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TMI Blog2020 (9) TMI 402X X X X Extracts X X X X X X X X Extracts X X X X ..... ee involving common issues arising out of identical set of facts and circumstances, therefore, as a matter of convenience, these appeals were heard together and are being disposed off by way of this consolidated order. ITA no.4628/Mum./2017 Revenue's Appeal - A.Y. 2011-12 3. The present appeal has been filed by the Revenue being aggrieved with the decision of learned Commissioner (Appeals) in annulling the order passed under section 154 of the Act by the Assessing Officer. 4. Brief facts are, the assessee, a resident company, is engaged in the business of manufacturing of pharmaceuticals and trading in bulk drug and formulations. For the assessment year under dispute, the assessee filed its return of income on 29th September 2011 declaring nil income under the normal provisions after claiming deduction under section 80IC of the Act. However, the assessee declared book profit of Rs. 56,88,44,331, under section 115JB of the Act. Subsequently, the assessee filed a revised return of income of income revising the book profit declared under section 115JB of the Act. 5. Be that as it may, the return of income filed by the assessee was selected for scrutiny and after calling for necess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 154 of the Act are not debatable issues, but only concerning the quantum of deduction allowed. Therefore, it is a rectifiable mistake. 8. Per contra, the learned Counsel for the assessee heavily relying upon the observations of learned Commissioner (Appeals) submitted, the allocation of expenditure between eligible and non-eligible units being a debatable issue, the Assessing Officer could not have passed the order under section 154 of the Act. Further, he submitted, under identical facts and circumstances the Assessing Officer has passed an order under section 154 of the Act in assessee's own case in assessment year 2010-11, which was reversed by the learned Commissioner (Appeals). He submitted, while deciding Revenue's appeal, the Tribunal has agreed with the observations of learned Commissioner (Appeals) that the issues on which the Assessing Officer has exercised power under section 154 of the Act, are debatable issues. Thus, he submitted, the aforesaid decision of the Tribunal squarely applicable to the facts of the present appeal. 9. We have considered rival submissions and perused the material on record. A reading of the assessment order passed under section 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27th August 2019, having agreed with the view expressed by learned Commissioner (Appeals) that the issues on which proceedings under section 154 of the Act, has been initiated are debatable issues, upheld the decision of learned Commissioner (Appeals). Facts being identical, the aforesaid decision of the Co-ordinate Bench will clearly apply. In view of the aforesaid, we uphold the decision of learned Commissioner (Appeals) by dismissing the grounds raised by the Revenue. 10. In the result, Revenue's appeal is dismissed. ITA no.4537/Mum./2017 Assessee's Appeal - A.Y. 2011-12 11. The only issue raised in the present appeal relates to disallowance of Rs. 4,07,02,900, out of deduction claimed under section 80IC of the Act. 12. As discussed earlier, in the return of income filed for the impugned assessment year, the assessee claimed deduction under section 80IC of the Act in respect of the Baddi unit. In the course of assessment proceedings, the Assessing Officer while examining the claim of deduction under section 80IC of the Act, noticed that the assessee has not apportioned the Head Office expenses and some other expenses in proper ratio to the Baddi unit. After calling for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er noticed that the assessee had claimed expenditure of Rs. 1,45,84,149, towards gift and presentation articles given to Doctors. Stating that such gifts are in contravention of Medical Council of India (MCI) Regulations, wherein, it has been provided that making such personal gifts to the doctors is an unethical act, the Assessing Officer held that the expenditure claimed cannot be allowed in view of Explanation to section 37(1) of the Act. Being aggrieved with such disallowance, the assessee preferred appeal before learned Commissioner (Appeals). 19. After considering the submissions of the assessee in the context of the facts and material on record as well as the judicial precedents cited before him, learned Commissioner (Appeals) held that the MCI Regulations are applicable to the doctors and medical practitioners and not to pharmaceutical companies. Further, he held that CBDT circular no.5 of 2012 dated 1st August 2012, would apply prospectively. While doing so, he also relied upon the decisions rendered by the Tribunal in assessee's own case in the preceding assessment years. Thus, on the aforesaid premises, he deleted the disallowance made by the Assessing Officer. 20. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt from pharmaceutical and allied health sector industries. Further, in the course of hearing, the learned Departmental Representative has also referred to CBDT circular no.5 of 2012 dated 1st August 2012, while justifying the disallowance of the aforesaid expenditure by the Assessing Officer. It is the say of the assessee from the very beginning that the expenditure incurred by the assessee in providing gifts/freebies is only for the purpose of business promotion as such gift items bear assessee's logo. It has been submitted by the assessee that the exception provided under the Explanation to section 37(1) of the Act would not be applicable as the assessee cannot be accused of infraction of any law. It is the say of the assessee that the MCI Regulations are only applicable to the doctors/medical practitioners and not to the pharmaceutical companies. 23. In our view, the aforesaid contention of the assessee deserves acceptance. The Co-ordinate Bench in PHL Pharma Ltd. (supra) has held that MCI Regulations are applicable only to the doctors/medical practitioners and not to pharmaceutical companies. Therefore, the MCI Regulations cannot be brought into play to invoke Explanation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Thus, holding that genuineness of the aforesaid purchases could not be proved, the Assessing Officer disallowed the entire amount of Rs. 23,86,994. While considering such disallowance disputed by the assessee, learned Commissioner (Appeals) observed that the Assessing Officer has not rejected the books of account, hence, the consumption of the disputed purchases cannot be denied. Therefore, relying upon certain judicial precedents, learned Commissioner (Appeals) observed that in such circumstances, the entire purchases cannot be disallowed, but the profit element involved in such purchases can be considered for disallowance. Accordingly, he restricted the disallowance to 12.5% of the alleged non-genuine purchases. 27. We have considered rival submissions and perused the material on record. As rightly observed by learned Commissioner (Appeals), the Assessing Officer has not rejected the books of account. Further, he has not raised any doubt with regard to the consumption of goods and turnover of sales. Therefore, the only doubt which remains is with regard to the actual source of purchases. In such circumstances, as per the settled principle of law, the profit element embedded i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presentative has not disputed the aforesaid factual position. On a perusal of record, we find that while deciding assessee's appeal on identical issue in assessment year 2008-09 in ITA no.7373/Mum./2011, dated 23rd October 2012, the Tribunal has fully allowed assessee's claim of expenditure relating to packing and delivery charges, analytical expenses, advertisement and sales promotion expenses. Whereas, while deciding assessee's appeal for the assessment year 2009-10 in ITA no.4478/Mum./2012, dated 9th October 2013, the Tribunal has restored the issue relating to re-allocation of depreciation on Head Office assets and R&D expenses to Baddi unit back to the Assessing Officer for re-adjudication. Following the aforesaid orders, the Tribunal while deciding assessee's appeal for the assessment year 2010-11 in ITA no.4538/Mum./2017, dated 27th August 2019, has directed the Assessing Officer to allow the expenditure incurred towards packing and delivery charges, analytical expenses, advertisement and sales promotion expenses, whereas, directed him to re-adjudicate afresh the issue of reallocation of R&D expenses and depreciation on Head Office assets to the Baddi unit. Facts being ide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e disallowances made by the Assessing Officer and sustained by learned Commissioner (Appeals) in both the years. These grounds are allowed. 37. The next common issue as raised in ground no.2 of both the appeals relates to part disallowance of deduction claimed under section 80IC of the Act by re-allocating depreciation on Head Office assets and R&D expenses to Baddi unit. 38. The aforesaid issue is identical to the issue raised in ITA no. 4537/Mum./2017, dealt by us earlier. Following our decision in paragraph 14 and 15 of this order, we restore the issue to the Assessing Officer for fresh adjudication after providing due opportunity of being heard to the assessee. These grounds are allowed for statistical purposes. 39. In the result, appeals are partly allowed. 40. To sum up, assessee's appeal in ITA no.4537/Mum./2017, is allowed for statistical purposes; assessee's appeal in ITA no.4536/Mum./2017, is partly allowed; assessee's appeal in ITA no. 6532/Mum./2017 & ITA no.6533/Mum/2017 are partly allowed; and Revenue's appeals being ITA no.4628/Mum./2017, ITA no.4629/Mum./2017 and ITA no.4591/Mum/2017 are dismissed. Order pronounced through notice board under rule 34(4) of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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