M/s. Troikaa Pharmaceuticlas Ltd., Ahmedabad V. The DCIT, Circle-4(1)(2), Ahmedabad

ITA 2458/AHD/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6353 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 07-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KISHAN VYAS
• Keywords: Gift; Business income; Business expenditure; Opportunity of being heard; Retrospective amendment; Revenue expenditure; Capital expenditure; Set aside
• Section: 143(3); 115JB; 37(1); 143(2); 64; 37; 263

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD - BENCH B BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA NO.2458/AHD/2017 / ASSTT.YEAR : 2010-11 TROIKAA PHARMACEUTICALS LTD. COMMERCE HOUSE OPP: RAJVANSH APARTMENT JUDGES BUNGALOW ROAD AHMEDABAD 380 015 PAN : AABCT 0228 K VS. DCIT, CIR.4(1)(2) AHMEDABAD. ( APPLICANT ) ( RESPONENT ) ASSESSEE BY : SHRI DHIREN SHAH, AR REVENUE BY : SHRI KISHAN VYAS, CIT-DR / DATE OF HEARING : 27/09/2019 / DATE OF PRONOUNCEMENT: 15/10/2019 / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST O RDER OF LD.CIT(A)- 8, AHMEDABAD DATED 18.9.2017 PASSED FOR THE ASSTT.Y EAR 2010-11. 2. ASSESSEE HAS TAKEN FIVE GROUNDS OF APPEAL ALONG WITH SUB-GROUNDS WHICH ARE RUNNING INTO 9 PAGES, AND THUS NOT IN CON SONANCE WITH RULE 8 OF INCOME TAX (APPELLATE TRIBUNAL) RULES, 1963. HOWEV ER, AT THE END OF THE GROUNDS, THE ASSESSEE HAS MADE A PRAYER CLAUSE, WHI CH READS AS UNDER: 1. THE DISALLOWANCE U/S.37(1)OF THE ACT OF RS.3,55 ,20,081/- ON ACCOUNT OF EXPENSES CLASSIFIED AS FREEBIES CONFIRME D BY THE LD.CIT(A) MAY KINDLY BE DELETED. ITA NO.2458/AHD/2017 2 2. THE DISALLOWANCE OF EXPENDITURE CLAIMED AS NON- FREEBIES U/S.37(1) OF THE ACT OF RS.1,00,67842/- UNDER VARIO US HEADS I.E. A) BUSINESS CONVENING EXPENSES OF RS.11,76,363/- CONFI RMED BY THE LD.CIT(A) BY ENHANCEMENT OF RS.11,000/- MAY KINDLY BE DELETED. B) DISALLOWANCE OF CME EXPENSES OF RS.8,88,202/- CONFI RMED BY THE LD.CIT(A) MAY KINDLY BE DELETED. C) DISALLOWANCE ON ACCOUNT OF MCM EXPENSES OF RS.11,26,680/- CONFIRMED BY THE LD.CIT(A) MAY KINDL Y BE DELETED. D) DISALLOWANCE ON ACCOUNT OF PROMOTIONAL MATERIAL TRE ATING THE SAME AS FREEBIES TO DOCTORS OF RS.60,46,495/- C ONFIRMED BY THE LD.CIT(A) MAY KINDLY BE DELETED. E) DISALLOWANCE ON ACCOUNT OF SALES PROMOTION EXPENSES OF RS.8,41,100/- CONFIRMED BY THE LD.CIT(A)MAY KINDLY BE DELETED. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN OF INCOME ON 28.9.2010 DECLARING TOTAL INCOME AT RS.2, 38,60,129/- AND BOOK PROFIT UNDER SECTION 115JB OF THE ACT AT RS.7,01,13 ,079/-. THIS RETURN WAS SUBSEQUENTLY REVISED BY THE ASSESSEE. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND ASSESSMENT ORD ER WAS PASSED UNDER SECTION 143(3) ON 22.3.2013 WHEREBY ITS TOTAL INCOM E WAS DETERMINED AT RS.4,00,76,180/-. THE LD.COMMISSIONER TOOK COGNIZA NCE UNDER SECTION 263 OF THE INCOME TAX ACT, 1961 AND HARBOURED A BELIEF THAT THE ASSESSMENT ORDER PASSED BY THE AO WAS ERRONEOUS AND PREJUDICIA L TO THE INTEREST OF THE REVENUE, AND THEREFORE, IT IS TO BE SET ASIDE FOR A DJUDICATION AFRESH ON PARTICULAR ISSUE. ACCORDINGLY, AN ORDER WAS PASSED UNDER SECTION 263 ON 25.3.2015. THE LD.COMMISSIONER HAS SET ASIDE THE A SSESSMENT ORDER WITH THE FOLLOWING DIRECTIONS: 'TO EXAMINE THE ISSUE OF EXPENDITURE RAISED IN NOTI CE U/S. 263 DATED 25.06.2014 WITH REFERENCE TO THE DETAILS FILED BY T HE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS IN RESPONSE TO THE SHOW, CAUSE NOTICE ISSUED BY THE ASSESSING OFFICER ON 24.01.2013 AND ' DETAILS FILED ON ITA NO.2458/AHD/2017 3 26.08.2013 DURING THE PROCEEDINGS U/S. 263 AND'MAKE 1 DISALLOWANCE OF EXPENDITURE NOT ALLOWABLE, AS PER CBDT'S CIRCULA R NO.5/2012 DATED 01.08.2012 BEING IN VIOLATION TO THE PROVISIO NS OF INDIAN MEDICAL COUNCIL (PROFESSION CONDUCT, ETIQUETTE AND ETHICS) REGULATIONS ACT, 2002 ISSUED BY THE MEDICAL COUNCIL OF INDIA AND NOTIFICATION DATED 10.12.2009 ISSUED BY THE MEDICAL COUNCIL OF INDIA AFTER PROVIDING AN OPPORTUNITY OF BEING HEARD TO TH E ASSESSEE.' 