2022 (2) TMI 1182 - AT - Income Tax

Disallowance of expenditure incurred towards free samples - AO disallowed 50% of the total cost incurred by the assessee towards free samples in the relevant assessment years - HELD THAT - Assessee personally does not go and distribute free samples to doctors / medical practitioners. Rather, the assessee has appointed a number of marketing representatives to physically visit doctors / medical practitioners to distribute the samples - even accepting that the complete address of medical practitioners are not available in few instances, that by itself cannot be a reason to make the disallowance when the departmental authorities have accepted that distribution of free samples is a regular business practice and in fact, have not raised any doubt regarding the genuineness of the expenditure. Thus, when the assessee has furnished the required details relating to the expenditure claimed, there is no justifiable reason to disallow even a part of it. On a perusal of material placed before us, it is noticed that the cost incurred by the assessee towards distribution of free samples in these assessment years is much lesser than similar expenditure incurred in the earlier and subsequent assessment years. Thus, keeping in view the peculiar circumstances of the case, we hold that no disallowance out of the cost incurred towards free physician s samples is called for in any of these assessment years. Accordingly, we delete the additions. Ground 1 in all the appeals is allowed.

Summary

Issues:
Delay in filing appeals, Disallowance of expenditure on free samples

Delay in filing appeals:
The appeals by the assessee were filed with a delay of 64 days, which was pointed out by the registry. However, it was argued that there was no actual delay as the limitation period was extended due to the prevailing pandemic situation. The tribunal considered this argument and admitted the appeals for adjudication on merits.

Disallowance of expenditure on free samples:
The dispute in the appeals revolved around the disallowance of expenditure incurred towards free samples provided to doctors, medical practitioners, and others. The assessing officer disallowed the cost of free samples in all the assessment years under consideration, leading to appeals by the assessee. The tribunal noted that the disallowance was made purely on an estimate basis. The assessing officer accepted that the assessee provided details of the samples, doctors, and their addresses. The tribunal observed that the distribution of free samples was a regular business practice for the assessee, carried out by marketing representatives. The tribunal found that the disallowance was not justified, especially considering that the cost of free samples as a percentage of total turnover was minimal and lower than in previous and subsequent years. Consequently, the tribunal held that no disallowance was warranted for the cost incurred on free samples in the assessment years in question and deleted the additions.

Conclusion:
The tribunal allowed the appeals, deleting the disallowance of expenditure on free samples for the assessment years in question. The decision was based on the finding that the disallowance was made on an estimate basis, and the assessee had provided necessary details justifying the expenditure. The tribunal also noted that the cost of free samples as a percentage of total turnover was minimal and lower compared to other years. The tribunal dismissed other grounds raised in the appeals as premature or general.