TMI Blog2020 (8) TMI 122X X X X Extracts X X X X X X X X Extracts X X X X ..... Puja expenses in business premises are a routine expenditure item nor the assessee has been able to provide all the corresponding details in the case records. Under these circumstances, we deem it appropriate that a lumpsum disallowance of ₹10,000/- only shall meet the ends of justice with a rider that the same shall not be treated as a precedent in any other assessment year. The Revenue s instant second substantive ground fails and the assessee's first substantive ground in its cross objection stands partly accepted. Director's remuneration u/s 80IA(7) - Revenue's case before us is that the Assessing Officer had rightly allocated the assessee's director's remuneration qua eligible and non eligible units u/s 80IA(7) of the Act going by the corresponding profit ratio - HELD THAT:- Revenue fails to dispute that it is not the profit but turnover criteria which is more suitable involving such a factual backdrop of eligible and non eligible units since the former may or may not involve deduction in earlier years under the provisions of the Act whereas the turnover benchmark is always applicable even it involves losses as well. We also note that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct reads as under: 3.1 Grounds No. 1 to 4 is regarding disallowance of ₹ 1,58,90,115/- on account of sampling cost. Grounds No. 1 to 4 being against the action of the AO in disallowing ₹ 1,58,90,115/- incurred on account or Sampling Cost ( Overseas Sampling Cost ₹ 1.45.48,484/- plus Sample Cost ₹ 13,41,631/-) The relevant portion of the assessment order is reproduced herewith. 3. Disallowance of Samples and Overseas Sampling Cost for ₹ 1,58,90,115/-: 3.1, The assessee has claimed expenses of Rs.l,45,48,484/- for Overseas Sampling in addition to the samples expenses of ₹ 13,41,631/- under the head Other Expenses vide note-25 of the Financial Statement dated 31-03-2013. The assessee was asked to e~plai9 why such huge amount of sample expenses of total Rs.l,58,90,115/- (₹ 1,45,48,484/- + ₹ 13,41,6311-) which is 4.22 of total Export Sales (FOB Value) and Indigenous Sales of ₹ 37,66,05,082/- shall not be restricted according to the proper evidence? It was noted in the order sheet on 14- 12-2015 and the assessee was supposed to file proper evidences in respect of such expenditures to substantiate the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducts due to frequent fashion changes developed by them. Hence, these expenses can never be treated as deferred. Again the assessee, during the course of hearing on 10-03-2016 vide written submission dated 10- 03-2016 has finally submitted that the sample cost should not be treated as closing stock as the same is not saleable in the market. But no merit has been found in the said argument following the discussions already made in subpara no. 3.1 of this order. However, for the sake of convenience the relevant portion of the written submission dated 10-03-2016 is being reproduced as follows: As regards your specific query as to why the cost of Samples and overseas sampling cost debited to profit and loss account for ₹ 13,41,631/- and ₹ 1,45,48,484/- respectively be not added to closing stock as on 31-03-2013 since such samples are not being sold but are being retained with the assessee company. We on behalf of our aforesaid client would once again like to draw your kind attention to the fact that the assessee company being engaged into export of high value added fashion garment and accessories to the ultimate buyers in UK, USA, Hongkong, Japan, Paris etc of el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow: Name and address of the agents Date of agreement Rate of commission Period of agreement Remarks M/s. Apex International Ltd. 704,3-4-9, Binqomachi, CHUO-KU, OSAKA-541-0051 Japan 27.01.2014 10 on FOB Value and 5 for Sample Invoices 5 gears for the Orders booked in Japan only Agency becomes effective on all orders booked through Agent, since April, 2011 onwards vide agreement dated: 27th January, 2014. The copy is enclosed with this order for ready reference and to make part of the order. M/s EITHA INTL. TRADING CO. 36-1, TA CHENG STREET, 4 FLOOR, TAIPEI, TAIWAN 01.04.2010 7.5% on FOP Value B years for the Orders booked in Taiwan only The assessee has not fixed any accountability to find out the new buyers regularly rather the ssessee has allowed the flat rate of commission in the name of monitoring of payments made by the buyers but has failed tofile any evidence in this regard. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Garment, Accessories, Cushions etc. % 3 years for the Orders booked in Italy only The assessee has not fixed responsibility to find out the new buyers rather the assessee has allowed the fiat rate of commission in the name of collections of payments made by the buyers but failed to file any 3.4 In addition to the above the assessee has claimed Foreign Travelling Expenses of ₹ 56,89,371/- and the details of countries visited is obtained and placed on record. After going through the details of the countries visited it is established that the assessee has been claiming multiple number of expenses for the identical works and claiming all for the export sales i.e. business. The recap of such expenses are (i) the assessee has appointed agents and paid fabulous amount of commission to the identical agents for booking of orders and monitoring the collection from the buyers within time over the years for doing business with (ii) the assessee has reimbursed huge amount to the foreign buyers year after years in the garb of overseas samplings to the identical parties and the fate of such costly samples are not ^disclosed simply sayi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because those were not perishable goods and the assessee should not be spared from the responsibility of including the same as closing stock when the same were not sold otherwise, the assessee should file the confirmations from all the parties/buyers that they have included in their computations of income for all the years in respective countries and the purchase cost of such fashionable items in their hands has been reflected Rs.NIL only and which must be verified through FT 85 TR wing of CBDT to conclude the issue. Here, the assessee has failed to furnish any such confirmation! documentary evidences hence, ₹ 1,58,90,115/- the cost of total samples is treated as closing stock lying in the hands of the assessee as on 31.03.2013 but not shown in the accounts. 