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Income Tax Appellate Tribunal, KOLKATA ‘B’ BENCH, KOLKATA
Before: SRI RAJESH KUMAR & PRADIP KUMAR CHOUBEY
order
: September 23rd, 2024 ORDER
Per Pradip Kumar Choubey, Judicial Member:
The instant appeal filed by the assessee pertaining to the Assessment Year (in short ‘AY’) 2014-15 is directed against the order passed u/s 250 of the Income Tax Act, 1961 (in short the ‘Act’) by ld. Commissioner of Income- tax (Appeals)-NFAC, Delhi [in short ld. ‘CIT(A)’] dated 19.03.2024 arising out of the assessment order framed u/s 143(3) of the Act dated 15.12.2016. 1.1. The brief facts of the case of the assessee are that the assessee is a company engaged in manufacturing and sale of pharmaceuticals especially engaged in manufacturing of scalp and skin lotion and tablets. The company also runs skin clinic centres of its own. The appellant company filed its return I.T.A. No.: 971/KOL/2024 Assessment Year: 2014-15 Palsons Derma Pvt. Ltd. of income on 25.09.2014 which was subsequently revised declaring total income of Rs. 2,69,55,900/- after claiming deduction under Chapter-VIA of Rs. 52,000/-. The Assessing Officer (hereinafter referred to as ld. 'AO') completed the assessment u/s 143(3) of the Act, determined the total income after making various additions and disallowances at Rs. 2,99,60,930/-. The said order has been placed before the ld. CIT(A) wherein also appeal of the assessee has been dismissed. Being aggrieved and dissatisfied with the impugned order, the present appeal has been preferred. 1.2. Ld. Counsel for the assessee challenges the impugned order of the ld. CIT(A) on the following grounds of appeal:
1. That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the disallowances aggregating to Rs. 27,11,109/- at the flat rate of 10% out of Consultation fee paid to Doctors as well as Promotional gifts and Overseas Annual Conference u/s 37 of I.T. Act.
2. That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the disallowance of Rs. 1,36,984/- out of Provision for Leave Encashment within the meaning of Section 43B of the Act.
3. That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the action of AO who disallowed interest payment of Rs. 66,669/- being penal in nature as per section 37 of the Act.
4. That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the action to AO who disallowed Rs. 90,267/- out of Subscription & Donation A/c by referring to Section 37 of I.T. Act, 1961.
5. That the appellant craves leave to add, alter, adduce or amend any ground or grounds on or before the date of hearing of the appeal.” 1.3. In course of argument, ld. Counsel for the assessee did not press ground nos. 2 & 3 and so far, ground no. 4 is concerned, his submission is only with regard to the subscription amount and did not press with respect to the donation amount. Now, the only ground nos. 1 & 4 are for our adjudication. Ground no.-1
2. The submission of Ld. Counsel for the assessee is that the ld. CIT(A) did not consider the case of the appellant nor did consider his own order passed Page 2 of 6 I.T.A. No.: 971/KOL/2024 Assessment Year: 2014-15 Palsons Derma Pvt. Ltd. against the same assessee for the AY 2013-14 in which ld. CIT(A) has allowed the free gifts given to the doctors. He has filed the certified copy of the order dated 13.05.2016 passed by ld. CIT(A) against the same assessee for the AY 2013-14. 2.1. We have gone through the case of the assessee and find that the company is engaged in manufacturing of scalp and skin lotion and tablets which along with allied products purchased from other companies are marketed through staff engaged for promoting sales. The assessee has filed a copy of audited financial statement for the year ended on 31.03.2014, copy of ITR acknowledgment for AY 2014-15. We have gone through the order of the ld. CIT(A) passed against the assessee for the AY 2013-14 against the following grounds mentioned as ground nos. 1 to 3 of the assessee.
1. That on the facts and in the circumstances of the case, the action of Ld AO to disallow Rs 8,58,902/- on estimate out of Selling & Distribution expenses is improper, unjust and opposed to his admission that it is not possible to exactly determine the expenses relatable to doctors.
2. That on the facts and in the circumstances of the case, the action of Ld AO to disallow Rs. 13,36,872/- on estimate out of gifts to Trade Associates falling under main head “Selling & Distribution expenses" is erroneous, arbitrary and unfounded for the want of any adverse comment on this point.
