TaxTMI 
TaxTMI 
2018 (7) TMI 1883
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....12-13. As certain common issues are involved in the aforementioned appeals, thus the same are being taken up and disposed off by way of a composite order. We shall first take up the appeal filed by the revenue against the order passed by the CIT(A), setting aside the penalty imposed by the A.O under Sec. 271(1)(c) in the case of the assessee for A.Y. 2005-06. The revenue assailing the order of the CIT(A) has raised before us the following grounds of appeal:- "On the facts and in the circumstances of the case and in Law, the Learned CIT(A) has erred in allowing relief to the assessee to the extent impugned in the grounds enumerated below: 1. The order of the CIT(A) is opposed to Law and facts of the case. 2. On the facts and in the circumstances of the case and in Law, the Ld. CIT(A) e r red in de le t ing the penal ty l e v ied u/s .271(1) ( c ) wi thout appreciating the fact that the assessee had concealed his income and had f i led inaccurate par t iculars of his income as per the provisions of sect ion 271(1)(c) read with Explanation 1 thereto of the Income Tax Act, 1961. 3. For these and other grounds that may be urged at the time of hearing,....
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....; (ii) wrong claim of computer software expenses which though was in the nature of capital expenditure, but was claimed as a revenue expenditure by the assessee; and (iii) wrong claim of expenditure on account of gift articles which were incurred for non-business purposes, thus imposed a penalty of Rs. 1,07,50,531/- under Sec. 271(1)(c) of the Act. However, pursuant to an application filed by the assessee under Sec. 154 of the Act, the quantum of penalty imposed by the A.O was reduced to an amount of Rs. 30 lac, vide a rectification order dated 06.01.2014 passed by the A.O under Sec. 154 of the Act. 5. Aggrieved, the assessee carried the rectified order of penalty, dated 06.01.2014 in appeal before the CIT(A). The CIT(A) after deliberating on the contentions advanced by the assessee in support of its claim that no penalty under Sec. 271(1)(c) was liable to be imposed in respect of the additions/disallowances sustained in its hands viz. (i) disallowance of part of the claim of deduction under Sec. 80IB; (ii) recharacterisation by the A.O of the computer software expenses as capital expenditure; and (iii) disallowance of 15% of gift article expenses, being persuaded to subscribe t....
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....s support from the above decision relied upon by Ld. A.R. in the case of Benette Coleman and Co. Ltd. Vs. ACIT 24 ITR (ITAT Mumbai) 102, it is held that if any disallowance is made, no penalty can be levied. Hon‟ble ITAT has held as under : "In the absence of a other contrary material or distinguishing feature brought on record by the revenue to show that the claim of deduction made by the assessee was not bonafide or was bogus, we respectfully following the ratio of the above decisions and the consistent view hold that there is no concealment on the part of the assessee which may call for levy of penalty u/s.271(1)(c) of the Act and accordingly the penalty imposed by the Assessing officer and sustained by the Ld. Commissioner of Income-tax(Appeals) is deleted." Since it is a simple case of disallowance of some of the expenditures from total deduction claimed u/s. 80IB(4) and disallowance of computer software expenditure as capital expenditure and disallowance of 15% of Gift Articles expenses, it becomes very obvious that there is no furnishing of inaccurate particulars of income or concealment of income. The Hon‟ble Supreme Court in the case of CIT Vs....
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....dquo;SCN‟, no penalty under Sec. 271(1)(c) could validly be imposed in the hands of the assessee. On merits, the Ld. A.R relied on the order passed by the CIT(A). The Ld. A.R. submitted that as the computation of deduction under Sec. 80IB had remained a subject matter of debate since long, hence the CIT(A) had rightly appreciated that no penalty under Sec. 271(1)(c) could have validly been imposed on the said count. It was further averred by the Ld. A.R that mere characterization of the computer software expenses by the revenue as a capital expenditure, as against bonafide claim of the same as a revenue expenditure by the assessee, would not call for penalty under Sec. 271(1)(c) in the hands of the assessee. The Ld. A.R further submitted that an adhoc disallowance of 15% of the expenditure incurred by the assessee on gift articles would also not justify imposition of penalty under Sec. 271(1)(c). The Ld. D.R rebutting the challenge thrown by the Ld. A.R to the validity of the assumption of jurisdiction by the A.O for imposing penalty under Sec. 271(1)(c), submitted that as neither any cross-objection or a cross-appeal was filed by the assessee in context of its aforesaid clai....
