TMI Blog2019 (5) TMI 1643X X X X Extracts X X X X X X X X Extracts X X X X ..... AY 1989- 90 onwards, then depreciation is allowable on the aggregate of WDV of all the assets in the block at beginning of the Financial year alongwith the additions made to the assets in the subject AY. The individual asset losses its identity for depreciation. Respectfully following the order of the Co-ordinate Bench of the Tribunal in assessee s own case in [ 2018 (5) TMI 507 - ITAT MUMBAI] , we decide the issue in favour of the assessee Disallowance in respect of payment made to Doctors - free samples - MCI guidelines - HELD THAT:- We are of the opinion that the MCI guidelines are applicable to the professionals i.e. Doctors only. They do not and cannot govern the other tax entities like Drug manufacturing or drug distributing Companies or individuals other than the doctors, or HUF,s., or Firms etc. MCI, as a body can formulate policy for the Doctors. The assessee is not a practicing professional. So, any guidelines issued by it cannot decide the allowability or otherwise of an expenditure under the Act. Income tax Act is a code in itself and business income an assessee has to be assessed and taxed as envisaged by the provisions of the Act. The issue at hand being simila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in assessing the total income of the Appellant at ₹ 86,47,57,590 as against ₹ 36,01,57,620 as computed by the Appellant; Transfer pricing grounds on Advertising, Marketing and Promotion CAMP') adjustment 2. erred in making transfer pricing adjustment of ₹ 23,58,61,099 on account of AMP expenses incurred by the Appellant; AMP is not an international transaction 3. erred in considering the function of AMP as a separate purported international transaction for the purpose of transfer pricing adjustment; 4. erred in ignoring that the alleged AMP expenses incurred by the Appellant represents only domestic transactions undertaken with third parties/ employees and are outside the purview of Section 92B of the Act and is thus in excess of his jurisdiction; 5. erred in not considering the fact that in absence of an explicit arrangement or agreement between the Appellant and its AEs for incurring AMP expenses, such AMP expenses cannot be considered as an international transactions with AEs; 6. erred in holding that the Appellant is directed by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ysis, erred in not accepting the same set of comparables for benchmarking the AMP expenses; 15. Without prejudice to the above, erred in cherry picking up of inappropriate comparable companies on an ad hoc basis and not having similar product/ brand profile as the Appellant and selected comparable companies of the preceding year without conducting a fresh search and thereby violated the principles of natural justice; Certain expenses are not in nature of AMP expenses 16. without prejudice to the above, even if impugned transaction is considered as international transaction and liable for transfer pricing provisions, there could not be any adjustment as entire alleged AMP expenses are in the nature of routine business expenses or selling expenses and thereby no transfer pricing adjustment on account of AMP expenses is justified; 17. without prejudice to the above, erred in including personnel cost, travelling and conveyance expenses and depreciation on equipment as part of AMP expenses; 18. erred in considering 80% of manpower expenses and travelling and conveyance costs as AMP expenses; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of Circular no. 05/2012 dated 1 August 2012 issued by the Central Board of Direct Taxes ('CBDT circular') read with the amendment made by the MCI Regulations; 27. erred in not appreciating the fact that the MCI regulations were not applicable to the Appellant and accordingly, the question of making any disallowance under the CBDT circular did not arise; 28. Erred in not appreciating the fact that the MCI Regulations are binding and applicable only to medical practitioners and accordingly, the medical device companies are not bound by these regulations; 29. without prejudice to the above, erred in not appreciating the fact that as per the CBDT circular, only that expenditure which is incurred in contravention of the MCI regulations is to be disallowed and whether or not there is any contravention of the MCI regulations is a matter of fact which can be decided only by the MCI and not by the AO. Grants to medical associations 30. without prejudice to the above, erred in not appreciating the fact that out of the convention expenses of ₹ 27,11,48,553, grants of ₹ 15,60,02,015 are p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;freebie' to the health care professionals; Gifts 36. without prejudice to the above, erred in not appreciating the fact that out of the convention expenses of ₹ 27,11,48,553, gifts are provided to HCPs of a nominal value of ₹ 1,43,095 and with the intention of brand recall and creation of goodwill which does not affect their independence and objectivity, accordingly, the same does not amount to gifts under the MCI Regulations; Expenses for travel facilities 37. without prejudice to the above, erred in not appreciating the fact that out of the convention expenses of ₹ 27,11,48,553, expenses for travel facilities of ₹ 16,59,901 was incurred for various HCPs wholly and exclusively for the purpose of the business of the Assessee and accordingly, the same is outside the purview of the MCI Regulations and CBDT circular; 38. without prejudice to the above, erred in not appreciating the fact that the payment for travel facilities had been paid to travel agents/ independent third party service providers and not to medical practitioners and accordingly, the same is outside the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, alter, delete or modify all or any of the above grounds of-appeal. The assessee, vide its letter dated 22.02.2018, has filed additional grounds of appeal, which read as under: ADDITIONAL ALTERNATE LEGAL GROUND OF APPEAL On facts and in the circumstances of the case and in law, the learned Assistant Commissioner of Income Tax- 10(1)(1) ('AO'); Consequential depreciation on non-compete fee of ₹ 4,73,00,000 47. Erred in not granting consequential depreciation on non-compete fees as the same is held to be capital in nature in AY 2002-03. 