AJANTA PHARMA LTD.,,MUMBAI vs. DCIT,CC-7(2), MUMBAI, MUMBAI

ORDER PER BENCH: The present appeals filed by the assessee are directed against the respective orders passed by the CIT(A)-49, Mumbai. As common issues are involved in the aforementioned appeals, therefore, the same are being taken up and disposed off by a consolidated order. We shall first take up the appeal filed by the assessee viz. M/s Ajanta Pharma Ltd. for A.Y. 2016-17 in . The assessee has assailed the impugned order on the following grounds before us:

Deduction for Sales Promotion Expenses of Rs.36,92,20,070/- incurred on doctors prescribing Appellant Company’s Products: 1. On the facts and in the circumstances of the case and in law the learned Commissioner of Income-tax (Appeals) [“CIT(A)

] has erred in upholding the action of the Asssessing Officer [“A.O”] in not allowing deduction of Rs.36,92,20,070/- incurred on sales promotin expenses under section 37(1) of the Act.

M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 2 & 4785/Mum/2019

2. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in applying Explanation-1 to Section 37(1) to disallow the sales promotion expenses of Rs. 36,92,20,070/- 3. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding that once the appellant disallowed similar expenses in earlier years, it is not open to the appellant to make a claim for deduction in the relevant year. 4. On the facts and circumstances of the case and in law, the Appellant is entitled to deduction of Rs. 3,55,17,709/-, being the cess paid by the Appellant under the Act. The Appellant submits that the Assssing Officer be directed to allow the deduction of Rs. 3,55,17,709/-, in computing the income of the Appellant The appellant craves leave, to add, to alter, to amend, to modify, and/or to deleted any above grounds of appeal as may be necessary.” Before adverting any further, we may herein observe that the assessee appellant vide a letter dated 04th January, 2021 has stated before us that it had raised “Ground of appeal No. 4” for the first time before the Tribunal. Elaborating further, it is stated by the assessee that as it had by raising the aforesaid ground sought adjudication of a legal issue that is borne from the facts available on record, therefore, the same may be admitted.

2. Per Contra, the ld. Departmental representative objected to the raising of the aforesaid ground of appeal by the assessee. It was submitted by the ld. D.R that as the aforesaid ground raised by the assessee for the first time did not arise from the impugned order passed by the CIT(A), therefore, it did not merit admission.

3. We have given a thoughtful consideration and find that the assessee vide ‘Ground of appeal No. 4’ has sought adjudication of its claim for deduction of “cess” that was paid during the year while computing its income for the year under consideration. As the assessee has sought our indulgence for adjudicating a legal issue that is based on the facts available on record, for which no new facts are required to be looked into, therefore, in light of the judgment of Hon’ble Supreme Court

M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 3 & 4785/Mum/2019 in National Thermal Power Co. Ltd. Vs. CIT (1998) 229 ITR 383 (SC) we have no hesitation in admitting the same.

4. Briefly stated, the assessee company which is engaged in the business of manufacturing, marketing and distribution of a wide range of pharmaceutical products in India and across the globe had e-filed its return of income for A.Y. 2016-17 on 25.10.2016, declaring a total income of Rs. 423,82,80,956/-. Subsequently, the case of the assessee was taken up for scrutiny assessment under Sec. 143(2) of the Act. Notice(s) under Sec. 143(2) & 142(1) were thereafter issued and duly served upon the assessee company.

M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 5 & 4785/Mum/2019

6. Aggrieved, the assessee assailed the assessment order before the CIT(A). The CIT(A) found favour with the assessee’s claim that the Medical Council of India (for short “MCI”) regulations were applicable only to the doctors and medical professionals and not to the pharmaceutical companies. However, the CIT(A) was of the view that as the CBDT Circular No. 5 of 2012; dated 01.08.2012 contemplated inadmissility of expenses that were incurred by the pharmaceutical companies in providing freebies to medical practitioners, therefore, the claim for deduction of such expenses being in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 was not to be allowed while computing the assessee’s income. Further, the CIT(A) rejected the assessee’s claim that the aforesaid expenditure towards providing of freebies to the doctors was incurred by way of a business promotion expense. Rebutting the aforesaid claim, the CIT(A) was of the view that if the aforesaid expenditure was incurred by the assessee towards business promotion, then, there was no reason as to why such freebies were given by the assessee only to the doctors and not to the general public which was the final consumer of its products. It was observed by the CIT(A) that there was no justification on the part of the assessee to have claimed the freebies given to the doctors as a business expense. Also, the CIT(A) did not find favour with the alternative contention of the assessee for allowing its claim for deduction in so far the same pertained to freebies of a value of less than Rs. 1,000/-. As regards the support that was drawn by the assessee from the orders of the ITAT, Mumbai in the case of DCIT-8(2), Mumbai Vs. PHL Pharma Pvt. Ltd., (2017) 78 taxmann.com 36, dated 12.01.2017 AND Aristo Pharmaceuticals Pvt. Ltd., ITA Nos. 6680/5553 /5479/Mum, the CIT(A) was of the view that as the years involved in the said respective

M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 6 & 4785/Mum/2019 cases before the Tribunal were prior to the CBDT Circular No. 5/2012, dated 01.08.2012, therefore, the Tribunal in the said cases had after taking cognizance of the fact that the Circular did not have a retrospective application decided the said appeals in favour of the aforesaid assessee’s. As regards the order of the ITAT, Delhi in the case of Aishika Pharma Pvt. Ltd. Vs. ITO, the same was held by the Tribunal to be distinguishable on facts. Further, it was observed by the CIT(A) that the assessee had offered the sales promotion expenses as its income in the earlier years when survey was conducted in its case. It was observed by the CIT(A) that as the assessee had in the preceding year i.e A.Y 2014-15 not raised any claim for deduction of the sales promotion expenses, therefore, it was not permissible on its part to adopt an inconsistent approach and claim the said expense as a deduction during the year in question. Also, it was observed by the CIT(A) that the claim for deduction of the sales promotion expenses was not raised by the assessee in its return of income but only by way of a revised computation that was filed in the course of the scrutiny assessment. Backed by her aforesaid deliberations the CIT(A) upheld the view taken by the A.O that the sales promotion expenses claimed by the assessee were liable to be disallowed.

M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 8 & 4785/Mum/2019 Goa (2020) 423 ITR 426 (Bom) and that of the Hon’ble High Court of Rajasthan in the case of CIT, Range-2, Kota Vs. M/s Chambal Fertilizers and Chemicals Ltd., dated 31.07.2018.

