TMI Blog2015 (2) TMI 817X X X X Extracts X X X X X X X X Extracts X X X X ..... Y KUMAR MITTAL AND MR. JASPAL SINGH, JJ. For the Appellant : Ms. Urvashi Dhugga, Advocate For the Respondent : Ms. Radhika Suri, Advocate JUDGMENT Ajay Kumar Mittal J.- 1. This appeal has been preferred by the Revenue under section 260A of the Income-tax Act, 1961 (in short, the Act ), against the order dated December 31, 2008, annexure A-3, passed by the Income-tax Appellate Tribunal, Chandigarh (in short, the Tribunal ) in I.T.A. No. 667/Chandi/2007, for the assessment year 2004-05, claiming the following substantial question of law : Whether, on the facts and in the circumstances of the case and in law, the order of the hon'ble Tribunal is perverse in allowing deduction representing sample distribution expenses in terms of section 37(1) of the Act ; in the absence of any sale and documentary evi dences, evidencing sending of free samples and also ignoring the fact that distribution of samples also included shahtoosh shawls which is a prohibited item as per the Indian Wild Life Act and is thus hit by the Explanation to section 37(1) of the Act ? 2. Briefly, the facts necessary for adjudication of the controversy involved, as na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. It was urged that the free sample distribution expenses could be allowed as business expenditure provided the same were sales promotion expenses and there was sale. It was contended that there was no sale and, therefore, the expenses on account of purchase of the items during the financial years 2001-02 and 2002-03 could not have been allowed for deduction towards free samples distribution. 5. On the other hand, learned counsel for the assessee besides supporting the orders passed by the Commissioner of Income-tax (Appeals) and the Tribunal, submitted that the both the authorities were justified in allowing the deduction. 6. After hearing learned counsel for the parties, we find no merit in the appeal. 7. Firstly, it may be noticed that the question as formulated shows that the Revenue is claiming disallowance of expenses incurred by the assessee for distribution of free samples particularly when it included shahtoosh shawls which was a prohibited item under the 1972 Act and its admissibility was hit by the Explanation to section 37(1) of the Act incorporated retrospectively from April 1, 1962. The argument at the first blush appears to be attractive but when the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he aforesaid two sections, it is apparent that under section 37, only revenue expenditure, which is expended wholly and exclusively for the purpose of business or profession, can be allowed to be deducted in computing the income while under sections 30 to 36, it could be either revenue expenditure or capital expenditure. Further, section 37 as such is a general provision which provides for deduction of expenditure while computing the income chargeable under the head 'Profits and gains of business or profession' of the assessee, if the expenditure is of revenue nature and not personal expenses of the assessee and if the said expenditure is laid out or expended wholly and exclusively for the purpose of business or profession. Hence, if the expenses are not covered by the specific provisions of sections 30 to 36 and yet the said expenses are laid out or expended wholly and exclusively for the purposes of the business or profession and they are not in the nature of capital expenditure or personal expenses of the assessee, then deduction is required to be given for the said expenses. It is quite possible that with regard to some expenses there may be overlapping between sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that unless actual sales take place, the deduction would not be admissible. It is intended to explore future sale of such commodities. Further, the provision nowhere envisages that the expenditure would be admissible only where such expenditure results in earning of income. 13. The Commissioner of Income-tax (Appeals) and the Tribunal had recorded a finding that the assessee-company was an export trading house and had distributed carpets and shawls as samples during the year. It was further noticed that these items were exported by the assessee in the subsequent assessment years 2005-06 and 2006-07. The samples distributed were not extraneous to the business of the assessee. Furthermore, the samples were given to the foreign agents in person during their business exploratory visit in India and the same would fall under the expenditure laid out or expended wholly and exclusively for the purpose of such business. 14. The Tribunal while upholding the admissibility of expenditure on account of sample distribution by the assessee to its customers affirmed the findings recorded by the Commissioner of Income-tax (Appeals) as under : We have considered the rival su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany which is an export trading house, meaning thereby that it is essentially undertaking export of commodities. Secondly, the items distributed as samples during the year are carpets and shawls. In the report of the Assessing Officer dated May 25, 2008, submitted by the learned Departmental representative, it is apparent that such goods and other items have been exported by the assessee in the subsequent assessment years of 2005-06 and 2006-07. Apparently, a variety of items have been exported. Therefore, it is not a case where the samples distributed were extraneous to the business of the assessee. May be, the sale of the same commodities has not been undertaken but by the very nature, distribution of samples to the potential customers is an expenditure intended to explore future sale of such commodities. Therefore, in this light, we are in agreement with the stand of the assessee that the expenditure is incurred wholly and exclusively for the purpose of business. At this stage, it would be also appropriate to observe that section 37(1) does not require that the expenditure falling therein must necessarily result in earning of an income. This is so because there is no such requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment proceedings as the same was not specifically called for. Instead, it has been stated that the Assessing Officer in paragraph 1 clearly observes that the assessee had filed the details from time to time. In this connection, it is also submitted that the Commissioner of Income-tax (Appeals) has noted that the assessee had produced the complete records before the Assessing Officer. 11. On this aspect, in our considered opinion, from the conspectus of facts emerging from the respective orders of the lower authorities, one aspect which emerges is that the Commissioner of Income-tax (Appeals) has based his decision on the basis of material which was very much in the knowledge of the Assessing Officer, may not be during the assessment proceedings but certainly during the remand proceedings during the appellate stage. The Commissioner of Income-tax (Appeals) has called for the comments of the Assessing Officer which have duly been noted and thereafter the claim of the assessee has been adjudicated upon. Therefore, we are inclined to affirm the decision of the Commissioner of Income-tax (Appeals) on this point also. 15. In view of the above, the Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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