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....nd favour with the A.O would not justify imposition of penalty under Sec. 271(1)(c) in the hands of the assessee. We are further of the considered view that the re-characterization of the computer software expenditure as a capital expenditure by the A.O, as against the claim of the same as a revenue expenditure by the assessee, though would justify the disallowance of the said expenditure, but keeping in view the fact that the assessee had made a complete disclosure of the details of the said expenditure and claim of the same as a revenue expenditure in its return of income, thus no penalty under Sec. 271(1)(c) could have been imposed in the hands of the assessee. Still further, we are persuaded to subscribe to the view of the CIT(A) that no penalty was called for in the hands of the assessee in respect of the adhoc 15% disallowance of the gift articles expenses as was finally sustained by the CIT(A). We are of the considered view that though an unproved claim of expenditure would justify an addition/disallowance, however nothing short of a disproved claim would justify imposition of penalty under Sec 271(1)(c) of the Act. We find that our view that no penalty under Sec. 271(1)(c) ....
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.... if any, shall be urged at the time of hearing of the appeal." 10. Briefly stated, the A.O while framing the assessment under Sec. 143(3), vide his order dated 30.09.2011 had disallowed 10% of the sales promotion expenses and had inter alia made an addition of Rs. 10,00,000/- in the hands of the assessee while assessing its income at Rs. 235,69,98,790/-. Observing, that there was a clerical error as regards the disallowance made by the A.O in respect of the sales promotion expenses, the assessee brought the same to the notice of the A.O, vide his letter dated 11.10.2011. The A.O rectified the assessment order under Sec. 154 of the Act and taking cognizance of the fact brought to his notice by the assessee, that the total sales promotion expenses were to the tune of Rs. 999.19 lac and not Rs. 99.91 lac as considered by him while framing the assessment, thus made a disallowance on account of sales promotion expenses at Rs. 99,91,996/- (i.e. 10% of Rs. 999.19 lacs). 11. Aggrieved, the assessee assailed the order passed by the A.O under Sec. 154 before the CIT(A). The CIT(A) after deliberating on the contentions advanced by the assessee before him, observed that the A.O while fra....
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....e sales promotion expenses were wrongly taken by him at Rs. 99.91 lac as against the actual expenditure of Rs. 999.91 lac, however, the assessee had at no stage stated that the disallowance out of the sales promotion expenses were also to be enhanced from Rs. 10 lac [as disallowed in the assessment framed under Sec. 143(3)] to an amount of Rs. 99,91,996/- (i.e. 10% of total sales promotion expenses of Rs. 999.19 lac). It was further submitted by the Ld. A.R that the A.O while carrying out the rectification had though substantially enhanced the income of the assessee by raising the disallowance of the sales promotion expenses from an amount of Rs. 10 lac [as per order under Sec. 143(3)] to an amount of Rs. 99,91,996/-, however no opportunity of being heard was afforded to the assessee before passing of the order under Sec. 154 of the Act. The Ld. A.R in support of his claim that an addition/disallowance made under Sec. 154 can be assailed independently without there being any appeal against the original assessment order, relied on the judgment of the Hon‟ble Supreme Court in the case of S. Sankappa & Ors. Vs. ITO (1968) 68 ITR 760 (SC). The Ld. A.R in support of his contention....
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....3;ble Apex Court in the case of S. Sankappa & Ors. Vs. ITO (1968) 68 ITR 760 (SC), not being in context of the issue under consideration, thus would not assist the case of the assessee appellant. We find that in the case before the Hon‟ble Apex Court a partnership firm was assessed as an unregistered firm. On appeal, the firm was held as a registered firm by the Appellate Assistant Commissioner (for short „AAC‟). That pursuant to the order of the AAC the ITO rectified the assessment of the firm under Sec. 35(1) of the Income-tax Act, 1922. Thereafter, the ITO proceeded with to rectify the individual assessments of the partners under Sec. 155 of the Act, which however was objected to by them on the ground that in respect of the assessment year under consideration the provisions of the Income-tax Act, 1922 would be applicable. Subsequently, the rectification of the individual assessments of the partners sought to be done by the A.O under Sec. 35(5) of the Income-tax Act, 1922 was objected to by the assessee on the ground that the proceedings for rectification under Sec. 35(5) were not proceedings for assessment. We find that it was in the backdrop of the aforesaid c....