M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 10 & 4785/Mum/2019 161 ITD 63 (Mum), it was submitted by the ld. A.R that both the said judicial pronouncements had been deliberated upon by the Tribunal in its order passed in the case of Dy. CIT 8(2), Mumbai vs. PHL Pharma P. Ltd., dated 12.01.2017. As regards the reliance that was placed by the ld. D.R on the judgment of the Hon’ble High Court of Calcutta in the case of Srei Infrastructure Finance Ltd. (supra), it was submitted by the ld. A.R that the same was qua the issue pertaining to set-off of MAT credit under Sec. 115JAA b/forwad from earlier years against tax on total income including surcharge and education cess. It was submitted by the ld. A.R that the issue involved in the present appeal i.e as to whether “cess” was allowable as a deduction while computing the income of the assessee was totally distinguishable as against the issue that was involved in the aforesaid appeal that was relied upon by the ld. D.R. It was vehemently submitted by the ld. A.R that the allowability of “cess” as a deduction while computing the income of an assessee was squarely covered by the judgment of the Hon’’ble High Court of Bombay in the case of Sesa Goa Limited. (supra).

M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 12 & 4785/Mum/2019 “10. A long line of authorities establish clearly that an assessee is entitled to raise additional grounds not merely in terms of legal submissions, but also additional claims to wit claims not made in the return filed by it. It is necessary for us to refer to some of these decisions only to deal with two submissions on behalf of the department. The first is with respect to an observation of the Supreme Court in Jute Corporation of India Limited v. Commissioner of Income Tax, 1991 Supp (2) SCC 744 = (1991) 187 ITR 688. The second submission is based on a judgment of the Supreme Court in Goetze (India) Limited v. Commissioner of Income Tax.

11(A). In Jute Corporation of India Limited v. CIT, for the assessment year 1974-75 the appellant did not claim any deduction of its liability towards purchase tax under the provisions of the Bengal Raw Jute Taxation Act, 1941, as it entertained a belief that it was not liable to pay purchase tax under that Act. Subsequently, the appellant was assessed to purchase tax and the order of assessment was received by it on 23rd November, 1973. The appellant challenged the same and obtained a stay order. The appellant also filed an appeal from the assessment order under the Income Tax Act. It was only during the hearing of the appeal that the assessee claimed an additional deduction in respect of its liability to purchase tax. The Appellate Assistant Commissioner (AAC) permitted it to raise the claim and allowed the deduction. The Tribunal held that the AAC had no jurisdiction to entertain the additional ground or to grant relief on a ground which had not been raised before the Income Tax Officer. The Tribunal also refused the appellant's application for making a reference to the High Court. The High Court upheld the decision of the Tribunal and refused to call for a statement of case. It is in these circumstances that the appellant filed the appeal before the Supreme Court.

The Supreme Court held as under :-

"5. In CIT v. Kanpur Coal Syndicate, a three Judge bench of this Court discussed the scope of Section 31(3)(a) of the Income Tax Act, 1922 which is almost identical to Section 251(1)(a). The court held as under: (ITR p. 229)

"If an appeal lies, Section 31 of the Act describes the powers of the Appellate Assistant Commissioner in such an appeal. Under Section 31(3)(a) in disposing of such an appeal the Appellate Assistant Commissioner may, in the case of an order of assessment, confirm, reduce, enhance or annul the assessment; under clause (b) thereof he may set aside the assessment and direct the Income Tax Officer to make a fresh assessment. The Appellate Assistant Commissioner has, therefore, plenary powers in disposing of an appeal. The scope of his power is co- terminus with that of the Income-tax Officer. He can do what the Income- tax Officer can do and also direct him to do what he has failed to do." (emphasis supplied)

limitations if any prescribed by the statutory provisions. In the absence of any statutory provision the Appellate Authority is vested with all the plenary powers which the subordinate authority may have in the matter. There appears to be no good reason and none was placed before us to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income Tax Officer." [emphasis supplied]

(B) It is clear, therefore, that an assessee is entitled to raise not merely additional legal submissions before the appellate authorities, but is also entitled to raise additional claims before them. The appellate authorities have the discretion whether or not to permit such additional claims to be raised. It cannot, however, be said that they have no jurisdiction to consider the same. They have the jurisdiction to entertain the new claim. That they may choose not to exercise their jurisdiction in a given case is another matter. The exercise of discretion is entirely different from the existence of jurisdiction.

12. At page 694, after referring to certain observations of the Supreme Court in Additional Commissioner of Income-tax v. Gurjargravures P. Ltd., (1978) 111 ITR 1, the Supreme Court observed at Page 694 as under :-

"The above observations do not rule out a case for raising an additional ground before the Appellate Assistant Commissioner if the ground so raised could not have been raised at that particular stage when the return was filed or when the assessment order was made, or that the ground became available on account of change of circumstances or law. There may be several factors justifying raising of such new plea in appeal, and each case has to be considered on its own facts. If the Appellate Assistant Commissioner is satisfied he would be acting within his jurisdiction in considering the question so raised in all its aspects. Of course, while permitting the assessee to raise an additional ground, the Appellate Assistant Commissioner should exercise his discretion in accordance with law and reason. He must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The satisfaction of the Appellate Assistant Commissioner depends upon the facts and circumstances of each case and no rigid principles or any hard and fast rule can be laid down for this purpose." [emphasis supplied]

13. The underlined observations in the above passage do not curtail the ambit of the jurisdiction of the appellate authorities stipulated earlier. They do not restrict the new/additional grounds that may be taken by the assessee before the appellate authorities to those that were not available when the return was filed or even when the assessment order was made. The sentence read as a whole entitles an assessee to raise new grounds/make additional claims :-

if the ground so raised could not have been raised at that particular stage when the return was filed or when the assessment order was made...

"or" if "the ground became available on account of change of circumstances or law"

The appellate authorities, therefore, have jurisdiction to deal not merely with additional grounds, which became available on account of change of M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 14 & 4785/Mum/2019 circumstances or law, but with additional grounds which were available when the return was filed. The first part viz. "if the ground so raised could not have been raised at that particular stage when the return was filed or when the assessment order was made... "clearly relate to cases where the ground was available when the return was filed and the assessment order was made but "could not have been raised" at that stage. The words are "could not have been raised" and not "were not in existence". Grounds which were not in existence when the return was filed or when the assessment order was made fall within the second category viz. where "the ground became available on account of change of circumstances or law."

