Income Tax Appellate Tribunal - Ahmedabad
The Dcit, (Osd)-1, Circle- 4,, ... vs Liva Healthcare Pvt. Ltd.,, Mumbai on 22 August, 2017
आयकर अपीलीय अिधकरण,
अिधकरण अहमदाबाद यायपीठ 'डी
डी'
डी अहमदाबाद।
IN THE INCOME TAX APPELLATE TRIBUNAL
"D" BENCH, AHMEDABAD
BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER
AND SHRI S.S. GODARA, JUDICIAL MEMBER
आयकर अपील सं./ ITA No. 2204/Ahd/2014
नधारण वष/A.Y. 2010-11
The DCIT (OSD)-I, Vs Liva Healthcare Pvt Ltd,
Circle-4, Shivsagar Estate, 'A' Block,
Ahmedabad Dr. Annie Besant Road, Worli,
Mumbai - 400018
PAN : AAACL 0709 Q
अपीलाथ / (Appellant) यथ / (Respondent)
By Revenue : Shri V.K. Singh, Sr DR
By Assessee(s) : Shri Jigar Patel, AR
सुनवाई क तार ख/Date of Hearing : 14/08/2017
घोषणा क तार ख /Date of Pronouncement: 22/08/2017
आदे श/O R D E R
PER S.S. GODARA, JUDICIAL MEMBER :-
This Revenue's appeal for assessment year 2010-11 emanates from the CIT(A)-12, Mumbai's order dated 29.05.2014 in case No. CIT(A)- 12/ACIT.6(3)/IT-7/2012-13, reversing Assessing Officer's action making addition of Rs.70,00,000/- being 70% of physicians free samples after holding the same to be not incurred wholly and exclusively for assessee's business in assessment order dated 04.01.2013, in proceedings under section 143(3) of the Income-tax Act, 1961; in short the "Act".
2. Relevant facts of the case are in a very narrow compass. This assessee is being manufacturing drugs and pharmaceuticals. It distributed samples free of cost to physicians under the pretext of its ITA No. 2204/Ahd/2014 DCIT vs. Liva Healthcare Pvt Ltd A.Y :- 2010-11 -2- business requirements. It pleaded in the course of scrutiny that its marketing staff visits various doctors to update them about product as well as healthcare information. The said field marketing staff was claimed to have given free physicians samples to the doctors. The Assessing Officer framed the impugned assessment on 04.01.2013 to disallow 70% of the expenditure in question of Rs. 1 crore; coming to Rs.70,00,000/- on the ground that there was no evidence indicating business expediency in giving such free samples to physicians. He thereafter adopted his reasoning as in preceding assessment year 2009-
10.
3. The CIT(A) reverses Assessing Officer's findings as under:-
"1.1 Briefly stated, material facts of the issue in dispute as revealing from the impugned order are that the A.O. observed that the appellant used to claim huge expenses on account of free samples distributed to Physicians every year under the pretext that it is the business requirement of the appellant. According to the A.O., similar type of expenses were disallowed in other cases of his charge and, therefore, he asked the appellant to explain as to why 70% of the expenditure incurred on free samples distributed to the physicians should not be disallowed and added back to its total income. In response, the appellant explained in detail, relying upon certain judicial pronouncements, which are reproduced in the impugned order itself. However, the A.O. did not accept the explanation of the appellant and disallowed 70% of the expenditure incurred on this count amounting to Rs.70,00,000/-. The operative part of conclusion of the A.O. is reproduced hereunder for the purpose of proper appreciation of merits of findings of the A.O. "... Therefore, in line with the conclusion drawn in the case of other pharma companies in this charge namely -GlaxoSmithKline and Merck India Ltd, and also in the assessee's own case where there was a disallowance of 70% of this expenditure in A.Y. 2008- 09 and 25% in A.Y. 2009-10, it is held that the assessee has not been able to prove the business expediency of the expenditure incurred under this head. However, since the matter is sub-judice, I see no reason to disallow only 25% of this expenditure, as done ITA No. 2204/Ahd/2014 DCIT vs. Liva Healthcare Pvt Ltd A.Y :- 2010-11 -3- by the A.O. in A.Y. 2009-10 and thus proceed to disallow 70% of the total expenditure under this head i.e. 70% of Rs.1,00,00,000/- amounting to Rs.70,00,000/-, as done by A.O. in assessment years prior to A.Y. 2009-10. Accordingly, a sum of Rs.70,00,000/- is disallowed and added back to the total income of the assessee. ... "
1.2 During the appellate proceedings, the learned ARs vehemently protested the adhoc and lump sum disallowance made by the A.O., reiterating the arguments put forth before the A.O. and also submitting necessary particulars as to free samples like bills, vouchers and transportation/distribution of free samples to different physicians, etc... They also furnished a copy of the ld.CIT(A)'s orders in the appellant's case for the preceding two years.
