DCIT 9(2)(2), MUMBAI vs. M/S. EDWARD LIFESCIENCES (INDIA)P. LTD., MUMBAI

O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by revenue for Assessment Year [AY] 2014-15 contest the order of Ld. Commissioner of Income-Tax (Appeals)-16, Mumbai [CIT(A)] dated 20/12/2019 on the following grounds of appeal:-

2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the disallowance made u/s. 37(1) of Rs.1,62,71,223/- without appreciating the fact that the CBDT vide Circular No 5/2012 dated 01.08.2012 has clarified that the claim of any expenses incurred in violation of the provisions of the IMC Regulation, 2002 shall be inadmissible u/s. 37(1) of the Act?.

2. During hearing, none appeared for assessee. However, upon perusal of impugned order, it appears that the case is covered in assessee’s favor by the earlier decisions. The Ld. Sr. DR pleaded for restoration of disallowance as made by Ld. AO. 3.1 The material facts of the case are that assessee being resident corporate assessee is stated to be engaged in distribution of heart therapy products and related medical equipments. The assessee sells products of cardiac care mainly to hospitals and other medical institutions. The assessee incurred expenditure of Rs.162.71 Lacs in travelling and hospitality of consultants / surgeons which were disallowed by Ld. AO in the light of Explanation to Sec.37 and The Indian Medical (Professional Conduct, Etiquette and Ethics) Regulations, 2002 and CBDT Circular No.5 of 2012. 3.2 These expenses were incurred on surgeons who were employed as consultants with the assessee. The assessee is stated to have rigorous screening process wherein surgeons specializing the practice areas where the company’s products are sold, are hand-picked based on their expertise, years of experience, integrity etc. and are appointed as consultants for providing services to the company. These consultants would create brand awareness amongst fellow surgeons / medical institutes / hospitals about the latest developments. The consultants would educate the fellow surgeons/medical institutes/ hospitals about the utility/applicability of the company's products in various types of patients/patient conditions. In order to enable these consultants to gain knowledge about the latest developments / techniques / products in the area of operations of the company, the company provides travel facilities so that the consultants can attend various medical conferences. These medical conferences are specific to the areas of operations of the company i.e. heart valves and act as a forum where companies and surgeons come together and discuss/spread awareness about the latest developments with respect to heart valves. Since the company operates in an highly sensitive segment wherein any lapse can lead to loss of life, it is imperative from the company's perspective that adequate knowledge/skill/awareness is created amongst its consultants (and through consultants) surgeon fraternity about the latest life-saving products and techniques so as to ensure the company is safeguarded from any reputational risk arising out of lapse of the part of the surgeons. 3.3 During assessment proceedings, the assessee submitted that the MCI regulations as well as CBDT Circular would not be applicable to the expenditure incurred by the assessee since no expenses were incurred for any unethical practices. However, rejecting the same Ld. AO disallowed the expenditure and added the same to the income of the assessee.