ARCHANA PANDIT,GANJAM vs. ITO,WARD-1, BERHAMPUR

Shri S.K.Sarangi, S.K.Sarangi, ld AR appeared for the assessee and Shri the assessee and Shri S.C.Mohanty, Sr. , Sr. DR appeared for the revenue.

The appeal filed by the assessee is time barred by 465 days. The assessee has filed condonation petition supported by affidavit, stating the reasons that although the documents were given to the tax consultant to file appeal before the Tribunal, but the tax consultant forgotten to file the appeal. Only after getting recovery notice from the revenue, the assessee could know about the non-filing the appeal before the Tribunal. Then, the assessee collected the documents from the previous tax consultant and changed the consultant to file the appeal. It was in this backdrop that the appeal could not be filed within the stipulated period. It was the submission that the delay in filing the appeal was a reasonable cause and delay may be condoned. Ld SR DR did not have serious objection to the condonation of delay. Considering the arguments and condonation petition, we are satisfied that the reasons given by the assessee have not been found to be false and we accordingly condone the delay of 456 days and admit the appeal for adjudication.

It was submitted by ld AR that the assessee is a Super Stockist of pharmaceutical products and Baby Foods. It was the submission that the assessee had claimed sales promotion expenses of Rs.29,39,185/-, which was disallowed in its entirety by invoking the provisions of Explanation-1 to Section 37(1) of the Act. It was the submission that the sales promotion expenses were disallowed on the ground of illegality in respect of payments. It was the submission that the assessee is not a manufacturer of any P a g e 2 | 6 pharmaceutical products. It has not made payments to any professionals for enticing any professionals to enhance the sales of its products and the payments have been made exclusively to the retailers and dealers as also the persons for assisting to sell of its products, the assessee deals in. It was the further submission that sales promotion expenses were not, in any manner, even reimbursement by any of the pharmaceutical companies, whose products the assessee was the super stockiest. It was the prayer that as there was no components of illegality in the payments made by the assessee through cheques, which has also been specifically recorded, the disallowance as made by the Assessing Officer and confirmed by ld CIT(A) is liable to be deleted.

In reply, ld Sr DR placed before us a copy of the circular issued by CBDT No.5/2012 dated 1.8.2012, wherein, the issue of illegality of payments made in the guise of sales promotions expenses to doctors and other professionals have been specifically marked to be illegal and is liable to be disallowed under Explanation 1 to Section 37(1) of the Act. The said circular reads as follows:

It was the submission that the payments specifically can be seen from the ledger to have been made to two doctors being cheque No.179 dated 17.2.2016 in Voucher No.3 to Dr.Sumanta Kumar for an amount of Rs.10,000/- and another cheque No.183 dated 24.2.2016 in Voucher No.3 for an amount of Rs.8,160/- to Dr. Ramachandra Patro. It was the further submission that payments have also been made to various persons who are not retailers of medicines or Baby Food dealers. It was the submission that consequently, the provisions of section 40A(2)(b) and 40A(3) of the Act

We have considered the rival submissions. A perusal of the assessment order most specifically at page 7, 3rd last para clearly shows that the word used by the Assessing Officer is “if these expenses are debited as sales promotion or sponsorship expenditure (or otherwise)”, these expenses would be inadmissible expenditure vide Explanation1 to Section 37(1) of the I.T.Act, according to Circular No.5/2012 dated 1.8.2012. With these findings, the Assessing Officer has made the disallowance of sales promotion expenses of Rs.29,39,185/-. A perusal of the CBDT Circular No.5/2012 dated 1.8.2012 referred to by the Assessing officer clearly shows that these restrictions and the applicability in the case of pharmaceutical and allied health sector industries is in regard to payment or gifts and other facilities to medical practitioners and other professional associations. In the assessee’s case, admittedly, only two payments totaling to Rs.18,160/- has been made to two doctors who are admittedly professionals. The rest of the payments are in no way connected to any medical practitioners or professionals or their professional associations. These are payments made through cheques to the retailers and sales agents of the products dealt in by the assessee. This being so, we are of the view that Explanation 1 to Section 37(1) would not apply to said

In the result, appeal of the assessee stands partly allowed.