCOME TAX ACT, 1961 (THE ACT) DATED FEBRUARY 22, 2018 FOR THE AS SESSMENT YEAR 2014-15 BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- X IX, NEW DELHI [CIT(A)] 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DISALLOWING THE COST INCURRED B Y THE APPELLANT ON PHONES ISSUED TO EMPLOYEES, DEALERS AND CARE CENTERS ON FR EE OF COST (FOC) BASIS, PURPORTEDLY ON THE GROUND THAT THE APPELLANT DID NO T FILE DETAILS IN SUPPORT OF ITS CLAIM FOR SUCH PHONES, EVEN THOUGH THE APPELLAN T HAS PLACED STOCK WITHDRAWAL REQUISITION FORMS AND DELIVERY RELATED D OCUMENTS ON SAMPLE BASIS FOR ISSUANCE OF FOC PHONES BEFORE THE AO. 1.1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE ORDER OF THE LEAR NED AO, IN LIGHT OF THE FACT THAT THE LEARNED AO TREATED THE COST INCURRED BY TH E APPELLANT ON PHONES ISSUED TO EMPLOYEES, DEALERS AND CARE CENTERS EITHE R AS A CAPITAL EXPENSE OR NOT ALLOWABLE AS A BUSINESS EXPENSE UNDER THE PROVI SIONS OF SECTION 37(1) OF THE ACT. 1.2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN NOT APPRECIATING THAT THE COST OF FOC PHONES ISSUED TO CARE CENTERS IS IN THE NATURE OF EXPENSES INCURRED AGAINST DEFECTIVE PHONES AND THUS, ALLOWABLE AS BUSINESS EXPENSE UNDER THE P ROVISIONS OF SECTION 37(1) OF THE ACT. 1.3. THAT WITHOUT PREJUDICE TO ABOVE, ON THE FACTS AND C IRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN NO T APPRECIATING THE FACT THAT THE LEARNED AO HAS NOT ALLOWED TAX DEPRECIATION ON THE COST OF FOC PHONES ISSUED TO DEALERS, DESPITE MAKING A SPECIFIC REFERE NCE TO THE SAME IN THE ASSESSMENT ORDER DATED DECEMBER 26, 2016, THEREBY C ONTRADICTING THE AFORESAID DISALLOWANCE MADE BY HIM. 3 ITA NOS. 2527/DEL/2018 & 4425/DEL/201 8 1.4. THAT WITHOUT PREJUDICE TO ABOVE, THE LEARNED CIT(A) HAS ERRED IN NOT GRANTING DEDUCTION OF ROLL-OVER DEPRECIATION ON THE WRITTEN DOWN VALUE OF THE FOC PHONES ISSUED TO DEALERS AND EMPLOYEES, WHICH W ERE TREATED AS CAPITAL ASSETS BY THE LEARNED AO IN THE HANDS OF NISPL IN A Y 2013-14. 2. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, DE LETE, RESCIND, FORGO OR WITHDRAW ANY OF THE ABOVE GROUNDS OF APPEAL EITHER BEFORE OR DURING THE HEARING BEFORE THE HONBLE TRIBUNAL. FURTHER, THE A FORESAID GROUNDS ARE MUTUALLY EXCLUSIVE AND WITHOUT PREJUDICE TO EACH OT HER. THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTH ER. I.T.A. NO. 4425/DEL/2018 (REVENUES APPEAL) 1. WHETHER ON FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS LEGALLY JUSTIFIED IN DELETING DISALLOWAN CE OF RS. 1422,26,42,726/- U/S 40(A)(I) ON ACCOUNT OF NON-DED UCTION OF TAX ON PAYMENT FOR EMBEDDED SOFTWARE/ROYALTY WHEN THE AMOUNT IS EV EN TAXABLE UNDER INDIA- FINLAND DTAA? 2. WHETHER ON FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS LEGALLY JUSTIFIED IN DELETING DISALLOWANCE OF RS . 669,23,96,959/- U/S 40(A)(IA) ON ACCOUNT OF TRADE OFFERS TO HCL INFOSYS TEMS LTD. WHEN THE PAYMENT ARE IN THE NATURE OF COMMISSION OR SERVICES PROVIDED BY HCL INFOSYSTEMS LTD. ARE IN THE NATURE OF COMMISSION OR - SERVICES PROVIDED BY HCL INFOSYSTEMS LTD ARE IN THE NATURE OF CONSULTANCY? 3. WHETHER ON FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS LEGALLY JUSTIFIED IN DELETING DISALLOWANC E OF RS. 584,86,39,994/- U/S 40(A)(IA) ON ACCOUNT OF TRADE OFFERS TO OTHER DISTR IBUTORS? 4 ITA NOS. 2527/DEL/2018 & 4425/DEL/201 8 4. WHETHER ON FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS LEGALLY JUSTIFIED IN DELETING DISALLOWANCE OF RS. 19,52,32, 441/- ON ACCOUNT OF TRADE PRICE PROTECTION WHERE THE ASSESSEE FAILED TO ADDUC E ANY COGENT EVIDENCE TO SHOW THAT IT IS RELATED TO BUSINESS OF ASSESSEE COM PANY? 5. WHETHER ON FACTS AND IN CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) IS LEGALLY JUSTIFIED IN DELETING DISALLOWANCE OF RS. 2 ,35,00,000/- ON ACCOUNT OF OBSOLESCENCE OF INVENTORY WHEN THE ASSESSEE HAS NO EVIDENCE TO SUPPORT THE CONTENTION OF PROVISION OF OBSOLETE STOCK? 6. WHETHER ON FACTS AND IN CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) IS LEGALLY JUSTIFIED IN DELETING DISALLOWANCE OF RS. S 4,57,72,946/- ON ACCOUNT OF ADVERTISEMENT & PUBLICITY EXPENSES EVEN THOUGH SUCH EXPENSES ARE INCURRED FOR BENEFITS OF ENDORSING NATURE? 3. NOKIA INDIA SALES PRIVATE LIMITED (NISPL) WAS INCORPORATED AS NOKIA SALES SERVICES PRIVATE LTD IN DECEMBER 2008. THE NA ME OF THE COMPANY WAS CHANGED TO NOKIA INDIA SALES PRIVATE LIMITED ON MAR CH 18, 2011. THE ASSESSEE COMPANY IS AN INDIRECTLY WHOLLY OWNED SUBSIDIARY OF NOKIA CORPORATION OY, FINLAND AND IS ENGAGED IN THE BUSINESS OF MARKETING , DISTRIBUTION AND SALES OF MOBILE PHONES (INCLUDING ACCESSORIES) AND SERVICES. THIS BUSINESS OF THE ASSESSEE WAS EARLIER HANDLED BY M/S NOKIA INDIA PVT . LTD. (NIPL), ANOTHER SUBSIDIARY OF NOKIA CORPORATION OY, TILL ABOUT END OF DECEMBER, 2012 AND IN THAT SENSE NIPL IS BUSINESS PREDECESSOR TO THE ASSE SSEE. THE ASSESSEE FILED E- RETURN DECLARING TOTAL INCOME OF RS.286,06,91,570/- ON 30/11/2014 AND REVISED RETURN DECLARING RS. 296,66,91,570/- ON 8/2 /2014. THE ASSESSING OFFICER ASSESSED TOTAL INCOME OF THE ASSESSEE AND C OMPUTED THE SAME AFTER ADDITION AND DISALLOWANCE AS UNDER:- 5 ITA NOS. 2527/DEL/2018 & 4425/DEL/201 8 RETURNED INCOME AS PER REVISED RETURN RS. 296,66,91,570/ - ADD: DISALLOWANCE U/S 40(A)(I) FOR NON - DEDUCTION OF TAX ON PAYMENT FOR EMBEDDED SOFTWARE/ROYALTY RS. 1422,26,42,726/ - DISALLOWANCE OF TRADE OFFERS TO HCL INFOSYSTEMS LTD RS. 669,23,96,959/ - DISAL DISALLOWANCE OF TRADE OFFERS TO OTHER DISTRIBUTORS RS. 584,86,39,994/ - DISALLOWANCE OF TRADE PRICE PROTECTION RS. 19,52,32,441/ - DISALLOWANCE OF MARKETING EXPENSES (FOC PHONES) RS. 27,85,51,781/ - DISALLOWANCE OF OBSOLESCENCE OF INVENTORY RS. 2,35,00,000/ - DISALLOWANCE OF ADVERTISEMENT & PUBLICITY EXPENSES RS. 4,57,72,946/ - ASSESSED INCOME RS. 3027,34,28,417/ - THUS, THE ASSESSING OFFICER ASSESSED THE INCOME OF THE ASSESSEE AT RS. 3027,34,28,417/-. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED THE APPEAL O F THE ASSESSEE. 5. FIRSTLY, WE ARE TAKING UP THE ASSESSEES APPEAL. AS REGARDS TO SOLE ISSUE IN ASSESSEES APPEAL RELATING TO DISALLOWANCE OF FR EE OF COST CFOC) PHONES ISSUED TO EMPLOYEES, DEALERS AND CARE CENTERS, THE LD. AR SUBMITTED THAT NISPL ISSUED FREE OF COST (FOC) PHONES TO CARE CENT ERS, DEALERS AND EMPLOYEES WHICH ARE TOTALLY ALLOWABLE AS BUSINESS EXPENSE UND ER SECTION 37(1) OF THE ACT. THESE HANDSETS WERE ISSUED TO CARE CENTERS AS 'SWAP HAND-SETS' IN THE EVENT THE HANDSET SOLD TO THE CUSTOMER WERE FOUND TO BE D EFECTIVE AND COULD NOT BE REPAIRED DURING THE WARRANTY PERIOD. SIMILARLY, PHO NES WERE ISSUED TO DISTRIBUTORS AND RE-DISTRIBUTORS FOR DISPLAY AND PR OMOTIONAL PURPOSES AND ALSO TO EMPLOYEES FOR OFFICIAL USE AND ALSO TO ACT AS A PASSIVE/ DEMONSTRATIVE ADVERTISEMENT STRATEGY FOR REACHING OUT TO CUSTOMER S AT LARGE. THE DETAILS AND BREAK UP OF FOC PHONES ARE MENTIONED IN THE ASSESSM ENT ORDER. NISPL ALSO 6 ITA NOS. 2527/DEL/2018 & 4425/DEL/201 8 DULY FOLLOWED AND MAINTAINED RECORD OF FOC PHONES A ND ALSO SUBMITTED DULY FILLED IN STOCK REQUISITION FORMS TO ASSESSING OFFI CER, ON SAMPLE BASIS, WHICH INCLUDED DETAILS OF NUMBER AND MODEL OF HANDSETS RE QUIRED ALONG WITH THE PURPOSE FOR WHICH THE SAME SHALL BE USED. THE ASSES SING OFFICER HELD EXPENDITURE ON FOC PHONES TO BE CAPITAL IN NATURE A ND THAT ASSESSEE CAN ONLY CLAIM DEPRECIATION ON PHONES ISSUED TO THE EMPLOYEE S. THE ASSESSING OFFICER HEAVILY RELIED ON EARLIER ASSESSMENTS IN CASE OF NI PL AND SPECIFICALLY NOTED THAT FACTS ARE SAME AND THERE WAS NO REASON TO DEVIATE F ROM THE EARLIER FINDINGS. THE CIT(A) ALSO UPHELD THE ADDITIONS BY THE ASSESSING O FFICER AND HELD THAT THERE WAS NO SUPPORTING DOCUMENTS TO SHOW THAT PHONES WER E ACTUALLY ISSUED. THE LD. AR SUBMITTED THAT THE TRIBUNAL HAS ALREADY ADJU DICATE THIS ISSUE IN CASE OF NOKIA INDIA PVT. LTD. SAME ENTITY REFERRED TO BY TH E ASSESSING OFFICER, VIDE ORDER DATED 30.01.2018 IN ITA NO. 2445/DEL/2010 FOR AY 20 03-04 WHICH HAS ALSO BEEN UPHELD BY HONBLE JURISDICTIONAL HIGH COURT VI DE ORDER DATED 31 AUGUST 2018 IN ITA 955/2018. 6. THE LD. DR SUBMITTED THAT THE MAIN GROUND OF APP EAL OF THE ASSESSEE IS AGAINST DISALLOWANCE OF FREE OF COST PHONES ALLEGED LY GIVEN TO EMPLOYEES, DISTRIBUTORS AND TO CUSTOMERS AS REPLACEMENT OF ALR EADY SOLD PHONES. THE ASSESSEE CLAIMED THAT THESE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS HENCE MUST BE ALLOWED U/S 3 7. THE LD. DR SUBMITTED THAT BEFORE ANY EXPENSE IS HELD TO BE ALLOWABLE OR DISALLOWABLE, THERE HAS TO BE AN EXPENSE AND THE ASSESSEE MUST PROVE WITH DOCUMEN TARY EVIDENCE THAT IT INCURRED EXPENSE. THE ASSESSING OFFICER CALLED FOR DETAILS WITH SUPPORTING EVIDENCE OF EXPENDITURE CLAIMED TO HAVE BEEN INCURR ED ON SUPPLY OF FREE OF COST HANDSETS. THE LD. DR FURTHER SUBMITTED THAT THE ASS ESSEE DID NOT FURNISH DETAILS BEFORE THE ASSESSING OFFICER AS WELL AS BEF ORE THE CIT(A). THE CIT(A) IN PARA 8.2 OF THE APPELLATE ORDER HELD AS UNDER: 'I FIND THAT THE APPELLANT COULD NOT FILE DETAILS I N SUPPORT OF ITS CLAIM THAT FREE OF COST PHONES WERE ISSUED TO THE EMPLOYEES, DEALER S ETC. IN ABSENCE OF 7 ITA NOS. 2527/DEL/2018 & 4425/DEL/201 8 SUPPORTING DOCUMENTS, I DO NOT FIND ANY MERIT IN TH E ARGUMENTS OF THE APPELLANT THAT THESE PHONES WERE ACTUALLY ISSUED.' THUS, THE LD. DR SUBMITTED THAT IN ABSENCE OF EVIDE NCE SUCH EXPENSES CANNOT BE ALLOWED EVEN IF IN EARLIER YEARS SUCH EXPENSES W ERE ALLOWED. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT THE CIT(A) AS WELL AS THE ASSESSING OFFICER HAS CLEARLY MENTIONED IN THEIR RESPECTIVE ORDER THA T NO DETAILS IN SUPPORT OF ITS CLAIM WAS FURNISHED BY THE ASSESSEE. FROM THE PERUS AL OF THE SUBMISSIONS OF THE ASSESSEE BEFORE THE ASSESSING OFFICER AND THE C IT(A), IT CAN BE SEEN THAT ONLY SAMPLE COPIES WERE GIVEN AND EXTENSIVE DETAILS OF EACH PARTY WAS NOT GIVEN BEFORE THE REVENUE AUTHORITIES. THEREFORE, WE DIREC T THE ASSESSEE TO PRODUCE THE DETAILS IN CONSONANCE TO THE CLAIM OF THE ASSES SEE BEFORE THE ASSESSING OFFICER. THUS, WE REMAND BACK THIS ISSUE TO THE FIL E OF THE ASSESSING OFFICER FOR TAKING INTO ACCOUNT THE EVIDENCES FOR CONSIDERATION OF ASSESSEES CLAIM AND THEREAFTER PASSING THE ORDER AS PER THE DECISION OF THE TRIBUNAL IN CASE OF NOKIA INDIA PVT. LTD. SAME ENTITY REFERRED TO BY THE ASSE SSING OFFICER, VIDE ORDER DATED 30.01.2018 IN ITA NO. 2445/DEL/2010 FOR AY 2003-04 WHICH HAS ALSO BEEN UPHELD BY HONBLE JURISDICTIONAL HIGH COURT VIDE OR DER DATED 31 AUGUST 2018 IN ITA 955/2018. NEEDLESS TO SAY, THE ASSESSEE BE G IVEN OPPORTUNITY OF HEARING BY FOLLOWING PRINCIPLES OF NATURAL JUSTICE. THUS, A PPEAL OF THE ASSESSEE BEING ITA NO. 2527/DEL/2018 IS PARTLY ALLOWED FOR STATIST ICAL PURPOSE. 8. NOW WE ARE TAKING UP THE REVENUES APPEAL. AS RE GARDS TO GROUND NO. 1 OF THE REVENUES APPEAL, THE LD. DR RELIED UPON THE ASSESSMENT ORDER. 9. THE LD. AR SUBMITTED THAT IN RESPECT OF TAXABILI TY OF SOFTWARE EMBEDDED IN MOBILE PHONES, DURING THE PREVIOUS YEAR RELEVANT TO THE SUBJECT AY, THE APPELLANT HAD PAID AN AMOUNT OF RS. 3555,66,06,815/ - TO NOKIA CORPORATION 8 ITA NOS. 2527/DEL/2018 & 4425/DEL/201 8 FINLAND (NOKIA CORP) TOWARDS CONSIDERATION FOR PU RCHASE OF FINISHED MOBILE PHONES. THE ASSESSING OFFICER, BASED ON THE ASSESSM ENT OF NIPL FOR PRECEDING YEARS, PROCEEDED WITH ARTIFICIAL SPLITTING OF THE P RICE OF IMPORTED MOBILE PHONES INTO THE PRICE OF EMBEDDED SOFTWARE AND PRICE OF CO MPONENT IN THE RATIO OF 40:60. THEREAFTER, ALLEGING THAT THE ARTIFICIAL COS T OF EMBEDDED SOFTWARE SUCH ARRIVED IS TAXABLE AS ROYALTY IN INDIA (BOTH UNDE R THE PROVISIONS OF THE ACT AND AS WELL AS INDIA-FINLAND TAX TREATY), THE ASSESSING OFFICER PROCEEDED WITH MAKING DISALLOWANCE U/S 40(A)(I) OF THE ACT OF THE IMPUGNED PRICE OF EMBEDDED SOFTWARE ON THE GROUNDS THAT THE ASSESSEE WAS LIABL E TO WITHHOLD TAX AT SOURCE THEREON. THE SOFTWARE EMBEDDED IN THE HARDWARE (WHI CH IS NOT SUPPLIED SEPARATELY) IS A STANDARD OPERATING SOFTWARE THAT C AN BE USED TO ACTIVATE AND OPERATE/ RUN THE SPECIFIC MOBILE HANDSET SUPPLIED B Y NOKIA CORP AND IS INCAPABLE OF BEING TRADED BY THE ASSESSEE ON A STAN DALONE BASIS. THE LD. AR SUBMITTED THAT THE CIT(A) HAS RECORDED DETAILED REA SONS AND DELETED THE ADDITION FOLLOWING BINDINGS DECISIONS OF HONBLE JU RISDICTIONAL HIGH COURT IN CASE OF DIT V. ERICSSON A.B [2012] 343 1TR 470, CIT VS. ALCATEL LUCENT CANADA [2015] 372 ITR 476 (DELHI HC) AND OTHERS AND HAS RI GHTLY HELD THAT CONSIDERATION RECEIVED BY ASSESSEE AS A DISTRIBUTOR OF PHONES CANNOT BE ARTIFICIALLY SPLIT BETWEEN PRICE FOR HARDWARE AND S OFTWARE. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT THE CIT(A) HAS GIVEN A DETAILED FINDING AS RELATES TO NON-DEDUCTION OF TAX AT SOURCE UNDER SEC TION 195 FOR SOFTWARE EMBEDDED IN MOBILE PHONES IMPORTED BY THE ASSESSEE DURING THE PREVIOUS YEAR. THE FACT REMAINS THAT THE FINISHED MOBILE PHONES WE RE IMPORTED BY THE ASSESSEE FROM NOKIA CORP FOR THE PURPOSES OF SALE A GAINST A LUMP-SUM CONSIDERATION AND THERE WAS NO SEPARATE PAYMENT MAD E BY THE ASSESSEE TOWARDS THE PURCHASE OF ANY SOFTWARE. THE REVENUE C OULD NOT POINT OUT THE DISTINGUISHING FACT THAT THERE WAS A SEPARATE PAYME NT MADE FOR PURCHASE OF SOFTWARE EMBEDDED IN MOBILE PHONES. THE DECISION RE LIED BY THE LD. AR ARE APT 9 ITA NOS. 2527/DEL/2018 & 4425/DEL/201 8 FOR THE PRESENT ASSESSEES CASE AND THE CIT(A) HAS RIGHTLY DELETED THIS ADDITION. THERE IS NO NEED TO INTERFERE WITH THE FINDINGS OF THE CIT(A). HENCE, GROUND NO. 1 OF THE REVENUES APPEAL IS DISMISSED. 11. AS REGARDS TO GROUND NO. 2 & 3 OF THE REVENUES APPEAL RELATING TO DELETION OF DISALLOWANCES U/S 40(A)(IA), THE LD. DR SUBMITTED THAT THE ASSESSEE CLAIMED THAT IT GAVE TRADE DISCOUNTS/TRADE OFFERS T O HCL AND OTHER DISTRIBUTORS. THIS ISSUE WAS ALSO THERE IN ASSESSEE'S OWN CASE FO R A.Y 2013-14 IN ITA NO 7244/2017. ON 18/9/2019 THE TRIBUNAL HAD GIVEN A WR ITTEN DIRECTION TO THE ASSESSING OFFICER TO ISSUE NOTICE U/S 133(6) TO HCL INFOSYSTEM LTD. AND TO OTHER DISTRIBUTORS OF THE ASSESSEE TO ASCERTAIN WHE THER THEY HAD OFFERED THE DISCOUNT RECEIVED FROM THE ASSESSEE AS INCOME IN TH EIR RETURN OF INCOME OR NOT. BECAUSE OF THE LOCKDOWN THE ASSESSING OFFICER HAS N OT SUBMITTED THE REPORT. THE APPEAL FOR AY 2013-14 IS STILL PENDING. 12. THE LD. AR SUBMITTED IN RESPECT OF THE DISALLOW ANCE OF TRADE OFFERS/DISCOUNTS EXTENDED TO HCL INFOSYSTEMS LTD. A ND OTHER DISTRIBUTORS U/S 194H OR SECTION 194J THAT IN THE IMPUGNED ASSESSMEN T ORDER, THE ASSESSING OFFICER HAS MADE A DISALLOWANCE UNDER SECTION 40(A) (IA) OF THE ACT ON ACCOUNT OF ALLEGED NON-WITHHOLDING OF TAXES BY THE ASSESSEE UNDER SECTION 194H OF THE ACT ON TRADE OFFERS AND DISCOUNTS EXTENDED TO HCL I NFOSYSTEMS LTD. (HCL) AND TO OTHER DISTRIBUTORS. THE PRIMARY ALLEGATION OF TH E ASSESSING OFFICER IS THAT SUCH TRADE OFFERS AND DISCOUNTS PROVIDED BY THE ASS ESSEE TO HCL AND OTHER DISTRIBUTORS ARE IN THE NATURE OF INCOME BY WAY OF COMMISSION AND HENCE, LIABLE FOR TDS UNDER SECTION 194H OF THE ACT AND TH E ASSESSING OFFICER HAS