2023 (5) TMI 1054

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....tion expenses. 2. The brief facts of the case are that the assessee is a company engaged in the business of manufacturing and selling of pharmaceutical products. The assessee has manufacturing facilities at 5 locations in Jammu. For the assessment year 2010-11, the assessee filed the return of income declaring a taxable income at Rs.81,83,793/- after claiming deduction under sections 80G and 80IB amounting to Rs.30,20,66,215/-. For A.Y. 2011-12, the assessee offered taxable income of Rs.24,38,48,900/- after claiming deduction under sections 80G and 80IB amounting to Rs.11,96,35,535/-. The case was selected for scrutiny and the statutory notices were duly served on the assessee. The Assessing Officer concluded the assessment by making a disallowance of Rs.19,73,90,622/- for AY 2010-11 towards concealed sales arising out of concealed production. The Assessing Officer made a similar disallowance for A.Y. 2011-12 for an amount of Rs.17,30,96,446/-. Aggrieved, the assessee filed appeal before the CIT(A), who confirmed the above addition made by the Assessing Officer. The Ld.CIT(A) also did not accept the submissions of the assessee that the addition made should be allowed as deductio....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....sessee to provide the products' samples of type 10 major manufactured products of the assessee. The Assessing Officer, after perusing the details submitted, was of the view that the assessee has shown particular quantity of consumption of ingredients but that quantity of finished products reported was unreasonably lesser. The Assessing Officer was of the view that the excessive consumption of raw materials revealed that the assessee has not correctly reported the production of finished goods and accordingly concluded that the assessee had not reported the production to carry out sales outside its books. The Assessing Officer computed the excessive consumption as per below table and accordingly made addition towards suppressed sales:- Sl no Name of the unit Value of the unrecorded production unit wise     AY - 2010-11 AY - 2011-12 1 Jammu unit 9,86,18,888   2 Daman unit-2 4,55,99,871   3 Daman unit-3 1,28,74,470   4 Daman unit-4 4,02,97,393     TOTAL 19,73,90,622   4.2. Aggrieved the assessee filed an appeal before the CIT(A). The assessee submitted before the ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....d the ultimate finished goods produced for these batches. (vi)The sample of the Finished Goods Transfer Note (FGTN) also has been filed for each of the respective BMR submitted which give the final output of the batch which is transferred to the finished goods warehouse (vii) The complete set of argument along with BMR were produced during the second remand proceeding. The AO has examined and analysed threadbare and has not found any infirmity in the Appellants argument. From the above it is clear that the basis of computation of wastages and ultimate v suppression of production as concluded by the AO in the assessment order is scientifically unsustainable. In any scientific manufacturing process leading to production of various drugs it cannot be presumed or surmised that one plus one is always equal to two. The prescribed authority DPCO has prescribed a range of wastages in the process of manufacturing of pharmaceutical drugs. Thus, the theoretical The MRP of these products in the relevant year were lower than what is taken by A.O. b) The A.O. has erred in taking MRP as the realization price of the products, whereas MRP is the price at which th....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ves to subscribe to his view that the excess wastage of raw material would ipso facto lead to an inference of suppressed/unaccounted production carried out by the assessee. In our considered view, the aforesaid observation of the CIT(A) de hors any material evidencing the factum of suppressed/unaccounted production carried out by the assessee, cannot be accepted. Unexplained wastage of raw material, in our understanding can only lead to a consequential addition/disallowance of the cost of such raw material as had been debited by the assessee in its „books of accounts‟ for the year under consideration. Accordingly, we modify the order of the CIT(A) and therein direct the A.O to restrict the disallowance in respect of the excess raw material wastage in terms of our aforesaid observations. Ground of appeal No. 1 is partly allowed." 4.5 The Ld.AR submitted that the facts are identical for the years under consideration also and accordingly prayed that the above decision of the co-ordinate bench be followed. 4.6 The Ld.DR relied on the order of the lower authorities. 5. We heard the parties and perused the materials available on record. We notice that for the years u....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....r to 10.12.2009 when MCI guidelines came into effect. Thus it has been contended that MCI guidelines came on 10.12.2009 hence expenditure prior to this date should not be treated in violation of section 37(1) of the Act. (iii) The appellant has also stressed upon that there are number of expenditure, though categorized under sales promotion however they are not related to the Doctors in any manner. Such expenditures have been identified as under: Particular Total amount Disallowed Allowed Details Advertisement & Publicity A/C 40,33,942 - 40,33,942 Unrelated to Doctors Leave Behind A/C 78,73,279 - 68,73,279 These are not gifts / freebies Product reminder 4,31,41,360 4,31,41,360 -   Retail Push Scheme 3,323   3,323 Unrelated to Doctors Visual aid A/C 37,75,811 - 37,75,811 These are not gifts / freebies CME Expenses A/C 1,09,23,883 - 1,09,23,883   Travelling (Conference) 19,85,738 17,20,648 2,65,090   Gift and Rewards [Employee] 3,245   3,245 Unrelated to doctors Doctors Expenses 74,32,130 74,32,130 - &n....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ertion of explanation 3 to section with effect from 1/4/22 is prospective in nature and therefore cannot be applicable in assessee's case and therefore the issue is covered by the decision of the coordinate bench. 7.4 The ld DR on the other hand vehemently argued that the MCI Guidelines are very clear with respect to what is allowable and therefore any amount paid in violation of the said guidelines would be clearly get covered under the explanation 3 to section 37(1). The ld DR further submitted that the amendment is clarificatory in nature and from the wordings used in the explanation it is evident that the amendment is retrospect and the expenses incurred by the assessee which is hit by the explanation is not allowable. The ld DR also brought to our attention the decision of the Hon'ble Apex Court in the case of M/s.Apex Laboratories Pvt. Ltd. v. DCIT [2022] 135 taxmann.com 286 (SC) where it has been held that since acceptance of freebies by medical practitioners was punishable as per Circular issued by Medical Council of India under MCI regulations, 2002, gifting of such freebies by -pharmaceutical company to medical practitioners would also be prohibited by law and thus, ex....