CHIRAON PANACEA VACCINES P.LTD,MUMBAI vs. ASST CIT (OSD) CIR 10(1), MUMBAI

This appeal is filed by the assessee against the order of the Commissioner of Income-tax (Appeals)-21, Mumbai [hereinafter referred to as “the CIT(A)] dated 11-03-2013 for the assessment year 2010-11 on the following grounds:

The only effective issue raised in this appeal is about disallowance made by the lower authorities @30% on adhoc basis out of the expenditure incurred on customer relations management debited by the assessee under the head “advertisement, marketing & sales promotion”.

During the course of hearing it was submitted by the ld.counsel that complete details were submitted to the Assessing Officer. The expenses were incurred during the course of business. Nothing wrong has been pointed out by the Assessing Officer. Rather, the ld.CIT(A) has also observed that these expenses are business expenses and should be allowed. But he surprisingly held these expenses to be capital in nature and, therefore, upheld the disallowances made by the Assessing Officer.

On the other hand, the ld.DR relied upon the orders of the lower authorities.

We have gone through the orders of the lower authorities and submission made before us. The brief facts are that the assessee company was engaged during the year in the business of paediatrics vaccines. Being in pharmaceutical industry, the assessee was required to maintain high standards and for this purpose and to boost its sales, it had incurred certain expenses on travel and providing weighing machines and refrigerators, etc to the doctors 3 ITA 6087/Mum/2013 for better upkeep of its medicines. These expenses have been found to be business expenses by the ld.CIT(A). The revenue has not filed any appeal / cross objection against the order of ld.CIT(A). Thus, undoubtedly, the expenses are business expenses having been incurred by the assessee during the course of its business. But ld.CIT(A) held these expenses to be capital in nature.

We have examined the details of these expenses as provided by the Assessing Officer on page 2 of the assessment order and noticed that these expenses were on travel, providing of fridges, weighing machine, Otoscope, LCD & other medical items to the doctors. The ld.CIT(A)has held these expenses to be capital in nature. Further, ld.CIT(A) stated that that these items have already been distributed by the assessee to the doctors and these are no more in possession or ownership of the assessee. In our view, these items are clearly items of revenue expenditure and by no stretch of imagination these can be held to be capital expenses, as far as the assessee’s case is concerned. Even otherwise, the values of these items range from 5,000 to Rs.40,000 on maximum. Taking into account, all the facts and circumstances of the case, we do not find any justification to disallow these expenses and, therefore, direct the Assessing Officer to allow these expenses in total. Disallowance made by the Assessing Officer is directed to be deleted.

In the result, appeal of the assessee is allowed. Order pronounced in the court on 18th May, 2016. Sd/- sd/- (JOGINDER SINGH) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dt : 18th May, 2016 Pk/-