15. It is indeed a question of exercise of discretion whether or not to allow an assessee to raise a claim which was not raised when the return was filed or the assessment order was made. As held by the Supreme Court there may be several factors justifying the raising of a new plea in appeal and each case must be considered on its own facts.

However, such cases include those, where the ground though available when the return was filed or the assessment order was made, was not taken or raised for reasons which the appellate authorities may consider valid. In other words, the jurisdiction of the appellate authorities to consider a fresh or new ground or claim is not restricted to cases where such a ground did not exist when the return was filed and the assessment order was made.

16(A). A Full Bench of this Court in Ahmedabad Electricity Limited v. Commissioner of Income-tax, (1993) 199 ITR 351 considered a similar situation. In that case, the appellant/assessee did not claim a deduction in respect of the amounts it was required to transfer to contingencies reserve and dividend and tariff reserve either before the Income Tax Officer or before the Appellate Assistant Commissioner in appeal. Subsequently, this Court had, in Amalgamated Electricity Company Limited v. Commissioner of Income-tax, (1974) 97 ITR 334, held that such amounts represented allowable deductions on revenue account. The appellant, therefore, raised a new claim and additional grounds before the Tribunal in that connection. The Tribunal rejected the same. The second question which was raised in the reference before the Division Bench was as under :-

M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 15 & 4785/Mum/2019

"(2) Whether, on the facts and in the circumstances of the case, the Tribunal erred in not allowing the assessee leave to raise in its own appeals additional grounds and in the departmental appeals cross objections regarding the deductibility of the sums transferred to contingency reserve and tariff and dividend control reserve?"

(B) The Division Bench which heard the reference, finding that there was a conflict of decisions, placed the papers before the Hon'ble Chief Justice for constituting a larger bench to resolve the controversy.

The Full Bench answered the reference in the affirmative and in favour of the assessee. The Full Bench held :-

"Thus, the Appellate Assistant Commissioner has very wide powers while considering an appeal which may be filed by the assessee. He may confirm, reduce, enhance or annul the assessment or remand the case to the Assessing Officer. This is because, unlike an ordinary appeal, the basic purpose of a tax appeal is to ascertain the correct tax liability of an assessee in accordance with law. Hence an Appellate Assistant Commissioner also has the power to enhance the tax liability of the assessee although the Department does not have a right of appeal before the Appellate Assistant Commissioner. The Explanation to subsection (2), however, makes it clear that for the purpose of enhancement, the Appellate Assistant Commissioner cannot travel beyond the proceedings which were originally before the Income-tax Officer or refer to new sources of income which were not before the Income-tax Officer at all. For this purpose, there are other separate remedies provided under the Income-tax Act."

(C) It is unnecessary to refer to all the judgments that the Full Bench referred to while answering the reference. The Full Bench referred to the observations of the Supreme Court in Jute Corporation of India Limited v. Commissioner of Income- tax (supra) set out above. It is important to note that even in this case, therefore, the ground existed when the return was filed. The mere fact that a decision of a court is rendered subsequently does not indicate that the ground did not exist when the law was enacted. Judgments are only a declaration of the law. The assessee could have raised the ground in its return itself. It did not have to await a decision of a court in that regard. Indeed, even if a judgment is against an assessee, it is always open to the assessee to claim the deduction and carry the matter higher. The words "could not have been raised", therefore, cannot be read strictly. Neither the Supreme Court nor the Full Bench of this Court meant them to be read strictly. They include cases where the assessee did not raise the claim for a reason found to be reasonable or valid by the appellate authorities in the facts and circumstances of a case.

M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 16 & 4785/Mum/2019 Subsequently, the assessee by a letter, raised additional grounds to the effect that the said sum could not be included in the total income. The assessee contended that on a erroneous admission, no income can be included in the total income. It was further contended that the ITO and the Commissioner of Income- tax (Appeals) had erred and failed in their duty in adjudicating the matter correctly and by mechanically including the amount in the total income. It is pertinent to note that the assessee contended that it was entitled to the deduction in view of two orders of the Special Benches of the Tribunal and the assessee further stated that it had raised these additional grounds on learning about the legal position subsequently.

The Tribunal declined to entertain these additional grounds.

The Supreme Court did not answer the question on merits, but framed the following question and held as under :-

"4. The Tribunal has framed as many as five questions while making a reference to us. Since the Tribunal has not examined the additional grounds raised by the assessee on merit, we do not propose to answer the questions relating to the merit of those contentions. We reframe the question which arises for our consideration in order to bring out the point which requires determination more clearly. It is as follows:

"Where on the facts found by the authorities below a question of law arises (though not raised before the authorities) which bears on the tax liability of the assessee, whether the Tribunal has jurisdiction to examine the same."

Under Section 254 of the Income Tax Act the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with the appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under Section 254 only to decide the grounds which arise from the order of the Commissioner of Income Tax (Appeals). Both the assessee as well as the Department have a right to file an appea1/cross- objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier."

18. In the case before us, the CIT(A) and the Tribunal have held the omission to claim the deduction of Rs.40,00,000/- to be inadvertent. Both the appellate authorities held, after considering all the facts, that the assessee had inadvertently claimed a deduction of Rs.20,00,000/- paid after the end of the year in question. We see no reason to interfere with this finding. We see less reason to interfere with the exercise of discretion by the appellate authorities in permitting the respondent to raise this claim. That the respondent is entitled to the deduction in law is admitted and, in any event, clearly established. In the circumstances, the respondent ought not be prejudiced.

M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 17 & 4785/Mum/2019

19. The orders of the CIT(A) and the Tribunal clearly indicate that both the appellate authorities had exercised their jurisdiction to consider the additional claim as they were entitled to in view of the various judgments on the issue, including the judgment of the Supreme Court in National Thermal Power Corporation Limited. This is clear from the fact that these judgments have been expressly referred to in detail by the CIT(A) and by the Tribunal.

21. The conclusion that the error in not claiming the deduction in the return of income was inadvertent cannot be faulted for more than one reason. It is a finding of fact which cannot be termed perverse. There is nothing on record that militates against the finding. The appellant has not suggested, much less established that the omission was deliberate, mala-fide or even otherwise. The inference that the omission was inadvertent is, therefore, irresistible.

22. It was then submitted by Mr. Gupta that the Supreme Court had taken a different view in Goetze (India) Limited v. Commissioner of Income-tax. We are unable to agree. The decision was rendered by a Bench of two learned Judges and expressly refers to the judgment of the Bench of three learned Judges in National Thermal Power Company Limited vs. Commissioner of Income-tax (supra). The question before the Court was whether the appellant-assessee could make a claim for deduction, other than by filing a revised return. After the return was filed, the appellant sought to claim a deduction by way of a letter before the Assessing Officer.

