Tribunal allows appeals on Sales Expenses, defers decision on EPF Contribution.

The Tribunal allowed the appeals regarding the disallowance of Sales Incentive and Sales Promotion Expenses, citing supportive judgments. However, the issue of disallowance of Employees Provident Fund Contribution was deferred pending the Supreme Court's decision. The Tribunal's decision was announced on 30-01-2019.

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Issues Involved:
1. Disallowance of Sales Incentive Expenses
2. Rejection of Accounting Method
3. Disallowance of Sales Promotion Expenses
4. Disallowance of Employees Provident Fund Contribution

Issue-wise Detailed Analysis:

1. Disallowance of Sales Incentive Expenses:
The primary issue concerns the disallowance of Rs. 24,14,742/- under the head Sales Incentive Expenses. The Assessing Officer (AO) noted that part of these expenses pertained to a period not relevant to the current assessment year (FY 2009-10). The AO disallowed these expenses, citing Section 145 of the Income Tax Act, which mandates that income and expenditure be accounted for in the relevant assessment year under the mercantile system of accounting. The AO also observed that TDS was not deducted on these payments. The assessee argued that their practice of paying incentives in the following quarter has been consistent for 15 years and should be considered. The Tribunal referenced a judgment by the Hon’ble Gujarat High Court in CIT-1 vs. Indian Petrochemicals Corporation Ltd. [2016] 74 taxmann.com 163 (Gujarat), which allowed prior period expenses quantified and paid during the current year as business expenditure. Consequently, the Tribunal allowed this ground of appeal.

2. Rejection of Accounting Method:
The AO rejected the accounting method employed by the assessee for the sales incentive expenses, stating that under the mercantile system, expenses must be accounted for in the relevant assessment year. The Tribunal, however, did not find the AO’s rejection tenable, given the consistent practice of the assessee and the precedent set by the Gujarat High Court. Therefore, the Tribunal ruled in favor of the assessee on this issue as well.

3. Disallowance of Sales Promotion Expenses:
The AO disallowed Rs. 30,11,573/- under Sales Promotion Expenses, citing a Circular from the Medical Council of India that prohibits pharmaceutical companies from giving freebees to doctors. The assessee argued that these expenses were for ethical promotion and necessary for their business. The Tribunal referred to a previous order by the Ahmedabad Bench in ITO vs. Sunflower Pharmacy [2017] 88 taxmann.com 326 [Ahmedabad-Trib], which held that such disallowances based on the Circular were not justified for the relevant assessment year. The Tribunal allowed this ground of appeal, providing relief to the assessee.

4. Disallowance of Employees Provident Fund Contribution:
The AO disallowed Rs. 2,23,110/- under Section 36(1)(va) for late deposit of Employees Provident Fund. The Tribunal referenced the Hon’ble Gujarat High Court judgment in GSRTC 366 ITR 170, which held that if the employer does not credit the employees' contribution to the relevant fund by the due date, the deduction is not allowable even if deposited before the due date for filing the return. The Tribunal noted that the issue is pending before the Hon’ble Supreme Court and cited a recent Gujarat High Court order that allows the assessee to revive the appeal if the Supreme Court reverses the High Court judgment. Consequently, the Tribunal set aside this matter to the file of the CIT(A) to decide based on the Supreme Court’s future ruling.

Conclusion:
The Tribunal allowed the appeals concerning the disallowance of Sales Incentive and Sales Promotion Expenses, referencing relevant judgments that supported the assessee’s claims. However, the issue of the Employees Provident Fund disallowance was set aside for reconsideration pending the Supreme Court’s decision. The Tribunal’s order was pronounced in Open Court on 30-01-2019.

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