Revenue's Appeal Dismissed in Overseas Sampling Costs Dispute

The Revenue's appeal was dismissed in the case involving disallowance of overseas sampling costs, Puja expenses, apportionment of director's remuneration, proportionate interest expenditure, and Provident Fund/ESI payments. The Tribunal upheld the CIT(A)'s decisions on all grounds, noting lack of evidence against the genuineness of expenses and adherence to relevant legal precedents. The assessee's cross objection was partly allowed, and the delayed judgment was justified due to the COVID-19 pandemic, with the period of delay excluded based on legal precedent.

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Issues Involved:

1. Disallowance of Sampling Cost
2. Disallowance of Puja Expenses
3. Apportionment of Director's Remuneration under Section 80IA(7)
4. Disallowance of Proportionate Interest Expenditure under Section 14A r.w.s. Rule 8D(2)(ii)
5. Disallowance of Provident Fund/ESI Payments under Section 36(1)(va) r.w.s. 2(24)(x)

Detailed Analysis:

1. Disallowance of Sampling Cost:

The Revenue's primary grievance was the CIT(A)'s reversal of the Assessing Officer's disallowance of Rs. 1,45,48,484/- for overseas sampling cost. The AO had argued that the assessee failed to include the sample expenses in the closing stock. The CIT(A) noted that the sampling costs were consistently treated as revenue expenditure in previous years and allowed by predecessor AOs. The assessee maintained that these samples were not saleable and were used for understanding fashion trends. The CIT(A) found no evidence from the AO to suggest that the samples were sold or retained as stock. The Tribunal affirmed the CIT(A)'s conclusion, noting the competitive nature of the fashion industry and the lack of evidence to dispute the genuineness of the sampling costs. The Revenue's appeal on this ground was dismissed.

2. Disallowance of Puja Expenses:

The Revenue contested the CIT(A)'s decision to restrict the disallowance of Puja expenses to 50%. The Tribunal noted that such expenses were routine but the assessee failed to provide complete details. A lumpsum disallowance of Rs. 10,000/- was deemed appropriate, and this decision was not to be treated as a precedent. The Revenue's second substantive ground failed, and the assessee's cross objection was partly accepted.

3. Apportionment of Director's Remuneration under Section 80IA(7):

The issue involved the allocation of director's remuneration between eligible and non-eligible units. The AO had allocated the remuneration based on profit ratio, while the CIT(A) directed allocation based on turnover ratio. The Tribunal upheld the CIT(A)'s decision, noting that turnover is a more suitable criterion as it remains applicable even if there are losses. The Revenue's appeal on this ground failed, and the assessee's cross objection supporting the CIT(A) was rendered infructuous.

4. Disallowance of Proportionate Interest Expenditure under Section 14A r.w.s. Rule 8D(2)(ii):

The CIT(A) had directed the AO to consider only those investments that yielded exempt income, in line with the jurisdictional high court's decision in DCIT vs. REI Agro Industries Ltd. The Revenue failed to provide a compelling argument against this directive. The Tribunal affirmed the CIT(A)'s decision, and the Revenue's appeal on this ground failed. The assessee's corresponding cross objection was rendered infructuous.

5. Disallowance of Provident Fund/ESI Payments under Section 36(1)(va) r.w.s. 2(24)(x):

The CIT(A) had deleted the disallowance of Rs. 10,28,162/- for provident fund/ESI payments, noting that the payments were made before the due date for filing returns, as per the jurisdictional high court's decision in CIT vs. Vijay Shree Ltd. The Tribunal affirmed the CIT(A)'s findings, and the Revenue's appeal on this ground was dismissed. The assessee's corresponding cross objection was rendered infructuous.

Conclusion:

The Revenue's appeal ITA No. 739/Kol/2018 was dismissed, and the assessee's Cross Objection No. 57/Kol/2018 was partly allowed. The order was pronounced after a delay due to the COVID-19 pandemic, with the period of delay being excluded based on the decision in DCIT vs. JSW Limited.

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