2015 (12) TMI 619 - AT - Income Tax

Disallowance expenses - company to sponsor the foreign trip of the doctors - CIT(a) deleted the addition - Held that - The assessee is in the business of manufacturing and marketing of medicines and skin care products. There is a stiff competition in the market for the sale of the identical products manufactured by other companies. It is commonly known that the medicine companies sponsor the trips of the doctors to overseas so as to influence them to prescribe the medicines manufactured by their company. 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. We, therefore, do not find any justification on the part of lower authorities in disallowing the said expenditure. Accordingly, the order of the ld. CIT(A) is set aside the addition made on this issue is deleted and the appeal of the assessee is allowed. - Decided in favour of assessee.

Summary

Issues:
1. Deletion of 70% of expenses on physician's samples.
2. Disallowance of expenditure on overseas travel of doctors.

Analysis:

Issue 1: Deletion of 70% of expenses on physician's samples
The Revenue appealed against the deletion of the disallowance of 70% of expenses incurred by the assessee on physician's samples for A.Y. 2008-09. The A.O. disallowed the expenses as the assessee failed to prove the exclusive business purpose of the expenditure. However, the ld. CIT(A) observed that the distribution of free samples was related to the business promotion activity of the assessee. The assessee provided detailed evidence of purchase, delivery, and distribution of physician's samples, including confirmations from doctors who received the samples. The ld. CIT(A) found no doubt regarding the genuineness of the distribution and business expediency of the expenses. The Tribunal upheld the CIT(A)'s decision, emphasizing that free samples to doctors are a common practice for product promotion, and the expenses were incurred for business promotion activity, dismissing the Revenue's appeal.

Issue 2: Disallowance of expenditure on overseas travel of doctors
In the appeal filed by the assessee, the sole ground was the disallowance of expenditure on overseas travel of doctors for attending seminars and promoting product awareness. The A.O. and the ld. CIT(A) disallowed the expenditure, stating it was not directly related to the business activity of the assessee. However, the assessee explained that sponsoring foreign trips was part of sales promotion and product awareness programs to influence doctors to prescribe their products. The Tribunal agreed with the assessee, noting that sponsoring such trips is a common practice in the pharmaceutical industry to promote product sales. The Tribunal found that the overseas trips were sponsored for business promotion and sales, setting aside the lower authorities' decision and allowing the assessee's appeal.

In conclusion, the Tribunal dismissed the Revenue's appeal regarding the deletion of expenses on physician's samples and allowed the assessee's appeal concerning the disallowance of expenditure on overseas travel of doctors.