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TMI Blog2020 (7) TMI 568X X X X Extracts X X X X X X X X Extracts X X X X ..... Sec.143(3) r.w.s 147, dated 20.12.2017. The assessee has assailed the impugned order on the following grounds of appeal before us: "GROUND NO. 1 RE-OPENING ASSESSMENT U/S. 147 i. 'Subject matter of original assessment proceedings' a. The learned CIT(A) erred in not treating the re-assessment proceedings as invalid, although during the original assessment proceedings, detailed documents were furnished to substantiate the 'Sales Promotion expenses', which only after examining all the facts and explanations and application of mind did the AO disallow Rs. 5.37 crores as expenses related to Doctor's Gifts/Expenses. b. The learned CIT(A) failed to take into consideration that the re-opening proceedings was nothing but a change of opinion. c. The learned CIT(A) erred in holding that the information provided during the original assessment proceedings was not complete in terms of its nature, however the same was not substantiated with any evidence. d. The learned CIT(A) failed to take into consideration that the AO himself in his reasons for reopening has stated in Para 2 : "On perusal of the details of sale promotion expenses of Rs. 15,91,18,528/- filed by A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in relying on the guidelines laid down in the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations. The Appellant craves leave to add, alter or amend the Grounds of Appeal at or before the hearing of the appeal." 2. Briefly stated, the assessee company which is engaged in the business of manufacturing and trading of pharmaceutical products had filed its return of income for A.Y. 2012-13 on 27.09.2012, declaring its total income at Rs. 29,29,14,990/-. Original assessment in the case of the assessee was framed by the A.O, vide his order passed under Sec.143(3), dated 27.03.2015, and the income of the assessee was assessed at Rs. 49,23,59,750/-. Subsequently, the case of the assessee was reopened under Sec.147 of the Act. In compliance to the notice issued under Sec.148 of the Act, the assessee filed its return of income on 20.04.2017, declaring a total income of Rs. 29,29,14,990/-. 3. In the course of the assessment proceedings the assessee was supplied the copy of the "reasons to believe" on the basis of which its case was reopened under Sec.147 of the Act. Objections filed by the assessee as regards the validity of the jurisdiction assumed by the A.O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the case of the assessee was backed by the fact that a similar disallowance was made in its case for the immediately succeeding year i.e A.Y. 2013-14. It was observed by the CIT(A), that an information culled out from the succeeding year could validly form a basis for reopening the case of an assessee for the preceding year. In support of his aforesaid observations the CIT(A) had relied on the judgments of the Hon"ble High Court of Bombay in the case of (i) Debhashu Services Pvt. Ltd Vs. DCIT (2014) 270 CTR 0036 (Bom); and (ii) Export Credit Guarantee Corporation of India Ltd Vs. Addl. CIT (2013) 350 ITR 651 (Bom). As regards the contentions that were advanced by the assessee to impress upon the CIT(A) that the sales promotion expenses aggregating to Rs. 6,25,53,800/- were rightly claimed as an allowable deduction under Sec.37(1) of the Act, the same did not find favour with him. Observing, that the expenses incurred by the assessee towards providing gifts, travelling facility, hospitality, cash or monetary grants to the medical practitioners and their professional associations was clearly prohibited by the guidelines of the Medical Council of India (for short "MCI"), and also t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Expenses that were booked by the assessee during the year under consideration. It was pointed out by the ld. A.R, that the A.O while framing the assessment, had after considering the amendment carried out by MCI on 14.12.2009 in its Indian Medical Council (Professional Conduct, Etiquettes and Ethics) Regulations, 2002, which regulated the code of conduct of doctors and their professional associations as regards their relationship with pharmaceutical industries and allied health sector industry, and also the CBDT Circular No. 5, dated 01.08.2012, which debarred the pharmaceutical companies to claim deduction u/s 37(1) for expenses incurred on providing freebies to doctors, had disallowed the assessee"s claim for expenses insofar the same related to the gifts given to the doctors to the tune of Rs. 5,37,46,137/-. In sum and substance, it was the claim of the ld. A.R, that the A.O in the course of the regular assessment had arrived at a conscious view that in lieu of CBDT Circular No. 5, dated 01.08.2012 r.w the IMC (Professional Conduct, Etiquettes & Ethics) Regulation, 2002, out of the Sales Promotion Expenses of Rs. 15,91,18,528/-, only the expenses incurred by the assessee for giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e income of the assessee which had escaped assessment. In support of his aforesaid contentions the ld. D.R relied on the judgment of the Hon"ble High Court of Bombay in the case of Export Credit Guarantee Corporation of India Ltd. Vs. Addl. CIT (2013) 350 ITR 651 (Bom) and the judgment of the Hon"ble Supreme Court in the case of ACIT Vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 291 ITR 500 (SC). On merits, reliance was placed by the ld. D.R on the order of the ITAT, Chennai bench "C" in the case of TTK Healthcare Limited Vs. DCIT, Corporate Circle-3(1), Chennai (2017) 78 Taxman.com 86 (Chennai) and ITAT, Mumbai Bench "A" in the case of ACIT, Circle 6(3), Mumbai Vs. Liva Healthcare Ltd. (2016) 161 ITD 63 (Mum). In the backdrop of his aforesaid submissions, it was the claim of the ld. D.R that as the A.O had validly assumed jurisdiction u/s 147 of the Act, therefore, the claim of the counsel for the assessee did not merit acceptance and was liable to be rejected. 