AI Drafter 
TaxTMI 
TaxTMI 
2018 (3) TMI 1514
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....llegal, unjustified and without jurisdiction. 4. That Learned Lower authorities estimated gross profit of appellant on the basis of alleged discrepancies in filling columns of Balance Sheet, since the basis of estimation is incorrect and insufficient and further aforesaid authorities failed to point out single defect in books of account maintained by appellant, hence addition of Rs. 7,24,774/- for low gross profit is illegal, against the facts and baseless. 5. That in spite of gross profit ratio reduced in comparison to immediately preceding assessment year, the net profit ratio has increased in comparison to immediately preceding assessment year, which resulted declaration of higher income, hence, the addition for low gross profit, while rejecting the reasons given by appellant is unjustified, arbitrary and without jurisdiction. 6. That Ld. Lower authorities failed to observe that expenses incurred for sample medicines given to Doctors and box and ketch cover for sample is a regular feature of business of appellant and appellant has been consistently incurring the aforesaid expenses in past years and in a.y.2013-14 also, further, ratio of aforesaid expen....
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..../- is against the facts, arbitrary and without jurisdiction." 2. At the outset, Learned A. R. inviting our attention to grounds of appeal from 1 to 5, submitted that vide these grounds of appeal the assessee is aggrieved with the application of higher gross profit rate against the declared gross profit rate. It was submitted that Assessing Officer, without rejection of books of account, has made an addition on account of gross profit by holding that in earlier year the gross profit rate was more than the gross profit declared during this year. It was submitted that Assessing Officer did not point out any mistake in the books of account except that certain columns in the return of income were inadvertently wrongly filled. He submitted that mere wrong filling of columns of I.T. return does not mean that the assessee had suppressed his gross profit rate and therefore, the action of the authorities below is not justified. Learned A. R. in this respect placed reliance on the judgment of Hon'ble Madras High Court in the case of Principal Commissioner of Income Tax vs. Marg Limited wherein vide order dated 20th July, 2017 Hon'ble court had held that without rejection of books o....
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....f last three years and much lower than immediate preceding assessment year. It was submitted that while disallowing the genuine expenses the authorities below have rejected the facts, past history, nature of business, evidences and explanations filed before them. Learned A. R. in this respect invited our attention to copies of ledger account of marketing and business promotion expenses for the assessment years 2009-10 to 2011-12 placed at pages 145 to 190 of the paper book. It was submitted that in none of the earlier years any disallowance was made on account of these expenses. Learned A. R. invited out attention to page No. 3 of the paper book where a chart showing the percentage of expenses to turnover for the last three years was placed and submitted that the percentage of marketing and business promotion expenses was in line with the percentage of such expenses incurred in the earlier years. He further argued that these expenses were arbitrarily disallowed without pointing out any defect in the books of account. 2.4 Arguing ground No. 9, Learned A. R. submitted that the amount of Rs. 94,464/- has been disallowed which the assessee had incurred towards advertisement for orga....
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....d during the year is not acceptable and therefore, he worked out an average of gross profit rate of three earlier years and applied the same and made the addition to the extent of Rs. 7,24,774/-. We find that nowhere in the assessment order the Assessing Officer has rejected the books of account and rather he has confirmed that books of account were produced and were test checked and the balance sheet was tallied. This observation has been made by the Assessing Officer at page No. 1 of his order. Therefore, without rejecting books of account and without observing any discrepancy in the books of account, the action of the Assessing Officer in applying higher gross profit rate is not justified. The Assessing Officer has also not rejected books of account and merely on the basis of lower gross profit rate and on the basis of some discrepancies in the figures filed in the return of income and as per audit report, has made this addition. Hon'ble Madras High Court in the case of Marg Limited (supra), under the similar facts and circumstances, has held that the Assessing Officer needs to reject books of account before making his own assessment. Hon'ble Court has held that it is si....
