Tribunal orders reevaluation of deduction claims and disallows expenditure on blood pressure apparatus

The Tribunal remitted the issue of deduction claims for damaged, unusable, and quality control drugs back to the AO for a fresh examination, emphasizing the need for proper evaluation of material evidence. Additionally, the Tribunal set aside the CIT(A)'s decision regarding the expenditure on blood pressure checking apparatus, restoring the AO's ruling to disallow the expenditure as a business expense.

---

---

Issues Involved:
1. Deduction claims for damaged drugs, unusable drugs, and drugs consumed for quality control.
2. Expenditure incurred for customer care expenses related to the supply of blood pressure checking apparatus to members of the State Legislative Assembly.

Detailed Analysis:

1. Deduction Claims for Damaged Drugs, Unusable Drugs, and Drugs Consumed for Quality Control:
The primary issue revolves around the assessee, a wholly-owned company of the Government of Tamilnadu, claiming deductions for damaged drugs, unusable drugs, and drugs consumed for quality control. The Assessing Officer (AO) disallowed these claims, arguing that the assessee maintained a separate system of accounting outside the books for these drugs and did not follow the FDA procedure for destroying damaged drugs. The AO also noted that the assessee was not required to act as a drug/medicine testing agency and lacked material evidence to support the claims.

Conversely, the Commissioner of Income-tax (Appeals) [CIT(A)] allowed the claims based on the certificate issued by the Comptroller & Auditor General of India (CAG), which indicated no adverse comments. However, the certificate was not available to the AO during the assessment.

The Tribunal observed that the assessee, being a government company, is expected to ensure the supply of quality drugs to government hospitals, which includes testing the quality of drugs. The Tribunal noted that the CIT(A) allowed the claims without examining the material evidence and solely relied on the CAG certificate. Therefore, the Tribunal remitted the matter back to the AO for a fresh examination, instructing the AO to consider the necessary material and the CAG certificate while re-evaluating the claims.

2. Expenditure Incurred for Customer Care Expenses Related to the Supply of Blood Pressure Checking Apparatus:
For the assessment year 2010-11, the Revenue raised an additional issue regarding the expenditure of Rs. 6,45,741 towards customer care expenses for supplying blood pressure checking apparatus to members of the State Legislative Assembly. The AO disallowed this expenditure, arguing that it was not a business expense related to the assessee's primary activity of procuring and supplying drugs to government hospitals.

The assessee contended that this expenditure was part of marketing its products and raising public awareness about new health schemes. However, the Tribunal concluded that supplying blood pressure checking apparatus to legislators could not be considered a marketing expense. The Tribunal held that such expenditures are not related to the assessee's business activities and thus cannot be allowed as customer care expenses.

Conclusion:
The Tribunal allowed the appeals of the Revenue for statistical purposes, remitting the issue of deduction claims for damaged, unusable, and quality control drugs back to the AO for a fresh examination. For the assessment year 2010-11, the Tribunal set aside the CIT(A)'s order regarding the expenditure on blood pressure checking apparatus and restored the AO's decision, disallowing the expenditure as a business expense.

---