TMI Blog2018 (7) TMI 1883X X X X Extracts X X X X X X X X Extracts X X X X ..... mplete details as regards its claim of deduction under Sec. 80IB(4) of the Act, thus merely for the reason that the said claim of deduction did not find favour with the A.O would not justify imposition of penalty under Sec. 271(1)(c) in the hands of the assessee. re-characterization of the computer software expenditure as a capital expenditure by the A.O, as against the claim of the same as a revenue expenditure by the assessee, though would justify the disallowance of the said expenditure, but keeping in view the fact that the assessee had made a complete disclosure of the details of the said expenditure and claim of the same as a revenue expenditure in its return of income, thus no penalty under Sec. 271(1)(c) could have been imposed in the hands of the assessee. We are persuaded to subscribe to the view of the CIT(A) that no penalty was called for in the hands of the assessee in respect of the adhoc 15% disallowance of the gift articles expenses as was finally sustained by the CIT(A). Though an unproved claim of expenditure would justify an addition/disallowance, however nothing short of a disproved claim would justify imposition of penalty under Sec 271(1)(c). We find t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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 and their professional associations in violation of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, the same shall be disallowed in the hands of such pharmaceutical or allied health sector industry. We are unable to persuade ourselves to subscribe to the burden imposed by the CBDT vide its aforesaid Circular No. 5/2012, dated 01.08.2012 on the pharmaceutical or allied healthcare sector industries, which as observed by us hereinabove, despite there being an absence of any enabling provisions under the Income Tax law or the Indian Medical Council Regulations, therein contemplating an authority to regulate the conduct of the pharmaceutical and allied health sector industries, had clearly impinged on the conduct of business by the latter. We thus, in the absence of any sanction or authority of law on the basis of which it could safely be concluded that the assessee company which is engaged in the business of manufacturing and sale of pharmaceuticals and allied prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw and facts of the case. 2. On the facts and in the circumstances of the case and in Law, the Ld. CIT(A) e r red in de le t ing the penal ty l e v ied u/s .271(1) ( c ) wi thout appreciating the fact that the assessee had concealed his income and had f i led inaccurate par t iculars of his income as per the provisions of sect ion 271(1)(c) read with Explanation 1 thereto of the Income Tax Act, 1961. 3. For these and other grounds that may be urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the A.O. restored. 2. Briefly stated, the assessee company which is engaged in the business of manufacturing and sale of pharmaceuticals products had filed its return of income for A.Y. 2005-06 on 31.10.2005, declaring income at ₹ 81,16,05,080/-. The case of the assessee was therafter taken up for scrutiny assessment under Sec. 143(2) of the Act. 3. The issue involved in the present appeal lies in a narrow compass. The assessee in its return of income had claimed deduction under Sec. 80IB of ₹ 16,18,40,947/- on account of a new industrial undertaking located at Daman. The deduction claimed by the assessee was to the extent of 30% of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2014 in appeal before the CIT(A). The CIT(A) after deliberating on the contentions advanced by the assessee in support of its claim that no penalty under Sec. 271(1)(c) was liable to be imposed in respect of the additions/disallowances sustained in its hands viz. (i) disallowance of part of the claim of deduction under Sec. 80IB; (ii) recharacterisation by the A.O of the computer software expenses as capital expenditure; and (iii) disallowance of 15% of gift article expenses, being persuaded to subscribe to the said claim of the assessee, deleted the penalty of ₹ 30 lac imposed by the A.O, observing as under : 3.3 I have considered the background of the case, finding of the A.O in penalty order as well as in rectification order and have also considered the rival submission of the appellant, carefully. I find that this is the case of simple disallowance of some part of deduction u/s.80IB and disallowance of capital expenditure related to computer software and further disallowance of 15% of gift articles expense. Obviously, appellant has disclosed all the facts in return of income, profit loss account in computation of income and has also given all the relevant details