2019 (1) TMI 210 - AT - Income Tax

Disallowance on account of Physician Samples distributed free of cost - allowable business expenditure u/s 37 - Held that - As decided in assessee s own case it is a known fact that the free sample of medicines supplied to the doctors is done for the promotion of the product of the company. Even when a new product is launched, the doctors are given necessary inputs regarding the use and effects etc. of the product and which also contributes imparting knowledge to the doctors about the new medicine/product coming into the relevant for practice of their profession. The genuineness of the transactions has not been doubted by the A.O. We do not find any infirmity in the well reasoned order passed by the CIT(A) holding that the expenses were incurred for the business promotion activity of the assessee. We therefore do not find any merit in the appeal filed by the Revenue Disallowance on account of Sponsorship of Doctor s Overseas Tours - Held that - As the appellant has been able to prove the genuineness of expense, proper recording in its books of accounts of the expenses, and the relationship of the expense with the business of the appellant, I find there is no need to make the said disallowance simply because in some other case, a disallowance made had been upheld. The case laws relied by the appellant also helps its case. The addition made is, therefore, deleted and the ground of appeal allowed. Disallowance of Sales promotion - busniss expenditure - Held that - In the instant case, the expenditure incurred is not capital in nature or in the nature of personal expenses of the appellant. In fact, it has been incurred on account of commercial expediency and has facilitated the appellant in carrying on its business. A perusal of the accounts of the earlier years shows that the total turnover and net profit of the appellant company have been increasing over the years which shows that the sales promotion activities have led to higher sales and better financial results for the company. Considering the discussion the expenditure claimed by the appellant was entitled to deduction u/s. 37(1) Exemptions u/s. 54EC against deemed Short Term Capital allowability - Held that - In CIT vs. Aditya Medisales 2013 (11) TMI 576 - GUJARAT HIGH COURT assessee transferred an asset held by it for more than 36 months i.e. a long term capital asset and invested an amount of ₹ 50 lakhs in bonds issued by NHAI which is long term specified asset as per clause (b) sub clause (i) of the explanation to section 54EC. In the above said case, in similar circumstances, Hon ble Gujarat High court granted relief in favour of the assessee. Therefore, in such circumstances, we do not want to interfere in the order passed by the ld. CIT(A). In our considered opinion, ld. CIT(A) has passed detailed and reasoned order and same does not require any kind of interference at our end. - Revenue appeal dismissed.

Summary

Issues Involved:
1. Disallowance of ?1,42,44,447/- on account of physician samples distributed free of cost.
2. Disallowance of ?1,17,53,365/- on account of sponsorship of doctors' overseas tours.
3. Disallowance of ?61,28,797/- on account of sales promotion expenses.
4. Consideration of Board's Circular No. 5/2012.
5. Disallowance of ?50,00,000/- by rejecting the assessee's claim of deduction u/s 54EC.

Issue-wise Detailed Analysis:

1. Disallowance of ?1,42,44,447/- on account of physician samples distributed free of cost:
The Assessing Officer (A.O.) disallowed ?1,42,44,447/- being 70% of ?2,03,49,211/- for physician samples distributed free of cost, treating it as non-business expenditure. The assessee appealed, and the CIT(A) accepted the contention, referencing an identical issue decided in favor of the assessee by ITAT Mumbai for A.Y. 2008-09. The Gujarat High Court also upheld this view, noting that free samples are a business promotion activity and the genuineness of transactions was not doubted. Consequently, the appeal of the Revenue was dismissed by ITAT Ahmedabad, following judicial consistency.

2. Disallowance of ?1,17,53,365/- on account of sponsorship of doctors' overseas tours:
The A.O. disallowed ?1,17,53,365/- based on CBDT Circular No. 5/2012, which prohibits medical practitioners from accepting gifts or travel facilities from pharmaceutical companies. The CIT(A) granted relief, referencing ITAT Mumbai's decision in the assessee's favor for A.Y. 2008-09, which held that such sponsorships, although potentially unethical for doctors, were business expenses for the assessee aimed at promoting their products. ITAT Ahmedabad upheld this decision, dismissing the Revenue's appeal.

3. Disallowance of ?61,28,797/- on account of sales promotion expenses:
The A.O. disallowed ?61,28,797/- for sales promotion, including gifts to doctors, scientific promotional articles, and dermatology books, arguing these were not allowable under Section 37 of the Income Tax Act. The CIT(A) allowed the appeal, stating these expenses were integral to the business and incurred out of commercial expediency. The CIT(A) noted the expenses were not personal or capital in nature and facilitated business operations. ITAT Ahmedabad upheld this view, affirming the CIT(A)'s detailed and reasoned order.

4. Consideration of Board's Circular No. 5/2012:
The A.O. referenced Circular No. 5/2012 in disallowing expenses related to doctors' overseas tours and sales promotion. However, CIT(A) and ITAT Ahmedabad found that the expenditures were business-related and necessary for promoting the assessee's products, thereby allowing the expenses despite the circular.

5. Disallowance of ?50,00,000/- by rejecting the assessee's claim of deduction u/s 54EC:
The A.O. disallowed the deduction u/s 54EC against deemed Short Term Capital Gain, arguing it was not allowable. The CIT(A) allowed the claim, referencing the Gujarat High Court's decision in CIT vs. Aditya Medisales, which held that exemption under Section 54EC could not be denied if the capital gain arose from a long-term asset and was invested in specified assets. ITAT Ahmedabad upheld this decision, finding no reason to interfere with the CIT(A)'s detailed and reasoned order.

Conclusion:
The appeal filed by the Revenue was dismissed on all grounds, with ITAT Ahmedabad upholding the CIT(A)'s decisions, which were based on judicial precedents and detailed reasoning. The assessments were found to be consistent with previous rulings in similar cases, affirming the business nature of the disputed expenditures.