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TMI Blog2023 (3) TMI 1223X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness promotion debited in the P L a/c. The Appellant craves the right to amend alter or add to any of the grounds of appeal given below. 3. The fact as culled out from the records is that the assessee company M/s Curosis Healthcare Pvt. Ltd. filed its return of income for the year under consideration declaring total income of Rs. 49,81,330/- on 29.09.2013. Further, the case was selected for scrutiny assessment and accordingly, assessment order u/s 143(3) of the IT Act, 1961 was passed on 22.01.2016. The 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. The case was re-opened after recording the reasons and taking administrative approval from competent authority and accordingly, notice u/s 148 of the Act had been issued on 26.03.2018 and duly served upon the assessee. In response, the assessee filed submission on 03.05.2018 stating that the assessee filed return of income against the notice u/s 148 of the Act declaring total income of Rs. 49,81,330/- on 24.04.2018 and requested to furnish reasons recorded for issuing notice u/s 148 of the Act. 3.1 The rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cated as under 5.1.1 The Ld. AO discussed the related addition in Para 7 of the impugned order dated 12.12.2018. The discussion is as under: 7. It has been noticed that the assessee claimed various expenditure out of sales promotion expenses and took plea that such expenditure was incurred towards medical dealers. The detailed discussion is made in forthcoming paras. Hotel Stay:- On examination of other details of sales promotion expense, it has been noticed that the assessee debited expenses of Hotel Stay of Rs. 1,17.1477 in P L account. But, the assessee completely failed to produce Ledger account, bills/vouchers of the expenditure. The assessee only took plea that the expenditure of hotel stay was incurred for the purpose of business. But the assessee did not furnish the details of guests, details of hotels, purpose of stay and why the assessee had incurred such expenditure. Further, it is quite possible to incurred such expenditure towards Doctors or touts for soliciting admission in Nursing Home or Hospital and the same is not allowable as per CBDT's Circular No. 05/2012 dated 01.08.2012 as per provisions of section 37 of the Act Since, the primary onus lies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ornaments, the details of such bills are hereunder.. 1. Vide Invoice No. 2379 dated 20.10.2012, the assessee purchased SET KDM amounting to Rs. 1,99,5007-weighted quantity 65.00 Gms. ii. Vide Invoice No. 2355 dated 15.10.2012, the assessee purchased CHAIN amounting to Rs. 1,98,5007-weighted quantity 65.110 Gms. DEPA iii. Vide Invoice No. 2374 dated 19.10.2012, the assessee purchased KADE-2 KDM amounting to Rs. 1,979,5007- weighted quantity 64.270 Gms. iv. Vide Invoice No. 1683 dated 17.05.2012, the assessee purchased CHUDI 4 SET1 916 amounting to Rs. 4,80,0007-weighted quantity 173.290 Gms. v. Vide Invoice No. 3087 dated 23.03.2013, the assessee purchased 1 SET 916 amounting to Rs. 1,99,3807-weighted quantity 67.760 Gms. The assessee purchased jewellery from M/s Gomati Ornaments, the details of such bill are hereunder: - 1. Vide Invoice No. 002 dated 23.01.2013, the assessee purchased Gold Ornaments amounting to Rs. 4,95,994/- weight quantity 157.960 Gms. ii. Vide Invoice No. Oil dated 07.02.2013, the assessee purchased Gold Omaments amounting to Rs. 2,56,33 1/-weighted quantity 94,200 Gins. iii. Vide Invoice No. 012 dated 11.02.2013, the assessee purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Invoice No. - dated, the assessee purchased Gold and Silver Ornament amounting to Rs. 2,98,2507-weighted quantity 55.500 Gms. v. Vide Invoice No.- dated, the assessee purchased Gold Jewellery amounting to Rs. 3,96,0007- weighted quantity 130.50 Gms: vi. Vide Invoice No. dated, the assessee purchased Silver Jewellery amounting to Rs. 88,5007- weighted quantity 1500.00 Gms. vi. Vide Invoice No.-dated, the assessee purchased Gold Omaments amounting to Rs 2,37.0007- weighted quantity 80.00 Gms. Further, it is pertinent to mention here that various bills/vouchers have been produced by the assessee which are discussed supra and on examination of the same, it has been noticed that the produced bills/vouchers belong to purchases of Chain, Kada various Jewellery Items whereas the assessee provided the list of Gold coin. Both are contradicting to each other and therefore, the details of expenditure of Gold are not justified. The assessee is only trying to distract from the facts of the case as details of gold coin and bills/vouchers are contradicting to each other. Further, it is worthwhile to mention here that if the assessee gifted the items as incentive then TDS should be ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Product Promotion of Rs. 65,392/- in P L account. But, the assessee completely failed to produce Ledger account, bills/vouchers of the expenditure. The assessee only took plea that the expenditure of hotel stay was incurred for the purpose of business. But the assessee did not furnish the details of products of promotion and why the assessee had incurred such expenditure. Further, it is quite possible to incurred such expenditure towards Doctors or touts for