8. Rebutting the reliance placed by the revenue on the judgment of the Hon"ble High Court of Bombay in the case of Export Credit Guarantee Corporation of India Ltd. Vs. Addl. CIT (2013) 350 ITR 651 (Bom), it was submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f income for A.Y 2012-13 on 27.09.2012 declaring total income of Rs. 29,29,14,990/-. The assessment u/s 143(3) was made on 27.03.2015 at a total income of Rs. 49,23,59,750/-. On a perusal of the details of sales promotion expenses of Rs. 15,91,18,528/- filed by the assessee, assessee incurred expenses of Rs. 2,80,57,032/- and Rs. 2,28,38,324/- on conference and travelling respectively. As per the further breakup of these expenses, out of the aforementioned expenses, Rs. 1,52,56,668/- and Rs. 1,18,47,054/- on conference and travelling respectively were not incurred for the assessee company but for others, which in its all likelihood were spent towards doctors only. It is further noticed that a sum of Rs. 1,09,91,271/- was incurred by the assessee on account of doctors expenses. The assessee also claimed expenses of Rs. 2,44,58,807/- towards product reminder. These expenses are nothing but amount spent towards various items of gifts (or other items) with the names of the product written over the same and given to doctors so that they got reminded about these products and prescribed the same to patients. The Medical Council Of India, in exercise of the powers conferred by Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court in its order dated 26-12-2012 upheld the validity & legality of the Circular stating that what is stated by Explanation to Section 37(1) is what is intended by the Circular and also that IMC Regulation is a very salutary regulation which is in the interest of the patients and the public. In view of the above, conference & travelling expenses incurred by the assessee for others of Rs. 1,52,56,668/- and Rs. 1,18,47,054/- respectively, doctors expenses of Rs. 1,09,91,271/- and expenses of Rs. 2,44,58,807/- incurred towards product reminder need to be disallowed and therefore, I have a reason to believe that the amount of Rs. 6,25,53,800/- chargeable to tax has escaped assessment for A.Y 2012-13 within the meaning of clause (c) of Explanation 2 of section 1487 of the Income-tax Act, 1961. In view of the above reasons, notice u/s 148 of the Income-tax Act, 1961 for the A.Y 2012-13 is issued. The notice u/s 148 is issued after obtaining prior approval of the Addl. Commissioner of Income-tax, Range-10(2), Mumbai as required under the provisions of section 151(2) of the Income-tax Act, 1961." 11. On a perusal of the records, we find that the assessee in the course of the orig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ethics) Regulations, 2002 (as amended by the MCI on 14.12.2009), and also the CBDT Circular No. 5, dated 01.08.2012, had consciously chosen to restrict the disallowance only to the extent the same pertained to such expenses which were incurred by the assessee on giving gifts to doctors. In other words, the A.O after considering the Indian Medical Council (Professional Conduct, Etiquettes and Ethics) Regulations, 2002 (as amended by the MCI on 14.12.2009), and also the CBDT Circular No. 5, dated 01.08.2012, had formed an opinion, that out of the sale promotion expenses only the expenses which were incurred by the assessee for giving gifts to doctors were liable to be disallowed u/s 37(1) of the Act. 12. We have further perused the "reasons to believe" and find substantial force in the contention of the ld. A.R, that the entire exercise for reopening the concluded assessment of the assessee was embarked upon by the A.O, not on the basis of any fresh tangible material or any new information which had came to his notice subsequent to the culmination of the original assessment proceedings, but on the basis of the same set of facts as were there before his predecessor while framing of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon by his predecessor at the time of framing of the original assessment, tried to substitute his view, as against that which was arrived at by his predecessor. In fact, we are unable to comprehend as to what new "material" or "information" had came up before the A.O, which would have justified the reopening of the concluded assessment of the assessee. We would not hesitate to observe, that the A.O holding a conviction that his predecessor while framing the regular assessment was in error in not disallowing the impugned sale promotion