2022 (6) TMI 76 - AT - Income Tax

Disallowance u/s 37(1) incurred for doctors in alleged violation of India Medical Council Regulation, 2002 - AO found that these expenses have been incurred on various promotional Articles - HELD THAT - As stated that the assessment year involved is A.Y. 2011-12 and all these details were provided to the learned Assessing Officer during the course of assessment proceedings. On careful consideration of the argument of the parties, we find that this issue is squarely covered in favour of the Revenue by the decision of Hon'ble Supreme Court in case of Apex Laboratories Pvt. Ltd. 2022 (2) TMI 1114 - SUPREME COURT as also considered the various decisions which are relied upon by the learned Authorised Representative. However, as the details of such expenses are not available before us, we direct the assessee to submit the details of such expenses within 60 days of this order and then, the learned Assessing Officer after considering the details decide the issue of disallowance as per the order of the Hon'ble Supreme Court. In the result, ground no. 1 of the appeal is allowed with above direction. Deprecation on expenditure treated as capital in nature - CIT(A) deleted the same holding that in earlier years the learned Assessing Officer has treated various Revenue expenditure claimed by assessee as capital expenditure and disallowed the same. Details of these expenses are submitted to the learned Assessing Officer - HELD THAT - Both the parties agreed that this ground is raised as the disallowance made by learned Assessing Officer has not reached finality. In view of this ground no.2 of the appeal of the learned Assessing Officer, is dismissed. Disallowance of deduction under section 80IB - sale of scrap deduction - HELD THAT - Even before us could not dispute that the scrap was not generated during manufacturing process. Thus, we do not find any infirmity in the order of the learned CIT(A). Thus, ground no. 3 of the appeal is dismissed.

Summary

Issues: Disallowance under section 37, Depreciation on revenue expenditure, Deduction under section 80IB

Issue 1: Disallowance under section 37
The appeal involved the disallowance under section 37 of the Income Tax Act, 1961, amounting to ?2,78,26,249/- for payments made to doctors allegedly in violation of the Indian Medical Council Regulation, 2002. The Assessing Officer disallowed the expenses, citing regulations prohibiting such expenditures. However, the CIT(A) deleted the disallowance based on the argument that the gifts did not have significant value for doctors and were within the limit of ?1,000 per item. The Assessing Officer challenged this decision, contending that the payments were illegal and disallowable. The Tribunal noted that the issue was covered by a recent Supreme Court decision and directed the assessee to provide details of the expenses for further consideration. Ultimately, the Tribunal allowed the appeal with the direction for submission of expense details.

Issue 2: Depreciation on revenue expenditure
The second issue concerned the deletion of depreciation on expenditure treated as capital in nature in earlier assessment years. The CIT(A) held that depreciation should be allowed on depreciable assets and directed the Assessing Officer to ascertain the correct depreciation amount. Both parties agreed that the issue was raised due to the pending finality of the disallowance made by the Assessing Officer in previous years. Consequently, the Tribunal dismissed this ground of appeal.

Issue 3: Deduction under section 80IB
The final issue revolved around the disallowance of deduction under section 80IB of the Act amounting to ?8,075/-, related to the sale of scrap. The Assessing Officer contended that the scrap sale amount could not be included in the deduction under section 80IB. The CIT(A) allowed the claim, stating that the scrap was generated during the manufacturing process. The Tribunal found no infirmity in the CIT(A)'s decision as the Departmental Representative could not dispute that the scrap was indeed generated during manufacturing. Consequently, the Tribunal dismissed this ground of appeal, resulting in the partial allowance of the Assessing Officer's appeal.

In conclusion, the Tribunal's judgment addressed the issues of disallowance under section 37, depreciation on revenue expenditure, and deduction under section 80IB, providing detailed analysis and directions for further consideration where necessary.