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Macleods Pharmaceuticals Ltd. Versus Addl. CIT 8 (2) Mumbai

2016 (11) TMI 363 - ITAT MUMBAI

Disallowance on account of ‘sales promotion expenses’ - Held that:- Expenditure so incurred was wholly and exclusively for the purpose of assessee’s business. The relevant assessment years under consideration are A.Ys.2010-2011 & 2011-2012 during which there was no CBDT Circular as referred by AO for making disallowance by branding the expenditure as covered by Explanation to Section 37(1) of the Act. We found that the expenditures were incurred wholly and exclusively for the purpose of business .....

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were not incurred for the purpose of business. Even the G.P. and N.P. rate shown by assessee nowhere indicates that assessee had claimed any excessive expenditure under the head sales promotion. No justification in the orders of lower authorities for disallowing sales promotion expenses under Explanation to Section 37(1) during the assessment year 2010-11 and 2011-12 under consideration. - Decided in favour of assessee. - ITA Nos.7404 & 7405/M/2014 - Dated:- 21-9-2016 - SHRI R.C. SHARMA, ACCOUN .....

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en heard on record and perused. Facts in brief are that the assessee is engaged in the business of manufacturing & dealing in pharmaceutical products, namely tablets, capsules, liquids, injectibles etc. The assessee company has manufacturing plant at Palghar, Daman Phase-I(3 Units), Daman Phase-II, Kabra, Dhanlaxmi, Sarigam, and Baddi. The assessee company also has one R&D unit at Mumbai. During the assessment year 2010-2011, the assessee has shown Gross Profit and Net Profit has been sh .....

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d details of these expenses. The assessee filed details of these expenses and submitted that these expenses were incurred in the regular course of business and includes payments made for promotional items, freebies given to various medical practitioners in the country as well as abroad. It was further explained that these expenses also include amounts incurred on various field staff of the company which are spread throughout the country. During the course of assessment proceedings, the attention .....

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cal or allied healthcare industry. 4. The AO referred CBDT Circular No.05/2012 dated 1-8-2012 issued by the Central Board of Direct Taxes, New Delhi vide F.No.225/142/2012-ITA-II and held that as per CBDT Circular dated 1-8-2012, these expenditure cannot be allowed as per Explanation to Section 37(1). By applying the said Circular, the AO disallowed part of the these sales promotional expenses. 5. By the impugned the CIT(A) confirmed the action of AO in both the years under consideration, agains .....

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sment year 2013-14. As per ld. AR no disallowance can be made for the years under consideration i.e. 2010-11 & 2011-12 on the basis of CBDT Circular dated 1-8-12. Ld. AR drew our attention to the precise observation of the Tribunal with regard to nature of expenditure so incurred and applicability of CBDT Circular dated 1-8-2012, which was held to be applicable from the assessment year 2013-2014. 7. On the other hand, ld. DR relied on the order of lower authorities and conceded that the issu .....

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as incurred expenditure on sales promotion, part of which was disallowed by AO by applying CBDT Circular dated 1-8-2012 on the plea that Explanation to Section 37(1) were applicable. Ld. AR has placed on record order of the coordinate bench in the case of Syncom Formulations (I) (supra) wherein exactly similar issue was considered by bench. We have also gone through the judicial pronouncement in the case of Syncom Formulations (supra), wherein the Tribunal held as under :- ITA No.6429/Mum/2013(A .....

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. The AO disallowed ₹ 22,45,000/- by invoking Explanation to Section 37(1) and CBDT Circular dated 1-8-2012. 4. By the impugned order the CIT(A) confirmed the disallowance. 5. We have considered rival contentions and found that receiving of gifts by doctors was prohibited by MCI guidelines, giving of the same by manufacturer is not prohibited under any law for the time being in force. Giving small gifts bearing company logo to doctors does not tantamount to giving gifts to doctors but it i .....

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ced w.e.f.01.08.2012. i.e. assessment year 2013-2014, whereas the relevant assessment year under consideration is 2010-2011 and 2011-2012. Accordingly, we do not find any merit in the disallowance so made by the AO in both the assessment years under consideration. We had carefully gone through the order of the Tribunal in the case of Syncom Formulations (I) Ltd.(supra) and also deliberated on the judicial pronouncements referred by lower authorities in their respective orders in the context of f .....

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d 1-8-2012, the AO disallowed part of the expenses holding that Explanation to Section 37(1) will be applicable. 9. We had carefully gone through the details of expenditure so incurred under the head sales promotion expenses and found that expenditure so incurred was wholly and exclusively for the purpose of assessee s business. The relevant assessment years under consideration are A.Ys.2010-2011 & 2011-2012 during which there was no CBDT Circular as referred by AO for making disallowance by .....

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oducts and having sales within and outside India. Exactly similar expenditure incurred under the head of sales promotion expenses was disallowed by the AO by applying CBDT Circular dated 1-8-2012, wherein Explanation to Section 37(1) was invoked, which was confirmed by the CIT(A). The assessee came before the Tribunal and the Tribunal held that CBDT circular dated 1-8-2012 was applicable for A.Y.2013-14 and onwards and not applicable to prior assessment years. The Tribunal after observing that n .....

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