ARCHANA PANDIT,GANJAM V. ITO,WARD-1, BERHAMPUR

ITA 456/CTK/2024

AI Insights

Archana Pandit, a super stockist of pharmaceutical products and baby foods, appealed against the order of the CIT(A), which disallowed her claimed sales promotion expenses of Rs.29,39,185 for the assessment year 2016-17. The disallowance was based on the grounds of illegality in respect of payments, particularly to doctors and other professionals, as per the provisions of Explanation-1 to Section 37(1) of the Income Tax Act. The Tribunal considered the arguments and evidence presented, including a CBDT circular that specifically addressed the legality of such payments in the pharmaceutical sector. The Tribunal concluded that only the payments made to two doctors were inadmissible under the cited provisions, thus reducing the disallowance to Rs.18,160.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 25928 (ITAT-CUTTACK)
• Duration Of Justice: 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 27-11-2024
• Assessment Year: 2016-2017
• Appeal Filed On: 07-11-2024
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S.C.MOHANTY
• Assessee Lawyers: S.K.SARANGI
• Keywords: Reasonable cause; Gift
• Section: 40A(3); 37(1)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, BEFORE MANISH AGARWAL Archana Pandit, Luchapada Road, Bank Colony, Berhampur PAN/GIR No. (Appellant Per Bench This is an CIT(A), NFAC, Delhi dated Bhubaneswar1/10257/2018 2. Shri S.K.Sarangi, S.C.Mohanty, Sr. IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.456/CTK/2024 Assessment Year :2016-17 Archana Pandit, Luchapada Road, Bank Colony, Vs. Income Tax Officer, Wad Berhampur No.BLQPP 9825 G (Appellant) .. ( Respondent Assessee by : Shri S.K.Sarangi, CA Revenue by : Shri S.C.Mohanty, Sr DR Date of Hearing : 27/11/20 Date of Pronouncement : 27/11/20 O R D E R This is an appeal filed by the assessee against the order of the ld CIT(A), NFAC, Delhi dated 22.5.2023 in Appeal No.CIT(A), Bhubaneswar1/10257/2018-19 for the assessment year 2016 S.K.Sarangi, ld AR appeared for the assessee and Shri , Sr. DR appeared for the revenue. P a g e 1 | 6 IN THE INCOME TAX APPELLATE TRIBUNAL, MEMBER , ACCOUNTANT MEMBER Income Tax Officer, Wad-1, Respondent) : Shri S.C.Mohanty, Sr DR 2024 024 appeal filed by the assessee against the order of the ld 22.5.2023 in Appeal No.CIT(A), 2016-17. the assessee and Shri ITA No.456/CTK/2024 Assessment Year :2016-17 P a g e 2 | 6 3. The appeal filed by the assessee is time barred by 465 days. The assessee has filed condonation petition supported by affidavit, stating the reasons that although the documents were given to the tax consultant to file appeal before the Tribunal, but the tax consultant forgotten to file the appeal. Only after getting recovery notice from the revenue, the assessee could know about the non-filing the appeal before the Tribunal. Then, the assessee collected the documents from the previous tax consultant and changed the consultant to file the appeal. It was in this backdrop that the appeal could not be filed within the stipulated period. It was the submission that the delay in filing the appeal was a reasonable cause and delay may be condoned. Ld SR DR did not have serious objection to the condonation of delay. Considering the arguments and condonation petition, we are satisfied that the reasons given by the assessee have not been found to be false and we accordingly condone the delay of 456 days and admit the appeal for adjudication. 4. It was submitted by ld AR that the assessee is a Super Stockist of pharmaceutical products and Baby Foods. It was the submission that the assessee had claimed sales promotion expenses of Rs.29,39,185/-, which was disallowed in its entirety by invoking the provisions of Explanation-1 to Section 37(1) of the Act. It was the submission that the sales promotion expenses were disallowed on the ground of illegality in respect of payments. It was the submission that the assessee is not a manufacturer of any ITA No.456/CTK/2024 Assessment Year :2016-17 P a g e 3 | 6 pharmaceutical products. It has not made payments to any professionals for enticing any professionals to