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20. At the time of hearing, ld. AR submitted that above grounds of appeal viz Ground Nos.9 and 10 are not pressed for as the assessee is satisfied with the direction of DRP that the tax paid by assessee in Sri Lanka and Bangladesh will be allowed credit as per tax treaties. In view of above, Ground Nos.9 and 10 of the appeal taken by assessee are rejected.

21. Ground No.11 of the appeal taken by assessee is as under :

"11. The ld. AO erred in law and in facts by disallowing on adhoc basic 75% of the expenditure incurred towards free samples distributed amounting to Rs.118,503,996/- by treating it as non business expenditure.

Without prejudice to the above, the Hon'ble DRP has erred in law and in facts by not passing a reasoned order with respect to the above ground and accordingly, the order should be quashed;

22. The AO has stated that the assessee was asked to furnish details of production and sale of items manufactured by the assessee company. It was noticed that there is a variation in actual amount of production, its sales and closing stock. That on being asked to furnish reasons for short fall, the assessee stated that it was due to distribution of various types of samples. The AO has stated that the reply of the assessee was evasive and to investigate the matter further, further details/explanations were asked from the assessee. The AO has stated that the assessee vide letter dated 18.12.2009 furnished the details but they were not filed division-wise, nor the details of the persons, institution, agents with address, samples and amount were filed. The AO has stated that genuineness of distribution of samples was not established. Therefore, the assessee was asked to submit details of total sales, free samples and link with purchase or production to establish the difference. The AO has stated that the assessee filed its reply vide letter dated 24.10.2009; which has been stated by AO at pages 33 to 36 of the Assessment Order. It is observed that the assessee interalia stated that free samples were distributed to promote sales and it is an accepted commercial practice. That the expenses on account of it should be allowed as business expenditure. The assessee also placed its reliance on the decision of the Hon'ble Bombay High Court in the case of Brihan Maharashtra Sugar Syndicate Ltd. V/s DCIT (226 CTR 160)(Bom), wherein the Hon'ble High Court has held as under :

22.2 However, the AO has stated that the assessee is claiming distribution of samples which has resulted in short fall in production and sale of items but the assessee is not in a position to corroborate its contention by producing any convincing documents/records. The details filed by assessee is very incomprehensive and general in nature. The AO has stated that onus lies on the assessee to prove the genuineness of its claim. Since the assessee has failed to discharge the onus, AO stated that expenditure claimed on account of distribution of free samples is not acceptable. The AO proposed in draft assessment order, the disallowance of the entire claim of the assessee of Rs.15,80,05,328/-. However, DRP after considering submissions of the assessee stated that some of the samples have been given by assessee as part of various sales promotion schemes, which has certainly helped in increasing the sales. Therefore, DRP restricted the disallowances to 75% of the expenditure claimed by assessee and directed the AO accordingly.

23. In view of above, AO made disallowance of Rs.11,85,03,996/- being 75% of the claim of the assessee of Rs.15,80,05,328/-. Hence, assessee is in appeal before the Tribunal.

24. Ld. AR submitted that the assessee filed division-wise break-up of free samples distributed and the details of which are also placed at pages 806 to 1014 of the paper book. He submitted that distribution of free samples is one of the promotional avenues to promote the product. That it is a normal trade practice. He submitted that there is a sufficient control in regard to distribution of free samples. Ld. AR referred the decision of Hon'ble Bombay High Court in the case of Brihan Maharashtra Sugar Syndicate Ltd.(supra) and the decision of Hon'ble Apex Court in the case of in the case of Smithkline Beecham Pharmaceuticals (India) Ltd. (supra) and submitted that free samples were given due to commercial exigency. He submitted that the assessee has also paid Fringe Benefit Tax in respect of the said expenditure incurred and therefore the expenditure cannot be disallowed. The ld. AR placed reliance on the following decisions :