3. Ground nos. 1 2 are general in nature and, therefore, require no adjudication. 4. The issue raised in Ground nos. 3 to 23 is in respect of Advertising , Marketing and Promotion (AMP) Expenses that AMP is not international transactions. The learned AR submitted before the Bench that the issue raised in these grounds is fully covered by the decision of Co-ordinate Bench, vide order dated 02.05.2018, in assessee s own case in ITA No. 1246/Mum/2016 for A.Y. 2011-12 and therefore the same the said issue should be decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duct on the basis of average selling price for last year less a resale discount percentage, that the resale discount percentage was based on comparable resellers, that it had conducted TP study in respect of transactions of purchase of products, purchase of capital asset and receipt of management fee by clubbing them together as part of distribution work, that as per the TP study the assessee had earned an OPM of 5.39%,as against 4.22% earned by the comparable companies, that it had considered itself a distribution company, that it was carrying out marketing and distribution activities in India, that sales commission, selling and distribution expenses, product give-away and samples and convention expenses were part of sales promotion expenses ,that the TP study by the assessee was incorrect and insufficient. Though he did not reject the TNMM study with reference to distribution function. But, he held that AMP expenditure incurred by the assessee were the IT.s, that it had created brand awareness in its territorial domain, that the ultimate benefit of the activity did not remain with the assessee only, that it passed it on to the parent company in the form of better brand value for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distribution activities, that sales commission could be categorised as AMP expense, that part of travelling expenses and man -power expenses should go to marketing, that the Tribunal in the earlier AY.s had sent back the issue to the file of the AO/TPO(ITA/No.2168/ Mum/14,dtd. 31/12/2015.AY-2009-10 and ITA 811/Ahd/2008,AY.2002-03,dtd.25/10/2016),that matter should be restored back to the file of the TPO. He referred to the case of Luxottica India Eyeware Pvt. Ltd.((ITA/1492/Del/2015 dtd. 26. 05.2017 In his rejoinder, the AR stated that after a series of order/judgments of the Tribunal and the Hon ble Courts with regard to AMP expenses there was no need to follow the orders of the earlier years as at that time there was not much clarity on the subject. 3.4.We have heard the rival submissions. We find that the TPO had held that assessee should have been compensated by its AE for the AMP expenditure incurred by it. We have gone through the agreements entered in to by the AE.s with the assessee, that in the agreements there is no condition about sharing of AMP, that the agreements talks of using best efforts to market and distribute the product or pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not make such a transaction an IT. The factors like payment under the head AMP expenditure to the third independent parties, promoting own business interest by way of AMP expenses take away the alleged internationality of the transacttion.In absence of any direct or direct evidence of incurring of AMP expenses by the assessee for the benefit of the AE or on behalf of the AE, it is has to be held that the transaction in dispute is not covered by the provisions of section 92B or 92B(1)of the Act and hence is not an IT. Once it goes out of the ambit of being an IT,FAR analysis of comparables or any other adjustment will and cannot come in picture. Folk wisdom of rural India the says that mother(Maa)is must for existence of her sister(Mausi).Similarly the existence of an IT is the pre-requisite of applying the provisions of chapter X of the Act. The assessee from the very beginning was arguing that it is not an IT, but, the TPO and the DRP did not deal with the core issue. In these circumstances, we are of the opinion that the matter should not be remitted back to the file of the TPO/ AO. Litigation has to be put to an end at some stage. Judicial time of every authority, includin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es for the allocation or apportionment of, or any contribution to, any cost. or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to anyone or more of such enterprises. (2) A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes 'of sub-section (1), be deemed to be a transaction entered into between two associated enterprises, if there exists a prior agreement in relation to' the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise. 56.Thus, under