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....hearing of the appeal submitted that the Ground of Appeal No. 7 is not being pressed. We thus, in terms of the aforesaid concession of the Ld. A.R dismiss the Ground of Appeal No. 7 as not pressed. The Grounds of Appeal No. 8 & 9 being general are dismissed as not pressed. 15. The appeal of the assessee is allowed for statistical purposes. ITA No. 5553 & 6129/Mum/2014 A.Y. 2011-12 16. We shall now take up the cross appeals filed by the assessee and the revenue for A.Y. 2011-12. The assessee assailing the order passed by the CIT(A) to the extent he had upheld the disallowance of sales promotion expenses of Rs. 66,49,685/-, has raised before us the following grounds of appeal " 1 . For that the Ld. CIT(A) has er red in sustaining disal lowance of sales promot ion expense amounting to Rs. 66,49,685/-. 2. For that the Ld. CIT(A) has erred in holding that expenditure incurred for distribution of costly ar t icles (exceeding Rs. 750/- each ar ticle) are f reebies to doctors and professionals. 3. For that the Ld. CIT(A) has erred in holding that the such expenditures (exceeding Rs. 750/- each articles) have been incurred in violation of CBDT circular....
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....romotion expenses the income of the assessee company was assessed under Sec. 143(3) r.w.s. 154. The A.O while framing the assessment had disallowed the entire amount of sales promotion expenses of Rs. 9,70,82,317/- for the reasons viz. (i) the Medical Council of India (MCI) had imposed prohibition on medical practitioners from accepting gifts, travel facilities, hospitalities, cash or monetary grants (known as "freebies") from pharmaceutical and allied health care sector industry; and (ii) the CBDT circular No. 5/2012 issued vide F.No. 225/142/2012-ITA.II, dated 01.08.2012 had clarified that such "freebies" shall be inadmissible under Sec. 37(1) of the Act being an expense prohibited by the law. 18. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the contentions advanced by the assessee before him, observed viz. (a) undisputedly, the assessee had incurred sales promotion expenses of Rs. 9,70,82,317/- and the genuineness of the same had not been disputed by the A.O; (b) all sales promotion articles were bearing the name and logo of the assessee company; (c) in the earlier assessment years the A.O had consistently allowed su....
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....n articles costing upto Rs. 750/- per article were to be considered to have been incurred wholly and exclusively by the assessee for its business purposes. In respect of the expenditure incurred by the assessee on sales promotion articles costing more than Rs. 750/- per article, the CIT(A) was of the view that the same were distributed predominantly to doctors and medical professionals in addition to stockists, chemists, distributors and customers. The CIT(A) was further of the view that the sales promotion articles costing less than Rs. 750/- per article were primarily distributed by the assessee to stockists, chemists, distributors and customers. It was further observed by the CIT(A) that out of the sales promotion articles exceeding a cost of Rs. 750/- per article, the same, inter alia, included an item namely glucometers purchased along with glucostrips by the assessee during the year for Rs. 5,15,995/-. The said glucometers alongwith the glucostrips were given by the assessee to its field staff, with a direction to hold diabetes detection camps in respective head quarters every month for promoting the anti-diabetic medicine sold by the assessee company. It was further noticed ....
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....rcular No. 5/2012 issued vide F.No. 225/142/2012-ITA.II, dated 01.08.2012 and also against the regulation issued by the Medical Council of India, which was a regulatory body constituted under the Medical Council Act, 1956. In the backdrop of his aforesaid observations the CIT(A) concluded that as the aforesaid amount of Rs. 66,49,685/- was incurred by the assessee for a purpose which was prohibited by the law, thus the same was not allowable as per the Explanation to Sec. 37(1) of the Act. On the basis of his aforesaid deliberations the CIT(A) upheld the disallowance of the sales promotion expenses to the extent of Rs. 66,49,685/-. 19. The assessee being aggrieved with the order of the CIT(A) to the extent he had sustained the disallowance of sales promotion expenses of Rs. 66,49,685/-, has carried the matter in appeal before us. The revenue on the other hand has assailed before us the deletion of the disallowance of the sales promotion expenses of Rs. 9,04,32,632/- by the CIT(A). The Ld. A.R taking us through the observations of the lower authorities submitted that the CIT(A) had disallowed the expenditure incurred by the assessee on sales promotion articles of a cost exceeding....