4. ARMED WITH THE ABOVE DIRECTIONS, THE LD.AO HAD I SSUED NOTICE UNDER SECTION 143(2) R.W.S. 263 ON 10.7.2015 DIRECTING TH E ASSESSEE TO SUBMIT REQUISITE DETAILS. IT IS PERTINENT TO NOTE HERE TH AT THE ORDER PASSED UNDER SECTION 263 WAS NOT CHALLENGED AND BECAME FINAL. I N RESPONSE TO THE NOTICE OF THE AO, THE ASSESSEE HAS COMPILED DETAILS IN TAB ULAR FORM EXHIBITING THE EXPENSES DEBITED BY IT IN THE PROFIT & LOSS ACCOUNT UNDER DIFFERENT HEADS UNDER THIS ISSUE. SUCH DETAILS HAVE BEEN REPRODUCE D IN THE ASSESSMENT ORDER AS WELL AS IN THE IMPUGNED ORDER OF THE LD.CI T(A). WE TAKE NOTE OF THESE DETAILS FROM ORDER OF THE LD.CIT(A) IN ORDER TO APPRECIATE THE CONTROVERSY IN MORE SCIENTIFIC AND FUNDAMENTAL MANN ER. THEY READ AS UNDER: SR NO NATURE OF EXPENDITURE TOTAL GIFTS HOSPITALITY TRAVEL FACILITY MONETA RY GRANTS TOTAL FREEBIES TO DOCTORS NON- FREEBIES TO DOCTORS 1 BUSINESS CONVENTION 14,26,925 - 89,440 4,000 - 93,440 13,33,485 2 CME EXPENSES 59,21,348 - - - - 59,21,348 3 MCM EXPENSES 45,06,717 - - 13,672 - 13,672 44,93,045 4 PROMOTIONAL MATERIAL 4,46,29,897 1,43,97,423 - - - 1,43,97,423 3,02,32,474 5 PATRON NETWORKING EXPENSES 1,61,80,203 1,56,74,305 33,406 4,000 60,000 1,57,71,711 4,08,492 6 SALES PROMOTION EXPENSES 71,91,609 43,814 29,37,485 3,809 1,000 29,86,108 42,05,501 7 TRAVELLING EXPENSES FOR DOCTORS 22,74,606 5,15,849 17,41,878 22,57,727 16,879 ITA NO.2458/AHD/2017 4 TOTAL 8,21,31,305 3,01,15,542 35,76,180 17,67,359 61,000 3,55,20,081 4,66,11,224 SR NO. NATURE OF EXPENDITURE NON-FREEBIES TO DOCTORS PERCENTAGE INTENDED DISALLOWANCE ACTUAL DISALLOWANCE MENTIONED IN ORDER 1 BUSINESS CONVENTION 13,33,485 100% 13,33,485 11,65,365 2 CME EXPENSES 59,21,348 15% 8,88,202 8,88,202 3 MCM EXPENSES 44,93,045 25% 11,23,261 11,26,680 4 PROMOTIONAL MATERIAL 3,02,32,474 20% 60,46,495 60,46,495 5 PATRON NETWORKING EXPENSES 4,08,492 0% 0 0 6 SALES PROMOTION EXPENSES 42,05,501 20% 8,41,100 8,41,100 7 TRAVELLING EXPENSES FOR DOCTORS 16,879 0% 0 0 TOTAL 4,66,11,224 1,02,32,543 1,00,67,842 5. A PERUSAL OF THE ABOVE DETAILS WOULD INDICATE TH AT THE ASSESSEE HAS DEBITED UNDER DIFFERENT HEADS VIZ. BUSINESS CONVENT ION, CME EXPENSES, MCM EXPENSES, PROMOTIONAL MATERIAL, PATRON NETWORKI NG EXPENSES, SALES PROMOTION EXPENSES, TRAVELLING EXPENSES. IN THE FI RST COLUMN, IT HAS SHOWN THE NATURE OF EXPENDITURE. THEREAFTER, SHOWN TOTAL QUANTUM OF EXPENDITURE AND THEREAFTER BIFURCATED THIS EXPENDITURE UNDER HE ADS, GIFTS, HOSPITALITY, TRAVEL FACILITY, ETC. THE LD.AO ON AN ANALYSIS OF BOTH THESE TABLES ARRIVED AT A CONCLUSION THAT FREEBIES GIVEN TO THE DOCTORS AT RS.3,55,20,081/- IS AN UNALLOWABLE EXPENDITURE UNDER SECTION 37(1). SIMIL ARLY, CERTAIN EXPENDITURE, WHICH WERE NOT IN THE NATURE OF FREEBI ES, BUT IN THE OPINION OF THE AO, THESE ARE EQUATED TO FREEBIES, AND HE WORKE D OUT A DISALLOWANCE AT RS.1,02,32,543/-. ITA NO.2458/AHD/2017 5 6. DISSATISFIED WITH THIS DISALLOWANCE, THE ASSESSE E CARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A). IT HAS FILED WRITTEN SUBMISSIONS, BUT COULD NOT MEET APPROVAL OF THE LD.CIT(A). THE LD.CIT(A) HAS CONCURRED WITH THE AO AND THE BASIC REASON OPERATED IN THE MIND OF THE LD .CIT(A) WAS BEING NOTICED IN PARA 9 AND 10 OF THE IMPUGNED ORDER, WHI CH READS AS UNDER: 9. IT IS TO BE APPRECIATED THAT MANY UNSCRUP ULOUS DOCTORS ARE WORKING ONLY FOR THE BENEFIT OF PHARMACEUTICAL INDU STRY RATHER THAN FOR THE BENEFIT OF PATIENTS AND SOCIETY FOR WHICH T HEY ARE EDUCATED TO WORK. ONLY THOSE DOCTORS ARE CONSIDERED SUCCESSFUL WHO HAVE MAXIMUM INFLUENCE OVER THE PHARMACEUTICAL INDUSTRY AND CAN EXTRACT MAXIMUM BENEFIT FROM THEM. DOCTORS HAVE BEC OME SO MUCH DEMANDING THAT MANY TIMES THE MEDICAL REPRESENTATIV E WHO VISITS THEM HAS TO INCUR EXPENDITURE FOR THE BENEFIT OF DO CTORS FROM THEIR OWN SALARY. BY SUCH CONDUCT THESE DOCTORS GET A FEE LING OF FALSE EGO, OF POWER AND PELF, AND IN THE PROCESS, THEY GET COM PLETELY DEHUMANIZED AND BEHAVE LIKE OLD ARISTOCRATS IN MOST DEMEANING MANNER. THEY DO NOT PRESCRIBE GENERIC MEDICINE, RAT HER THEY PRESCRIBE THE COSTLIEST MEDICINE OF THE PHARMA COMP ANY WHICH PROVIDES THE MAXIMUM FREEBIES. THE MEDICINES WHICH ARE NOT AT ALL REQUIRED FOR THE PATIENT, ARE ALSO PRESCRIBED JUST TO BENEFIT THE PHARMA INDUSTRY OR COMPANY. THESE PEOPLE KEEP INTER ESTS OF PHARMACEUTICAL COMPANY AS PARAMOUNT RATHER THAN INT EREST OF THE PATIENTS. THESE WERE THE REASONS FOR WHICH INDIAN M EDICAL COUNCIL (IMC) CAME OUT WITH REGULATIONS REFERRED ABOVE. 