LIVA HEALTHCARE LTD, MUMBAI V. ASST CIT CIR 6(3), MUMBAI

ITA 388/MUM/2012

• Counselvise Citation: 38819914 RSA 2012
• Duration Of Justice: 3 year(s) 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 29-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 17-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Assessee Lawyers: B V JHAVERI

Judgement Text

A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ./ I.T.A. NO. 847 /MUM/2012 ( / ASSESSMENT YEAR : 2008-09 ACIT, CIR. 6(3), R. NO. 522, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. / VS. M/S LIVA HEALTHCARE LTD., SHIVSAGAR ESTATE, A BLOCK, DR. ANNIE BESANT ROAD, WORLI, MUMBAI 400 018. . / PAN : AAACL0709Q ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO. 388 /MUM/2012 ( / ASSESSMENT YEAR : 2008-09 M/S LIVA HEALTHCARE LTD., SHIVSAGAR ESTATE, A BLOCK, DR. ANNIE BESANT ROAD, WORLI, MUMBAI 400 018. / VS. ACIT, CIR. 6(3), R. NO. 522, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. ./ PAN : AAACL0709Q ( / APPELLANT ) .. ( / RESPONDENT ) REVENUE BY SHRI S.P. WA LIMBE ASSESSEE BY : SHRI B.V. JHAVERI / DATE OF HEARING : 29-07-2015 / DATE OF PRONOUNCEMENT : 31-08-2015 [ ITA 847/M/12 & ITA 388/M/12 2 () / O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THESE ARE CROSS APPEALS FOR A.Y. 2008-09. ITA NO. 388/MUM/2012 HAS BEEN FILED BY THE ASSESSEE AND ITA NO. 847/MUM/2012 HAS BEEN PREFERRED BY THE REVENUE. 2. FIRST, WE SHALL TAKE UP THE REVENUES APPEAL IN ITA NO. 847/MUM/2012 FOR A.Y. 2008-09. 3. THE SOLE ISSUE TAKEN BY THE REVENUE IN ITS APPEA L IS REGARDING THE DELETION OF THE DISALLOWANCE OF 70% OF EXPENSES INC URRED BY THE ASSESSEE ON PHYSICIANS SAMPLES. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF DRUGS AND PHARMACEUTICALS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE A SSESSEE HAD CLAIMED EXPENSES IN RELATION TO FREE SAMPLES DISTRIBUTED TO PHYSICIANS. THE A.O., HOWEVER, OBSERVED THAT THE ASSESSEE COULD NOT PROVE THAT THE AMOUNT EXPENSED WAS EXCLUSIVELY FOR BUSINESS PURPOSE OF TH E ASSESSEE. HE OBSERVED THAT THE ASSESSEE COULD NOT PROVIDE THE LIST OF DOC TORS AND THE CONFIRMATIONS FROM THEM REGARDING THE RECEIPT OF PHYSICIANS SAMP LE. HE, THEREFORE, DISALLOWED 70% OF THE TOTAL EXPENDITURE ON THIS ACC OUNT AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. IN APPEAL, THE LD. CIT(A), HOWEVER, OBSERVED THAT THE ASSESSEE HAD BEEN ENGAGED IN THE BUSINESS OF MANUFACTURE AND MARKETING OF PHARMACEUTICAL FORMULATIONS, MAINL Y SKIN CARE PRODUCTS. IN THE COURSE OF ITS BUSINESS, IT DISTRIBUTED PHYSICIA NS SAMPLE