2016 (6) TMI 1341 - HC - Income Tax

Disallowance being 70% of the expenditure in respect of Physicians Sample - allowable business expenses - Held that - Perusal of the orders on record would demonstrate that the issue is primarily in the realm of appreciation of material on records. Even the Assessing Officer allowed part of the expenditure thereby indicating that he would not averse to the expenditure in the nature of free samples being related to assessee s business. He only disputed the quantification. When Commissioner of Income Tax (Appeals) concurrently found sufficient reason to accept the assessee s claim we do not see any question of law arising.

Summary

Issues: Appeal against the judgment of Income Tax Appellate Tribunal regarding the disallowance of expenditure on free Physicians' samples.

Analysis:
1. The primary issue in this case was the disallowance of ?44.61 lacs, representing 70% of the expenditure claimed by the assessee for providing free Physicians' samples. The Assessing Officer disallowed this amount, but the Commissioner of Income Tax (Appeals) later deleted the disallowance. The Revenue then appealed to the Tribunal, which upheld the decision of the Commissioner of Income Tax (Appeals). The Tribunal emphasized that providing free samples to doctors is a common practice for promoting pharmaceutical products and imparting knowledge about new medicines. The Tribunal found no fault in the reasoning of the Commissioner of Income Tax (Appeals) and dismissed the Revenue's appeal.

2. The Tribunal's decision was based on the understanding that the free samples provided to doctors were part of the business promotion activities of the assessee. The Assessing Officer had also acknowledged the legitimacy of the expenditure on free samples, only disputing the quantification. Since the Commissioner of Income Tax (Appeals) found valid reasons to support the assessee's claim, the High Court concluded that there was no legal question to be addressed. The High Court, therefore, dismissed the Tax Appeal, affirming the Tribunal's decision.

In conclusion, the High Court upheld the Tribunal's decision to delete the disallowance of expenditure on free Physicians' samples, emphasizing that such expenses were legitimate business promotion activities. The judgment highlighted the importance of providing necessary inputs to doctors about pharmaceutical products and new medicines, ultimately contributing to the promotion of the company's products. The High Court's analysis focused on the appreciation of material on record and the absence of any legal question warranting further consideration, leading to the dismissal of the Tax Appeal.