ACIT, CIRCLE-2(1)(1), MUMBAI V. SOLVAY PHARMA INDIA LTD., MUMBAI

ITA 1922/MUM/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 8719 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2011-2012
• Appeal Filed On: 02-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHARAT KUMAR GUPTA
• Keywords: Retrospective amendment; Set aside
• Section: 143(3); 37(1); 250; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER & SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA NO. 1922/MUM/2019 (A.Y: 2011-12) ACIT, CIRCLE 2(1)(1) R.NO. 561, 5 TH FLOOR, AAYAKAR BHAVAN, MK MARG, MUMBAI- 400020. VS. SOLVAY PHARMA INDIA LTD, 3-4, CORPORATE PARK, SION TROMBAY ROAD, MUMBAI 400071. ./ ./ PAN/GIR NO. : AABCD0322J APPELLANT .. RESPONDENT APPELLANT BY : SHRI BHARAT KUMAR GUPTA, DR RESPONDENT BY : SHRI MADHUR AGARWAL, AR DATE OF HEARING 22 .0 3 .2021 DATE OF PRONOUNCEMENT 24 .0 3 .2021 / O R D E R PER PAVAN KUMAR GADALE, JM: THE APPEAL IS FILED BY THE REVENUE AGAINST THE ORDE R OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 04 MUMBAI, PASSED U/S. 143(3) R.W.S 263 AND 250 OF THE INCOME TAX ACT, 1961. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWA NCE OF PUBLICITY AND PROPAGANDA EXPENSES OF RS. 12,94,58,7 56/- RELYING ON THE ITAT DECISION WHICH QUASHED THE 263 PROCEEDINGS, HOLDING THAT MCI REGULATIONS 2002 IS N OT ITA NO. 1922/MUM/2019 SOVAY PHARMA INDIA LTD., MUMBAI - 2 - APPLICABLE ON PHARMACEUTICAL COMPANIES AND AS SUCH NO PROHIBITION BY LAW WITHIN THE MEANING OF EXPLANATIO N 1 TO SECTION 37(1) OF THE ACT ON CLAIMING THE EXPENSE BY ASSESSEE AS DEDUCTION U/S. 37(1) WITHOUT APPRECIATING THE FA CT THAT PROVIDING FREEBIES BY PHARMACEUTICAL COMPANIES IS A S A NATURAL COROLLARY VIOLATION OF THE PROVISIONS OF MC I REGULATIONS. 2. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE AO BE RES TORED. 2. THE BRIEF FACTS OF THE CASE ARE THAT, THE ASSESS EE COMPANY IS IN THE BUSINESS OF MANUFACTURING AND TR ADING IN PHARMACIES FOUNDATIONS AND FILED THE RETURN OF I NCOME ON 29.11.2011 DISCLOSING A TOTAL INCOME OF RS. 67,83,08,102/-. AND UNDER PROVISIONS OF SECTION115 JB OF THE ACT, THE BOOK PROFITS ARE COMPUTED OF RS. 61,01,53,828/-.THE ASSESSMENT WAS COMPLETED U/S 143 (3) OF THE ACT DETERMINING TOTAL INCOME OF RS. 67,96,26 ,670/- ON 08.03.2015. SUBSEQUENTLY, THE PR.CIT HAS PASSED A REVISION ORDER U/S 263 OF THE ACT ON 30.03.2015 WIT H SPECIFIC DIRECTIONS. THE A.O. IN COMPLIANCE TO THE DIRECTIONS OF THE PR.CIT, HAS