TaxTMI 
TaxTMI 
2020 (8) TMI 122
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....k determined as on 31.03.2013. The CIT(A)'s detailed discussion to this effect reads as under: "3.1 Grounds No. 1 to 4 is regarding disallowance of Rs. 1,58,90,115/- on account of sampling cost. Grounds No. 1 to 4 being against the action of the AO in disallowing Rs. 1,58,90,115/- incurred on account or Sampling Cost ( Overseas Sampling Cost Rs. 1.45.48,484/- plus Sample Cost Rs. 13,41,631/-) - The relevant portion of the assessment order is reproduced herewith. 3. Disallowance of Samples and Overseas Sampling Cost for Rs. 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 Rs. 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/- (Rs. 1,45,48,484/- + Rs. 13,41,6311-) "which is 4.22 of total Export Sales (FOB Value) and Indigenous Sales of Rs. 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 expendi....
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....fe span of products 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 Rs. 13,41,631/- and Rs. 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....
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....ddress 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(tm) 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. M/s. HELEN SWATTON NO. 22 LONGCROFT, BRAITHWAITE, KESWICK, CUMBRIA, CA 12 TE, 07816634657 NORTH ux. 01.09.2011 14% on FOP Value « 2 years for the Orders booked in North U.K. only The assessee has not fixed any accountability to find out the new buyers regularly rather theasse....
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..... 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 saying those are returned back to us but we have to maintain the relationship to survive in the market. The buyers used to send the model or scanned copy of such samples instead of original to get the same done (iii) Again the assessee has been debiting the expenditures for foreign travel undertaken in the name of business. In this way the assessee has been debiting huge amount for the similar works and paying commission at an average rate of 10 of export turnover shown in their name. Now the crux of the issue is if the buyers can have right to choose the samples and the assessee has been coordinating through internet via email, mobile and visiting personally through various representatives then what were the roles of Fore....
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.... in the accounts. 3.6. Here the assessee has simply debited the entire sample cost of Rs.l,58,90,115/-(Rs. 1,45,48,484/- + Rs. 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 the assessee was -'not ready to accept the same and put forwarded argument for the sake of argument only yet the same is not tenable. No prudent businessman will allow to waist his money without any logic and here the assessee has also failed to furnish any documentary evidence in support of free gift of samples received by the buyers year after year and failed to show the credit in their accounts and disclosed before the revenue authorities of the respective countries. For example, the tea traders who have received free sample tea from the growers or brokers used to include the samples in their accounts without adding any purchase value and then debit the quantum whatever forwarded to the small trades and it implies that every debit must be authenticate....
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....stification 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 sake of convenience and our said submission appearing at para 3.2 may kindly be taken into consideration for this purpose. Our submission in para "A" above at page 3 is also not being repeated for the sake of convenience and the same may also be kindly taken into consideration while deciding the issue. e) The AO has un-necessarily confused himself on this issue with that of payment of Foreign Agents Commission ofRs. 1,11,38,160/-. In this connection, it may not be out of place to mention and draw the kind attention of your goodself that the commission to foreign agents had been made on sales made by them on behalf of your petitioner-company and the same has nothing to do with the sampling cost. The samples are purchased much be fore the goods are manu factured and on the basis o....
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....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 aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year, (unless there was) any material change justifying the Revenue to take a different view of the matter." Referring to this judgment and various other authorities and answering the very same contention, the apex court, in its judgment in Bharat Sanchar Nigam Limited v. Union of India [2006] 282 II R 273 (SC) summarized the legal position thus (page 286): "The decisions cited have uniformly held that res judicata does not apply in matters pertaining to tax for different assessment years because res 'judicata applies to de....
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....nd 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 been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year, (unless there was) any material change justifying the Revenue to take a different view of the matter." Based on the aforesaid observations and respectfully following the decision of Hon'ble Supreme Court (supra) wherein it has been categorically held that "in absence of any material change are different view than that taken in earlier years could not be taken". 5. The AO has not brought on record any evidence which can lead to the inference that the assessee has sold the samples and has not recorded the sales proceeds in the books or any evidence to suggest that the stock of samples was lying with the assesse....
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....ve 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 Rs.1,12,793/- as restricted to 50% in the lower appellate proceedings. Both parties fail to dispute that such 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 Rs.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. 5. The Revenue's and assessee's third substantive ground in their appeal and cross objection is the issue of director's remuneration u/s 80IA(7) of the Act involving an amount of Rs.64,92,302/- in the course of assessment and deleted in the lower appellate proceedings followed by the CIT(A) direction to the Assessing Officer for apportionment thereof in the ratio of turnover of the el....