Case Law Details
Lincoln Pharmaceuticals Ltd. Vs DCIT (ITAT Ahmedabad)
Introduction: In a recent legal development, the Income Tax Appellate Tribunal (ITAT) Ahmedabad issued an order in the case of Lincoln Pharmaceuticals Ltd. vs. DCIT. The case revolves around the disallowance of sales promotion expenses, and this article provides an in-depth analysis of the ITAT’s decision, which upheld the addition due to a lack of supporting evidence.
Detailed Analysis:
The case at hand involves Lincoln Pharmaceuticals Ltd. and the disallowance of sales promotion expenses. Initially, the assessing officer had disallowed sales promotion expenses amounting to ₹1,25,04,573 in the assessment order under Section 143(3) of the Income Tax Act. The income of the assessee was assessed at ₹4,02,50,547 based on this disallowance.
The assessee appealed the decision to the Commissioner of Income Tax (Appeals) (CIT(A)). However, the appeal was dismissed on an ex-parte basis because the assessee had failed to attend the appellate proceedings and did not submit any evidence during that stage.
Subsequently, the case was taken to the ITAT, Ahmedabad, which, in its order dated 12-09-2017, set aside the matter to the assessing officer. The assessing officer was instructed to conduct a fresh examination and provide the assessee with an opportunity to present necessary evidence in support of its claim.
In the second round of proceedings, the assessing officer issued notices to five parties related to whom sales promotion expenses had been incurred. Replies were received from three parties, leading to the deletion of additions amounting to ₹65,85,694.
However, with respect to two parties, namely “Medicine Agencies, Lucknow” and “Adikanta Associates, Orissa India,” issues persisted. Medicine Agencies, Lucknow, did not provide any reply, while Adikanta Associates, Orissa India, did reply but did not furnish quantitative details regarding the gift items received.
The assessing officer confirmed the additions concerning these two parties, totaling ₹59,18,879. In response, the CIT(A) partially allowed the appeal, providing further relief with respect to Adikanta Associates, Orissa India, as the assessing officer had received a reply from them. However, the appeal was not successful concerning Medicine Agencies, Lucknow.
The CIT(A) made observations regarding the disallowance of sales promotion expenses, considering CBDT Circular No. 5 of 2012. The tribunal recognized that the assessing officer had issued notices to five parties, receiving confirmation from four, except for Medicine Agencies, Lucknow. The appellant claimed that all sales promotion expenses were genuine and had submitted supporting evidence.
Ultimately, the ITAT found that the assessing officer was not justified in disallowing the sales promotion expenses except in the case of Medicine Agencies, Lucknow, where verification remained incomplete.
Conclusion: The ITAT’s decision in the case of Lincoln Pharmaceuticals Ltd. vs. DCIT underscores the importance of providing supporting evidence during tax assessments and appeals. While the appellant succeeded in convincing the tribunal regarding some parties, the lack of evidence and incomplete verification led to the confirmation of the disallowance concerning Medicine Agencies, Lucknow. This case serves as a reminder of the significance of thorough documentation and compliance with tax regulations in the business world.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax(Appeals)-2, (in short “Ld. CIT(A)”), Ahmedabad in Appeal No. CIT(A)-2/10143/DCIT, Cir.2(1)(2)/2018-19 vide order dated 23.081.2019 passed for Assessment Year 2011-12.
2. The assessee has taken the following grounds of appeal:-
“1. On the facts & in the circumstances of the case, Your Appellant most respectfully submits that Ld. Assessing officer has erred in law & on facts by making disallowance of 19,18,344/- on account of sales promotion expense & Hon’ble CIT(A) has further erred in law in confirming such disallowance, without appreciating the full facts, and details submitted on record and explained during the course of hearing.
2. The appellant craves leave to add, to alter, substitute or to amend any ground / grounds of appeal at any time or at the time of hearing of the appeal.”
3. The brief facts of the case are that originally assessment order under Section 143 (3) of the Act was passed on 28-03-2014 in which the AO had disallowed sales promotion expenses of ₹1,25,04,573/- and assessed the income of the assessee at₹4,02,50,547/-. In appeal, Ld. CIT(Appeals) dismissed the appeal of the assessee on ex-party basis as the assessee had not attended the appellate proceedings from time to time and no evidences were submitted during appellate proceedings. The assessee preferred appeal before ITAT, Ahmedabad, who vide order dated 12-09-2017 in ITA number 453/Ahd/2015 set aside the matter to the file of AO for fresh examination after giving an opportunity to the assessee to present necessary evidences in support of its claim.
