TaxTMI 
TaxTMI 
2021 (9) TMI 1205
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....1. 2. The appellant prays that your honours hold that the amount of Rs. 12,79,359/- is allowable as deductible expenditure under the provisions of section 37 of the IT Act, 1961; B) General: 3. The above grounds of appeal are without prejudice to one another and the appellant craves leave to add, alter, amend, delete or modify any of the above grounds of appeal." 2. Briefly stated, the assessee company which is engaged in the business of trading and distribution of orthopaedic implantable devices had filed its return of income for AY. 2015-16 on 25.09.2015, declaring a loss of Rs. 1,64,02,283/-. The return of income filed by the assessee was initially processed as such u/s 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment u/s 143(2) of the Act. 3. During the course of the assessment proceedings, it was observed by the A.O that the assessee had claimed deduction of the following expenses: Sr. No. Description Amount (Rs.) 1. Bangalore Orthopaedics Society - Conference for practical use of products 4,49,934 2. Payments to Doctors for Travel to France 3,50,677 3. Marketing Expenses - Hotel Stay etc. 4,78,748 &nbs....
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....ther, in support of his claim that the CBDT Circular No. 5/2012, dated 01.08.2012 and the notification of the MCI, dated 10.12.2009 r.w the Indian Medical Council (Professional Conduct, Etiquette and Ethics), Regulations, 2002 were not applicable to the assessee which belonged to the health sector industry, the ld. A.R had relied on the order of the ITAT, Mumbai in the case of the Dy. CI-8(2), Mumbai Vs. PHL Pharma P. Ltd. (2017) 49CCH 124 (Mum) 6. Per contra, the ld. Departmental Representative (for short 'D.R') relied on the orders of the lower authorities. It was submitted by the ld. D.R that as the aforesaid expenses incurred by the assessee company were in violation of CBDT Circular No. 5/2012, dated 01.08.2012 and the notification of the MCI, dated 10.12.2009 r.w the Indian Medical Council (Professional Conduct, Etiquette and Ethics), Regulations, 2002, therefore, the same had rightly been disallowed by the lower authorities. 7. We have given a thoughtful consideration to the contentions advanced by the ld. Authorised Representatives for both the parties in context of the merits of the additions/disallowance made by the A.O, perused the orders of the lower authorities and t....
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...., thus, by no means being violative of any provision of law were duly allowable as a deduction within the meaning of Sec. 37(1) of the Act. 9. Although, the aforesaid expenditure having been incurred by the assessee wholly and exclusively for the purpose of its business had been held by us to be allowable as a deduction u/s 37(1) of the Act, however, for the sake of completeness we shall deal with the aspect as to whether the said business promotion expenses so incurred by the assessee company, a health sector industry, would be regulated by the CBDT Circular No.5/2012, dated 01.08.2012 and the MCI Regulations. 10. After deliberating at length on the issue under consideration, we find, that the issue that the expenses that are wholly and exclusively incurred by a pharmaceutical company or a health sector industry in the normal course of its business i.e towards gifts, travel facility, conference expenses or similar freebies given to medical practitioners or their professional associations would not be hit by the 'Explanation 1' to Sec. 37 of the Act is covered by the order of a coordinate bench of the Tribunal i.e ITAT "A" Bench, Mumbai in the case of Aristo Pharmaceuticals Pvt. ....
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....able on record. We find that our indulgence in the cross appeals filed by the assessee and the revenue has been sought for adjudicating the allowability of the sales promotion expenses incurred by the assessee on the distribution of articles to the stockists, distributors, dealers, customers and doctors, in the backdrop of the CBDT Circular No. 5/2012, dated 01.08.2012 and the MCI regulations. We find that it is the case of the revenue that as per the CBDT Circular No. 5/2012, dated 01.08.2012 any expense incurred by a pharmaceutical or allied health sector industry in providing any "freebies" to medical practitioners or their professional associations in violation of the regulation issued by Medical Council of India which is a regulatory body constituted under the Medical Council Act, 1956, would be liable to be disallowed in the hands of such pharmaceutical or allied health sector industry or any other assessee which had provided such "freebies" and claimed the same as a deductible expense against its income in the accounts. 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....
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.... cover the pharmaceutical company or healthcare sector in any manner. We are further of the view that in the backdrop of our aforesaid observations, as the Medical Council of India does not have any jurisdiction under law to pass any order or regulation against any hospital, pharmaceutical company or any healthcare sector, then any such regulation issued by it cannot have any prohibitory effect on the manner in which the pharmaceutical company like the assessee conducts its business. On the basis of our aforesaid observations, we are unable to comprehend that now when the MCI has no jurisdiction upon the pharmaceutical companies, then where could there be an 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 practitione....
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....ntioned or similar freebees in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 shall be inadmissible under section 37(1) of the Income Tax Act being an expense prohibited by the law. This disallowance shall be made in the hands of such pharmaceutical or allied health sector Industries or other assessee which has provided aforesaid freebees and claimed it as a deductible expense in its accounts against income. 4. It is also clarified that the sum equivalent to value of freebees enjoyed by the aforesaid medical practitioner or 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 a....
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....the allied healthcare sector for claiming the same as an expenditure." 11. We are further of the considered view, that even otherwise, the enlargement of the scope of MCI regulation to the pharmaceutical companies or other health sector industry by the CBDT is de hors any enabling provision either under the Income Tax Act or under the Indian Medical Council Regulations. In our considered view, 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 powers to create a new impairment adverse to an assessee, or to a class of assesses, without any sanction or authority of law. We find that the aspect that the CBDT is divested of its powers to enlarge the scope of MCI regulation by extending the same to pharmaceutical companies without any enabling provision either under the Income tax Act or the Indian Medical Regulations was also deliberated upon by the Tribunal in the case of Aristo Pharmaceuticals Pvt. ltd. Vs. ACIT (ITA No. 6680/Mum/2012, dated 26.07.2018), wherein it was observed as under : "23. We find that the CBDT as per its Circular N....
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....ated 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." 12. As regards the reliance placed by the ld. D.R on the order of the ITAT, Mumbai Bench 'A' in the case of ACIT, Circle 6(3), Mumbai Vs. Liva Healthcare Ltd. (2016) 161 ITD 63 (Mum) is concerned, we find that the Tribunal while disposing off the appeal in the case of Aristo Pharmaceuticals Pvt. ltd.(supra) had considered the said order. Be that as it may, in the case of Liva Hea....