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....ra, the Ld. D.R relied on the order passed by the A.O. It was submitted by the Ld. D.R that as the expenditure incurred by the assessee on distribution of articles was clearly in violation of the CBDT Circular No. 5/2012, dated 01.08.2012 as well as against the MCI guidelines, thus the same being in the nature of an expenditure for a purpose which was prohibited under law, had rightly been disallowed in totality by the A.O. It was further averred by the Ld. D.R that the CIT(A) had without any basis adopted a cut off amount of Rs. 750/- while partly sustaining the disallowance of the sales promotion expenses. The Ld. D.R rebutting the contention of the assessee that no such disallowance was made in the preceding years, submitted that as each and every year is an independent year, thus the same cannot form a basis for determining the allowability of the sales promotion expenses during the year under consideration. The Ld. D.R in order to buttress his contention that the sales promotion expenses incurred by the assessee were not allowable as an expenditure, relied on the judgment of the Hon‟ble High Court of Punjab & Haryana in the case of CIT Vs. Kap Scan and Diagnostic Centre ....
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.... Tribunal in the case of ACIT, Circle-6(3), Mumbai Vs. Liva Healthcare Ltd., Mumbai (ITA No. 904/Mum/2013, dated 12.09.2016) was also considered by the Tribunal while adjudicating the case of M/s PHL Pharma (P) Ltd. (supra). It was submitted by the Ld. A.R that unlike the case of the present assessee, in the aforementioned case the expenses were incurred by the assessee for creating good relations with the doctors in lieu of expected favours from them for recommending to the patients the pharmaceuticals products dealt with by the company. As regards the reliance placed by the Ld. D.R on the order passed by the ITAT, Delhi in the case of M/s Ochoa Laboratories Ltd. (supra), it was the contention of the Ld. A.R that as the same pertained to the allowability of conference expenses which were incurred by the assessee, thus the same being distinguishable on facts would not assist the case of the revenue. 20. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record. We find that our indulgence in the cross appeals filed by the assessee and the revenue has been sought for adjudicating the allowab....
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....orementioned case the MCI had filed an „Affidavit‟ before the High Court, wherein it was deposed by the council that its jurisdiction is limited only to take action against the registered medical professionals under the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, and it has no jurisdiction to pass any order affecting the rights/interest of the petitioner hospital. We are of the considered view that on the basis of the aforesaid deposition of MCI that its jurisdiction stands restricted to the registered medical professionals, it can safely be concluded that the MCI regulations would in no way impinge on the functioning of the assessee company which is engaged in the business of manufacturing and sale of pharmaceutical and allied products. We thus, in the backdrop of our aforesaid deliberations are of the considered view that the code of conduct enshrined in the MCI regulations are solely meant to be followed and adhered by medical practitioners/doctors, and such a regulation or code of conduct would not cover the pharmaceutical company or healthcare sector in any manner. We are further of the view that in the backdrop of our afo....
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....sional associations in violation of the regulations issued by Medical Council of India (the „Council‟) which is a regulatory body constituted under the Medical Council Act, 1956 2. The council in exercise of its statutory powers amended the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 (the regulations) on 10-12-2009 imposing a prohibition on the medical practitioner and their professional associations from taking any Gift, Travel facility, Hospitality, Cash or monetary grant from the pharmaceutical and allied health sector Industries. 3. Section 37(1) of Income Tax Act provides for deduction of any revenue expenditure (other than those failing under sections 30 to 36) from the business income if such expense is laid out/expended wholly or exclusively for the purpose of business or profession. However, the explanation appended to this sub-section denies claim of any such expenses, if the same has been incurred for a purpose which is either an offence or prohibited by law. Thus, the claim of any expense incurred in providing above mentioned or similar freebees in violation of the provisions of Indian Medi....
