TaxTMI 
TaxTMI 
2019 (10) TMI 731
X X X X Extracts X X X X
X X X X Extracts X X X X
....Business convening expenses of Rs. 11,76,363/- confirmed by the ld.CIT(A) by enhancement of Rs. 11,000/- may kindly be deleted. b) Disallowance of CME expenses of Rs. 8,88,202/- confirmed by the ld.CIT(A) may kindly be deleted. c) Disallowance on account of MCM Expenses of Rs. 11,26,680/- confirmed by the ld.CIT(A) may kindly be deleted. d) Disallowance on account of promotional material treating the same as freebies to Doctors of Rs. 60,46,495/- confirmed by the ld.CIT(A) may kindly be deleted. e) Disallowance on account of sales promotion expenses of Rs. 8,41,100/- confirmed by the ld.CIT(A)may kindly be deleted." 3. Brief facts of the case are that the assessee has filed its return of income on 28.9.2010 declaring total income at Rs. 2,38,60,129/- and book profit under section 115JB of the Act at Rs. 7,01,13,079/-. This return was subsequently revised by the assessee. The case of the assessee was selected for scrutiny assessment and assessment order was passed under section 143(3) on 22.3.2013 whereby its total income was determined at Rs. 4,00,76,180/-. The ld.Commissioner took cognizance under section 263 of the Income Tax Act, 1961 and h....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 1,56,74,305 33,406 4,000 60,000 1,57,71,711 4,08,492 6 Sales promotion expenses 71,91,609 43,814 29,37,485 3,809 1,000 29,86,108 42,05,501 7 Travelling Expenses for Doctors 22,74,606 5,15,849 17,41,878 22,57,727 16,879 Total 8,21,31,305 3,01,15,542 35,76,180 17,67,359 61,000 3,55,20,081 4,66,11,224 Sr no. Nature of expenditure Non-freebies to doctors Percentage Intended disallowance Actual disallowance mentioned in order 1 Business convention 13,33,485 100% 13,33,485 11,65,365 2 CME Expenses 59,21,348 15% 8,88,202 8,88,202 3 MCM Expenses 44,93,045 25% 11,23,261 11,26,680 4 Promotional Material 3,02,32,474 20% 60,46,495 60,46,495 5 Patron Networking Expenses 4,08,492 0% 0 0 6 Sales promotion expenses 42,05,501 20% 8,41,100 8,41,100 7 Travelling Expenses for Doctors 16,879 0% 0 0 Total 4,66,11,224 1,02,32,543 1,00,67,842 5. A perusal of the above details would indicate that the ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the payer of bribe is a travesty of logical thinking. Even under Indian penal code, the Abettor of crime is equally punishable on the same footing as the actual perpetrator of crime. Saying that the company is acting in its commercial interest in making these expenses for the business even though these may be illegal but same should be allowed on commercial principles. How the advance society or any educated person accept such an argument? The murder of a competitor may also be in the commercial interest of the businessmen but the expenses incurred for the murder cannot be allowed. If we start allowing such expenses in the name of commercial interest, it is better for the society not to have any such commerce." 7. Apart from the above philosophy, the ld.CIT(A) has referred to the decision of Hon'ble Allahabad High Court in the case of CIT Vs. Pt. Vishwanath Sharma, 316 ITR 419 (All) as well as judgment of Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Kap Scan and Diagnostic Centre P.Ltd., 344 ITR 476. Before the Hon'ble Allahabad High Court, the issue was whether expenditure incurred by an assessee on the ground that commission paid to Government doctors incurred b....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... DCIT (supra) took note of decision in the case of ACIT Vs. Liva Healthcare Ltd., 161 ITD 63(Mum) wherein such disallowance in the case of pharmaceutical companies was upheld. However, thereafter the Bench has observed that in subsequent decisions viz. Macleods Pharmaceuticals Ltd. Vs. ACIT, 161 ITD 291 (Mum) and DCIT Vs. PHL Pharma P.Ltd., 184 TTJ 1 (Mum), ITAT has held that Board Circular dated 1.8.2012 cannot be applied with retrospective effect and deleted such disallowance. ITAT, Ahmedabad concurred with subsequent decision of the ITAT, Mumbai on this issue. On the strength of these decisions on identical issue, and on the similar nature of expenditure, the deduction has been given to the assessee by treating the expenditure as for the purpose of business. The ld.counsel for the assessee also pointed out that the assessee is small organization in comparison to Cadila and other big pharmaceutical companies, where the expenditure under these heads have been incurred in crores of rupees, because these companies have higher volume of turnover. He prayed that the ld.CIT(A) has erred in not appreciating the nature of assessee's business, and how a circular issued by the CBDT aft....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch, after considering various aspects including the circular issued by MCI and also circular of CBDT vide circular No.5 of 2012 held that the assessee was entitled for claim of sales promotion expenses incurred on distribution of articles to the stockists, distributors, dealers and doctors. The relevant findings of the Tribunal are as under:- '21. We have deliberated at length on the issue under consideration and after perusing the regulations issued by the Medical Council of India, find that the same lays down the code of conduct in respect of the doctors and other medical professionals registered with it, and are not applicable to the pharmaceuticals or allied health sector industries. Rather, a perusal of the provisions of the Indian Medical Council Act, 1956, reveals that the scope and ambit of statutory provisions relating to professional conduct of registered medical practitioners under the Indian Medical Council Act, 1956 is restricted only to the persons registered as medical practitioners with the State Medical Council and whose name are entered in the Indian Medical Register maintained under Sec. 21 of the said Act. We are of the considered view that the sche....