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2016 (1) TMI 500 - AT - Income TaxExclusion of expenses which was disallowed u/s 37(1) for computing book profit u/s 115JB - MAT computation - Distribution of samples of medicines to the physicians free of cost - Held that - Distribution of samples of medicines to the physicians free of cost cannot be parted with the business purpose, as the object of supply of free samples of medicines is only to find out by the medical practitioners about the curative value of the medicines and such confidence could be created mainly by the medical practitioners, when they use such medicines towards treatment of the patients. Moreover, the real person who can create market for medicines are the medical practitioners and when compared to other industrial products, medicines are not ordinary products of consumption and its consumption is for only to get rid of some ailments. Reputation of such medicines would have to be confirmed by the medical practitioners and, therefore, the samples of medicines were distributed to them. In brief, distribution of samples of medicines to the physicians free of cost cannot be parted with the business conducted by the assessee. Section 37(1) of the Act speaks about the expenditure incurred for the purpose of business. Expenditure incurred upon supply of samples of medicines free of cost to the physicians is not required to be differentiated with the business in any manner. Taking into account all the facts and circumstances of the case, we are of the opinion that the learned CIT(A) has erred in confirming the order of the AO while declining the expenditure incurred for the said purpose. Therefore, it is observed that the expenditure incurred for providing the samples of medicines free of cost to the medical practitioners is liable to be allowed as business expenditure and, therefore, the order of the learned CIT(A) is hereby set aside in this regard and the file is hereby order to restore before Assessing Officer to reassess the assessment of assessee in view of the above said observations. Inclusion of amount disallowed u/s 14A to the book profit - Held that - This issue is decided against the assessee in the case of CIT vs. Goetze India Ltd. (2013 (12) TMI 607 - DELHI HIGH COURT ). Accordingly, we uphold the order of learned CIT(A) on this issue. The disallowance of expenses made while computing total income under normal provision of the Act have not been prescribed to be included under the provision of section 115JB of the Act. Hence we uphold the matter of learned CIT(A) on this issue.
Issues:
1. Disallowance of expenditure on distribution of samples of medicines under section 37(1) of the Income Tax Act. 2. Inclusion of disallowance under section 14A of the Act in book profit. 3. Whether disallowance under normal provisions should be added under section 115JB. Analysis: Issue 1: Disallowance of Expenditure on Distribution of Samples of Medicines The Appellate Tribunal considered the appeal regarding the disallowance of expenditure incurred on distributing samples of medicines to physicians free of cost. The Assessing Officer disallowed the expenditure, and the CIT(A) confirmed a portion of the disallowance under normal provisions but excluded it from the book profit under section 115JB. The Tribunal observed that the expenditure was for business purposes and should be allowed under section 37(1) of the Act. The Tribunal disagreed with the CIT(A)'s decision based on CBDT Circular and a previous judgment, stating that providing samples to physicians is essential for creating market reputation and falls within the ambit of business expenditure. Therefore, the Tribunal set aside the CIT(A)'s order and directed the Assessing Officer to reassess the expenditure. Issue 2: Inclusion of Disallowance under Section 14A in Book Profit The Tribunal addressed the issue of including the disallowance under section 14A of the Act in the book profit. Referring to a decision by the Delhi High Court, the Tribunal upheld the CIT(A)'s order on this issue, ruling against the assessee. Issue 3: Disallowance under Normal Provisions and Section 115JB Regarding the disallowance of expenses under normal provisions and whether they should be added under section 115JB, the Tribunal upheld the CIT(A)'s decision, stating that such disallowances are not required to be included under section 115JB of the Act. In conclusion, the Tribunal partly allowed the assessee's appeal and dismissed the revenue's appeal. The order was pronounced in an open court on 18.12.2015.
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