1.3 On careful consideration of arguments of the learned ARs as well as the facts averred in the impugned order and also the appellate orders for the preceding two years, it immensely transpires that the issue in dispute is squarely covered by two appellate orders of the learned predecessor in office wherein the appellant has been allowed relief on this issue. For ease of reference, the relevant portion of the ld.CIT(A)'s order dated 15.11.2011 in the appellant's case for A.Y. 2008-09 is reproduced hereunder:
"5. The 1st ground of appeal is regarding an adhoc disallowance of 70% expenses incurred on physicians sample as claimed.
5.1 During the course of assessment proceeding, the A.O. had noticed that the appellant has claimed a huge expense against free samples distributed to physicians. It was stated by the appellant that this is a business requirement. ... [page 2 & 3] 5.2 ...[page 4&5] 5.3 ... [pages 6, 7 & 8] 5.4 ... [page 9] Under the circumstances, I find as the appellant has been able to prove the genuineness of expense, proper recording in its books of accounts of the expenses, and the relationship of the expense with the business of the appellant, I find there is no need to make the said disallowance simply because in some other case, a disallowance made had been upheld. The case ITA No. 2204/Ahd/2014 DCIT vs. Liva Healthcare Pvt Ltd A.Y :- 2010-11 -4- laws relied by the appellant also helps its case. The addition made is, therefore, deleted and the ground of appeal allowed."
Moreover, the ld.CIT(A) has followed her decision taken in the appellate order for A.Y. 2008-09 in the appellant's case for A.Y. 2009-10 vide order dated 08.11.2012. In view of the categorical findings of the ld. CIT(A)'s in the appellants case for A.Ys. 2008-09 & 2009-10, I find no reason to disagree with the same. Accordingly, the action of the A.O. of making adhoc disallowance on this count stands deleted and, thus, Ground No.1 stands allowed."
4. Both the learned representatives reiterate their respective stands in support and against the impugned addition during the course of hearing. There is hardly any dispute that the CIT(A) has followed his order for assessment years 2008-09 and 2009-10, for deleting the impugned ad-hoc disallowance @ 70%. We sought to know about final outcome of the very issue in said earlier assessment year. Learned counsel representing the assessee files before us copy of hon'ble jurisdictional high court's decision in preceding assessment year in tax appeal No.478 of 2016 decided on 21.06.2016 upholding this tribunal's order dated 31.08.2015. No rebuttal to these legal developments has come at Revenue's behest. Case records comprise of the said hon'ble jurisdictional high court's decision as well that of learned co-ordinate bench pertaining to preceding assessment year. We, therefore, adopt judicial consistency to affirm the CIT(A)'s findings under challenge. This Revenue's appeal is dismissed.
Order pronounced in the Court on 22nd August, 2017 at Ahmedabad Sd/- Sd/-
(N.K. BILLAIYA) (S.S. GODARA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 22/08/2017
*Bt
ITA No. 2204/Ahd/2014
DCIT vs. Liva Healthcare Pvt Ltd
A.Y :- 2010-11
-5-
आदे श क त ल!प अ"े!षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. संब"ं धत आयकर आय$ ु त / Concerned CIT
4. आयकर आय$ ु त(अपील) / The CIT(A)
5. 'वभागीय *त*न"ध, आयकर अपील य अ"धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड/ फाईल / Guard file.
आदे शानस ु ार/ BY ORDER, TRUE COPY उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील'य अ(धकरण, अहमदाबाद / ITAT, Ahmedabad