Section 92B(1) an 'international transaction' means- (a) a transaction between two or more AEs, either or both of whom are nonresident (b) the transaction is in the nature of purchase, sale or lease of tangible or intangible property or provision of service or lending or borrowing money or any other transaction having a bearing on the profits, incomes or losses of such enterprises, and (c) shall include a mutual agreement or arrangement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to be definitely shown is the existence of transaction whereby MSIL has been obliged to incur AMP of a certain level for SMC for the purposes of promoting the brand of SMC. 59. In Whirlpool of India Ltd. (supra), the Court interpreted the expression acted in concert and in that context referred to the decision of the Supreme Court in Daiichi Sankyo Company Ltd. v.. Jayaram Chigurupati 2010(6)MANU/SC/0454/2010, which arose in the context of acquisition of shares of Zenotech Laboratory Ltd. by the Ranbaxy Group. The question that was examined was whether at the relevant time the Appellant, i.e., 'Daiichi Sankyo Company and Ranbaxy were acting in concert within the meaning of Regulation 20(4) (b) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. In. para 44, it was observed as under: The other limb of the concept requires two or more persons joining together with the shared common objective and purpose of substantial acquisition of shares etc. of a- certain target company, There can be no persons acting in concert unless there is a shared common objective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a TPO to examine the 'international transaction' as he actually finds the same. 62. In the present case, the mere fact that B L, USA through B L, South Asia, Inc holds 99.9% of the share of the Assessee will not ipso facto lead to the conclusion that the mere increasing of AMP expenditure by the Assessee involves an international transaction in that regard with B L, USA. A similar contention by the Revenue, namely the fact that even if there is no explicit arrangement, the fact that the benefit of such AMP expenses would also encure to the AE is itself self sufficient to infer the existence of an international transaction has been negatived by the Court in Maruti Suzuki India Ltd. (supra) as under: xxxxxx 68. The above submissions proceed purely on surmises and conjectures and if accepted as such will lead to sending the tax authorities themselves on a wild-goose chase of what can at best be described as a 'mirage'. First of all, there has to be a clear statutory mandate for such an exercise. The Court is unable to find one. To the question whether there is any 'machinery' provision for determining the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntity which happens to use the brand of a foreign AE to be presumed to involve an international transaction. And this, notwithstanding that this is not one of the deemed international transactions listed under the Explanation to Section 928 of the Act. The problem does not stop here. Even if a transaction involving an AMP spend for a foreign AE is able to be located in some agreement, written (for e.g., the sample agreements produced before the Court by the Revenue) or otherwise, how should a TPO proceed to benchmark the portion of such AMP spend that the Indian entity should be compensated for? 63. Further, in Maruti Suzuki India Ltd. '(supra) the Court further explained the absence of a 'machinery provision qua AMP expenses by the following analogy: 75. As an analogy; and for-no other purpose; in the- context of a domestic transaction involving two or more related parties, reference may' be made to Section 40 A (2) (a) under which certain types of expenditure incurred by way of payment to related parties is not deductible where the AO is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods. In such eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... With reference to the submissions of the DR, we would like mention that first of all the issue before us is not an assessee that is engaged in distribution and manufacturing of certain goods, so the question of slicing of expense in two portions would not arise. However, the other part of the argument that matter should be restored back to the file of the AO/TPO as they were following the order of LG and did not have benefit of later judgments of the Hon ble High Court, we would like to mention that matter can be restored back in certain conditions only. Restoration of matters to the AO.s is not a tool to give one more opportunity of hearing to the litigants .It is not advisable to prolong the judicial proceedings in the name of fair play. It is not a case where new evidences have been placed on record by the assessee, that were not made available to the AO at the time of original assessment. It is not also a matter wherein some ground of appeal has remained unadjudicated. T here is violation of principles of natural justice. So, we hold that it is not a fit case to be sent back to the TPO for fresh adjudication. Considering the above, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turing and trading. However, the manufacturing processes were discontinued with effect from 25 January 2002. During the year under consideration, the assessee had claimed depreciation on plant and machinery, building, furniture and fixtures and office equipment. Once the concept of block of assets was brought into effect from AY 1989- 90 onwards, then depreciation is allowable on the aggregate