AI Drafter 
TaxTMI 
TaxTMI 
2017 (9) TMI 35
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....peal of the Revenue for assessment year 2006-07 having ITA No. 4114/Del/2009. The grounds of appeal raised by the Revenue are reproduced as under: (1) On the facts and circumstances of the case as well as in law, the Ld CIT (A) has erred in deleting the addition of Rs. 1,63,90,136/- on account of disallowance of 50% of sales promotion expenses without appreciating that the assessee could not establish the allowability of its claim in spite of multiple opportunities granted to it by the A O and ignoring, inter alia, the following facts : (i) Assessee's failure to give the bifurcation of expenses related to business and non business purposes. (ii) Assessee's failure to furnish the list of doctors invited by it and who attended the conference - Derma conference 2006- on it invitations. (iii) Assessee's failure to furnish attendance sheet of doctors invited by it and who actually attended the conference. (iv) Assessee's failure to furnish copy of agreement for sponsorship showing the rates payable for the same. (v) Assessee's failure to furnish copy of invitation card printed and issued by it to the doctors. (vi) Assessee's failure to furnish the details of expense....
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.... deleted the disallowance. Aggrieved, the Revenue is in appeal before the Tribunal raising the grounds as reproduced above. 4. In the grounds raised, the Revenue is agitated with the deletion of disallowance of sales promotion expenses. 4.1 Facts in respect of issue in dispute are that in assessment proceeding, the Assessing Officer observed that the assessee debited sales promotion expenses of Rs. 3,85,04,383/-. Details of expenses submitted by the assessee & reproduced in the assessment order, are extracted as under: Head of expenses Amount Expenses incurred on Sales promotion 1,58,93,058 Hotel & traveling expenses for various conference sponsor to doctors to promote the products Dermacon Expenses:- Travelling expenses 74,89,596 Air tickets or railway tickets for doctors & staff and local taxi charges at Hyderabad Hotel Loading 1,07,96,446 Hotel loading for doctors & stall at Hyderabad Conference Registration charges 25,00,000 Registration fee paid to the Derma Association for participation Other expenses 18,25,284 ....
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....m. According to the assessee, the expenses and sponsorship of the doctors and the expenditure incurred on the "Dermacon Conference" was admissible expenditure under section 37(1) of the Act. Regarding the expenses on spouse and family members of the doctors, the assessee submitted that when the doctors asked for sponsorship, they sometimes puts a condition that the company is to bear the expenses of his spouse including family and if that was not accepted by the company, the doctor stops prescription of the products of the company and therefore the expenditure was incurred as a result of business necessity and therefore an allowable expenditure. 4.3 The Assessing Officer was not convinced with the submission of the assessee and according to him entire expenses incurred on sales promotion were not toward the business purpose. In absence of any bifurcation of the expenses given by the assessee towards business and non-business purposes, the Assessing Officer estimated 50% of the total sales promotion expenses claimed by the assessee, as not incurred wholly and exclusively for the purpose of business and computed the of disallowance amounting to Rs. 1,92,52,191/-. The Assessing Off....
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....either directly or through C.S.A. our Agent. Total 2,26,11,325/- 6. The learned CIT-(A) noted the claim of the assessee in his decision on page 19 of the order that business thrives on recommendation of the doctors and due to prescription of companies product by the doctors, sales of the company had increased. The assessee also submitted that the sales representative of the assessee company regularly meets the doctor for generating more and more prescription for the company's products and in view of that the company has to oblige doctors by sponsoring all their expenses regarding travelling, hotels lodging and fooding etc. The assessee claimed that if such obligations are not done, the doctor might not prescribe their products. 7. The Ld. CIT-(A) also observed that the assessee has filed copies of all the bills and address of the parties, to whom payment was made towards expenditure on Hotel booking, travel booking etc. The relevant finding of the Ld. CIT-(A) is reproduced as under: "In support of these expenses, the appellant company has filed bills of hotels where the doctors had stayed, local conveyance expenses incurred, details of the paym....
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....ore and more sales of the company's product. 9. The Ld. CIT-(A) accepted the above submission of the assessee and held that expenses incurred by the assessee on sales promotion and sponsoring of "Dermacon Conference" were wholly and exclusively incurred for the purpose of business, and accordingly after referring few case laws, he deleted the disallowance. 10. Before us, the Ld. Senior DR submitted that assessee has not provided the list of the doctors whose, hotel, air/ train travel and local cars was sponsored by the assessee company and in absence of which it was not possible for the Assessing Officer to verify that the expenses have been incurred wholly and exclusively for the purpose of business. He particularly raised the issue that payments to hotels at New Delhi, Kochi etc has been made, whereas the "Dermocon Conference" was organized at Hyderabad and therefore it was very much required to establish that those expenses were incurred wholly and exclusively for the purpose of business. 11. Further, he submitted that according to the guidelines of 'Medical Council of India' (MCI) doctors were not authorized to avail such type of freebies in lieu of prescribing medicin....
