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2020 (12) TMI 848 - AT - Income TaxDisallowance of sales promotion expenses being gifts to doctors and hospitals - Allowable business expenditure u/s 37(1) - HELD THAT:- Assessee is engaged in the business of manufacturing of pharmaceutical items and sales thereof. Since the assessee is in the business of pharmaceuticals, it is customary in the business of the assessee to incur sales promotion expenses on providing gifts, free samples to doctors, hospitals, medical association for arranging conferences and workshops for demonstrative purposes and also gifts given to customers, distributors, doctors and hospital staff and therefore in our opinion these expenses are clearly covered under the provision of section 37(1) of the Act as wholly and exclusively incurred for the purpose of business. The case of the assessee is squarely covered by the decisions of the co-ordinate bench of the Tribunal in the case of DCIT vs. PHL Pharma (P). Ltd. [2017 (1) TMI 771 - ITAT MUMBAI] and Medley Pharmaceuticals Ltd. vs. DCIT [2020 (7) TMI 568 - ITAT MUMBAI] We find that in these decisions the identical issue has been decided in favour of the assessee by holding that the MCA regulations are applicable to the doctors and not to the pharmaceutical companies who incur such expenses and therefore these expenses are purely business nature and had to be allowed as wholly and exclusively incurred for the purpose of business under section 37(1) - Decided in favour of assessee. Disallowance of interest expenses u/s 36(1)(iii) - HELD THAT:- We find that the assessee’s own funds as on 31.03.2014 were ₹ 3,485.91 lakhs whereas the total investments including the flat was to the tune of ₹ 901.40 lakhs. Thus we find merit in the contentions of the assessee that where the assessee’s own funds are more than the borrowed funds then inference has to be drawn that investment made by the assessee in the flat was out of own funds and not out of borrowed funds. The case of the assessee is squarely covered by the decision of the Hon’ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd. [2014 (8) TMI 119 - BOMBAY HIGH COURT] wherein in it has been held that where interest free funds available with the assessee are more than the non business investments made by the assessee then a presumption is that assessee has used own funds in the investments and not the borrowed funds. Accordingly, we are inclined to set aside the order of Ld. CIT(A) and direct the AO to delete the disallowance.
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