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Income Tax Appellate Tribunal, MUMBAI BENCHES “A”, MUMBAI
Before: SHRI G.S.PANNU (AM) & SHRI RAM LAL NEGI (JM)
This appeal has been preferred by the appellant/assessee against order dated 29/05/2014 passed by CIT (Appeals)-12 for the Asst. Year 2010-11, whereby the Ld. CIT(A) partly allowed the appeal filed by the assessee against assessment order dated 04/01/2013 passed under section 143(3) of the Income Tax Act,1961 ( hereinafter referred to as “The Act.”)
Brief facts of the case are that the assessee company engaged in the business of manufacturing and marketing of pharmaceutical formulation, filed its return of income for the A.Y. under consideration on 01/09/2010 declaring total income of Rs. 9,85,80,200/-. While completing the assessment, the A.O disallowed expenses of Rs. 87,13,002/- incurred on seminar and conference of the Doctors held outside India, during which the assessee company made aware about its products. The A.O made the said disallowances on the ground that the expenditure was not incurred wholly and exclusively for the purpose of business of the assessee. In first appeal CIT(A) following the order of his predecessor, passed in assessee‘s own case for the A.Ys 2008-09 and 2009-10, confirmed the disallowance.
Still aggrieved, the assessee/appellant is in appeal before the Tribunal, raising the following effective grounds of appeal:-
1) The learned CIT(Appeals) is not justified in confirming the disallowance of Rs. 87,13,002/- made under sec. 37 of the Income Tax Act, 1961.
2) The learned CIT(Appeals) while disallowing the claim of expenditure incurred by the appellant on overseas travel of doctors has overlooked the fact of commercial expediency and business necessity of such expenditure and that the expenditure was incurred by the appellant wholly and exclusively for the purpose of the business.
The Ld. Authorised Representative (AR) at the outset pointed out that the issue involved in the present appeal has been decided by the Mumbai Bench of ITAT in favour of the assessee in assessee’s own case in for the A.Y. 2008-09 and cross appeal, ITA No. 388/Mum/2012 filed by the department.
On the other hand the Ld. Departmental Representative (DR) relying on the concurrent findings of the authorities below, submitted that since the expenditure was not incurred wholly and exclusively for the purpose of business of the assessee, the Ld. CIT(A) has rightly confirmed the disallowance made by the A.O.
We have heard the rival submissions and perused the documents on record including the decision rendered by the co-ordinate Bench in assessee’s own case for the A.Y. 2008-09 and cross appeal filed by the revenue. We notice that in the sole ground raised by the assessee was in relation to the disallowances of Rs. 42,53,924/- on account of claim of expenditure incurred by the assessee on overseas travel of Doctors for attending seminar etc. to encourage product awareness and sales promotion of the products manufactured by the assessee.
7. The co-ordinate Bench of Mumbai Tribunal decided the said ground of appeal in favour of the assessee holding as under:-
“6. Admittedly, the assessee is engaged in the manufacturing of drugs and pharmaceuticals. The A.O. noted that the assessee had debited a sum of Rs. 42,53,924/- for sponsoring doctors for overseas tour. On being asked to explain in this aspect, the assessee submitted the required details. The A.O. did not doubt the genuineness of the transactions, however, held that sponsoring overseas trip of the doctors was not an activity relating to the business of the assessee. In appeal, the ld. CIT(A) also upheld the findings of the A.O. The assessee has thus come in appeal before us.
The ld. Counsel for the assessee while inviting our attention to the impugned order, has submitted before us that the detailed reply was submitted to the lower authorities explaining that the assessee
sponsors various events and seminars at various places to encourage product awareness programs. As a part of sales promotion and product awareness program, the foreign tours of the selected doctors were sponsored and this was combined with the product awareness campaign by the assessee. This was also done to create good relationship with the doctors. The assessee had also furnished a list of doctors who had been sponsored along with the visit photographs. The lower authorities had not doubted the incurring of expenses but were of the view that the said expenditure was not directly relating to the business activity of the assessee. In our view, the said opinion of the lower authorities is misplaced. The assessee is in the business of manufacturing and marketing of medicines and skin care products. There is a stiff competition in the market for the sale of the identical products manufactured by other companies. It is commonly known that the medicine companies sponsor the trips of the doctors to overseas so as to influence them to prescribe the medicines manufactured by their company. The assessee had produced a set of photographs to show that by sponsoring of the foreign trips, the product awareness exercise was also done. It is not the case of the Revenue that the persons/doctors whose overseas trip was sponsored were otherwise in any manner related to the assessee company. The only purpose of the assessee company to sponsor the foreign trip of the doctors was for the purpose of promotion and sale of the products of the assessee company. It may be unethical practice for the doctors to accept such type of incentives, however, so far as the assessee is concerned, sponsorship was purely on account of business angle of the assessee company. We, therefore, do not find any justification on the part of lower authorities in disallowing the said expenditure.
Accordingly, the order of the ld. CIT(A) is set aside the addition made on this issue is deleted and the appeal of the assessee is allowed.”
Since the identical issue has already been decided in favour of the assessee by the co-ordinate Bench in assessee’s own case for A.Y. 2008-09. We do not find any reason to deviate from the view taken by the co-ordinate Bench. Hence, respectfully following the decision aforesaid, we set aside the impugned order passed by the Ld.CIT(A) and delete the addition made on this issue and accordingly allow the appeal of the assessee.
In the result appeal filed by the assessee for the Asst. Year 2010-11 is allowed. Order pronounced in the open court on 9th September, 2016