Deputy Commissioner of Income Tax, Circle-2(1)., Panaji V. M/s Geno Pharmacuiticals Ltd., Mapusa

ITA 197/PAN/2015

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1432 (ITAT-PANAJI)
• Duration Of Justice: 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 14-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K M MAHESH LD
• Assessee Lawyers: NAVEEN G DAIVAJNA
• Keywords: Gift; Capital expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI N.S. SAINI, HON'BLE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, HONBLE JUDICIAL MEMBER ITA NO. 197/PNJ/2015 : (A.Y 2011 - 12) DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(1), PANAJI, GOA. (APPELLANT) VS. M/S. GENO PHARMACEUTICALS LTD. TIVIM INDUSTRIAL ESTATE, KARASWADA, MAPUSA - GOA (RESPONDENT) PAN : AAACG5887G ASSESSEE BY : NAVEEN G. DAIVAJNA, CA REVENUE BY : K.M. MAHESH, LD. DR DATE OF HEARING : 12/08/2015 DATE OF PRONOUNCEMENT : 12/08/2015 O R D E R PER GEORGE MATHAN : 1. THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A), PANAJI - 1 IN ITA NO. 249/PNJ/13 - 14 DT. 12.2.2015 FOR THE A.Y 2011 - 12. SHRI NAVEEN G. DAIVAJNA , CA REPRESENTED ON BEHALF OF THE ASSESSEE AND SHRI K.M. MAHESH, LD. DR REPRESENTED ON BEHALF OF THE REVENUE. 2. IN THE REVENUES APPEAL, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS : 1. THE LD. CIT(A) IGNORED THE MEDICAL COUNCIL OF INDIAS IMPOSITION OF BAN ON MEDICAL PRACTITIONERS IN ACCEPTING THE GIFTS, TRAVEL FACILITY, HOSPITALITY, CASH OR MONETARY GRANT FROM THE PHARMACEUTICAL COMPANIES W.E.F. 10.12.2009 AND CBDTS CIRCULAR NO. 5/2012 DATED 01.08.2012 WHICH IS APPLICABLE TO A.Y 2011 - 12 IN ALLOWING THE RELIEF TO THE ASSESSEE. 2 ITA NO. 197/PNJ/2015 (A.Y : 2011 - 12) 2. THE LD. CIT(A) FAILED TO APPRECIATE THAT THE EXPENDITURE INCURRED TOWARDS SALES PROMOTION TO DOCTORS BY THE ASSESSEE IS PROHIBITED BY LAW AND SHALL NOT BE DEEM E D TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE AS PER THE EXPLANATION TO THE SECTION 37 OF THE I.T. ACT, 1961. 3. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY OF THE GROUNDS OF APPEAL OR ADD TO THE SAME, IF DEEME D NECESSARY. 3. IT WAS SUBMITTED BY THE LD. DR THAT THE ISSUE WAS AGAINST THE ACTION OF LD. CIT(A) IN DELETING THE ADDITION MADE BY THE AO IN RESPECT OF THE GIFTS/TRAVEL FACILITIES AND HOSPITALITY, CASH OR MONETARY GRANTS PAID BY THE ASSESSEE TO THE DOCT ORS. IT WAS THE SUBMISSION THAT THE LD. CIT(A) HAS FOLLOWED THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE A.Y 2010 - 11. IT WAS THE SUBMISSION THAT THE ORDER OF THE LD. CIT(A) WAS LIABLE TO BE REVERSED. 4. IN RE PLY, THE LD. AR SUBMITTED THAT THE ISSUE WAS SQUARELY COVERED BY THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE BEING ITA NO. 12/PNJ/2014 FOR THE A.Y 2010 - 11 WHEREIN IT HAS BEEN HELD AS FOLLOWS : 3.3. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ISSUE ON HAND IS WHETHER THE ASSESSEE HAS INCURRED THE EXPENSES ON SALES PROMOTION. THE ASSESSEE HAS INCURRED THE EXPENSES WHICH WAS PAID TO THE DOCT ORS INCLUDING TRAVELLING AND CONVEYANCE, SELLING AND DISTRIBUTION EXPENSES, CONFERENCE EXPENSES INCURRED ON THE DOCTORS FOR PROMOTING THE SALES. THE ASSESSING OFFICER WAS OF THE VIEW THAT SUCH TYPE OF EXPENDITURE IS AGAINST THE ETHICS OF DOCTORS. THE INDIA N MEDICAL COUNCIL REGULATION ACT 2002 PROHIBITS DOCTORS TO ACCEPT ANY GIFT FOR ANY KIND OF SERVICES FOR PHARMACEUTICAL COMPANY, THEREFORE, THIS EXPENDITURE MAY NOT BE ALLOWED. WE ALSO FIND THAT WHEN ANY NEW PRODUCT HAS BEEN LAUNCHED BY THE ASSESSEE, THE AS SESSEE HAS TO PUBLISH THE MATERIAL AND T H EY HAVE TO MAKE THE DOCTORS AWARE ABOUT THE MEDICINE MANUFACTURED BY THE ASSESSEE. WE ALSO FIND THAT WHEN ANY PRODUCT IS LAUNCHED, THERE IS A LOT OF CONFERENCE HAS TO BE ARRANGED AND FOR ARRANGING THE CONFERENCE THE INDUSTRY HAS TO INCUR THE EXPENSES FOR TRAVELLING OF EXPENSES AND OTHER EXPENSES. 3 ITA NO. 197/PNJ/2015 (A.Y : 2011 - 12) THEREFORE, WE ARE OF THE VIEW THAT SUCH EXPENDITURE IS ADMISSIBLE UNDER THE INCOME TAX ACT. THE SIMILAR ISSUE HAS COME UP IN ASSESSEES OWN CASE IN ITA NOS. 167 & 168/PNJ/20 1 1 , WHEREIN THE TRIBUNAL HAS HELD AS UNDER: 21. WE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME AT THE T IME OF HEARING THE LD. AR DID NO T PRESS GROUND TAKEN IN HIS APPEALS AND THERE FORE THE SAME STAND DISMISSED AS NOT PRESSED COMING TO THE GROUND TAKEN BY THE REVENUE, WE HAVE GONE THROUGH THE BREAKUP OF THE SALES PROMOTION EXPENSES. FROM THE BREAKUP IT IS APPARENT THAT THE EXPENSES HA V E BEEN INCURRED FOR THE PROMOTION OF THE PRODUCT O F TH E ASSESSEE. NONE OF THE EXPENDITURE INCURRED, IN OUR OPINION, IS HIT BY EXPLANATION TO SECTION 37 . THE EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF THE BUSINESS AND ARE NOT THE CAPITAL EXPENDITURE OR THE PERSONAL EXPENSES. THE NATURE OF THE BUSINESS IN OUR OPINION DEMANDS THAT THE ASSESSEE MUST HAVE INCURRED SUCH EXPENDITURE OTHERWISE THE ASSESSEE WOULD NOT BE ABLE TO DISPOSE OFF HIS PRODUCT; MEDICINE MANUFACTURE BY THE ASSESSEE IS A CONSUMER ORIENTED INDUSTRY HAVING VAST BASE OF THE CONSUMER. IT HAD A LOT OF CO MPETITION IN THE MARKET WITHOUT PUBLISH ING MATERIAL AND MAKING THE DOCTORS AWARE OF ABOUT THE MEDICINE MANUFACTURED BY THE ASSESSEE, THE ASSESSEE WILL NOT BE ABLE TO SELL THE PRODUCTS. IT IS NOT A CASE WHERE THE A O HAVE DISPUTED THE GENUINELY OF THE EXPENDITURE. UNDER THESE FACTS WE AGREE WITH THE ORDER OF THE C I T(A) ON THIS ISSUE. WE ACCORDINGLY CONFIRM THE ORDER OF THE CIT (A) BY DISMISSING THE GROUND TAKEN BY THE REVENUE AS WELL BY THE ASSESSEE IN THE BOTH THE ASSESSMENT YEARS IN THIS ISSUE. WE HAVE GONE THROUGH THE CIRCULAR NO. 5/2012, MINISTRY OF FINANC E DEPARTMENT OF REVENUE, GOVT. OF INDIA WHEREIN THE CBDT HAS CLARIFIED THE