TMI Blog2022 (12) TMI 1276X X X X Extracts X X X X X X X X Extracts X X X X ..... to be erroneous or not a possible one. Under these circumstances, since one of the twin conditions i.e. the order is not erroneous is not satisfied, therefore, we hold that the learned PCIT is not justified in invoking jurisdiction u/s 263 - Accordingly, the order of the PCIT passed u/s 263 of the I.T. Act is set aside and the grounds raised by the assessee are allowed. - ITA No.122/Hyd/2022 - - - Dated:- 26-12-2022 - Shri Rama Kanta Panda, Accountant Member AND Shri Laliet Kumar, Judicial Member For the Assessee : Shri P.V.S.S.Prasad, CA For the Revenue : Shri Jeevan Lal Lavidiya,CIT-DR ORDER PER SHRI RAMA KANTA PANDA, A.M. This appeal filed by the assessee is directed against the order dated 17.02.2022 passed by the Learned Principal Commissioner of Income Tax-8, Mumbai relating to AY 2016-17. 2. Facts of the case, in brief, are that the assessee is a company engaged in the business of trading of pharmaceutical products and sells its products both in domestic and export markets. It provides business support services and renders research and development activities to group company. It filed its return of income on 30.11.2017 declaring total loss at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mained to be verified by the AO and he failed to carry out enquiries as warranted by the facts and circumstances of the case and completed the assessment without examining all the aspects, which were required to be looked into for arriving at the total income of the assessee company, he issued a show cause notice asking the assessee to explain as to why the provisions of section 263 should not be invoked. The relevant para of the said show cause notice reads as under:- You have not provided the details of other advertisement and sales promotion expenses of Rs.57,75,196/- ad which has not been considered during the course of assessment proceedings. The mistake had resulted in under assessment of the business loss by Rs. 57,75,196/-, with potential tax effect of Rs.17,32,559/-. The aforesaid aspect which prima facie warranted inquiry on the facts and circumstances of the case, have not been inquired into while completing the assessment. On the facts and circumstances of the case, it is clear that in respect of the aforesaid aspects, the order of the AO suffers from error and within the meaning of Section 263 of the I TAct, 1961. This error has resulted in prejudice to the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d order is not erroneous and/or prejudicial to the interest of the revenue . 1.2. On the facts and in the circumstances of the case and in law, the Ld. PCIT has erred in invoking the provisions under section 263 of the Act without looking into all the records of the assessment proceedings wherein the Appellant has furnished the relevant documents/ explanation as and when sought by the Ld. AO. 1.3. On the facts and in the circumstances of the case and in law, the Ld. PCIT has erred in setting aside the assessment order passed by the Ld. AO with a direction to redo the assessment without appreciating the fact that the assessment order of Ld. AO is not erroneous and/or prejudicial to the interest of the revenue. 1.4 Without prejudice to the above, on the facts and circumstances of the case and in law, the Ld. PCIT erred in disallowing an expenditure of INR 57,75,196 under the head other advertisement and sales promotion without appreciating that the said expenditure is allowable business expenditure under section 37(1) of the Act and the same was incurred wholly and exclusively for the purpose of the Appellant's business. The Appellant prays that directions be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order and therefore, it is not a case of lack of enquiry or no enquiry, but it is a case of detailed enquiry. Merely, because the AO in the instant case has not passed the order as per the wish of the Ld.PCIT the order cannot be held as erroneous and prejudicial to the interest of the revenue. 11. Referring to the decision of Hon ble Delhi High Court in the case of CIT vs. Sunbeam Auto Ltd. reported in 189 taxmann 436, he submitted that Hon ble High Court in said decision has held that there is a distinction between lack of enquiry and inadequate enquiry. If there was any enquiry, even inadequate, that would not by itself give occasion to the Ld.PCIT to pass order u/s. 263 merely because he has different opinion in the matter. It is only in case of lack of enquiry that such a course of action would be open. He submitted that when the assessee had provided the breakup and details of the expenses under the head advertisement and sales promotion and when the AO after perusing the details filed by the assessee disallowed the expenses of product samples of Rs.17,10,283/- by referring to CBDT circular No.5/2012, dated 01.08.2012 and also disallowed other business promotion expenses @2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell as prejudicial to the interest of the revenue. He, therefore, set aside the assessment order to the file of the AO with a direction to pass the order in accordance with law after due verification of the same. It is the submission of the ld.counsel for the assessee that the AO during the course of assessment proceedings has asked for the details of Rs.15,37,36,494/- incurred by the assessee towards advertisement and sales promotion expenses and the AO after being