The claim, therefore, was not before the appellate authorities. The deduction was disallowed by the Assessing Officer on the ground that there was no provision under the Act to make an amendment in the return of income by modifying an application at the assessment stage without revising the return. The Commissioner of Income-tax (Appeals) allowed the assessee's appeal. The Tribunal, however, allowed the department's appeal. In the Supreme Court, the assessee relied upon the judgment in National Thermal Power Company Limited contending that it was open to the assessee to raise the points of law even before the Tribunal. The Supreme Court held :-

"4. The decision in question is that the power of the Tribunal under section 254 of the Income-tax Act, 1961, is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the Assessing Officer to entertain a claim for deduction otherwise than by filing a revised return. In the circumstances of the case, we dismiss the civil appeal. However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Income-tax Appellate Tribunal under section 254 of the Income- tax Act, 1961. There shall be no order as to costs." [emphasis supplied]”

M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 18 & 4785/Mum/2019

23. It is clear to us that the Supreme Court did not hold anything contrary to what was held in the previous judgments to the effect that even if a claim is not made before the assessing officer, it can be made before the appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim has not been negated by the Supreme Court in this judgment. In fact, the Supreme Court made it clear that the issue in the case was limited to the power of the assessing authority and that the judgment does not impinge on the power of the Tribunal under section 254.

Further, the Hon’ble High Court of Madras in the case of CIT, Chennai vs. Abhinitha Foundations (Pvt.) Ltd. (2017) 396 ITR 251 (Mad), had observed, that even if a claim made by an assessee does not form part of its original return or even the revised return, it can still be considered by the A.O as well as the appellate authorities in case the relevant material is available on record. In both the aforesaid judgments the Hon’ble High Courts had referred to the judgment of the Hon’ble Apex Court in the case of Goetze (India) Ltd. (supra). Accordingly, in the backdrop of the aforesaid judgment of the Hon’ble High Court of Bombay in the case of Pruthvi Brokers & Shareholders (Pvt). Ltd. (supra) and that of the Hon’ble High Court of Madras in the case of Abhinitha Foundations (Pvt.) Ltd. (supra), we are of the considered view that the assessee’s claim for deduction of freebies distributed to doctors, though raised for the first time by way of a revised computation of income in the course of the assessment proceedings and declined to be taken cognizance of by the A.O, however, without any hesitation could have been considered in the course of the proceedings before the appellate authorities, as the same was borne out from the facts available

M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 19 & 4785/Mum/2019 on record and no new facts were required to be looked into for adjudicating the same.

M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 20 & 4785/Mum/2019 Pharmaceuticals Ltd. Vs. Dy. CIT, (iii). ITAT, “A” Bench in the case of M/s Aristo Pharmaceuticals Pvt. Ltd. Vs. DCIT- 2(1)(1), Mumbai; (iv). ITA No. 1104/Mum/2018; ITAT, Delhi Bench “A” in the case of Aishika Pharma (P) Ltd. Vs. ITO, Ward 2(1), New Delhi (2019); AND (v). ITAT, Mumbai “K”Bench in the case of India Medtronics Pvt. Ltd. Vs. Dy. CIT, ITA No. 7263/Mum/2018, dated 13.09.2019. In the order passed by the ITAT “A” Bench, Mumbai in the case of Aristo Pharmaceuticals Pvt. ltd. Vs. ACIT (ITA No. 6680/Mum/2012, dated 26.07.2018), the Tribunal after exhaustive deliberations had observed, that a perusal of the provisions of the Indian Medical Council Act, 1956, revealed that the scope and ambit of the statutory provisions relating to professional misconduct of registered medical practitioners under the Indian Medical Council Act, 1956 was restricted only to the persons registered as medical practitioners with the State Medical Council and whose names were entered in the Indian Medical Register maintained under Sec. 21 of the said Act. Further, it was observed that the scheme of the Indian Medical Council Act, 1956 neither deals with nor provides for any conduct of any association/society and regulates the conduct of only the registered medical practitioners and not that of the pharmaceutical companies or allied health sector industries. Apart from that, the Tribunal in its order had also drawn support from the order of the Hon’ble High Court of Delhi in the case of MAX Hospital., Pitampura Vs. Medical Council of India [CWP No. 1334/2013, dated 10.01.2014]. In the aforesaid case, the Medical Council of India (MCI) had filed an ‘Affidavit’ before the High Court, wherein it was deposed by the council that its jurisdiction was limited only to take action against the registered medical professionals under the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, and it had no jurisdiction to pass an order affecting the rights/interest of the petitioner

M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 21 & 4785/Mum/2019 hospital. In the backdrop of its exhaustive deliberations the Tribunal had concluded that even if the assessee had incurred expenditure on distribution of ‘freebies’ to doctors and medical practitioners, the same, may though not be in conformity with the Indian Medical Council (Professional Conduct, Etiquette and Ethics) regulations, 2002, however, as the same only regulates the code of conduct of the medical practitioners/doctors, therefore, in the absence of any prohibition on the pharmaceutical companies on incurring of such sale promotion expenses, it cannot be held to have incurred an expenditure for a purpose which is an offence or is prohibited by law. The Tribunal while concluding as herein above had observed as under:

20. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record. We find that our indulgence in the cross appeals filed by the assessee and the revenue has been sought for adjudicating the allowability of the sales promotion expenses incurred by the assessee on the distribution of articles to the stockists, distributors, dealers, customers and doctors, in the backdrop of the CBDT Circular No. 5/2012, dated 01.08.2012 and the MCI regulations. We find that it is the case of the revenue that as per the CBDT Circular No. 5/2012, dated 01.08.2012 any expense incurred by a pharmaceutical or allied health sector industry in providing any “freebies to medical practitioners or their professional associations in violation of the regulation issued by Medical Council of India which is a regulatory body constituted under the Medical Council Act, 1956, would be liable to be disallowed in the hands of such pharmaceutical or allied health sector industry or any other assessee which had provided such “freebies” and claimed the same as a deductible expense against its income in the accounts.