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....and other advertising etc. during the conference. The assessee has also claimed expenses of Rs. 1.58 crores for sponsoring doctors for other conferences. The Ld. Senior DR has contested that 50% of the disallowance out of the sales promotion expenses was justified due to the two reasons. First reason stated by him is that part of the expenses were not incurred wholly and exclusively for the purpose of business. The second reason that part of expenses incurred were in prohibition of the law. Whereas, on the other hand, the Ld. counsel has contested that the expenses incurred were wholly and exclusively for the purpose of business. 14. For adjudicating the issue in dispute, it is relevant to reproduce the section 37(1) of the Act alongwith Explanation-1 below the section: "37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". Explanation 1.-For the....
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.... of the all the doctors who participated that conference. All the doctors who participated in the conference were not sponsored by the assessee and therefore the list provided by the assessee was not relevant for verifying the expenses incurred by the assessee. Thus the assessee has though claimed that the expenses were towards sponsoring of doctors but no documentary evidence in support of this claim or confirmation from any doctor of availing the services of the assessee of providing air travel, hotel booking or local car facility have been filed by the assessee before the Assessing Officer. The Ld. Senior DR raised the issue that expenses for booking of hotels and Local Car at New Delhi, Cochin and Kochi have also been claimed under the head "Dermacon Conference" at Hyderabad. The learned counsel could not justify before us as how those expenses were incurred wholly and extremely for the purpose of business. Ld. senior DR also raised the issue that alongwith doctors their family members also travelled and stayed in the hotels, which in any manner, cannot be treated as expenses incurred wholly and exclusively for the purpose of the business of the assessee. The Ld. counsel also c....
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....ind of gift, travel facilities, hospitality and any kind of cash or a monetary grants from the pharmaceutical healthcare industry. Further, we note that the CBDT in Circular No. 5/2012 dated 1/8/2012 clarified that freebees mentioned in the MCA Regulations being an expense prohibited by the law, the disallowance shall be made in the hands of pharmaceutical industries also. We also note that in the case of CIT Vs. Kap Scan and Diagnostic Centre (Pvt.) Ltd. (supra) that the assessee was a private limited company doing the business of CT Scan, Ultra Sound and X-rays and filed its return for the assessment year 1997-98 declaring loss of Rs. 24,40,650/-. During the assessment proceedings, it was found that the assessee had debited a sum of Rs. 3,68,400/- to the P&L account as expenditure on account of commission stated to have been paid to the practising doctors who referred the patients to the assessee for various tests. The Assessing Officer vide order dated 31.12.1999 disallowed the claim of such commission to the assessee. The CIT-(A) and ITAT allowed the claim of the assessee. The question of law raised before the Hon'ble High Court by the Revenue in the case was as under: "Whet....
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....the assessee for referring patients to it cannot by any stretch of imagination be accepted to be legal or as per public policy. Undoubtedly, it is not a fair practice and has to be termed as against the public policy. 20. Further, Section 23 of the Contract Act equates an agreement or contract opposed to public policy, with an agreement or contract forbidden by law. Section 23 of the Contract Act reads thus:- "23. What consideration and objects are lawful, and what not.- The consideration or object of an agreement is lawful, unless- it is forbidden by law; or is of such a nature that, if permitted, it would defeat the provisions of any law; or is fraudulent; or involves or implies, injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy. In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void." 21. The judgments relied upon by the assessee cannot be of any assistance to the assessee as they are prior to insertion of Explanation to sub section (1) of Section 37 of the Act. Reference may also be made to the Apex ....
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....ission of the assessee reproduced in the order of the Ld. CIT-(A) on page 5, is extracted below: "3) It is submitted with respect that the amount incurred on account of Derma Conference of the Doctors is by way of commercial obligation in the business emanating from an express of implied contract. The reason is obvious that the assesses Company is spending this amount with the expectation that the Doctors shall prescribe its product more often. This express or implied contract emerges from the long standing custom in this pharma trade. It is difficult to quote a solitary case where company is not incurring this kind of expenditure but still getting the prescription from the doctors. Because of the long standing customary practice in the trade, any at, done in pursuance to the discharge of such obligation is a legitimate allowable expenditure. Though, there is no legal obligation on the doctors to prescribe the product but it is a moral obligation for the doctors to honors its commitment to prescribe the product of the company as the company had sponsored their conference." 21. Providing free air travel, stay and food in hotels, local car conveyance etc. for prescribing medici....