satisfied with the details furnished by the assessee has disallowed the free sample expenses of Rs.17,10,283/- being paid in violation of provisions of section 37(1) and an amount of Rs.94,07,535/- on adhoc basis being 20% of the amount spent on sales promotion expenses which according to him was for launching of new products. It is the submission of the ld.counsel for the assessee that since the AO after due verification of the details filed by the assessee has passed the order, therefore, merely because the ld.PCIT does not agree with the stand taken by the AO by not calling for further details of advertisement and sales promotion expenses and by not disallowing any expenditure out of the said advertisement and sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Statement giving the brief , nature of this expenditure is given in Annexure 'A'. At the outset, the Company submits that as per the provisions of section 37(1) of the Act, any expenditure other than capital and personal expenditure, which is laid wholly and exclusively for the purposes of the business, is an allowable expenditure. The Explanation 1 to section 37 of the Act states that any expense incurred for any purpose which is an offence, or which is prohibited by law shall not be deemed to have been incurred for the purpose of business and accordingly, no deduction or allowance shall be made in respect of such expenditure. The Assessee has incurred the aforesaid expenses to stay in business, sustain market share and increase sales which is wholly and exclusively for the purpose of its own business. Further, considering the nature of market and industry in which it operates, it is imperative for the Company to spend on marketing the products to ensure that the Company can operate in a competitive environment. Accordingly, the above expenditure, being incurred by the Company wholly and exclusively for the purpose of its business should be allowable to the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elling expenses are incurred on the employees travelling abroad in the ordinary course of the business of the Company. Details of the foreign travelling expenses incurred during the year is enclosed as 'Annexure K' Sample copies of the invoices are enclosed as ' Annexure L' Accordingly, the expenditure on foreign travel being incurred by the Company wholly and exclusively for the purpose of its business should be allowable to the Company. Further, the Company submits that the medical practitioners are not given any free travel facilities, hotel accommodation facilities etc. and accordingly, IMC Regulations and CBDT Circular does not apply. We would further like to bring to your notice that out of Rs. 10,39,25,523, an amount of Rs.2,72,48,961 pertains to Trading segment and balance amount of Rs. 7,66,76,561 was incurred under Business support services segment which gets recharged to Group company with a mark up of 20% on cost. 3. Analytical charges - Rs. 4,07,53,618 The expenses incurred are primarily towards conducting analytical studies as required for obtaining Market authorization for specific geographies from respective Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. As an illustration, reference is drawn to the Annexure -1 of the agreement between the Company and Sorento Healthcare Communications Private Limited enclosed as a part of Annexure C above wherein it may be observed that the benefits from the sponsorship expenses incurred arises to the Company. 2. 630800000 Promotions expense: Tn this we record the following nature of expenses: a) Promotional material - Product related brochures; leaflets; other printing materials b) Diagnostic services c) Miscellaneous expenses for conducting and participating in the promotional events Details of the above expenses are enclosed as Annexure D. Copies of invoices on sample basis are enclosed as Annexure E. 3. 652000000 Meeting expense-local/in-house: This represents the following nature of expenses: a) Regular Sales meeting expenses b) Product workshop programmes c) Training programmes for new product launches for sales staff. d) Hotel expenses for conducting various training programmes. Details of the above expenses are enclosed as Annexure F. on sample basis are enclosed as Annexure G. 4. 630100000 Educational ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h a course of action would be open. An assessment order made by the Income Tax Officer cannot branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. There must be some prima facie material on record to show that the tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation, a lesser tax than was just, has been imposed. The power of the Commissioner u/s power of the 263(1) is not limited only to the material which was available before the AO and in order to protect the interests of the Revenue, the Commissioner is entitled to examine any other records which are available at the time of examination by him and to Take into consideration even those events which arose subsequent to the order of the assessment . 18. We find the Hon'ble Supreme Court in the case of Malabar Industrial Company Ltd., Vs. CIT |243 ITR 83] (SC) held that the phrase 'prejudicial to the interest of Revenue' has to be read in conjunction with an erroneous order passed by AO. Every loss of Revenue as a sequence of order of the AO cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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