21. We have deliberated at length on the issue under consideration and after perusing the regulations issued by the Medical Council of India, find that the same lays down the code of conduct in respect of the doctors and other medical professionals registered with it, and are not applicable to the pharmaceuticals or allied health sector industries. Rather, a perusal of the provisions of the Indian Medical Council Act, 1956, reveals that the scope and ambit of statutory provisions relating to professional conduct of registered medical practitioners under the Indian Medical Council Act, 1956 is restricted only to the persons registered as medical practitioners with the State Medical Council and whose name are entered in the Indian Medical Register maintained under Sec. 21 of the said Act. We are of the considered view that the scheme of the Indian Medical Council Act, 1956 neither deals with nor provides for any conduct of any association/society

M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 22 & 4785/Mum/2019 and deals only with the conduct of individual registered medical practitioners. In the backdrop of the aforesaid facts, it emerges that the applicability of the MCI regulations would only cover individual medical practitioners and not the pharmaceutical companies or allied health sector industries. Interestingly, the scope of the applicability of the MCI regulations was looked into by the Hon’ble High Court of Delhi in the case of Max Hospital, Pitampura Vs. Medical Council of India (CWP No. 1334/2013, dated 10.01.2014). In the aforementioned case the MCI had filed an ‘Affidavit’ before the High Court, wherein it was deposed by the council that its jurisdiction is limited only to take action against the registered medical professionals under the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, and it has no jurisdiction to pass any order affecting the rights/interest of the petitioner hospital. We are of the considered view that on the basis of the aforesaid deposition of MCI that its jurisdiction stands restricted to the registered medical professionals, it can safely be concluded that the MCI regulations would in no way impinge on the functioning of the assessee company which is engaged in the business of manufacturing and sale of pharmaceutical and allied products. We thus, in the backdrop of our aforesaid deliberations are of the considered view that the code of conduct enshrined in the MCI regulations are solely meant to be followed and adhered by medical practitioners/doctors, and such a regulation or code of conduct would not cover the pharmaceutical company or healthcare sector in any manner. We are further of the view that in the backdrop of our aforesaid observations, as the Medical Council of India does not have any jurisdiction under law to pass any order or regulation against any hospital, pharmaceutical company or any healthcare sector, then any such regulation issued by it cannot have any prohibitory effect on the manner in which the pharmaceutical company like the assessee conducts its business. On the basis of our aforesaid observations, we are unable to comprehend that now when the MCI has no jurisdiction upon the pharmaceutical companies, then where could there be an occasion for concluding that the assessee company had violated any regulation issued by MCI. We thus, in terms of our aforesaid observations are of the considered view that even if the assessee had incurred expenditure on distribution of “freebies” to doctors and medical practitioners, the same though may not be in conformity with the Indian Medical Council (Professional Conduct, Etiquette and Ethics) regulations, 2002 (as amended on 10.12.2009), however, as the same only regulates the code of conduct of the medical practitioners/doctors, therefore, in the absence of any prohibition on the pharmaceutical companies in incurring of such sales promotion expenses, the latter cannot be held to have incurred an expenditure for a purpose which is an offence or is prohibited by law. In this regard we are reminded of the maxim “ExpressioUnius Est ExclusioAlterius”, which provides that if a particular expression in the statute is expressly stated for a particular class of assessee, then by implication what has not been stated or expressed in the statute has to be excluded for other class of assesses. Thus, now when the MCI regulations are applicable to medical practitioners registered with the MCI, then the same cannot be made applicable to pharmaceutical companies or other allied healthcare companies.

M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 23 & 4785/Mum/2019

22. We shall now advert to the CBDT Circular No. 5/2012, dated 01.08.2012. We find that the aforesaid CBDT Circular reads as under:-

“Inadmissibility of expenses incurred in providing freebees to medical practitioner by pharmaceutical and allied health sector industry

Circular No. 5/2012 [F.No. 225/142/2012-ITA.II], dated 1-8-2012

It has been brought to the notice of the Board that some pharmaceutical and allied health sector Industries are providing freebies (freebies) to medical practitioner and their professional associations in violation of the regulations issued by Medical Council of India (the ‘Council’) which is a regulatory body constituted under the Medical Council Act, 1956

Thus, the claim of any expense incurred in providing above mentioned or similar freebees in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 shall be inadmissible under section 37(1) of the Income Tax Act being an expense prohibited by the law. This disallowance shall be made in the hands of such pharmaceutical or allied health sector Industries or other assessee which has provided aforesaid freebees and claimed it as a deductible expense in its accounts against income.

This may be brought to the notice of all the officers of the charge for necessary action.”

M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 24 & 4785/Mum/2019 We may herein observe that a perusal of the aforesaid CBDT Circular reveals that the “freebies” provided by the pharmaceutical companies or allied health sector industries to medical practitioners or their professional associations in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) regulations, 2002 shall be inadmissible under Sec. 37(1) of the Income Tax Act, 1961, as the same would be an expense prohibited by the law. We are of the considered view that as observed by us hereinabove, the code of conduct enshrined in the notifications issued by MCI though is to be strictly followed and adhered by medical practitioners/doctors registered with the MCI, however the same cannot impinge on the conduct of the pharmaceutical companies or other healthcare sector in any manner. We find that nothing has brought on record which could persuade us to conclude that the regulations or notifications issued by MCI would as per the law also be binding on the pharmaceutical companies or other allied healthcare sector. Rather, the concession made by the MCI before the Hon’ble High Court of Delhi in the case of Max Hospital Vs. MCI (CWP No. 1334/2013, dated 10.01.2014) fortifies our aforesaid view that MCI has no jurisdiction to pass any order or regulation against any hospital, pharmaceutical company or any healthcare sector. We further find that MCI had by adding Para 6.8.1 to its earlier notification issued as “Indian Medical Council Professional (Conduct, Etiquette and Ethics) Regulations, 2002” had even provided for action which shall be taken against medical practitioners in case they contravene the prohibitions placed on them. We find from a perusal of Para 6.8.1 that in case of receiving of any gift from any pharmaceutical or allied health care industry and their sales people or representatives, action stands restricted to the members who are registered with the MCI. In other words the censure/action as had been suggested on the violation of the code of conduct is only for the medical practitioners and not for the pharmaceutical companies or allied health sector industries. We are thus of the considered view that the regulations issued by MCI are qua the doctors/medical practitioners registered with MCI, and the same shall in no way impinge upon the conduct of the pharmaceutical companies. As a logical corollary to it, if there is any violation or prohibition as per MCI regulation in terms of Explanation to Sec. 37(1), then the same would debar the doctors or the registered medical practitioners and not the pharmaceutical companies and the allied healthcare sector for claiming the same as an expenditure.”