t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty imposed by the Assessing officer and sustained by the Ld. Commissioner of Income-tax(Appeals) is deleted. Since it is a simple case of disallowance of some of the expenditures from total deduction claimed u/s. 80IB(4) and disallowance of computer software expenditure as capital expenditure and disallowance of 15% of Gift Articles expenses, it becomes very obvious that there is no furnishing of inaccurate particulars of income or concealment of income. The Hon‟ble Supreme Court in the case of CIT Vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 1058 (SC), has held that merely because of disallowance of any claim which is legally not allowable, no penalty can be levied when there is no concealment of any material facts or furnishing of inaccurate particulars of income. The A.O is therefore directed to delete the penalty of ₹ 30 lakhs levied by him by rectifying the original penalty of ₹ 1.25 crores. 6. The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The Learned Departmental Representative (for short D.R‟) at the very outset submitted that the assessee had furnished wrong particulars and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hands of the assessee. The Ld. A.R further submitted that an adhoc disallowance of 15% of the expenditure incurred by the assessee on gift articles would also not justify imposition of penalty under Sec. 271(1)(c). The Ld. D.R rebutting the challenge thrown by the Ld. A.R to the validity of the assumption of jurisdiction by the A.O for imposing penalty under Sec. 271(1)(c), submitted that as neither any cross-objection or a cross-appeal was filed by the assessee in context of its aforesaid claim, thus it was not permissible on its part to have challenged the validity of the assumption of jurisdiction by the A.O, without putting the revenue to notice as regards the same. Alternatively, the Ld. D.R submitted that the non-striking off the irrelevant default in the SCN‟ would not have any bearing on the validity of the penalty imposed under Sec. 271(1)(c) in the hands of the assessee, as long as the same is found to be in conformity with the basis on which such penalty proceedings were initiated by the A.O while framing the assessment. In support of his aforesaid contention the ld. D.R relied on the order of the ITAT, Mumbai Bench A , Mumbai, in the case of Sansui Steel Pvt. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we are persuaded to subscribe to the view of the CIT(A) that no penalty was called for in the hands of the assessee in respect of the adhoc 15% disallowance of the gift articles expenses as was finally sustained by the CIT(A). We are of the considered view that though an unproved claim of expenditure would justify an addition/disallowance, however nothing short of a disproved claim would justify imposition of penalty under Sec 271(1)(c) of the Act. We find that our view that no penalty under Sec. 271(1)(c) on either of the aforesaid counts could have validly been imposed in the hands of the assessee is fortified by the judgment of the Hon‟ble Supreme Court in the case of CIT Vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 (SC). We thus, finding no infirmity in the order of the CIT(A), uphold the deletion of the penalty of ₹ 30 lac imposed by the A.O under Sec. 271(1)(c) as per his rectified penalty order, dated 06.01.2014. 8. The appeal filed by the revenue is dismissed. ITA No. 6680/Mum/2012 A.Y. 2009-10 9. We shall now take up the appeal of the assessee for A.Y. 2009-10. The assessee assailing the order passed by the CIT(A) has raised before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice by the assessee, that the total sales promotion expenses were to the tune of ₹ 999.19 lac and not ₹ 99.91 lac as considered by him while framing the assessment, thus made a disallowance on account of sales promotion expenses at ₹ 99,91,996/- (i.e. 10% of ₹ 999.19 lacs). 11. Aggrieved, the assessee assailed the order passed by the A.O under Sec. 154 before the CIT(A). The CIT(A) after deliberating on the contentions advanced by the assessee before him, observed that the A.O while framing the assessment under Sec. 143(3), vide his order dated 30.09.2011 had wrongly taken the sales promotion expenses at ₹ 99.91 lac for calculating 10% of disallowance. It was observed by the CIT(A) that it was only when the assessee brought it to the notice of the A.O that the correct amount of sales promotion expenses was ₹ 999.19 lac, that the A.O had rectified his order under Sec. 154 and had modified the amount of disallowance of 10% of the sales promotion expenses to an amount of ₹ 99.91 lac (i.e. 10% of ₹ 999.19 lac). It was observed by the CIT(A) that the assessee by not assailing the assessment order for the year under consideration viz. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of ₹ 10 lac [as per order under Sec. 143(3)] to an amount of ₹ 99,91,996/-, however no opportunity of being heard was afforded to the assessee before passing of the order under Sec. 154 of the Act. The Ld. A.R in support of his claim that an addition/disallowance made under Sec. 154 can be assailed independently without there being any appeal against the original assessment order, relied on the judgment of the Hon‟ble Supreme Court in the case of S. Sankappa Ors. Vs. ITO (1968) 68 ITR 760 (SC). The Ld. A.R in support of his contention that no disallowance out of sales promotion expenses was called for in the hands of the assessee, took us through the assessment orders passed by the A.O under Sec. 143(3) in the case of the assessee for the A.Ys 2007-08 and 2008-09 (Page 14-30 of the APB‟). The Ld. A.R drawing our attention to the aforesaid assessment orders submitted that no disallowance out of sales promotion expenses was carried out by the A.O while framing the assessment in either of the aforesaid years. Per contra, the Ld. D.R submitted that as the A.O had merely rectified a clerical mistake and that too at the behest of the assessee who had brough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ners under Sec. 155 of the Act, which however was objected to by them on the ground that in respect of the assessment year under consideration the provisions of the Income-tax Act, 1922 would be applicable. Subsequently, the rectification of the individual assessments of the partners sought to be done by the A.O under Sec. 35(5) of the Income-tax Act, 1922 was objected to by the assessee on the ground that the proceedings for rectification under Sec. 35(5) were not proceedings for assessment. We find that it was in the backdrop of the aforesaid controversy, that the Hon‟ble Apex Court had held that the proceedings taken for rectification of assessment either under Sec. 35(1) or under Sec. 35(5) of the Income-tax act, 1922 were proceedings for assessment and thus the ITO was well within his right to carry out rectification of the individual assessments of the partners under Sec. 35(5) of the Act. We are unable to comprehend that as to how the aforesaid judgment of the Hon‟ble Apex Court would assist the assessee in dislodging the observations of the CIT(A) that in an appeal against a rectification order passed by an A.O, the assessee could have only restricted himself to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , has raised before us the following grounds of appeal 1 . For that the Ld. CIT(A) has er red in sustaining disal lowance of sales promot ion expense amounting to ₹ 66,49,685/-. 2. For that the Ld. CIT(A) has erred in holding that expenditure incurred for distribution of costly ar t icles (exceeding ₹ 750/- each ar ticle) are f reebies to doctors and professionals. 3. For that the Ld. CIT(A) has erred in holding that the such expenditures (exceeding ₹ 750/- each articles) have been incurred in violation of CBDT circular no. 5/2012 dated 01.08.2012 and are against regulations issued by Medical Counsel of India. 4. For that the Ld. CIT(A) had erred in holding that such expenditures are prohibited by law and thus hit by Explanation to section 37(1). 5. For that the sustenance of disal lowance of ₹ 66,49,685/ - is wrong, il legal and unjustified on the facts and in the circumstances of the appellant's case. 6. For that the whole order sustaining disallowance of ₹ 66,49,685/- is bad in fact and law of the case and is fit to be modified. 7. For that the whole order is bad in fact and law of the case and is fit to be modified. 8. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act being an expense prohibited by the law. 18. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the contentions advanced by the assessee before him, observed viz. (a) undisputedly, the assessee had incurred sales promotion expenses of ₹ 9,70,82,317/- and the genuineness of the same had not been disputed by the A.O; (b) all sales promotion articles were bearing the name and logo of the assessee company; (c) in the earlier assessment years the A.O had consistently allowed such sales promotion expenditure in the hands of the assessee company; (d) that for the first time in A.Y. 2010-11 the A.O had disallowed part of such sales promotion expenditure, but on appeal the CIT(A) had vacated the entire disallowance; (e) that a perusal of the last three years sales, sales promotion expenditure and percentage of such expenditure to sales revealed that assessee had incurred much less sales promotion expenditure during the year under consideration viz. A.Y. 2011-12 as in comparison to the preceding years i.e. A.Ys 2009-10 and 2010-11; and (f) even the sales promotion expenditure to sales ratio had declined to merely 