of WDV of all the assets in the block at beginning of the Financial year alongwith the additions made to the assets in the subject AY. The individual asset losses its identity for depreciation. From the record, we also found that in AY 2007-08, the Hon'ble CIT(A) has allowed the assessee s ground by placing reliance on the decisions in case of CIT v Oswal Agro Mills (197 Taxman 25) (HC), Swati Synthetics Ltd v ITA (38 SOT 208) (Mumbai ITAT) and Allied Photographics (8 SOT 318) (Mumbai ITAT). The Department has filed an appeal before the Hon'ble ITAT for AY 2007-08. However, the aforementioned issue was not taken in appeal by the Department before ITAT. We also found that Department accepted CIT(A) order for AY 2002-03. The CIT(A) has accepted the principle that with the introduction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vergent views of the Various High court , the construction which is favourable to the assessee has to be followed as has been laid down in the case of CIT Vs Vegetable Products Ltd. 88 ITR 192 (SC) and, therefore, the grounds should be dismissed. The learned DR relied on the order of the TPO and grounds of appeal. 10. We have heard both the parties and perused the material available on record. A perusal of the order of the Tribunal in ITA No. 1246/Mum/2016 reveals that the identical issue has been adjudicated in favour of the assessee in the ea4rlier year. The operative portion of the said order is as under: 5.Next effective Ground of appeal(Gs.OA 11 to 29) pertains to disallowance of payment made to doctors(Convention Expenses)amounting to ₹ 17.23 crores.We find that identical issue was deliberated upon and decided by the Tribunal in ITA/1600/Mum/2015(supra).Relevant portion is reproduced here: During the assessment proceedings ,the AO found that the assessee had debited ₹ 13.26 crores ,in its books of accounts, under the head invention expenses. He called for detail in that regard. After considering the same, he referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not be made applying the guide -lines, that AO had no disputed the genuineness of expenses. He relied upon the cases of . The DR contended that expenditure incurred by the assessee was not allowable as per the provisions of section 37(1)Expl.1 of the Act, that there was clear cut violation of the guidelines issued by the MCI. He relied upon the cases of Ochoa Lab(85 taxmann.com.168). 5.3.We have heard the rival submissions and perused the material before us. We find that the TPO and the DRP were of the opinion that expenditure incurred by the assessee in violation of the MCI guidelines was not allowable under the Act, that incurring of expenditure for education grants or travelling was against the public policy, that the assessee had incurred the similar expenses in the earlier years also. 5.3.1.Before proceeding further we would like to refer to certain matters that deal with the issue under consideration. First among them is the judgment of the Hon ble Delhi High Court in the case of MAX Hospital, Pitampura v/s. Medical Council of India[W.P.(C) 1334/2013,dtd. 10/01/2014].Relevant portion of the judgment reads as follow: 6.The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riate post-operative care were infact 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 27.10.2012 made by the Ethics Committee do reflect upon the infrastructure facilities available in the Petitioner hospital and since it had no jurisdiction to go into the same, the observations were uncalled for and cannot be sustained. 5.3.2.In the case of PHL Pharma P Ltd.(ITA/4605/Mum/2014-AY.2010- 11,dtd.18/5/2016) following grounds of appeal were raised by the AO: 1.Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of ₹ 22,99,72,607/- being freebies given by the assessee to doctors, ignoring the fact that such payments are specifically prohibited w.e.f. 10.12.2009 by the Medical Council of India (MCI), which is the competent authority, and therefore, the said expenses are illegal and consequently not allowable as per the Explanation to Section 37(1) of the Income-tax Act, 1961? 2.Whether on the facts and in the circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p of brands in one particular therapy area. This is done for certain key doctors, who are opinion leaders and has larger potential for sale of brands. Regarding gift articles, it was stated that this includes expenses for small value items given across the entire pool of doctors in India so as to maintain brand memory on a continuous basis. These small items include diaries, pen sets, injection boxes, calendars, table weights, postcard holders, stationery items, etc., wherein logo of the assessee company and the name of the medicine is advertised. This is important because in the same generic drug there are more than 40 to 60 brands, therefore, brand promotion is done through small value items. Lastly, for cost of samples, it was stated that these samples are distributed through various agents to doctors to prove the efficacy of the drug and to establish the trust of the doctors on quality of drugs. Free samples are given of smaller size, wherein it is marked as physician sample not for sale . Various other expenditure under the aforesaid head, have been elaborately explained and illustrated by the assessee in its reply dated, 27.12.2012 before AO. The relevant portion of the repl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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: xxxx 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 . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdiction nor has any authority under law upon the pharmaceutical company or any allied health sector industry, then such a regulation cannot have any prohibitory effect on the pharmaceutical company like the assessee. If Medical Council regulation does not have any jurisdiction upon pharmaceutical companies and it is inapplicable upon Pharma companies like assessee then, where is the violation of any of law/regulation? Under which provision there is any offence or violation in incurring of such kind of expenditure. The relevant provision of section 37(1)reads as under: xxxxx 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 corollary to it, if there is any violation or prohibition as per MCI regulation in terms of section 37(1) r.w.Explanation1, then it is only meant for medical practitioners and not for pharmaceutical company (Assessee Company) for claiming the expenditure. 9.Adverting to the contention of the Ld. CIT DR that CBDT is well empowered to issue such clarification, it is seen that the CBDT Circular dated 01.08.2012 (supra) in its clarification has e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 aware of its products and research work carried out by it for bringing the medicine in the market and its results are based on several levels of tests and approvals. Unless the pharmaceutical companies make aware of such kind of products to key doctors or medical practitioners, then only it can successfully launch its products/medicines. This kind of expenditure is definitely in the nature of sales and business promotion, which has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, 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 was also drawn to the decision of Tribunal of our Co-ordinate Bench in the case of Liva Healthcare Limited ITA Nos. 904 945/Mum/2013 , decided vide order dated 12.09.2016. In counter, to this decision the learned counsel, Shri JD Mistry distinguished the said judgment and submitted that the facts of the case in the Liva Healthcare (supra) were substantially different from the facts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 decision for A.Y. 2009-10 in the case of Liva Healthcare, there was a specific finding of a fact that no details have been filed with respect to any seminar has been conducted for doctors and that the trips were directed towards leisure and entertainment of doctors and their spouses. This was a distinguishable feature for the Hon ble Tribunal to take a contrary view from A.Y. 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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 disallowbi-lity 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.com 92, wherein commission was paid to the private doctors for referring the patients for diagnosis to the assessee company. In background of these facts and issues involved, the Hon ble High Court held that said payment of commission is wrong and is opposed to be a public policy. It should be discouraged as it is not a fair practice. The ratio of said decision cannot be applied on the facts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not tantamount to giving gifts to doctors but it is regarded as advertising expenses. As regards sponsoring doctors for conferences and extending hospitality, pharmaceuticals companies have been sponsoring practicing doctors to attend prestigious conferences so that they gather contemporary knowledge about management of certain illness/disease and learn about newer therapies. We found that the disallowance was made by the AO by relying on the CBDT Circular dated 01.08.2012 onwards. However, the Circular was not applicable because it was introduced w.e.f.01.08.2012 i.e. assessment year 2013-2014, whereas the relevant assessment year under consideration is 2010-2011 and 2011-2012. Accordingly, we do not find any merit in the disallowance so made by the AO in both the assessment years under consideration . 5.4.Considering the above, we are of the opinion that the MCI guidelines are applicable to the professionals i.e. Doctors only. They do not and cannot govern the other tax entities like Drug manufacturing or drug distributing Companies or individuals other than the doctors, or HUF,s., or Firms etc. MCI, as a body can formulate policy for the Doctors. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 999 for distribution of assessee s products in India, which accounted for approximately 40% of the total revenue of the assessee in that year. However, during A.Y. 2002-03, the distribution agreement was terminated vide agreement dated 31st July 2001 on account of Medtech Devices Limited constraints in investing the required resources to expand its own business in line with assessee s expectations. The said termination agreement provided for certain stipulated conditions, which are as under: MDL would cease distribution of Medtronics products in the territories assigned. Their employees would be transferred to the Assessee; Certain movable and immovable properties of MDL would be selectively purchased by the appellant; Three directors of MDL namely A Damodharan, M. Swaminathan and Sandip Dave have would be retained as consultants by the Assessee for a period of three years and they would not engage in any competing activities; The directors of MDL shall execute a non-compete agreement with Assessee. Consequently, a non-compete agreement was entered in by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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