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....nt Fund Payments. 2. That the learned CIT(A) has erred in sustaining the addition of Rs. 57,038/- being the depreciation claimed by the assessee on UPS, rack, switch and battery. The explanation offered and decisions cited by the assessee has been wrongly brushed aside by the learned CIT(A) sustaining the erroneous order of the A.O. 27. In ground no. 1 of the Cross Objection, the assessee has challenged the sustenance of the disallowance of Rs. 5,94,741/- made by the Assessing Officer regarding the contribution made towards Provident Fund Payment. 27.1 In the assessment proceedings completed under section 143(3) of the Act on 20/04/2009, the Assessing Officer disallowed the delayed payment of employee's share of Provident Fund (PF) in terms of section 36(1)(va) of the Act for the month of July, 2006 (Rs.2,90,613/-) and January, 2007(Rs.3,04,128/-), totalling to Rs. 5,94,741/- being paid after the prescribed due date. The learned CIT-(A) upheld the disallowance with following finding: "3.2 I have considered the submissions made by the authorized representative of the appellant company. The payment by an employer of employees' contributions to Provident Fund are not gover....
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....ing the order of the learned CIT(A) in deleting the addition of Rs. 12,86,353 made by the AO on account of late deposit of employer's contribution to PF and administration charges of Rs. 52,584 and Rs. 240 as inspection charges without appreciating the fact that payments were not made by the assessee within the prescribed 'due dates' by which the assessee was required to make payments, in contravention of the decision in the case of CIT v. Pamwi Tissues Ltd. (supra) ? 3. Whether, on the facts and in the circumstances of the case, the learned Tribunal was right in law in confirming the order of the learned CIT(A) in deleting the addition of Rs. 1,22,964 made by the AO on account of expenditure incurred in connection with load extension (P&E) and purchase of distribution panel (R&M) even though the benefits flowing from extension of load and replacement of old panel were of enduring nature, therefore, the same were capitalized ?" 27.5 Before the Hon'ble High Court, the Revenue did not press the question of law in view of the decision of the Hon'ble Supreme Court in the case of CIT Vs. Alom Extrusions Limited (2009) 227 CTR 417(SC) and accordingly the question of law....
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....em and cannot be used without the computer, thus, these are part of the computer system and eligible for depreciation at the rate of 60% percent. However, the Ld. CIT-(A) following the decision of the Tribunal in the case of Nestle India Ltd (2009) 27 SOT 9 ( Delhi), held that UPS is not eligible for depreciation at the rate of 60%. The relevant finding of the Ld. CIT extracted as under: "5.2 I have considered the submissions of the appellant company. In the case of CIT vs.3SES Yamuna Power Ltd., the honorable Delhi High Court discussed the issue of depreciation on printers, scanners, etc. and not on UPS. The issue whether the UPS is to be treated as part of computer or as plant & machinery and to get depreciation accordingly has been dealt with in the case of Nestle India Ltd. (2009) 27 SOT 9 (Delhi)(URO), by the ITAT, Delhi 'F' Bench, New Delhi wherein the Hon'ble Bench specifically discussed the issue about the allowance of rate of depreciation to UPS which are attached to computers and held as follows:- "We have heard the parties and perused the record of the case. The assessee is engaged in the business of manufacturing of various food products and beverages. During the ....
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....which goes into making UPS is not developing so rapidly to make it obsolete in the short span. Keeping in view all these relevant and material aspects, we find it difficult to accept the contention of the learned counsel for the assessee that UPS is a part of computer and is entitled to a higher depreciation rate of 60 per cent and rejecting the same, we uphold the impugned order of the learned CIT (A) confirming the disallowance made by the AO by restricting the claim of the assessee for depreciation on UPS treating the same as plant and machinery. Ground No. 2 of the assessee's appeal is accordingly dismissed''. As the issue has been discussed thoroughly and in great detail in the case of M/s Nestle India Ltd. (supra), I have no hesitation to follow the said decision of M/s Nestle India Ltd.(supra) and reject the contention of the appellant company seeking depreciation on UPS on higher rate of 60%. This ground of appeal is accordingly dismissed. 28.3 Before us, the Ld. counsel of the assessee relied on the decision of the Tribunal Delhi bench in the case of Steel Authority of India Vs. Addl. CIT in ITA No. 751 and 1488/Del/2011 for assessment year 2007-08 and submitted that....