0.91% in A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mists, distributors and customers. It was further observed by the CIT(A) that out of the sales promotion articles exceeding a cost of ₹ 750/- per article, the same, inter alia, included an item namely glucometers purchased along with glucostrips by the assessee during the year for ₹ 5,15,995/-. The said glucometers alongwith the glucostrips were given by the assessee to its field staff, with a direction to hold diabetes detection camps in respective head quarters every month for promoting the anti-diabetic medicine sold by the assessee company. It was further noticed by the CIT(A) that BP instruments, clocks and watches, tracksuits etc. were given by the assessee to the doctors, while for some of the BP instruments were kept at the companies branches for using them in health camps. The CIT(A) deliberating on the nature of the sales promotion articles, observed that the same comprised of tracksuits, watches/clocks, electrical kettles, stainless steel utensil sets etc. which were distributed by the assessee through its field staff to the stockists, distributors and doctors. However, the assessee despite specific directions by the CIT(A) to place on record material evidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of the sales promotion expenses to the extent of ₹ 66,49,685/-. 19. The assessee being aggrieved with the order of the CIT(A) to the extent he had sustained the disallowance of sales promotion expenses of ₹ 66,49,685/-, has carried the matter in appeal before us. The revenue on the other hand has assailed before us the deletion of the disallowance of the sales promotion expenses of ₹ 9,04,32,632/- by the CIT(A). The Ld. A.R taking us through the observations of the lower authorities submitted that the CIT(A) had disallowed the expenditure incurred by the assessee on sales promotion articles of a cost exceeding ₹ 750/- per article, for the reason that the same having been distributed as freebies to doctors and medical professionals was in violation of the CBDT Circular No. 5/2012, dated 01.08.2012 and also against the regulation issued by the MCI, a regulatory body constituted under the Medical Council Act, 1956. The Ld. A.R taking us through the observations of the CIT(A) submitted that he had observed that the genuineness of the expenditure incurred by the assessee on sales promotion expenses of ₹ 9,70,82,317/- was not disputed by the revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly sustaining the disallowance of the sales promotion expenses. The Ld. D.R rebutting the contention of the assessee that no such disallowance was made in the preceding years, submitted that as each and every year is an independent year, thus the same cannot form a basis for determining the allowability of the sales promotion expenses during the year under consideration. The Ld. D.R in order to buttress his contention that the sales promotion expenses incurred by the assessee were not allowable as an expenditure, relied on the judgment of the Hon‟ble High Court of Punjab Haryana in the case of CIT Vs. Kap Scan and Diagnostic Centre (P.) Ltd. (2012) 344 ITR 476 (P H). The Ld. A.R further in support of his contention that the aforesaid expenses incurred by the assessee by way of distribution of freebies were not allowable in the backdrop of the CBDT Circular No. 5/2012, dated 01.08.2012 and the MCI guidelines, relied on certain judicial pronouncements viz. (i) DCIT, Circle-13(1), New Delhi Vs. Ochoa Laboratories Ltd., Noida (ITA No. 4114/Del/2009, dated 25.08.2017); (ii) ACIT, Circle-6(3), Mumbai Vs. Liva Healthcare Ltd., Mumbai (ITA No. 904/Mum/2013, dated 12.09.2016); and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regards the reliance placed by the Ld. D.R on the order passed by the ITAT, Delhi in the case of M/s Ochoa Laboratories Ltd. (supra), it was the contention of the Ld. A.R that as the same pertained to the allowability of conference expenses which were incurred by the assessee, thus the same being distinguishable on facts would not assist the case of the revenue. 20. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available 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 iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gistered medical professionals, it can safely be concluded that the MCI regulations would in no way impinge on the functioning of the assessee company which is engaged in the business of manufacturing and sale of pharmaceutical and allied products. We thus, in the backdrop of our aforesaid deliberations are of the considered view that the code of conduct enshrined in the MCI regulations are solely meant to be followed and adhered by medical practitioners/doctors, and such a regulation or code of conduct would not 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sector Industries. 