4. In the second round of proceedings, the AO issued notices to five parties in respect of whom sales promotion expenses had been incurred and received replies from 3 parties. Accordingly, the AO deleted in addition amounting to ₹65,85,694/- with respect to the 3 parties from whom the replies / confirmation had been received by the assessing officer. However, with respect to two parties, the AO observed that one party “Medicine Agencies, Lucknow” had not given any reply, whereas the other party “Adikanta Associates, Orissa India”, in their reply had not given any quantitative details regarding gift items received. Accordingly, the Assessing Officer confirmed the additions with respect to the aforesaid two parties amounting to ₹59,18,879/-. In appeal, Ld. CIT(Appeals) gave further relief to the assessee with respect to one party i.e.“Adikanta Associates, Orissa” from whom reply was received by the assessing officer. While partly allowing the appeal of the assessee, Ld. CIT(Appeals) made the following observations:-
“2.3. Decision:
I have carefully considered the facts of the case, the assessment order and the written submission filed by the appellant. The AO has made the disallowance of Rs.59,18,879/- in respect of sales promotion and marketing expenses debited to the P & L Account on account of gift articles given to chemist, stockiest and retailers etc. relying upon the CBDT Circular No. 5 of 2012. The Honourable Tribunal has set aside the issue of sales promotion expenses to the file of AO for re-adjudication. The Assessing Officer during the proceedings u/s. 143(3) r.w.s. 254 has issued notice to five parties u/s. 133(6) out of which reply has not been received only in case of Medicine Agencies, Lucknow. In case of other three parties namely; Vindhya’s Pharma Super Stockiest, Delhi, Tirupati Associates, Indore & Anand Pharma, Jaipur reply have been received and the Assessing Officer was satisfied. In the case of Adikanta Associates, Cuttak, Odisha, AO has noted that reply was received but no quantitative detail regarding gift item were enclosed in the reply. The appellant has contended that there were nine parties whom sales promotion and marketing expenses of Rs.1,25,04,573/- were paid and was disallowed by the Assessing Officer. The Assessing Officer has issued 133(6) notices only in respect of five parties and allowed the sales promotion expenses of three parties whom confirmation to his satisfaction were received. Appellant contended that confirmation was not received only in the case of Medicine Agency, Lucknow of Rs.19,18,344/-, but the AO has disallowed the sales promotion expenses of all parties except the three parties. Appellant submitted that the sales promotion expenses are genuine and it has submitted all the evidences in support of its contention. Appellant also submitted that the CBDT Circular No. 5 of 2012 relied by the Assessing Officer is also not relevant as the gifts were paid not to the doctor but to the stockiest.
It is seen that Assessing Officer has issued 133(6) notices in respect of 5 parties, out of 9 parties whom payment of sales promotion expenses were disallowed. Assessing Officer has received confirmation from four parties except Medicine Agencies, Lucknow. Appellant has submitted confirmation and necessary evidences from all the parties. The Assessing Officer has made inquiry from five parties out of which four have confirmed the transaction, in view of above, Assessing Officer was not justified to disallow claim of sales promotion expenses except in the case of Medicine Agencies, Lucknow. Accordingly, the sales promotion expenses of Rs.19,18,344/- from Medicine Agency, Lucknow which remained unverified is confirmed and the balance disallowance is deleted.”
5. The assessee is in appeal before us against the aforesaid additions confirmed by Ld. CIT(Appeals). Before us, none appeared on behalf of the assessee. We observe from the case records that the contention put forth by the assessee is that the aforesaid sales promotion expenses were not given to Doctors/Medical Professionals and hence CBDT Circular number 5 of 2012 is not applicable to assessee’s set of facts. The contention of the assessee as per the records of the case is that the gift articles have been given to chemists, Stuckists and retailers etc. and therefore, there is no such prohibition on incurring sales promotion expenses by assessee. However, we observe that the assessee in the instant facts, has not been able to produce any supporting evidence with respect to promotion expenses incurred towards “Medicine Agency, Lucknow”. Further, no reply / confirmation from the aforesaid party has been received. Therefore, in absence of any supporting evidence produced by the assessee in various rounds of proceedings before the Department both before Ld. AO and Ld. CIT(A), we are of the considered view that Ld. CIT(Appeals) has not erred in facts and in law in confirming the addition with respect to aforesaid sales promotion expenses.
6. In the result, the appeal of the assessee is dismissed.
This Order pronounced in Open Court on 11/08/2023
