2023 (3) TMI 1223 - AT - Income Tax

Computer Gift Expenses and other gift expenses - Allowable business expenditure under section 37(1) or not? - expenditure prohibited by MCI Guidelines - expenses debited in the assessee s P L A/s under the head sales promotion expenses - assessee is mainly engaged in the business of pharmaceuticals goods and sells the same through the dealer distribution network and the stockiest at the ground level - as submitted none of the payee or beneficiaries are in the list of parties to whom the freebees in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 is provided or proved by the assessing officer - HELD THAT - CIT(A) has not erred in law and on facts while considering the claim of the assessee. The bench further noted from the report of the AO before us also while commenting on expenditure has accepted that the fact that the assessee has submitted the name of the party to whom the gold coins were given. AO has given his comments on each expenditure but nowhere in the assessment order in the report before us that the benefit directly or indirectly given as freebees (freebies) to medical practitioners and their professional associations in violation of the regulations issued by Medical Council of India (the 'Council') which is a regulatory body constituted under the Medical Council Act, 1956. Once, the basis on which the addition made is not substantiated by the ld. AO in the assessment proceeding by any evidence contrary to the claim which is supported by bills and vouchers and that too of a manufacturing company where their books are subjected to audit. The ld. CIT(A) after evaluating the submission of the assessee considered the various aspect of the claim of the assessee and has given a reasoned finding that why the claim of the assessee is allowable. The revenue has not controverted finding of the ld. CIT(A) by filling contrary submission or evidence. Thus, we see not fault in the detailed finding of the ld. CIT(A) while allowing the claim of the assessee for an amount as the revenue has not established that there is violation of board circular as relied upon by the AO. Merely on presumption and assumption that circular will not be made applicable to the facts of the case when nothing contrary placed on record. In the light of these finding the ground no. 2 raised by the revenue fails and thus the same is dismissed. Addition u/s. 69C - reasoning given by AO while making the disallowance was that the assessee could not produce any ledger account, bills/vouchers of purchase of gifts and could not state that to whom the computer gifted - HELD THAT - As per assessment order the assessee did not provide any ledger account, bills and vouchers of purchase of these gifts and details of persons to whom these gifts were given. Whereas assessee on this issue submitted that these expenses are claimed in profit and loss account and the provisions of section 69C is not applicable in the present case. The payment for these expenditure has been made by crossed account payee cheque and this fact is not disputed by the revenue. Thus, merely based on assumption and presumption no addition can be made. Even based on these facts ld. CIT(A) also considered the claim of the assessee accordingly. Thus, we see not fault in the detailed finding of the ld. CIT(A) while allowing the claim of the assessee for an amount and revenue has not placed on contrary evidence or facts expressly demonstrating that why the claim is disallowable.Appeal of the revenue stands dismissed.

Summary

Issues Involved:
1. Deletion of addition of Rs. 53,742/- by disallowing Computer Gift Expenses and other gift expenses.
2. Deletion of addition of Rs. 1,51,61,950/- by disallowing various sales promotion and business promotion expenses.

Detailed Analysis:

1. Deletion of Addition of Rs. 53,742/-:
The revenue contested the deletion of Rs. 53,742/- made by the Assessing Officer (AO) under section 69C for Computer Gift Expenses of Rs. 24,900/- and other gift expenses of Rs. 28,842/-. The AO disallowed these expenses due to the absence of supporting vouchers and details of recipients. However, the CIT(A) noted that the expenses were paid by crossed account payee cheque and reflected in the bank account, rejecting the AO's reliance on assumptions and presumption. The CIT(A) concluded that section 69C was not applicable since the source of expenditure was explained, and the addition was based on guesswork without any basis. This reasoning was upheld by the Tribunal, which found no fault in the CIT(A)'s detailed findings.

2. Deletion of Addition of Rs. 1,51,61,950/-:
The AO disallowed Rs. 1,51,61,950/- claimed by the assessee for sales promotion and business promotion expenses, relying heavily on CBDT Circular No. 5/2012 dated 01.08.2012, which prohibits certain freebies to medical practitioners. The AO's disallowance included expenses for hotel stay, gold purchases, product promotion, shirts/pants for field staff, conferences, hospital camps, and gifts to retailers. The AO argued that these expenses were not substantiated with proper documentation and could potentially be for prohibited purposes.

However, the CIT(A) found that the AO's disallowance was based on assumptions and lacked specific evidence that the expenses violated the CBDT circular. The CIT(A) noted that:
- The assessee provided vouchers for gold purchases and explained that these were given to dealers for achieving sales targets.
- The AO did not dispute the vouchers but assumed the gifts were given to doctors without any supporting evidence.
- The AO's reliance on the CBDT circular was misplaced as there was no proof that the gifts were given to medical practitioners.
- The expenses were incurred wholly and exclusively for business purposes and were supported by documentation.

The Tribunal agreed with the CIT(A)'s findings, emphasizing that the AO did not substantiate the claim that the expenses were for prohibited purposes under the CBDT circular. The Tribunal upheld the CIT(A)'s deletion of the addition, noting that the AO's conclusions were based on presumption and lacked material evidence.

Conclusion:
The Tribunal dismissed the revenue's appeal, confirming the CIT(A)'s deletion of the additions of Rs. 53,742/- and Rs. 1,51,61,950/-. The Tribunal found that the AO's disallowances were based on assumptions without proper evidence and that the expenses were incurred for legitimate business purposes. The decision underscores the importance of substantiating claims with concrete evidence rather than relying on assumptions.