TO VARIOUS DOCTORS ALL OVER THE COUNTRY. HE FURTHER OBSERVED THAT THE A.O. WHILE DISALLOWING THE EXPENDITURE, RELIED ON THE ORDERS OF THE DRP (DISPU TE RESOLUTION PANEL) IN THE CASE OF TWO OTHER COMPANIES NAMELY, (I) GLAXO PHARM A AND MERCK PHARMA. HOWEVER, IT HAD NOT BEEN POINTED OUT BY THE A.O. HO W THE ABOVE CASES WERE IDENTICAL TO THE CASE OF THE ASSESSEE. THE A.O., H AD NOT DISCUSSED HOW THE ITA 847/M/12 & ITA 388/M/12 3 CASE OF THE ASSESSEE WAS COVERED BY THE FINDINGS OF THE LD. DRP IN THE ABOVE STATED TWO CASES. HE, THEREFORE, ANALYSED THE FACTS OF THE CASE OF THE ASSESSEE INDEPENDENTLY. HE OBSERVED THAT THE DETAILS OF PURC HASE MADE BY THE ASSESSEE FROM THE MANUFACTURERS OF THE PRODUCT WHICH CONSTIT UTED FREE SAMPLES, WERE FURNISHED BY THE ASSESSEE. THE ENTRIES RELATING TO THE NAME OF THE PRODUCT, QUALITY/QUANTITY, RATE, DATE, AND AMOUNT WERE ENTER ED IN ITS REGISTER AND ALONG WITH THE INVOICES. THE ASSESSEE HAD CO-RELATE D THE NAME OF THE PRODUCT, THE QUALITY/QUANTITY, RATE, DATE AND AMOUNT ENTERED IN THE PURCHASE REGISTER WITH THAT OF THE PURCHASE BILLS. IN THE PURCHASE RE GISTER, THE ABOVE STATED GOODS WERE MARKED AS PHYSICIAN SAMPLE. THE RECEIP TS OF THE SAID SAMPLE WERE SUPPORTED BY DELIVERY CHALLANS AND INVOICES. E VEN, THE SAMPLES WERE DISPATCHED THROUGH COURIER/TRANSPORT AGENCY. THE SA MPLE DISPATCH REGISTER CARRIED THE DETAILS OF DATE, SERIAL NUMBER, REPRESE NTATIVE NUMBER, NAME OF THE MEDICAL REPRESENTATIVE, PLACE, TRANSPORT, WEIGHT OF THE CASE, FREIGHT LR NUMBER AND THE DATE OF RECEIPT. THIS REGISTER WAS SUBSTANTIATED BY THE DELIVERY CHALLANS AND INVOICE OF THE TRANSPORTER AN D ITS BILLS WHICH CLEARLY MENTIONED THE DATE OF DELIVERY, NUMBER OF PACKAGE, WEIGHT, FREIGHT CHARGED ETC. THE ASSESSEE ALSO DEMONSTRATED THAT THE SAMPL ES RECEIVED WERE HANDLED BY THE MEDICAL REPRESENTATIVE WHO MAINTAINED A DAIL Y REPORT SHEET RECORDING THE CODE NO., NAME OF THE DOCTOR, SPECIALITY AND TH E MEDICINES GIVEN TO THE DOCTOR AS PHYSICIANS SAMPLE. THESE DAILY RECORD SHE ETS WERE USED TO BE SUBMITTED BY THE MEDICAL REPRESENTATIVES TO THE ASS ESSEE COMPANY ON DAILY BASIS, WHICH CONSTITUTE THE RECORD OF THE FREE PHYS ICIAN SAMPLE DISTRIBUTION. BESIDES THAT THE ASSESSEE HAD ALSO SUBMITTED CONFIR MATIONS OF DOCTORS FROM AHMEDABAD WHO HAD BEEN BENEFICIARIES OF THE FREE SA MPLES. THE LD. CIT(A) OBSERVED THAT THE A.O. HAD NOT DOUBTED THE GENUINEN ESS OF THE DISTRIBUTION OF SAMPLES CARRIED OUT BY THE ASSESSEE. THE A.O. ONLY DOUBTED THE BUSINESS EXPEDIENCY OF THE DISTRIBUTION OF THE FREE SAMPLES. THE