soliciting admission in Nursing Home or Hospital and the same is not allowable as per CBDT's Circular No. 0572012 dated 01.08.2012 as per provisions of section 37 of the Act. Since, the primary onus lies only over the assessee for proving the genuineness and correctness of the expenditure towards product promotion and incurred expenditure towards medical dealers has not been discharged by the assessee, therefore, in view of the above and as per CBDT's Circular No. 05/2012 dated 01.08.2012 as per provisions of section 37 of the Act, the expenditure of Product Promotion of Rs. 65,3927- is disallowed and added back to the total income of the assessee for the year under consideration. Since, the assessee furnished ina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horized letter or any documentary for organizing the conference. Thus, it is quite possible to incurred such expenditure towards Doctors or towards touts for soliciting admission in Nursing Home or Hospital and the same is not allowable as per CBDT's Circular No. 05/2012 dated 01.08.2012 as per provisions of section 37 of the Act. Since, the primary onus lies only over the assessee for proving the genuineness and correctness of the expenditure towards Conference has not been discharged by the assessee, therefore, in view of the above CBDT's Circular No. 05/2012 dated 01.08.2012 as per provisions of section 37 the Act, the expenditure claimed towards Shirts/Pants for field staff and Retailers of Rs. 28,500/- is disallowed and added back to total income of the assessee for the year under consideration. Since, the assessee furnished inaccurate particulars of income, therefore, the Penalty proceedings u/s 271(1)(c) of the Act is hereby separately initiated for furnishing inaccurate particulars of income. ((F)-Addition of Rs. 28,500/-1 Hospital Camp: - 7.6 The assessee claimed expenditure toward Hospital camp of Rs. 24,451/-. But the assessee could not produce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.2012. vii Amount of Rs. 4.2957- paid to Priyanka Fashion for designer suit on 03.02.2013, ix Purchased mobile for gift on 20.02.2013. x Amount paid to Pradal Resorts paid for doctors; xi. Amount paid to Spice Hotspot of Rs. 19,5007-ori 08.11.2012; xii. Cash paid to Reliance Fresh of Rs. 16,030 and Rs. 15,0007- for gift on26.08.2012 and on 27.08.2012 respectively. In absence of details of expenditure, bills/vouchers of Gift to Retailers expenditure, the expenses so debited in P L towards Gift to Retailers of Rs. 17,56,661/- is not allowable to debit such expenditure: n P L account. Thus, it is quite possible to incurred such expenditure of Gift to Retailers towards Doctors or towards touts for soliciting admission in Nursing Home or Hospital and the same is not allowable as per CBDT's Circular No. 05/2012 dated 01.08.2012 as per provisions of section 37 of the Act. Since, the primary onus lies only over the assessee for proving the genuineness and correctness of the expenditure towards Gift to Retailers has not been discharged by the assessee. Therefore, in view of the above as per CBDT's Circular No. 05/2012 dated 01.08.2012 as per provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was given away. The fact of incurring of expenditure was not denied by the Ld. AO. 8. That, the Ld. AO had not disputed the vouchers of purchase of gold jewellery given to various dealers. The Ld. AO had no material on record to hold that the gold jewellery was given to doctors or touts. 9. That, the expenditure had been disallowed purely on assumption and presumption. In the facts and circumstances of the case the CBDT circular no. 05/2012 dated 01.08.2012 were not at all attracted. The expenditure had been disallowed wrongly. If the appellant had failed to provide details of persons to whom gold jewellery was distributed even then it was established that expenditure was incurred. In the circumstances the Ld. AO erred in disallowing the entire expenditure. 10. That, in relation to product Promotion expenses of Rs. 65,392; the Ld. AO had disallowed the expenditure stating that it was quite possible to have incurred such expenditure towards doctors or touts for soliciting admission in nursing home or hospital. Apparently, the expenditure had been disallowed purely on assumption. The Ld. AO had no material in his possession to establish that the expenditure was incurred tow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowed the expenditure stating that it was quite possible to have incurred such expenditure towards doctors or touts for soliciting admission in nursing home or hospital. Accordingly, expenditure was disallowed in view of CBDT Circular no. 05/2012 dated 01.08.2012 Apparently, the expenditure had been disallowed purely on assumption. The Ld. AO had no material in his possession to establish that the expenditure was incurred towards doctors and touts. In fact, the expenditure was incurred towards gift to retailers. 15. That, in the assessment order the Ld. AO himself had mentioned that appellant had purchased various items such a blackberry mobile sets, movie tickets, aprons, blankets sweaters, designer suits etc. etc. Apparently, these items were purchased for gifts. Giving such gifts on various occasions and festivals and birthdays was very usual in the line of business. Such gifts were given to staff. field persons and persons who have helped in promoting the business. 