ALTERNATIVELY ALLEGED THAT SUCH TRADE OFFERS AND DI SCOUNTS FALL UNDER THE DEFINITION OF FEE FOR TECHNICAL SERVICES LIABLE FOR DEDUCTION AT SOURCE UNDER SECTION 194J OF THE ACT. THE ASSESSING OFFICER RELI ED ON THE FINDINGS IN EARLIER ASSESSMENTS IN CASE OF NIPL. THE LD. AR FUR THER SUBMITTED THAT AS THE ASSESSEE OPERATED IN A HIGHLY COMPETITIVE AND P RICE SENSITIVE MOBILE 10 ITA NOS. 2527/DEL/2018 & 4425/DEL/201 8 HANDSET MARKET, WITH RAPIDLY EVOLVING MOBILE PRODUC TS AND TECHNOLOGY, IT EXTENDED DISCOUNT SCHEMES TO ITS DISTRIBUTORS FROM TIME TO TIME AS A PART OF ITS SALES AND MARKETING STRATEGY, FOR PROMOTION OF SALE S OF NOKIA MOBILE PHONES ACROSS DIFFERENT REGIONS. IN BUSINESS TERMINOLOGY, THE DISCOUNTS ARE CALLED AS TRADE OFFERS. THE DISCOUNTS/ TRADE OFFERS PROVIDE D BY THE ASSESSEE WERE IN ACCORDANCE WITH STANDARD MOBILE HANDSET INDUSTRY PR ACTICE AND WERE CRITICAL TO MAINTAIN ITS COMPETITIVE EDGE IN A HIGHLY PRICE SEN SITIVE AND COMPETITIVE MOBILE HANDSET INDUSTRY. THE ASSESSING OFFICER WRONGLY PRE SUMED THAT IT IS IMMATERIAL TO CONSIDER WHETHER THE TRANSACTIONS BETWEEN APPELL ANT AND HCL ARE ON PRINCIPAL TO PRINCIPAL BASIS OR PRINCIPAL TO AGENT BASIS WHICH WAS DIRECTLY CONTRARY TO LAW LAID DOWN BY HONBLE COURTS IN THE CASE OF AHMEDABAD STAMP VENDORS ASSOCIATION V. UOL [2002] 257 ITR 202 (GUJA RAT) AS AFFIRMED BY THE HONBLE SUPREME COURT REPORTED IN [2012] 348 1TR 37 8 (SC), CIT V. SINGAPORE AIRLINES LTD. & ORS. [(2009) 319 ITR 29] AND OTHERS AND THE CIT(A) HAS ONLY CORRECTED THE FINDINGS OF THE ASSESSING OFFICER IN LIGHT OF ABOVEMENTIONED BINDING DECISIONS. THE ASSESSING OFFICER RELIED ON ASSESSMENTS IN PREVIOUS YEAR IN CASE OF PREDECESSOR ENTITY I.E. NOKIA INDIA PRIV ATE LIMITED (NIPL) AND THE TRIBUNAL HAS ADJUDICATED THIS ISSUE IN FAVOUR OF TH E ASSESSEES IN CASE OF NIPL VIDE ORDER DATED 20 FEBRUARY 2020 IN ITA NOS. 5791/ DEL/2015 & 5845/DEL/2015 FOR THE ASSESSMENT YEAR 2010-11. THIS DECISION OF AY 2010-11 HAS BEEN FOLLOWED BY THE TRIBUNAL IN ORDER DATED 17 .08.2020 FOR AY 2011-12 AND IN ORDER DATED 15.10.2020 FOR AY 2008-09 AND 20 12-13. IN RESPECT OF APPLICABILITY OF SECTION 194J OF THE ACT, THE LD. A R SUBMITTED THAT THE ASSESSING OFFICER ALTERNATIVELY ALLEGED THAT CONSID ERATION RECEIVED FROM HCL IS ALSO TAXABLE UNDER SECTION 194J OF THE ACT HOLDING EXCHANGING INFORMATION' AS PROVIDED UNDER THE AGREEMENT TO AMOUNT TO MARKETING SUPPORT SERVICES. THE LD. AR POINTED OUT THAT THE ONLY TRANSACTION BETWEE N ASSESSEE AND HCL WAS FOR THE PURCHASE AND SALE OF GOODS AND NO SEPARATE SERV ICE WAS PROVIDED TO ATTRACT SECTION 194J OF THE ACT. THE CIT (A) PROVISION OF S ECTION 194J CANNOT INCLUDE ANY CONSTRUCTIVE PAYMENT IN THE NATURE OF TRADE OFF ERS AS NO CONSIDERATION WAS 11 ITA NOS. 2527/DEL/2018 & 4425/DEL/201 8 PAID/PAYABLE TO HCL/OTHER DISTRIBUTORS BY THE ASSES SEE. THE CIT(A) ALSO RIGHTLY HELD THAT SERVICES UNDER THE AGREEMENT (INFORMATION EXCHANGE) WERE NOT TOWARDS THE ASSESSEE, RATHER WAS UNDERTAKEN BY HCL/ OTHER DISTRIBUTORS FOR THEMSELVES. 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FROM THE PERUSAL OF THE RECORD IT CAN BE S EEN THAT IN A.Y. 2013-14, THE TRIBUNAL HAS DIRECTED THE ASSESSING OFFICER TO ISSU E NOTICE U/S 133(6) TO HCL INFOSYSTEM LTD. AND OTHER DISTRIBUTORS TO ASCERTAIN WHETHER THEY HAD OFFERED THE DISCOUNT RECEIVED FROM THE ASSESSEE AS INCOME I N THEIR RETURN OF INCOME OR NOT. THE INTERIM DIRECTION WAS NOT COMPLIED BY THE ASSESSING OFFICER A.Y. 2013- 14 DESPITE HAVING SUFFICIENT TIME. IN THE MEANWHILE , THE POSITION OF FACTS RELATING TO NOKIA INDIA PVT. LTD. WHEREIN THE SIMIL AR ISSUE WAS CONTESTED WAS DECIDED IN FAVOUR OF THE RESPECTIVE ASSESSEE AND ON E OF THE PARTIES IN THAT CASE WAS HCL. THE FACT REMAINS THAT THE ASSESSING OFFICE R IN THE PRESENT ASSESSMENT YEAR RELIED ON ASSESSMENTS IN PREVIOUS Y EAR IN CASE OF PREDECESSOR ENTITY I.E. NOKIA INDIA PRIVATE LIMITED (NIPL) AND THE TRIBUNAL HAS ADJUDICATED THIS ISSUE IN FAVOUR OF THE ASSESSEES IN CASE OF N IPL VIDE ORDER DATED 20 FEBRUARY 2020 IN ITA NOS. 5791/DEL/2015 & 5845/DEL/ 2015 FOR THE ASSESSMENT YEAR 2010-11. THIS DECISION OF AY 2010-1 1 HAS BEEN FOLLOWED BY THE TRIBUNAL IN ORDER DATED 17.08.2020 FOR AY 2011- 12 AND IN ORDER DATED 15.10.2020 FOR AY 2008-09 AND 2012-13. THE TRIBUNAL IN CASE OF NIPL HELD AS UNDER: 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT CAN BE SEEN FROM CLAUSE 2, 7, 8, 9, 14 AND 19 OF THE AGREEMENT FOR THE SUPPLY OF CELLULAR MOBILE PHONES BETWEEN HCL AND THE ASSESSEE THAT RELATIONSHIP BETWEEN THE ASSESSEE AND HCL IS THAT OF PRINCIPAL TO PRINCIPAL AND NOT THAT OF PRINCIPAL TO AGENT. TH E DISCOUNT WHICH WAS OFFERED TO DISTRIBUTORS IS GIVEN FOR PROMOTION OF SALES. TH IS ELEMENT CANNOT BE TREATED AS COMMISSION. THERE IS ABSENCE OF A PRINCIPAL-AGEN T RELATIONSHIP AND BENEFIT 12 ITA NOS. 2527/DEL/2018 & 4425/DEL/201 8 EXTENDED TO DISTRIBUTORS CANNOT BE TREATED AS COMMI SSION UNDER SECTION 194H OF THE ACT. AS REGARDS TO APPLICABILITY OF SECTION 194J OF THE ACT, THE