GUFIC BIOSCIENCES LTD.,MUMBAI vs. DY.CIT (IT)-8(1), MUMBAI

The assessee has raised various grounds but basically there are two issues.

First issue relates to confirmation of the addition of Rs.10,71,593/- made by the Assessing Officer (‘A.O.’) under the head Doctors Sponsorship. Without prejudice, it has further been argued that the amendment in Medical Counsel Act, read with CBDT Circular No. 5 dated 01.08.2012 applies prospectively and cannot be applied retrospectively.

Brief facts of the case are that the assessee company is engaged in the business of manufacturing and trading of bulk drugs, formulations, agro and consumer products. During the course of assessment, the A.O. noted that the assessee company has debited a sum of Rs.1,45,33,632/- as sales promotion expenses. Out of the above expenditure, the A.O. considered a sum of Rs.81,05,741/- as expenditure incurred for providing freebies to medical practitioners/their professional associations which was not allowable expenditure as per Explanation 1 of section 37(1) of the Income Tax Act, 1961 (‘the Act' for short).

Upon the assessee’s appeal, the ld. CIT(A) noted that the A.O. has disallowed a sum of Rs.81,05,741/- as under: a) Doctor sponsorship Rs.10,71,593/- b) Conference & Seminar expenses Rs.18,13,129/- c) Sales promotion expenses Rs.52,21,019/-

Out of the above expenditure, the addition on account of conferences and seminars expenses of Rs.18,13,129/- were deleted by the ld. CIT(A) whereby the ld. CIT(A) gave a finding that these expenditure were incurred on the employees of the company for participation in conference etc. and was not to be treated as expenditure incurred on giving freebies and gifts.

As regards Doctors sponsorship of Rs.10,71,593/- is concerned, the ld. CIT(A) upheld the order of the A.O. In this connection, he referred to the submissions of the assessee that the expenditure was incurred for creating awareness of the diseases and its treatment. However, the ld. CIT(A) noted that the payment was made in cash/kind to the Doctors or their association which is prohibited by IMC Income Tax Act, 1961.

In this regard, the ld. Counsel of the assessee has made a submission that firstly the provisions and guidelines of the IMC Act are applicable to the medical practitioners and cannot be applied to the assessee company. She further submitted that the CBDT Circular No. 5 dated 01.08.2012 cannot be applied retrospectively to the current assessment year which the A.O. has inter alia considered. In this regard, the ld. Counsel of the assessee has placed reliance upon the decision of the Hon’ble Delhi High Court in the case of Boston Scientific India (P.) Ltd. vs. Asst. CIT [2017] 85 taxmann.com 5 (Del) wherein in connection with the similar disallowance, the Hon’ble Delhi High Court has observed that the tribunal had failed to examine as to whether CBDT Circular No. 5 (supra) was prospective in nature and, thus, not applicable for assessment year in question. In this connection, the ld. Counsel of the M/s. Guffic Biosciences Ltd. assessee stated that it has been duly expounded by the Hon’ble Apex Court in connection with the earlier circular of the department with respect to the tax effect which had been held by certain courts to be retrospective in nature, that the CBDT Circular/Notification cannot have retrospective effect. Accordingly, the ld. Counsel of the assessee has prayed that the disallowance in this regard deserves to be deleted.

Per contra, the ld. Departmental Representative (‘ld. DR' for short) relied upon the orders of the authorities below.

Upon careful consideration, we find that there is considerable cogency in the submissions of the ld. Counsel of the assessee on the CBDT Circular which mandates disallowance of such amount of expenditure cannot be held to be retrospective in nature. This has got a mandate of Hon’ble Delhi High Court as referred above and the Hon’ble Apex Court decision. Accordingly, holding that the said Circular cannot be applied to the current assessment year, we set aside the orders of the authorities below and delete the addition.

As regards the disallowance of Rs.52,21,019/-, the payments were made towards expenditure on pens, accessories, towels, paper pad, leather bags etc. given to field staff and stockists. It was submitted by the assessee that the assessee company had 3500 chemist and nearly about 94 field staff. It was claimed that not a single

Upon hearing both the counsel and perusing the records, we hold that the assessee has categorically submitted that these expenditures were incurred for the purpose of assessee’s stockists and field staff. The authorities below have made the disallowance on an adhoc basis on the basis of surmise and conjecture by holding that the assessee might have made the expenditure for Doctors without bringing anything on record. We find that it is settled law that the addition on account of surmise and conjecture are not sustainable. Hence, holding that this disallowance on adhoc basis is based upon surmise and conjecture we set aside the orders of the authorities below and delete the addition.

In the result, this appeal by the assessee stands allowed.