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Income Tax Appellate Tribunal, F BENCH, MUMBAI
(Assessment Year: 2011-12) promotion expenses which were in the nature of freebies given to doctors/clinics. The Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations 2002, dated 10.12.2009 imposed a prohibition on the medical practitioner and their professional associations from taking any gifts travel facility, hospitality, cash, or monetary grant from the pharmaceutical and allied health sector industries. As per CBDT's Circular No. 5 of 2012, dated 01.08.2012, any expenses incurred in providing freebees in violation of the provisions of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations 2002 were inadmissible under Section 37(1) of the Act, being an expenses prohibited by the law. Hence, sales promotion expenses of INR 11,30,18,789/- ought to have been disallowed under Section 37(1) of the Act. He further submitted that the Circular No. 5 of 2012 dated 01/08/2012, being clarificatory in nature, was effective from the date of implementation of the aforesaid Regulation, i.e., from 14/12/2009. The Assessing Officer failed to follow the aforesaid circular which was binding upon the Assessing Officer while passing the Assessment Order dated 29/01/2016 resulting in a mistake apparent on record which was rectified by the Assessing Officer in exercise of powers under Section 154 read with Section 116 of the Act. In order to support his contentions the Ld. Departmental Representative also placed reliance of the decision of the Hon’ble Supreme Court in the case of Apex Laboratories Private Limited (supra). On the basis of the aforesaid, the Ld. Departmental Representative submitted that the Assessing Officer was within jurisdiction to pass rectification order in terms of Section 154 read with Section 116 of the Act.
We have considered the rival submissions and perused the material 11.
(Assessment Year: 2011-12) on record including the judicial precedents cited by both the sides during the course of hearing.
Section 154 of the Act provides that with a view to rectifying any 12. „mistake apparent from the record’ an income-tax authority referred to in Section 116 of the Act may amend order passed by it under the provisions of the Act. Therefore, the power vested under Section 154 of the Act is for rectification of ‘mistake apparent on record’. In the case of Jiyajerrao Cotton Mills Ltd (supra), cited by the Learned Authorised Representative for Appellant, it was held by the Hon’ble Calcutta High Court as under: “The law as to what is a mistake rectifiable under s. 154 of the I.T. Act, 1961, as being apparent from the record is well settled. A glaring and obvious mistake can be corrected under the said section but a debatable issue on the question or which required investigation and arguments as to facts or law to find out if there was a mistake cannot be rectified under the said section.” Thus, a debatable issue would mean a debatable issue would be one 13. that requires investigation and arguments as to the facts or law to find out if there is a mistake cannot be subject matter of rectification. In the case before us, clearly, the issue relating to allowability of sales promotion expenses in the hands of the Appellant was not settled in favour of the Revenue. On one hand there was Circular No. 5 of 2012, dated 01/08/2012, issued by CBDT which provided that the deduction for sales promotion expense in violation of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations 2002 should be disallowed, and on the other hand there was two decision of the Tribunal in Appellant’s own case. Vide common order dated 06/02/2009, pertaining to Assessment Years 2002-03 & 2003-04 [ITA No 428 & 429/Mum/2007], the Tribunal had allowed deduction for sales promotion expenses claimed by the Appellant in identical facts and (Assessment Year: 2011-12) circumstances. Further, vide common order dated 26/02/2016, passed in appeals pertaining to Assessment Years 2004-05 (ITA No. 6681 & 6454/Mum/2013), 2005-06 (ITA No. 6682 & 6455/Mum/2013 (and 2007-08 (ITA No. 6558 & 6456/Mum/2013), the Tribunal had deleted the adhoc disallowance made by the Assessing Officer in respect of gift articles. The Assessing Officer had made disallowance by placing reliance upon the aforesaid regulations and the circular, however, the Tribunal deleted the addition by placing reliance upon t he decision of the Tribunal in the case of Syncom Formulation Vs. DCIT (ITA No. 6429& 6428/Mum/2012, dated 23/12/2015) wherein it was held that the Circular No. 5 of 2012 issued by CBDT would apply