M/S GOLDLINE PHARMACEUTICALS PVT. LTD.,,NAGPUR vs. ACIT, CIRCLE- 6,, NAGPUR

The brief facts of the case as emanating from records are : The assessee is engaged in manufacturing of pharmaceuticals. In scrutiny assessment proceedings the Assessing Officer observed that the assessee has incurred expenditure on travel, sightseeing, lodging, etc. amounting to Rs.3,11,52,609/- on the foreign visit of the Doctors. The Assessing Officer after analyzing the facts and details of expenditure disallowed Rs.41,06,850/-.

Shri S.C. Thakar appearing on behalf of the assessee submitted that in impugned order disallowance has been made by the Commissioner of Income Tax (Appeals) by placing reliance on CBDT Circular No. 5/12 (supra) which prohibits allowing of expenditure in the hands of Doctors in line with Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002. The ld. AR submitted that the Tribunal in various decisions has held that no disallowance of expenditure is to be made in the hands of pharmaceuticals company on the basis of aforesaid CBDT Circular as it does not apply to the pharmaceuticals company. In support of his submissions the ld. AR placed reliance on the following decisions : i. Syncom Formulation (I) Ltd. VS. DCIT in ITA Nos. 6429 & 6428/Mum/2012 for assessment years 2010-11 & 2011-12 decided on 23-12-2015 (Mumbai-Trib.); ii. Emcure Pharmaceuticals Ltd. Vs. DCIT in ITA No. 1532/PUN/2015 for assessment year 2010-11 decided on 29-01-2018 (Pune-Trib.); iii. Life Sight Surgicals Pvt. Ltd. Vs. DCIT in ITA No. 1427/AHD/2007 for assessment year 2004-05 decided on 16-07-2010.

On the other hand Shri U.U. Kasar representing the Department vehemently defended the action of Commissioner of Income Tax (Appeals) in disallowing the entire amount claimed by the assessee in respect of foreign tour expenditure of the Doctors. The ld. DR submitted that the expenditure was not in connection with the business of the assessee.

We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. The assessee in appeal has assailed the order of Commissioner of Income Tax (Appeals) in disallowing entire expenditure in respect of foreign tour of the medical practitioners sponsored by the assessee. While disallowing aforesaid expenditure reliance has been placed by the Commissioner of Income Tax (Appeals) on CBDT Circular No. 5/12 (supra). The Pune Bench of Tribunal in the case of Emcure Pharmaceuticals Ltd. Vs. DCIT (supra) has held that the circular issued by the CBDT enlarging the scope of disallowance to the pharmaceuticals companies is without any enabling notification or circular of the Medical Council of India. The pharmaceutical companies are outside the scope of regulations framed by the Medical Council of India or the CBDT Circular so far. Thus, in the light of aforesaid decision the disallowance of entire expenditure made by the Commissioner of Income Tax (Appeals) is without any merit.

However, we observe that the Assessing Officer has made part disallowance of expenditure after analyzing each and every aspect of expenditure on the touchstones of allowability of expenditure u/s. 37(1) of the Act. The expenditure disallowed by the Assessing Officer are such which are not connected with the business of assessee. We find merit in the findings of Assessing Officer. Consequently, the impugned order is modified and disallowance is restricted to the addition made in the assessment order.

In the result, the appeal of assessee is partly allowed in the terms aforesaid.