2015 (3) TMI 768 - AT - Income Tax

Disallowance of sales promotion expenses - Held that - The Assessing Officer himself has stated that above sales promotion expenses paid to Doctors including travelling and conveyance, selling and distribution expenses, conference expenses incurred on the doctors for promoting the sales. The Assessing Officer has not pointed out any expenses which is directly incurred which prohibited by law and the AO has not brought out any evidence that assessee has incurred this expenditure which is prohibited by CBDT's Circular No. 5/2012. We find that the CIT(A) has disallowed the sales promotion expenses @ 10% of the total expenditure. We find that the Assessing Officer did not point out which expenditure is prohibited by law, therefore, in assessee's own case in Assessment Year 2007-08 and in 2008-09 the Tribunal has dismissed the appeal of the revenue and CIT(A) has followed the decision of the Tribunal, therefore, our interference is not required. - Decided against revenue. Deletion on account of difference in the closing stock as per stock statement given to the Bank and Stock as appearing in the Balance Sheet - Held that - Assessee showed stock of ₹ 8,75.59 lakhs at the year end to the Bank, whereas subsequent to tax audit, the assessee disclosed closing stock valued at 858.48 lakhs difference being 17.11 lakhs. We find that the assessee has submitted the stock value at the end of the month end with the Bank before 15th of the next month. Accordingly, assessee has filed the stock statement giving value as at 31-03-2010 which was worked out on the basis of cost sheet as at 31st December, 2009. However, while finalising the Accounts as per the costs sheets as at 31st December, 2010 and the valued the stocks which is slightly higher than the earlier value informed to the Bank. While finalising the Accounts for 2009-10, the assessee has write off stocks of Playmax valuing ₹ 51.54 lakhs since the same has expired but was shown in the stock statement submitted to the Bank on 15.04.2010. The stock value on 31st March, 2010 was further reduced at the time of finalisation of Accounts to the extent of ₹ 1.71 lacks for the stock of expired goods. The CIT(A) has verified and he was of the view that the stock statements given to Bank on 15.04.2010 was only provisional and estimated basis, therefore, he has deleted this addition and our interference is not required. - Decided against revenue.

Summary

Issues:
1. Disallowance of sales promotion expenses.
2. Deletion of the addition on account of difference in closing stock.

Analysis:

Issue 1: Disallowance of sales promotion expenses
The department appealed against the CIT(A)'s order for the Assessment Year 2010-11, challenging the allowance of sales promotion expenses amounting to Rs. 87,62,377. The Assessing Officer disallowed the expenses citing the Medical Council of India's ban on medical practitioners from accepting gifts or grants from pharmaceutical companies. However, the CIT(A) partially allowed the claim, restricting the disallowance to 10% of the total sales promotion expenses. The Tribunal found that the expenses were incurred for promoting sales to doctors and were essential for launching new products. The Tribunal upheld the CIT(A)'s decision, emphasizing that the expenses were admissible under the Income Tax Act. The circular prohibiting gifts to medical practitioners was considered but not found applicable in this case. Therefore, the appeal on this ground was dismissed.

Issue 2: Deletion of addition on account of difference in closing stock
The second ground of appeal pertained to a difference in closing stock value as per the bank statement and the balance sheet. The Assessing Officer added Rs. 16,98,000 to the total income due to the discrepancy. However, the CIT(A) deleted this addition after considering the explanation provided by the appellant. The Tribunal noted that the stock statement given to the bank was provisional and estimates, with finalization occurring during the audit process. The difference in stock values was attributed to the write-off of expired goods and other minor reconciliations. The Tribunal agreed with the CIT(A)'s decision, citing a negligible difference and the natural process of finalizing accounts. Referring to a relevant court case, the Tribunal upheld the deletion of the addition, concluding that the Assessing Officer was unjustified in making the addition. Therefore, the appeal filed by the department was dismissed.

In conclusion, the Tribunal upheld the CIT(A)'s decisions regarding the disallowance of sales promotion expenses and the deletion of the addition due to the difference in closing stock values. The judgment provided detailed reasoning for each issue, considering legal provisions and precedents to arrive at its conclusions.