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....an Medical Council Professional (Conduct, Etiquette and Ethics) Regulations, 2002" had even provided for action which shall be taken against medical practitioners in case they contravene the prohibitions placed on them. We find from a perusal of Para 6.8.1 that in case of receiving of any gift from any pharmaceutical or allied health care industry and their sales people or representatives, action stands restricted to the members who are registered with the MCI. In other words the censure/action as had been suggested on the violation of the code of conduct is only for the medical practitioners and not for the pharmaceutical companies or allied health sector industries. We are thus of the considered view that the regulations issued by MCI are qua the doctors/medical practitioners registered with MCI, and the same shall in no way impinge upon the conduct of the pharmaceutical companies. As a logical corollary to it, if there is any violation or prohibition as per MCI regulation in terms of Explanation to Sec. 37(1), then the same would debar the doctors or the registered medical practitioners and not the pharmaceutical companies and the allied healthcare sector for claiming the same a....
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....burden imposed by the CBDT vide its aforesaid Circular No. 5/2012, dated 01.08.2012 on the pharmaceutical or allied health sector industries, despite absence of any enabling provision under the Income Tax law or under the Indian Medical Council Regulations, clearly impinges on the conduct of the pharmaceutical and allied health sector industries in carrying out its business. We thus, in the absence of any sanction or authority of law on the basis of which it could safely be concluded that the expenditure incurred by the assessee company on sales promotion expenses by way of distribution of articles to the stockists, distributors, dealers, customers and doctors, is in the nature of an expenditure which had been incurred for any purpose which is either an offence or prohibited by law, thus conclude that the same would not be hit by the Explanation to Sec. 37(1) of the Act. 24. Alternatively, we are of the considered view that it is a trite law that a CBDT Circular which creates a burden or liability or imposes a new kind of imparity, cannot be reckoned retrospectively. We are of the considered view that though a benevolent circular may apply retrospectively, but a circular imposin....
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....d as under: "5. We have considered the rival contentions made by ld. CIT DR as well as ld. Sr. Counsel, Mr J.D. Mistry, perused the relevant finding given in the impugned orders and material referred to before us. The entire controversy revolves around, whether the expenditures in question incurred by the assessee (a pharmaceutical company) is hit by Explanation 1 below section 37(1) in view of CBDT Circular dated 01.08.2012, interpreting the amendment dated 10.12.2009 brought in Indian Medical Council Regulation 2002 or not. The break-up of sales promotion expenses, which has been disallowed by the AO, are as under: Sr.No Particulars of expenses Amount (in Rs.) 1 Customer Relationship Management expenses (CRM) 7,61,96,260 2 Key Account Management expenses(KAM) 2,56,68,509 3 Gift Articles 9,20,22,518 4 Cost of samples 3,60,85,320 Total 22,99,72,607 The nature of aforesaid expenses has already been explained above. Now whether the nature of such expenditure incurred by the assessee is to be disallowed in view of the CBDT Circular dated 01.08.2012. For the sake of ready reference, the said CBDT Circular No....
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....ns should examine the same and take an appropriate action. This may be brought to the notice of all the officers of the charge for necessary action." From the perusal of the aforesaid Board Circular, it can be seen that heavy reliance has been placed by the CBDT on the Circulars issued by the Medical Council of India, which is the regulatory body constituted under the „Medical Council Act, 1956‟. One such regulation has been issued is "Indian Medical Council Professional Conduct, Etiquette and Ethics) Regulations, 2002". The said regulation deals with the professional conduct, etiquette and ethics for registered medical practitioners only. Chapter 6 of the said regulation/notification deals with unethical acts, whereby a physician or medical practitioners shall not aid or abet or commit any of the acts illustrated in clause 6.1 to 6.7 of the said regulation which shall be construed as unethical. Clause 6.8 has been added (by way of amendment dated 10.12.2009) in terms of notification published on 14.12.2009 in Gazette of India. The said clause reads as under:- "6.8 Code of conduct for doctors and professional association of doctors in their re....
