GUFIC BIOSCIENCES LTD., MUMBAI V. DY.CIT (IT)-8(1), MUMBAI

ITA 2824/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1662 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 15-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R KAVITHA
• Assessee Lawyers: MALLIKA DEVENDRA
• Keywords: Gift; Retrospective amendment; Tax effect
• Section: 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI PAWAN SINGH, JM I.T.A. NO. 2824/MUM/2016 ( ASSESSMENT YEAR: 2011 - 12) M/S. GUFFIC BIOSCIENCES LTD. 2 ND FLOOR, DORR OLIVER HOUSE, B. D. SAWANT MARG, CHAKALA, ANDH ERI (E), MUMBAI - 400 099 VS. DY. CIT(IT) - 8(1) AAYAKAR BHAVAN, MUMBAI - 400 020 PAN/GIR NO. AAACC 3419 N ( APPELLANT ) : ( RESPONDENT ) APPELLANT BY : MS. MALLIKA DEVENDRA RESPONDENT BY : MS. R. KAVITHA DATE OF HEARING : 29.08.2018 DATE OF PRONO UNCEMENT : 06.09. 2018 4. R D E R PER S HAMIM YAHYA, A. M.: THIS A PPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE O RDER OF THE LEAR N ED COMMISSIONER OF INCOME TAX (APPEALS) - 16, MUMBAI (LD.CIT(A) FOR SHORT) DATED 14.01.2016 AND PERTAINS TO THE A SSESSMEN T YEAR (A.Y.) 2011 - 12. 2. THE ASSESSEE HAS RAISED VARIOUS GROUNDS BUT BASICALLY THERE ARE TWO ISSUES. 3. FIRST ISSUE RELATES TO CONFIRMATION OF THE ADDITION OF RS.10,71,593/ - MADE BY THE ASSESSING OFFICER (A.O.) UNDER THE HEAD DOCTORS SPONSORSHIP. WIT HOUT PREJUDICE, IT HAS FURTHER BEEN ARGUED THAT THE AMENDMENT IN MEDICAL COUNSEL ACT, READ WITH CBDT CIRCULAR NO. 5 DATED 01.08.2012 APPLIES PROSPECTIVELY AND CANNOT BE APPLIED RETROSPECTIVELY. 2 ITA NO. 2824/MUM/2 016 M/S. GUFFIC BIOSCIENCES LTD. 4. TH E SECOND ISSUE RAISED IS THAT THE LD. CIT(A) ERRED IN AR BITRARILY DISALLOWING SALES PROMOTION EXPENSES OF RS.52,21,019/ - . 5 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF BULK DRUGS, FORMULATIONS, AGRO AND CONSUMER PRODUCTS. DURING THE COURSE OF ASSESSMENT, THE A.O. NOTED THAT THE ASSESSEE COMPANY HAS DEBITED A S UM OF RS.1,45,33,632/ - AS SALES PROMOTION EXPENSES. OUT OF THE ABOVE EXPENDITURE, THE A.O. CONSIDERED A SUM OF RS.81,05,741/ - AS EXPENDITURE INCURRED FOR PROVIDING FREEBIES TO MEDICAL P RACTITIONERS/T HEIR PROFESSIONAL ASSOCIATIONS WHICH WAS NOT ALLOWABLE EXPENDITURE AS PER EXPLANATION 1 OF SECTION 37 (1) OF THE INCOME TAX ACT, 1961 (THE ACT' FOR SHORT) . 