ASSESSING OFFICER HAS NOT GIVEN ANY REASONING OR FINDING TO T HE EXTENT THAT THERE IS PAYMENT FOR TECHNICAL SERVICE LIABLE FOR WITHHOLDIN G UNDER SECTION 194J. MARKETING ACTIVITIES HAVE BEEN UNDERTAKEN BY HCL ON ITS OWN. MERELY MAKING AN ADDITION UNDER SECTION 194J WITHOUT THE ACTUAL B ASIS FOR THE SAME ON PART OF THE ASSESSING OFFICER IS NOT JUST AND PROPER. TH E LD. DRS CONTENTION THAT DISCOUNTS WERE GIVEN BY WAY OF DEBIT NOTES AND THE SAME WERE NOT ADJUSTED OR MENTIONED IN THE INVOICE GENERATED UPON ORIGINAL SALES MADE BY THE ASSESSEE, DOES NOT SEEM TENABLE AFTER GOING THROUGH THE INVOICE AND THE DEBIT NOTES. IN FACT, THERE IS CLEAR MENTIONED ABOUT THE DISCOUNT FOR SALES PROMOTION. THUS, ON BOTH THE ACCOUNT THE ADDITION MADE BY THE ASSESSING OFFICER DOES NOT SUSTAIN. GROUND NO. 2 IS ALLOWED. BESIDES THIS IN THE PRESENT ASSESSMENT YEAR, THE CI T(A) HAS OBSERVED THAT ONE OF THE SCHEME DOCUMENTS SHOWS THAT HCL IS ELIGIBLE FOR RAISING A CREDIT NOTE IF IT ACHIEVES PRESCRIBED SALES TARGET DURING A GIVEN MONTH. THE OTHER SCHEME WAS IN RELATION TO REBATE TOWARDS SPECIFIC MODEL OF PHO NE ISSUED TO SELECT SET OF STORES. THESE SCHEMES ARE GIVEN TO PROMOTE THE SALE S AND IN EFFECT GIVEN AS REDUCTION IN THE PURCHASE CONSIDERATION PAID BY THE DISTRIBUTOR. THE ASSESSEE HAS ALSO SUBMITTED THE THIRD PARTY CONFIRMATIONS WH ICH WAS RECEIVED BY THEM FROM VARIOUS DISTRIBUTORS TO DEMONSTRATE THAT THE R ELATIONSHIP BETWEEN THE ASSESSEE AND ITS DISTRIBUTORS IS ON PRINCIPAL-TO-PR INCIPAL BASIS, AND THAT TRADE OFFERS/DISCOUNTS HAVE BEEN EXTENDED BY THE ASSESSEE TO THEM. THUS, THE FACTS ARE IDENTICAL IN THE PRESENT CASE AS WELL TO THAT O F NIPL. THEREFORE, THERE IS NO NEED TO INTERFERE WITH THE FINDING OF THE CIT(A) AN D IN LIGHT OF THE DECISION OF THE TRIBUNAL IN NIPL, GROUND NOS. 2 AND 3 IN REVENUES APPEAL ARE DISMISSED 14. AS REGARDS TO GROUND NO. 4 RELATING TO DELETION OF TRADE PRICE PROTECTION, THE LD. DR SUBMITTED THAT THE ASSESSING OFFICER HAS DEALT GROUND NOS. 2 TO 4 IN PARA 17 TO 44 OF THE ASSESSMENT ORDER. IN PARAS 39 TO 42 THE ASSESSING 13 ITA NOS. 2527/DEL/2018 & 4425/DEL/201 8 OFFICER HAS MENTIONED THAT RELEVANT EVIDENCE OF ANY OF THESE EXPENSES WERE NOT FURNISHED. THE SAME ARE EXTRACTED BELOW: 39. PERUSAL OF THE REPLIES FILED BY THE ASSESSEE REVEA LS THAT THE ASSESSEE PROVIDES PROTECTION TO ITS DISTRIBUTORS AGAINST 'PR OBABLE LOSS' THAT THEY MAY SUFFER DUE TO FALL IN PRICES OF HANDSETS. NO DETAIL S WERE ALSO PROVIDED AS TO WHETHER THE COMPANY CONDUCTS ANY STOCK AUDIT IN RES PECT OF THE NUMBER AND TYPE OF HANDSETS LYING WITH THE DISTRIBUTORS ON WHI CH THE PRICE PROTECTION WAS ALLOWED. NEITHER WAS ANY BASIS OF RATES WAS PROVIDE D ON WHICH THE PURPORTED PRICE PROTECTION WAS BEING BOOKED. 40. A PERUSAL OF THE CONFIRMATIONS PROVIDED SHOW THAT THESE ARE STEREOTYPED CONFIRMATIONS RECEIVED FROM THE VARIOUS PARTIES. TH E LANGUAGE OF THESE CONFIRMATIONS IS ALMOST THE SAME, THE TELEPHONE NUM BERS OF THE DISTRIBUTORS IS NOT GIVEN IN THE CONFIRMATIONS AND EVEN DATE IS NOT MENTIONED IN THE CONFIRMATION DOCUMENTS. THIS IN ITSELF CREATES DOUB TS REGARDING THE CONFIRMATIONS RECEIVED. IN THESE CIRCUMSTANCES, THE BENEFIT OF PRICE PROTECTION CHARGES CLAIMED TO HAVE BEEN PAID TO THESE PARTIES CANNOT BE GIVEN. 41. IT IS ALSO PERTINENT TO MENTION THAT THE TRADE PRI CE PROTECTION ALLOWED WAS NOT DEBITED AS AN EXPENSE ITEM IN THE PROFIT & LOSS ACCOUNT BUT WAS DIRECTLY ADJUSTED FROM THE TOTAL SALES EFFECTED. THUS, IT IS NOT POSSIBLE TO VERIFY THE QUANTUM OF PRICE PROTECTION ALLOWED AS NO DETAILS A RE AVAILABLE AS TO HOW THE COMPANY VERIFIES THE QUANTITY/NUMBER OF HANDSETS WI TH DISTRIBUTORS AT VARIOUS LEVELS (NATIONAL/REGIONAL ETC.) ON WHICH TH E PRICE PROTECTION IS TO BE ALLOWED. NEITHER ANY COPY OF CREDIT NOTE NOR ANY CO MPUTATION OF PRICE PROTECTION HAS BEEN FURNISHED. THE OTHER COPIES OF E-MAIL PROVIDED BY THE ASSESSEE ALSO DO NOT CONTAIN ANY DETAILS OF AMOUNTS / PERIOD / BASIS OF COMPUTATION/ APPROVAL OF THE CONCERNED AUTHORIZED PERSON OF THE SAID PRICE PROTECTION. 42. AS NO AUTHENTICATED DOCUMENTARY EVIDENCE HAS BEEN F ILED BY THE ASSESSEE 14 ITA NOS. 2527/DEL/2018 & 4425/DEL/201 8 COMPANY TO SHOW THAT THE ASSESSEE COMPANY HAS ACTUA LLY INCURRED SUCH EXPENSES WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS NECESSITY. MOREOVER, NO SPECIFIC AGREEMENTS WITH ANY OF ITS DI STRIBUTORS OR RETAILERS OR ANY OF ITS FRONT LINE BUSINESS ASSOCIATES HAVE BEEN FILED TO SHOW THAT THE EXPENSES HAVE ACTUALLY BEEN INCURRED BY THE ASSESSE E COMPANY, WHICH ARE ALLOWABLE AS REVENUE EXPENDITURE. MOREOVER, IT IS P ERTINENT TO STATE THAT TRADE OFFERS WERE ALREADY BEING OFFERED TO ITS DISTRIBUTO RS AND RETAILERS BY THE ASSESSEE, WHICH IT WAS ALLEGING TO BE IN THE NATURE OF DISCOUNT, THUS, OFFERING FURTHER PRICE PROTECTION TO ITS DISTRIBUTORS AND RE TAILERS ETC. DOES NOT APPEAR TO BE JUSTIFIED. FURTHER, THERE WAS NO EVIDENCE TO SHO W WHETHER DISTRIBUTORS WERE REALLY LIABLE FOR SUCH COMPENSATION AS THE ASS ESSEE IS OPERATING ITS OWN OUTLETS IN MANY PLACES. FURTHERMORE, IT WAS ALSO NO T EXPLAINED AS TO HOW THE PRICE PROTECTION GIVEN BY THE ASSESSEE TO ITS DISTR IBUTORS AND RETAILERS HAS BEEN PASSED ON TO THEIR ULTIMATE CUSTOMERS ALSO. THUS, THE LD. DR SUBMITTED THAT IN ABSENCE OF ACTUA L DOCUMENTARY EVIDENCE SUCH EXPENSES CANNOT BE ALLOWED. 