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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI D.S. SUNDER SINGH
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
All the appeals of the assessee are directed against the respective order of CIT(A) -11, Chennai. Since common issue arises for consideration in all the appeals, we heard the same together and disposing of the same by this common order.
Let us first take the assessee’s appeal for the year 2003-04 in ITA 1641/Mds/2016. The first ground of appeal is with regard to re-opening of the assessment under Section 147 of the Act. Shri Saroj Kumar Parida, the learned counsel for the assessee submitted that the assessee is challenging the re-opening assessment on the ground that there is a change of opinion. The learned counsel for the assessee very fairly submitted that the assessment was re-opened within a period of four years from the end of the relevant assessment year. The learned counsel further submitted that he is placing reliance on the ground raised before this Tribunal.
We heard Shri A.V.Sreekanth, the learned representative for the department also. According to the learned department representative, the income escaped assessment in the original proceeding. Therefore, the assessing officer has rightly reopened the assessment within a period of four years. The assessing officer has not expressed any opinion in the original assessment. Therefore, it is not a case of change of opinion.
Therefore, the assessing officer has rightly reopened this.
We have considered the rival submissions on either side and perused the relevant material available on record. The assessing officer re-opened the assessment under Section 147 on the ground that the assessee was not eligible to set off the business loss and depreciation of the amalgamated company. It is not in dispute that the assessment was re-opened within a period of four years from the end of the relevant assessment year. Moreover, the so called business loss and depreciation of the amalgamated company namely M/s.TTK Biomed Ltd. and TTK Medical Devices Ltd. was not considered by the assessing officer.
Therefore, this Tribunal is of the considered opinion that the assessment was rightly re-opened by the assessing officer. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and the same is confirmed.
The next ground of appeal is with regard to carry forward of loss of M/s.TTK Biomed Ltd. We heard Shri A.V.Sreekanth, the learned representative for the department and Shri Saroj Kumar Parida, the learned counsel for the assessee. This issue was considered by this Tribunal in the assessee’s own case for the assessment year 2004-05 and this Tribunal found that a similar issue was decided against the assessee by this Tribunal for the assessment year 2000-01 in dated 16.07.2010. Accordingly, an identical issue was disallowed by this Tribunal in view of the decision of this Tribunal in the assessee’s own case for the assessment year 2004-05. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly, the same is confirmed.
6. Now coming to the Assessment Years 2011-12 & 2012-13, the issue arises for consideration is disallowance of gift said to be given to the medical practitioners for promoting / marketing the products manufactured by the assessee. Shri Saroj Kumar Parida, the learned counsel for the assessee submitted that the CBDT by Circular No.5/2012 dated 1st August, 2012 found that the Medical Council of India in exercise of its statutory power framed a regulation prohibiting the medical practitioner and their professional associate from taking any gift, travel facility, hospitality, cash or monetary grant from the pharmaceutical and allied health sector industries, instructed its officers to disallow such expenses as inadmissible under Section 37(1) of the Income Tax Act. It has also clarified that an equivalent value of freebees enjoyed by the aforesaid medical practitioner or professional associations is also taxable as business income or income from other sources. This circular may not be applicable for the assessment year 2011-12 & 2012-13. Therefore, the claim of the assessee has to be allowed as business expenditure. On a query from the bench, what are the nature of the gift given by the assessee to the medical practitioners and the details of the medical practitioners who have said to have received the gift, the learned counsel submitted that the gift given by the assessee is not in dispute. What is disputed is an allowance of the claim on the basis of the regulation framed by Medical Council prohibiting the medical practitioners to receive the gift. On a further query from the bench, the learned counsel submitted that the assessee may not be able to give the details of the medical practitioners who have received the gift from the assessee.
We heard Shri A.V.Sreekanth, the learned department representative also. The assessee is engaged in the business of manufacture and sale of medical and health care products. In the course of its business activity, the assessee claims that it gave gift to the medical practitioners and professional associates for marketing the drug and other medical products manufactured by the assessee. The question arises for consideration is whether the cost of the gift can be allowed as expenditure under Section 37 of the Income Tax Act while computing the tax of an income tax. Apparently, the gift was given to the medical practitioners and professional associates for prescribing the drugs and medical devices manufactured by the assessee to the respective patients.
In order to prevent such practice in India, the Medical Council of India, in exercise of statutory power framed a regulation called Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002.
