The DCIT, (OSD)-1, Circle- 4, Ahmedabad V. Liva Healthcare Pvt. Ltd., Mumbai

ITA 2204/AHD/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8672 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 01-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER ./ ITA NO. 2204/AHD/2014 / A.Y. 2010-11 THE DCIT (OSD)-I, CIRCLE-4, AHMEDABAD VS LIVA HEALTHCARE PVT LTD, SHIVSAGAR ESTATE, A BLOCK, DR. ANNIE BESANT ROAD, WORLI, MUMBAI - 400018 PAN : AAACL 0709 Q / (APPELLANT) / (RESPONDENT) BY REVENUE : SHRI V.K. SINGH, SR DR BY ASSESSEE(S) : SHRI JIGAR PATEL, AR / DATE OF HEARING : 14/08/2017 /DATE OF PRONOUNCEMENT: 22/08/2017 / O R D E R PER S.S. GODARA, JUDICIAL MEMBER :- THIS REVENUES APPEAL FOR ASSESSMENT YEAR 2010-11 E MANATES FROM THE CIT(A)-12, MUMBAIS ORDER DATED 29.05.2014 IN C ASE NO. CIT(A)- 12/ACIT.6(3)/IT-7/2012-13, REVERSING ASSESSING OFFI CERS ACTION MAKING ADDITION OF RS.70,00,000/- BEING 70% OF PHYS ICIANS FREE SAMPLES AFTER HOLDING THE SAME TO BE NOT INCURRED WHOLLY AN D EXCLUSIVELY FOR ASSESSEES 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 PHARMACEU TICALS. IT DISTRIBUTED SAMPLES FREE OF COST TO PHYSICIANS UNDE R 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 TH EM ABOUT PRODUCT AS WELL AS HEALTHCARE INFORMATION. THE SAID FIELD MARK ETING STAFF WAS CLAIMED TO HAVE GIVEN FREE PHYSICIANS SAMPLES TO TH E 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 EVID ENCE INDICATING BUSINESS EXPEDIENCY IN GIVING SUCH FREE SAMPLES TO PHYSICIANS. HE THEREAFTER ADOPTED HIS REASONING AS IN PRECEDING AS SESSMENT YEAR 2009- 10. 3. THE CIT(A) REVERSES ASSESSING OFFICERS 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 SAMP LES 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 CHAR GE AND, THEREFORE, HE ASKED THE APPELLANT TO EXPLAIN AS TO WHY 70% OF THE EXPENDITURE INCURRED ON FREE SAMPLES DISTRIBUTED TO THE PHYSICIANS SHOUL D NOT BE DISALLOWED AND ADDED BACK TO ITS TOTAL INCOME. IN RESPONSE, TH E APPELLANT EXPLAINED IN DETAIL, RELYING UPON CERTAIN JUDICIAL PRONOUNCEM ENTS, WHICH ARE REPRODUCED IN THE IMPUGNED ORDER ITSELF. HOWEVER, T HE A.O. DID NOT ACCEPT THE EXPLANATION OF THE APPELLANT AND DISALLO WED 70% OF THE EXPENDITURE INCURRED ON THIS COUNT AMOUNTING TO RS. 70,00,000/-. THE OPERATIVE PART OF CONCLUSION OF THE A.O. IS REPRODU CED HEREUNDER FOR THE PURPOSE OF PROPER APPRECIATION OF MERITS OF FINDING S OF THE A.O. '... THEREFORE, IN LINE WITH THE CONCLUSION DRAWN I N THE CASE OF OTHER PHARMA COMPANIES IN THIS CHARGE NAMELY -GLAXO SMITHKLINE 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 ASS ESSEE HAS NOT BEEN ABLE TO PROVE THE BUSINESS EXPEDIENCY OF THE E XPENDITURE INCURRED UNDER THIS HEAD. HOWEVER, SINCE THE MATTER IS SUB-JUDICE, I SEE NO REASON TO DISALLOW ONLY 25% OF THIS EXPEND ITURE, 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 DIS ALLOW 70% OF THE TOTAL EXPENDITURE UNDER THIS HEAD I.E. 70% OF R S.1,00,00,000/- AMOUNTING TO RS.70,00,000/-, AS DONE BY A.O. IN ASS ESSMENT 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 TH E 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 DIFF ERENT PHYSICIANS, ETC... THEY ALSO FURNISHED A COPY OF THE LD.CIT(A)'S ORDER S 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 TRANSPIRE S THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED BY TWO APPELLATE ORDERS OF THE LEARNED PREDECESSOR IN OFFICE WHEREIN THE APPELLANT HAS BEE N 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. 2 008-09 IS REPRODUCED HEREUNDER: '5. THE 1 ST GROUND OF APPEAL IS REGARDING AN ADHOC DISALLOWANC E OF 70% EXPENSES INCURRED ON PHYSICIANS SAMPLE AS CLAIM ED. 5.1 DURING THE COURSE OF ASSESSMENT PROCEEDING, THE A.O. HAD NOTICED THAT THE APPELLANT HAS CLAIMED A HUGE EXPEN SE 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 TH E APPELLANT, I FIND THERE IS NO NEED TO MAKE THE SAID DISALLOWANCE SIMPLY BECAUSE IN SOME OTHER CASE, A DISALLOWANCE MADE HAD BEEN UP HELD. 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. T HE ADDITION MADE IS, THEREFORE, DELETED AND THE GROUND OF APPEAL ALL OWED.' MOREOVER, THE LD.CIT(A) HAS FOLLOWED HER DECISION T AKEN 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 DELE TED 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 KN OW ABOUT FINAL OUTCOME OF THE VERY ISSUE IN SAID EARLIER ASSESSMEN T YEAR. LEARNED COUNSEL REPRESENTING THE ASSESSEE FILES BEFORE US C OPY OF HONBLE JURISDICTIONAL HIGH COURTS DECISION IN PRECEDING A SSESSMENT YEAR IN TAX APPEAL NO.478 OF 2016 DECIDED ON 21.06.2016 UPHOLDI NG THIS TRIBUNALS ORDER DATED 31.08.2015. NO REBUTTAL TO THESE LEGAL DEVELOPMENTS HAS COME AT REVENUES BEHEST. CASE RECORDS COMPRISE OF THE SAID HONBLE JURISDICTIONAL HIGH COURTS DECISION AS WELL THAT O F LEARNED CO-ORDINATE BENCH PERTAINING TO PRECEDING ASSESSMENT YEAR. WE, THEREFORE, ADOPT JUDICIAL CONSISTENCY TO AFFIRM THE CIT(A)S FINDING S UNDER CHALLENGE. THIS REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 22 ND AUG UST , 201 7 AT AHMEDABAD SD/- SD/- (N.K. BILLAIYA) ACCOUNTANT MEMBER (S.S. GODARA) JUDICIAL MEMBER AHMEDABAD; DATED 22/08/2017 *BT ITA NO. 2204/AHD/2014 DCIT VS. LIVA HEALTHCARE PVT LTD A.Y :- 2010-11 - 5 - ! '! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ' $ / CONCERNED CIT 4. $ ( ) / THE CIT(A) 5. ' **' , ' , / DR, ITAT, AHMEDABAD 6. / / GUARD FILE. / BY ORDER, TRUE COPY / (DY./ASSTT.REGISTRAR) ' (, / ITAT, AHMEDABAD