enhance the sales of its products and the payments have been made exclusively to the retailers and dealers as also the persons for assisting to sell of its products, the assessee deals in. It was the further submission that sales promotion expenses were not, in any manner, even reimbursement by any of the pharmaceutical companies, whose products the assessee was the super stockiest. It was the prayer that as there was no components of illegality in the payments made by the assessee through cheques, which has also been specifically recorded, the disallowance as made by the Assessing Officer and confirmed by ld CIT(A) is liable to be deleted. 5. In reply, ld Sr DR placed before us a copy of the circular issued by CBDT No.5/2012 dated 1.8.2012, wherein, the issue of illegality of payments made in the guise of sales promotions expenses to doctors and other professionals have been specifically marked to be illegal and is liable to be disallowed under Explanation 1 to Section 37(1) of the Act. The said circular reads as follows: ITA No.456/CTK/2024 Assessment Year :2016-17 P a g e 4 | 6 “ 6. It was the submission that the payments specifically can be seen from the ledger to have been made to two doctors being cheque No.179 dated 17.2.2016 in Voucher No.3 to Dr.Sumanta Kumar for an amount of Rs.10,000/- and another cheque No.183 dated 24.2.2016 in Voucher No.3 for an amount of Rs.8,160/- to Dr. Ramachandra Patro. It was the further submission that payments have also been made to various persons who are not retailers of medicines or Baby Food dealers. It was the submission that consequently, the provisions of section 40A(2)(b) and 40A(3) of the Act ITA No.456/CTK/2024 Assessment Year :2016-17 P a g e 5 | 6 would have also to be considered. It was the prayer that the disallowance made by the Assessing Officer and confirmed by the ld CIT(A) is liable to be confirmed. 7. We have considered the rival submissions. A perusal of the assessment order most specifically at page 7, 3rd last para clearly shows that the word used by the Assessing Officer is “if these expenses are debited as sales promotion or sponsorship expenditure (or otherwise)”, these expenses would be inadmissible expenditure vide Explanation1 to Section 37(1) of the I.T.Act, according to Circular No.5/2012 dated 1.8.2012. With these findings, the Assessing Officer has made the disallowance of sales promotion expenses of Rs.29,39,185/-. A perusal of the CBDT Circular No.5/2012 dated 1.8.2012 referred to by the Assessing officer clearly shows that these restrictions and the applicability in the case of pharmaceutical and allied health sector industries is in regard to payment or gifts and other facilities to medical practitioners and other professional associations. In the assessee’s case, admittedly, only two payments totaling to Rs.18,160/- has been made to two doctors who are admittedly professionals. The rest of the payments are in no way connected to any medical practitioners or professionals or their professional associations. These are payments made through cheques to the retailers and sales agents of the products dealt in by the assessee. This being so, we are of the view that Explanation 1 to Section 37(1) would not apply to said ITA No.456/CTK/2024 Assessment Year :2016-17 P a g e 6 | 6 expenses except to the payments to two doctors totaling to Rs.18,160/-. Consequently, the addition as made by the Assessing Officer and confirmed by the ld CIT(A) stands reduced to Rs.18,160/- being the payments made to two doctors. In these circumstances, the appeal filed by the assessee is partly allowed 8. In the result, appeal of the assessee stands partly allowed. Order dictated and pronounced in the open court on 27/11/2024. Sd/- sd/- (Manish Agarwal) (George Mathan) ACCOUNTANT MEMBER JUDICIAL MEMBER Cuttack; Dated 27/11/2024 B.K.Parida, SPS (OS) Copy of the Order forwarded to : By order Sr.Pvt.Secretary ITAT, Cuttack 1. The Appellant : Archana Pandit, Luchapada Road, Bank Colony, Berhampur 2. The Respondent: Income Tax Officer, Wad- 1, Berhampur 3. The CIT(A)- NFAC, Delhi 4. Pr.CIT, Bhubaneswar-1 5. DR, ITAT, 6. Guard file. //True Copy// "