M/s Menarini Raunaq Pharma Ltd, New Delhi V. DCIT, New Delhi

ITA 5905/DEL/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6310 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 27-03-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 04-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: GURMEET SINGH
• Keywords: Condonation of delay

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : E : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND MS SUCHITRA KAMBLE, JM ITA NO.5905/DEL/2013 ASSESSMENT YEAR : 2008-09 MENARINI RAUNAQ PHARMA LTD., B-16, 1 ST FLOOR, B-1, BLOCK, COMMUNITY CENTRE, JANAKPURI, NEW DELHI. PAN: AAACM4198C VS. DCIT, CIRCLE 6(1), NEW DELHI. (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI RAJESH KUMAR, SR. DR ASSESSEE BY : SHRI GURMEET SINGH, ADVOCATE DATE OF HEARING : 27.03.2017 DATE OF PRONOUNCEMENT: 28.03.2017 ORDER PER SHRI R.S. SYAL, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) ON 13.06.2013 IN RELATION TO THE ASSESSM ENT YEAR 2008-09. ITA NO.5905/DEL/2013 2 2. THIS APPEAL IS TIME BARRED BY 70 DAYS. THE ASSESSEE HAS FILED AN APPLICATION FOR CONDONATION OF DELAY EXPLAINING THE REASONS FOR DEALY. WE ARE SATISFIED WITH SUCH REASONS. THE DELAY IS E RGO CONDONED AND THE APPEAL IS ADMITTED FOR HEARING. 3. THE FIRST GROUND IS AGAINST THE DISALLOWANCE OF WHOLE OF ADVERTISEMENT AND SALES PROMOTION EXPENSES AMOUNTIN G TO RS.91,76,216/. THE FACTS APROPOS THIS GROUND ARE THAT THE ASSESSEE CLAIMED ADVERTISEMENT AND SALES PROMOTION EXPENSES AMOUNTING TO RS.91,76, 216/-. THE ASSESSING OFFICER FOUND SUCH AMOUNT TO BE HIGHER TH AN THAT OF THE PRECEDING YEAR. ON BEING CALLED UPON TO EXPLAIN THE REASONS FOR INCURRING SUCH HIGHER EXPENSES IN THE FACE OF LOSSES, THE ASS ESSEE FURNISHED DETAILS OF EXPENSES INCURRED DURING THE YEAR VIS--VIS THE PRECEDING YEAR, WHICH HAS BEEN INCORPORATED ON PAGE 3 OF THE ASSESSMENT O RDER. IT WAS EXPLAINED THAT THE ASSESSEE INCURRED A SUM OF RS.26 ,49,637/- AS SAMPLE EXPENSES INCLUDED UNDER THE HEAD ADVERTISEMENT AND SALES PROMOTION WHICH, IN THE IMMEDIATELY PRECEDING YEAR, WERE INCL UDED UNDER THE HEAD COST OF GOODS SOLD. IF SIMILAR TREATMENT WAS GIVE N, THE ASSESSEE SUBMITTED THAT INCREMENTAL EXPENSES WERE ONLY 2.95% . NOT CONVINCED, ITA NO.5905/DEL/2013 3 THE ASSESSING OFFICER MADE ADDITION. THE LD. CIT(A ) CONFIRMED THE SAME. 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND GOIN G THROUGH THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE ASSES SEE FURNISHED COMPLETE DETAILS OF EXPENSES BEFORE THE ASSESSING OFFICER. S UCH A DETAIL HAS BEEN CAPTURED BY THE ASSESSING OFFICER ON PAGE 3 OF HIS ORDER. THE OVERALL ADVERTISEMENT AND SALES PROMOTION EXPENSES INCLUDE TRAINING EXPENSES, TRAINERS CHARGES, GUEST ENTERTAINMENT, MEETINGS AN D CONFERENCE, VISUAL AIDS, DOCTORS SEMINAR AND PROMOTIONAL GADGETS ETC. THE MAJOR REASON GIVEN BY THE AO FOR DISALLOWANCE IS INCURRING OF LO SSES FROM