TMI Blog2018 (4) TMI 1749X X X X Extracts X X X X X X X X Extracts X X X X ..... licable and also we have already given our independent finding as to allowability of expenses in the hands of the assessee as business expenditure. - I.T.A./2880/Mum/2016 Assessment Year: 2010-11 - - - Dated:- 6-4-2018 - S/Sh.Rajendra,Accountant Member and Amarjit Singh,Judicial Member Revenue by: Shri Rajat Mittal-DR Assessee by: Shri Jigar Saiya ORDER Rajendra, AM- Challenging the order,dated 21/01//2016 of CIT(A)-9,Mumbai the Assessee has filed the present appeal.Assessee-company,engaged in the business of manufacturing, trading and marketing of drugs and pharmaceutical producst, filed its return of income on 23/09/2010 declaring total income of ₹ 2.41 crores.The AO completed the assessment u/s. 143(3) of Act,on 21/03/2014 ,determining its income at ₹ 3.42 crores. 2.First ground of appeal is about disallowance of advertisement and publicity expenses, amounting to ₹ 1.01 crores.During the assessment proceedings,the AO found that the assessee had incurred expenses of ₹ 1,01,62,156/-on account of advertisement and publicity. It submitted a list consisting the vendor name, amount, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble clocks etc. on which logo of brand was printed,that such items were in the nature of advertisement and could not be treated as gifts to medical practitioners,that the expenses incurred were purely for promotion of brand,that same were allowable as business expenditure u/s.7 of the Act,that Medical Council of India could not regulate pharmaceutical companies,that the assessee didnot violate any law ,that the expenses incurred did not influence the medical professionals to breach their professional integrity and hence, it did not violate the Notification of Medical Council of India,that CBDT Circular 5/2012 dated 1/08/ 2012 which provided for disallowance of expenditure incurred by pharmaceutical or allied health care industries for providing freebees to medical practioners, could not be applied retro -spectively,that CBDT had enlarged the scope of 'Indian Medical Council Regulation, 2002' . 2.2.1.He relied upon the cases of Solvay Pharma India Ltd. (89 taxmann.com 249) Indian Oxygen Ltd (210 ITR 274) (Cal.),PHL Pharma (P.) Ltd. (ITA 4605/Mum/2014 dated 12/01/2017), Max Hospital, Pritampura v. Medical Council of India (WP No. 1334/2013 dated 10/01/ 2014), Khe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f NCT of Delhi and the necessary equipments and facilities were found to be in order which negates the observations 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. It's 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. At the same time, it is stated that only simple observations were made by the Ethics Committee of the MCI about the state of affairs in the Petitioner hospital and the same did not harm any legal right or interest of the Petitioner. It will be apposite to extract the relevant paragraphs of the counter affidavit filed by the MCI as under: XXXXX 8. It is clearly admitted by the Respondent that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther perusal of the details appearing in the ledger account furnished by the assessee, he further noted that there are certain expenses which has been debited by the assessee like, Customer Relationship Management expenses (CRM) of ₹ 7,61,96,260/-; Key Account Management expenses (KAM)of ₹ 2,56,68,509/-; gift articles of ₹ 9,20, 22,518/-; and cost of samples of ₹ 3,60,85,320/-, which according to him are in the nature of freebies given to medical practitioners/doctors which are disallowable in terms of Explanation to section 37(1) as clarified by CBDT vide its Circular No.5/2012 dated 1.8.2012. In response to the show cause notice by the AO, firstly, as regard CRM expenses, assessee submitted that expenditure under this category includes activities like holding national level seminars on new medical researches and drugs for discussion panels of eminent doctors and inviting other doctors to participate in it; arranging lectures or sponsoring knowledge upgrade course, wherein eminent doctors are invited to speak on the selected topic related to the therapeutic area and also share their research and other latest knowledge updates; subscription of costly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowed the expenditure aggregating to ₹ 22,99,72,607/- (post 10.12.2009) on the ground that, firstly, the guidelines issued by the Medical Council of India is binding because it is a statutory body having been set up under the Act of the Parliament; secondly, the amended notification dated 10.12.2009, which has been reproduced by him in the order, clearly forbids medical practitioners to receive any kind of gift, travel facilities, hospitality and any kind of cash or monetary grants from any pharmaceutical or health care industries. Thus, such an expenses, he held that, is disallowable in terms of Explanation to section 37(1). 5.We have considered the rival contentions made by ld. CIT DR as well as ld. Sr. Counsel, Mr J.D. Mistry, perused the relevant finding given in the impugned orders and material referred to before us. The entire controversy revolves around, whether the expenditures in question incurred by the assessee (a pharmaceutical company) is hit by Explanation 1 below section 37(1) in view of CBDT Circular dated 01.08.2012, interpreting the amendment dated 10.12.2009 brought in Indian Medical Council Regulation 2002 or not. The break-up of sales promotion exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al companies in any manner. On the contrary, before us the learned senior counsel, Shri Mistry brought to our notice the judgment of Hon ble Delhi High Court in the case of Max Hospital vs. MCI in WPC 1334/2013 judgment dated 10.01.2014, wherein the Medical Council of India admitted that the Indian Medical Council Regulation of 2002 has jurisdiction to take action only against the medical practitioners and not to health sector industry. Relevant portion of the said judgment reads as under: xxxxx From the aforesaid decision, it is ostensibly clear that the Medical Council of India has no jurisdiction to pass any order or regulation against any hospital or any health care sector under its 2002 regulation. So once the Indian Medical Council Regulation does not have any 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kind of embargo on medical practitioners and have added para 6.8.1 and also given instances of action which shall be taken upon medical practitioners. The relevant clause of the said notification as relied upon by him is reproduced hereunder: xxxxx 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T has enlarged the scope of Indian Medical Council Regulation, 2002 and made it applicable for the pharmaceutical companies. Therefore, such a CBDT circular cannot be reckoned to have retrospective effect. The same CBDT circular had come 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 cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out and concluded by the learned CIT(A) there is no violation by the assessee in so far as giving any kind of freebies to the medical practitioners. Thus, such kind of expenditures by a pharmaceutical companies are purely for business purpose which 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principles of Res judicata is not applicable to income tax proceedings although we are fully agreeable that principles of consistency is to be maintained (Hon ble Supreme Court decision in Radha Soami Satsang v. CIT (1992) 193 ITR 321 (SC) but in the instant AY., 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here has to be some enabling provision or specific clause in the said regulation whereby the pharmaceutical companies are barred 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where necessary documents were not furnished.We are of the view that CBDT circular cannot apply retrospectively.Respectfully following the orders relied upon by the AR,we decide first effective ground of appeal in favour of the assessee . 3.Second Ground of appeal is about disallowance of expenses of ₹ 5.66 lakhs.It is an alternate ground.We have already held that the disallowance made by the AO and confirmed by the FAA has to be deleted.Hence,we are not adjudicating GOA -2,treating it infructuous. 4.Third ground is about not granting credit of self assessment tax,amounting to ₹ 3.30 lakhs, for the year under consideration.We direct the AO make verification in that regard and allow the credit if the claim is found correct.GOA-3 stands partly allowed. 5.Last ground of appeal deals with calculation of interest levied u/s.234B of the Act.AO is directed to verify the claim made by the assessee and afford it a reasonable opportunity of hearing. As a result,appeal filed by the assessee stands partly allowed. Order pronounced in the open court on 6 th April 2018. - - TaxTMI - TMITax - In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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