16. That, the expenditure was wholly and exclusively for purchase of business and deserve to be allowed. It was not the case of the Ld. AO that expenditure was not incurred. And it is also not the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer completed the assessment u/s 147/143(3) of the Income Tax Act, 1961 on 12.12.2018 determining income of Rs. 2,01,97,020/- inter-alia making the following additions: - (i) Addition of Rs. 53,742/- by disallowing the Computer Gift Expenses of Rs. 24,900/- and Others gift expenses of Rs. 28,842 under the head sales promotion expenses with reference to provisions of section 69C. (ii) Addition of Rs. 1,51,61,950/- by disallowing the expenses incurred by the assessee on account of sales promotion and business promotion. Aggrieved with the order of the Learned Assessing Officer the assessee preferred appeal before the learned CIT(A). The Learned CIT(A) has deleted all the additions made by the Learned AO. Aggrieved with the order of the Learned CIT(A) the Revenue has preferred appeal before your honour. With this background the individual grounds of appeal are discussed as under: - Regarding first addition of Rs. 53,742/- by disallowing the Computer Gift Expenses of Rs. 24,900/- and others gift expenses of Rs. 28,842 under the head sales promotion expenses made by the Learned Assessing Officer under section 69C of the Act. These expenses are claimed in P L A/c and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arious distributors and dealers for achieving the sales target on which TDS provisions are not applicable. The issue that the expenses wholly and exclusively incurred by a pharmaceutical company in the normal course of its business towards gifts, travel facility, conference expenses or similar freebies to medical practitioners or their professional associations would not be hit by the Explanation 1‟ to Sec. 37 of the Act, is covered by the order of a coordinate bench of the Tribunal i.e ITAT A Bench, Mumbai in the case of Aristo Pharmaceuticals Pvt. ltd. Vs. ACIT (ITA No. 6680/Mum/2012, dated 26.07.2018). So even otherwise if the gifts are distributed to the medical practitioners of doctors it also cannot be disallowed. The Learned CIT(A). After considering the submission of the assessee has deleted the addition made by the Learned Assessing Officer on the ground the Ld. AO erred in disallowing the entire expenditure as the expenditure had been disallowed purely on assumption and presumption. The CBDT circular no. 05/2012 dated 01.08.2012 was not at all attracted because the circular is applicable only when the gifts are made to medical practitioners. In our case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rits and are required to be dismissed. 7. The ld DR is heard who has relied on the findings of the assessing officer and has also submitted the comments of the ld. AO as submitted vide his letter dated 09.01.2023. The content of the report of the ld. AO is reproduced here in below ; Sub- Appellate proceedings before Hon'ble ITAT Bench, Jaipur in 351/JPR/2022 in the case of M/s Curosis Healthcare Pvt Ltd (PAN: AAECC6210D) for AY 203-14- reg- Your letter No Addl. CIT(DR)/ITAT/JPR/2022-23/492 dated 06.01.2023 Kindly refer to the subject mentioned above. 2. In this regard you have sought details whether expenses disallowed were verified by the AO during assessment proceedings. Expense wise report is as follows: 1. Computer gift expense and Other gift expense of Rs 53,742/-: As per assessment order the assessee did not provide any ledger account, bills/vouchers of purchases of these gifts and details of persons to whom these gifts were given 2. Sales promotion expenses of Rs. 1.51.61.950/-: A. Hotel Stay- As per assessment order, the assessee has incurred expenses of Hotel Stay of Rs. 1,17,1477 in P L account. But, the assessee completely failed to produce L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which types of camp was made in hospital and for what purpose. The assessee could not even state in which hospital the camp was organized. No authorized letter of hospital for organizing the camp was provided during assessment proceedings. G. Gift to retailers - As per assessment order. The assessee has debited expenditure toward Gift lo Retailers of Rs. 17,56,661/ However the assessee could not produce Ledger account, bills/voucher of expenditure related to Gift to Retailers and also could not provide details of gifts given to retailers. No detail of retailers to whom gift was given by the assessee or the purpose of gift was furnished. In absence of details of expenditure, bills/vouchers of Gift to Retailers expenditure, the expenses so debited in P L towards Gift to Retailers of Rs. 17,56,661/- is not allowable. 