3. That on the facts and in the circumstances of the case, the action of Ld AO to disallow Rs. 31,50,470/- on estimate out of Overseas Annual Corporate conference falling under main head " Selling & Distribution Expenses" is erroneous, arbitrary and unfounded for want of any adverse comment on this point.” 2.2. It is essential to reproduce the order of ld. CIT(A) passed in the above grounds which are similar to this case mentioned as ground no. 1 of this case, the same is as under: “4.2. I have considered the submission of the AR of the appellant and gone through the observations and findings of the AO contained in the assessment order. I have examined the contentions of the AR in so far as the factual position is concerned as brought to my attention as well as the provisions of Section 37(1) and CBDTs Circular No. 5/2005 dated 01.08.2012 in the matter. The nature of business of the Company including quantitative analysis of items manufactured and sold suggests that it is engaged in the production of cosmetic and dermatology items for beautification of human body and skin. The Company also runs the Page 3 of 6 I.T.A. No.: 971/KOL/2024 Assessment Year: 2014-15 Palsons Derma Pvt. Ltd. business of skin care. The quantitative analysis of manufactured items further shows that such items include treatment of human scalp to prevent fall of hair. On going through the CBDT's Circular No. 5/2005 dated 01.08.2012, which speaks for disallowance of freebies given to Doctors in the assessment of pharmaceutical companies manufacturing medicines, in my opinion, the said Circular is not relevant to the nature of business of the appellant Company. The amended guidelines of Indian Medical Council on professional conducts are also inapplicable in the appellant’s case as it is not manufacturing medicine to save human life. The Company is engaged in the business of running skin care clinics for which I find that payments to Doctors for daily visit, advice and consultation cannot be equated as ‘‘freebies". Therefore, payments made to Doctors for advice, consultations etc. for attending skin care clinics cannot be said as prohibited either by CBDT's Circular dated 01.08.2012 or IMG guidelines or the provisions of section 37(1) of the Act. I find that gross receipts of the current year has increased by nearly ₹8 crores as compared to the similar receipts of the preceding year. The increase of selling and distribution expenses of ₹1.6 crores can in no circumstance be held as not being incidental to the assessee's business and/or excessive within the meaning of Section 37(1) of the Act. I also find that estimated and ad-hoc disallowances of expenses @ 20%, 10% and 20% under the impugned three sub-heads falling within the major head "Selling & Distribution Expenses" supra are without any basis whatsoever. The AO has failed to bring any palpable material on record to justify his action in controverting the claim of the appellant when the details of all the expenses incurred by the appellant were filed before him in this regard. No bills or vouchers were specifically pointed out by the AO to be defective or unreliable in his assessment order. Therefore, the allegation that the expenditure incurred by the appellant in violation of the medical council's guideline remains unfounded. It is also not the case of the AO that the expenses have been found to be bogus or not incidental to the nature of business of the appellant. Under the facts and circumstances of the matter as discussed, I do not find any merit in the action of the AO in resorting to making the impugned additions. In view of the totality of facts and circumstances as discussed in the foregoing, the aggregate ad-hoc disallowances of ₹53,46,244/- under the three sub-heads falling under the main head “Selling & Distribution Expenses” are, therefore, directed to be deleted. Ground Nos. 1 to 3 are accordingly allowed.” 2.3. In the present case, as we find that the disallowance by the AO confirmed by the ld. CIT(A) is also against the following particulars: PARTICULARS AMOUNT (i) Paid to doctors for advising, Consultations etc. Rs. 35,21,945/- (ii) Promotional Gifts Rs. 1,56,42,228/ ' (iii) Overseas Annual Conferences Rs. 79,46,850/ TOTAL Rs, 2,71,11,023/-
Page 4 of 6 I.T.A. No.: 971/KOL/2024 Assessment Year: 2014-15 Palsons Derma Pvt. Ltd.
Keeping in view the order passed by the ld. CIT(A) against the present assessee for the AY 2013-14, we are of this view that the order passed by the ld. CIT(A) not disallowing the same facts are erroneous and liable to be set aside. Accordingly, this ground is allowed in favour of the assessee and we direct the AO delete the additions. Ground no.-4 4. This ground relates to the disallowance of Rs. 9,02,267/- out of donation and subscription claimed for total amount of Rs. 1,95,268/-. As we have already discussed above that in course of argument ld. Counsel for the assessee has pressed only against those particulars that have been given in the subscription amount. It is apparent from the paper books filed by the assessee that he filed details of subscription and donation paid during the relevant AY 2014-15 along with donation receipt. It is well-known that subscription payable to various associations in the line of business is allowable without any restriction if the genuinity of the payment is beyond any doubt. In the present case, details of subscription with receipts have been filed by the assessee which are genuine one and payment is beyond any doubt. Hence, the amount against subscription i.e. Rs. 30,000/- and Rs. 20,267/- is liable to be deleted from the addition of the accounts. Accordingly, this ground is allowed in favour of the assessee.