10. NOW SAYING THAT ONLY BRIBE SEEKER IS GUILTY AND NOT THE PAYER OF BRIBE IS A TRAVESTY OF LOGICAL THINKING. EVEN UNDER INDIAN PENAL CODE, THE ABETTOR OF CRIME IS EQUALLY PUNISHABLE ON THE S AME FOOTING AS THE ACTUAL PERPETRATOR OF CRIME. SAYING THAT THE COMPAN Y IS ACTING IN ITS COMMERCIAL INTEREST IN MAKING THESE EXPENSES FOR TH E BUSINESS EVEN THOUGH THESE MAY BE ILLEGAL BUT SAME SHOULD BE ALLO WED ON COMMERCIAL PRINCIPLES. HOW THE ADVANCE SOCIETY OR A NY EDUCATED PERSON ACCEPT SUCH AN ARGUMENT? THE MURDER OF A COM PETITOR MAY ALSO BE IN THE COMMERCIAL INTEREST OF THE BUSINESSM EN BUT THE EXPENSES INCURRED FOR THE MURDER CANNOT BE ALLOWED. IF WE START ALLOWING SUCH EXPENSES IN THE NAME OF COMMERCIAL IN TEREST, IT IS BETTER FOR THE SOCIETY NOT TO HAVE ANY SUCH COMMERC E. ITA NO.2458/AHD/2017 6 7. APART FROM THE ABOVE PHILOSOPHY, THE LD.CIT(A) H AS REFERRED TO THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CAS E OF CIT VS. PT. VISHWANATH SHARMA, 316 ITR 419 (ALL) AS WELL AS JUD GMENT OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. KAP SCAN AND DIAGNOSTIC CENTRE P.LTD., 344 ITR 476. BEFORE THE HONBLE ALLAHABAD HIGH COURT, THE ISSUE WAS WHETHER EXPENDITURE INCUR RED BY AN ASSESSEE ON THE GROUND THAT COMMISSION PAID TO GOVERNMENT DOCTO RS INCURRED BY THE ASSESSEE IS IN CONTRAVENTION OF THE PUBLIC POLICY A ND NOT ALLOWABLE AS EXPENDITURE. THE HONBLE HIGH COURT HAS REPLIED T HIS QUESTION AGAINST THE ASSESSEE AND HELD THAT COMMISSION PAID TO GOVERNMEN T DOCTORS IS AGAINST THE PUBLIC POLICY AND IMMORAL. FOR THAT PURPOSE, H ONBLE HIGH COURT HAS MADE REFERENCE TO THE DECISION OF HONBLE SUPREME C OURT AS WELL AS ITS EARLIER DECISIONS. SIMILARLY, HONBLE P&H HIGH COU RT HAS ALSO NOT UPHELD THE ALLOWANCE OF CLAIM OF EXPENDITURE BY A DIAGNOST IC CENTRE FOR GIVING COMMISSION TO THOSE DOCTORS WHO HAVE REFERRED PATIE NTS TO SUCH DIAGNOSTIC CENTRE FOR INVESTIGATION. DISSATISFIED WITH THE OR DER OF THE LD.CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 8. THE LD.COUNSEL FOR THE ASSESSEE AT THE VERY OUTS ET CONTENDED THAT THIS ISSUE HAS BEEN DEBATED IN SERIES OF JUDGMENT AT THE END OF THE ITAT, BENCHES NOT ONLY AT AHMEDABAD BUT IN MUMBAI ALSO. HE HAS PLACED ON RECORD COPIES OF TWELVE DECISIONS, AND LATEST IS IN THE CASE OF ARISTO PHARMACEUTICALS P.LTD. VS. ACIT. COPIES OF THE DEC ISIONS HAVE BEEN PLACED ON PAPER BOOK AND CITATIONS ARE AS UNDER: A) M/S. CADILA PHARMACEUTICALS LTD VS. DCIT, 51 CCH 032 (2017) (ITAT, AHMEDABAD) B) ITO VS. SUNFLOWER PHARMACY, 51 CCH0575 (2017) (I TAT, AHMEDABAD) C) DCIT VS. ESAOTE INDIA (NS) LTD, 53 CCH0648 (201 8) (ITAT, AHMEDABAD) ITA NO.2458/AHD/2017 7 D) M/S. UNICURE REMEDIES PVT. LTD VS. ACIT-4, VADOD ARA, ITA NO. 3058/AHD/2014(ITAT, AHMEDABAD) E) J.B. CHEMICALS & PHARMACEUTICALS LTD, ITA NO. 60 75/MUM/2014, DATE OF ORDER: 16.04.2019 (ITAT, MUMBAI) F) SOLVAY PHARMA INDIA LTD VS. PCIT, (2018) 52 CCH 0053 (ITAT, MUMBAI) G) EISAI PHARMACEUTICALS INDIA PVT. LTD VS. DCIT, I TA NO. 1381/MUM/2016, DATE OF ORDER: 30.05.2018 (ITAT, MUMBAI) H) DCIT VS. PHL PHARMA PVT. LTD., (2017) 49 CCH 012 4, (ITAT, MUMBAI) I) UCB INDIA LTD. VS. THE ITO IN ITA NO. 6681/MUM/2013 , DATE OF ORDER: 18.05.2016 (ITAT, MUMBAI) J) MACLEODS PHARMACEUTICALS LTD. VS. ACIT, (2016) 48 C CH 0298 (ITAT, MUMBAI) K) SYNCOM FORMULATIONS LTD. VS. DCIT, ITA NO.6249 & 64 28/MUM/2012 DATED 23.12.2015 (ITAT, MUMBAI) 9. HE FURTHER CONTENDED THAT IN THE CASE OF ITO VS. SUNFLOWER PHARMACY AND M/S.UNICURE REMEDIES P.LTD. VS. ACIT, (ONE OF US I.E. ACCOUNTANT MEMBER IS PARTY TO THE DECISION). HE FU RTHER CONTENDED THAT IN THE CASE OF CADILAN PHARMACEUTICALS LTD. VS. DCIT ( SUPRA) TOOK NOTE OF DECISION IN THE CASE OF ACIT VS. LIVA HEALTHCARE LT D., 161 ITD 63(MUM) WHEREIN SUCH DISALLOWANCE IN THE CASE OF PHARMACEUT ICAL COMPANIES WAS UPHELD. HOWEVER, THEREAFTER THE BENCH HAS OBSERVED THAT IN SUBSEQUENT DECISIONS VIZ. MACLEODS PHARMACEUTICALS LTD. VS. AC IT, 161 ITD 291 (MUM) AND DCIT VS. PHL PHARMA P.LTD., 184 TTJ 1 (MU M), ITAT HAS HELD THAT BOARD CIRCULAR DATED 1.8.2012 CANNOT BE A PPLIED WITH RETROSPECTIVE EFFECT AND DELETED SUCH DISALLOWANCE. ITAT, AHMEDABAD CONCURRED WITH SUBSEQUENT DECISION OF THE ITAT, MUM BAI ON THIS ISSUE. ON THE STRENGTH OF THESE DECISIONS ON IDENTICAL ISS UE, AND ON THE SIMILAR NATURE OF EXPENDITURE, THE DEDUCTION HAS BEEN GIVEN TO THE ASSESSEE BY TREATING THE EXPENDITURE AS FOR THE PURPOSE OF BUSI NESS. THE LD.COUNSEL FOR THE ASSESSEE ALSO POINTED OUT THAT THE ASSESSEE IS SMALL ORGANIZATION IN COMPARISON TO CADILA AND OTHER BIG PHARMACEUTICAL C OMPANIES, WHERE THE EXPENDITURE UNDER THESE HEADS HAVE BEEN INCURRED IN CRORES OF RUPEES, BECAUSE THESE COMPANIES HAVE HIGHER VOLUME OF TURNO VER. HE PRAYED THAT ITA NO.2458/AHD/2017 8 THE LD.CIT(A) HAS ERRED IN NOT APPRECIATING THE NAT URE OF ASSESSEES BUSINESS, AND HOW A CIRCULAR ISSUED BY THE CBDT AFT ER THE CIRCULAR OF MEDICAL COUNCIL OF INDIA UNDER MEDICAL COUNCIL ACT, 1956 CAN BE GIVEN A RETROSPECTIVE EFFECT. HE FURTHER CONTENDED THAT IM PACT OF BOTH THESE CIRCULARS HAVE BEEN DISCUSSED ELABORATELY IN THESE DECISIONS. 