LD. CIT(A) FURTHER OBSERVED THAT THE DISTRIBUTION OF FREE SAMPLES WERE DIRECTLY RELATED TO THE BUSINESS PROMOTION ACTIVITY OF THE ASSESSEE. THE AS SESSEE HAD DULY PROVED THE ITA 847/M/12 & ITA 388/M/12 4 GENUINENESS OF THE EXPENSES, PROPER RECORDING IN IT S BOOKS OF ACCOUNT AND THE RELATIONSHIP OF THE EXPENSE WITH THE BUSINESS OF TH E ASSESSEE. HE, THEREFORE, DELETED THE ADDITIONS SO MADE BY THE A.O. 4. WE HAVE GONE THROUGH THE WELL REASONED ORDER PAS SED BY THE LD. CIT(A). IT IS A KNOWN FACT THAT THE FREE SAMPLE OF MEDICINE S SUPPLIED TO THE DOCTORS IS DONE FOR THE PROMOTION OF THE PRODUCT OF THE COMPAN Y. EVEN WHEN A NEW PRODUCT IS LAUNCHED, THE DOCTORS ARE GIVEN NECESSAR Y INPUTS REGARDING THE USE AND EFFECTS ETC. OF THE PRODUCT AND WHICH ALSO CONT RIBUTES IMPARTING KNOWLEDGE TO THE DOCTORS ABOUT THE NEW MEDICINE/PRO DUCT COMING INTO THE RELEVANT FOR PRACTICE OF THEIR PROFESSION. THE GEN UINENESS OF THE TRANSACTIONS HAS NOT BEEN DOUBTED BY THE A.O. WE DO NOT FIND AN Y INFIRMITY IN THE WELL REASONED ORDER PASSED BY THE LD. CIT(A) HOLDING THA T THE EXPENSES WERE INCURRED FOR THE BUSINESS PROMOTION ACTIVITY OF THE ASSESSEE. WE THEREFORE DO NOT FIND ANY MERIT IN THE APPEAL FILED BY THE REVEN UE AND ACCORDINGLY DISMISS THE SAME. 5. NOW, COMING TO THE APPEAL FILED BY THE ASSESSEE BEING ITA NO. 388/MUM/2012, THE SOLE GROUND TAKEN BY THE ASSESSEE IS IN RELATION TO THE DISALLOWANCE OF RS. 42,53,924/- ON ACCOUNT OF CLAIM OF EXPENDITURE INCURRED BY THE ASSESSEE ON OVERSEAS TRAVEL OF DOCTORS FOR A TTENDING SEMINAR ETC. AND TO ENCOURAGE PRODUCT AWARENESS AND SALES PROMOTION OF THE PRODUCTS MANUFACTURED BY THE ASSESSEE. 6. ADMITTEDLY, THE ASSESSEE IS ENGAGED IN THE MANUF ACTURING OF DRUGS AND PHARMACEUTICALS. THE A.O. NOTED THAT THE ASSESSEE HAD DEBITED A SUM OF RS. 42,53,924/- FOR SPONSORING DOCTORS FOR OVERSEAS TOU R. ON BEING ASKED TO EXPLAIN IN THIS ASPECT, THE ASSESSEE SUBMITTED THE REQUIRED DETAILS. THE A.O. DID NOT DOUBT THE GENUINENESS OF THE TRANSACTIONS, HOWEVER, HELD THAT SPONSORING OVERSEAS TRIP OF THE DOCTORS WAS NOT AN ACTIVITY RELATING TO THE ITA 847/M/12 & ITA 388/M/12 5 BUSINESS OF THE ASSESSEE. IN APPEAL, THE LD. CIT(A ) ALSO UPHELD THE FINDINGS OF THE A.O. THE ASSESSEE HAS THUS COME IN APPEAL BEFO RE US. 7. THE LD. COUNSEL FOR THE ASSESSEE WHILE INVITING OUR ATTENTION TO THE IMPUGNED ORDER, HAS SUBMITTED BEFORE US THAT THE DE TAILED REPLY WAS SUBMITTED TO THE LOWER AUTHORITIES EXPLAINING THAT THE ASSESSEE SPONSORS VARIOUS EVENTS AND SEMINARS AT VARIOUS PLACES TO EN COURAGE PRODUCT AWARENESS PROGRAMS. AS