The sole object of enacting this regulation is to prohibit the medical practitioners and professional associates for prescribing the drugs and other medical devices only on the basis of the gift said to be given by the concerned manufacturing companies. For the purpose of allowing the claim of the assessee, it is necessary to examine the genuineness of the gift said to be given by the assessee. Merely, because the assessee claims that gift was given to the medical practitioners and professional associates that cannot be allowed without verifying the genuineness of the gift actually given. The medical professionals to whom the gift said to be given needs to be examined and ascertained whether they actually received gift from assessee. Unfortunately, the details of the medical professional are not furnished either to the assessing officer or before this Tribunal to examine the genuineness of the gift said to be given by the assessee. Under the Income Tax Act for allowing any claim as expenditure, the genuineness of transaction has to be examined. Since the details are not furnished by the assessee either before the assessing officer or before this Tribunal, the genuineness cannot be ascertained at all.
Moreover, Article 21 of the Constitution of India guarantees right to life. Right to life guaranteed under Article 21 of Constitution is not a mere animal existence. The citizens of this country have a right to lead a dignified life and right to have health care from qualified medical practitioners. Such a right guaranteed under the constitution cannot be defeated by pharmaceutical companies by giving gift to the medical practitioners for prescribing the drugs manufactured by them. Therefore, this Tribunal is of the considered opinion that giving gift to the medical practitioners for promoting or marketing the products manufactured by the pharmaceutical company with an intention to abate the medical practitioners to prescribe the drugs manufactured by them is against the public policy and also contrary to the provisions of Article 21 of the Constitution of India. The right to life guaranteed under Article 21 of the Constitution cannot be defeated by allowing the pharmaceutical companies to market their products by giving gift to the medical practitioners. This Tribunal is of the considered opinion that the citizen of this country deserves better medical treatment. The medical treatment shall be made available by the state at a reasonable cost. The practice of marketing the drugs or medical devices on extraneous consideration cannot be allowed to continue any further. Therefore, the gift said to be given by the assessee is against the public policy. Hence, even if the so called gift is genuine transaction, the same cannot be allowed as ‘business expenditure’ under Section 37 of the Income Tax Act. In the case before us, the genuineness of the gift is also not proved by the assessee by giving the name and address of the doctors to whom the gift was said to be given. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly, the same is confirmed.
Now coming to the assessment year 2012-13, in the department appeal, the first ground of appeal is with regard to disallowance of logo charges. Shri A.V.Sreekanth, the learned department representative submitted that the assessee claimed logo charges of Rs.1,35,42,344/-.
On the basis of the agreement said to be entered into between the assessee and M/s.T.T.Krishnamachari & Co., a partnership firm, the assessee obtained a license to use the logo (ttk). The assessee has paid 0.5% of the sales as logo charges during the year under consideration.
The CIT(A) by placing reliance on the order of this Tribunal in the assessee’s own case for the assessment year 2008-09 in allowed the claim of the assessee. According to the learned representative, the logo charges paid by the assessee is not for business purposes and therefore, the same cannot be allowed.
We heard Shri Saroj Kumar Parida, the learned counsel for the assessee also. It is not in dispute that the logo (ttk) owned by M/s.T.T.Krishnamachari & Co., a partnership firm. Under Income Tax Act, the partnership firm is an independent and separate assessable unit.
Therefore, the assessee obtained a license from M/s.T.T.Krishnamachari & Co., for using the logo (ttk). In pursuant to the agreement, the assessee has paid 0.5% of the sales as logo charges. This Tribunal examined the agreement for the assessment year 2008-09 and found that the logo charges paid by the assessee are revenue expenditure.
Accordingly, confirmed a similar order of the CIT(A). In view of the order of this Tribunal for the assessment year 2008-09 in the assessee’s own case allowing a similar payment of logo charges as revenue expenditure, this Tribunal do not find any reason to interfere with the order of the CIT(A) and accordingly, the same is confirmed.
The next ground of appeal is depot charges paid to M/s.TTK & Co at 3% of the sales. Shri A.V.Sreekanth, the learned department representative submitted that the assessing officer claimed 3% of the sales as depot charges. However, the assessing officer restricted the same to 2%. The CIT(A) by placing reliance on the order of this Tribunal in assessee’s own case allowed the claim of the assessee at 3%.
According to the learned representative, 3% of the sale turnover is highly excessive. Therefore, the CIT(A) ought not to have allowed the claim of the assessee.
We heard Shri Saroj Kumar Parida, the learned counsel for the assessee also. The CIT(A) after considering the order of this Tribunal in assessee’s own case for assessment year 2009-10 in found that the payment of depot charges at 3% of the sales are reasonable and not excessive. A similar view also was taken by CIT(A) for the assessment year 2011-12.
In view of the order of this Tribunal in the assessee’s own case for assessment year 2009-10 in this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly, the same is confirmed.
In the result, all the appeals filed by the assessee as well as by the revenue are dismissed.
Order pronounced on 25th November, 2016 at Chennai.