EXOTICA EXPORTS, MUMBAI V. DCIT 20(3), MUMBAI

ITA 7615/MUM/2012

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9234 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2008-2009
• Appeal Filed On: 26-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Assessee Lawyers: S M BANDI
• Section: 143(3)

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ./ I.T.A. NO.2559 /MUM/2012 ( / ASSESSMENT YEAR 2007-08 ./ I.T.A. NO.7615 /MUM/2012 ( / ASSESSMENT YEAR 2008-09 M/S E XOTICA EXPORTS, C-190, SANJAY, BLDG. NO. 5, MITTAL ESTATE, M.V. ROAD, MUMBAI 400 059. / VS. DY. COMMISSIONER OF INCOME TAX 20(3), MUMBAI. ./ PAN : AAAFE1903C ( / APPELLANT ) .. ( / RESPONDENT ) A PPELLANT BY SHRI S.M. BANDI R E SPONDENT BY : SHRI NEIL PHILIP / DATE OF HEARING : 17-03-2015 / DATE OF PRONOUNCEMENT : 27-03-2015 [ !' / O R D E R PER R.C. SHARMA, AM : THESE ARE THE APPEALS FILED BY THE ASSESSEE ARE DIR ECTED AGAINST TWO SEPARATE ORDERS PASSED BY THE LD. CIT(A) - 12, MUMB AI DATED 10-02-2012 AND 12-11-2012 FOR THE ASSESSMENT YEARS 2007-08 AND 200 8-09 IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 . 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS IN A.Y. 2007-08: (1) THE LD. CIT(A) HAS GROSSLY ERRED IN LAW AS WEL L AS ON FACTS IN CONFIRMING THE ACTION OF THE A.O. IN MAKING AN ADDI TION OF RS. 5 LAKHS BY ESTIMATING THE RESIDUAL VALUE OF SAMPLES AT RS. 5 LAKHS. ITA 2559 & 7615/M/12 2 (2) WITHOUT PREJUDICE TO THE GROUND NO.1. (A) THE LD. CIT(A) FURTHER ERRED IN LAW AS WELL AS ON FACTS IN IGNORING THE FACT THAT THE LD. A.O. HAS ESTIMATED R ESIDUAL VALUE OF SAMPLE AT RS.5 LAKHS, OUT OF TOTAL SAMPLE EXPENSES OF RS. 44.10 LAKHS PERTAINING TO THE 4 ASSESSMENT YEARS, INSTEAD OF ES TIMATING SAMPLE EXPENSES OF RS. 10.40 LAKHS INCURRED DURING THE YEA R UNDER REFERENCE. (B) WITHOUT PREJUDICE TO (2) (A) ABOVE, THE LD. CI T(A) ERRED IN CONFIRMING THE ACTION OF THE A.O. BY WAY OF NOT CON SIDERING AND ESTIMATING THE OPENING STOCK OF RS. 3,86,1681- (BEI NG PROPORTIONATE ESTIMATION, OUT OF RS. 5 LAKH, HAVING BEARING TO ON RS. 44.10 LAKHS, ON RS.I0.04 LAKHS). THUS, THE ESTIMATE OF THE CLOSING STOCK SHOULD BE RESTRICTED ONLY TO RS. 1,13,832/- INSTEAD OF RS. 5 LAKHS. 3. AS COMMON GROUNDS HAVE BEEN TAKEN IN BOTH THESE YEARS, WE HAVE HEARD BOTH THESE APPEALS TOGETHER AND DECIDE THE SA ME AS UNDER. 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOU ND THAT THE AO IN PARA-3.2 OF THE ASSESSMENT ORDER 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 NO T BE ADDED TO THE STOCK OF THE ASSESSEE. IN THIS REGARD, THE ASSESSEE HAS S UBMITTED THAT AFTER THESE SAMPLES ARE RECEIVED BACK FROM THE CUSTOMERS, IT HA S NO RESIDUAL VALUE OF WHATSOEVER NATURE. HOWEVER, IT WAS ADMITTED THAT TH E 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 SAMPLE CHARGES ARE BASICALLY EXPENSES INCURRED BY THE ASSESSEE FOR THE SAMPLE PIECES OF G ARMENTS DESIGNED BY THE ASSESSEE. IT WAS HELD THAT THE CLAIM OF THE ASSESSE E THAT THIS EXPENSE DOES NOT CARRY ANY RESIDUAL VALUE IS AN IRRATIONAL EXPLANATI ON. THE A.O. HAS FURTHER OBSERVED THAT IF THE SAMPLES DO NOT HAVE ANY RESIDU AL VALUE THEN THERE WAS NO REASON FOR THE ASSESSEE TO STORE THE SAME IN ITS OF FICE PREMISES. THEREFORE, IN ITA 2559 & 7615/M/12 3 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 ESTI MATED AT RS. 5,00,000/- AND THE SAME WAS ADDED BACK TO ITS INCOME. BY THE IMPUG NED ORDER, THE LD. CIT(A) CONFIRMED THE ADDITION OF RS. 5 LACS. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOU ND THAT EXPENSES WERE INCURRED ON ACCOUNT OF SAMPLES DESIGNED BY THE ASSE SSEE. SINCE THE ASSESSEE FIRM WAS ENGAGED IN THE BUSINESS OF EXPORT OF EMBRO IDERED 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 CUSTOME RS, EXHIBITIONS ETC. THESE SAMPLES ARE ALSO USED FOR PRODUCTION BY KARIGARS, C HECKING THE FINAL GOODS PRODUCED VIS-A-VIS BASIC ORIGINAL SAMPLE ETC. THESE SAMPLES ARE OF VARIED DESIGNS, COLURES, MATERIALS ETC. THE SAME ARE EXCLU SIVE, 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 EMBROIDERED FABRIC S MANUFACTURED BY THE ASSESSEE ARE USED FOR SOME OF THE BEST NAMES IN THE INTERNATIONAL FASHION INDUSTRY AND THEREFORE, EXCLUSIVELY IS A CORNERSTON E OF THE ASSESSEE OFFERING TO ITS CLIENTS. THESE SAMPLES CANNOT BE SOLD SINCE IT WOULD LEAD IN A SENSE OF 'LEAKING' DESIGNS AND STYLE TO COMPETITORS OR OTHER PERSONS WHO MAY SEEK TO PROFIT BY USING THOSE DESIGNS TO DISADVANTAGE OF TH E ASSESSEE. THEREFORE, THESE DESIGNS BEING VALUABLE ITEMS ARE NOT SALEABLE. EXPE NSES INCURRED ON THESE SAMPLE DO NOT CREATE ANY ASSET OF ENDURING VALUE AN D IT CANNOT BE USED FOR ANY PRODUCTIVE PURPOSE. THEREFORE, IT IS A SCARP IN THE SAME WAY AS OLD RAGS, PAPER OR BOTTLES. ITA 2559 & 7615/M/12 4 6. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY MERIT I N THE ACTION OF THE A.O. FOR DISALLOWING THE EXPENSES INCURRED ON SAMPLES WH ICH 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 E STIMATING 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 C LAIM FOR EXPENSES INCURRED ON SAMPLES AMOUNTING TO RS. 5 LACS. 7. IN THE RESULT, APPEALS OF THE ASSESSEE ARE ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH MARCH, 2015. !' # $% &! ' 27-03-2015 ( ) SD/- SD/- (SANJAY GARG) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER $ 5 MUMBAI ; &! DATED 27-03-2015 [ .6../ RK , SR. PS