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Showing contexts for: Freebies in Hbc Lifesciences Private Limited, ... vs The Pr. Cit-3, Ahmedabad on 5 July, 2024Matching Fragments
This appeal is filed by the assessee against the order of the Principal Commissioner of Income Tax-3, Ahmedabad, (in short the 'PCIT') dated 25.03.2023 in exercise of the revisionary powers under Section 263 of the Income-tax Act, 1961 [hereinafter referred to as "the Act" in short], for the Assessment Year 2018-19.
2. The brief facts of the case are that the return of income for A.Y. 2018-19 was filed by the assessee on 30.10.2018 declaring Private Limited vs.Pr.CIT] A.Y. 2018-19 -2- income of Rs.44,02,420/-. The case was selected for limited scrutiny on the issue of 'business expenses'. The assessment was completed under Section 143(3) of the Act on 03.02.2021 and the returned income of the assessee was accepted. The assessment record was subsequently called for by the PCIT wherein it was noticed that the assessee had claimed business promotion expense of Rs.5,12,01,872/- which was in the nature of freebies/monetary grant for promoting its products. According to the Ld. PCIT, this business promotion expense was required to be disallowed which was not done by the AO and, therefore, the order of the AO was erroneous and prejudicial to the interest of the revenue. Accordingly, a notice under Section 263 of the Act was issued by the PCIT on 17.02.2023 and after considering the reply of the assessee, the Ld. PCIT passed order under Section 263 of the Act dated 25.03.2023 setting aside the order of the AO for passing fresh order after making necessary enquiries relating to business promotion expenses. According to the Ld. PCIT the explanation of the assessee was not satisfactory and contrary to the provision of Section 37 of the Act, which required disallowance of the claim.
2982/Mum/2017 &554/Mum/2018, order dated 07.12.2018 viii. Torrent Pharmaceuticals Ltd. vs. DCIT in ITA No. 164/Ahd/2018, order dated 08.08.2018 ix. IPCA Laboratories Ltd. vs. DCIT, [2024] 161 taxmann.com 511 (Mumbai - Trib.) Private Limited vs.Pr.CIT] A.Y. 2018-19 -5-
6. Per contra, the Ld. CIT-DR submitted that the AO had not considered the CBDT Circular dated 01.08.2012 regarding disallowance of freebies to medical practitioners and their professional associates by pharmaceutical and allied health sector industries and, therefore, his order was erroneous and prejudicial to the interest of the Revenue. Accordingly, the Ld. PCIT had rightly exercised the revisional jurisdiction to set aside the matter for fresh examination of this issue. The Ld. CIT.DR also submitted that though it was not explicitly mentioned in the notice, the Explanation-2 to Section 263 of the Act was implicitly invoked by the PCIT. He further submitted that the order of the AO was cryptic, only accepting the returned income of the assessee, and there was no evidence of application of mind by the AO on this issue. The ld. CIT-DR also submitted that the decisions relied upon by the Ld. Counsel were distinct on facts and he strongly supported the order of the PCIT.
9. The Ld. PCIT has observed in the notice under Section 263 of the Act dated 17.02.2023 that the business promotion expense claimed by the assessee was in the nature of freebies/monetary grant for promoting products and was required to be disallowed. Further that the AO had passed the assessment order without making proper enquiry and the required addition in respect of this claim. It is not apparent as to on what basis the Ld. PCIT had arrived at such conclusion. It is found that the assessee has debited business promotion expenses of Rs.5,12,01,872/- in Schedule 20 of its P&L account. The AO vide notice under Section 142(1) of the Act dated 18.01.2020 had called for details of sales promotion expenses alongwith the documentary evidences. In response, the assessee had filed the reply dated 22.01.2020, whereby the details of these expenses was furnished and nature thereof was also explained. Thereafter, the AO had issued another notice under Section 142(1) of the Act dated 28.01.2020 and the details of sales promotion expenses was called for in specific format, which was furnished by the assessee vide letter dated 17.03.2020. The break up of business promotion expenses as furnished by the assessee is found to be as under:
10. Further, the details of above sub-expenses was also furnished by the assessee and nature of each item of expenditure was explained. For example, it is found that the payment of Rs.1,68,02,443/- in respect of advisory fee to Doctors was made to 1572 Doctors and the details in the format of date, voucher no., name of Doctor, fees paid, TDS rate etc. was furnished by the assessee. Similar details in respect of all other expenses was filed by the assessee before the AO.
11. Thus, it is apparent from the above facts that the details of business promotion expenses was called for and examined in detail by the AO in the course of assessment proceeding. After examining the details as brought on record by the assessee, the AO has taken a considered decision that no disallowance on account of business promotion expenses was called for. It is evident from the details of business promotion expenses that the expenditure was not in the nature of freebies/monetary grant and Private Limited vs.Pr.CIT] A.Y. 2018-19 -8- that all the payments were not made to Doctors as observed by the ld. PCIT. There was advisory fee payment of Rs.1,68,02,443/- which can be held as payment to Doctors and liable for disallowance. This payment was explained and justified by the assessee on the basis of agreement with the respective Doctors for giving advisory information for the drugs effect on the patients coming to their clinic. This expenditure was explained to be of professional in nature and TDS under Section 194J of the Act was also deducted thereon, wherever applicable. This payment being in the nature of professional fee and not being as monetary grant to Doctors, was accepted by the AO after considering the explanation of the assessee and examining the sample copy of agreement with Doctors as brought on record in the course of assessment proceeding. The observation of the Ld. PCIT that this payment was in the nature of grant to Doctors and that no TDS was made on these payments is, therefore, not found correct. The Ld. PCIT has relied upon CBDT Circular No.5//2012 and the Supreme Court judgement in the case of Apex Laboratories (P) Ltd v DCIT 135 taxmann.com 286 in her order. To invoke the applicability of CBDT Circular and the Apex Court decision, it has to be first established that freebies were given to medical practitioners, only thereafter the disallowance can be made in respect of such freebie and payment made to the Doctors. When the matter was examined by the AO in the course of assessment proceedings and no freebie was found to be provided to the Doctors, there was no question of any disallowance in accordance with the Board's Circular, under Section 37 of the Act.