10. ON THE OTHER HAND, THE LD.DR RELIED UPON THE OR DERS OF THE REVENUE AUTHORITIES. HE CONTENDED THAT A SHORT QUESTION IN THIS APPEAL IS, WHETHER GIFTS IN THE SHAPE OF HOTEL ACCOMMODATION, TRAVEL C ONCESSION, HOSPITALITY AND VALUABLES GIVEN BY PHARMACEUTICAL COMPANIES TO MEDICAL PROFESSIONAL SHOULD BE TREATED AS GENUINE BUSINESS EXPENDITURE O R IT SHOULD BE APPRECIATED WHILE CONSIDERING MEDICAL PROFESSION AN D NEEDS OF THE SOCIETY IN INDIA. HE POINTED OUT THAT THE LD.CIT(A) HAS EM PHASIZED THIS ASPECT IN PARA-9 AND 10 WHICH HAS BEEN EXTRACTED IN EARLIER P ART OF THIS ORDER. HE BASICALLY RELIED UPON THIS BASIC FOUNDATION FOR SUP PORTING THE ORDER OF THE LD.CIT(A). 11. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND GONE T HROUGH THE RECORD CAREFULLY. THOUGH WE HAVE NOTED CITATIONS OF ALL T HE CASE LAWS REFERRED BY THE LD.COUNSEL FOR THE ASSESSEE, BUT WE NEED NOT TO RECITE AND RECAPITULATE ALL THE DECISIONS ON THIS ASPECT, BUT SUFFICE TO SAY TH AT CORE OF ALL THESE DECISIONS OF THE ITAT IS TO THE EFFECT, WHETHER THE CIRCULAR ISSUED BY THE MEDICAL COUNCIL AND ALSO CBDT INSTRUCTION NO.5 OF 2 012 IS APPLICABLE WITH RETROSPECTIVE EFFECT, AND IN THE LIGHT OF CIRC ULAR OF CBDT, THE TRANSACTION OF THE ASSESSEE ARE REQUIRED TO BE VISU ALIZED OR NOT. WE FIND THAT CO-ORDINATE BENCHES HAVE NOTICED THIS CIRCULAR IN THEIR DISCUSSION AND WE CANNOT DO MUCH BETTER THAN TO EXTRACT SUCH DECIS IONS HEREIN. IT HAS BEEN ELABORATELY TAKEN NOTE IN THE DECISION OF ARISTO PH ARMACEUTICALS P.LTD. ITA NO.2458/AHD/2017 9 (SUPRA) REPORTED IN 107 TAXMANN.COM 119 (MUM-TRIB). IT IS A DECISION RENDERED ON 28.6.2019. BENCH HAS REPRODUCED THE DI SCUSSION MADE IN THE ASSESSEES OWN CASE FOR EARLIER YEARS. IT READS AS UNDER: 9. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIA L AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. T HE ISSUE INVOLVED IN THE PRESENT APPEAL, I.E. WHETHER FREEBIES DISTRIBUTED T O MEDICAL PROFESSIONALS BY A PHARMACEUTICAL COMPANY IS ALLOWABLE U/S 37(1) OF TH E ACT OR NOT IN LIGHT OF CIRCULAR ISSUED BY MCI WAS SUBJECT MATTER OF DELIBE RATIONS BY THE CO-ORDINATE BENCH OF ITAT, MUMBAI BENCH 'A' IN ASSESSEE'S OWN C ASE FOR A.Y. 2011-12. THE CO-ORDINATE BENCH, AFTER CONSIDERING VARIOUS AS PECTS INCLUDING THE CIRCULAR ISSUED BY MCI AND ALSO CIRCULAR OF CBDT VIDE CIRCUL AR NO.5 OF 2012 HELD THAT THE ASSESSEE WAS ENTITLED FOR CLAIM OF SALES PROMOT ION EXPENSES INCURRED ON DISTRIBUTION OF ARTICLES TO THE STOCKISTS, DISTRIBU TORS, DEALERS AND DOCTORS. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER: '21. WE HAVE DELIBERATED AT LENGTH ON THE ISSUE UND ER CONSIDERATION AND AFTER PERUSING THE REGULATIONS ISSUED BY THE MEDICA L COUNCIL OF INDIA, FIND THAT THE SAME LAYS DOWN THE CODE OF CONDUCT IN RESP ECT OF THE DOCTORS AND OTHER MEDICAL PROFESSIONALS REGISTERED WITH IT, AND ARE NOT APPLICABLE TO THE PHARMACEUTICALS OR ALLIED HEALTH SECTOR INDUSTRIES. RATHER, A PERUSAL OF THE PROVISIONS OF THE INDIAN MEDICAL COUNCIL ACT, 1956, REVEALS THAT THE SCOPE AND AMBIT OF STATUTORY PROVISIONS RELATING TO PROFE SSIONAL CONDUCT OF REGISTERED MEDICAL PRACTITIONERS UNDER THE INDIAN M EDICAL COUNCIL ACT, 1956 IS RESTRICTED ONLY TO THE PERSONS REGISTERED A S MEDICAL PRACTITIONERS WITH THE STATE MEDICAL COUNCIL AND WHOSE NAME ARE E NTERED IN THE INDIAN MEDICAL REGISTER MAINTAINED UNDER SEC. 21 OF THE SA ID ACT. WE ARE OF THE CONSIDERED VIEW THAT THE SCHEME OF THE INDIAN MEDIC AL COUNCIL ACT, 1956 NEITHER DEALS WITH NOR PROVIDES FOR ANY CONDUCT OF ANY ASSOCIATION/SOCIETY AND DEALS ONLY WITH THE CONDUCT OF INDIVIDUAL REGIS TERED MEDICAL PRACTITIONERS. IN THE BACKDROP OF THE AFORESAID FAC TS, IT EMERGES THAT THE APPLICABILITY OF THE MCI REGULATIONS WOULD ONLY COV ER INDIVIDUAL MEDICAL PRACTITIONERS AND NOT THE PHARMACEUTICAL COMPANIES OR ALLIED HEALTH SECTOR INDUSTRIES. INTERESTINGLY, THE SCOPE OF THE APPLICA BILITY OF THE MCI REGULATIONS WAS LOOKED INTO BY THE HON'BLE HIGH COU RT OF DELHI IN THE CASE OF MAX HOSPITAL, PITAMPURA V. MEDICAL COUNCIL OF IN DIA (CWP NO. 1334/2013, DATED 10.01.2014). IN THE AFOREMENTIONED CASE THE MCI HAD FILED AN 'AFFIDAVIT' BEFORE THE HIGH COURT, WHEREIN IT WAS DEPOSED BY THE COUNCIL THAT ITS JURISDICTION IS LIMITED ONLY TO TA KE ACTION AGAINST THE REGISTERED MEDICAL PROFESSIONALS UNDER THE INDIAN M EDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULA TIONS, 2002, AND IT HAS