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.... are provided to human volunteers, if they are necessary for the research project(s). (vi) Ensure that undue animal experimentations are not done and when these are necessary they are done in a scientific and a humane way. (vii) Ensure that while accepting such an assignment a medical practitioner shall have the freedom to publish the results of the research in the greater interest of the society by inserting such a clause in the MoU or any other document / agreement for any such assignment. f) Maintaining Professional Autonomy: In dealing with pharmaceutical and allied healthcare industry a medical practitioner shall always ensure that there shall never be any compromise either with his / her own professional autonomy and / or with the autonomy and freedom of the medical institution. g) Affiliation: A medical practitioner may work for pharmaceutical and allied healthcare industries in advisory capacities, as consultants, as researchers, as treating doctors or in any other professional capacity. In doing so, a medical practitioner shall always: (i) Ensure that his professional integrity and freedom are maintained. (ii) Ensure th....
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....had no jurisdiction to pass any direction or judgment on the infrastructure of any hospital which power rests solely with the concerned State Govt. The case of the Petitioner is that the Petitioner hospital is governed by the Delhi Nursing Homes Registration Act, 1953. It is urged that in fact, an inspection was also carried out on 22.07.2011 by Dr. R.N. Dass, Medical Superintendent (Nursing Home) under the Directorate of Health Services, Govt. of NCT of Delhi and the necessary equipments and facilities were found to be in order which negates the observations dated 27.10.2012 of the Ethics Committee of the MCI. It is also the plea of the Petitioner hospital that the Petitioner was not provided an opportunity of being heard and thus the principles of natural justice were violated. 7. In the counter affidavit filed by the Respondents, it is not disputed that the MCI under the 2002 Regulations has jurisdiction limited to taking action only against the registered medical practitioners. Its plea however, is that it has not passed any order against the Petitioner hospital therefore; the Petitioner cannot have any grievance against the impugned order. .......................
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....purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure." The aforesaid provision applies to an assessee who is claiming deduction of expenditure while computing his business income. The Explanation provides an embargo upon allowing any expenditure incurred by the assessee for any purpose which is an offence or which is prohibited by law. This means that there should be an offence by an assessee who is claiming the expenditure or there is any kind of prohibition by law which is applicable to the assessee. Here in this case, no such offence of law has been brought on record, which prohibits the pharmaceutical company not to incur any development or sales promotion expenses. A law which is applicable to different class of persons or particular category of assessee, same cannot be made applicable to all. The regulation of 2002 issued by the Medical Council of India (supra), provides limitation/curb/prohibition for medical practitioners only and not for pharmaceutical companies. Here the maxim of "Expressio Unius Est Exclusio Alterius" is clearly applicable, that is, if a particular expression in the statute is expressly sta....
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....edical practitioner shall not receive any gift from any pharmaceutical or allied health care industry and their sales people or representatives; Gifts more than Rs. 1,000/ - upto Rs. 5,000/- : Censure Gifts more than Rs. 5,000/- upto Rs. 10,000/- : Removal from Indian Medical Register or State Medical Register for 3 (three) months Gifts more than Rs. 10,000/ - to Rs. 50,000/- : Removal from Indian Medical Register or State Medical Register for 6(six) months. Gifts more than Rs. 50,000/- to Rs. 1,00,000/ - : Removal from Indian Medical Register or State Medical Register for 1 (one) year. Gifts more than Rs. 1,00,000/- : Removal for a period of more than 1 (one) year from Indian Medical Register or State Medical Register b) Travel facilities: A medical practitioner shall not accept any travel facility inside the country or outside, including rail, road, air, ship, cruise tickets, paid vacations etc. from any pharmaceutical or allied healthcare industry or their representatives for self and family members for vacation or for attending conferences, seminars, workshops, CME programme etc. as a delegate. Expenses for travel facilities more....
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....r or State Medical Register for 6 (six) months. Cash or monetary grants more than more than Rs. 50,000/-to Rs. 1,00,000/-: Removal from Indian Medical Register or State Medical Register for 1 (one) year. Cash or monetary grants more than Rs. 1,00,000/-: Removal for a period of more than 1 (one) year from Indian Medical Register or State Medical Register. From the aforesaid notification, ld. CIT DR submitted that so many violations and censures have been prescribed for any expenditures/ or benefit given to doctors, thus, violation of such guidelines for incurring such kind of expenditures cannot be held to be allowable expenditure. CBDT is well within its power to clarify and interpret the law and prohibit allowance of any expenditure which violates any statute or is in nature of offence. 8. From a perusal of above amendment/notification in the MCI regulation, it is quite clear again that same is applicable for medical practitioners only and the censure/action which has been suggested by it is only on medical practitioners and not for pharmaceutical companies or allied health sector industries. The violation of the aforesaid regulation....
