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TMI Blog2019 (12) TMI 741X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses on brand reminders and (b) Rs, 42,64,153 out of expenses incurred on purchase of medical books and journals provided to HealthCare Professionals ('HCPs'). 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the action of the AO in holding that the aforesaid expenses are disallowable under the Explanation to section 37(1) of the Act in view of Circular no. 05/2012 dated 1 August 2012 issued by the Central Board of Direct Taxes ('CBDT') read with the amendment made by the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 ('IMC Regulations') on 10 December 2009. 3. Without prejudice to the above grounds of appeal and in the alternative, the learned CIT(A) erred in ignoring the contentions of the appellant that the IMC Regulations which were issued under the Indian Medical Council Act, 1956 do not apply to pharmaceutical companies. 4. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that the CBDT Circular dated 1 August 2012 is applicable to expenditure incurred during the previous year relevant to AY 2010-11. 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act was passed after making various additions/ disallowances which, inter alia, included disallowance on account of payment made to doctors in violation of Indian Medical Council (Professional conducts, Etiquette and Ethics) Regulations, 2002 of Rs. 3,51,65,661/- and addition of Rs. 8,10,370/- on account of un-reconciled amounts as per Individual Transaction Statement ("ITS"). In the course of assessment proceedings, the Assessing Officer noted that assessee has debited Rs. 3,09,05,508/- under the head 'Brand Reminders' and Rs. 42,64,153/- under the head 'Purchase of Medical Books and Journals'. It is the case of the Assessing Officer that these payments are in violation of the IMC Regulations issued in 2009 and are also subsequently specifically stated to be disallowed by the CBDT Circular 05/2012. As per the Assessing Officer, assessee should not have made these expenditure in promoting its own brand, with respect to the medicines sold by it, amongst the Medical Practitioners. The Assessing Officer has held that the guidelines and regulations issued by the Indian Medical Council state that such a conduct would be unethical and, therefore, once it is classified as unethical, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iolation of the provisions of another statute. He further relied on the decision of the Hon'ble Madras High Court in the case of CIT vs. India Cements Ltd (2000) 241 ITR 62 (Mad) wherein it was held that while making the assessment under the Act, the authorities under the Act are not required to close their eyes to the infraction of other applicable laws by the assessee and render such other laws and the penal provisions therein meaningless by allowing a trader or an owner of a business to reap the benefit of the violation of the law. iv. The fourth argument of the assessee was that expenditure incurred by the assessee does not amount to freebies as per Circular No. 05/2012. In this regard, the Assessing Officer observed that the question whether the payment made by the assessee falls within the meaning of the term "freebies" or not is not relevant. v. Fifthly, it was argued by the assessee that gifts given to the Medical Practitioner are in the form of pens, notepads, USB pen drives, mobile holders, which has significant advertisement value for the assessee, whereas the same do not have any significant commercial value for the Medical Practitioners. Also, all gifts are capped ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . As per the said Guidelines, in dealing with Pharmaceutical and allied health sector industry, a medical practitioner shall not: a) Receive any gift from any pharmaceutical or allied health care industry and their sales people or representative. b) Accept any travel facility inside the country or outside, including rail, air, ship, cruise, tickets, paid vacations, etc, from any pharmaceutical or allied health care industry or their representative for self and family members for vacation or for attending conferences, seminars, workshops, CME programme etc. as a delegate. c) Accept individually any hospitality like hotel accommodation for self and family members under any pretext. d) Receive any cash or monetary grants from any pharmaceutical and allied healthcare industry for individual purpose in individual capacity under any pretext. 6. The Assessing Officer thus concluded that as per the amended IMC Regulations, a doctor shall not receive any freebies in the form of gifts, travel facility, hospitality and cash or monetary grants from the Pharmaceutical companies under any pretext. He thus proceeded to hold that even the assessee pharmaceutical company is prohibited from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit of the receiver and without any consideration. The items/ articles given by the assessee for brand reminder cannot be equated with the gift as the same is not given for the exclusive benefit of the receiver. As for doctors, they will derive little or no material benefit out of it. Secondly, it cannot be said that the same is given without consideration. By way of such gift, the assessee is creating brand awareness among the doctors and amongst the general public and that is the consideration the assessee company is getting in return of the items. Thus, it will be wrong to equate the same with the 'gift' which is without consideration. It is more akin to the advertisement and business promotion expenditure. 