ARI Healthcare Private Ltd. Vs ACIT (ITAT Mumbai)
ITAT Mumbai held that market development expenses towards sale of product is revenue in nature hence denial of same is unsustainable. Accordingly, market development expenses being revenue expenditure is allowed as deduction.
Facts- The assessee is engaged in the business of manufacturer and sale of pharmaceuticals, medicinal chemicals and botanical products. In course of assessment proceedings, AO noticed that the assessee has debited an amount of Rs.2,16,04,410/-towards sales and marketing expenses. Whereas, the total sales reported by the assessee during the year was Rs.1,54,29,100/-. On further verification, he noticed that the sales and marketing expenses are on account of payment made to Nijji Healthcare Pvt. Ltd. (‘NHPL’), Kolkata. AO observed that the payments made by the assessee to NHPL have been claimed to be for sale/distribution of product through sales persons appointed by NHPL. AO proceeded to disallow the market development expenses claimed by the assessee. First Appellate Authority upheld the disallowance. Accordingly, being aggrieved, the present appeal is filed.
Conclusion- Held that it is evident that the expenses incurred primarily involve expenditure related to sale of products, such as, staff recruitment charges, salary and expenses of territory sales executives, salary and expenses of sales personnel manager, salary and expenses of sales manager, salary of MIS executives, salary and expenses of project Director and fix management service payments. It is an undisputed fact on record that the personnel engaged in sale of products of the assessee belong to NHPL. Therefore, it cannot be denied that market development expenses are towards sale of product, hence, are of revenue nature.