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....e reckoned retrospectively. The beneficial circular may apply retrospectively but a circular imposing a burden has to be applied prospectively only. Here in this case the CBDT has enlarged the scope of „Indian Medical Council Regulation, 2002‟ and made it applicable for the pharmaceutical companies. Therefore, such a CBDT circular cannot be reckoned to have retrospective effect. The same CBDT circular had come up for consideration before the co-ordinate Bench of the ITAT, Mumbai Bench in the case of Syncom Formulations (I) Ltd. (in ITA Nos. 6429 & 6428/Mum/2012 for A.Ys. 2010-11 and 2011-12, vide order dated 23.12.2015), wherein Tribunal held that CBDT circular would not be not be applicable in the A.Ys. 2010-11 and 2011-12 as it was introduced w.e.f. 1.8.2012. 10. From the perusal of the nature of expenditure incurred by the assessee, it is seen that under the head "Customer Relationship Management", the assessee arranges national level seminar and discussion panels of eminent doctors and inviting of other doctors to participate in the seminars on a topic related to therapeutic area. It arranges lectures and sponsors knowledge upgrade course which helps pharma....
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....erences and seminars is to update the doctors of the latest developments, which is beneficial to the doctors in treating the patients as well as the pharmaceutical companies. Further as pointed out and concluded by the learned CIT(A) there is no violation by the assessee in so far as giving any kind of freebies to the medical practitioners. Thus, such kind of expenditures by a pharmaceutical companies are purely for business purpose which has to be allowed as business expenditure and is not impaired by EXPLANATION 1 to section 37(1). 11. Before us, the Ld. CIT DR has also much harped upon the decision of the Hon‟ble Himachal Pradesh High Court in the case of Confederation of Indian Pharmaceutical Industry (SS) vs. CBDT (supra), in support of the argument that CBDT Circular has been approved and confirmed by the High Court and therefore, it has a huge binding precedence. From the perusal of the said judgment of the Hon‟ble High Court, it is seen that in that case the validity of Circular No.5/12 dated 1.8.2012 was challenged. The Hon‟ble High Court though upheld the validity of the said circular but with a rider that if the assessee satisfies the assessing....
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....e adopted, distinguished the order of A.Y. 2008-09 as under: "The assessee has contended that in the immediately preceding assessment year the Tribunal has decided the issue in favour of the assessee in ITA NO. 388/Mum/2012 for assessment year 2008-09. In our considered view, principles of Res judicata is not applicable to income tax proceedings although we are fully agreeable that principles of consistency is to be maintained (Hon‟ble Supreme Court decision in Radha Soami Satsang v. CIT (1992) 193 ITR 321 (SC) but in the instant assessment year, we have observed that these overseas trips for Doctors and their spouses were organized by the assessee whereby no details of the contents of seminar, if any conducted by the assessee overseas has been brought on record and also even the spouses accompanied the Doctors to the overseas trip which included cruise visit to island, gala dinners, cocktail, gala entertainment etc. rather than being directed towards seminar for product information dissemination or directed towards knowledge enhancement or knowledge sharing oriented as no details of seminar and its course content is brought on record rather the trip is directed towa....
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....va Healthcare (supra) we find that the Tribunal though has incorporated the relevant provisions and clauses of the „Indian Medical Council Regulation 2002‟, however, has not elaborated or dwell upon as to how this MCI regulation which is strictly meant for medical practitioners and doctors can be made applicable to pharmaceutical companies. There has to be some enabling provision or specific clause in the said regulation whereby the pharmaceutical companies are barred from conducting seminars or conferences by sponsoring the doctors. The entire conduct relates to doctors and medical practitioners and lists out the censures and fines imposed upon them. What has not been provided in the MCI regulation cannot be supplied either by the court or by the CBDT. There has to be express provision under the law whereby pharmaceutical companies are prohibited to conduct conferences or seminar or give free samples. In the Tribunal decision of Liva Healthcare, strong reference has been made to Hon‟ble Himachal Pradesh High Court (supra), that the said CBDT circular has been upheld. On this aspect we have already discussed in detail herein above that, firstly, High Court itself ....
