EISAI PHARMACEUTICALS INDIA P. LTD, MUMBAI V. DCIT (iT) 9(1)(1), MUMBAI

ITA 2023/MUM/2017

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 5310 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 22-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D G
• Keywords: Gift; Set aside
• Section: 143(3); 244A; 37(1); 250; 201

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, E MUMBAI , , , BEFORE SHRI JOGINDER SINGH, VICE PRESIDENT, AND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER ITA NO.2023/MUM/2017 ASSESSMENT YEAR:2012-13 EISAI PHARMACEUTICALS INDIA PVT. LTD. ( NOW MERGED WITH EISAI PHARMATECHNOLOGY AND MANUFACTURING PVT. LTD. AND SUBSEQUENTLY RENAMED AS EISAI PHARMACEUTICALS INDIA INDIA PVT. LTD. ) 6TH FLOOR, A-WING, MARWAH CENTRE KRISHNALAL MARWAH MARG ANDHERI (E), MUMBAI-400071 / VS. DEPUTY COMMISSIONER OF INCOME TAX, 9(1)(1), ROOM NO. 260A, 2ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, NEW MARINE LINES, MUMBAI -400020 ( #$%& ' /ASSESSEE) ( / REVENUE) PAN. NO . AABCE3924D ( ) ' * / DATE OF HEARING : 22/10/2018 ) ' * / DATE OF ORDER: 31/10/2018 #$%& ' ! / ASSESSEE BY SHRI MADHUR AGARWAL ! / REVENUE BY SHRI D.G. PANSARI-DR ITA NO.2023/MUM/2017 EISAI PHARMACEUTICALS INDIA LTD. 2 / O R D E R PER JOGINDER SINGH(VICE PRESIDENT) THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DAT ED 13/12/2016 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI, CONFIRMING THE DISALLOWANCE OF RS.1,39,25,373/- MAD E WITH RESPECT TO EXPENSES ON HONORARIUM TO DOCTORS, TRAVE L AND STAY FACILITIES OF DOCTORS IN CONNECTION WITH CONFERENCES/SEMINARS, BOOKS AND SUBSCRIPTION CHARGE S, EXPENSES ON PARTICIPATING IN EXHIBITION/SPONSORSHIP FOR CONFERENCES AND OTHER EXPENSES INCLUDED IN ADVERTIS EMENT AND PROMOTIONAL EXPENSES ON THE PREMISE THAT THE SA ID EXPENDITURE WAS INCURRED FOR THE PURPOSES WHICH ARE PROHIBITED BY LAW AND NOT ALLOWABLE UNDER SECTION 3 7(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT). 2. DURING HEARING OF THIS APPEAL, THE LD. COUNSEL FOR THE ASSESSEE, SHRI MADHUR AGARWAL, CLAIMED THAT THE IMPUGNED ISSUE IS COVERED BY THE DECISION OF THE TR IBUNAL IN THE CASE OF ASSESSEE ITSELF (ITA NO.1381/MUM/2016) FOR ASSESSMENT YEAR 2011-12, ORDER DATED 30/05/2018. TH IS FACTUAL MATRIX WAS NOT CONTROVERTED BY LD. DR, SHRI D.G. PANSARI. ITA NO.2023/MUM/2017 EISAI PHARMACEUTICALS INDIA LTD. 3 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN VIEW O F THE ABOVE, WE ARE REPRODUCING HEREUNDER THE RELEVANT PO RTION FROM THE AFORESAID ORDER OF THE TRIBUNAL DATED 30/0 5/2018 FOR READY REFERENCE AND ANALYSIS:- THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEV ANT ASSESSMENT YEAR IS 2011-12. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-1 6, MUMBAI [ IN SHORT CIT(A)]AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961, (T HE ACT). 2. THE GROUNDS OF APPEAL FILED BY THE REVENUE READ AS UNDER: 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOW ANCE MADE BY THE ASSESSING OFFICER WITH REGARD TO HONORARIUM LO DOCTORS, TRAVEL AND STAY FACILITIES OF DOCTORS IN CONNECTION WITH CONFERENCES/SEMINARS, DISTRIBUTION OF BOOKS, EXPENS ES ON PARTICIPATING IN EXHIBITIONS/SPONSORSHIPS FOR CONFE RENCES AND PROVISION OF EXPENSES INCLUDED IN ADVERTISEMENT AND PROMOTIONAL EXPENSES OF RS.1,13,16,311 UNDER SECTIO N 37(1) OF THE INCOME-TAX ACT, 1961 ON THE PREMISE THAT THE SA ID EXPENDITURE HAS BEEN INCURRED FOR PURPOSES WHICH AR E PROHIBITED BY LAW. 2. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE APPELL ANT HAS NOT INCURRED EXPENDITURE FOR PARTICIPATING IN EXHIBITIO NS OR INSTALLATION OF STALLS RATHER IT WAS A CASH SPONSOR SHIP PROHIBITED BY INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ET IQUETTE AND ETHICS) REGULATIONS, 2002. 3. THE LEARNED CIT(A)ERRED IN NOT APPRECIATING THAT TH E CIRCULAR NO. 5/2012 DATED 1 AUGUST 2012 ISSUED BY THE CENTRAL BO ARD 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 T HE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND MARKETING/SELLING OF DRUGS. DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER (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 TH E CENTRAL ITA NO.2023/MUM/2017 EISAI PHARMACEUTICALS INDIA LTD. 4 GOVERNMENT, AMENDED THE INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULA TIONS, 2002 (HEREINAFTER REFERRED TO AS THE IMC REGULATIO NS), WHEREIN CLAUSE 6.8 WAS INSERTED W.E.F. 10.12.2009. FROM THE AMENDED IMC REGULATIONS, THE AO OBSERVED THAT A DOC TOR 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/REPRESENT ATIVES UNDER ANY PRETEXT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO DREW TO THE ATTENTION OF THE AS SESSEE, THE CBDT CIRCULAR NO. 05/2012 DATED 01.08.2012 ON T HE SUBJECT INADMISSIBILITY OF EXPENSES INCURRED IN PR OVIDING 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 IN CURRED GIVING BENEFIT TO THE DOCTORS/THEIR PROFESSIONAL AS SOCIATIONS BY WAY OF FREEBIES. SL NO. NATURE OF EXPENSES AMOUNT (RS.) I. HONORARIUM TO DOCTORS 14,17,103 II. TRAVEL AND STAY FACILITY OF DOCTORS IN CONNECTION WITH CONFERENCES/SEMINARS 55,25,138 III. DISTRIBUTION OF BOOKS 12,20,627 IV. EXPENSES ON PARTICIPATING IN EXHIBITION/SPONSORSHIP FOR CONFERENCES 28,58,134 V. OTHER EXPENSES (PROVISION OF EXPENSES) 2,95,309 VI. HHC/CME EXPENSES IN RELATION TO PROMOTIONAL ACTIVITY BY FIELD STAFF 20,75,749 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 THE SE WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE COMPANY. HOWEVER, THE AO WAS NOT CONVINCED WITH THE ITA NO.2023/MUM/2017 EISAI PHARMACEUTICALS INDIA LTD. 5 ABOVE EXPLANATION AND MADE AN ADDITION OF THE ABOVE AMOUNT OF RS.1,33,92,060/-. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE F ILED AN APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) CONFIR MED THE ADDITION OF RS.1,13,16,311/- AND DELETED RS.20,75,7 49/- ON ACCOUNT OF EXPENSES IN RELATION TO PROMOTIONAL ACTI VITY BY FIELD STAFF. 5. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE RELIE S 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 ITA T E BENCH MUMBAI AND SUBMITS THAT THE CBDT CIRCULAR NO. 05/2012 DATED 01.08.2012 IS PROSPECTIVE AND THEREFO RE, NOT APPLICABLE TO THE IMPUGNED ASSESSMENT YEAR I.E. 201 1-12. 6. ON THE OTHER HAND, THE LD. DR SUBMITS THAT THE M EDICAL COUNCIL OF INDIA, IN EXERCISE OF THE POWERS CONFERR ED BY SECTION 33 OF THE INDIAN MEDICAL COUNCIL ACT, 1956, WITH TH E PREVIOUS SANCTION OF THE CENTRAL GOVERNMENT, AMENDED THE IND IAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AN D ETHICS) REGULATIONS 2002, WHEREIN CLAUSE 6.8 WAS INSERTED W .E.F. 10.12.2009. THUS THE LD. DR SUBMITS THAT THE AMENDE D IMC REGULATIONS ARE APPLICABLE TO THE IMPUGNED ASSESSME NT YEAR AND RIGHTLY THE LD. CIT(A) HAS SUSTAINED AN ADDITIO N OF RS.1,13,16,311/- MADE BY THE AO. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR D ECISIONS ARE GIVEN BELOW. IN RESPONSE TO A QUERY RAISED BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE SUBMITTED A DE TAIL EXPLANATION INDICATING THAT THE EXPENSES AMOUNTING TO RS.1,33,92,060/- LOCATED BY THE AO WERE INCURRED WH OLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE COMP ANY AND OUTSIDE THE PURVIEW OF THE SAID CBDT CIRCULAR. THE AO HAS EXTRACTED IT AT PARA 3.12 (PAGE 16-17) OF HIS ASSES SMENT ORDER DATED 08.03.2014. HOWEVER, INSTEAD OF EXAMINING THE ISSUE FROM ACCOUNTS AND VERIFYING THE SAME, THE AO HAS RE SORTED TO PSYCHOLOGICAL AND LEGAL ASPECTS, WHICH ARE IN THE R EALM OF GENERAL PROPOSITIONS. WE ARE REMINDED OF THE CARDIN AL PRINCIPLE OF LAW THAT GENERAL PROPOSITIONS DO NOT DECIDE A CO NCRETE CASE. ITA NO.2023/MUM/2017 EISAI PHARMACEUTICALS INDIA LTD. 6 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 REGUL ATIONS RELIED ON BY THE LD. DR IS NOT APPLICABLE TO THE IN STANT CASE. ALSOIT IS SETTLED LAW THAT THE CIRCULAR ISSUED BY CBDT IS PROSPECTIVE IN NATURE. THUS THE CBDT CIRCULAR NO. 0 5/2012 DATED 01.08.2012 IS NOT APPLICABLE TO THE IMPUGNED ASSESSMENT YEAR. IT HAS BEEN RIGHTLY HELD IN THE DECISIONS MEN TIONED AT PARA 5 HEREINBEFORE. 8. IN VIEW OF THE ABOVE REASONS, WE SET ASIDE THE O RDER OF THE LD. CIT(A) AND ALLOW THE APPEAL FILED BY THE AS SESSEE. 2.2. WE FIND THAT IN THE AFORESAID ORDER, THE TRIB UNAL DULY CONSIDERED CBDT CIRCULAR NO.5/2012, DATED 01/08/2012, WHICH WAS HELD TO BE PROSPECTIVE IN NAT URE. IN THE PRESENT APPEAL, BEFORE US, THE ASSESSMENT YEAR INVOLVED IS 2012-13 RELEVANT TO PREVIOUS YEAR 2011-12 I.E. F ROM 01/04/2011 TO 31/03/2012 AND THE EXPENDITURE HAS BE EN CLAIMED BY THE ASSESSEE WITHIN THIS PERIOD, THEREFO RE, THE CIRCULAR HAS NO APPLICABILITY TO THE FACTS OF THE C ASE AS OBSERVED BY THE TRIBUNAL IN ABOVESTATED ORDER. 3. THE NEXT GROUND PERTAINS TO NOT ADJUDICATING TH E GROUND WITH RESPECT TO GRANT OF CREDIT OF ADVANCE T AXES OF RS.13 LAKHS TO THE ASSESSEE AND FURTHER WITHDRAWAL OF INTEREST UNDER SECTION 244A OF THE ACT OF RS.1,65,0 77/-. THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL) MAY BE DIRECTED TO ITA NO.2023/MUM/2017 EISAI PHARMACEUTICALS INDIA LTD. 7 ADJUDICATE THE SAME. THE LD. DR ALSO HAD NO OBJECTI ON, IF THE MATTER IS REMANDED BACK TO THE FILE OF THE LD. COMM ISSIONER OF INCOME TAX (APPEAL) FOR ADJUDICATION. 3.1. CONSIDERING THE SUBMISSIONS FROM BOTH SIDES, THE LD. COMMISSIONER OF INCOME TAX (APPEAL) IS DIRECTED TO EXAMINE THE CLAIM OF THE ASSESSEE AFRESH AND DECIDE IN ACCORDANCE WITH LAW. THE ASSESSEE BE GIVEN OPPORTUN ITY OF BEING HEARD, THUS, GROUNDS NO.4 & 5 ARE ALLOWED FOR STATISTICAL PURPOSES. FINALLY, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOW ED FOR STATISTICAL PURPOSES. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF HEARING ON 22/10/2018. SD/- SD/- ( MANOJ KUMAR AGGARWAL ) (JOGINDER SINGH) '!# / ACCOUNTANT MEMBER / VICE PRESIDENT MUMBAI; , DATED : 31/10/2018 F{X~{T? P.S/. #.. $%&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. ./ / THE APPELLANT (RESPECTIVE ASSESSEE) 2. 01./ / THE RESPONDENT. ITA NO.2023/MUM/2017 EISAI PHARMACEUTICALS INDIA LTD. 8 3. 2 2 3' ( ) / THE CIT, MUMBAI. 4. 2 2 3' / CIT(A)- , MUMBAI, 5. 560#'#$ , 2 *$ 7 , / DR, ITAT, MUMBAI 6. 8%9 / GUARD FILE. ! / BY ORDER, /! (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI