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TMI Blog2015 (10) TMI 249X X X X Extracts X X X X X X X X Extracts X X X X ..... und that the assessee was maintaining separate system of accounting which is outside books of account in respect of damaged drugs and unusable drugs and drugs consumed for quality control. Referring to the assessment order, the ld. DR pointed out that the assessee was not required to act as a drug/medicine testing agency. The expenditure on damaged drugs, according to the ld. DR, is not incidental to its business. The ld. DR pointed out that no material was produced before the lower authorities to support the claim of damaged/unusable drugs. The ld. DR further pointed out that while destroying the damaged drugs, the assessee has not followed the procedure prescribed by FDA. In the absence of any material on record to support the claim of the assessee with regard to damaged drugs, unusable drugs and drugs consumed for quality control, the Assessing Officer disallowed the claim of the assessee. However, on appeal by the assessee, the CIT(A) found that the accounts of the assessee was subjected to audit by Comptroller & Auditor General of India u/s 619(3)(b) of the Companies Act, 1956 and they have not made any comments. On the basis of the certificate issued by the C&AG, the CIT(A) d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rugs and drugs used for quality control has to be treated as expenditure while computing the total income. On a query from the Bench what is the nature of unusable drugs, the ld. Representative clarified that surgical material, napkins etc. could not be used after sometime, therefore, these were treated as unusable drugs. However, the assessee was claiming liquidity damages from the respective companies. As and when the assessee received liquidity damages for damaged drugs and unusable drugs, the same was taken as income in the Profit & Loss Account. 5. Referring to the contention of the ld. DR that the assessee is not required to act as a drug/medicine testing agency, the ld. Representative pointed out that the assessee is a State Government Company. The activity of the assessee was procuring and supplying drugs and to provide diagnostic facilities to Government Hospitals in the State of Tamilnadu. Besides, the assessee was also managing CT and MRI scanning. Referring to the Directors' Report, the ld. Representative pointed out that the assessee-company has established a quality control section to ensure quality of drugs procured. In fact, samples are drawn from each batch of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he course of its business activity, the assessee claimed before the Assessing Officer that some of the drugs were damaged and some of them became unusable. The assessee has also consumed certain drugs for quality check. The Assessing Officer disallowed the claim of the assessee on the ground that the sale price of the drugs are not brought in the books of account. The Assessing Officer found that the assessee-company was acting as an agent for distribution of medicines to Government Hospitals, the assessee was not required to act as a drug/medicine testing agency, therefore, the expenditure claimed by the assessee on damaged drugs is not incidental to the business of the assessee. The Assessing Officer also found that the assessee has not filed any evidence with regard to damaged drugs and unusable drugs. The so called damaged drugs were not destroyed by following FDA procedure. Admittedly, the assessee was entrusted by the Government of Tamilnadu to procure medicines, surgical materials, napkins, medical equipments etc. The assessee being a Government Company, is expected to ensure supply of quality drugs to the Government Hospitals. Therefore, it may not be correct to say that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be seen is whether the cost of the damaged drugs and unusable drugs was to be allowed as deduction or not. Suppose, instead of destroying the drugs, if the assessee keeps the same in their godown still the cost of such drugs has to be allowed as deduction since the damaged goods and unusable goods cannot be used for supplying to the Government Hospitals. Therefore, irrespective of the procedure laid down by FDA for destroying the damaged drugs, this Tribunal is of the considered opinion that the cost of the damaged drugs and unusable drugs has to be allowed as deduction. 10. We have also gone through the order of the CIT(A). The CIT(A) has allowed the claim of the assessee on the basis of the certificate said to be issued by the C&AG u/s 619(3)(b) of the Companies Act, 1956. It is not in dispute that this certificate was not available before the Assessing Officer. A perusal of the CIT(A)'s order shows that the C&AG has stated 'No Comment'. The CIT(A) without any further discussion, by placing reliance on the certificate said to be issued by the C&AG allowed the claim of the assessee. The audit conducted by the C&AG u/s 619(3)(b) of the Companies Act, 1956, is for a differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine the matte afresh in the light of the material/details that may be filed by the assessee with regard to damaged drugs, unusable drugs and drugs consumed for quality control and thereafter decide the same in accordance with law after giving a reasonable opportunity to the assessee. 11. Now coming to the claim of the assessee to the extent of Rs. 6,45,741/- being the cost of blood pressure checking apparatus said to be supplied to the members of the State Legislative Assembly, this Tribunal is of the considered opinion that the cost of blood pressure checking apparatus cannot be considered to be a marketing expense. The assessee-company was expected to procure the drugs, medicines, equipments etc. and supply the same to the Government Hospitals. Supply of any machinery or equipment including blood pressure checking apparatus to the members of the State Legislative Assembly or to any of the Officers of the Government, in their individual capacity cannot be considered as marketing expenses, therefore, this Tribunal is of the considered opinion that the expenditure of Rs. 6,45,741/- cannot be allowed as customer care expenses for the assessment year 2010-11. Accordingly, the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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