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2018 (4) TMI 1813 - AT - Income TaxDisallowance of business promotion expenses u/s 37 - CIT(A) was of the view that an amount incurred in connection with installation of stall and participation fees are allowable and the remaining expenses was not allowable in view of the Explanation-1 of Section 37(1) - HELD THAT - CIT(A) was of the view that these fees are for participation fees and installation of stall which was not prohibited by the Medical Council Act. So far as the remaining claim of the assessee is in connection with the expenses is concerned, the claim of the assessee is that the said expenses is not required to be allowed on the basis of the Circular No.5 of 2012 dated 01.08.2012 issued by the Central Board of Direct Taxes, New Delhi vide F.No.225/142/20120-ITA-11which was prospective in nature. It is not in dispute that the present assessment year is for the A.Y. 201112 Circular No. 5 and of 2012 dated 01.08.2012 issued by the Central Board of Direct Taxes, New Delhi vide F.No.225/142/20120-ITA-11 and was applicable prospectively for the A.Y. 2013-14 onwards. Order passed by the PT. VISHWANATH SHARMA 2008 (2) TMI 423 - ALLAHABAD HIGH COURT is only deals with the commission expenses whereas no such issue is in question in the present case. Now, coming to the applicability of the circular dated 01.08.2012 is concerned, we are of the view that the same is not applicable retrospectively and in this regard we are also finding support in law settled in DCIT Vs. PHL Pharma (P.) 2017 (1) TMI 771 - ITAT MUMBAI . Accordingly, we are of the view that the expenses are allowable, therefore, we decide this issue in favour of the assessee against the revenue.
Issues Involved:
1. Admissibility of additional evidence under Rule 46A of the I.T. Rules. 2. Disallowance of business promotion expenses under Explanation to Section 37(1) of the Act. 3. Disallowance of provision for damaged/expired goods. Issue-Wise Detailed Analysis: 1. Admissibility of Additional Evidence under Rule 46A of the I.T. Rules: The Revenue contended that the CIT(A) erred in admitting additional evidence without providing the Assessing Officer (AO) an opportunity to be heard, thereby contravening Rule 46A of the I.T. Rules. The CIT(A) admitted additional evidence and allowed ?97,93,996/- under Section 37(1) of the Act, which was previously disallowed by the AO. 2. Disallowance of Business Promotion Expenses under Explanation to Section 37(1) of the Act: The assessee filed its return of income declaring ?6,80,98,658/-, later revised to ?6,89,93,188/-. The AO disallowed ?2,93,78,445/- of the claimed sales promotion expenses, citing violations of the Indian Medical Council (IMC) Regulations and Explanation to Section 37(1) of the Act. The breakdown of disallowed expenses included: - Continued Medical Education: ?2,70,520/- - PG Grant: ?12,30,833/- - Indian Acne Alliance: ?5,61,172/- - Doctor Group Meeting: ?11,54,265/- - Post Marketing Survey (PMS): ?41,67,000/- - IADVL New Year: ?31,12,488/- - IADVL: ?27,62,350/- - State IADVL: ?14,86,648/- - Other Conference: ?24,32,510/- - Sponsorship Local: ?27,70,809/- - Samples: ?94,29,850/- - Payment to Doctors: ?2,62,963/- The CIT(A) allowed ?97,93,996/- related to installation of stalls and participation fees, stating these were not prohibited by the IMC Regulations. The remaining ?1,98,47,412/- was disallowed as it involved direct or indirect benefits to doctors, violating the IMC Regulations and Explanation to Section 37(1). The assessee argued that the Circular No. 5 of 2012, dated 01.08.2012, issued by the CBDT, was prospective and not applicable to the A.Y. 2011-12. The Tribunal supported this view, citing precedents such as DCIT Vs. PHL Pharma (P.) Ltd. (2017) and Macleods Pharmaceuticals Ltd. Vs. ADIT (2016), and concluded that the expenses were allowable, thus deciding in favor of the assessee. 3. Disallowance of Provision for Damaged/Expired Goods: The AO disallowed the provision for damaged/expired goods amounting to ?44,61,914/-, considering it a contingent liability. The CIT(A) deleted this disallowance, following the judgment of the Hon'ble ITAT in a similar case. The Tribunal upheld this deletion. Conclusion: The Tribunal allowed the assessee's appeal, granting the claimed sales promotion expenses and provision for damaged/expired goods, while dismissing the Revenue's appeal. The order pronounced on 02.04.2018 concluded that the disallowances made by the AO were not justified under the given circumstances and applicable legal provisions.
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