2017 (9) TMI 35 - AT - Income Tax

Allowable business expenditure u/s 37 - sales promotion expenses - expenditure incurred for business purposes - Held that - In absence of required documentary evidence, in our opinion the disallowance of 50% of the expenses for the sales promotion under section 37(1) of the Act was justified. Providing free air travel, stay and food in hotels, local car conveyance etc. for prescribing medicines of the assessee is akin to giving commission and certainly in contravention of the public policy. Thus, respectfully following the decision of the Hon ble Punjab and Haryana High Court in the case of CIT Vs. Kap Scan and diagnostics Centre (p) Ltd (2012 (6) TMI 620 - Punjab and Haryana High Court ), the 50% expenses out of the sales promotion expenses disallowed by the Assessing Officer was justified. Here we find that the expenses toward sponsoring to doctors appears to be exceeding 50% of the sales promotion expenses and therefore the Assessing Officer is more than liberal in disallowing 50% of the sales promotion expenses of the assessee. - Decided partly in favour of assessee. Disallaowance of expenses for delay in contribution made towards Provident Fund payments - Held that - The payment by an employer of employees contributions to Provident Fund are not governed by the provisions of section 43B as stated by the appellant. Rather, the employees contributions to PF are included in the income of an assessee as per the provisions of section 2(24)(x) of the Act and only if an employer deposits these contributions received by him, by the specified date given in the Provident Fund Act (which is the 20th of the month following the month to which the contributions pertain) are these payments allowed as a deduction from the income in view of the provisions of section 36(1 )(va) of the Act.Since the payment of ₹ 5,94,741/-is paid after the prescribed time The disallowance of ₹ 5,94,741/- made by the Assessing Officer is, accordingly, upheld. This ground of appeal is dismissed. Disallowance of depreciation claimed on the UPS, Rack, switch and battery etc. - 15% or 60% - Held that - Depreciation at the rate of 60% on UPS allowed. See Steel Authority of India Vs. Addl. CIT 2013 (2) TMI 67 - ITAT DELHI

Summary

Issues Involved:

1. Disallowance of sales promotion expenses.
2. Disallowance of Provident Fund contributions.
3. Depreciation on UPS, rack, switch, and battery.

Issue-wise Analysis:

1. Disallowance of Sales Promotion Expenses:

The Revenue appealed against the deletion of ?1,63,90,136/- disallowed by the Assessing Officer (AO) for sales promotion expenses. The AO disallowed 50% of the expenses due to the assessee's failure to provide specific details and justifications, such as bifurcation of expenses, list of doctors, attendance sheets, agreements, invitation cards, and proof of the business impact. The AO argued that these expenses were not wholly and exclusively for business purposes and could be considered bribes to doctors, violating public policy and Explanation-1 to Section 37 of the Act. The CIT(A) deleted the disallowance, accepting the assessee's claim that such expenses were necessary to maintain business relations with doctors. However, the Tribunal upheld the AO's disallowance, citing the lack of documentary evidence and the prohibition of such expenses under the Medical Council of India regulations and public policy, referencing the case of CIT Vs. Kap Scan and Diagnostic Centre (P) Ltd.

2. Disallowance of Provident Fund Contributions:

The assessee's cross-objection challenged the disallowance of ?5,94,741/- for delayed payment of employees' Provident Fund contributions. The CIT(A) upheld the disallowance, stating that the payments were made after the due date prescribed under the Provident Fund Act, despite being made before the due date of filing the return. The Tribunal, however, allowed the assessee's cross-objection, following the decision in CIT Vs. Lakhani Rubber Works, where late deposits of employees' and employer's contributions to PF beyond due dates were not disallowed, aligning with the Supreme Court's decision in CIT Vs. Alom Extrusions Limited.

3. Depreciation on UPS, Rack, Switch, and Battery:

The assessee's cross-objection also challenged the disallowance of depreciation on UPS, rack, switch, and battery, which the AO treated as "plant and machinery" eligible for 15% depreciation instead of 60% claimed by the assessee. The CIT(A) upheld the AO's decision, referencing the Tribunal's decision in Nestle India Ltd. However, the Tribunal allowed the assessee's cross-objection, following the decision in Steel Authority of India Vs. Addl. CIT, where UPS and other peripherals were considered integral parts of the computer system, eligible for 60% depreciation.

Conclusion:

All three appeals of the Revenue and both cross-objections of the assessee were allowed, with the Tribunal upholding the AO's disallowance of sales promotion expenses and allowing the assessee's claims regarding Provident Fund contributions and depreciation on UPS and peripherals.