NO JURISDICTION TO PASS ANY ORDER AFFECTING THE RIG HTS/INTEREST OF THE PETITIONER HOSPITAL. WE ARE OF THE CONSIDERED VIEW THAT ON THE BASIS OF THE AFORESAID DEPOSITION OF MCI THAT ITS JURISDICTION S TANDS RESTRICTED TO THE REGISTERED MEDICAL PROFESSIONALS, IT CAN SAFELY BE CONCLUDED THAT THE MCI ITA NO.2458/AHD/2017 10 REGULATIONS WOULD IN NO WAY IMPINGE ON THE FUNCTION ING OF THE ASSESSEE- COMPANY WHICH IS ENGAGED IN THE BUSINESS OF MANUFAC TURING AND SALE OF PHARMACEUTICAL AND ALLIED PRODUCTS. WE THUS, IN THE BACKDROP OF OUR AFORESAID DELIBERATIONS ARE OF THE CONSIDERED VIEW THAT THE CODE OF CONDUCT ENSHRINED IN THE MCI REGULATIONS ARE SOLELY MEANT T O BE FOLLOWED AND ADHERED BY MEDICAL PRACTITIONERS/DOCTORS, AND SUCH A REGULATION OR CODE OF CONDUCT WOULD NOT COVER THE PHARMACEUTICAL COMPANY OR HEALTHCARE SECTOR IN ANY MANNER. WE ARE FURTHER OF THE VIEW THAT IN T HE BACKDROP OF OUR AFORESAID OBSERVATIONS, AS THE MEDICAL COUNCIL OF I NDIA DOES NOT HAVE ANY JURISDICTION UNDER LAW TO PASS ANY ORDER OR REGULAT ION AGAINST ANY HOSPITAL, PHARMACEUTICAL COMPANY OR ANY HEALTHCARE SECTOR, TH EN ANY SUCH REGULATION ISSUED BY IT CANNOT HAVE ANY PROHIBITORY EFFECT ON THE MANNER IN WHICH THE PHARMACEUTICAL COMPANY LIKE THE ASSESSEE CONDUCTS ITS BUSINESS. ON THE BASIS OF OUR AFORESAID OBSERVATIONS, WE ARE UNABLE TO COMPREHEND THAT NOW WHEN THE MCI HAS NO JURISDICTION UPON THE PHARMACEUTICAL COMPANIES, THEN WHERE COULD THERE BE AN OCCASION FO R CONCLUDING THAT THE ASSESSEE-COMPANY HAD VIOLATED ANY REGULATION ISSUED BY MCI. WE THUS, IN TERMS OF OUR AFORESAID OBSERVATIONS ARE OF THE CONS IDERED VIEW THAT EVEN IF THE ASSESSEE HAD INCURRED EXPENDITURE ON DISTRIBUTI ON OF 'FREEBIES' TO DOCTORS AND MEDICAL PRACTITIONERS, THE SAME THOUGH MAY NOT BE IN CONFORMITY WITH THE INDIAN MEDICAL COUNCIL (PROFESS IONAL CONDUCT, ETIQUETTE AND ETHICS) REGULATIONS, 2002 (AS AMENDED ON 10.12.2009), HOWEVER, AS THE SAME ONLY REGULATES THE CODE OF CON DUCT OF THE MEDICAL PRACTITIONERS/DOCTORS, THEREFORE, IN THE ABSENCE OF ANY PROHIBITION ON THE PHARMACEUTICAL COMPANIES IN INCURRING OF SUCH SALES PROMOTION EXPENSES, THE LATTER CANNOT BE HELD TO HAVE INCURRED AN EXPEN DITURE FOR A PURPOSE WHICH IS AN OFFENCE OR IS PROHIBITED BY LAW. IN THI S REGARD WE ARE REMINDED OF THE MAXIM 'EXPRESSIO UNIUS EST EXCLUSIO ALTERIUS ', WHICH PROVIDES THAT IF A PARTICULAR EXPRESSION IN THE STATUTE IS EXPRES SLY STATED FOR A PARTICULAR CLASS OF ASSESSEE, THEN BY IMPLICATION WHAT HAS NOT BEEN STATED OR EXPRESSED IN THE STATUTE HAS TO BE EXCLUDED FOR OTH ER CLASS OF ASSESSES. THUS, NOW WHEN THE MCI REGULATIONS ARE APPLICABLE T O MEDICAL PRACTITIONERS REGISTERED WITH THE MCI, THEN THE SAM E CANNOT BE MADE APPLICABLE TO PHARMACEUTICAL COMPANIES OR OTHER ALL IED HEALTHCARE COMPANIES. 22. WE SHALL NOW ADVERT TO THE CBDT CIRCULAR NO. 5/ 2012, DATED 01.08.2012. WE FIND THAT THE AFORESAID CBDT CIRCULA R READS AS UNDER: 'INADMISSIBILITY OF EXPENSES INCURRED IN PROVIDING FREEBEES TO MEDICAL PRACTITIONER BY PHARMACEUTICAL AND ALLIED HEALTH SE CTOR INDUSTRY CIRCULAR NO. 5/2012 [F.NO. 225/142/2012-ITA.II], DA TED 1-8-2012 IT HAS BEEN BROUGHT TO THE NOTICE OF THE BOARD THAT SOME PHARMACEUTICAL AND ALLIED HEALTH SECTOR INDUSTRIES ARE PROVIDING F REEBESS (FREEBIES) TO MEDICAL PRACTITIONER AND THEIR PROFESSIONAL ASSOCIA TIONS IN VIOLATION OF THE ITA NO.2458/AHD/2017 11 REGULATIONS ISSUED BY MEDICAL COUNCIL OF INDIA (THE 'COUNCIL') WHICH IS A REGULATORY BODY CONSTITUTED UNDER THE MEDICAL COUNC IL ACT, 1956 2. THE COUNCIL IN EXERCISE OF ITS STATUTORY POWERS AMENDED THE INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AN D ETHICS) REGULATIONS, 2002 (THE REGULATIONS) ON 10-12-2009 IMPOSING A PRO HIBITION ON THE MEDICAL PRACTITIONER AND THEIR PROFESSIONAL ASSOCIA TIONS FROM TAKING ANY GIFT, TRAVEL FACILITY, HOSPITALITY, CASH OR MONETAR Y GRANT FROM THE PHARMACEUTICAL AND ALLIED HEALTH SECTOR INDUSTRIES. 3. SECTION 37(1) OF INCOME TAX ACT PROVIDES FOR DED UCTION OF ANY REVENUE EXPENDITURE (OTHER THAN THOSE FAILING UNDER SECTION S 30 TO 36) FROM THE BUSINESS INCOME IF SUCH EXPENSE IS LAID OUT/EXPENDE D WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION. HOWEVER, THE EXPLANATION APPENDED TO THIS SUB-SECTION DENIES CLAIM OF ANY SU CH EXPENSES, IF THE SAME HAS BEEN INCURRED FOR A PURPOSE WHICH IS EITHER AN OFFENCE OR PROHIBITED BY LAW. THUS, THE CLAIM OF ANY EXPENSE INCURRED IN PROVIDIN G ABOVE MENTIONED OR SIMILAR FREEBEES IN VIOLATION OF THE PROVISIONS OF INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULA TIONS, 2002 SHALL BE INADMISSIBLE UNDER SECTION 37(1) OF THE INCOME TAX ACT BEING AN EXPENSE PROHIBITED BY THE LAW. THIS DISALLOWANCE SHALL BE M ADE IN THE HANDS OF SUCH PHARMACEUTICAL OR ALLIED HEALTH SECTOR INDUSTR IES OR OTHER ASSESSEE WHICH HAS PROVIDED AFORESAID FREEBEES AND CLAIMED I T AS A DEDUCTIBLE EXPENSE IN ITS ACCOUNTS AGAINST INCOME. 