M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 25 & 4785/Mum/2019 to an assessee, or to a class of assessee’s, without any sanction or authority of law. We find that the aspect that the CBDT is divested of its powers to enlarge the scope of MCI regulations by extending the same to pharmaceutical companies without any enabling provision either under the Income tax Act or the Indian Medical Regulations had also been deliberated upon by the Tribunal in the case of Aristo Pharmaceuticals Pvt. ltd. Vs. ACIT (ITA No. 6680/Mum/2012, dated 26.07.2018), wherein it was observed as under :

“23. We find that the CBDT as per its Circular No. 5/2012, dated 01.08.2012 had enlarged the scope and applicability of Indian Medical Council Regulation, 2002, by making the same applicable even to the pharmaceutical companies or allied healthcare sector industries. We are of the considered view that such an enlargement of the scope of MCI regulation to the pharmaceutical companies by the CBDT is without any enabling provision either under the Income Tax Act or under the Indian Medical Council Regulations. We are of a strong conviction that the CBDT cannot provide casus omissusto a statute or notification or any regulation which has not been expressly provided therein. Still further, though the CBDT can tone down the rigours of law in order to ensure a fair enforcement of the provisions by issuing circulars for clarifying the statutory provisions, however, it is divested of its power to create a new impairment adverse to an assessee or to a class of assessee without any sanction or authority of law. We are of the considered view that the circulars which are issued by the CBDT must confirm to the tax laws and though are meant for the purpose of giving administrative relief or for clarifying the provisions of law, but the same cannot impose a burden on the assessee, leave alone creating a new burden by enlarging the scope of a regulation issued under a different act so as to impose any kind of hardship or liability on the assessee. We thus, are unable to persuade ourselves to subscribe to the rigours contemplated in the CBDT Circular No. 5/2012, dated 01.08.2012, which we would not hesitate to observe, despite absence of anything provided by the MCI in its regulations issued under the Medical Council Act, 1956, contemplating that the regulation of code of conduct would also cover the pharmaceutical companies and healthcare sector, however provides that in case a pharmaceutical or allied health sector industry incurs any expenditure in providing any gift, travel facility, cash, monetary grant or similar freebies to medical practitioners or their professional associations in violation of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, the expenditure incurred on the same shall be disallowed in the hands of such pharmaceutical or allied health sector industry. We are of the considered view that the burden imposed by the CBDT vide its aforesaid Circular No. 5/2012, dated 01.08.2012 on the pharmaceutical or allied health sector industries, despite absence of any enabling provision under the Income Tax law or under the Indian Medical Council

M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 26 & 4785/Mum/2019 Regulations, clearly impinges on the conduct of the pharmaceutical and allied health sector industries in carrying out its business. We thus, in the absence of any sanction or authority of law on the basis of which it could safely be concluded that the expenditure incurred by the assessee company on sales promotion expenses by way of distribution of articles to the stockists, distributors, dealers, customers and doctors, is in the nature of an expenditure which had been incurred for any purpose which is either an offence or prohibited by law, thus conclude that the same would not be hit by the Explanation to Sec. 37(1) of the Act.” As regards the reliance placed by the revenue on the judgment of the Hon’ble High Court of Himachal Pradesh in the case of Confederation of Indian Pharmaceutical Industry (SS) Vs. CBDT (2013) 353 ITR 388 (Himachal Pradesh), the same we find had been considered by the Tribunal in the case of The Dy. CIT 8(2), Mumbai Vs. PHL Pharma P. Ltd, dated 12.01.2017. It was therein observed by the Tribunal that the Hon’ble High Court had though upheld the validity of the CBDT Circular No. 5/2012, dated 01.08.2012, but with a rider that if the assessee satisfied the assessing authority that the expenditure was not in violation of the regulation framed by the medical council, then, it may legitimately claim the deduction. It was observed by the Tribunal that if the assessee brings out that the MCI regulation was not applicable to the assessee before the A.O, then, the same cannot be applied blindly. As in the present case, the A.O despite the claim of the assessee that the Sales promotion expenses incurred by it were not liable to be disallowed, had however, summarily rejected the same by referring to the CBDT Circular No. 5/2012 (supra), therefore, the reliance placed by the revenue on the aforesaid judgment would not assist its case. As regards the reliance placed by the ld. D.R on the order of the ITAT, Mumbai in the case of CIT, Circle 6(3), Mumbai Vs. Liva Healthcare Ltd. (2016) 161 ITD 63 (Mum), the same had been considered and distinguished on facts by the Tribunal in the case of PHL Pharma Ltd. (supra). It was observed by the Tribunal that in the case of M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 27 & 4785/Mum/2019 Liva Healtcare Ltd. (supra) the expenses were disallowed under Sec. 37(1), for the reason, that they were not incurred wholly and exclusively for the purpose of business and were infact incurred to create good relations with the doctors in lieu of expected favours from them for recommending to the patients the pharmaceutical products dealt with by the assessee company with a purpose to facilitate generation of more business and profits. It was further observed by the Tribunal that in the case of Liva Healtcare Limited (supra) the spouse of the doctors also accompanied the doctors for overseas trips to Istanbul and expenses were incurred for cruise travels to islands, gala dinners, cocktails, gala entertainment etc. of such doctors. It was therein observed by the Tribunal that as in the case of the assessee before them, viz. PHL Pharma P. Ltd. (supra) it was an admitted fact that the expenses had not been incurred for the purpose of personal benefit/enjoyment of the doctors or their spouses, thus, the facts therein involved were distinguishable as against those as were there before the Tribunal in the case of Liva Healthcare Limited (supra). In the case of the present assessee before us, as it is neither a fact nor the case of the revenue that the assessee had incurred expenses for the purpose of personal benefit/enjoyment of the doctors or their spouses, therefore, on a similar footing as in the case of PHL Pharma P. Ltd. (supra), the order passed by the Tribunal in the case of Liva Healthcare Limited (supra) being distinguishable on facts would not assist the case of the revenue. As regards the judgment of the Hon’ble High Court of Karnataka in the case of J.K Panthaki & Co. Vs. ITO (2012) 344 ITR 329 (Kar) relied upon by the revenue, we find, that as stated by the ld. A.R, and rightly so, the issue therein involved was the allowability of the assessee’s claim for deduction of illegal gratification i.e kick back or bribe in the garb of commission, which was disallowed as per the ‘Explanation’ to Sec. 37 of M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 28 & 4785/Mum/2019 the Act. As the facts involved in the said case are glaringly distinguishable as against the facts involved in the case of the assessee before us, therefore, the same would not in any way come to the rescue of the department. As regards the reliance that was placed by the ld. D.R on the judgment of the Hon’ble High Court of Bombay in the case of CIT Vs. Gill & Co. (P) Ltd. (2001) 248 ITR 362 (Bom), we find that the facts therein involved were clearly distinguishable as against the facts involved in the case of the assessee before us. In the said case, the issue therein involved was qua the disallowance under ‘Explanation’ to Sec. 37(1) of the amount of secret commission that was paid by the assessee company and was claimed as deduction. As the issue involved in the appeal of the present assessee before us i.e allowability of the sales promotion expenses incurred by the assessee company, a pharmaceutical company, is differently placed as in comparison to the facts involved in the aforesaid judgment relied upon by the revenue, therefore, the same too would not assist its case.