ADMISSIBILITY OF EXPENSES INCURRED IN PROVIDING FREEBEES TO THE MEDICAL PRACTITIONER BY PHARMACEUTICAL AND ALLIED HEALTH SECTION INDUSTRIES. BY THAT CIRCULAR THE M EDICAL PRACTITIONER AND THEIR PROFESSIONAL ASSOCIATES ARE BEING PROHIBITED FROM TAKING ANY GIFT, TRAVEL FACILITY , H OSPITALITY, CASH OR MONETARY GRANT FROM THE PHARMACEUTICAL AND ALLIED HEALTH SECTOR INDUSTRIES. MOREOVER, ANY FACILITIES GIVEN TO MEDICAL PRO FESSION OR MEDICAL PRACTITIONER ARE NOT ALLOWED, THEREFORE, THIS CIRCULAR IS APPLICABLE TO THAT RELEVANT FACTS BUT IN THE INSTANT CASE EACH CASE HAS TO BE VERIFIED IN RESPECT OF EXPENDITURE W HICH COMPANY HAS DEBITED AS SALES PROMOTION EXPENSES WHICH ARE PA ID TO DOCTORS DIRECTLY OR INDIRECTLY. THE ASSESSING OFFICER HIMSELF HAS STATED THAT ABOVE SALES PROMOTION EXPENSES PAID TO DOCTORS INCLUDING TRAVELLING AND CONVEYANCE, SELLING AND DISTRIBUTION EXPENSES, CONFERENCE EXPENSES INCURRED ON THE DOCTORS FOR PROMO TING THE SALES. THE ASSESSING OFFICER HAS NOT POINTED OUT ANY EXPENSES WHICH I S DIRECTLY INCURRED WHICH PROHIBITED BY LAW AND THE AO HAS NOT BROUGHT OUT ANY EVIDENCE THAT ASSESSEE HAS INCURRED THIS EXPENDITURE WHICH IS PROHIBITED BY CBDTS CIRCULAR NO. 5/2 012. WE FIND THAT THE CIT(A) HAS DISALLOWED THE SALES PROMOTION EXPENSES @ 10% OF THE TOTAL EXPENDITURE. WE FIND THAT THE ASSESSING OFFICER DID NOT POINT OUT WHICH EXPENDITURE IS PROHIBITED BY LAW, 4 ITA NO. 197/PNJ/2015 (A.Y : 2011 - 12) THEREFORE, IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2007 - 08 AND IN 2008 - 09 THE TRIBUNAL HAS DISMISSED THE APPEAL OF THE REVENUE AND CIT(A) HAS FOLLOWED THE DECISION OF THE TRIBUNAL, THEREFORE, OUR INTERFERENCE IS NOT REQUIRED. IN THE RESULT, APPEAL ON THIS GROUND IS DISMISSED. 5. WE HAVE CONSIDERED THE RIVAL S UBMISSIONS. AS IT IS NOTICED THAT THE ISSUE IS COVERED IN THE ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE PRECEDING ASS ESSMENT YEAR, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). 6. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 12/08/2015. S D / - (N.S. SAINI) ACCOUNTANT MEMBER S D / - ( GEORGE MATHAN ) JUDICIAL MEMBER PLACE : PANAJI / GOA DATED : 12/08/ 201 5 *SSL* COPY TO : (1) APPELLANT (2) RESPONDENT (3) CIT(A) CONCERNED (4) CIT CONCERNED (5) D.R (6) GUARD FILE TRUE COPY, BY ORDER , 5 ITA NO. 197/PNJ/2015 (A.Y : 2011 - 12) DATE INITIAL ORIGINAL DICTATION PAD & DRAFT ORDER ARE ENCLOSED IN THE FILE 1. DRAFT DICTATED ON 12/08/2015 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 1 3 /08/2015 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 1 3 /08/2015 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 1 3 /08/2015 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 1 3 /08/2015 SR.PS 6. DATE OF PRONOUNCEMENT 12/08/2015 SR.PS 7. FILE SENT TO THE BENCH CLERK 1 3 /08/2015 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER