TMI Blog2016 (12) TMI 1894X X X X Extracts X X X X X X X X Extracts X X X X ..... g due opportunity to the assessee would decide them in accordance with law. To this extent, the appeal grounds are treated as allowed. Expenses by pharma companies - AO has disallowed the impugned claims in the light of the prohibition imposed by Medical Council of India (MCI)I the CBDT Circular dated 1st August 2012 and held that such expenses being prohibited by MCI is not an admissible deduction under section 37(1) - HELD THAT:- The CBDT circular is issued to clarify the allowability of expenses on medical freebies which are prohibited by MCI. Expenses incurred and claimed by an assessee but prohibited by law, cannot be allowed as deduction neither under section 37(1) nor under any other provisions of Act. The CBDT circular only reiterates and clarifies the allowability of expenses prohibited under MCI guidelines. Therefore, CSDT circular is clarificatory and hence it is retrospective in operation. however, the CBDT circular has no application for a period in which the MCI guidelines are not operative. AO has not disputed the genuineness of the expenses claimed. The only reason for the disallowance is that the impugned expenses are prohibited by MCI guidelines and theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 46,521,126/- as part of the cost base in computing the mark-up for co-ordination of clinical trial segment. The assessee sought rectification u/s 154 but did not get any response from the TPO/AO. On the Corporate tax front, inter alia, the AO disallowed expenses incurred on distribution of samples, sponsorship, fees and equipment donation at Rs 4,14,88,035 on the basis of the Central Board of Direct Tax Circular No 5/2012 dated 1st August 2012. Aggrieved, the appellant filed its objections before the DRP. The DRP upheld the characterization as a CRO. On the issue of inclusion of reimbursed costs, it directed the TPO/AO ; to examine the factual position if the assessee's averments are correct, then to recompute the mark-up suitably, to dispose the petition u/s 154 within 15 days of receipt of its order and upheld the disallowances made by the AO on the corporate front. In pursuance of such directions of the DRP, the Den (LTU), Bengaluru, passed an order dt.30.2.2013 against which the assesseee filed this appeal with following grounds of appeal. GROUNDS OF APPEAL 03. Further, under Rule 11 of the ITAT Rules, 1963, the assessee requested to modify/re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operates in 2 primary segments i.e. Analytical and Clinical. Accordingly, the segmental reporting in the financial statement discloses results as per these two segments. The TPO while considering Non-AE margins of Lotus Labs, has failed to appreciate that the revenue amount and the margins computed for Lotus Labs include both analytical and clinical trial related activities and not the revenue of clinical trial segment alone as mentioned in the TP order. Further, as per the extract of Lotus Labs' TP study provided by the TPO, it can be seen that there is no segmentation between the functional profile with respect to either of the segments as per Page 901 to 908 of the paperbook. 05. With regard to the issue of inclusion of reimbursed expenses in the cost base for the purpose of mark-up, the AR submitted that while computing the mark-up for coordination of clinical trial segment, the TPO out of the total cost of Rs.277,345,918, has wrongly considered recovery of expenses at Rs.146,521,126 as part of the cost base for the purpose of mark-up. The AR explained that the total cost Rs.277,345,918 comprised of Rs. 130,824,792 pertaining to co-ordination of clinical trial segment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unity to the assessee would decide them in accordance with law. To this extent, the appeal grounds are treated as allowed. 07. With regard to Corporate Tax front, the AR submitted that the assesseee had incurred the following expenditure: Particulars Amount (Rs.) Cost of samples distributed 22,466,495 Grants, sponsorship and medical donations 18,535,587 Equipment donation 485,953 Total 41,488,035 08. The AO disallowed them on the basis of the CBDT Circular No 5/2012 dated 1st August 2012 without considering the fact that the amendment to Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 (IMe Regulations ) is effective from 10th December 2009 which may be applicable from a y 2010-11 onwards but definitely not applicable for ay 2009-10. The CBDT circular should not be applied retrospectively as the amendment to the IMC Regulations was effective from 10th December 2009. The AR placed reliance on the decision of the Hon'ble ITAT of Pan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod prior to such date. These expenses are not prohibited by any law and therefore the CBDT Circular has no application when such expenses were incurred before 10th of December 2009. The MCI guidelines have been issued under Section 33 of Indian Council Act of 1936. Therefore they are statutory. As provided in clause in 6.8.1, these guidelines are mandatory but they are effective from the date of their publication in the Official Gazette i.e. 10th December, 2009 only. Therefore, for the period prior to such publication, these guidelines are not operative and hence I no disallowance can be made for the period prior to such date. The CBDT circular is issued to clarify the allowability of expenses on medical freebies which are prohibited by MCI. Expenses incurred and claimed by an assessee but prohibited by law, cannot be allowed as deduction neither under section 37(1) nor under any other provisions of Act. The CBDT circular only reiterates and clarifies the allowability of expenses prohibited under MCI guidelines. Therefore, CSDT circular is clarificatory and hence it is retrospective in operation. however, the CBDT circular has no application for a period in which the MCI guidelin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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