14. We, thus, in terms of our aforesaid observations and respectfully following the view taken by the co-ordinate bench of the Tribunal i.e ITAT “A” Bench, Mumbai, in the case of Aristo Pharmaceuticals Pvt. ltd. Vs. ACIT (ITA No. 6680/Mum/2012, dated 26.07.2018), are of a strong conviction that the expenditure of Rs. 36,92,20,070/- incurred by the assessee towards sales promotion expenses would not be hit by the ‘Explanation’ to Sec. 37 of the Act. Accordingly, on the basis of our aforesaid observations, we are of the considered view that the CIT(A) had erred in upholding the disallowance of the assessee’s claim for deduction of sale promotion expenses of Rs.36,92,20,070/- made by the A.O. We, thus, set-aside the order of the CIT(A) to the extent she had sustained the disallowance of the sale promotion expenses and M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 29 & 4785/Mum/2019 accordingly vacate the disallowance of Rs.36,92,20,070/-made by the A.O. The Grounds of appeal Nos. 1 and 2 are allowed in terms of our aforesaid observations.

“iii. Whether on the facts and in the circumstances of the case and in law, the Education Cessand Higher and Secondary Education Cess is allowable as a deduction in the year of payment.” After exhaustive deliberations the Hon’ble High Court had observed that the legislature in Sec. 40(a)(ii) had though provided that “any rate or tax levied” on “profits and gains of business or profession” shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”, but then, there was no reference to any “cess”. Also, the High Court observed that there was no scope to accept that “cess” being in the nature of a “tax” was equally not deductible in computing the income chargeable under the head “Profits and gains of business or profession”. It was further observed that if the M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 31 & 4785/Mum/2019 legislature would had intended to prohibit the deduction of amounts paid by an assessee towards say, “education cess” or any other “cess”, then, it could have easily included a reference to “cess” in clause (ii) of Section 40(a). On the basis of its aforesaid observations the Hon’ble High Court had concluded that now when the legislature had not provided for any prohibition on the deduction of any amount paid towards “cess” in clause (ii) of Sec. 40(a), therefore, holding to the contrary would amount to reading something which is not to be found in the text of the provision of Sec. 40(a)(ii). Accordingly, the Hon’ble High Court had concluded that there was no prohibition on the deduction of any amount paid towards “cess” in Sec. 40(a)(ii) while computing the income chargeable under the head “Profits and gains of business or profession”, observing as under :

“16. The aforesaid question arises in the context of provisions of Section 40(a)(ii) which inter alia provides that notwithstanding anything to the contrary in sections 30 to 38 of the IT Act, the following amounts shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”, - (a) in the case of any assessee – (ia)........................... (ib)................................ (ic) …............................ (ii) any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains.

[Explanation 1.—For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes and shall be deemed always to have included any sum eligible for relief of tax under section 90 or, as the case may be, deduction from the Indian income-tax payable under section 91.] [Explanation 2.—For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any 9 TXA17&18-13 dt.28.02.2020 sum paid on account of any rate or tax levied includes any sum eligible for relief of tax under section 90A;]

17. Therefore, the question which arises for determination is whether the expression “any rate or tax levied” as it appears in Section 40(a)(ii) of the IT Act includes “cess”. The Appellant – Assessee contends that the expression does not include “cess” and therefore,

M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 32 & 4785/Mum/2019 the amounts paid towards “cess” are liable to be deducted in computing the income chargeable under the head “profits and gains of business or profession”.

However, the Respondent – Revenue contends that “cess” is also included in the scope and import of the expression “any rate or tax levied” and consequently, the amounts paid towards the “cess” are not liable for deduction in computing the income chargeable under the head “profits and gains of business or profession”.

20. In a taxing Act one has to look merely at what is clearly said.

There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied, into the provisions which has not been provided by the legislature [See CIT Vs Radhe Developers 341 ITR 403 ]. One can only look fairly at the language used. No tax can be imposed by inference or analogy. It is also not permissible to construe a taxing statute by making assumptions and presumptions [See Goodyear Vs State of Haryana 188 ITR 402(SC)].

22. Applying the aforesaid principles, we find that the legislature, in Section 40(a)(ii) has provided that “any rate or tax levied” on “profits and gains of business or profession” shall not be deducted in computing the income chargeable under the head “profits and gains of business or profession”. There is no reference to any “cess”. Obviously therefore, there is no scope to accept Ms. Linhares's contention that “cess” being in the nature of a “Tax” is equally not deductable in computing the income chargeable under the head “profits and gains of business or profession”. Acceptance of such a contention will amount to reading something in the text of the provision which is not to be found in the text of the provision in Section 40(a)(ii) of the IT Act.

23. If the legislature intended to prohibit the deduction of amounts paid by a Assessee towards say, “education cess” or any other “cess”, then, the legislature could have easily included reference to “cess” in clause (ii) of Section 40(a) of the IT Act. The fact that the M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 33 & 4785/Mum/2019 legislature has not done so means that the legislature did not intend to prevent the deduction of amounts paid by a Assessee towards the “cess”, when it comes to computing income chargeable under the head “profits and gains of business or profession”.

24. The legislative history bears out that the Income Tax Bill, 1961, as introduced in the Parliament, had Section 40(a)(ii) which read as follows :

“(ii) any sum paid on account of any cess, rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains”

2. The view of the Income Tax Officer is not correct. Clause 40(a)(ii) of the Income Tax Bill, 1961 as introduced in the Parliament stood as under:-

"(ii) any sum paid on account of any cess, rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains".

When the matter came up before the Select Committee, it was decided to omit the word ‘cess' from the clause. The effect of the omission of the word ‘cess' is that only taxes paid are to be disallowed in the assessments for the years 1962-63 and onwards.

