Relief to Nokia: Delhi HC allows Expenditure on Mobile Phones distributed to Employees, Dealers and Sales Personnels [Read Judgment]

In a major relief to Nokia, the Delhi High Court has held that the company is eligible to get the deduction in respect of the cost incurred on distributing mobile phones to its employees, dealers and sales personnel.

The respondent-assessee is engaged in the manufacturing of advanced mobile and fixed telephony equipment and systems. During the course of the assessment proceedings, the Assessing Officer observed that the respondent-assessee had provided mobile handsets to their dealers, employees and after-sale-service centres. He was of the view that these mobile handsets should be considered as capital assets used by the respondent-assessee for its business and accordingly they were entitled to claim depreciation on these mobile handsets.

On the first appeal, the CIT(A) upheld the addition. However, the Tribunal, on the second appeal, granted relief to the assessee by finding that they had a large-number employee, a wide team of dealers and sales personnel. It was observed that 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 Tribunal held that the amount cannot be capitalized.

Upholding the ITAT order, a bench comprising Justice Sanjiv Khanna and Justice Chander Sekhar held that “The aforesaid finding regarding capitalization or business expenditure is a finding of fact. Obviously, respondent-assessee could not have claimed title and depreciation, once the mobile phones etc. had been given and ownership had been transferred to the employees, dealers, sales personnel and after-sales-service centres. In the absence of any material and evidence to show that the findings of fact are perverse, we do not see any reason to interfere with the impugned order on the said aspect.”