Appeal allowed on dealer entertainment expenses, remand on business promotion expenditure.

The Tribunal partly allowed the appeal, setting aside the disallowance of dealer entertainment expenses and remanding the issue of disallowance of expenditure on sales & business promotion and advertisement back to the Assessing Officer for fresh consideration. The Tribunal found that the expenses lacked a direct nexus with business promotion and that the disallowance of dealer entertainment expenses was unjustified and excessive.

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Issues:
1. Disallowance of expenditure on sales & business promotion and advertisement.
2. Disallowance of dealer entertainment expenses.

Issue 1: Disallowance of Expenditure on Sales & Business Promotion and Advertisement:

The appeal challenged the order of the ld. CIT (A) regarding the disallowance of expenses amounting to &8377; 6,87,833/- on sales & business promotion and &8377; 1500/- on advertisement for A.Y. 2011-12. The assessee contended that the CBDT Circular did not apply to pharmaceutical companies and that the expenditures were allowable under section 37(1) of the IT Act. The authorities had disallowed the expenses based on the explanation to section 37(1), which states that any expenditure incurred for an offense or prohibited by law shall not be deemed to have been incurred for business purposes. The Tribunal found that the expenses were not related to the business of the assessee and lacked a direct nexus with business promotion. The assessee failed to demonstrate how the expenditures benefited the business. The Tribunal set aside the order of the ld. CIT (A) and remanded the issue to the AO for fresh consideration.

Issue 2: Disallowance of Dealer Entertainment Expenses:

The appeal contested the confirmation of disallowance of &8377; 19,286/- out of dealer entertainment expenses. The assessee argued that the disallowance was unjustified and excessive, emphasizing that there was no personal element involved in these expenses incurred by employees/medical representatives for meeting dealers. The Tribunal noted that the AO failed to specify how a personal element was present in the expenses and directed the AO to delete the disallowance. Consequently, the Tribunal allowed this ground of the assessee.

In conclusion, the Tribunal partly allowed the appeal for statistical purposes, setting aside the disallowance of dealer entertainment expenses and remanding the issue of disallowance of expenditure on sales & business promotion and advertisement back to the AO for fresh consideration.

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