prospectively with effect from 01/08/2012. Thus, the issue was clearly debatable on law. The Assessing Officer did not have the benefit of the judgment of Hon’ble Supreme Court in the case of Apex Laboratories Pvt. Ltd. (supra) at the time of exercising jurisdiction as the same came much later on 22/02/2022. Further, in our view, even on facts, the issue required investigation. We note that the Assessing Officer has, in paragraph 4-5 of the Rectification Order, recorded as under: “4. It is also clarified that the sum equivalent to value of freebees enjoyed by the aforesaid medical practitioner 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. It is noticed from the perusal of P & L a/c, a break-up of the sales promotion expenses has been reproduced which is as follows: Sr. Particulars of Amounting Broad Nature of No. expenses (In INR) Expenses 1 Rent/Op Lease 2,62,304.00 Hotel booking for events Mfg Faculty and cycle meets 2 Consulting Fees 81,41,775.19 Honorarium Fees paid to (Publishing advisory Board doctors Printing) (Key Opinion Leaders)
(Assessment Year: 2011-12) to dissipate knowledge of assessee‟s products to other doctors across India. 3 Market Research 22,80,530.9 Market search for new Fees product study/subscription for medical transaction 4 Congress Organ 20,000.00 Scientific exhibition at Fees Congress 5 Speaker 453,299.00 Sponsorship of speaker Programs programs/Indian medical journal sponsorship 6 Odd. Supplies 8,19,081.27 Field Stationers Field Purch. (Sales training materials Promotion) 7 Printing & 1,54,199.00 Field Stationers Field Reproduct training materials (Sales Promotion) 8 Brand & 2,32,40,604.27 Brand recalling Gimmick Exp. giveaways items like (Advertisement) pen/doctors utility appliances like apron/ gloves/nylon disposable bags/op. table cover 9 Media Expenses -6,48,000.00 Negative figure 10 Promotion 10,78,571.39 Small expenses on field Expenses visits/Round Table meetings with doctors for arranging snacks, tea etc. “These are incurred mostly by employee on field and claimed as reimbursement. 11 Public Relation 1,37,64,709.53 Meetings conducted by Expenses field persons to facilitate CME-Continuous Medical Education (BY senior doctors to junior doctors in institutions, HOPE meeting, patients education at clinics. 12 Publishing 2,96,00,376.24 Leave Behind leaflets, Printing Virtual Aids for doctor visits, other field (Assessment Year: 2011-12) stationeries etc. 13 Congress 2,15,51,520.44 Field trainings and Subscript medical congress 14 Documentation 1,22,99,827.00 Expenses incurred on – Book medical books (Promotional Expenses) Total 11,30,18,798.22
Nevertheless, it is evident from the breakup of sales promotion expenses as tabulated above that by the narration of expenses, the expenses are in the nature of freebies to medical practitioners and are in the violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 which need to be disallowed.” On perusal of column ‘Broad Nature of Expenses’ of the table 14. forming part of Paragraph 4 of the Rectification Order (reproduced hereinabove), it was not apparent the all the sales promotion expenses were incurred on freebies. To the contrary, the broad nature of expenses given in the table suggested that the sales promotion expenses were not in the nature of freebies such as ‘Market Research Fee’, ‘Off Supplies Puch (Sales Promotion)’, ‘Printing & Reproduct (Sales Promotion)’, and ‘Documentation Books (Promotional Expenses)’. The balance expenses could have included expenses on freebies. However, this was a matter of investigation as it was not apparent that the sales promotion expenses of INR 11,30,18,796/- was incurred on freebies. Thus, the issue of allowance of sales promotion expenses (including freebies) in the hands of the Appellant was debatable and required investigation and arguments on facts and in law. Thus, it cannot be said that allowance of deduction of sales promotion expenses by the Assessing Officer resulting in a mistake apparent on record. Therefore, absent mistake apparent on record, the action of the Assessing Officer fell beyond the scope of Section 154 of the Act. Accordingly, order dated 29/01/2016, passed by the Assessing (Assessment Year: 2011-12) Officer under Section 154 of the Act is quashed. Ground No. 2 to 5 raised by the Appellant are allowed. Ground No. 6 to 17 raised by the Appellant are disposed off as being infructuous. Since we have quashed the order dated 29/01/2016 as being without jurisdiction, Ground No. 1, and 18 to 28 also disposed off as being infructuous.
In result the present appeal is allowed.
Order pronounced on 27.06.2023.