6 . UPON THE ASSESSEES APPEAL, THE LD. CIT(A) NOTED THAT THE A.O. HAS DISALLOWED A SU M OF RS.81,05,741/ - AS UNDER: A) DOCTOR SPONSORSHIP RS.10,71,593/ - B) CONFERENCE & SEMINAR EXPENSES RS.18,13,129/ - C) SALES PROMOTION EXPENSES RS.52,21,019/ - 7 . OUT OF THE ABOVE EXPENDITURE, THE ADDITION ON ACCOUNT OF CONFERENCES AND SEMINARS EXPENSES OF RS. 18,13,129/ - WERE DELETED BY THE LD. CIT(A) WHEREBY THE LD. CIT(A) GAVE A FINDING THAT THESE EXPENDITURE WERE INCURRED ON THE EMPLOYEES OF THE COMPANY FOR PARTICIPATION IN CONFERENCE ETC. AND WAS NOT TO BE TREATED AS EXPENDITURE INCURRED ON GIVING FREEBIES AND GIFTS. 3 ITA NO. 2824/MUM/2 016 M/S. GUFFIC BIOSCIENCES LTD. 8 . AGAINST THIS DELETION, THE REVENUE HAS NOT FILED AN APPEAL BEFORE US. DOCTORS SPONSORSHIP OF RS.10,71,593/ - : 9 . AS REGARDS DOCTORS SPONSORSHIP OF RS. 10,71,593/ - IS CONCERNED, THE LD. CIT(A) UPHELD THE ORDER OF THE A.O. I N THIS CONNECTION , HE REFERRED TO THE SUBMISSIONS OF THE ASSESSEE THAT TH E EXPENDITURE WAS INCURRED FOR CREATING AWARENESS OF THE DISEASES AND ITS TREATMENT. HOWEVER, THE LD. CIT(A) NOTED THAT THE PAYMENT WAS MADE IN CASH /KIND TO THE DOCTORS OR THEIR ASSOCIATION WHICH IS P ROHIBITED BY IMC INCOME TAX ACT, 1961. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE AS PER EXPLANATION 1 TO SECTION 37(1) OF THE ACT. 10 . IN THIS REGARD, THE LD. COUNSEL OF THE ASSESSEE HAS MADE A SUBMISSION THAT FIRSTLY THE PROVISIONS AND GUIDELINES OF THE IMC ACT ARE APPLICABLE TO THE MEDICAL PRACTI TI ONERS AND CANNOT BE APPLIED TO THE ASSESSEE COMPANY. SHE FURTHER SUBMITTED THAT THE CBDT CIRCULAR NO. 5 DATED 01.08.2012 CANNOT BE APPLIED RETROSPECTIVELY TO THE CURRENT ASSESSMENT YEAR WHICH THE A.O. HAS INTER ALIA CONSIDERED. IN THIS REGARD, THE LD. COUNSEL OF THE ASSESSEE HAS PLACED RELIANCE UPON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF BOSTON SCIENTIFIC INDIA (P.) LTD. VS. ASST. CIT [2017] 85 TAXMANN.COM 5 (DEL) WHEREIN IN CONNECTION WITH THE SIMILAR DISALLOWANCE, THE HONBLE DELHI HIGH COURT HAS OBSERVED THAT THE TRIBUNAL HAD FAILED TO EXAMINE AS TO WHETHER CBDT CIRCULAR NO. 5 (SUPRA) WAS PROSPECTIVE IN NATURE AND, THUS, NOT APPLICABLE FOR ASSESSMENT YEAR IN QUESTION. IN THIS CONNECTION, T HE LD. COUNSEL OF THE 4 ITA NO. 2824/MUM/2 016 M/S. GUFFIC BIOSCIENCES LTD. ASSESSEE STATED THAT IT HAS BEEN DULY EXPOUNDED BY THE HONBLE APEX COURT IN CONNECTION WITH THE EARLIER CIRCULAR OF THE DEPARTMENT WITH RESPECT TO THE TAX EFFECT WHICH HAD BEEN HELD BY CERTAIN COURTS TO BE RETROSPECTIVE IN NATURE , TH AT THE CBDT CIRCULAR/NOTIFICATION CANNOT HAVE RETROSPECTIVE EFFECT. ACCORDINGLY, THE LD. COUNSEL OF THE ASSESSEE HAS PRAYED THAT THE DISALLOWANCE IN THIS REGARD DESERVES TO BE DELETED. 