BUSINESS. THE ASSESSEE IS A PHARMACEUTICAL COMPANY AND IT HAS TO SURVIVE IN BUSINESS DESPITE INCURRING LOSSES. THERE CAN BE NO REASON TO DISALLOW `ADVERTISEMENT AND SALE PROMOTION EXPENSES MERELY BECAUSE OF INCURRING LOSSES. SO LONG AS THE EXPENDITURE IS PR OPERLY BACKED BY EVIDENCE AND NO OTHER PROVISION IS HIT, SUCH AN EXP ENDITURE HAS TO BE ALLOWED. ADVERTING TO THE FACTS OF THE INSTANT CA SE, WE FIND THAT THE ASSESSEE FURNISHED COMPLETE DETAILS OF EXPENSES. T HE LD. CIT(A) HAS SUSTAINED THE DISALLOWANCE BY FOLLOWING THE REASONI NG OF LOSSES GIVEN BY ITA NO.5905/DEL/2013 4 THE ASSESSING OFFICER APART FROM MENTIONING IN PARA 5.3.3. THAT SOME EXPENSES WERE BOOKED MANY TIMES. THE LD. AR SUBMIT TED THAT NOT EVEN A SINGLE EXPENDITURE WAS BOOKED FOR SECOND TIME AND T HE FINDING RECORDED BY THE LD. CIT(A) IS SUPERFLUOUS. IT IS SEEN THAT ALTHOUGH THE LD. CIT(A) HAS MADE SUCH A REMARK IN THE IMPUGNED ORDER, BUT H E FAILED TO SUBSTANTIATE THE CHARGE. WE ARE, THEREFORE, CONVINC ED THAT THE ADDITION HAS BEEN WRONGLY MADE AND SUSTAINED. THE SAME IS DIRECT ED TO BE DELETED. THIS GROUND IS ALLOWED. 5. THE ONLY OTHER GROUND IS AGAINST THE SUSTENANCE OF DISALLOWANCE OF PROVISION FOR OBSOLESCENCE OF STOCK AMOUNTING TO RS .2,75,212/-. THE FACTUAL MATRIX OF THIS GROUND IS THAT THE ASSESSEE CREATED A PROVISION FOR OBSOLESCENCE OF STOCK AT RS.2,75,212/- IN RESPECT O F MEDICINES EXPIRING IN THREE MONTHS FROM THE CLOSE OF THE YEAR. THE ASSES SING OFFICER MADE THE ADDITION, WHICH CAME TO BE AFFIRMED IN THE FIRST AP PEAL. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE IS CO NSTANTLY IN THE PRACTICE OF CREATING PROVISION DUE TO OBSOLESCENCE OF MEDICI NES EXPIRING WITHIN COMING THREE MONTHS FROM THE CLOSE OF THE FINANCIAL YEAR. PAGE 68 OF THE ITA NO.5905/DEL/2013 5 PAPER BOOK IS THE ASSESSEES SCHEDULE TO THE ANNUAL ACCOUNTS. THIS SCHEDULE SHOWS THAT AS AGAINST THE PROVISION OF RS. 2.75 LAC MADE FOR SLOW MOVING/EXPIRING INVENTORY IN THIS YEAR, THE AS SESSEE MADE SIMILAR PROVISION FOR A SUM OF RS.1.22 LAC IN THE IMMEDIATE LY PRECEDING YEAR. THE LD. AR SUBMITTED THAT SUCH A PRACTICE IS BEING REGULARLY ADOPTED AND NO SUCH DISALLOWANCE HAS EVER BEEN MADE IN THE PAST . THIS CONTENTION HAS NOT BEEN CONTROVERTED BY THE LD. DR WITH ANY CO NTRARY MATERIAL. IN VIEW OF THE GENUINENESS OF THE PROVISION MADE ON A RATIONAL BASIS, WHICH HAS NOT BEEN DISPUTED BY THE ASSESSING OFFICER IN T HE PRECEDING YEARS, WE ARE SATISFIED THAT THIS DISALLOWANCE IS NOT CALLED FOR. WE, THEREFORE, ORDER FOR THE DELETION OF THE DISALLOWANCE. THIS GROUND I S ALLOWED. 7. IN THE RESULT, THE APPEAL FILED BY THE ASS ESSEE IS ALLOWED. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 2 8 TH MARCH, 2017. SD/- SD/- (SUCHITRA KAMBLE) (R. S. SYAL) JUDICIAL MEMBER A CCOUNTANT MEMBER DATED:28 TH MARCH, 2017. DK ITA NO.5905/DEL/2013 6 COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR DY. REGISTRAR, ITAT, NEW DELHI