2023 (2) TMI 468

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.... Solvay Pharma India Ltd., which was engaged in a similar business, was merged with the Petitioner company with effect from 1 January 2011. The present Petition is with regard to the assessment pertaining to assessment year 2008- 09 and accordingly it is stated that reference to the Petitioner in the present Petition should be deemed to mean and include reference to the erstwhile Solvay Pharma India Limited. 4. A return of income was fled for the assessment year 2008-09 on 30 September 2008, in which the Petitioner inter alia claimed Rs.48,34,49,690/- as expenditure on gifts as a part of sales promotion expenses. Besides this, the Petitioner claimed an amount of Rs.2,24,14,000/- as expenditure on account of distribution of samples of medicines manufactured by the Petitioner and debited under the category 'physician sample'. Both these expenses were claimed as deduction in computing the total income of the Petitioner. 5. The Petitioner's case was selected for scrutiny assessment. A detailed questionnaire dated 9 August 2011 was served upon the Petitioner requiring the Petitioner to furnish the details as regards : (i) Publicity and propaganda (ii) Legal and p....

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....rom 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 Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 is not be admissible under Section 37(1) of the Income Tax Act being an expense prohibited by the law. Verification of records revealed that the assessee had debited expenses on physician sample of Rs.224.14 lakhs. It was further noticed that the assessee had incurred expenses on gift item given to healthcare professional of Rs.231.82 lakhs. The expenses as gifts, travel facility, hospitality, cash or money grant given to medical practitioner and their professional associations are prohibited as per above circular. The Board Circular is retrospective in nature and applicable to A.Y. 2008-09 also. Therefore, I have reason to believe that income char....

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....disclose full and true materials facts. The assessee was aware of the decision taken on 18.12.2009 by the Medical Council and thus should not have claimed such deduction. Even otherwise the claim being prohibited by law can be withdraw by re-opening of the case." 12. The basis of the challenge to the re-opening of the assessment is primarily on the ground, firstly, that there was no failure on the part of the Petitioner to disclose fully and truly the material facts which was a condition precedent as per Section 147. Secondly, that the action for re-assessment was nothing but a change of opinion and, lastly, that there was no tangible material based upon which the assessment could be re-opened. 13. Mr. Suresh Kumar, learned Counsel for the Revenue, on the other hand, contended that the case of the Petitioner was a ft case for re-opening inasmuch as a claim which was otherwise prohibited by the terms of regulations framed by Medical Council of India could not have been allowed as deduction in terms of the specific prohibition contained under Section 37(1) of the Act. It is stated stated that the Board Circular dated 1 August 2012 had reiterated the regulations of Medical Counc....

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....challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish the vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment." 17. On a perusal of the reasons furnished to the Petitioner and referred to in earlier paragraphs hereinabove, it is clear that the assessing officer had not at all discussed as to what was the material which was not disclosed by the assessee fully and truly, which was otherwise necessary for assessment. On the contrary, it can be seen from the record that during the scrutiny assessment, the assessing officer had called upon the Petitioner to give requisite details as regards the claim on account of expenses incurred on publicity and propaganda, which were furnished by virtue of communication dated 23 November 2011. Although in the Order of assessment, the assessing officer had entertained a doubt regarding genuineness of the expenses, which as per him had not at all b....

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.... certain acts which would be construed as unethical like advertising his professional skill or practice soliciting patients directly or indirectly etc. Regulation 6.4 of the said regulations envisaged as under : 6.4 Rebates and Commission : 6.4.1 A physician shall not give, solicit, or receive nor shall he offer to give solicit or receive, any gift, gratuity, commission or bonus in consideration of or return for the referring, recommending or procuring of any patient for medical, surgical or other treatment. A physician shall not directly or indirectly, participate in or be a party to act of division, transference, assignment, subordination, rebating, splitting or refunding of any fee for medical, surgical or other treatment. 6.4.2 Provisions of para 6.4.1 shall apply with equal force to the referring, recommending or procuring by a physician or any person, specimen or material for diagnostic purposes or other study/work. Nothing in this section, however, shall prohibit payment or salaries by a qualified physician to other duly qualified person rendering medical care under his supervision. 23. However, vide notification dated 10 December 2009 the af....

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....r Industries are providing freebees (freebies) to medical practitioners and their professional 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 and 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 falling 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 expense, if the same has been incurred for a purpose which is either an offence or prohibited by law. Thus.... 4. It is....." 25. It is, thus, clear....