SHRI RAVI ASHOKKUMAR AGRAWAL,AHMEDABAD vs. THE INCOME TAX OFFICER, WARD-1(2)(3), AHMEDABAD

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ITA 415/AHD/2017Status: DisposedITAT Ahmedabad29 November 2018AY 2010-114 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the expenditure was incurred for business expediency to promote the assessee's business of medicine. Following a coordinate bench's decision, the disallowance was deemed unjustified.

What were the facts?

The assessee claimed travelling expenses, including Rs. 4,70,000/- for an America tour for Dr. J.K. Bansal and his family. The Assessing Officer disallowed this amount, stating it was not wholly and exclusively for business purposes.

What were the issues?

Whether expenditure on an overseas tour for a doctor and his family can be considered a business expenditure for a pharmaceutical company.

Which sections of the Income-tax Act were involved?

Section 37(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH

Before: SHRI MAHAVIR PRASAD & SHRI WASEEM AHMED

For Appellant: Shri Aseem L. Thakkar, AR

PER MAHAVIR PRASAD, JUDICIAL MEMBER 1. This appeal by the Assessee is directed against the order of the Ld. CIT(A)-10, Ahmedabad dated 29.11.2016 pertaining to A.Y. 2010-11 and following grounds have been taken:

ITA No. 415/Ahd/2017 2 . A.Y.2010-11 1. The he learned Commissioner of Income Tax (Appeals) has erred in confirming the disallowance of Rs.4,70,000/- made by the Assessing Officer out of travelling expenditure claimed by the appellant treating the same as non- business expenditure. 2. The he learned Commissioner of Income Tax (Appeals) has erred in confirming the disallowance of Rs. 1500/- made by the Assessing Officer being 50% of the donation expenses of Rs.3000/- claimed by the Appellant as exempt. 3. The learned Commissioner of Income Tax (Appeals) has erred in confirming the disallowance of expenses of Rs. 16,914/- made by the Assessing Officer being 10% of the total expenses of Rs. 1,69,142/- which comprises Vehicle expenses of Rs.73,999/-, Telephone expenses of Rs.69,023/-, Mobile expenses of Rs. 15,965/- & Internet expenses of Rs. 10,155/-. 4. The learned Commissioner of Income Tax (Appeals) has erred in disallowance of Rs.14,344/- made by the Assessing officer being 1710th of the depreciation of Rs. 1,43,448/- on Motor Car claimed by the Appellant.

2.

Ground nos. 2, 3 & 4 are not pressed because of smallness of amount, therefore, we would like to adjudicate ground no. 1 only.

3.

During the course of assessment proceedings, it was found by the AO that the assessee had debited an amount of Rs. 6, 25, 244 /- towards travelling expenses. The AO asked the assessee to submit the copy of ledger and account of travelling expenses. On verification of the details, it was observed by the AO that out of Rs. 6,25,244/-, Rs. 4, 70, 000 /- were incurred towards the booking of America tour in respect of Dr. J.K. Bansal and family. It was observed by the AO that Shri J.K. Bansal is in any way connected with the business of the assessee and as such this expenditure cannot be said to be wholly and exclusively for the purpose of business. In view of the above, after discussing

ITA No. 415/Ahd/2017 3 . A.Y.2010-11 the issue in detail, the AO made an addition of Rs. 4,70, 000/- towards travelling expenses.

4.

Against the addition of Rs. 4,70,000/-, assessee preferred first statutory appeal before the First Appellate Authority but to no avail.

5.

Now appellant is before us.

6.

In this case, the appellant is engaged in the business of trading in medicine and pharmaceuticals company and appellant spent an amount of Rs. 4,70,000/- paid to Thomas Cook (India) Ltd. for America Tour in respect of Dr. J.K. Bansal and family in order to promotes its business of medicine. And stated that Dr. J.K. Bansal has benefitted to its business, therefore, sum of Rs. 4,70,000/- was spent for the purpose of business expediency.

7.

As Pharmaceutical Company and its agent are not allowed to make publicity through public advertisement. Thus, Pharmaceutical Company and its agent have to spend money for Doctors.

8.

In support of its contention, ld. A.R. cited an order of Co-ordinate Bench in the matter of Sunflower Pharmacy vs. ITO in ITA No. 2546/Ahd/2015 wherein it is held: 5. We shall now turn to the substantive appeal of the assessee. From the perusal of the record, we find that the AO has disallowed commission paid aggregating to Rs. 41, 39, 13 1/- to doctors. For this purpose, the Assessing Officer (AO) has relied upon the CBDT Circular No, 5/20.1 2 dated 01/08/2012 issued by BDT and observed that the payment made to the doctors contravenes section 37(1) of the Act in view of the Explanation appended to this sub-section. We find that the issue is no longer res Integra and has been examined by the Coordinate Bench of Tribunal in Syncom Formulations (I) Ltd. vs. DCIT in IT A Nos.6429 &

ITA No. 415/Ahd/2017 4 . A.Y.2010-11 6428/Mum/2012 order dated 23/12/2015. The relevant operative para of the order of the Coordinate Bench is reproduced hereunder:- "5. We have considered rival contentions and found that receiving of gifts by doctors was prohibited by MCI guidelines, giving of the same by manufacturer is not prohibited under any I cm' for the time being in force. Giving small gifts bearing company logo to doctors does not tantamount to giving gifts to doctors but it is regarded as advertising expenses. As regards sponsoring doctors for conferences and extending hospitality, pharmaceutical companies have been sponsoring practicing doctors to attend prestigious conferences so that they gather contemporary knowledge about management of certain illness/disease and learn about newer therapies. We found that the disallowance was made by the AO by relying on the CBDT Circular dated 01.08.20.12 onwards. However, the Circular was not applicable because it introduced w.e.f.Ol.08.2012. i.e. assessment year 2013-2014, whereas the relevant assessment year under consideration is 2010-2011 and 2011-2012. Accordingly, we do not find any merit in the disallowance so made by the AO in both the assessment years under consideration. "

6.

In parity with the reasoning given by the Coordinate Bench, we find that the disallowance made by the AO is not justified. Accordingly, the substantive claim of the assessee is allowed.

9.

On the aforesaid facts and circumstances of the case, we hold that above said amount was spent by the assessee for business expediency and respectfully following the order of Co-ordinate Bench, we allow the appeal of the appellant.

10.

In the result, the appeal of the Assessee is allowed.

Order pronounced in Open Court on 29- 11- 2018

Sd/- Sd/- (WASEEM AHMED) (MAHAVIR PRASAD) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad: Dated 29/11/2018 Rajesh Copy of the Order forwarded to:-

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