TaxTMI 
TaxTMI 
2021 (2) TMI 725
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....2007-2008 to A.Ys 2011-2012 and the second part was concerning A.Y's 2012-2013 and 2013-2014. In all the appeals, the assessee had raised the grounds challenging the notice issued u/s 153A of the I.T.Act. Apart from challenging the notice, the assessee had raised grounds relating to merits on three issues, viz., (i) disallowance of business promotion expenses, (ii) disallowance of discount given to the customers, and (iii) disallowance of bad debts written off (this issue is not there for A.Y's 2007-2008 to A.Y's 2009-2010) 2.1 In the first part of the ITAT's order concerning A.Y's 2007- 2008 to 2011-2012 in ITA No.1921/Bang/2016 to 1925/Bang/2016 (cases which we are concerned now), the Tribunal quashed the assessment orders by holding that the notice issued u/s 153A of the I.T.Act was not valid on the ground that no incriminating material was found for these years, whose assessment has already been concluded u/s 143(3) of the I.T.Act. While doing so, the Tribunal placed reliance on various judicial pronouncements as detailed in the order. Since the assessments for A.Y's 2007-2008 to 2011-2012 were quashed, the issues on merits were not adjudicated (pa....
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....ove three issues on merits were decided by the ITAT for assessment years 2012- 2013 and 2013-2014. It was stated that the order of the ITAT for assessment years 2012-2013 and 2013-2014 has attained finality as no appeal was preferred by the Revenue before the Hon'ble High Court. It was submitted that the same decision / directions rendered for A.Y's 2012-2013 and 2013-2014 may be taken in these assessment years as well. We shall adjudicate each of the issues as under. (i) Disallowance of business promotion expenses (for assessment years 2007-2008 to 2011-2012 - Ground No.12) 4. The Tribunal in its earlier order dated 29.01.2018 for assessment years 2012-2013 and 2013-2014 elaborately discussed the above issue in para 13 to 18. The Tribunal at para 17 and 18 held that the expenses incurred on doctors before 01.08.2012 is to be allowed as revenue expenditure. The relevant finding of the Tribunal reads as follow:- '13. Now coming to the merits, the ld. Counsel for the assessee has assailed the order of the CIT(Appeals) with regard to the additions made after making disallowances of business promotion expenses claimed u/s. 37 of the Act. In this regard, the facts in b....
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.... outside the country as delegate. In the case in hand, the Doctors have attended Seminars & Conference not as delegates, but as faculty members, therefore no disallowance can be made having invoked the Notification of MCI and Explanation to 37(1) of the Act. In support of his contentions, the ld. Counsel for the assessee has placed reliance upon the order of Tribunal in the case of DCIT v. PHL Pharma Pvt. Ltd., 146 DTR 0149, Simcon Formulation (India) Pvt. Ltd. v. DCIT of Mumbai Tribunal and Hon'ble Delhi High Court judgment in the case of Max Hospital v. MCI in W.P.C. No.1334/Del/2013 dated 10.01.2014. 16. The ld. DR, on the other hand, has placed reliance upon the order of the CIT(Appeals). Besides it was also contended by the ld. DR that no details are available on record as to whether the Doctors have attended the Conferences & Seminars as faculty members or as delegates. The onus is upon the assessee to establish these facts. In the absence of any evidence in this regard, the revenue has rightly disallowed the claim. 17. Having carefully examined the orders of authorities below in the light of rival submissions, we find that the AO has disallowed the business....
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.... incur any development or sales promotion expenses, the Tribunal allowed the expenditure. The relevant observations of the Tribunal are extracted hereunder for the sake of reference:- "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 natur....
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....e 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." 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 ....
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....sure that the source and amount of funding is publicly disclosed at the beginning itself. (v) Ensure that proper care and facilities 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,....
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....y concern with the facilities, infrastructure or running of the Hospitals and secondly, that the Ethics Committee of the MCI acting under the Regulations 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 pas....
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....ncurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the 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.....
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....ing Officer and the details of the same is placed at pages 764 and 765 of the paper book. It was submitted that the travel expenses were paid to the travel agent who did the travel arrangement and conference expenses were paid directly to the conference organizer as a package, which consisted of cost as a group. The learned AR by placing reliance on the orders of the Mumbai Bench of the Tribunal in the case of DCIT v. PHL Pharma Private Limited (relied on by the Tribunal in its order dated 29.01.2018) and in the case of DCIT v. Bayer Pharmaceuticals Private Limited (ITA No.6222/Mum/2018 order dated 18.09.2019) submitted that the legal principle enunciated in these orders of the Tribunal are as follows:- (i) On the specific question as to whether the payments to doctors are prohibited w.e.f. 10.12.2009 as per MCI guidelines, it was held that MCI guidelines are applicable only for medical practitioners and not for pharma companies (page 3, 5 of Bayer order). (ii) As a logical corollary, if there is any violation of MCI regulation in terms of Section 37(1), it is meant for medical practitioners and not for pharma companies (page 6 of Bayer order) (iii) CBDT ....
