AI Drafter 
TaxTMI 
TaxTMI 
2019 (2) TMI 357
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.... Income Tax Act, 1961(here-in-after referred to as "the Act") dated 21/03/2016 relevant to Assessment Year (AY) 2013-14. 2. The assessee has raised the following grounds of appeal:- 1. The learned AO observed that the expenditure amounting to Rs. 18,16,120/- was incurred for the purposes like distributing gifts, providing hospitality to the doctors/medical practitioners. The learned AO disallowed Rs. 18,16,120/- by reasoning that the amount of Rs. 13,16,120/- was incurred towards the purchase of laptop, mobile, watches, AC Machines, treadmill machines etc which is in the nature of gifts for doctors and practitioners, and an adhoc disallowance of Rs. 5,00,000/- is made on account of having incurred on the lodging, boardi....
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....hat the sales promotion expenses include the gift, freebies, and articles to the doctors and medical practitioners. Accordingly, the Assessing Officer was of the view that such expenses are not allowable as a deduction to the assessee as per CBDT Circular No. 5/2012 dated 01/08/2012 and the Circular issued by the Medical Council of India bearing No.6.8.1 dated 10/12/2009. 5. On a question by Assessing Officer, the assessee submitted that it had not incurred any expenses in contravention to the notification issued by the CBDT and Medical Council of India. 5.1. The assessee further submitted that there is cut-throat competition among the pharmaceutical companies, therefore to increase the sales, it uses to provide some incentive to the ....
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....per the CBDT Circular and Medical Council of India. 5.5. The AO also observed that the assessee has not furnished the necessary details depicting the benefits in monetary/non-monetary benefit extended to the doctors/medical practitioners. The Assessing Officer also noted that there were not sufficient details furnished in support of traveling expenses to justify that the doctors and medical practitioners did not incur these expenses. In the absence of necessary evidence, the Assessing Officer made the disallowance of Rs. 5,00,000/- for benefit extended to the doctors/medical practitioners in contravention to the provisions of CBDT Circular/Medical Council of India as discussed above. Therefore, the Assessing Officer proposed to make a di....
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....ed to the doctors/medical practitioners. All these expenses on the gift items were incurred to provide the benefit to the medical stores and chemist shops. 9. On the other hand, The Ld.DR submitted that the disallowance made by the lower authorities represent less than 1% of the total sales promotion expenses. The Ld.DR vehemently supported the orders of the authorities below. 10. We have heard the rival contentions and perused the materials available on record. In the instant case, the AO has made the addition to the total income of the assessee for two counts as discussed below. i. The expenses incurred on the purchase of laptops, wrist watches, mobile phones, and cameras, etc. Rs. 13,16,120/- was treated as gifts given to ....
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....nt with this submission. The explanation to Section 37(1) makes it clear that any expenditure incurred by an assessee for any purpose which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession. The sum and substance of the circulars also the same. In case the assessing authorities are not properly understanding the circular then the remedy lies for each individual assessee to file appeals under the Income-tax Act but the circular which is totally in line with Section 37(1) cannot be said to be illegal. In fact paragraph 4 of the circular quoted hereinabove itself clarifies that the value of the freebies enjoyed by the medical practitioner is also taxable as business income or income from o....