1 1 . PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE (LD. DR' FOR SHO RT) RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 1 2 . UPON CAREFUL CONSIDERATION, WE FIND THAT THERE IS CONSIDERABLE COGENCY IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE ON THE CBDT CIRCULAR WHICH MANDATES DISALLOWANCE OF SUCH AMOUNT OF EXPEN DITURE CANNOT BE HELD TO BE RETROSPECTIVE IN NATURE. THIS HAS GOT A MANDATE OF HONBLE DELHI HIGH COURT AS REFERRED ABOVE AND THE HONBLE APEX COURT DECISION. ACCORDINGLY , HOLDING THAT THE SAID CIRCULAR CANNOT BE APPLIED TO THE CURRENT ASSESSMENT YEAR, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDITION. SALES PROMOTION EXPENSES OF RS.52,21,019/ - : 1 3 . AS REGARDS THE DISALLOWANCE OF RS.52,21,019/ - , THE PAYMENTS WERE MADE TOWARDS EXPENDITURE ON PENS, ACCESSORIES, TOWELS, PAPER PAD, LEA THER BAGS ETC. GIVEN TO FIELD STAFF AND STOCKISTS. IT WAS SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE COMPANY HAD 3500 CHEMIST AND NEARLY ABOUT 94 FIELD STAFF. IT WAS CLAIMED THAT NOT A SINGLE 5 ITA NO. 2824/MUM/2 016 M/S. GUFFIC BIOSCIENCES LTD. EXPENDITURE WAS INCURRED TOWARDS FREEBIES OR TOWARDS DOCTORS T RAVELLING OR GIFTS OR ANY MONETARY GRANTS AND HOSPITALITY. HOWEVER, THE AUTHORITIES BELOW WENT AROUND THE SURMISE AND CONJECTURE THAT THESE EXPENDITURES MIGHT HAVE BEEN INCURRED BY THE ASSESSEE COMPANY AS GIFTS TO DOCTORS. HENCE, THE LD. CIT(A) CONFIRMED T HAT THE A.O. IS CORRECT IN DISALLOWING 50% OF THE EXPENDITURE. 1 4 . UPON HEARING BOTH THE COUNSEL AND PERUSING THE RECORDS, WE HOLD THAT THE ASSESSEE HAS CATEGORICALLY SUBMITTED THAT THESE EXPENDITURES WERE INCURRED FOR THE PURPOSE OF ASSESSEES STOCK ISTS AND FIELD STAFF. THE AUTHORITIES BELOW HAVE MADE THE DISALLOWANCE ON AN ADHOC BASIS ON THE BASIS OF SURMISE AND CONJECTURE BY HOLDING THAT THE ASSESSEE MIGHT HAVE MADE THE EXPENDITURE FOR DOCTORS WITHOUT BRINGING ANYTHING ON RECORD. WE FIND THAT IT IS SET TLED LAW THAT THE ADDITION ON ACCOUNT OF SURMISE AND CONJECTURE ARE NOT SUSTAINABLE. HENCE, HOLDING THAT THIS DISALLOWANCE ON ADHOC BASIS IS BASED UPON SURMISE AND CONJECTURE WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDITION. 1 5 . I N THE RESULT, TH IS APPEAL BY THE ASSESSEE STAND S ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 06.09.2018 SD/ - SD/ - ( PAWAN SINGH ) (S HAMIM YAHYA) J UDICIAL MEMBER A C COUNTANT MEMBER MUMBAI ; DATED : 06.09.2018 ROSHANI , SR. PS 6 ITA NO. 2824/MUM/2 016 M/S. GUFFIC BIOSCIENCES LTD. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT - CONCERNED 5. DR, ITAT, MUMBAI 6. GUARD F ILE BY ORDER, (DY./ASSTT. REGISTRAR) ITAT, MUMBAI