The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has recently in an appeal filed before it, held that payment to volunteers for drug analysis supported by signed vouchers, is allowable as expenditure.
The aforesaid observation was made by the Mumbai ITAT when an appeal was preferred before it by anassessee, challenging the impugned order dated 01/09/2017, passed under section 250 of the Income Tax Act, 1961, by the Commissioner of Income Tax (Appeals), Mumbai, [ CIT(A)], for the assessment year 2014–15.
The ground of the assessee’s appeal being the question as to whether on the facts and circumstances of the case, the Commissioner of Income Tax, confirming the addition of 20% of expenses incurred of Rs.29,67,302.4/- for drug analysis expenses, is justifiable, the facts of the case pertaining to the issue were that,during the assessment proceedings, it was observed that the assessee had debited expenses related to drug analysis amounting to Rs.1,48,36,511.
From the details filed by the assessee, it was noticed that the expenses claimed were not fully supported by bills and vouchers, and that all the expenses were incurred in cashand supported by self-made internal vouchers only and hence not verifiable.
Accordingly, vide order passed under section 143(3) of the Income Tax Act, the AO held that in absence of proper bills or any other documentary evidence, the purpose for which the expenses were incurred cannot be verified andascertained, and accordingly, he disallowed 25% of the aforesaid expenses incurred on drug analysis, thereby making an addition of Rs.37,09,128.
On appeal before the CIT(A), the CIT(A) vide impugned order granted partial relief to the assessee and restricted the disallowance to 20% of the expenditure incurred by the assessee on drug analysis, thus leaving the assesseeaggrieved by the disallowance, to prefer the instant appeal before the Mumbai ITAT.
Hearing the opposing contentions of either sides as presented by Shri H.S. Raheja, on behalf of the assessee, and by Shri Satyaprakash Singh, on behalf of the Revenue, as well as perusing the materials available on record, the ITAT Panel consisting of G.S. Pannu, the President, as well as SandeepSingh Karhail, the Judicial Member, observed:
“Having considered the submissions of both sides and perused the material available on record, we find that the assessee is in the business of drug analysis, clinical trials, and other research activities and as part of the said business, the assessee does lab study of various drugs before their launch in the market. As per the assessee, for the purpose of such lab study, the assessee conducts the trial on various persons, who acts as a volunteer and as a consideration, the assessee pays such volunteers in cash.”
“During the hearing, reliance was placed upon cash vouchers of drug analysis expenses, forming part of the paper book from pages No. 214 – 245. From the perusal of said vouchers, we find that the said vouchers mention the volunteer centre ID, the amount paid, and the signature of the volunteer on the date of payment. The learned AR submitted that the names of the volunteers are not mentioned to maintain anonymity regarding the identity of the volunteer and instead the ID No. is mentioned in the record. It was also submitted that this manner also safeguards the interest of the pharmaceutical company, whose drugs are tested. On a careful perusal of these vouchers, it is evident that the same cannot be called self-made, since these vouchers also contain the signatures of different volunteers acknowledging the receipt of payment in cash on different dates”, the ITAT Bench further added.
Thus, partly allowing the assessee’s appeal, the Mumbai ITAT held:
“In absence of any other allegation, we find no basis for confirming the disallowance upheld by the learned CIT(A). Accordingly, we direct the AO to delete the disallowance in respect of drug analysis expenses. As a result, the ground raised in assessee’s appeal is allowed.”
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