2016 (9) TMI 1267 - AT - Income Tax

Disallowance made under sec. 37 - disallowance of expenses incurred on seminar and conference of the Doctors held outside India - proof of commercial expediency and business necessity of such expenditure - Held that - As perused the documents on record including the decision rendered by the co-ordinate Bench in assessee s own case for the A.Y. 2008-09 2015 (12) TMI 619 - ITAT MUMBAI held that The assessee had produced a set of photographs to show that by sponsoring of the foreign trips, the product awareness exercise was also done. It is not the case of the Revenue that the persons/doctors whose overseas trip was sponsored were otherwise in any manner related to the assessee company. The only purpose of the assessee company to sponsor the foreign trip of the doctors was for the purpose of promotion and sale of the products of the assessee company. It may be unethical practice for the doctors to accept such type of incentives, however, so far as the assessee is concerned, sponsorship was purely on account of business angle of the assessee company. - Decided in favour of assessee.

Summary

Issues:
Disallowance of expenses on seminar and conference of doctors held outside India under section 37 of the Income Tax Act, 1961.

Analysis:
The appellant, engaged in pharmaceutical formulation business, filed an appeal against the CIT(A)'s order partially allowing the appeal against the assessment order for the Asst. Year 2010-11. The AO disallowed expenses of &8377; 87,13,002 incurred on overseas seminar and conference for doctors, stating it was not wholly and exclusively for business purposes. The CIT(A) confirmed the disallowance based on previous cases. The appellant raised grounds questioning the disallowance and emphasizing the commercial expediency and business necessity of the expenditure.

The Authorized Representative pointed out a favorable decision by the Mumbai ITAT in the appellant's own case for A.Y. 2008-09 and cross-appeal filed by the department. The Departmental Representative supported the lower authorities' findings, stating the expenditure was not wholly for business purposes. The Tribunal reviewed the documents and the earlier decision for A.Y. 2008-09, where the appellant sponsored doctors for overseas tours to promote product awareness. The Tribunal noted the stiff competition in the market and the common practice of sponsoring doctors' trips to influence prescriptions. The Tribunal found the expenditure directly related to the business activity, emphasizing the promotional aspect and relationship-building with doctors. The Tribunal disagreed with the lower authorities' opinion and allowed the appeal, setting aside the CIT(A)'s order and deleting the addition made on the issue.

In conclusion, the Tribunal allowed the appeal for the Asst. Year 2010-11, following the decision in the appellant's favor based on the promotional nature and business necessity of the expenditure incurred on overseas travel of doctors.