TaxTMI 
TaxTMI 
2019 (10) TMI 731
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.....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 harboured a belief that the assessment order passed by the AO was erroneous and prejudicial to th....
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....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 assessee has debited under different heads viz. business convention, CME expenses, MCM expenses, promotional material, patron networking expenses, sales promotion expenses, travelling expenses. In the first column, it has shown the nature of expenditure. Thereafter, show....
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....ss 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 by the assessee is in contravention of the public policy and not allowable as expenditure. The Hon'ble High Court has replied this question against the assessee and held that commission paid to Government doctors is against the public policy and immoral. For that purpose, Hon'ble High C....
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.... 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 after the circular of Medical Council of India under Medical Council Act, 1956 can be given a retrospective effect. He further contended that impact of both these circulars have been discussed elaborately in these decisions. 10. On the other hand, the ld.DR relied upon the orders of the Revenue authorities. He contended that a short question in this appeal is, whether gi....
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....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 scheme of the Indian Medical Council Act, 1956 neither deals with nor provides for any conduct of any association/society and deals only with the conduct of individual registered medical practitioners. In the backdrop of the aforesaid facts, it emerges that the applicability of the MCI regulations would only cover individual medical practitioners and not the pharmaceutical companies or allied heal....
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....s) 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 registered with the MCI, then the same cannot be made applicable to pharmaceutical companies or other allied healthcare companies. 22. We shall now advert to the CBDT Circular No. 5/2012, dated 01.08.2012. We find that the aforesaid CBDT Circular reads as under:- "Inadmissibility of expenses incurred in providing freebees to medical practitioner by pharmaceutical and allied health sector industry Circular No....
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....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 sector in any manner. We find that nothing has brought on record which could persuade us to conclude that the regulations or notifications issued by MCI would as per the law also be binding on the pharmaceutical companies or other allied healthcare sector. Rather, the concession made by the MCI before the Hon'ble High Court of Delhi in the case of Max Hospital v. MCI (CWP No. 1334/2013, dated 10.01.2014) fortifies our aforesaid view that MCI has no jurisdiction to....
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....anction 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 under the Medical Council Act, 1956, contemplating that the regulation of code of conduct would also cover the pharmaceutical companies and healthcare sector, however provides that in case a pharmaceutical or allied health sector industry incurs any expenditure in providing any gift, travel facility, cash, monetary grant or similar freebies to medical practitioners or their professional associations in violation of the Indian Medical Council (Professional Conduct, Etiquette and E....
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....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 of communication of the show-cause notice proposing reclassification." We find that the aforesaid CBDT Circular No. 5/2012, dated 01.08.2012 had came up for consideration before a coordinate bench of the Tribunal in the case of DCIT v. PHL Pharma (P) Ltd. [2017] 49 CCH 124 (Mum), wherein the Tribunal after deliberating at length on two aspects viz. (i) validity of the circular in the backdrop of enlargement of scope of MCI regulation to the pharmaceutical companies by the CBDT, without an....