ITAT allows appeal, rejects disallowance of marketing expenses based on precedent.

The ITAT allowed the appeal, deleting the disallowance of Rs. 4,79,603/- for marketing expenses imposed by the AO and upheld by the CIT(A). The decision was based on the precedent set by the ITAT Mumbai Bench in a similar case, emphasizing that the CBDT circular could not retroactively impose new burdens. The judgment was delivered on 27.04.2018.

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Issues Involved:
1. Disallowance of Rs. 4,79,603/- on account of marketing expenses.
2. Charging of interest under sections 234B and 234C of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Disallowance of Rs. 4,79,603/- on Account of Marketing Expenses:

The primary issue in this appeal was the disallowance of Rs. 4,79,603/- made by the Assessing Officer (AO) on account of marketing expenses. The assessee filed a return of income declaring Rs. 6,44,246/-, which was scrutinized, leading to an addition of Rs. 37,44,440/- being 20% of the marketing expenses due to a significant increase from the preceding year. Upon appeal, the CIT(A) initially found no reason for disallowance but the ITAT restored the issue to the AO for fresh adjudication.

The AO identified that the marketing expenses included gifts to doctors, which violated the Indian Medical Council (Professional Conduct Etiquettes and Ethics) Regulations, 2002, and CBDT Circular No. 5/2012 dated 12.8.2012. The assessee contended that the regulations apply only to medical practitioners, not pharmaceutical companies, and the circular was not applicable for the assessment year 2006-07. However, the CIT(A) sustained the AO's addition.

The ITAT referred to a similar case adjudicated by the ITAT Mumbai Bench in DCIT vs. PHL Pharma Private Limited, where it was held that the CBDT circular enlarging the scope of the Indian Medical Council Regulation to pharmaceutical companies was without any enabling provisions under the Income Tax Law or the Indian Medical Council Regulations. The circular cannot impose a new burden retrospectively. The expenditure was deemed as business promotion, and such expenses were allowed as business expenditure under section 37(1).

The ITAT concluded that the facts of the assessee’s case were similar to the PHL Pharma case and followed the precedent to delete the disallowance made by the AO and sustained by the CIT(A).

2. Charging of Interest under Sections 234B and 234C:

The assessee also contested the charging of interest under sections 234B and 234C of the Income Tax Act, 1961. However, the judgment primarily focused on the disallowance of marketing expenses, and the detailed analysis or decision regarding the interest under sections 234B and 234C was not explicitly discussed in the provided text.

Conclusion:

The ITAT allowed the appeal of the assessee, deleting the impugned disallowance of Rs. 4,79,603/- made by the AO and sustained by the CIT(A), based on the precedent set by the ITAT Mumbai Bench in the PHL Pharma case. The judgment emphasized that the CBDT circular could not retrospectively impose a burden not envisaged by the statute or regulations. The ruling was pronounced in the open court on 27.04.2018.

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