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....early distinguishable and cannot be held to be applicable and also we have already given our independent finding as to allowability of expenses in the hands of the assessee as business expenditure." Still further, the coordinate bench of the Tribunal in the case of India Medtronic Pvt. Ltd. Vs. DCIT (2018) 52 CCH 43 (Mum), following the view taken by the Tribunal in the case of PHL Pharma Pvt. Ltd. (supra), had concluded that the MCI guidelines are only applicable to the doctors and the medical professionals registered with the council, and cannot govern the other tax entities like drug manufacturing companies or individuals other than the doctors. In the backdrop of the aforesaid observations, the Tribunal had observed that the MCI guidelines cannot decide the allowability or otherwise of an expenditure in the hands of such other entities under the Income-tax Act, 1961. It was further observed by the Tribunal that the Income tax Act is an independent code in itself and the business income of an assessee has to be assessed and taxed as envisaged under the provisions of the Act. On the basis of the limited scope of applicability of the MCI guidelines to a particular class of the ....
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....sessee for creating good relations with the doctors in lieu of expected favours from them for recommending to the patients the pharmaceuticals products of the company. We find that the Tribunal while adjudicating the case of DCIT-8(2), Mumbai Vs. PHL Pharma (P.) Ltd. had considered the aforesaid order of the Tribunal. (iii) Confederation of Indian Pharmaceutical Industry (SSI) Vs. The Central Board of Direct Taxes (CWP No. 10793 of 2012, dated 26.12.2012)(HP): We find that the aforesaid judgment of the Hon‟ble High Court of Himachal Pradesh was considered by the ITAT, Mumbai Bench "C", Mumbai in the case of DCIT-8(2), Mumbai Vs. PHL Pharma (P.) Ltd. The Tribunal after considering the aforesaid judgment had observed that as held by the High Court, if the assessee was able to establish that the MCI regulation was not applicable to the assessee, then the same could not be blindly applied in its case. (iv) CIT Vs. Kap Scan and Diagnostic Centre (P.) Ltd. (2012) 344 ITR 476 (P&H): We find that the judgment in the aforesaid case was rendered in context of the commission paid by the assessee company which was running a scanning and a diagnostic ce....
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....n fact and law of the case and is fit to be modified. 7. For that the whole order is bad in fact and law of the case and is fit to be modified. 8. For that the other grounds, if any, shall be urged at the time of hearing of the appeal" 30. The revenue on the other hand has assailed the order of the CIT(A) for A.Y. 2012-13 on the ground that he had erred in deleting the disallowance of sales promotion expenses of Rs. 10,60,02,763/-by restricting the disallowance of the same only in respect of the expenditure incurred by the assessee on sales promotion articles costing more than Rs. 750/- per article, by raising before us the following grounds appeal : ""On the facts and in the circumstances of the case and in Law, the learned CIT(A) has erred in allowing relief to the assessee to the extent impugned in the grounds enumerated below: 1. The order of the CIT(A) is opposed to law and fact of the case. 2. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in allowing all sales promotion articles costing up to the cost price of Rs. 750/- each u/s. 37(1), on the ground that these are wholly and exclusively incu....
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.... of the assessee for the immediately preceding year viz. A.Y. 2011-12. The CIT(A) following the view taken by his predecessor, thus restricted the disallowance of the sales promotion expenditure to the extent of Rs. 77,42,416/- i.e the expenditure which was incurred by the assessee on sales promotion articles costing more than Rs. 750/- per article. In the backdrop of his aforesaid observations the CIT(A) restricted the disallowance to the extent of Rs. 77,42,416/- and deleted the balance addition/disallowance of Rs. 10,60,02,763/- [Rs. 11,37,45,179/- (-) Rs. 77,42,416/-]. 33. That both the assessee and the revenue being aggrieved with the order of the CIT(A) has carried the matter by way of cross appeals before us. We find that the issue involved in the present case viz. disallowance of sales promotion expenditure remains the same, as was there before us in the assesses own case for the immediately preceding year viz. A.Y. 2011-12 as had been adjudicated by us hereinabove, except for the fact that in the present case the CBDT Circular No. 5/2012, dated 01.08.2012 had came into force during the year under consideration. Be that as it may, we are of the considered view that as de....