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....d DR submitted that the Hon'ble ITAT ought to replace the phrase "expenditure incurred on doctors before 01.08.2012 be allowed as revenue expenditure" in direction issued on the ITAT order dated 29.01.2018 with "expenditure incurred on doctors before 10.12.2009 be allowed as revenue expenditure" in the present appeals. The gist of the DR's submission are as follows:- (i) The decision on which the Hon'ble Tribunal order dated 29.01.2018 had relied on (PHL Pharma case) did not hold that disallowance was to be made only after 01.08.2012. (ii) Any violation of the MCI Regulations, effective from 10.12.2009, came under the embargo placed by Explanation u/s 37(1) after 10.12.2009. (iii) Circular 5/2012 of the CBDT is clarificatory on the scope of Explanation 37(1). (iv) The decision of the Hon'ble Tribunal has been rendered without the knowledge of Explanation u/s 37(1) of the Act. 4.4 We have heard rival submissions and perused the material on record. From CBDT Circular No.5/2012 dated 01.08.2012 and MCI Regulation 6.8 (published in Gazette on 14.12.2009) it is clear that expenditure incurred by the assessee on doctors alone is liable for disallowa....
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....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 applicable in the A.Ys 2010-11 and 2011-12 as it was introduced w.e.f. 01.08.2012." 4.4.2 Similar view was held in the following cases: (i) Bayer Pharmaceutical P. Ltd. ITA No.6222/ Mum/2018 - A.Y. 2011-12. (ii) Medley Pharmaceuticals Ltd. ITA No.2344/Mum/ 2018 A.Y.2012-13. (iii) Aristo Pharmaceuticals Ltd. ITA No.5553/Mum/ 14 & 5479/Mum/15 A.Y. 2011-12 & 2012-13. 4.4.3 No contra decision has been brought to our notice. Therefore, in the light of the above said ITAT order and ITAT order dated 29.01.2018 in assessee's own case for A.Y. 2012- 2013 and 2013-2014, we hold that expenditure relating to doctors incurred by the assessee prior to 01.08.2....
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.... "19. The next ground in both the appeals relate to the disallowances of discounts given to the customers. In this regard, facts in brief borne out from the record are that in the assessment year 2013-14, assessee has debited a sum of Rs. 23,55,30,000/- as discount into audited financials, but it was disallowed by the AO having noted that the assessee failed to furnish evidence for payment of discount and confirmation letters from its customers. The AO ignored the credit notes and the credit note ledger produced before him on the basis of certain information revealed during the course of enquiry. 20. Assessee preferred an appeal before the CIT(A) with the submissions that recording of the sale transaction is an unilateral practice followed in any business organizations. In many a times, the sale amount recorded in the books are not realized for various reasons. When the sale ultimately fortifies, the initially recorded price may not be realized and if there is a shortfall in the realization for any compelling business reasons, the same cannot be treated as sales returns and such shortfall, if any, is passed out for discount for which credit note is raised from the customer....
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.... having received and accounted all credit notes issued by the assessee as against the total customer base of 600 plus hospital. In support of his contentions, reliance was placed upon the judgment in the case of CIT Vs. Leader Valves Ltd., 295 ITR 273 (P&H) and the Hon'ble Supreme Court judgment in the case of Southern Motors v. State of Karnataka and Ors, in Civil Appeal Nos.10972 - 10978 of 2016 dated 18.01.2017. He also placed reliance upon the judgment of the Hon'ble Kerala High Court in the case of IFB Industries Ltd., Vs. State of Kerala, copy of which is placed at page No. 878-887 of the compilation. 23. The learned DR, on the other hand has placed reliance upon the order of the CIT(A). 24. Having carefully examined the material available on record in the light of rival submissions, we find that the assessee has given the discounts on its gross sales. Sometimes discount was given at the time of issuing of invoice. The AO has doubted the discount given by the assessee on its different sales on the basis of the statement of those parties to whom the discount was given. During the course of assessment proceedings, the receipt of discount was accepted ....
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....and the hospital representatives collect the discount by the company agreed upon given by the company. These aspects need to be examined by the AO. In the light of these facts, we are of the considered view that the issue was not been properly examined by the lower authorities and they have disallowed the claim of the assessee by making superficial observation. Therefore, in the interest of justice, we set aside the order of the CIT(A) in this regard and direct the AO to readjudicate the issue after making necessary enquiry and verification. If the assessee succeeds in establishing that most of the time the discount was given in the invoice itself, the same may be allowed without making a further necessary enquiry. So far as other aspect with regard to discount given to the hospital on cashless treatments or on paid treatment, the issue requires proper examination by making necessary enquiry. Accordingly, the issue is restored back to the AO for fresh adjudication." 5.3 The direction of the ITAT in above order are two folds, namely - (a) Discounts given in the invoice itself should be allowed without making any further enquiry; and (b) Discounts given ....
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.... (v) The A.O. has disallowed the bad debts claim only on the ground that the evidence to show that the debts have become bad and the efforts made to recover them were not furnished. This no more a requirement of law to claim bad debts. (vi) The decision of the Hon'ble Tribunal for A.Y. 2013-2014 applies to A.Y. 2011-2012 and 2012-2013. Prayer Since the requirement of law for claiming bad debts as expenditure has been fulfilled and the disallowance has been made for extraneous reasons, the claim may be allowed, following the decision of the Hon'ble Tribunal in A.Y. 2013- 2014. 6.1 The DR in his written submission dated 30.12.2020 has stated that the matter may be remanded back to the A.O. for examination and allow the claim in terms of section 36 of the I.T.Act. 6.2 We have heard rival submissions and perused the material on record. This issue has been discussed in detail in the Hon'ble Tribunal's order for A.Y's 2012-2013 and 2013- 2014 at paragraphs 26 to 29 of the order, wherein the A.O. has been directed to allow the claim of bad debts. The relevant discussion and finding of the ITAT concerning above issue reads as follow:- ....