15. THE LD. AR SUBMITTED THAT THE ASSESSEE OPERATED IN A HIGHLY COMPETITIVE AND PRICE SENSITIVE MARKET WITH RAPIDLY EVOLVING PR ODUCTS AND HIGH TECHNOLOGICAL OBSOLESCENCE, WHEREIN THE SALES OF HA NDSETS OFFERED BY THE ASSESSEE AND ITS MARKET SHARE TO A LARGE EXTENT DEP END UPON THE VARIETY AND PRICES OF THE HANDSETS OFFERED BY THE ASSESSEE AND ITS COMPETITORS. ACCORDINGLY, NISPL COMPENSATED/ PROVIDED PROTECTION TO ITS DISTR IBUTORS AGAINST THE LOSS SUFFERED BY THE DISTRIBUTORS ON ACCOUNT OF SUCH RED UCTION/ FALL IN THE PRICES OF HANDSETS, KNOWN AS TPP. FURTHER, THE ASSESSEE ALSO FILED PARTY WISE DETAILS OF TPP EXPENSES, ALONG WITH INDEPENDENT CONFIRMATIONS OBTAINED FROM DISTRIBUTORS, DURING THE COURSE OF THE ASSESSMENT P ROCEEDINGS BEFORE THE ASSESSING OFFICER. HOWEVER, THE ASSESSING OFFICER P ROCEEDED TO MAKE THE SAID DISALLOWANCE PURELY ON THE BASIS OF SURMISES AND CO NJECTURES AS ALLEGED THAT 15 ITA NOS. 2527/DEL/2018 & 4425/DEL/201 8 THERE WAS NO MECHANISM TO DETERMINE THE AMOUNT OF P RICE PROTECTION AND THAT THE CONFIRMATIONS RECEIVED FROM PARTIES STEREOTYPE D CONFIRMATION WITH SIMILAR LANGUAGE. THE CIT(A) HAS RIGHTLY HELD THAT ALLEGATI ON OF THE ASSESSING OFFICER THAT CONFIRMATIONS WERE STEREOTYPED IS BASELESS IN VIEW OF THE FACT THAT NO SPECIFIC FORMAT HAS BEEN PRESCRIBED FOR SUCH CONFIR MATIONS AND THAT DISCOUNTS IN THE FORM OF TPP WAS RESULT OF COMMERCIAL EXPEDIE NCY AND THE ASSESSING OFFICER CANNOT STEP IN THE SHOES OF THE BUSINESS EN TITY AS LAID DOWN IN BINDING JUDICIAL PRECEDENTS. THE TRIBUNAL HAS ADJUDICATED T HIS ISSUE IN FAVOUR OF THE ASSESSEES PREDECESSOR ENTITY NIPL VIDE ORDER DATED 20.02.2020 FOR ASSESSMENT YEAR 2010-11 AND THIS DECISION OF ASSESSMENT YEAR 2010-11 HAS BEEN FOLLOWED BY THE TRIBUNAL IN ORDER DATED 17.08.2020 FOR AY 20 11-12 AND IN ORDER DATED 15.10.2020 FOR AY 2008-09 AND 2012-13. 16. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FROM THE PERUSAL OF THE RECORDS IT CAN BEEN SEEN THAT THE ASSESSEE FILED PARTY WISE DETAILS OF TRADE PRICE PROTECTION EXPENS ES, ALONG WITH INDEPENDENT CONFIRMATIONS OBTAINED FROM DISTRIBUTORS, DURING TH E COURSE OF THE ASSESSMENT PROCEEDINGS BEFORE THE LEARNED ASSESSING OFFICER. T HE ADDITIONAL EVIDENCE WAS ALSO FILED BEFORE THE CIT(A) AND DESPITE THE OPPORT UNITY GIVEN TO THE ASSESSING OFFICER, THE ASSESSING OFFICER CHOOSE NOT TO FILE R EMAND REPORT ON THIS ISSUE. THUS, THE CONTENTION OF THE LD. DR THAT NO EVIDENCE WAS FILED BY THE ASSESSEE APPEARS TO BE INCORRECT. THE TRIBUNAL HAS ADJUDICAT ED THIS ISSUE IN FAVOUR OF THE ASSESSEES PREDECESSOR ENTITY NIPL VIDE ORDER D ATED 20.02.2020 FOR ASSESSMENT YEAR 2010-11 AND THIS DECISION OF ASSESSMENT YEAR 2010-11 HAS BEEN FOLLOWED BY THE TRIBUNAL IN ORDER DATED 17.08. 2020 FOR AY 2011-12 AND IN ORDER DATED 15.10.2020 FOR AY 2008-09 AND 2012-13. THE TRIBUNAL IN NIPL CASE FOR A.Y. 2010-11 HELD AS UNDER: 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS MARKET PRACTICE THAT IF THERE IS ANY CHANGE IN PRICES OF HANDSETS BY COMPETITORS, CHANGE IN LIF E OF MOBILE MODEL, CHANGE IN 16 ITA NOS. 2527/DEL/2018 & 4425/DEL/201 8 MARKET DEMAND OF PARTICULAR MODEL WHICH AFFECTS THE SALES, THE DISTRIBUTOR IS PROTECTED BY THE TRADE PRICE PROTECTION. THIS IS AC TUALLY A COMMERCIAL EXPEDIENCY IN MODERN DAY TECHNOLOGICAL CHANGES WHIC H ARE VERY FAST AND VAST. BESIDES, TRADE PRICE PROTECTION IS OFFERED TO DISTRIBUTORS ON HANDSETS WHICH HAVE NOT BEEN SUBJECT TO TRADE OFFERS/DISCOUN TS. THIS IS EVIDENCED BY SPECIFIC CLAUSE IN THE TRADE SCHEMES FILED BEFORE T HE ASSESSING OFFICER VIDE SUBMISSION DATED 10.03.2014 TRADE SCHEME. IN-FACT, IT WAS POINTED OUT DURING THE COURSE OF HEARING THAT IN ASSESSMENT YEA R 2008-09, EVEN THE ASSESSING OFFICER HAS ALLOWED THE DEDUCTION FOR T HE INSTANT LIKE EXPENDITURE. IN ASSESSMENT YEAR 2008-09, THE MATTER WAS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER, WHO HAS ALLOWED THE DEDUCTION WI TH RESPECT TO THE EXPENDITURE, WHERE CONFIRMATIONS HAVE BEEN OBTAINED FROM THE RECIPIENTS. IN ANY CASE, SO FAR AS THE INSTANT YEAR IS CONCERNED, WE HAVE ALREADY NOTED IN THE EARLIER PARAGRAPH THAT THE REQUISITE CONFIRMATI ONS WERE FILED BEFORE THE ASSESSING OFFICER. THUS, THIS EXPENDITURE IS ALLOWA BLE AS REVENUE EXPENDITURE UNDER SECTION 37(1) OF THE ACT SINCE IT HAS BEEN IN CURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS AND SAME CANNOT BE QUESTIO NED BY THE ASSESSING OFFICER. GROUND NO. 3 IS ALLOWED. THUS, THE ISSUE IS IDENTICAL IN THE PRESENT ASSESSE ES CASE AS WELL. THE CIT(A) HAS ALSO RIGHTLY HELD THAT BASED ON THE CONFIRMATIO NS AVAILABLE FROM THE DISTRIBUTORS, THE NATURE OF TRADE PRICE PROTECTION CANNOT BE SAID TO BE A BOGUS EXPENSE NOR PROTECTION AGAINST A PROBABLE LOSS. THU S, GROUND NO. 4 OF THE REVENUES APPEAL IS DISMISSED. 17. AS REGARDS TO GROUND NO. 5 RELATING TO AD-HOC D ISALLOWANCE OF 25% OF THE AMOUNT OF PROVISION FOR OBSOLESCENCE, THE LD. DR SUBMITTED THAT NO DOCUMENTARY EVIDENCE OF SUCH OBSOLESCENCE OF INVENT ORY WAS FURNISHED. PARA 59 OF THE ASSESSMENT ORDER READS AS UNDER: 17 ITA NOS. 2527/DEL/2018 & 4425/DEL/201 8 59. IN THE CASE AT HAND, AS NEITHER PROPER REASONS NOR EVIDENCES IN SUPPORT OF THE ASSESSEE'S CLAIM OF THE PROVISION FOR STOCK WRITTEN OFF WERE MADE, THE CLAIM OF THE ASSESSEE IS LIABLE TO BE REJECTED. IT IS NOT THE ARGUMENT OF THE REVENUE THAT SUCH EXPENSES ARE NOT REQUIRED FOR THE PURPOSE OF THE ASSESSEES BUSINESS. BUT, IF THE ASSESSEE DOES HAVE TO INCUR SUCH EXPENSES THEN IT IS OBLIGED TO PROVE THAT SUCH EXPENSES ARE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE ASSESSEE'S BUSINESS ALONG WITH E VIDENCES. HOWEVER, IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY HAS MERELY SUBMITTED THE DETAILS ITEMS WHICH IT CLAIMS HAVE BECOME OBSOLETE, WITHOUT ANY EVIDENCES AS TO HOW AND WHY THESE ITEMS BECOME OBSOLETE. THE ASS ESSEE HAS ALSO NOT SUBMITTED ANY EVIDENCE IN SUPPORT OF ITS CONTENTION WITH REGARD TO COMPUTATION OF PROVISION OF OBSOLETE STOCK. THE ASS ESSEE FAILED TO BRING ON RECORD AS TO WHO HAD GIVEN APPROVAL AND UNDER WHAT CIRCUMSTANCES THE STOCK WAS WRITTEN OFF IN THE BOOKS OF ACCOUNT. FURTHER, T HERE WAS NO CORRESPONDENCE OR LETTERS BETWEEN THE OPERATING PERSONNEL OF THE A SSESSEE COMPANY WITH REGARD TO REASONS AND BASIS OF STOCK WRITTEN OFF, J UST A GLOBAL POLICY WAS SUBMITTED. THUS, THE LD. DR SUBMITTED THAT THE ACTUAL DOCUMENT ARY EVIDENCE WAS NOT FURNISHED BEFORE THE ASSESSING OFFICER. 18. THE LD. AR SUBMITTED THAT DUE TO THE NATURE OF BUSINESS ASSESSEE WAS INVOLVED IN AND KEEPING IN MIND THE TECHNOLOGICAL E VOLVEMENT/ ADVANCEMENT OF MOBILE COMMUNICATION TECHNOLOGY, SUBSTANTIAL CHANGE IN THE MODELS AND DESIGNS, ASSESSEE MADE A PROVISION FOR OBSOLESCENCE ; HOWEVER, THE ASSESSING OFFICER DISALLOWED 25% OF THE PROVISION ON AD HOC B ASIS ALLEGING THAT IT WAS UNASCERTAINED LIABILITY AND NO SUPPORTING DOCUMENT WAS PROVIDED EXCEPT FROM GLOBAL POLICY OF THE ASSESSEE. THE ASSESSING OFFICE R ALSO RELIED ON ORDERS OF DRP AND THE TRIBUNAL IN CASE OF NIPL AND NOTED THAT FACTS ARE SIMILAR. THE CIT(A) HAS DISCUSSED THE ISSUE IN DETAIL AND HAS RE FERRED TO PARAGRAPH 5 OF ACCOUNTING STANDARD -2 ON VALUATION OF INVENTORY IS SUED BY THE ICAI, WHICH 18 ITA NOS. 2527/DEL/2018 & 4425/DEL/201 8 CLARIFIES THAT INVENTORIES ARE REQUIRED TO BE VALUE D AT LOWER OF COST OR NET REALIZABLE VALUE AND HAS FOLLOWED BINDING PRECEDENT OF HONBLE SUPREME COURT IN CASE OF WOODWARD GOVERNOR 312 ITR 254 (SUPREME C OURT), WHEREIN IT HAS BEEN HELD THAT AMOUNT DEBITED TO PROFIT AND LOSS AC COUNT IN ACCORDANCE WITH THE APPLICABLE ACCOUNTING STANDARDS ISSUED BY ICAI, SHOULD BE ALLOWED FOR THE PURPOSES OF THE ACT. THE CIT(A) HAS ALSO CONSIDERED THE METHOD OF PROVISION AT PARA 9.1OF THE ORDER AND HELD THAT EVEN STATUTORY A UDITOR HAVE CERTIFIED THE QUANTUM OF PROVISION TO CONCLUDE THAT ASSESSEE ADOP TED SCIENTIFIC METHOD OF VALUATION AND, THEREFORE, THE PROVISION IF ALLOWABL E IN VIEW OF BINDING DECISION OF HONBLE SUPREME COURT IN CASE OF ROTORK CONTROL IND IA PVT. LTD. FURTHER, THE ISSUE HAS ALSO BEEN ADJUDICATED AND REMANDED TO THE FILE OF THE ASSESSING OFFICER BY THE TRIBUNAL IN CASE OF NIPL FOR AY 2003 -04 AND THE DECISION WAS ALSO UPHELD BY HONBLE HIGH COURT. 19. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FROM THE PERUSAL OF THE RECORDS, IT CAN BE SEEN THAT THE ASSESSING OFFICER RELIED ON ORDERS OF DRP AND THE TRIBUNAL IN CASE OF NIPL AND NOTED THAT FACTS ARE SIMILAR. THE TRIBUNAL IN NIPL HELD AS UND ER: 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT CAN BE SEEN THAT I N A.YS. 2000-01, 2001- 02, AND 2003-04, THIS ISSUE WAS REMANDED BACK BY TH E TRIBUNAL TO THE FILE OF THE ASSESSING OFFICER WITH DIRECTION TO DET ERMINE AND DECIDE THE SAME AFRESH IN RESPECT OF THE COST OF OBSOLETE ITEM S WITH REFERENCE TO NET REALIZABLE VALUE. FOR A.Y. 2003-04, THE HONBLE HIG H COURT UPHELD THE FINDINGS OF THE TRIBUNAL. ONLY IN A.Y. 2011-12, THE DRP HAS TAKEN A DIFFERENT VIEW BY DELETING THE SAID ADDITIONS. IN THE INSTANT YEAR, THE ASSESSING OFFICER HAS NOT GIVEN ANY INDEPENDENT REA SONING FOR MAKING AN AD-HOC DISALLOWANCE OF 25% OF THE TOTAL EXPENDIT URE. CONSIDERING THE HISTORY OF THE DISPUTE, THE MATTER IS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER TO DECIDE IN THE LIGHT OF THE PRE CEDENTS, AND KEEPING IN 19 ITA NOS. 2527/DEL/2018 & 4425/DEL/201 8 MIND THAT THE DIRECTION OF DRP IN ASSESSMENT YEAR 2 011-12 HAS BEEN ACCEPTED BY THE DEPARTMENT (AS POINTED OUT BEFORE U S THAT NO APPEAL WAS FILED BY REVENUE IN ASSESSMENT YEAR 2011-12). N EEDLESS TO SAY, THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOL LOWING PRINCIPLES OF NATURAL JUSTICE IN THE REMANDED