3. The Board desire that the changed position may please be brought to the notice of all the Income Tax Officers so that further litigation on this account may be avoided.[Board's F. No.91/58/66-ITJ(19), dated 18-5-1967.]”

M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 34 & 4785/Mum/2019

M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 35 & 4785/Mum/2019

M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 37 & 4785/Mum/2019 As regards the support drawn by the ld. D.R from the judgment of the Hon’ble High Court of Calcutta in the case of Srei Infrastructure Finance Ltd. Vs. Dy. CIT, Circle 11(2), Kolkata (2016) 72 taxmann.com 239 (Cal), we are of the considered view, that as stated by the ld. A.R, and rightly so, the same being distinguishable on facts would by no means assist the case of the revenue before us. Accordingly, respectfully following the aforesaid judgment of the Hon’ble High Court of Bombay in the case of Sesa Gold Limited (supra), we are principally in agreement with the assessee’s claim that “Education Cess” and the “Secondary and Higher Education Cess” are not disallowable as a deduction u/s 40(a)(ii) of the Act. However, as the aforementioned claim had been raised by the assessee for the very first time before us, we, therefore, in all fairness restore the matter to the file of the A.O for considering the said claim of the assessee in the backdrop of our observations recorded hereinabove, though, subject to verification of the factual position as had been claimed by the assessee before us. The Ground of appeal No. 4 is allowed for statistical purposes in terms of our observations recorded hereinabove.

17. Resultantly, the appeal of the assessee is allowed in terms of our aforesaid observations. (Assessment Years: 2015-16) 18. We shall now take up the appeal of the assessee for A.Y 2015-16. The assessee has assailed the impugned order of the CIT(A) on the following grounds before us : “Deduction for Sales Promotion Expenses of R.34,08,98,501/- incurred on doctors prescribing Appellant company’s Products:

1. On the facts and in the circumstances of the case and in law the learned Commissioner of Income-tax (Appeals) [“CIT(A)”] has erred in upholding the action of the Asssessing Officer [“A.O”] in not allowing deduction of Rs.34,08,98,501/- incurred by the appellant on sales promotin expenses under section 37(1) of the Act.

M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 38 & 4785/Mum/2019

2. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in applying Explanation-1 to Section 37(1) to disallow the sales promotion expenses of Rs.34,08,98,501/-.

3. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding that once the appellant disallowed similar expenses in earlier years, it is not open to the appellant to make a claim for deduction in the relevant year. 4. On the facts and in the circumstances of the case and in law, the Appellant is entitled to deduction of Rs. 4,01,43,083/-, being of cess paid by the Appellant under the Act. The Appellant submits that the Assssing Officer be directed to allow the deduction of Rs.4,01,43,083/-, in computing the income of the Appellant The appellant craves leave, to add, to alter, to emend, to modify, and/or to deleted any above grounds of appeal

as may be necessary.”

19. Briefly stated, the assessee company had e-filed its return of income for A.Y 2015-16 on 02.11.2015, declaring its total income at Rs. 428,63,07,770/- and ‘book profit’ under Sec. 115JB at Rs.451,75,08,196/-. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. During the course of the assessment proceedings, it was observed by the A.O that the assessee in view of the CBDT Circular No. 5/2012 r.w. Medical Council of India (MCI) Regulations, 2002 had in its return of income offered a disallowance of sales promotion expenses of Rs.34.09 crore in respect of the freebies that were given to doctors during the year in question. However, in the course of the assessment proceedings the assessee vide a revised computation of income withdrew the suo motto disallowance of sales promotion expenses of Rs.34.09 crore that was earlier offered in the original return of income. Elaborating on the withdrawal of the aforesaid disallowance of sales promotion expenses the assessee had drawn support from the order of the ITAT, Mumbai in the case of Dy. CIT-8(2), Mumbai Vs. PHL Pharma Pvt. Ltd., dated 12.01.2017. In its aforesaid order the Tribunal had observed that the MCI guidelines were not applicable to pharamaceutical companies and there was no violation on the part of M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 39 & 4785/Mum/2019 pharmaceuticals companies in giving any kind of freebies to the medical practitioners which being an expenditure incurred purely for business purposes was to be allowed as a business expenditure. However, the aforesaid claim of the assessee did not find favour with the A.O. Observing, that as per the CBDT Circular No. 5/2012, dated 09.08.2012 the expenses incurred by the pharmaceutical companies on distribution of freebies being in violation of the provisions of the Indian Medical Council (Professional conduct, Etiquette and Ethics) Regulations, 2002 was inadmissible as an expenditure, the A.O disallowed the assessee’s claim for deduction of the sales promotion expenses of Rs.34.09 crore. As regards the support drawn by the assessee on the order of the ITAT, Mumbai in the case of PHL Pharmaceuticals Pvt. Ltd. (supra), it was observed by the A.O that the department had not accepted the aforesaid order of the Tribunal and had assailed the same before the Hon’ble High Court of Bombay. Accordingly, the A.O observed that to keep the issue alive the aforesaid claim raised by the assessee seeking deduction of the sales promotion expenses amounting to Rs.34.09 crore could not be accepted. Backed by his aforesaid deliberations the A.O assessed the income of the assessee company at Rs.428,63,07,770/- i.e as originally returned.

20. Aggrieved, the assessee carried the matter in appeal before the CIT(A). However, the CIT(A) not finding favour with the contentions advanced by the assessee upheld the view taken by the A.O and sustained the disallowance of the sales promotion expenses of Rs.34.09 crore.

21. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. As the facts and the issue in question i.e allowability of the freebies given to doctors as a deduction

M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 40 & 4785/Mum/2019 under Sec. 37(1) of the Act remains the same as were there before us in the aforementioned appeal of the assessee for A.Y. 2016-17 in therefore, our order and the reasoning therein adopted shall apply mutatis mutandis for the purpose of disposal of the said issue. Accordingly, in terms of our observations recorded hereinabove the assessee’s claim for deduction of sales promotion expenses of Rs.34,08,98,501/- is allowed. The Grounds of appeal No(s).1 to 3 are allowed in terms of our aforesaid observations.

24. Resultantly, the appeals filed by the assessee i.e A.Y 2016-17 and for A.Y 2015-16 are both allowed in terms of our aforesaid observations.

M/s Ajanta Pharma Ltd. Vs. Dy. CIT, Central Circle 6(2), Mumbai 41 & 4785/Mum/2019