expenses, which as per him were not allowable as per "Explanation" to Sec. 37(1) of the Act, had thus, with the sole objective of substituting his view as against that of his predecessor, had therein sought to disallow the same by reopening the case of the assessee. We are afraid that such a substitution of a view of a successor A.O cannot form a justifiable basis for reopening the case of an assessee. In fact, we find that the Hon'ble Supreme Court in its landmark judgment in the case of CIT Vs. Kelvinator of India (2010) 320 ITR 561 (SC) observing, that merely on the basis of a "change of opinion" the case of an assessee cannot be reopened, had he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the omission of the words "reason to believe" from s. 147 and their substitution by the "opinion" of the AO. It was pointed out that the meaning of the expression, "reason to believe" had been explained in a number of Court rulings in the past and was well settled and its omission from s. 147 would give arbitrary powers to the AO to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended s. 147 to reintroduce the expression "has reason to believe" in place of the words "for reasons to be recorded by him in writing, is of the opinion". Other provisions of the new s. 147, however, remain the same." Further, following the judgment of the "Full bench" of the Hon"ble High Court of Delhi in the case of Kelvinator of India (supra), which had been upheld by the Hon"ble Apex Court, the Hon'ble High Court of Bombay in the case of Asteroids Trading & Investment P. Ltd. Vs. DCIT (2009) 308 ITR 190 (Bom), had held, that an A.O is precluded from assuming jurisdiction to initiate reassessment proceedings on the basis of a "Change of opinion", observing as under: "8. Perusal of the record shows that the petitioner had made full ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same AO to the same set of facts and the reason that has been given is that the some material which was available on record while assessment order was made was inadvertently excluded from consideration. This will, in our opinion, amount to opening of the assessment merely because there is change of opinion. The Full Bench of the Delhi High Court in its judgment in the case of Kelvinator (supra) referred to above, has taken a clear view that reopening of assessment under s. 147 merely because there is a change of opinion cannot be allowed. In our opinion, therefore, in the present case also, it was not permissible for respondent No. 1 to issue notice under s. 148". Further, the Hon'ble High Court of Bombay in the case of ICICI Prudential Life Insurance Co. Ltd. Vs. ACIT (2010) 325 ITR 471 (Bom), relying on the judgment of the Hon"ble Supreme Court in the case of Kelvinator of India (supra), had held as under: 23. Though the power to reopen an assessment within a period of four years of the expiry of the relevant assessment year is wide, it is still structured by the existence of a reason to believe that income chargeable to tax has escaped assessment. The Supreme Court, in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Aventis Pharma Ltd. Vs. Asst. CIT (2010) 323 ITR 570 (Bom), reiterating its aforesaid view that reassessment proceedings cannot be permitted on the basis of a "Change of opinion", had held as under:- "There is merit in the submission which has been urged on behalf of the assessee that there was no tangible material before the AO on the basis of which the assessment could have been reopened and what is sought to be done is to propose a reassessment on the basis of a mere change of opinion. This, in view of the settled position of law is impermissible. No tangible material is shown on the basis of which the assessment is sought to be reopened. In the absence of tangible material, what the AO has done while reopening the assessment is only to change the opinion which was formed earlier on the allowability of the deduction. The power to reopen an assessment is conditional on the formation of a reason to believe that income chargeable to tax has escaped assessment. The power is not akin to a review. The existence of tangible material is necessary to ensure against an arbitrary exercise of power. There is no tangible material in the present case. 13 . At this stage, we may herein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of sales promotion expenses, and had pursuant thereto concluded that only part of such expenses were liable to be disallowed. In the back drop of our aforesaid observations, we hold a conviction that as the case of the assessee before us is factually distinguishable as in comparison to the case before the Hon"ble High court, support drawn by the ld. D.R from the same would not assist its case. (ii). ACIT Vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 291 ITR 500 (SC) (a). In the aforesaid case, the Hon"ble Apex Court had observed, that the scope and effect of s. 147 as substituted with effect from 1st April, 1989, as also ss. 148 to 152 was substantially different from the provisions as they stood prior to such substitution. It was observed, that under the old provisions of Sec. 147, separate Clauses. (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. It was noticed, that under the preITA amended law, to confer jurisdiction under s. 147(a) two conditions were required to be satisfied, firstly the AO must have reason to believe that income chargeable to income-tax had escaped asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and material as were there before his predecessor who had framed the regular assessment vide his order passed under Sec. 143(3), dated 27.03.2015, the same in light of the aforesaid settled position of law cannot be sustained, and on the said count itself is liable to be vacated. We thus not being able to persuade ourselves to subscribe to the view taken by the CIT(A) as regards the validity of the jurisdiction assumed by the A.O u/s 147 of the Act, set aside his order. Resultantly, the assessment framed by the A.O u/ss. 143(3) r.w.s 147, dated 20.12.2017 is quashed for want of jurisdiction. Ground of appeal No. 1 is allowed in terms of our aforesaid observations. 15. Although, we have set aside the assessment for want of jurisdiction, however, for the sake of completeness and in order to avoid multiplicity of litigation we shall deal with the contentions advanced by the ld. A.R as regards the merits of the case. As observed by us hereinabove, it is the claim of the ld. A.R that the sale promotion expenses aggregating to Rs. 6,25,53,800/-,comprising of viz. (i) conference expenses for doctors:Rs. 1,52,56,668/-;(ii)travelling expenses for doctors: Rs. 1,18,47,054/-;(iii)other expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot impose an obligation adverse to an assessee. 17. After deliberating at length on the issue under consideration, we find, that the issue that the expenses wholly and exclusively incurred by a pharmaceutical company in the normal course of its business towards gifts, travel facility, conference expenses or similar freebies to medical practitioners or their professional associations would not be hit by the "Explanation 1" to Sec. 37 of the Act, is covered by the order of a coordinate bench of the Tribunal i.e ITAT "A" Bench, Mumbai in the case of Aristo Pharmaceuticals Pvt. ltd. Vs. ACIT (ITA No. 6680/Mum/2012, dated 26.07.2018). In the aforesaid order, the Tribunal had after exhaustive deliberations observed, that a perusal of the provisions of the Indian Medical Council Act, 1956, revealed that the scope and ambit of the statutory provisions relating to professional misconduct of registered medical practitioners under the Indian Medical Council Act, 1956, is restricted only to the persons registered as medical practitioners with the State Medical Council and whose name is entered in the Indian Medical Register maintained under Sec. 21 of the said Act. Further, it was observe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny "freebies" to medical practitioners or their professional associations in violation of the regulation issued by Medical Council of India which is a regulatory body constituted under the Medical Council Act, 1956, would be liable to be disallowed in the hands of such pharmaceutical or allied health sector industry or any other assessee which had provided such "freebies" and claimed the same as a deductible expense against its income in the accounts. 21. We have deliberated at length on the issue under consideration and after perusing the regulations issued by the Medical Council of India, find that the same lays down the code of conduct in respect of the doctors and other medical professionals registered with it, and are not applicable to the pharmaceuticals or allied health sector industries. Rather, a perusal of the provisions of the Indian Medical Council Act, 1956, reveals that the scope and ambit of statutory provisions relating to professional conduct of registered medical practitioners under the Indian Medical Council Act, 1956 is restricted only to the persons registered as medical practitioners with the State Medical Council and whose name are entered in the Indian Med ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no jurisdiction upon the pharmaceutical companies, then where could there be an occasion for concluding that the assessee company had violated any regulation issued by MCI. We thus, in terms of our aforesaid observations are of the considered view that even if the assessee had incurred expenditure on distribution of "freebies" to doctors and medical practitioners, the same though may not be in conformity with the Indian Medical Council (Professional Conduct, Etiquette and Ethics) regulations, 2002 (as amended on 10.12.2009), however, as the same only regulates the code of conduct of the medical practitioners/doctors, therefore, in the absence of any prohibition on the pharmaceutical companies in incurring of such sales promotion expenses, the latter cannot be held to have incurred an expenditure for a purpose which is an offence or is prohibited by law. In this regard we are reminded of the maxim "Expressio Unius Est Exclusio Alterius", which provides that if a particular expression in the statute is expressly stated for a 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 assesses. Thus, now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ractitioner or professional associations is also taxable as business income or income from other sources as the case may be depending on the facts of each case. The