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4.3 The assessee, with regard to the huge employee cost, has contended that it was its first year of operation and it wished to establish the product pan India and hence penetration in the market was necessary. It has further contended that the major expenses incurred were on sales promotion, conveyance, travelling, sample distribution, royalty & marketing. Regarding whether the assessee is a trading concern or a manufacturing concern, the assessee has contended that it is a trading concern. It gets the perfumes manufactured as per its specification and that is why it appoints Production Managers to supervise the quality of the goods. The relevant portion of the assessee's submission is appended as under:-

2. The assessee is in the business of trading in perfumes and deodorants under the brand name 'Spykar'. The assessee gets these products manufactured from its suppliers and buys finished products from then. The year under assessment was the first year of business of the assessee. The assessee wished to establish the product on a PAN India basis and so had hired employees at various posts on PAN India basis. Since this was the first year of business, penetration in the market was necessary and as such sample distribution and business promotion was the key during the year. Sales had just begun garnering and hence sales of around Rs. 6, 26, 35,678/- only can be achieved during the year. The major expenses incurred were M/s. Staark Accessories Pvt. Ltd.

sales promotion, conveyance. Travelling, daily allowance for persons travelling and such related expenses of the employees of the company, sample distribution, royalty and marketing expenses. Expenses claimed of Rs.10, 22, 17,960/- includes cost of material consumed of Rs. 17,673,547/-, depreciation of Rs.335, 042/- and Finance cost of Its.38, 30,019/-. Details of Expenses are attached. (Annexure A)

3. The company was engaged in trading of goods. The perfumes and deodorants were being bought from suppliers who manufactured them according to the company's specifications and formulae. As such, it was necessary to supervise the quality of the goods being manufactured by the supplier and so employees were hired for keeping such control and supervision. The said employees were given the designation of the Production Manager. Area Managers were hired to head defined areas segregated over many regions on a PAN India basis and Marketing and Sales Managers were hired to garner sales in these areas."

that is why it appoints Production Managers to supervise the quality of the goods. The relevant portion of the assessee's submission is appended as under:-

2. The assessee is in the business of trading in perfumes and deodorants under the brand name 'Spykar'. The assessee gets these products manufactured from its suppliers and buys finished products from then. The year under assessment was the first year of business of the assessee. The assessee wished to establish the product on a PAN India basis and so had hired employees at various posts on PAN India basis. Since this was the first year of business, penetration in the market was necessary and as such sample distribution and business promotion was the key during the year. Sales had just begun garnering and hence sales of around Rs. 6, 26, 35,678/- only can be achieved during the year. The major expenses incurred were sales promotion, conveyance. Travelling, daily allowance for persons travelling and such related expenses of the employees of the company, sample distribution, royalty and marketing expenses. Expenses claimed of Rs.10, 22, 17,960/-