4. IT IS ALSO CLARIFIED THAT THE SUM EQUIVALENT TO VALUE OF FREEBEES ENJOYED BY THE AFORESAID MEDICAL PRACTITIONER OR PROFESSIONAL ASSOCIATIONS IS ALSO TAXABLE AS BUSINESS INCOME OR INCOME FROM OTHER SOU RCES AS THE CASE MAY BE DEPENDING ON THE FACTS OF EACH CASE. THE ASSESSI NG OFFICERS OF SUCH MEDICAL PRACTITIONER OR PROFESSIONAL ASSOCIATIONS S HOULD EXAMINE THE SAME AND TAKE AN APPROPRIATE ACTION. THIS MAY BE BROUGHT TO THE NOTICE OF ALL THE OFFICE RS OF THE CHARGE FOR NECESSARY ACTION.' WE MAY HEREIN OBSERVE THAT A PERUSAL OF THE AFORESA ID CBDT CIRCULAR REVEALS THAT THE 'FREEBIES' PROVIDED BY THE PHARMAC EUTICAL COMPANIES OR ALLIED HEALTH SECTOR INDUSTRIES TO MEDICAL PRACTITI ONERS OR THEIR PROFESSIONAL ASSOCIATIONS IN VIOLATION OF THE PROVISIONS OF INDI AN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULA TIONS, 2002 SHALL BE INADMISSIBLE UNDER SEC. 37(1) OF THE INCOME-TAX ACT , 1961, AS THE SAME WOULD BE AN EXPENSE PROHIBITED BY THE LAW. WE ARE O F THE CONSIDERED VIEW THAT AS OBSERVED BY US HEREINABOVE, THE CODE OF CON DUCT ENSHRINED IN THE NOTIFICATIONS ISSUED BY MCI THOUGH IS TO BE STRICTL Y FOLLOWED AND ADHERED BY MEDICAL PRACTITIONERS/DOCTORS REGISTERED WITH TH E MCI, HOWEVER THE SAME CANNOT IMPINGE ON THE CONDUCT OF THE PHARMACEU TICAL COMPANIES OR OTHER HEALTHCARE SECTOR IN ANY MANNER. WE FIND THAT NOTHING HAS BROUGHT ITA NO.2458/AHD/2017 12 ON RECORD WHICH COULD PERSUADE US TO CONCLUDE THAT THE REGULATIONS OR NOTIFICATIONS ISSUED BY MCI WOULD AS PER THE LAW AL SO BE BINDING ON THE PHARMACEUTICAL COMPANIES OR OTHER ALLIED HEALTHCARE SECTOR. RATHER, THE CONCESSION MADE BY THE MCI BEFORE THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF MAX HOSPITAL V. MCI (CWP NO. 1334/2013, DAT ED 10.01.2014) FORTIFIES OUR AFORESAID VIEW THAT MCI HAS NO JURISD ICTION TO PASS ANY ORDER OR REGULATION AGAINST ANY HOSPITAL, PHARMACEUTICAL COMPANY OR ANY HEALTHCARE SECTOR. WE FURTHER FIND THAT MCI HAD BY ADDING PARA 6.8.1 TO ITS EARLIER NOTIFICATION ISSUED AS 'INDIAN MEDICAL COUN CIL PROFESSIONAL (CONDUCT, ETIQUETTE AND ETHICS) REGULATIONS, 2002' HAD EVEN PROVIDED FOR ACTION WHICH SHALL BE TAKEN AGAINST MEDICAL PRACTIT IONERS IN CASE THEY CONTRAVENE THE PROHIBITIONS PLACED ON THEM. WE FIND FROM A PERUSAL OF PARA 6.8.1 THAT IN CASE OF RECEIVING OF ANY GIFT FR OM ANY PHARMACEUTICAL OR ALLIED HEALTHCARE INDUSTRY AND THEIR SALES PEOPLE O R REPRESENTATIVES, ACTION STANDS RESTRICTED TO THE MEMBERS WHO ARE REGISTERED WITH THE MCI. IN OTHER WORDS THE CENSURE/ACTION AS HAD BEEN SUGGESTED ON T HE VIOLATION OF THE CODE OF CONDUCT IS ONLY FOR THE MEDICAL PRACTITIONE RS AND NOT FOR THE PHARMACEUTICAL COMPANIES OR ALLIED HEALTH SECTOR IN DUSTRIES. WE ARE THUS OF THE CONSIDERED VIEW THAT THE REGULATIONS ISSUED BY MCI ARE QUA THE DOCTORS/MEDICAL PRACTITIONERS REGISTERED WITH MCI, AND THE SAME SHALL IN NO WAY IMPINGE UPON THE CONDUCT OF THE PHARMACEUTIC AL COMPANIES. AS A LOGICAL COROLLARY TO IT, IF THERE IS ANY VIOLATION OR PROHIBITION AS PER MCI REGULATION IN TERMS OF EXPLANATION TO SEC. 37(1), T HEN THE SAME WOULD DEBAR THE DOCTORS OR THE REGISTERED MEDICAL PRACTIT IONERS AND NOT THE PHARMACEUTICAL COMPANIES AND THE ALLIED HEALTHCARE SECTOR FOR CLAIMING THE SAME AS AN EXPENDITURE. 23. WE FIND THAT THE CBDT AS PER ITS CIRCULAR NO. 5 /2012, DATED 01.08.2012 HAD ENLARGED THE SCOPE AND APPLICABILITY OF INDIAN MEDICAL COUNCIL REGULATION, 2002, BY MAKING THE SAME APPLIC ABLE EVEN TO THE PHARMACEUTICAL COMPANIES OR ALLIED HEALTHCARE SECTO R INDUSTRIES. WE ARE OF THE CONSIDERED VIEW THAT SUCH AN ENLARGEMENT OF THE SCOPE OF MCI REGULATION TO THE PHARMACEUTICAL COMPANIES BY THE C BDT IS WITHOUT ANY ENABLING PROVISION EITHER UNDER THE INCOME TAX ACT OR UNDER THE INDIAN MEDICAL COUNCIL REGULATIONS. WE ARE OF A STRONG CON VICTION THAT THE CBDT CANNOT PROVIDE CASUS OMISSUS TO A STATUTE OR NOTIFI CATION OR ANY REGULATION WHICH HAS NOT BEEN EXPRESSLY PROVIDED THEREIN. STIL L FURTHER, THOUGH THE CBDT CAN TONE DOWN THE RIGOURS OF LAW IN ORDER TO E NSURE A FAIR ENFORCEMENT OF THE PROVISIONS BY ISSUING CIRCULARS