assessing officers of such medical practitioner or professional associations should examine the same and take an appropriate action. This may be brought to the notice of all the officers of the charge for necessary action." We may herein observe that a perusal of the aforesaid CBDT Circular reveals that the "freebies" provided by the pharmaceutical companies or allied health sector industries to medical practitioners or their professional associations in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) regulations, 2002 shall be inadmissible under Sec. 37(1) of the Income Tax Act, 1961, as the same would be an expense prohibited by the law. We are of the considered view that as observed by us hereinabove, the code of conduct enshrined in the notifications issued by MCI though is to be strictly followed and adhered by medical practitioners/doctors registered with the MCI, however the same cannot impinge on the conduct of the pharmaceutical companies or other healthcar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e applicability of the CBDT Circular No. 5/2012, dated 01.08.2012 was also looked into by the tribunal in the case of Aristo Pharmaceuticals Pvt. ltd. Vs. ACIT (ITA No. 6680/Mum/2012, dated 26.07.2018), wherein it was observed as under : "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 its Circular No. 5/2012, dated 01.08.2012 had enlarged the scope of Indian Medical Council Regulation, 2002, and had made the same applicable to the pharmaceutical companies, thus the same cannot be reckoned to have a retrospective effect. We find that a coordinate bench of the Tribunal viz. ITAT, Mumbai in the case of Syncom Formulations (I) Ltd. Vs. DCIT-8(3), Mumbai (ITA No. 6428 & 6429/Mum/2012, dated 23.12.2015) for A.Ys 2010-11 and 2011-12 had concluded that the aforesaid CBDT Circular No. 5/2012, dated 01.08.2012 would not be applicable to the A.Ys 2010-11 and 2011-12, as the same was introduced w.e.f. 01.08.2012. We thus, in terms of our aforesaid observations are of the considered view that the aforementioned CBDT Circular No. 5/2012, dated 01.08.2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en on the assessee, leave alone creating a new burden by enlarging the scope of a regulation issued under a different act so as to impose any kind of hardship or liability on the assessee. We thus, are unable to persuade ourselves to subscribe to the rigours contemplated in the CBDT Circular No. 5/2012, dated 01.08.2012, which we would not hesitate to observe, despite absence of anything provided by the MCI in its regulations issued under the Medical Council Act, 1956, contemplating that the regulation of code of conduct would also cover the pharmaceutical companies and healthcare sector, however provides that in case 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 or their professional associations in violation of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, the expenditure incurred on the same shall be disallowed in the hands of such pharmaceutical or allied health sector industry. We are of the considered view that the burden imposed by the CBDT vide its aforesaid Circular No. 5/2012, dated 01.08.2012 on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing the view taken by the co-ordinate bench of the Tribunal i.e ITAT "A" Bench, Mumbai, in the case of Aristo Pharmaceuticals Pvt. ltd. Vs. ACIT (ITA No. 6680/Mum/2012, dated 26.07.2018), are of the considered view, that the expenditure of Rs. 6,25,53,800/-incurred by the assessee towards sales promotion expenses viz. (i) conference expenses for doctors:Rs. 1,52,56,668/-;(ii) travelling expenses for doctors: Rs. 1,18,47,054/-;(iii).other expenses related to doctors: Rs. 1,09,91,271/-; and (iv) expenses incurred on product reminders given to doctors: Rs. 2,44,58,807/- would not be hit by the "Explanation" to Sec. 37 of the Act. Accordingly, on the basis of our aforesaid observations, we are of the considered view, that the A.O even otherwise on merits was not justified in disallowing the sale promotion expenses of Rs. 6,25,53,800/-, by bringing the same within the realm of the "Explanation" to Sec. 37(1) of the Act. Ground of appeal No. 2 is allowed in terms of our aforesaid observations. Before parting, we may herein observe, that as we have already quashed the reassessment proceedings for want of jurisdiction, therefore, our observations recorded as regards the merits of the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . III The CIT (A) erred in not giving exemption u/s 80IB in respect of increased Business Profits of eligible Units, due to disallowance of Sale Promotion expenses. The CIT (A) has failed to appreciate that the disallowance of Sales Promotion expenses increased the Business Profit of 80IB eligible Units, and hence the increased Profits were eligible for exemption u/s 80IB. The Appellant craves leave to add, alter, amend or withdraw any grounds of Appeal, as and when so advised." 23. Briefly stated, the assessee company had filed its return of income for A.Y. 2012-13 on 27.09.2012, declaring its total income at Rs. 29,29,14,990/. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. The A.O while framing the assessment vide his order passed under Sec. 143(3), dated 27.03.2015 observed, that the composition of the raw materials of the drugs/pharmaceutical formulations manufactured by the assessee company, as against that consumed in manufacturing of the finished products revealed, that the quantity of the finished products reported by the assessee was unreasonably less. In sum and substance, the A.O was of the view that the exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the main ingredients. (i) Nowhere been in the formulation has this kind of a seriously high variation and consumption are recorded. The lesser product reported by the assessee viz. the consumption of the main ingredients, brings out very clearly that the assessee is not recording the full production of finished goods and he is selling the same outside the books of accounts. Therefore the AR was not able to explain the variation and consumption and short reporting of production. (j) The difference of production which is not reported by the assessee has been calculated in quantity and value of the four units i.e. Jammu, Daman-II, Daman-III and Daman-IV. (k) The unit wise calculation of extra production not reported by the assessee is placed as Annexures A,B,C and D forming part of the assessment order Jammu - 1 - Table A Daman II - 2 - Table B Daman III - 3 - Table C Daman IV - 4 - Table D Summary - - Table E The assessee has claimed deduction u/s 80IA for Jammu unit. Since the excess production calculated for the excess consumption sold out of the books is not allowable deduction u/s 80IA since these are sold outside the books and the CA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been incurred for giving gifts to doctors, the CIT(A) finding no infirmity in the view taken by the A.O confirmed the said disallowance. Before the CIT(A), the assessee had also claimed, that insofar its income was enhanced pursuant to the additions made by the A.O towards suppressed sales, its entitlement towards claim of deduction u/s 80IB would also be consequentially raised. However, the CIT(A) was not inclined to accept the said claim of the assessee. It was observed by the CIT(A), that the claim for deduction under Sec. 80IB was based on satisfaction of a set of conditions and legal requirements as specified in the Act. As per the CIT(A), one of the important requirement was verification and authentication of the said claim for deduction by the auditor in the statutory "Form 10CCB". Observing, that the said mandatory requirement would not be satisfied by the assessee insofar addition was made in its hands towards suppressed production, the CIT(A) after relying on certain judicial pronouncements rejected the aforesaid claim of the assessee. 25. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. A.R at the very o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges: (i) The AO's basis of computation of excess raw material consumption is based on an absolutely theoretical presumption that the raw material formulation shown on the packing of the particular drug should match with the total consumption of the raw material of the drug. Such presumption has no factual or scientific basis. (ii) It has been argued and proved that in a pharmaceutical industry the yield of the formulat ion is around 97 to 97 1/2 %. The DPCO order also prescribes the wastage of raw material between 1.55-12 %. (iii) There are factors which affect the manufacturing process and are responsible for the excess raw material consumption. These factors includes overages, sal t factor, potency, loss on drying, sampling and yield etc. (iv) The Batch Manufacturing Record (BMR) is a crucial record maintained by the pharmaceutical companies wherein speci fic detai l l ike batch size, complete formulation, actual raw material issued, date of commencement and completion of batch, production equipment used in these processes and final finished goods output are given. (v) The Appellant Company has included the scan copy of the relevant portion of the BMR which is a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to find favour with the same, and concur with the view taken by the CIT(A) who has rightly rejected the same. Ground of appeal No. II is dismissed. 30. We shall now advert to the sustaining of the disallowance of Rs. 5,37,46,137/-, that was incurred by the A.O in respect of the gifts items/freebies given by the assessee to doctors. As we have dealt with this issue at length while disposing off the Ground of appeal No. 2 of the assessee in ITA No. 2344/Mum/2018, therefore, our order therein passed shall apply mutatis mutandis in context of the issue under consideration. Accordingly, on the same terms, the addition of Rs. 5,37,46,137/- made by the A.O cannot be sustained, and is thus deleted. Ground of appeal No. III is allowed in terms of our aforesaid observations. 31. As the disallowance of Rs. 5,37,46,137/- had been vacated by us on merits, as hereinabove, therefore the Ground of appeal No. IV having been rendered as infructuous, is dismissed, as such 32. The appeal of the assessee is partly allowed. 31. Resultantly, the appeal of the assessee in ITA No.2344/Mum/2018 is allowed, while for its appeal in ITA No. 1212/Mum/2018 is partly allowed in terms our aforesaid observation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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