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Income Tax Appellate Tribunal, DELHI BENCH : E : NEW DELHI
Before: SHRI R.S. SYAL, AM & MS SUCHITRA KAMBLE, JM
(Appellant) (Respondent) Department by : Shri Rajesh Kumar, Sr. DR Assessee by : Shri Gurmeet Singh, Advocate Date of Hearing : 27.03.2017 Date of Pronouncement: 28.03.2017 ORDER
PER SHRI R.S. SYAL, AM:
This appeal by the assessee is directed against the order passed by the CIT(A) on 13.06.2013 in relation to the Assessment Year 2008-09.
This appeal is time barred by 70 days. The assessee has filed an application for condonation of delay explaining the reasons for dealy. We are satisfied with such reasons. The delay is ergo condoned and the appeal is admitted for hearing.
The first ground is against the disallowance of whole of advertisement and sales promotion expenses amounting to Rs.91,76,216/.
The facts apropos this ground are that the assessee claimed advertisement and sales promotion expenses amounting to Rs.91,76,216/-. The Assessing Officer found such amount to be higher than that of the preceding year. On being called upon to explain the reasons for incurring such higher expenses in the face of losses, the assessee furnished details of expenses incurred during the year vis-à-vis the preceding year, which has been incorporated on page 3 of the assessment order. It was explained that the assessee incurred a sum of Rs.26,49,637/- as Sample expenses included under the head ‘Advertisement and sales promotion’ which, in the immediately preceding year, were included under the head ‘Cost of goods sold.’ If similar treatment was given, the assessee submitted that incremental expenses were only 2.95%. Not convinced, the Assessing Officer made addition. The ld. CIT(A) confirmed the same.
After considering the rival submissions and going through the relevant material on record, we find that the assessee furnished complete details of expenses before the Assessing Officer. Such a detail has been captured by the Assessing Officer on page 3 of his order. The overall Advertisement and sales promotion expenses include Training expenses, Trainer’s charges, Guest entertainment, Meetings and conference, Visual aids, Doctors’ seminar and Promotional gadgets etc. The major reason given by the AO for disallowance is incurring of losses from business.
The assessee is a pharmaceutical company and it has to survive in business despite incurring losses. There can be no reason to disallow `Advertisement and sale promotion expenses’ merely because of incurring losses. So long as the expenditure is properly backed by evidence and no other provision is hit, such an expenditure has to be allowed. Adverting to the facts of the instant case, we find that the assessee furnished complete details of expenses. The ld. CIT(A) has sustained the disallowance by following the reasoning of losses given by the Assessing Officer apart from mentioning in para 5.3.3. that some expenses were booked many times. The ld. AR submitted that not even a single expenditure was booked for second time and the finding recorded by the ld. CIT(A) is superfluous. It is seen that although the ld. CIT(A) has made such a remark in the impugned order, but he failed to substantiate the charge. We are, therefore, convinced that the addition has been wrongly made and sustained. The same is directed to be deleted.
This ground is allowed.
The only other ground is against the sustenance of disallowance of Provision for obsolescence of stock amounting to Rs.2,75,212/-. The factual matrix of this ground is that the assessee created a provision for obsolescence of stock at Rs.2,75,212/- in respect of medicines expiring in three months from the close of the year. The Assessing Officer made the addition, which came to be affirmed in the first appeal.
After considering the rival submissions and perusing the relevant material on record, we find that the assessee is constantly in the practice of creating provision due to obsolescence of medicines expiring within coming three months from the close of the financial year. Page 68 of the paper book is the assessee’s Schedule to the annual accounts. This Schedule shows that as against the provision of Rs.2.75 lac made for slow moving/expiring Inventory in this year, the assessee made similar provision for a sum of Rs.1.22 lac in the immediately preceding year. The ld. AR submitted that such a practice is being regularly adopted and no such disallowance has ever been made in the past. This contention has not been controverted by the ld. DR with any contrary material. In view of the genuineness of the provision made on a rational basis, which has not been disputed by the Assessing Officer in the preceding years, we are satisfied that this disallowance is not called for. We, therefore, order for the deletion of the disallowance. This ground is allowed.