TaxTMI 
TaxTMI 
2019 (1) TMI 210
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.... the AO on account of sales promotion expenses. (4) The ld.CIT(A) ought to have taken note of Board's Circular No.5/2012 while considering the appeal of the assessee on above grounds. (5) The ld.CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 50,00,000/- made by rejecting the assessee's claim of deduction u/s 54EC of the Act 2. Ground no. 1 is relating to deleting the disallowance of Rs. 14244447/- (being 70% of Rs. 20349211/-) made by the A.O. on account of Physician Samples distributed free of cost. 3. In this case, ld. A.O. disallowed the amount of Rs. 14244447/- being purchases of Physician's Sample (not for sale) distributed to the Physicians free of cost treating it as non-business expenditure. Ld. A.O. made the disallowance on account of that assessee is unable to produce the detail the difficult its claim for liability of the alleged expenses. 4. In appeal, assessee contention was accepted by the ld. CIT(A) holding that an identical addition is being made in the appellant case since assessment year 2008-09 and ITAT, Mumbai Bench in appellant's own case for assessment year 2008-09 has decided the issue in favour of asse....
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....3 Created On Thu Jun 23 02:32:25 IST 2016 O/TAXAP/478/2016 ORDER that the issue is primarily in the realm of appreciation of material on records. Even the Assessing Officer allowed part of the expenditure, thereby indicating that he would not averse to the expenditure in the nature of free samples being related to assessee's business. He only disputed the quantification. When Commissioner of Income Tax (Appeals) concurrently found sufficient reason to accept the assessee's claim, we do not see any question of law arising. 4. Tax Appeal is therefore dismissed. 6. Respectfully following the ITAT Mumbai Bench decision and Hon'ble Gujarat High Court order in assessee's own case, we dismiss this ground of appeal of the revenue. 7. Now we come to ground relating to disallowance of Rs. 1,17,53,365/- on account of Sponsorship of Doctor's Overseas Tours. 8. Ld. A.O. has discussed the issue at page no. 4 to 10 and made the disallowance on the ground that in view of the CBDT Circular No. 5/2012 that any medical practitioner or their professional associates is prohibited from accepting any gift, travel facility, hospitality, cash or monetary grant from any ph....
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....d. A.R. argued that matter has been decided in favour of the assessee's own case and cited an order of ITAT Mumbai Bench in assessee's own case in ITA No. 847/Mum/2012. The relevant paras of the ITAT is reproduced: 5. Now, coming to the appeal filed by the assessee being ITA No. 388/Mum/2012, the sole ground taken by the assessee is in relation to the disallowance of Rs. 42,53,924/- on account of claim of expenditure incurred by the assessee on oversea travel of doctors for attending seminar etc. and to encourage product awareness and sales promotion of the products manufactured by the assessee. 6. Admittedly, the assessee is engaged in the manufacturing of drugs and pharmaceuticals. The A.O. noted that the assessee had debited a sum of Rs. 42,53,924/- for sponsoring doctors for overseas tour. On being asked to explain in this aspect, the assessee submitted the required details. The A.O. did not doubt the genuineness of the transactions, however, held that sponsoring overseas trip of the doctors was not an activity relating to the business of the assessee. In appeal, the ld. CIT(A) also upheld the findings of the A.O. The assessee has thus come in appeal before us....
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....of ITAT, Ahmedabad Bench in assessee's own case for assessment year 2010-11 in ITA No. 2204/Ahd/2014 and relevant para of the judgment is reproduced: 2. Relevant facts of the case are in a very narrow compass. This assessee is being manufacturing drugs and pharmaceuticals. It distributed samples free of cost to physicians under the pretext of its business requirements. It pleaded in the course of scrutiny that its marketing staff visits various doctors to update them about product as well as healthcare information. The said field marketing staff was claimed to have given free physicians samples to the doctors. The Assessing Officer framed the impugned assessment on 04.01.2013 to disallow 70% of the expenditure in question of Rs. 1 crore; coming to Rs. 70,00,000/- on the ground that there was no evidence indicating business expediency in giving such -free samples to physicians. He thereafter adopted his reasoning as in preceding assessment year 2009- 10. 3. The CIT(A) reverses Assessing Officer's findings as under:- "1.1 Briefly stated, material facts of the issue in dispute as revealing from the impugned order are that the A.O. observed that the appel....
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....mensely transpires that the issue in dispute is squarely covered by two appellate orders of the learned predecessor in office wherein the appellant has been allowed relief on this issue. For ease of reference, the relevant portion of the ld.CIT(A)'s order dated 15.11.2011 in the appellants case for A.Y. 2008-09 is reproduced hereunder: "5. The 1st ground of appeal is regarding an adhoc disallowance of 70% expenses incurred on physicians sample as claimed. 5.1 During the course of assessment proceeding, the A.O. had noticed that the appellant has claimed a huge expense against free samples distributed to physicians. It was stated by the appellant that this is a business requirement. ... [page 2 & 3] 5.2 ...[page4&5] 5.3 ... [pages 6, 7 & 8] 5.4 ... [page 9] Under the circumstances, 1 find as the appellant has been able to prove the genuineness of expense, proper recording in its books of accounts of the expenses, and the relationship of the expense with the business of the appellant, I find there is no need to make the said disallowance simply because in some other case, a disallowance made had been upheld. The case laws relied by the app....
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....2 I have considered the assessment order and the submissions made by the appellant. During the assessment proceedings, the AO noted that the appellant had debited the amount of Rs. 61,28,797/-as sales promotion expenses which included - (i) Rs. 26,04,22/- on gifts to doctors; (ii) Rs,13,32,615/- on scientific promotional articles to doctors; and (ii) Rs. 21,91,953/- on dermatology books to doctors. After a detailed discussion in his order, the AO held that this amount had not been incurred wholly and exclusively for the purpose of business and was hence not allowable u/s. 37 of the LT. Act. He accordingly disallowed the same. The appellant submitted that the expenditure incurred on sales promotion was integral to the business and was incurred out of commercial expediency. 6.2.1 As regards the disallowance of Rs. 21,91,953/- incurred on dermatology books to doctors, a perusal of the submission made by the appellant shows that the books that have been distributed to doctors are medical notebooks which provide coverage of latest medication and procedures in respect of dermatology. The same are related to the business of the appella....
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....mmercial expediency and has facilitated the appellant in carrying on its business. A perusal of the accounts of the earlier years shows that the total turnover and net profit of the appellant company have been increasing over the years which shows that the sales promotion activities have led to higher sales and better financial results for the company. 6.2.4 Considering the discussion above, I am of the view that the expenditure claimed by the appellant was entitled to deduction u/s. 37(1) and the disallowances of Rs. 26,04,229/-and Rs. 13,32,615/- are accordingly deleted. 16. Now we come to ground relating to Rs. 50,00,000/- by rejecting the assessee's claim of deduction u/s. 54EC. 17. Ld. A.O. had discussed the issue at page no. 18 to 20 and Para no.6 & 7 and held that exemptions u/s. 54EC against deemed Short Term Capital gain is not allowable. 18. In appeal before the ld.CIT(A) who allowed the claim of the assessee and he granted the relief to the assessee. 19. Before us, ld. A.R. Mukesh M. Patel cited an order of Jurisdictional High Court in the matter of CIT vs. Aditya Medisales [2013] 38 taxmann.com 244 (Guj.). "Section 54EC, read with section 5....