3.6. Here the assessee has simply debited the entire sample cost of Rs.l,58,90,115/-(₹ 1,45,48,484/- + ₹ 13,41,631/-) without including in purchase and also adding in closing stock when the same were not sold because, the samples were not perishable goods and not likely to be discarded when the samples became the model for preparing bulk order to the assessee which are actually copies of original. Though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om A.Ys 2009-10 to 2013-14 from a perusal of which it will be apparent to your goodself that such expenditure on sampling have been incurred by your petitioner during all earlier years and being revenue expenditure was claimed as expenditure and has been allowed as revenue expenditure during all the earlier years. Details of such comparative chart is enclosed at Annexure - C. c) in this connection we enclose herewith copies of assessment orders from A. Y s 2009-10 to 2012-13 at Annexure - D from a perusal of which it will be apparent to your goodself that such sampling expenditure claimed as revenue expenditure during all earlier years have been accepted by all the predecessor AOs during A. Ys 2009-10 to 2012-13 as revenue expenditure and hence also there could be no justification for the AO in A. Y 2013-14 to make such addition without bringing any new material on record. d) A detailed reply regarding the nature of such expenditure, purpose of such expenditure and since the same has been produced by the AO in his assessment ~order at Point No. 3.2 and since the relevant portion of the assessment order has been produced above, the same are not being repeated for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red Accountant having not been rejected, such addition made may kindly be deleted. As already stated above, during all earlier years such expenditure on samples had been allowed and there being no change in the circumstances and the nature of expenses and nature of income and keeping in mind the consistency as decided in the following cases the AO may kindly be directed to treat it as income from house property instead of business income and in this connection this is submit that in Radhasoami Satsang v. CIT [1992J 193 ITR 321 (SC), the Hon'ble Supreme Court had occasion to consider the question of applicability of the principles of res judicata to income-tax proceedings. This judgment has been followed by the apex court in its subsequent judgment in Municipal Corporation of City of Thane v. Vidyut Metallics Ltd. [20071 8 SCC 688. In Radhasoami Satsang (supra), the Supreme Court considered the issue and held thus (page 329 of 193 ITR): We are aware of the fact that, strictly speaking, res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sal of the said orders it is s evident that the said sampling expenditure had all along been allowed as revenue expenditure as in the assessment framed for such year. 3. Further, I also found that the allegation of the AO in respect of foreign commission paid with that of sampling expenditure incurred is of no relevance as sampling charges are being paid before the goods are manufactured whereas the commission is paid only after manufacture and of at the time of selling of finished goods. On a perusal of the said orders referred to me at para no. 2 above, it is evident that even the foreign agents expenditure have also been all along allowed in the assessment framed for A.Ys 2009-10 to 2012-13. 4. The A.R of the appellant has also referred to the decision of the Hon ble Supreme Court reported in 193 ITR 321 (SC) and also that reported in 8 SCC 688 wherein it has been held: We are aware of the fact that, strictly speaking, res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost per se by doubting genuineness thereof. As it is rightly pointed out by the CIT(A) in his above extracted lower appellate discussion, there is also no material even as per the Assessing Officer that the impugned samples have been in anyway sold outside books or the same has been included in the closing stock. We wish to make it clear that the assessee is engaged in highly competitive designer clothes market wherein the market samples may not always fetch any income in a segment having ever involving fashion trends. Learned DR also fails to dispute that the assessee has been adopting the very criteria of claiming the sampling cost/samples then not including it in the closing stock since no more relevant in the export market. We thus affirm the CIT(A)'s foregoing conclusion and decline Revenue's first substantive ground. 4. Next comes Revenue's second substantive grievance and assessee's first substantive ground in its Cross Objection CO No. 57/Kol/2018raising the issue of disallowance of Puja expenses to the tune of ₹1,12,793/- as restricted to 50% in the lower appellate proceedings. Both parties fail to dispute that such Puja expenses in business prem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directed the Assessing Officer to take into action only those investments which have yielded exempt income going by hon'ble jurisdiction high court's decision in DCIT vs. REI Agro Industries Ltd. GA No. GA No. 3581 of 2013 I.T.A.T. No. 220 of 2013 dated 09.04.2014. Revenue fails in its fourth substantive ground as well. The assessee's corresponding fourth substantive ground in its appeal is rendered infructuous. 7. Lastly comes the Revenue's fifth substantive ground that the CIT(A) has erred in law and on facts in deleting provident fund/ESI payments disallowance of ₹10,28,162/- u/s 36(1)(va) r.w.s. 2(24)(x) of the Act. We notice herein as well that the assessee has paid the impugned sum well before the due date of filing return as per hon'ble jurisdiction high court's decision in CIT vs. Vijay Shree Ltd. (Cal) order dated 06.09.2011 in ITA No. 245 of 2011. The CIT(A)'s findings to this effect are affirmed therefore. The Revenue's instant appeal ITA No. 1245/Kol/2018 is rejected and assessee's corresponding substantive ground in its cross objection stands rendered infructuous. Its CO No. 57/Kol/2018 is partly allowed. 8. Before parti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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