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Income Tax Appellate Tribunal, DELHI BENCH ‘E’: NEW DELHI
per Circular issued by the Medical Council of India under Medical Council of India (MCI) Regulations, 2002, gifting of such freebies by assessee pharmaceutical company to medical practitioners would also be prohibited by law and thus expenditure incurred in distribution of such freebies would not be allowed as deduction in terms of Explanation to section 37(1) of the Act.
4.2. It is not in dispute that the unit is eligible for deduction u/s 80-IC of the Act and that the said sales promotion expenditure has been incurred by the assessee only in the eligible unit. In view of the CBDT Circular No.37/2016 dated 02/11/2016, pursuant to this disallowance, the deduction u/s 80IC of the Act would automatically get enhanced and thereby making the entire issue Page 10 of 14 Marc Laboratories Ltd. vs. ITO revenue neutral. This is because the disallowance of the aforesaid expenditure would only go to increase the business profit of the assessee from the eligible unit. When the said profits are eligible for deduction u/s 80IC of the Act, in view of the aforesaid circular, the same would be eligible for enhanced deduction /s 80-IC of the Act for the assessee. Accordingly, Ground No.1(i) and (ii) are allowed.
The next issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in treating the payments made to Dotcom Creation, Redbrook Intertrade amounting to Rs.15,93,934/- in the facts and circumstances of the instant case.
5.1. We have heard the rival submissions and perused the materials available on record. The lower authorities observed that the assessee had made payments to the following parties:-
Dotcom Creation Rs. 80,500/- Purchase 2. Redbrook Intertrade Rs.11,09,052/- Purchase 3. Redbrook Intertrade Rs.3,04,492/- Purchase 4. Salary Paid to IT Staff Rs.9,62,627/- Expenses Total Rs.24,56,671/- Marc Laboratories Ltd. vs. ITO 5.2. The Ld. CIT(A) on considering the Explanation given by the assessee, categorically gave a finding that there was no double deduction claimed by the assessee in this regard. The Ld. CIT(A), however, observed that assessee had not adduced any evidence either before the Ld. AO or before him that the purchases relate to any current asset or stock-in-trade. The Ld.CIT(A) confirmed the disallowance in sum of Rs.15,93,934/- towards the purchase of capital assets and granted deduction in respect of salary expenses paid to IT Staff in the sum of Rs.9,62,627/-.
5.3. The Ld. AR before us argued that this expenditure also was incurred in the eligible unit of the assessee and hence, the same would be consequentially eligible for enhanced deduction u/s 80-IC of the Act in view of the CBDT Circular No.37/2016 dated 02/11/2016. It is not in dispute that the manufacturing unit of the assessee is eligible for deduction u/s 80-IC of the Act. However, there seems to be some confusion as to whether the aforesaid expenditure of Rs.15,93,934/- were incurred in such manufacturing division or not. This is because of the fact mentioned in para 12.1 of the order of the Ld. CIT(A) that the Marc Laboratories Ltd. vs. ITO expenditures were incurred in relation to IT Division. No proper details were submitted by the Ld. AR before us in this regard to clarify this doubt. However, in the interest of justice, we deem it fit and proper to restore this issue to the file of Ld. AO with a clear direction that if aforesaid expenditure pertains to the unit eligible for deduction u/s 80-IC of the Act, then the disallowance of the aforesaid expenditure would only increase the business profit of the eligible unit and correspondingly such increased business profit would be eligible for deduction u/s 80-IC of the Act as per CBDT Circular No.37/2016 dated 02/11/2016. The ld. AO is directed to give a clear finding in this regard as to whether it pertains to eligible unit or not and decide the issue. Accordingly, Ground No.2 raised by the assessee is allowed for statistical purposes.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 4th August, 2023.