FOR CLARIFYING THE STATUTORY PROVISIONS, HOWEVER, IT IS DIVESTED OF IT S POWER TO CREATE A NEW IMPAIRMENT ADVERSE TO AN ASSESSEE OR TO A CLASS OF ASSESSEE WITHOUT ANY SANCTION OR AUTHORITY OF LAW. WE ARE OF THE CONSIDE RED VIEW THAT THE CIRCULARS WHICH ARE ISSUED BY THE CBDT MUST CONFIRM TO THE TAX LAWS AND THOUGH ARE MEANT FOR THE PURPOSE OF GIVING ADMINIST RATIVE RELIEF OR FOR CLARIFYING THE PROVISIONS OF LAW, BUT THE SAME CANN OT IMPOSE A BURDEN ON THE ASSESSEE, LEAVE ALONE CREATING A NEW BURDEN BY ENLARGING THE SCOPE OF ITA NO.2458/AHD/2017 13 A REGULATION ISSUED UNDER A DIFFERENT ACT SO AS TO IMPOSE ANY KIND OF HARDSHIP OR LIABILITY ON THE ASSESSEE. WE THUS, ARE UNABLE TO PERSUADE OURSELVES TO SUBSCRIBE TO THE RIGOURS CONTEMPLATED IN THE CBDT CIRCULAR NO. 5/2012, DATED 01.08.2012, WHICH WE WOULD NOT HE SITATE TO OBSERVE, DESPITE ABSENCE OF ANYTHING PROVIDED BY THE MCI IN ITS REGULATIONS ISSUED UNDER THE MEDICAL COUNCIL ACT, 1956, CONTEMPLATING THAT THE REGULATION OF CODE OF CONDUCT WOULD ALSO COVER THE PHARMACEUTICAL COMPANIES AND HEALTHCARE SECTOR, HOWEVER PROVIDES THAT IN CASE A PHARMACEUTICAL OR ALLIED HEALTH SECTOR INDUSTRY INCURS ANY EXPENDITUR E IN PROVIDING ANY GIFT, TRAVEL FACILITY, CASH, MONETARY GRANT OR SIMILAR FR EEBIES TO MEDICAL PRACTITIONERS OR THEIR PROFESSIONAL ASSOCIATIONS IN VIOLATION OF THE INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AN D ETHICS) REGULATIONS, 2002, THE EXPENDITURE INCURRED ON THE SAME SHALL BE DISALLOWED IN THE HANDS OF SUCH PHARMACEUTICAL OR ALLIED HEALTH SECTO R INDUSTRY. WE ARE OF THE CONSIDERED VIEW THAT THE BURDEN IMPOSED BY THE CBDT VIDE ITS AFORESAID CIRCULAR NO. 5/2012, DATED 01.08.2012 ON THE PHARMACEUTICAL OR ALLIED HEALTH SECTOR INDUSTRIES, DESPITE ABSENCE OF ANY ENABLING PROVISION UNDER THE INCOME TAX LAW OR UNDER THE INDIAN MEDICA L COUNCIL REGULATIONS, CLEARLY IMPINGES ON THE CONDUCT OF THE PHARMACEUTICAL AND ALLIED HEALTH SECTOR INDUSTRIES IN CARRYING OUT ITS BUSINESS. WE THUS, IN THE ABSENCE OF ANY SANCTION OR AUTHORITY OF LAW ON THE BASIS OF WHICH IT COULD SAFELY BE CONCLUDED THAT THE EXPENDITURE INCURRED B Y THE ASSESSEE-COMPANY ON SALES PROMOTION EXPENSES BY WAY OF DISTRIBUTION OF ARTICLES TO THE STOCKISTS, DISTRIBUTORS, DEALERS, CUSTOMERS AND DOC TORS, IS IN THE NATURE OF AN EXPENDITURE WHICH HAD BEEN INCURRED FOR ANY PURP OSE WHICH IS EITHER AN OFFENCE OR PROHIBITED BY LAW, THUS CONCLUDE THAT TH E SAME WOULD NOT BE HIT BY THE EXPLANATION TO SEC. 37(1) OF THE ACT. 24. ALTERNATIVELY, WE ARE OF THE CONSIDERED VIEW TH AT IT IS A TRITE LAW THAT A CBDT CIRCULAR WHICH CREATES A BURDEN OR LIABILITY O R IMPOSES A NEW KIND OF IMPARITY, CANNOT BE RECKONED RETROSPECTIVELY. WE ARE OF THE CONSIDERED VIEW THAT THOUGH A BENEVOLENT CIRCULAR MAY APPLY RE TROSPECTIVELY, BUT A CIRCULAR IMPOSING A BURDEN HAS TO BE APPLY PROSPECT IVELY ONLY. OUR AFORESAID VIEW IS FORTIFIED BY THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF DIRECTOR OF INCOME-TAX V. S.R.M.B DAIRY FARMING (P.) LTD. (2018) 400 ITR 9 (SC) . THE HON'BLE APEX COURT IN ITS AFORESAID JUDGMENT HAS HELD THAT BENEFICIAL CIRCULARS HAD TO BE APPLIED RETROSPECTIVELY, WHILE OPPRESSIVE CIRCULARS HAD TO BE APPLIED PROSPECTIVELY, OBSERVING AS UNDER: '25. IT IS IN THIS CONTEXT, THE QUESTION ARISES, WH EN THE INSTRUCTION EXPRESSLY STATES THAT THE BENEFIT OF THE SAID POLICY IS PROSP ECTIVE, STILL CAN THE COURTS PLACE A CONSTRUCTION ON SUCH INSTRUCTION SO AS TO M AKE IT RETROSPECTIVE. IN THIS CONTEXT, THE APEX COURT IN THE CASE OF CCE V. MYSORE ELECTRICALS INDUSTRIES LTD. REPORTED IN [2006] 204 ELT 517 (SC) : [2007] 8 RC 1, DEALING WITH THE QUESTION HOW A BENEFICIAL CIRCULAR IS TO BE CONSTRUED, HAS APPROACHED THIS QUESTION IN THE FOLLOWING MANNER. A T PARAGRAPH 13 OF THE ITA NO.2458/AHD/2017 14 JUDGMENT, IT IS STATED THAT THE LEARNED COUNSEL FUR THER SUBMITTED THAT THE CIRCULAR BEING OPPRESSIVE AND AGAINST THE RESPONDEN T, HAS TO APPLY ONLY PROSPECTIVELY AND CANNOT BE APPLIED RETROSPECTIVELY . IN OTHER WORDS, A BENEFICIAL CIRCULAR HAS TO BE APPLIED PROSPECTIVELY . THUS, WHEN THE CIRCULAR IS AGAINST THE ASSESSEE THEY HAVE A RIGHT TO CLAIM THE ENFORCEMENT OF THE SAME PROSPECTIVELY. IT IS FURTHER SUBMITTED THAT FO R THE PERIOD IN QUESTION, TRADE NOTICES HAD BEEN ISSUED CLASSIFYING THE CIRCU IT BREAKERS UNDER HEADING NO. 85.35 OR 85.36. WHEN THE APPROVED CLASS IFICATION WAS PROPOSED TO BE REVISED TO RECLASSIFY THE SINGLE PAN EL CIRCUIT BREAKERS UNDER HEADING NO.85.37 OF THE