TMI Blog2018 (4) TMI 1869X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. - I.T.A. No. 5727/Del/2017 - - - Dated:- 27-4-2018 - Shri N. K. Saini, Accountant Member Appellant by : Sh. Somil Agarwal, Sh. Rohit Kr. Gupta Sh. Archit Retan, Advocates Respondent by : Sh. Amrit Lal, Sr. DR ORDER N. K. Saini, A. M. This is an appeal by the assessee against the order dated 7.7.2017 of the CIT(A)-5, Delhi. Following grounds have been raised in this appeal:- i. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making disallowance of ₹ 4,79,603/- on account of marketing expenses incurred by assessee and that too by recording incorrect facts and findings and without observing the principles of natural justice. ii. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of the Ld. AO in making disallowance of ₹ 4,79,603/- on account of expenses incurred on marketing is bad in law and against the facts and circumstances of the case. iii. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L Pharma Private Limited reported at (2017) 146 DTR 0149 (copy of the said order was furnished which is placed on record). In his rival submissions, the learned DR strongly supported the impugned order passed by the learned CIT(A). 7. I have considered the submissions of both the parties and perused the material available on record. It is noticed that an identical issue having similar facts has already been adjudicated by the ITAT Mumbai Bench in the case of DCIT vs. PHL Pharma Private Limited (supra) wherein relevant finding has been given in para 9 to 13 which read as under:- 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 Regu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 to be allowed. Coming to the gift articles and free samples of medicines, it is seen that the assessee gives various kind of articles like, diaries, pen sets, calendars, paper weights, injection boxes etc. embossed with bold logo of its brand name and the product name so that the doctors remembers the brand of the assessee and also the name of the medicine. Ail the gift articles, as pointed out by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cil, 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 present case. In the case of Liva Healthcare, the Hon'ble Tribunal disallowed such expenses u/s. 37(1) of the Act on the ground that they were not incurred wholly and exclusively for the purpose of business as the same were incurred to create good relations with the doctors in lieu of expected favours from doctors for recommending to the patients the pharmaceutical products dealt with by the company to generate more and more business an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 2008-09. He further submitted that the Hon'ble Tribunal in the case of Liva Healthcare Ltd. vs. ACIT (ITA No. 4791/Mum/2014) for A.Y. 2010-11 has followed the decision of Liva Healthcare (supra) for A.Y. 2008-09 and has decided this issue in favour of the assessee. This, further brings out the fact that the Hon'ble Tribunal disallowed the expenses u/s. 37(1) of the Act in the case of Liva Healthcare for A.Y. 2009-10 only on the ground that the same were not in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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'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 the present case because there is no violation of any law or anything which is opposed to public policy. Similarly, there is reference to the decision of Hon'ble Supreme Court in the case of Eskayef (Now Known as Smithkline Beecham) Pharmaceuticals (India) Limited v. CIT (2000) 111 Taxman 561(SC), which was given in context of Section 37(3A) of the Act. In the said case the assessee had claimed expenditure on distribution of physician&# ..... X X X X Extracts X X X X X X X X Extracts X X X X
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