3. It may also be noted that these facts are also mentioned by the Assessing Officer in assessment order passed u/s 147/143(3) dated 12.12.2018. The ld. DR also submitted that there is disallowance of sales promotion where in huge expenditure has been claimed where in required details as called for has not been submitted. Assessee has not submitted detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. Pens 45,360/- 11. Printed Materials 4,48,268/- 12. Product promotion 65,392/- 13. Gift to retailers 17,56,661/- 14. Shirts/Panta for field staff and Retailers 4,61,524/- Total 1,58,53,254/- 9.1 As it is evident that out of total expenditure as listed here in above for an amount of Rs. 1,58,53,254/-, ld. AO made an addition of Rs. 1,52,15,692/- and thus, a sum of Rs. 6,37,562/- considered as allowable. The list of the expenditure allowed by the ld. AO in the assessment proceedings are thus separately listed here in below: Sr. No. Summary of sales promotion Amount (In Rs.) 1. Bags for field staff 16,825/- 2. New Year Calendars 75,000/- 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or prohibited by law. Thus, the claim of any expense incurred in providing above mentioned or similar freebees in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 shall be inadmissible under section 37(1) of the Income Tax Act being an expense prohibited by the law. This disallowance shall be made in the hands of such pharmaceutical or allied health sector Industries or other assessee which has provided aforesaid freebees and claimed it as a deductable expense in its accounts against income. 4. It is also clarified that the sum equivalent to value of freebees enjoyed by the aforesaid medical practitioner or professional associations is also taxable as business income or income from other sources as the case may be depending on the facts of each case. The Assessing Officers of such medical practitioner or professional associations should examine the same and take an appropriate action. This may be brought to the notice of all the officers of the charge for necessary action. 9.3 Upon careful consideration of the above circular and the rival submission placed before us and the finding of the ld. CIT(A) wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture on the basis that appellant did not furnish name of persons and their PAN to whom the items were claimed to have been distributed. 5. That, the Ld. AO disallowed the expenditure on the basis that there should have been TDS on giving of such gift but he found that no such TDS was made. 6. That, in the opinion of the Ld. AO the appellant had gifted gold jewellery to various doctors stouts etc. to solicit new customers/ patients and not to dealers and stockists 7. That, the appellant and/or its Ld. A/R had inadvertently submitted the fact of distribution of gold coins whereas in fact gold jewellery was given away. The fact of incurring of expenditure was not denied by the Ld. AO. 8. That, the Ld. AO had not disputed the vouchers of purchase of gold jewellery given to various dealers. The Ld. AO had no material on record to hold that the gold jewellery was given to doctors or touts. 9. That, the expenditure had been disallowed purely on assumption and presumption. In the facts and circumstances of the case the CBDT circular no. 05/2012 dated 01.08.2012 were not at all attracted. The expenditure had been disallowed wrongly. If the appellant had failed to provide det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture towards doctors or touts for soliciting admission in nursing home or hospital. Accordingly, expenditure was disallowed in view of CBDT Circular no. 05/2012 dated 01.08.2012. Apparently, the expenditure had been disallowed purely on assumption. The Ld. AO had no material in his possession to establish that the expenditure was incurred towards doctors and touts. In fact, the expenditure was incurred towards hospital camp. But the appellant could not produce the supporting vouchers as the same were not traceable. 14. That, expenses in relation to Rs. 17,56,661 given as Gift to retailers: The Ld. AO had disallowed the expenditure stating that it was quite possible to have incurred such expenditure towards doctors or touts for soliciting admission in nursing home or hospital. Accordingly, expenditure was disallowed in view of CBDT Circular no. 05/2012 dated 01.08.2012 Apparently, the expenditure had been disallowed purely on assumption. The Ld. AO had no material in his possession to establish that the expenditure was incurred towards doctors and touts. In fact, the expenditure was incurred towards gift to retailers. 15. That, in the assessment order the Ld. AO himself had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deemed to be the income of the assessee shall not be allowed as a deduction under any head of income. 11. Considering the facts of the case we are of the considered view that the primary condition to make the addition is not fulfilled, as here in this case the assessee has incurred the expenditure and has offered the explanation about the source of such expenditure the reasoning given by the ld. AO is against the provision of law. As in this case the ld. AO has not doubted the source of the expenditure the applicability of section 69C is not in accordance with the law. The ld. CIT(A) after considering the board circular and provision of law taken a considered view that the ld. AO has not placed no material on record to hold that the expenditure was not incurred and the source of the said expenditure is not explained by the assessee. The finding of the ld. CIT(A) on this issue is reiterated here in below:- 5.2.3 All the facts and circumstances related to the impugned addition of Rs. 53,742 are duly considered. The appellant had failed to provide details of persons to whom computer was gifted/other similar details in relation to expenditure of Rs. 28,842 debited to P L accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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