A PART OF SALES PROMOTION A ND PRODUCT AWARENESS PROGRAM, THE FOREIGN TOURS OF THE SELECTED DOCTORS WERE SPONSORED AND THIS WAS COMBINED WITH THE PRODUCT AWARENESS CAMPAIGN BY THE ASSESSEE. THIS WAS ALSO DONE TO CREATE GOOD RELATIONSHIP WITH THE DOCTORS. THE ASSESSEE HAD ALSO FURNISHED A LIST OF DOCTORS WHO HAD BEEN SPONS ORED ALONG WITH THE VISIT PHOTOGRAPHS. THE LOWER AUTHORITIES HAD NOT DOUBTED THE INCURRING OF EXPENSES BUT WERE OF THE VIEW THAT THE SAID EXPENDITURE WAS NOT DIRECTLY RELATING TO THE BUSINESS ACTIVITY OF THE ASSESSEE. IN OUR VIEW, TH E SAID OPINION OF THE LOWER AUTHORITIES IS MISPLACED. THE ASSESSEE IS IN THE BU SINESS OF MANUFACTURING AND MARKETING OF MEDICINES AND SKIN CARE PRODUCTS. THERE IS A STIFF COMPETITION IN THE MARKET FOR THE SALE OF THE IDENT ICAL PRODUCTS MANUFACTURED BY OTHER COMPANIES. IT IS COMMONLY KNOWN THAT THE M EDICINE COMPANIES SPONSOR THE TRIPS OF THE DOCTORS TO OVERSEAS SO AS TO INFLUENCE THEM TO PRESCRIBE THE MEDICINES MANUFACTURED BY THEIR COMPA NY. THE ASSESSEE HAD PRODUCED A SET OF PHOTOGRAPHS TO SHOW THAT BY SPONS ORING OF THE FOREIGN TRIPS, THE PRODUCT AWARENESS EXERCISE WAS ALSO DONE. IT IS NOT THE CASE OF THE REVENUE THAT THE PERSONS/DOCTORS WHOSE OVERSEAS TRI P WAS SPONSORED WERE OTHERWISE IN ANY MANNER RELATED TO THE ASSESSEE COM PANY. THE ONLY PURPOSE OF THE ASSESSEE COMPANY TO SPONSOR THE FOREIGN TRIP OF THE DOCTORS WAS FOR THE PURPOSE OF PROMOTION AND SALE OF THE PRODUCTS OF TH E ASSESSEE COMPANY. IT MAY BE UNETHICAL PRACTICE FOR THE DOCTORS TO ACCEPT SUCH TYPE OF INCENTIVES, HOWEVER, SO FAR AS THE ASSESSEE IS CONCERNED, SPONS ORSHIP WAS PURELY ON ACCOUNT OF BUSINESS ANGLE OF THE ASSESSEE COMPANY. WE, THEREFORE, DO NOT ITA 847/M/12 & ITA 388/M/12 6 FIND ANY JUSTIFICATION ON THE PART OF LOWER AUTHORI TIES IN DISALLOWING THE SAID EXPENDITURE. ACCORDINGLY, THE ORDER OF THE LD. CIT (A) IS SET ASIDE THE ADDITION MADE ON THIS ISSUE IS DELETED AND THE APPEAL OF THE ASSESSEE IS ALLOWED. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED AND THAT OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST AUGUST, 2015. () * +, -( . 31-08-2015 / 0 SD/- SD/- (G.S. PANNU) (SANJAY GAR G) ACCOUNTANT MEMBER JUDICIAL MEMB ER + 1 MUMBAI ; -( DATED 31-08-2015 [ .2../ R.K. R.K. R.K. R.K. , SR. PS ! '#$% &%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 3 () / THE CIT(A)-125, MUMBAI 4. 3 / CIT- 6 MUMBAI 5. 67/ 2289 , 89 , + 1 / DR, ITAT, MUMBAI A BENCH 6. /;< = / GUARD FILE. ' / BY ORDER, 6 2 //TRUE COPY// (/') * ( DY./ASSTT. REGISTRAR) , + 1 / ITAT, MUMBAI