3. Section 37(1) of Income Tax Act provides for deduction of any revenue expenditure (other than those failing 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 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 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the pharmaceutical companies or allied health sector industries. We are thus of the considered view that the regulations issued by MCI are qua the doctors/medical practitioners registered with MCI, and the same shall in no way impinge upon the conduct of the pharmaceutical companies. As a logical corollary to it, if there is any violation or prohibition as per MCI regulation in terms of Explanation to Sec. 37(1), then the same would debar the doctors or the registered medical practitioners and not the pharmaceutical companies and the allied healthcare sector for claiming the same as an expenditure. 23. We find that the CBDT as per its Circular No. 5/2012, dated 01.08.2012 had enlarged the scope and applicability of Indian Medical Council Regulation, 2002, by making the same applicable even to the pharmaceutical companies or allied healthcare sector industries. We are of the considered view that such an enlargement of the scope of MCI regulation to the pharmaceutical companies by the CBDT is without any enabling provision either under the Income Tax Act or under the Indian Medical Council Regulations. We are of a strong conviction that the CBDT cannot provide casus omissus to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 24. Alternatively, we are of the considered view that it is a trite law that a CBDT Circular which creates a burden or liability or imposes a new kind of imparity, cannot be reckoned retrospectively. We are of the considered view that though a benevolent circular may apply retrospectively, but a circular imposing a burden has to be apply prospectively only. Our aforesaid view is fortified by the judgment of the Hon‟ble Supreme Court in the case of Director of Income-tax Vs. S.R.M.B Dairy Farming Pvt. Ltd. (2018) 400 ITR 9 (SC). The Hon‟ble Apex Court in its aforesaid judgment has held that beneficial circulars had to be applied retrospectively, while oppressive circulars had to be applied prospectively, observing as under: 25. It is in this context, the question arises, when the instruction expressly states that the benefit of the said policy is prospective, still can the courts place a const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 nature of such expenditure incurred by the assessee is to be disallowed in view of the CBDT Circular dated 01.08.2012. For the sake of ready reference, the said CBDT Circular No.5/2012 is reproduced hereunder: INADMISSIBILITY OF EXPENSES INCURRED IN PROVIDING FREEBEES TO MEDICAL PRACTITIONER BY PHARMACEUTICAL AND ALLIED HEALTH SECTOR INDUSTRY Circular No. 5/2012 [F. No. 225/142/2012-ITA.II], dated 1-8-2012 It has been brought to the notice of the Board that some pharmaceutical and allied health sector Industries are providi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8223;. 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 Gazette of India. The said clause reads as under:- 6.8 Code of conduct for doctors and professional association of doctors in their relationship with pharmaceutical and allied health sector industry. 6.8.1 In dealing with Pharmaceutical and allied health sector industry, a medical practitioner shall follow and adhere to the stipulations given below: a) Gifts: A medical practitioner shall not receive any gift from any pharmaceutical or allied health care industry and their sales people or representatives. b) Travel facilities: A medical practitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 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, a medical practitioner shall always: (i) Ensure that his professional integrity and freedom are maintained. (ii) Ensure that patients‟ interests are not compromised in any way. (iii) Ensure that such affiliations are within the law. (iv) Ensure that such affiliations / employments are fully transparent and disclosed. h) Endorsement: A medical practitioner shall not endorse any drug or product of the industry publically. Any study conducted on the efficacy or otherwise of such products shall be presented to and / or through appropriate scientific bodies or published in appropriate scientific journals in a proper way . 6. On a plain r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 passed any order against the Petitioner hospital therefore; the Petitioner cannot have any grievance against the impugned order. 