2021 (2) TMI 725 - AT - Income Tax

Disallowance of business promotion expenses - expenditure incurred by the assessee on doctors - expenses on cath lab, marketing, travel of staff, paramedicines etcwhat is the cut off date of disallowance of expenses relating to doctors, whether it is 01.08.2012 or 14.12.2009 - HELD THAT - As decided in PHL case ( 2017 (1) TMI 771 - ITAT MUMBAI ) had held that expenditure incurred on doctor before 01.08.2012 be allowed as revenue expenditure. CBDT Circular No.5/2012 dated 01.08.2012, clearly states that any expense incurred in violation of MCI Regulations dated 10.12.2009, is inadmissible u/s 37(1) of the I.T.Act w.e.f. 01.08.2012 (i.e. prospectively). Thus we hold that expenditure relating to doctors incurred by the assessee prior to 01.08.2012 need to be allowed as revenue expenditure. Since we are concerned with A.Y s 2007-2008 to 2011-2012, the CBDT Circular No.5/2012 dated 01.08.2012 does not have effect on these cases. Accordingly, we direct the A.O. to delete the disallowance of business promotion expenses in A.Y. 2007-2008 to 2011- 2012. Hence ground is allowed. Disallowance of discount to customers - HELD THAT - In light of the ITAT order dated 29.01.2018 for A.Y s 2012- 2013 and 2013-2014, 2018 (1) TMI 1623 - ITAT BANGALORE we restore the issue of discount given to customer, to A.O. for de novo consideration with following directions, namely - (a) Discounts given in the invoice itself should be allowed without making any further enquiry; and (b) Discounts given to hospitals may be allowed after making enquiry. Disallowance of bad debts u/s 36 - HELD THAT - Revenue has not established that conditions stipulated u/s 36(2) of the I.T.Act was not fulfilled with respect to any of the debts which were written off by the assessee during the previous years. Under these circumstances, we are of the view that disallowance made by the Revenue authorities is incorrect as the assessee is only required to write off the bad debts and is not required to establish that it has become really bad. Accordingly, we direct the A.O. to allow the claim of bad debt raised by the assessee.

Summary

Issues Involved:
1. Validity of notice issued under Section 153A of the I.T. Act.
2. Disallowance of business promotion expenses.
3. Disallowance of discount given to customers.
4. Disallowance of bad debts written off.

Issue-wise Detailed Analysis:

1. Validity of Notice Issued Under Section 153A of the I.T. Act:
The Hon’ble High Court of Karnataka set aside the Tribunal's order concerning A.Ys 2007-2008 to 2011-2012 and directed the Tribunal to reconsider the issues in light of the judgment in the case of CIT v. GMR Energy Limited. The Tribunal had previously quashed the assessment orders for these years on the grounds that no incriminating material was found during the search, and the assessments had already been concluded under Section 143(3) of the I.T. Act. The Tribunal relied on various judicial pronouncements to support its decision. However, the High Court upheld that the initiation of proceedings under Section 153A is not dependent on any undisclosed income being unearthed during the search.

2. Disallowance of Business Promotion Expenses:
The Tribunal, in its earlier order dated 29.01.2018 for A.Ys 2012-2013 and 2013-2014, held that expenses incurred on doctors before 01.08.2012 should be allowed as revenue expenditure. The Tribunal relied on the CBDT Circular No.5/2012 dated 01.08.2012 and MCI Regulation 6.8, which stated that expenses incurred on doctors before 01.08.2012 were not prohibited by law and should be allowed. The Tribunal directed the A.O. to allow the expenses incurred before 01.08.2012 and to examine the nature of expenses incurred after that date. The Tribunal also noted that MCI guidelines are applicable to medical practitioners and not to pharmaceutical companies, and the CBDT circular cannot have retrospective effect.

3. Disallowance of Discount Given to Customers:
The Tribunal, in its order dated 29.01.2018 for A.Ys 2012-2013 and 2013-2014, directed the A.O. to re-adjudicate the issue of discounts given to customers after making necessary enquiries and verification. The Tribunal held that discounts given in the invoice itself should be allowed without further enquiry, and discounts given to hospitals should be allowed after making necessary enquiries. The Tribunal restored the issue to the A.O. for fresh adjudication with similar directions for A.Ys 2007-2008 to 2011-2012.

4. Disallowance of Bad Debts Written Off:
The Tribunal, in its order dated 29.01.2018 for A.Ys 2012-2013 and 2013-2014, directed the A.O. to allow the claim of bad debts written off. The Tribunal held that after the amendment to Section 36(1)(vii) of the I.T. Act, it is not necessary for the assessee to establish that the debt has become irrecoverable. It is enough that the bad debt is written off in the books of accounts of the assessee. The Tribunal directed the A.O. to allow the claim of bad debts for A.Ys 2010-2011 and 2011-2012, as the Revenue had not established that the conditions stipulated under Section 36(2) were not fulfilled.

Conclusion:
The appeals filed by the assessee for A.Ys 2007-2008 to 2011-2012 were partly allowed for statistical purposes. The Tribunal directed the A.O. to delete the disallowance of business promotion expenses incurred before 01.08.2012, to re-adjudicate the issue of discounts given to customers, and to allow the claim of bad debts written off. The Tribunal's directions were consistent with its earlier order dated 29.01.2018 for A.Ys 2012-2013 and 2013-2014.