2017 (11) TMI 1907 - AT - Income Tax

Disallowance towards commission expenses paid to doctors - AO has relied upon the CBDT Circular No.5/2012 dated 01/08/2012 issued by BDT and observed that the payment made to the doctors contravenes section 37(1) - HELD THAT - We find that the issue is no longer res integra and has been examined by the Coordinate Bench of Tribunal in Syncom Formulations (I) Ltd. 2016 (2) TMI 263 - ITAT MUMBAI held as receiving of gifts by doctors was prohibited by MCI guidelines, giving of the same by manufacturer is not prohibited under any law for the time being in force. Giving small gifts bearing company logo to doctors does not tantamount to giving gifts to doctors but it is regarded as advertising expenses. Sponsoring doctors for conferences and extending hospitality, pharmaceuticals companies have been sponsoring practicing doctors to attend prestigious conferences so that they gather contemporary knowledge about management of certain illness/disease and learn about newer therapies. Disallowance was made by the AO by relying on the CBDT Circular dated 01.08.2012 onwards. However, the Circular was not applicable because it was introduced w.e.f.01.08.2012. i.e. assessment year 2013-2014, whereas the relevant assessment year under consideration is 2010-2011 and 2011-2012. Accordingly, we do not find any merit in the disallowance - Decided in favour of assessee

Summary

Issues Involved:
Challenge to disallowance of commission expenses, Admission of additional ground of appeal, Admission of additional evidence, Justification of disallowance of commission expenses, Applicability of CBDT Circular, Decision on appeal.

Detailed Analysis:

1. Challenge to disallowance of commission expenses:
The appellant challenged the disallowance of &8377; 41,39,131/- towards commission expenses. The Assessing Officer (AO) disallowed the commission paid to doctors based on the CBDT Circular No.5/2012. The issue was whether the payment made to doctors contravened section 37(1) of the Income Tax Act. The Coordinate Bench of Tribunal in a similar case held that giving small gifts to doctors bearing company logo is considered advertising expenses and not gifts to doctors. The disallowance made by the AO was found unjustified, and the substantive claim of the assessee was allowed.

2. Admission of additional ground of appeal:
The assessee moved an application for admission of an additional ground of appeal challenging the order of revenue authorities. The additional ground was based on the argument that the recipients of the commission income had paid taxes at maximum marginal rates, resulting in no loss to revenue. However, the Tribunal dismissed the additional ground as it did not have the necessary facts from the income tax returns of the beneficiaries.

3. Admission of additional evidence:
The assessee also sought to admit additional evidence, which included the return of income of the recipients of the commission income. The Tribunal declined to entertain the additional evidence as the assessee failed to provide sufficient reasons for not submitting the evidence earlier, as required by Rule 29 of the ITAT Rules.

4. Applicability of CBDT Circular:
The AO relied on the CBDT Circular No.5/2012 to disallow the commission paid to doctors. However, the Coordinate Bench found that the Circular was not applicable to the relevant assessment years under consideration (2010-2011 and 2011-2012) as it was introduced for assessment year 2013-2014. Therefore, the disallowance made by the AO was deemed unjustified.

5. Decision on appeal:
The Tribunal, in line with the reasoning of the Coordinate Bench, allowed the substantive claim of the assessee and partly allowed the appeal. The order was pronounced in open court on 10/11/2017.

This judgment highlights the importance of legal provisions, precedents, and factual evidence in determining the allowability of expenses and the relevance of circulars issued by tax authorities in income tax assessments.