ISSUED NOTICE U/S 142 (1) OF THE ACT ON THE ASSESSEE TO PRODUCE THE BOOKS OF ACC OUNTS AND DOCUMENTS RELATING TO EXPENDITURE DEBITED ON ACCOUNT OF PUBLICITY & PROPAGANDA AND ADVERTISEMENT EXPENSES. THE LD. AR OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FILED THE DETAILS AND THE CASE WAS DI SCUSSED. ITA NO. 1922/MUM/2019 SOVAY PHARMA INDIA LTD., MUMBAI - 3 - THE A.O. HAS CALLED FOR THE FURTHER DETAILS AND WHE REAS THE INVOICES OF EXPENSES SUBMITTED BY THE ASSESSEE ARE NOT PROPERLY SUPPORTED. HENCE THE A.O. HAS ALLOWED THE CLAIM TO THE EXTENT OF AVAILABILITY OF INVOICES AN D REJECTED THE BALANCE CLAIM OF EXPENSES OF RS.12,94,58,756/-A ND ASSESSED THE TOTAL INCOME OF RS. 80,90,85,420/- AN D PASSED THE ORDER U/S 143(3) R.W.S 263 OF THE ACT D ATED 30-12-2016. 3. AGGRIEVED BY THE ORDER, THE ASSESSEE HAS FILED A N APPEAL WITH THE LD. CIT(A), THE LD. CIT(A) CONSIDER ED THE GROUNDS OF APPEAL OF THE ASSESSEE, SUBMISSIONS AND FINDINGS OF THE A.O. THE CIT(A) FOUND THAT THE ASSE SSEE COMPANY HAS FILED THE APPEAL AGAINST THE REVISION O RDER OF THE PR.CIT U/S 263 OF THE ACT DATED 30.03.2016 BEFO RE THE HONBLE TRIBUNAL. WHEREAS THE HONBLE TRIBUNAL HAS HEARD THE APPEAL AND OBSERVED THAT THERE IS NO MER ITS IN THE ORDER PASSED U/S 263 OF THE ACT AND ALLOWED THE ASSESSEES APPEAL. THEREFORE, THE LD.CIT(A) CONSIDE RING THE FACTS THAT THE REVISION ORDER U/S 263 OF THE AC T FOR THE SAME ASSESSMENT YEAR HAS BEEN QUASHED AND THE PRESE NT APPEAL FILED BY THE ASSESSEE IS A CONSEQUENTIAL ORD ER PASSED BY THE ASSESSING OFFICER U/S 143(3) R.W.S 26 3 OF THE ACT HAS OBSERVED THAT THE ORDER PASSED BY THE ASSESSING OFFICER IS NOT VALID AND ALLOWED THE ASSE SSEES ITA NO. 1922/MUM/2019 SOVAY PHARMA INDIA LTD., MUMBAI - 4 - APPEAL. AGGRIEVED BY THE CIT(A) ORDER, THE REVENUE HAS FILED AN APPEAL WITH THE HONBLE TRIBUNAL. 4.AT THE TIME OF HEARING, THE LD. DR SUBMITTED THAT THE CIT(A) HAS ERRED IN QUASHING THE ASSESSMENT ORDER IRRESPECTIVE OF THE FACT THAT THE ASSESSEE COMPANY HAS NOT PROVED ITS THE CLAIM. CONTRA, THE LD.AR SUPPORTED THE ORDER OF THE LD CIT(A) AND RELIED ON THE HONBLE TR IBUNAL ORDER. 5. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. PRIMA-FACIE, THE ONLY ISSUE WH ICH THE REVENUE HAS CHALLENGED THAT THE LD.CIT(A) ERRED IN GRANTING THE RELIEF CONSIDERING THE HONBLE TRIBUNA L DECISION OF QUASHING THE PR.CIT ORDER U/SEC 263 OR DER OF THE ACT. WE FIND THAT THE LD.CIT(A) HAS DEALT ON TH E DISPUTED ISSUE AND OBSERVED AT PAGE 4 PARA 7 & 8 OF THE ORDER AS UNDER: 7. DURING THE COURSE OF APPELLATE PROCEEDINGS, IT WAS PINTED OUT BY THE APPELLANT THAT ASSESSMENT WAS FRA MED BY LD. AO U/S 143(3) R.W.S 263 OF THE ACT APPELLANT FU RTHER SUBMITTED THAT THE ASSESSEE COMPANY FILED AN APPEAL BEFORE THE HONBLE ITAT AGAINST THE ORDER OF CIT-2, MUMBAI DATED 30.03.2016 FOR A.Y 2011-12. WHILE DECIDING THE APP EAL OF THE ASSESSEE AGAINST THE ORDER U/S 263, THE HONBLE ITA T IN ITA NO. 3585/MUM/2016 HELD AS UNDER: ITA NO. 1922/MUM/2019 SOVAY PHARMA INDIA LTD., MUMBAI - 5 - 24. WE OBSERVE THAT THE CBDT CIRCULAR DATED 1-8-201 2 (SUPRA) IN ITS CLARIFICATION HAS ENLARGED THE SCOPE AND APP LICABILITY OF 'INDIAN MEDICAL COUNCIL REGULATION 2002' BY MAKING IT APPLICABLE TO THE PHARMACEUTICAL COMPANIES OR ALLIE D HEALTH CARE SECTOR INDUSTRIES. SUCH AN ENLARGEMENT OF SCOP E OF MCI REGULATION TO THE PHARMACEUTICAL COMPANIES BY THE C BDT IS WITHOUT ANY ENABLING PROVISIONS EITHER UNDER THE PR OVISIONS OF INCOME TAX LAW OR BY ANY PROVISIONS UNDER THE INDIA N MEDICAL COUNCIL REGULATIONS. THE CBDT CANNOT PROVIDE CASUS OMISSUS TO A STATUTE OR NOTIFICATION OR ANY REGULATION WHIC H HAS NOT BEEN EXPRESSLY PROVIDED THEREIN. THE CBDT CAN TONE DOWN THE RIGOURS OF LAW AND ENSURE A FAIR ENFORCEMENT OF THE PROVISIONS BY ISSUING CIRCULARS AND BY CLARIFYING THE STATUTOR Y PROVISIONS. CBDT CIRCULARS ACT LIKE 'CONTEMPORANEA EXPOSITIO' I N INTERPRETING THE STATUTORY PROVISIONS AND TO ASCERT AIN THE TRUE MEANING ENUNCIATED AT THE TIME WHEN STATUTE WAS ENA CTED. HOWEVER THE CBDT IN ITS POWER CANNOT CREATE A NEW IMPAIRMENT ADVERSE TO AN ASSESSEE OR TO A CLASS OF ASSESSEE WITHOUT ANY SANCTION OF LAW. THE CIRCULAR ISSUED BY THE CBDT MUST CONFIRM TO TAX LAWS AND FOR PURPOSE OF GIVING ADMINISTRATIVE RELIEF OR FOR CLARIFYING THE PROVISI ONS OF LAW AND CANNOT IMPOSE A BURDEN ON THE ASSESSEE, LEAVE ALONE CREATING A NEW BURDEN BY ENLARGING THE SCOPE OF A DIFFERENT REGULATION ISSUED UNDER A DIFFERENT ACT SO AS TO IMPOSE ANY KI ND OF HARDSHIP OR LIABILITY TO THE ASSESSEE. IN ANY CASE, IT IS TRITE LAW THAT THE CBDT CIRCULAR WHICH CREATES A BURDEN O R LIABILITY OR IMPOSES A NEW KIND OF IMPARITY, SAME CANNOT BE R ECKONED RETROSPECTIVELY. THE BENEFICIAL CIRCULAR MAY APPLY RETROSPECTIVELY BUT A CIRCULAR IMPOSING A BURDEN HA S TO BE APPLIED PROSPECTIVELY ONLY. HERE IN THIS CASE THE C BDT HAS ENLARGED THE SCOPE OF 'INDIAN MEDICAL COUNCIL REGUL ATION, 2002' AND MADE IT APPLICABLE FOR THE PHARMACEUTICAL