2010 (7) TMI 527 - AT - Income Tax

Allowable expenditure - Business promotion expenditure incurred on doctors - doctors were neither the employees nor the agents of the assessee - Held that - The Learned CIT(Appeals) erred in upholding the disallowance of Rs. 2, 78, 460 on the ground that the business promotion expenses incurred on the doctors which were admittedly neither the employee nor the agent of the assessee-company - The assessee has demonstrated that on account of the training of these two doctors the company has directly been benefited because these doctors themselves have purchased and sponsored machineries/equipments respectively - Not only that they have promoted the sales by convincing other professionals but also made them aware about the product hence in a way created a better market for future - The assessee has explained that since the assessee is in trading of Ophthalmic and Orthopaedic equipments therefore the expenditure incurred was wholly and exclusively for the purpose of business hence allowable u/s 37 of the Income-tax Act 1961 - The assessee has established the genuineness of the expenditure plus demonstrated its connectivity of the business of the assessee - The revenue has wrongly appreciated the facts of the case therefore their view is hereby reversed and we accordingly direct to allow the claim of the expenditure - Hence the appeal of the assessee is allowed.

Summary

Issues: Claim of business promotion expenses incurred on doctors.

Analysis:
1. The appeal was based on the disallowance of business promotion expenses related to marketing a product. The primary issue was the claim of expenses incurred on doctors who were neither employees nor agents of the assessee-company.

2. The facts revealed that the Assessing Officer questioned expenses incurred on two doctors, Dr. Maulik Patwa and Dr. Vishnu Patel, totaling Rs. 2,78,460. The appellant justified the expenses by detailing the purpose and benefits derived from sponsoring the doctors for training and trips.

3. The Assessing Officer disallowed the expenses, stating lack of business advantage due to the doctors not being employees or agents. The CIT(Appeals) upheld the disallowance, citing absence of a written agreement and business nexus for the expenditure.

4. The ITAT analyzed the case, emphasizing the direct business nexus of the expenses with the assessee's activities. The expenditure aimed to educate doctors on products, resulting in increased sales and business relations. The appellant provided evidence of business benefits derived from sponsoring the doctors, justifying the expenses under Section 37 of the Income-tax Act, 1961.

5. The ITAT addressed the legality of the expenses, referencing the Explanation to Section 37(1) to ensure compliance with the law. The expenditure on independent medical professionals for business purposes was deemed legitimate and beneficial to the assessee's business activities. Distinctions were drawn from relevant case law to support the allowance of the expenses.

6. Citing precedents and legal guidelines, the ITAT concluded that the revenue's view was incorrect. The genuineness and business connectivity of the expenses were established, leading to the reversal of the disallowance and allowing the claim for the expenditure.

7. Ultimately, the ITAT allowed the appeal, overturning the disallowance of the business promotion expenses incurred on the doctors, emphasizing the legitimate business purposes and benefits derived from the expenditure.