TARIFF, SUCH RE-CLASSIFICAT ION CAN TAKE EFFECT ONLY PROSPECTIVELY FROM THE DATE OF COMMUNICATION OF THE SHOW-CAUSE NOTICE PROPOSING RECLASSIFICATION.' WE FIND THAT THE AFORESAID CBDT CIRCULAR NO. 5/2012 , DATED 01.08.2012 HAD CAME UP FOR CONSIDERATION BEFORE A COORDINATE B ENCH OF THE TRIBUNAL IN THE CASE OF DCIT V. PHL PHARMA (P) LTD. [2017] 4 9 CCH 124 (MUM), WHEREIN THE TRIBUNAL AFTER DELIBERATING AT LENGTH O N TWO ASPECTS VIZ. (I) VALIDITY OF THE CIRCULAR IN THE BACKDROP OF ENLARGE MENT OF SCOPE OF MCI REGULATION TO THE PHARMACEUTICAL COMPANIES BY THE C BDT, WITHOUT ANY ENABLING PROVISIONS EITHER UNDER THE INCOME TAX LAW OR UNDER THE INDIAN MEDICAL COUNCIL REGULATIONS; AND (II). THE PROSPECT IVE APPLICABILITY OF THE CIRCULAR, HAD OBSERVED AS UNDER: 12. IT IS PERTINENT TO MENTION THAT THE ASSESSMENT YEAR INVOLVED IS 2010- 11. THE CIRCULAR PROHIBITING SUCH EXPENDITURE WAS ISSUED BY THE CBDT ON 1.8.2012. THEREFORE, THIS CIRCULAR CANNOT BE CONST RUED AS APPLICABLE WITH RETROSPECTIVE EFFECT AND WITH HELP OF THIS CIRCULAR , NO EXPENDITURE COULD BE DISALLOWED; MORE SO, ON THE BASIS OF CIRCULAR CHARG EABILITY TO TAX WITH RETROSPECTIVE EFFECT CANNOT BE CREATED. IT SHOULD BE PROVIDED IN THE ACT THOUGH EXPLANATION 1 TO SECTION 37 IS ALREADY THERE WHICH PROHIBITS ALLOWANCE OF ANY EXPENDITURE, IF INCURRED IN INFRIN GEMENT OF ANY LAW. ITAT, MUMBAI BENCH HAS CONSIDERED THIS ASPECT ELABO RATELY IN THE ABOVE JUDGMENTS AND HELD THAT ON THE BASIS OF REGULATIONS OF MEDICAL COUNCIL OF INDIA, DISALLOWANCE IN THE HANDS OF PHARMACEUTICAL COMPANIES CANNOT BE MADE BECAUSE THESE REGULATIONS WERE LAID DOWN FOR T HE MEDICAL PROFESSIONALS AND NOT PHARMACEUTICALS COMPANIES. ITA NO.2458/AHD/2017 15 13. WE HAVE EXAMINED EACH ITEM OF EXPENDITURE DEBIT ED BY THE ASSESSEE, WHICH HAS BEEN DISALLOWED PARTLY BY THE AO AND CONF IRMED BY THE CIT(A) VIZ. A SUM OF RS.13,33,485/- WAS SHOWN AS EXPENDITU RE INCURRED TOWARDS BUSINESS CONVENTION. ACCORDING TO THE ASSESSEE, IT IS NON-FREEBIES TO DOCTORS. THE AO HAS MADE DISALLOWANCE OF RS.11,65, 365/-. THE LD.CIT(A) HAS ENHANCED THIS EXPENDITURE BY A SUM OF RS.11,000 /-. THESE EXPENSES WERE INCURRED BY THE ASSESSEE FOR ACCOMMODATION OF DOCTOR. SIMILARLY, MCM EXPENDITURE WAS INCURRED FOR CONFERENCE. THE S TAND OF THE ASSESSEE WAS THAT CONFERENCES WERE BEING ORGANIZED FOR THE P URPOSE OF BUSINESS. WHEN A LARGE NUMBER OF DOCTORS ASSEMBLED, THEY SHAR E THEIR EXPERIENCE IN DAY-TO-DAY PROFESSIONAL LIFE AND WHAT TYPE OF HURDL ES THEY FACED WHILE TREATING PATIENTS, EITHER BY USE OF EQUIPMENTS OR B Y PHARMA PRODUCTS. IF A PHARMA-COMPANY WANTS TO ORGANIZE SUCH TYPE OF CONFE RENCE OR SEMINARS THEN IT WILL BE QUITE REASONABLE TO UNDERSTAND THE DEFICIENCY IN ITS PRODUCTS, AND IF THE DOCTORS WERE REQUIRED TO PAY FROM THEIR POCKETS, THEN PROBABLY SOME OF THEM WOULD NOT LIKE TO PARTICIPATE. AT THI S STAGE, IT IS PERTINENT TO VISUALIZE THE PROVISIONS UNDER THE INCOME TAX ACT F OR ALLOWANCE OF BUSINESS EXPENDITURE. IN ORDER TO CLAIM EXPENDITURE UNDER SECTION 37(1) O F THE INCOME TAX ACT, THE ASSESSEE IS REQUIRED TO FUL FILL CERTAIN CONDITIONS VIZ. (A) THERE MUST BE EXPENDITURE, (B) SUCH EXPENDITURE MUST NOT BE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36, (C) THE EXPENDITURE MUST NOT BE IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENDITURE OF THE ASSESSEE, AND (D) EXPENDITURE MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION. THE EXPRESSION WHOLLY EMPLOYED IN SECTION 37 REFERS TO QUANTIFICATION OF EXPENDITURE WHILE EXPRESSION EXCLUSIVELY REFERS TO THE MOTIVE, OBJECTIVE AND P URPOSE OF THE EXPENDITURE. ITA NO.2458/AHD/2017 16 14. THUS, IF THE NATURE OF THIS EXPENDITURE IS BEIN G VIEWED WITH ANGLE OF COMMERCIAL ORGANIZATION, THEN IT WOULD REVEAL THAT THESE WERE ESSENTIAL EXPENDITURE FOR THE PURPOSE OF A PHARMACEUTICAL IND USTRY. THE ONLY CAVEAT FOR THEIR NON-DISALLOWANCE IS EXPLANATION 1 APPENDED TO SECTION 37, WHICH IS APPLICABLE ON THE EXPENDITURE WHICH ARE INCURRED FO R INFRINGEMENT OF ANY LAW. THIS ASPECT HAS BEEN ELABORATELY DISCUSSED BY THE C O-ORDINATE BENCH IN THE ABOVE CASES, AND THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE ITAT IN THE CASE OF ARISTO PHARMACEUTICALS P.LTD. (SUPRA) W E ALLOW THE APPEAL OF THE ASSESSEE, AND DELETE THE DISALLOWANCES. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE COURT ON 15 TH OCTOBER, 2019 AT AHMEDABAD. S D / - (AMARJIT SINGH) ACCOUNTANT MEMBER S D / - (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 15/10/2019