8. It is clearly admitted by the Respondent that it has no jurisdiction to pass any order against the Petitioner hospital under the 2002 Regulations. In fact, it is stated that it has not passed any order against the Petitioner hospital. Thus, I need not go into the question whether the adequate infrastructure facilities for appropriate post-operative care were in fact in existence or not in the Petitioner hospital and whether the principles of natural justice had been followed or not while passing the impugned order. Suffice it to say that the observations dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Here the maxim of Expressio Unius Est Exclusio Alterius is clearly applicable, that is, if a particular expression in the statute is expressly stated for 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 assessee. If the Medical Council regulation is applicable to medical practitioners then it cannot be made applicable to Pharma or allied health care companies. If section 37(1) is applicable to an assessee claiming the expense then by implication, any impairment caused by Explanation1 will apply to that assessee only. Any impairment or prohibition by any law/regulation on a different class of person/assessee will not impinge upon the assessee claiming the expenditure under this section. 7. Before us the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ster or State Medical Register for 1 (one) year. Gifts more than ₹ 1,00,000/- : Removal for a period of more than 1 (one) year from Indian Medical Register or State Medical Register b) Travel facilities: A medical practitioner shall not accept any travel facility inside the country or outside, including rail, road, air, ship, cruise tickets, paid vacations etc. from any pharmaceutical or allied healthcare industry or their representatives for self and family members for vacation or for attending conferences, seminars, workshops, CME programme etc. as a delegate. Expenses for travel facilities more than ₹ 1,000/ - upto ₹ 5,000/-: Censure Expenses for travel facilities more than ₹ 5,000/-upto ₹ 10,000/-: Removal from Indian Medical Register or State Medical Register for 3 (three) months. Expenses for travel facilities more than ₹ 10,000/-to ₹ 50,000/-: Removal from Indian Medical Register or State medical Register for 6 (six) months. Expenses for travel facilities more than more than ₹ 50,000/- to ₹ 1,00,000/-: Removal from Indian Medical Register or State Medic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... From the aforesaid notification, ld. CIT DR submitted that so many violations and censures have been prescribed for any expenditures/ or benefit given to doctors, thus, violation of such guidelines for incurring such kind of expenditures cannot be held to be allowable expenditure. CBDT is well within its power to clarify and interpret the law and prohibit allowance of any expenditure which violates any statute or is in nature of offence. 8. From a perusal of above amendment/notification in the MCI regulation, it is quite clear again that same is applicable for medical practitioners only and the censure/action which has been suggested by it is only on medical practitioners and not for pharmaceutical companies or allied health sector industries. The violation of the aforesaid regulation would not only ensure a removal of a doctor from the Indian Medical Register or State Medical Register for a certain period of time and it does not impinge upon the conduct of pharmaceutical companies. This important distinction has to be kept in mind that regulation issued by Medical Council of India is qua the doctors/medical practitioners and not for the pharmaceutical companies. As a logical co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 not be applicable in the A.Ys. 2010-11 and 2011-12 as it was introduced w.e.f. 1.8.2012. 10. From the perusal of the nature of expenditure incurred by the assessee, it is seen that under the head Customer Relationship Management , the assessee arranges national level seminar and discussion panels of eminent doctors and inviting of other doctors to participate in the seminars on a topic related to therapeutic area. It arranges lectures and sponsors knowledge upgrade course which helps pharmaceutical companies to make aware of the products and medicines manufactured and launched by it. Under Key Account Management, the assessee makes endeavour to create awareness amongst certain class of key doctors about the products of the assessee and the new developments taking place in the area of medicine and providing correct diagnosis and treatment of the patients. The said activities by the assessee are to make the doctors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich has to be allowed as business expenditure and is not impaired by EXPLANATION 1 to section 37(1). 11. Before us, the Ld. CIT DR has also much harped upon the decision of the Hon‟ble Himachal Pradesh High Court in the case of Confederation of Indian Pharmaceutical Industry (SS) vs. CBDT (supra), in support of the argument that CBDT Circular has been approved and confirmed by the High Court and therefore, it has a huge binding precedence. From the perusal of the said judgment of the Hon‟ble High Court, it is seen that in that case the validity of Circular No.5/12 dated 1.8.2012 was challenged. The Hon‟ble High Court though upheld the validity of the said circular but with a rider that if the assessee satisfies the assessing authority that the expenditure is not in violation of the regulation framed by the medical council, then it may legitimately claim the deduction. The assessee has to satisfy the AO that the expenditure is not in violation of the Medical Council regulation. Thus, if the assessee brings out that the MCI regulation is not applicable to the assessee before the AO, the same cannot be applied blindly. 12. At the time of hearing, our attention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court decision in Radha Soami Satsang v. CIT (1992) 193 ITR 321 (SC) but in the instant assessment year, we have observed that these overseas trips for Doctors and their spouses were organized by the assessee whereby no details of the contents of seminar, if any conducted by the assessee overseas has been brought on record and also even the spouses accompanied the Doctors to the overseas trip which included cruise visit to island, gala dinners, cocktail, gala entertainment etc. rather than being directed towards seminar for product information dissemination or directed towards knowledge enhancement or knowledge sharing oriented as no details of seminar and its course content is brought on record rather the trip is directed towards leisure and entertainment of Doctors and their spouses which in our view appears to be clearly a distinguishable feature in this year enabling us to take a divergent view and the expenses incurred by the assessee cannot be allowed as business expenditure u/s. 37 of the Act as it is clearly hit by explanation to Section 37 of the Act being against public policy as unethical prohibited by law. In view of the above, he pointed out that in the above decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred from conducting seminars or conferences by sponsoring the doctors. The entire conduct relates to doctors and medical practitioners and lists out the censures and fines imposed upon them. What has not been provided in the MCI regulation cannot be supplied either by the court or by the CBDT. There has to be express provision under the law whereby pharmaceutical companies are prohibited to conduct conferences or seminar or give free samples. In the Tribunal decision of Liva Healthcare, strong reference has been made to Hon‟ble Himachal Pradesh High Court (supra), that the said CBDT circular has been upheld. On this aspect we have already discussed in detail herein above that, firstly, High Court itself carves out a rider that assessee is free to demonstrate before the AO that this circular is not applicable on facts of the case; and secondly, CBDT circular which creates new impairment and imposes disallowbility not envisaged in any of the Act or regulation cannot be reckoned to be retrospective. Another strong reference has been made to the decision of Hon‟ble Punjab Haryana High Court in the case of CIT vs. Kap Scan and Diagnostic Centre (P.) Ltd. [2012] 25 taxmann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... octors and the medical professionals registered with the council, and cannot govern the other tax entities like drug manufacturing companies or individuals other than the doctors. In the backdrop of the aforesaid observations, the Tribunal had observed that the MCI guidelines cannot decide the allowability or otherwise of an expenditure in the hands of such other entities under the Income-tax Act, 1961. It was further observed by the Tribunal that the Income tax Act is an independent code in itself and the business income of an assessee has to be assessed and taxed as envisaged under the provisions of the Act. On the basis of the limited scope of applicability of the MCI guidelines to a particular class of the society viz. doctors or medical practitioners registered with the council, the Tribunal had concluded that the guidelines issued by MCI would only regulate the code of conduct of the doctors and the medical practitioners registered with it and would not be applicable to other entities. 25. We thus, in the backdrop of the aforesaid settled position of law as regards the prospective applicability of an oppressive circular, are of the considered view that as the CBDT as per i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the Hon‟ble High Court of Himachal Pradesh was considered by the ITAT, Mumbai Bench C , Mumbai in the case of DCIT-8(2), Mumbai Vs. PHL Pharma (P.) Ltd. The Tribunal after considering the aforesaid judgment had observed that as held by the High Court, if the assessee was able to establish that the MCI regulation was not applicable to the assessee, then the same could not be blindly applied in its case. (iv) CIT Vs. Kap Scan and Diagnostic Centre (P.) Ltd. (2012) 344 ITR 476 (P H): We find that the judgment in the aforesaid case was rendered in context of the commission paid by the assessee company which was running a scanning and a diagnostic centre to the private doctors for referring patients for diagnosis/scanning. Thus, the facts involved in the case before the High Court are distinguishable as against those in the case of the assessee before us. Still further, the said judgment was also considered by the Tribunal while passing the order in the case of DCIT-8(2), Mumbai Vs. PHL Pharma (P.) Ltd. 27. We thus, in terms of our aforesaid observations conclude that the assessee was duly entitled for claim of sales promotion expenses of ₹ 9,70,82,317/- incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e incurred by the assessee on sales promotion articles costing more than ₹ 750/- per article, by raising before us the following grounds appeal : On the facts and in the circumstances of the case and in Law, the learned CIT(A) has erred in allowing relief to the assessee to the extent impugned in the grounds enumerated below: 1. The order of the CIT(A) is opposed to law and fact of the case. 2. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in allowing all sales promotion articles costing up to the cost price of ₹ 750/- each u/s. 37(1), on the ground that these are wholly and exclusively incurred for the assessee's business purposes when supporting evidences have not been furnished by the assessee. 3. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in allowing sales promotion expenses, without appreciating the prohibi tion imposed b the Medical Council of India on medical practitioners from accepting gifts, travel facilities, hospitality, cash or monetary grants (freebies) from pharmaceutical and allied healthcare sector Industry and the Circular no 5/2012 issued by CBDT not to allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of ₹ 10,60,02,763/- [Rs. 11,37,45,179/- (-) ₹ 77,42,416/-]. 33. That both the assessee and the revenue being aggrieved with the order of the CIT(A) has carried the matter by way of cross appeals before us. We find that the issue involved in the present case viz. disallowance of sales promotion expenditure remains the same, as was there before us in the assesses own case for the immediately preceding year viz. A.Y. 2011-12 as had been adjudicated by us hereinabove, except for the fact that in the present case the CBDT Circular No. 5/2012, dated 01.08.2012 had came into force during the year under consideration. Be that as it may, we are of the considered view that as deliberated by us at length hereinabove, the aforementioned CBDT Circular No. 5/2012, dated 01.08.2012 had enlarged the scope of MCI regulations and made the same applicable to the pharmaceutical companies, without any enabling provision either under the Income Tax Act or the Indian Medical Council Regulations. We are of the considered view that as observed by us hereinabove, the CBDT by extending the scope and gamut of the MCI Regulation had by so doing traversed beyond the scope of its jurisdiction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. 37(1) of the Act. 34. We thus, in terms of our aforesaid observations conclude that the assessee was duly entitled for claim of sales promotion expenses of ₹ 11,37,45,179/- incurred on the distribution of articles to the stockists, distributors, dealers, customers and doctors. Thus, the order of the CIT(A) sustaining the disallowance of the sales promotion expenses to the extent of Rs, 77,42,416/- is set aside. The entire disallowance of the sales promotion expenses of ₹ 11,37,45,179/- made by the A.O is deleted. 35. The appeal of the assessee viz. ITA No. 5479/Mum/2015 is allowed and the appeal of the revenue viz. ITA No. 5747/Mum/2015 is dismissed. 36. The appeals of the assessee for the A.Ys. 2005-06, 2011-12 and 2012- 13, viz. ITA. No. 5167/Mum/2015, ITA No. 5553/Mum/2014 and ITA No. 5479/Mum/2015, respectively, are allowed. The appeal of the assessee for A.Y. 2009-10 viz. ITA No. 6680/Mum/2012 is allowed for statistical purposes. The appeals of the revenue for A.Ys. 2011-12 and 2012-13, viz. ITA No. 6129/Mum/2014 and ITA No. 5747/Mum/2015, respectively, are dismissed. Order pronounced in the open court on 26/07/2018 - - TaxTMI - TMITax - Income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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