The assessee, a wholly-owned subsidiary of Nokia Corporation, Finland, had filed return of income for the relevant AY declaring nil income, after setting off the unabsorbed business losses and depreciation. The assessee had the book profits and, therefore, liable to pay tax of Rs.3,499,284 as per section 115JB of the Act. The assessee claimed Rs. 7,48,62,367/- as marketing expenses during the FY 2000-01 which included Rs. 59,38,347/- incurred on account of FOC handsets issued to employees, dealers and AMSCs. During assessment, the AO held that these handsets were capital assets of the assessee and disallowed expenditure after allowing depreciation @ 25%. Such an addition of the AO was upheld by the CIT(A). On further appeal, Tribunal upheld the order of the CIT(A). Matter was carried to the Delhi High Court and High Court, remanded the matter to the Tribunal for fresh consideration. Subsequently, Tribunal remitted back the matter to the AO. The AO, upheld the addition. Again CIT(A), confirmed the additions. Aggrieved assessee, filed appeal before Tribunal.

Tribunal held that,

++ as far as disallowance of marketing expenses incurred by way of issuance of handsets on Free of cost ("FOC") basis to employees, dealers and AMSC's are concerned, it was noted that coordinate bench of tribunal in assessee's own case in AY 2003-04 in M/s Nokia India (P) Ltd. vs. DCIT allowed the entire marketing expenditure on account of FOC handsets with the following observation that, " 9.10. It is observed that assessee has shown marketing expenses to the tune of Rs. 53, 31, 919/-on account of mobile phone handsets issued to AM SC, dealers and employees etc. 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 has 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 sales team is an expenditure incurred by assessee wholly and exclusively for the purpose of business of assessee. Assessee has also not capitalized 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." And that the said order of the Tribunal was upheld by the High Court and the Tax Department's appeal on this issue has been dismissed. Relevant from the order of the High Court are " 9. The Tribunal in the impugned order has held that the respondent-assessee was engaged in the manufacture, import and sale of mobile handsets. They had a large number of employees, a wide team of dealers and sales personnel. The respondent- assessee had transferred title or ownership of the mobile handsets to the employees, dealers, sales personnel etc., who were given mobile handsets free of cost and were no longer owned by the respondent-assessee. These mobile phones were not to be returned to the respondent-assessee. Accordingly, the cost of the mobile phones was business expenditure and was rightly reduced from the inventory. Thus, the respondent-assessee was justified in treating these mobile phones as expenditure incurred. The amount cannot be capitalized.";

++ facts being similar, the findings of the tribunal and High Court in assessee's own case on the issue hold the field, and no reason was found to take a different view from the same. While respectfully following, it was hold that the assessee could not have claim title and depreciation, once the mobile phones had been given and ownership had been transferred to the employees, dealers, sales personnel and after sales service centres, and consequently the addition made by the AO on this aspect needs to be deleted.

(See 2019-TIOL-324-ITAT-DEL)