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Income Tax Appellate Tribunal, MUMBAI BENCH “E” MUMBAI
Before: SHRI JOGINDER SINGH & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the assessee. The relevant assessment year is 2011-12. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-16, Mumbai [in short ‘CIT(A)’]and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).
The grounds of appeal
filed by the Revenue read as under:
1. The learned CIT(A) erred in confirming the disallowance made by the assessing officer with regard to honorarium lo doctors, travel and stay Eisai Pharmaceuticals facilities of doctors in connection with conferences/seminars, distribution of books, expenses on participating in exhibitions/sponsorships for conferences and provision of expenses included in advertisement and promotional expenses of Rs.1,13,16,311 under section 37(1) of the Income-tax Act, 1961 on the premise that the said expenditure has been incurred for purposes which are prohibited by law.
2. The learned CIT(A) erred in holding that the appellant has not incurred expenditure for participating in exhibitions or installation of stalls rather it was a cash sponsorship prohibited by Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002.
3. The learned CIT(A)erred in not appreciating that the Circular No. 5/2012 dated 1 August 2012 issued by the Central Board of Direct Taxes has prospective effect and accordingly, the same is not applicable for the aforesaid assessment year.
3. Briefly stated, the facts of the case are that the assessee-company is engaged in the business of manufacturing and marketing/selling of drugs. During the course of assessment proceedings, the Assessing Officer (AO) observed that the Medical Council of India, in exercise of the powers conferred by section 33 of the Indian Medical Council Act, 1956, with the previous sanction of the Central Government, amended the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 (hereinafter referred to as the “IMC Regulations”), wherein clause 6.8 was inserted w.e.f. 10.12.2009. From the amended IMC Regulations, the AO observed that a doctor or the professional associations shall not receive any freebies in the form of gifts, travel facility, hospitality, and cash or monetary grants from any pharmaceutical or allied healthcare industry or their sales people/representatives under any pretext. During the course of Eisai Pharmaceuticals AO drew to the attention of the assessee, the CBDT Circular No. 05/2012 dated 01.08.2012 on the subject “Inadmissibility of expenses incurred in providing freebies to Medical Practitioner by Pharmaceutical and allied health sector Industry”. After going through the details/documents furnished by the assessee, the AO identified the following expenses as having been incurred giving benefit to the doctors/their professional associations by way of freebies.
Sr. No. Nature of expenses Amount (Rs.) i. Honorarium to Doctors 14,17,103 ii. Travel and stay facility of doctors in 55,25,138 connection with conferences/seminars iii. Distribution of books 12,20,627 iv. Expenses on participating in 28,58,134 exhibition/sponsorship for conferences v. Other expenses (provision of expenses) 2,95,309 vi. HHC/CME Expenses in relation to 20,75,749 promotional activity by Field staff Total 1,33,92,060 The assessee submitted before the AO that the CBDT Circular does not extend to any of the above expenses as these were incurred wholly and exclusively for the purpose of business of the company. However, the AO was not convinced with the above explanation and made an addition of the above amount of Rs.1,33,92,060/-.
Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) confirmed the addition of Eisai Pharmaceuticals Rs.1,13,16,311/- and deleted Rs.20,75,749/- on account of expenses in relation to promotional activity by field staff.
Before us, the Ld. counsel of the assessee relies on the decision in Cadila Pharmaceuticals Ltd. v. DCIT (2017) 85 taxmann.com 354 (Ahmadabad-Trib), Solvay Pharma India Ltd. v. Pr. CIT [2018] 89 taxmann.com 249 [Mumbai-Trib], Macleods Pharmaceuticals Ltd. v. Addl. CIT (2016) 74 taxmann.com 250 (Mumbai-Trib) and Syncom Formulations (I) Ltd. v. DCIT (ITA No. 6428 and 6429/Mum/2012) dated 23.12.2015 by ITAT ‘E’ Bench Mumbai and submits that the CBDT Circular No. 05/2012 dated 01.08.2012 is prospective and therefore, not applicable to the impugned assessment year i.e. 2011-12.
On the other hand, the Ld. DR submits that the Medical Council of India, in exercise of the powers conferred by section 33 of the Indian Medical Council Act, 1956, with the previous sanction of the Central Government, amended the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations 2002, wherein clause 6.8 was inserted w.e.f. 10.12.2009. Thus the Ld. DR submits that the amended IMC Regulations are applicable to the impugned assessment year and rightly the Ld. CIT(A) has sustained an addition of Rs.1,13,16,311/- made by the AO.
We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. In response to a query raised by the AO during the course of assessment proceedings, the assessee submitted a detail explanation Eisai Pharmaceuticals Rs.1,33,92,060/- located by the AO were incurred wholly and exclusively for the purpose of business of the company and outside the purview of the said CBDT Circular. The AO has extracted it at para 3.12 (page 16-17) of his assessment order dated 08.03.2014. However, instead of examining the issue from accounts and verifying the same, the AO has resorted to psychological and legal aspects, which are in the realm of general propositions. We are reminded of the cardinal principle of law that general propositions do not decide a concrete case. There was no lack of compliance by the assessee to the queries asked and details called for by the AO. The AO has failed to verify the same. Resultantly, the amended IMC Regulations relied on by the Ld. DR is not applicable to the instant case. Also it is settled law that the Circular issued by CBDT is prospective in nature. Thus the CBDT Circular No. 05/2012 dated 01.08.2012 is not applicable to the impugned assessment year. It has been rightly held in the decisions mentioned at para 5 hereinbefore.