PROCEEDINGS. GROUN D NO. 4 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. THE CIT(A) OBSERVED IN THE PRESENT ASSESSEES CASE THAT THE ACCOUNTING STANDARD -2 ON VALUATION OF INVENTORY ISSUED BY THE ICAI, WHICH CLARIFIES THAT INVENTORIES ARE REQUIRED TO BE VALUED AT LOWER OF C OST OR NET REALIZABLE VALUE AND FOLLOWED BINDING PRECEDENT OF HONBLE SUPREME COURT IN CASE OF WOODWARD GOVERNOR 312 ITR 254 (SUPREME COURT), WHEREIN IT HAS BEEN HELD THAT AMOUNT DEBITED TO PROFIT AND LOSS ACCOUNT IN ACCORDANCE WI TH THE APPLICABLE ACCOUNTING STANDARDS ISSUED BY ICAI, SHOULD BE ALLOWED FOR THE PURPOSES OF THE ACT. THE CIT(A) HAS ALSO CONSIDERED THE METHOD OF PROVISION AT PARA 9.1OF THE ORDER AND HELD THAT EVEN STATUTORY AUDITOR HAVE CERTIFIED THE QUANTUM OF PROVISION TO CONCLUDE THAT ASSESSEE ADOPTED SCIENTIFIC METHOD OF VALUATION AND, THEREFORE, THE PROVISION IF ALLOWABLE IN VIEW OF BINDING DECIS ION OF HONBLE SUPREME COURT IN CASE OF ROTORK CONTROL INDIA PVT. LTD. THE CIT(A ) WHILE DECIDING THE ISSUE CLEARLY HELD THAT THE ASSESSEE HAS MENTIONED THESE PRODUCTS IN ITS BOOKS OF ACCOUNTS. BUT THE FACT REMAINS WHETHER THE SALE WAS NOT ACTUALLY MADE IN THE PRESENT ASSESSMENT YEAR WHICH IS NOT EMERGING FROM THE ORDER OF THE CIT(A) AND ALSO THAT THE ASSESSING OFFICER HAS ALSO NOT GI VEN AS TO WHAT IS THE REASON FOR DISALLOWANCE OF 25% OF THE AMOUNT OF PROVISION FOR OBSOLESCENCE ON AD-HOC BASIS. THUS, IT WILL BE APPROPRIATE TO REMAND BACK THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH DIRECTION TO DETERMINE AND D ECIDE THE SAME AFRESH IN RESPECT OF THE COST OF OBSOLETE ITEMS WITH REFERENC E TO NET REALIZABLE VALUE. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOLLOWING PRINCIPLES OF NATURAL JUSTICE. GROUND NO. 5 IS PART LY ALLOWED FOR STATISTICAL PURPOSE. 20 ITA NOS. 2527/DEL/2018 & 4425/DEL/201 8 20. AS REGARDS GROUND NO. 6 RELATING TO AD-HOC DISA LLOWANCE OF 25% OF ADVERTISEMENT EXPENDITURE ALLEGING SAME TO BE CAPIT AL IN NATURE, THE LD. DR RELIED UPON THE ASSESSMENT ORDER. 21. THE LD. AR SUBMITTED THAT DISALLOWANCE OF AD-HO C 25% OF THE ADVERTISEMENT AND PUBLICITY EXPENSES HAVE BEEN MADE BY THE ASSESSING OFFICER WITHOUT GIVING ANY VALID SHOW CAUSE/ OPPORTUNITY TO THE ASSESSEE. THEE SAID ADVERTISING EXPENSES HAVE BEEN INCURRED BY THE ASSE SSEE ON CONDUCTING ROAD SHOWS, PARTICIPATION IN INDUSTRY EVENTS, PRODUCT AD VERTISING IN ALL FORUMS OF MEDIA CHANNELS WHICH INCLUDES MAGAZINES, NEWSPAPER, TELEVISION, RADIO ETC. FOR ATTRACTING CUSTOMERS, MAKING CUSTOMERS AWARE OF THE DIFFERENT TYPE OF MOBILE HANDSETS SOLD BY THE COMPANY AND ENHANCING ITS SALE S IN INDIA AND ONLY REPRESENT EXPENSES INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE AND THEREFORE, FULLY ALLOW ABLE UNDER SECTION 37(1) OF THE ACT. THE ASSESSING OFFICER WRONGLY HELD THAT SU CH EXPENDITURE GIVE ENDURING BENEFIT TO ASSESSEE AND LEADS TO CREATIO N OF GOODWILL REPUTATION AND CREDIBILITY AND CAPITALIZED 25% OF ADVERTISEMENT EX PENSES. THE CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE RELYING ON THE DEC ISION OF HONBLE JURISDICTIONAL DELHI HIGH COURT IN CASE OF CIT(A) SPICE DISTRIBUTI ON LTD., ITA NO. 597/2014, DATED 19.09.2014 (DELHI) WHEREIN HON'BLE COURT HAS HELD THAT ADVERTISEMENTS DO NOT HAVE LONG LASTING IMPACT AND IS A DAY TO DAY EXPENSE INCURRED FOR RUNNING THE BUSINESS. THE LD. AR SUBMITTED THAT THE CIT(A) HAS ONLY FOLLOWED BINDING DECISION AND HAS GIVEN REASONED ORDER WHICH DOES NOT REQUIRE ANY INTERFERENCE FROM THIS HONBLE TRIBUNAL. 22. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE CIT(A) HAS OBSERVED THAT THE ASSESSEE IS ENGAGED IN TRADING OF MOBILE HANDSETS AND ITS ACCESSORIES AND HAD CLAIMED CERTAIN EXPENDITURE ON ADVERTISEMENT AS REVENUE EXPENDITURE. BUT THE ASSES SING OFFICER TREATED THE SAID EXPENDITURE AS DEFERRED REVENUE EXPENDITURE AN D ALLOWED A PROPORTION OF ADVERTISING EXPENSES. THE CIT(A) RELIED UPON THE DE CISION OF THE HONBLE DELHI 21 ITA NOS. 2527/DEL/2018 & 4425/DEL/201 8 HIGH COURT IN CASE OF SPICE DISTRIBUTION LTD. WHERE IN THE HONBLE HIGH COURT HELD THAT THE SAID EXPENDITURE IS REVENUE IN NATURE . IT IS PERTINENT TO NOTE THAT THE ASSESSEE INCURRED THESE EXPENSES ON CONDUCTING ROAD SHOWS, PARTICIPATION IN INDUSTRY EVENTS, PRODUCT ADVERTISING IN ALL FORU MS OF MEDIA FOR ATTRACTING CUSTOMERS WHICH EVENTUALLY LEADS TO ENHANCEMENT OF SALES OF THE ASSESSEE COMPANY IN INDIA. THUS, THESE EXPENSES ARE INCURRED IN RELATION TO THE BUSINESS ONLY AND THEREFORE, ARE REVENUE IN NATURE. HENCE, THERE IS NO NEED TO INTERFERE WITH THE FINDINGS OF THE CIT(A). GROUND N O. 6 IS DISMISSED. 23. THE STAY APPLICATION FILED BY THE ASSESSEE BECO MES INFRUCTUOUS, HENCE DISMISSED. 24. IN RESULT, THE APPEAL OF THE ASSESSEE AND THE A PPEAL OF THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF JANUARY, 2021 SD/- SD/- (N. K. BILLAIYA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 12/01/2021 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 22 ITA NOS. 2527/DEL/2018 & 4425/DEL/201 8