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... occasion for concluding that the assessee-company had violated any regulation issued by MCI. We thus, in terms of our aforesaid observations are of the considered view that even if the assessee had incurred expenditure on distribution of "freebies" to doctors and medical practitioners, the same though may not be in conformity with the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 (as amended on 10.12.2009), however, as the same only regulates the code of conduct of the medical practitioners/doctors, therefore, in the absence of any prohibition on the pharmaceutical companies in incurring of such sales promotion expenses, the latter cannot be held to have incurred an expenditure for a purpose which is an offence or is prohibited by law. In this regard we are reminded of the maxim "Expressio Unius Est Exclusio Alterius", which provides that if a particular expression in the statute is expressly stated for a particular class of assessee, then by implication what has not been stated or expressed in the statute has to be excluded for other class of assesses. Thus, now when the MCI regulations are applicable to medical practitioners regis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....professional associations is also taxable as business income or income from other sources as the case may be depending on the facts of each case. The assessing officers of such medical practitioner or professional associations 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." We may herein observe that a perusal of the aforesaid CBDT Circular reveals that the "freebies" provided by the pharmaceutical companies or allied health sector industries to medical practitioners or their professional associations in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) regulations, 2002 shall be inadmissible under Sec. 37(1) of the Income-Tax Act, 1961, as the same would be an expense prohibited by the law. We are of the considered view that as observed by us hereinabove, the code of conduct enshrined in the notifications issued by MCI though is to be strictly followed and adhered by medical practitioners/doctors registered with the MCI, however the same cannot impinge on the conduct of the pharmaceutical companies or other healthcare....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ons. We are of a strong conviction that the CBDT cannot provide casus omissus to a statute or notification or any regulation which has not been expressly provided therein. Still further, though the CBDT can tone down the rigours of law in order to ensure a fair enforcement of the provisions by issuing circulars for clarifying the statutory provisions, however, it is divested of its power to create a new impairment adverse to an assessee or to a class of assessee without any sanction or authority of law. We are of the considered view that the circulars which are issued by the CBDT must confirm to the tax laws and though are meant for the purpose of giving administrative relief or for clarifying the provisions of law, but the same cannot impose a burden on the assessee, leave alone creating a new burden by enlarging the scope of a regulation issued under a different act so as to impose any kind of hardship or liability on the assessee. We thus, are unable to persuade ourselves to subscribe to the rigours contemplated in the CBDT Circular No. 5/2012, dated 01.08.2012, which we would not hesitate to observe, despite absence of anything provided by the MCI in its regulations issued unde....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that the benefit of the said policy is prospective, still can the courts place a construction on such instruction so as to make it retrospective. In this context, the Apex Court in the case of CCE v. Mysore Electricals Industries Ltd. reported in [2006] 204 ELT 517 (SC) : [2007] 8 RC 1, dealing with the question how a beneficial circular is to be construed, has approached this question in the following manner. At paragraph 13 of the judgment, it is stated that the learned counsel further submitted that the circular being oppressive and against the respondent, has to apply only prospectively and cannot be applied retrospectively. In other words, a beneficial circular has to be applied prospectively. Thus, when the circular is against the assessee they have a right to claim the enforcement of the same prospectively. It is further submitted that for the period in question, trade notices had been issued classifying the circuit breakers under heading No. 85.35 or 85.36. When the approved classification was proposed to be revised to reclassify the single panel circuit breakers under heading No.85.37 of the tariff, such re-classification can take effect only prospectively from the date o....