COMPANIES. THEREFORE, SUCH A CBDT CIRCULAR CANNOT B E RECKONED TO HAVE RETROSPECTIVE EFFECT. THE FREE SAM PLE OF MEDICINE IS ONLY TO PROVE THE EFFICACY AND TO ESTAB LISH THE TRUST OF THE DOCTORS ON THE QUALITY OF THE DRUGS. T HIS AGAIN CANNOT BE RECKONED AS FREEBIES GIVEN TO THE DOCTORS BUT FOR PROMOTION OF ITS PRODUCTS. THE PHARMACEUTICAL COMPA NY, WHICH ITA NO. 1922/MUM/2019 SOVAY PHARMA INDIA LTD., MUMBAI - 6 - IS ENGAGED IN MANUFACTURING AND MARKETING OF PHARMA CEUTICAL PRODUCTS, CAN PROMOTE ITS SALE AND BRAND ONLY BY AR RANGING SEMINARS, CONFERENCES AND THEREBY CREATING AWARENES S AMONGST DOCTORS ABOUT THE NEW RESEARCH IN THE MEDIC AL FIELD AND THERAPEUTIC AREAS, ETC. EVERY DAY THERE ARE NEW DEVELOPMENTS TAKING PLACE AROUND THE WORLD IN THE A REA OF MEDICINE AND THERAPEUTIC, HENCE IN ORDER TO PROVIDE CORRECT DIAGNOSIS AND TREATMENT OF THE PATIENTS, IT IS IMPE RATIVE THAT THE DOCTORS SHOULD KEEP THEMSELVES UPDATED WITH THE LATEST DEVELOPMENTS IN THE MEDICINE AND THE MAIN OBJECT OF SUCH CONFERENCES AND SEMINARS IS TO UPDATE THE DOCTORS O F THE LATEST DEVELOPMENTS, WHICH IS BENEFICIAL TO THE DOCTORS IN TREATING THE PATIENTS AS WELL AS THE PHARMACEUTICAL COMPANIES. 25. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY MERIT IN THE ORDER PASSED U/S.263. SINCE THE ASSESSMENT WAS FRAMED IN VIEW OF THE ORDE R PASSED BY LD. CIT-2, MUMBAI U/S 263 AND ORDER U/S 263 HAS BEEN QUASHED BY HONBLE ITAT, THEREFORE, ASSESSMENT FRAM ED BY LD. AO U/S 143(3) R.W.S 263 IS NOT A VALID ASSESSME NT. HENCE, ALL THE GROUNDS RAISED BY THE APPELLANT ARE ALLOWED. 8. IN THE RESULT, THE APPEAL IS ALLOWED. 6. THE LD. DR COULD NOT CONTROVERT THE OBSERVATIONS OF THE LD.CIT(A) WITH ANY NEW COGENT EVIDENCE OR INFORMATI ON, WE FIND THE LD.CIT(A) HAS CONSIDERED THE SUBMISSI ONS OF THE ASSESSEE AND THE DECISION OF THE HONBLE TRIBU NAL AND PASSED A REASONED ORDER. ACCORDINGLY, WE ARE NO T INCLINED TO INTERFERE WITH THE ORDER OF THE LD.CIT( A) AND UPHOLD THE SAME AND DISMISS THE GROUNDS OF APPEAL O F THE REVENUE. ITA NO. 1922/MUM/2019 SOVAY PHARMA INDIA LTD., MUMBAI - 7 - 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24.03.2021 SD/- SD/- (SHAMIM YAHYA) (PAVAN KUMAR GADA LE) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 24.03.2021 KRK, PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) 4. ( ) / CONCERNED CIT 5. '#$%&&' , )* , / DR, ITAT, MUMBAI 6. %-./0 / GUARD FILE. / BY ORDER, '& //TRUE COPY// 1. ( ASST. REGISTRAR) ITAT, MUMBAI