EXOTICA EXPORTS, MUMBAI V. ASST CIT 20(3),

ITA 403/MUM/2014

• Counselvise Citation: 40319914 RSA 2014
• Duration Of Justice: 1 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2015
• Appeal Filed By: Assessee
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 17-01-2014
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Assessee Lawyers: S M BANDI

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL E , BENCH MUMBAI . . , , BEFORE SHRI R.C.SHARMA , A M & SHRI SANJAY GARG , J M ./ ITA NO . 403 / MUM/20 1 4 ( / ASSESSMENT YEAR : 200 9 - 10 ) M/S EXOTICA EXPORTS, C - 190, SANJAY BLDG.NO.5, MITTAL ESTATE, M.V.ROAD, MUMBAI - 400059 VS. ACIT - 20(3), MUMBAI ./ ./ PAN/GIR NO. : A A AFE 1903 C ( / APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI S.M.BANDI /REVENUE BY : SHRI NEIL PHILIP / DATE OF HEARING : 24 /0 6 / 2015 / DATE OF PRONOUNCEMENT 24/03 /2015 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - 31 , MUMBAI , DATED 12 - 11 - 2013 FOR THE ASSESSMENT YEAR 200 9 - 10 IN THE MATTER OF ORDER PASSED U/S.14 3 (3) OF THE I.T.ACT . 2 . THE ONLY GRIEVANCE OF THE ASSESSEE RELATES TO ADDITION OF RS. 5 LAKHS BY ESTIMATING RESIDUAL VALUE OF THE SAMPLES AT RS. 5 LAKHS. 3. AT THE OUTSET, LD. AR PLACED ON RECORD ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2007 - 08 & 2008 - 09, ORDER DATED 27 - 3 - 2015, WHEREIN EXACTLY SIMILAR ADDITION OF RS.5 LAKHS MADE ON ITA NO. 403 /1 4 2 ACCOUNT OF RESIDUAL VALUE OF SAMPLES WAS ALLOWED BY TRIBUNAL. THE PRECISE OBSERVATION OF THE TRIBUNAL WAS AS UNDER : - 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOUND THAT THE AO IN PARA - 3.2 OF THE ASSESSMENT OR DER HAS OBSERVED THAT ASSESSEE HAS CLAIMED SAMPLE EXPENSES OF RS. 10.04 LACS. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY RESIDUAL VALUE OF THE SAMPLE EXPENSES SHOULD NOT BE ADDED TO THE STOCK OF THE ASSESSEE. IN THIS REGARD, THE ASSESSEE HAS SUBMITTED THA T AFTER THESE SAMPLES ARE RECEIVED BACK FROM THE CUSTOMERS, IT HAS NO RESIDUAL VALUE OF WHATSOEVER NATURE. HOWEVER, IT WAS ADMITTED THAT THE SAME ARE KEPT IN THE OFFICE PREMISES OF THE ASSESSEE. IN THIS REGARD THE AO HAS FURTHER OBSERVED THAT THE ASSESSEE HAS CLAIMED SAMPLE EXPENSES OF RS. 44.10 LACS FOR THE LAST FOUR YEARS I.E. 14.18 LACS FOR THE A.Y. 2004 - 05, RS. 8.18 LACS FOR THE A.Y. 2005 - 06, RS. 11.70 LACS FOR THE A.Y. 2006 - 07 AND RS. 10.04 LACS FOR THE A.Y. 2007 - 08. IT WAS FURTHER OBSERVED THAT SAMP LE CHARGES ARE BASICALLY EXPENSES INCURRED BY THE ASSESSEE FOR THE SAMPLE PIECES OF GARMENTS DESIGNED BY THE ASSESSEE. IT WAS HELD THAT THE CLAIM OF THE ASSESSEE THAT THIS EXPENSE DOES NOT CARRY ANY RESIDUAL VALUE IS AN IRRATIONAL EXPLANATION. THE A.O. HAS FURTHER OBSERVED THAT IF THE SAMPLES DO NOT HAVE ANY RESIDUAL VALUE THEN THERE WAS NO REASON FOR THE ASSESSEE TO STORE THE SAME IN ITS OFFICE PREMISES. THEREFORE, IN VIEW OF THE SAME, THE AO HAS FURTHER OBSERVED THAT ALTHOUGH THE SAMPLE VALUE IS TAKEN BY THE ASSESSEE AT NIL, THE RESIDUAL VALUE THEREOF, CONSIDERING TO THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE IS ESTIMATED AT RS. 5,00,000/ - AND THE SAME WAS ADDED BACK TO ITS INCOME. BY THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE ADDITION OF RS. 5 LACS. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOUND THAT EXPENSES WERE INCURRED ON ACCOUNT OF SAMPLES DESIGNED BY THE ASSESSEE. SINCE THE ASSESSEE FIRM WAS ENGAGED IN THE BUSINESS OF EXPORT OF EMBROIDERED FABRICS AND MATERIALS FOR WOMEN'S EVENING AND BRIDAL WEARS, THE SAMPLES ARE MUST IN VIEW OF NATURE OF BUSINESS CARRIED OUT BY THE ASSESSEE. THESE SAMPLES ARE USED FOR PROCURING ORDERS FROM CUSTOMERS. THE ASSESSEE USES THEM TO SHOW CUSTOMERS ON DIFFERENT OCCASIONS SUCH AS MEETING WITH CUSTOMERS, E XHIBITIONS ETC. THESE SAMPLES ARE ALSO USED FOR PRODUCTION BY KARIGARS, CHECKING THE FINAL GOODS PRODUCED VIS - A - VIS BASIC ORIGINAL SAMPLE ETC. THESE SAMPLES ARE OF VARIED DESIGNS, COLURES, MATERIALS ETC. THE SAME ARE EXCLUSIVE, ORDERS ARE RECEIVED BASED ON THEIR EXCLUSIVITY. SAMPLES ARE PREPARED OF SMALL SIZES NOT GOOD FOR ANY USE EXCEPT TO UNDERSTAND MATERIAL, DESIGN, AND CONCEPT. THESE SAMPLES ARE COSTLY AS MUCH THEY ARE MADE IN VERY SMALL SIZE TO SAVE COST. THESE SAMPLES ARE SEASON SPECIFIC. THE EMBROIDE RED FABRICS MANUFACTURED BY THE ASSESSEE ARE USED FOR SOME OF THE BEST NAMES IN THE INTERNATIONAL FASHION INDUSTRY AND THEREFORE, EXCLUSIVELY IS A CORNERSTONE OF THE ASSESSEE OFFERING TO ITS CLIENTS. THESE SAMPLES CANNOT BE SOLD SINCE IT WOULD LEAD IN A SE NSE OF ITA NO. 403 /1 4 3 'LEAKING' DESIGNS AND STYLE TO COMPETITORS OR OTHER PERSONS WHO MAY SEEK TO PROFIT BY USING THOSE DESIGNS TO DISADVANTAGE OF THE ASSESSEE. THEREFORE, THESE DESIGNS BEING VALUABLE ITEMS ARE NOT SALEABLE. EXPENSES INCURRED ON THESE SAMPLE DO NOT CREAT E ANY ASSET OF ENDURING VALUE AND IT CANNOT BE USED FOR ANY PRODUCTIVE PURPOSE. THEREFORE, IT IS A SCARP IN THE SAME WAY AS OLD RAGS, PAPER OR BOTTLES. 6. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY MERIT IN THE ACTION OF THE A.O. FOR DISALLOWING THE EXPENS ES INCURRED ON SAMPLES WHICH ARE ESSENTIALLY REVENUE IN NATURE. SINCE THESE SAMPLES ARE NOT IN THE FORM OF CLOSING STOCK TO BE SOLD IN SUBSEQUENT YEAR, THERE IS NO MERIT FOR ESTIMATING THEIR VALUE AT THE YEAR END AND MAKE TRADING ADDITION FOR THE SAME. AS THE FACTS AND CIRCUMSTANCES OF THE CASE IN A.Y. 2008 - 09 ARE SAME, FOLLOWING THE SAME REASONING, WE DIRECT THE A.O. TO ALLOW ASSESSEES CLAIM FOR EXPENSES INCURRED ON SAMPLES AMOUNTING TO RS. 5 LACS. 7. IN THE RESULT, APPEALS OF THE ASSESSEE ARE ALLOWED. 4. AS THE FACTS AND CIRCUMSTANCES OF THE CASE DURING THE YEAR UNDER CONSIDERATION ARE SAME, THE RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL, WE DIRECT THE AO TO DELETE THE ADDITION OF RS.5 LAKHS MADE BY THE AO BY ESTIMATING RESIDUAL VALUE OF SAMPLES . 5 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . O RDER PRONOUNCED IN THE OPEN COURT ON THIS 24/06 / 201 5 . SD/ - SD/ - ( ) ( SANJAY GARG ) ( . . ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 30 /06 /201 5 . . /PKM , . / PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//