2019 (2) TMI 357 - AT - Income Tax

Disallowance on account of the gift given to the doctors and medical practitioners - Allowable business expenditure u/s 37 - Held that - Assessee has not produced any evidence to prove that there was no benefit extended to the doctors/medical practitioners out of the purchases of laptops, wrist watches, mobile phones, cameras, etc. In the absence of any documentary evidence, we are not inclined to disturb the finding of the lower authorities. Also the assessee duly admitted the disallowance of ₹ 5 lacs made by the AO on an ad-hoc basis during the assessment proceedings. The AO made the addition by observing that the assessee failed to furnish the details of the actual recipient of these gift articles. The assessee has also incurred traveling expenses which were claimed by the assessee for the traveling of the medical representatives. But the assessee failed to file the requisite documents evidencing that there was no benefit extended to the doctors /medical practitioners out of such traveling expenses. Therefore the addition was made by the AO on an ad-hoc basis. In this regard, we also note that assessee has also not produced any evidence before us to prove that the doctors were not the actual recipient of these gift articles. Thus in the absence of necessary documentary evidence the AO had no alternative except to make the disallowance on an ad-hoc basis. - Decided against assessee.

Summary

Issues:
1. Disallowance of expenses for distributing gifts and providing hospitality to doctors/medical practitioners.
2. Disallowance of Employee's Contribution payments towards ESIC.

Analysis:

Issue 1: Disallowance of expenses for distributing gifts and providing hospitality to doctors/medical practitioners:
The appeal was filed against the order of the CIT(A) upholding the disallowance of ?18,16,120 incurred for distributing gifts and providing hospitality to doctors/medical practitioners. The AO disallowed the amount reasoning that a portion was spent on gifts like laptops, mobiles, watches, etc., for doctors, and an ad-hoc disallowance was made for lodging, boarding, and traveling expenses of doctors. The assessee argued that the expenses were for sales promotion to chemists/medical stores, not doctors. The AO found insufficient evidence and made the disallowance. The CIT(A) confirmed this decision based on past disallowances and the MD's admission of the ad-hoc disallowance. The ITAT upheld the decision, emphasizing the absence of evidence proving gifts were not given to doctors.

Issue 2: Disallowance of Employee's Contribution payments towards ESIC:
The AO disallowed ?4,11,378 for not making Employee's Contribution payments towards ESIC before the due date. The CIT(A) upheld this decision, and the ITAT dismissed the appeal, stating the disallowance was justified.

In conclusion, the ITAT upheld the disallowances of expenses for distributing gifts to doctors and not making ESIC payments, emphasizing the lack of evidence provided by the assessee to support their claims. The appeal was dismissed, affirming the lower authorities' decisions.