10. As regards books and journals distributed by the assessee, it was submitted that such books are distributed only in the field in which Pfizer operates and are distributed with a view to disseminate knowledge and education. The Pharmaceutical industry in which assessee operates requires the Medical Practitioners to constantly stay abreast of developments on various medicines and cures available for diseases. Such distribution of medical books and journals are for impartin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said expenses are illegal and consequently not allowable as per the Explanation to Section 37(1) of the Income-tax Act, 1961? In this regard, the Tribunal held as under: "6. On a plain reading of the aforesaid notification, which has been heavily relied upon by the department, it is quite apparent that the code of conduct enshrined therein is meant to be followed and adhered by medical practitioners/doctors alone. It illustrates the various kinds of conduct or activities which a medical practitioner should avoid while dealing with pharmaceutical companies and allied health sector industry. It provides guidelines to the medical practitioners of their ethical codes and moral conduct. Nowhere the regulation or the notification mentions that such a regulation or code of conduct will cover pharmaceutical companies or health care sector in any manner.The department has not brought anything on record to show that the aforesaid regulation issued by Medical Council of India is meant for pharmaceutical 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t-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 dated27.10.2012 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." [Emphasis added is ours] 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 any of law/regulation? Und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 enlarged the scope and applicability of 'Indian Medical Council Regulation 2002' by making it applicable to the pharmaceutical companies or allied health care sector industries. Such an enlargement of scope of MCI regulation to the pharmaceutical companies by the CBDT is without any enabling provisions either under the provisions of Income Tax Law or by any provisions under the Indian Medical Council Regulations. The CBDT cannot provide casus omissus to a statute or notification or any regulation which h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il of India. Considering the settled legal position on the issue, we are of the opinion that the issue now stands covered in favour of the assessee. The pharmaceutical company like the assessee is outside the scope of the circulars by the Medical Council of India or the CBDT. Therefore, the conclusions of the AO/ CIT(A) in this regard are reversed. Thus, the grounds raised by the assessee are required to be allowed." (underlined for emphasis by us) As is evident from above, the pharmaceutical companies are outside the scope of the Circulars by the Medical Council of India or the CBDT. As such, the reliance of the Assessing Officer and CIT(A) on the CBDT circular is misplaced. Once it is clear that the said Circulars are not applicable to the assessee, the question of contravention of the said Circular does not arise; and, as such, no disallowance under Section 37(1) of the Act is warranted. 15. As can be seen from above, the case of the assessee is squarely covered by the decision of our co-ordinate bench in the case of DCIT vs. PHL Pharma Pvt. Ltd. (supra). 16. As regards the argument of the Assessing Officer and learned DR that the payment is against the public policy, we fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not applicable to the facts of the present case. 18. In light of the above discussion, we hereby set-aside the order of the CIT(A) and direct the Assessing Officer to delete the addition. Accordingly, this Ground of appeal raised by the assessee is allowed. 19. The next issue pertains to addition on account of un-reconciled amounts as per Individual Transaction Statement ("ITS"). In the course of assessment proceedings, the assessee was asked to reconcile the entries reflecting in ITS with books of account, which was furnished by the assessee on various dates. On going through the same, the Assessing Officer observed that assessee could not reconcile three receipts reflected in Form 26AS amounting to Rs. 6,06,427/- and two payments aggregating to Rs. 2,03,943/-. The Assessing Officer, without any further discussion, proceeded to add the un-reconciled amounts to the income of the assessee and held that it was for the assessee to have proved that the transactions reported in ITS statement are recorded in the books of account of the assessee. 20. In this regard, the learned Representative for the assessee drew our attention to the various letters addressed by the assessee to vario ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny such transaction reported in the ITS statement. In such cases, the burden shifts on the Assessing Officer to prove with supporting evidence to establish that the income was, in fact, earned by the assessee or that the expenditure pertains to the assessee. 23. In the present case, the assessee denied to have carried out the un-reconciled transactions of ITS. To prove its bona fide, the assessee also addressed letters to the concerned parties to get the details of the transactions which the other parties claim to have carried out by them with the assessee. However, none of the parties, except Bank of India, replied to the letters addressed by the assessee; the bank accepted the fact that there was human error and the PAN of the assessee was wrongly linked to other customer data and the transaction was not pertaining to the assessee. 24. The above factual position clearly raises the doubt on the authenticity and correctness of the data reported in the ITS. The Assessing Officer has also not brought on record any concrete evidence to establish that the contents of the ITS were correct. In this scenario, we do not find any reason why the contents of the ITS report should be relied ..... X X X X Extracts X X X X X X X X Extracts X X X X
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