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....ccounts (this has been fairly admitted by the Revenue before ITAT.), we are not, therefore, labouring through the labyrinth of case laws relied on by CIT(A)." 4.1 Respectfully following the judicial precedents and the facts and circumstances, we delete the addition which the Assessing Officer had made on account of low gross profit rate and therefore, ground NO. 1 to 5 are allowed. 4.2 As regards the addition on account of disallowance of expenses on samples, we find that the authorities below have sustained the disallowance by heavily placing reliance on the regulations of Medical Council of India and also by placing reliance on CBDT Circular No. 5 of 2012 dated 01/08/2012. We find that Hon'ble Delhi Tribunal in the case of Eli Lilly & Co. (India) Ltd. (supra) has held that gifts and samples are two different things. The Tribunal has held that samples are not hit by the regulations of Medical Council of India. The findings of the Tribunal, as contained from para 13 to 16, are reproduced below: "13. Having considered the rival submissions we find that in the immediately preceding assessment year DRP by an order dated 5.9.2013 had deleted the identical disallowanc....
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....bers (both immediately and extended) (such as tickets to entertainment events) also are not be offered or provided. 7. Relationship with Healthcare professionals 7.1 Travel facilities ... 7.2 Hospitality ... 7.3 Cash or monetary grants ... where there is any item missing, the code of MCI as per "Indian Medical Council (professional conduct, etiquette and ethics) Regulation, 2002 as amended time to time will prevail". 6.11.4 Thus it is evident from the above that a clear distinction has been made between the free samples, gifts, travel facilities, hospitality and cash or monetary grants. It would accordingly be incorrect to put samples In the definition of gifts being separately categorized in Para 5 & 6 of the UCPMP respectively. It is noticed from the CBDT Circular No.5/2012 that it refers IMC Regulations 2002 which imposed a provision on the medical practitioner for taking any gift, travel facility, hospitality, cash and medical grant from the pharma sector. The Government of India has clearly demarcated the operation nature of each term in the UCPMP, which has been discussed above and therefore, it cannot be said that the ter....
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....le in the market in relation to the cure of a particular affliction and therefore, to persuade them to prescribe the same in appropriate cases and this is tantamount to publicity and sales promotion." Accordingly such expenditure cannot be said to be disallowable u/s. 37(1) of the Income-tax Act in the hands of the Pharma companies distributing such free samples to doctors. 6.11.8 In the light of the details discussion made above, the Panel holds that the free samples are not covered by the IMC regulations of 2002(as amended in 2009) read with CBDT circular no. 5/2012, UCPMP and the Drugs and Cosmetic Act and regulations made there under. Accordingly the is directed to delete the proposed addition on this account. Accordingly the AO is directed to delete the proposed addition on this account. 14. The above order has acquired finality and no appeal there from has been preferred by the revenue. In light of the above and in accordance with principle of consistency the disallowance is held to be legally untenable. In support of the above conclusion reliance is placed on the judgment of Apex Court in the case of CIT vs. Excel Industries 358 ITR 295 wherein it ....
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....nd the percentage of expenses to total turnover during the last three years ranges from 6.86% to 7.33%. The average of these percentage comes out at 7.02%. The expenses incurred during the year are 6.86% which is well below the average of last three years. We further find that the Revenue was not able to demonstrate that in earlier years also similar expenses were disallowed. We further find that out of expenses of Rs. 19,75,241/-, the amount of Rs. 1,27,924/- relates to repayment of loan which the assessee had debited under the head marketing and business promotion expenses. The rest of the expenses amounting to Rs. 18,45,317/- are marketing and business promotion expenses. The vouchers for such expenses are placed at pages 161 to 187 of the paper book. The authorities below have not found anything wrong in such vouchers. They have disallowed the claim of expenses by holding that the assessee must have paid these expenses to doctors. While holding so the contention of the assessee that the expenses were incurred for stockists and dealers has not been accepted whereas we find that in earlier year also the assessee had incurred such expenses. The copies of vouchers and bills placed ....