DCIT , CC- 2(4), MUMBAI V. MACELODS PHARMACEUTICALS LIMITED, MUMBAI

ITA 5169/MUM/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 3567 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2021
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Appeal Filed On: 07-09-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MAMTA BA NSAL COMMISSIONER
• Keywords: Gift; Business income; Business expenditure; Principle of natural justice; Retrospective amendment; Revenue expenditure
• Section: 143(3); 153A; 37(1); 201; 113; 13; 22; 11; 37

Judgement Text

ITA NOS. 5168 & 5169/MUM/20 1 8 ASSESSMENT YEAR: 2011 - 12 AND 2012 - 13 P AGE 1 OF 21 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI D BENCH, MUMBAI [CORAM: PRAMOD KUMAR (VICE PRESIDENT) , AND SAKTI JIT DEY (JUDICIAL MEMBER)] ITA NO S . 5168 & 5169/MUM/20 1 8 ASSESSMENT YEAR: 2011 - 12 AND 2012 - 13 DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CI R CLE - 2(4) M UM BAI . APPELLANT VS . MAC L E ODS PHARMACEUTICALS LTD. RESPONDENT 304, ATLANTA ARCARE, MAROL CHURCH ROAD, ANDHERI (E), MUMBAI 400 059 [PAN: A AACM4100C ] APPEARANCES BY MAMTA BA NSAL , COMMISSIONER (DR) FOR THE REVEN U E ASHOK BA NSA L , CA , FOR THE ASSESSEE DATE OF CONCLUDING THE HEARING : 12/10/21 DATE OF PRONOUNCEMENT OF THIS REFERENCE : 14 /10/21 SPECIAL BENCH REFEREN CE PER PRAMOD KUMAR, VP : 1. ONE OF THE ISSUES WHICH HAVE COME UP FOR OUR ADJUDICAT ION IN BO T H OF THESE D E PAR TMENTAL APPEALS , AGAINST THE RELIEF GRA NTED BY THE CIT(A), IS THE ASSESSING OFFI CER S GRIEVANCE , WHICH RAISES THE QUESTION AS T O WHETHER T HE LEARNED CIT(A) WAS ERRED IN DELETING THE DISALLOWAN CE MADE ( OF RS 111,11,70,500 FO R THE AS SESS M ENT YEAR 2 011 - 12 AND OF RS 137,62,61,659 FOR THE AS SESSMENT YEAR 2012 - 13 - AGGREGATING TO RS 248, 74, 32,259 ) ON ACCOUNT OF FREE BIES TO THE DOCTORS . WHILE , FOR THE DETAILED REASONS WE WILL SET OUT IN A SHOR T WHILE, ARE OF THE CONSIDERED VIEW THAT THE ASSE SSING OFFI CER DESERVES TO SU CCEE D ON THIS I SSU E, WE AR E ALIVE TO THE FACT THAT THERE ARE SEVERAL DECISI ONS OF COORDINATE BENCHES , IN FAVOUR OF THE ASSESSEE, ON THIS ISSUE. IT IS IN THIS BACKDROP THAT WE PROCEED T O PLACE ON RECORD OUR REASONS AS TO WHY THE ASSESSING OFFICER, IN OUR C ONSI DERED VIEW, DE SER VE S TO SUCCEED ON THI S ISSUE AND ITA NOS. 5168 & 5169/MUM/20 1 8 ASSESSMENT YEAR: 2011 - 12 AND 2012 - 13 P AGE 2 OF 21 AS TO WH Y IT IS A FIT CASE FOR THE CONSTITUTION OF A SPE CIAL BENCH OF TH REE O R MORE M EMBERS , TO CONSIDER THE FOLLOWING QUESTION: WHETHER AN ITEM OF EXPENDITURE ON ACCOUNT O F FREEBIES TO MEDICAL PROFESSIO NALS, WH ICH IS H IT BY RULE 6. 8.1 O F INDIAN MEDICAL COUNCIL (PROFESSIONAL C ONDUCT, ETIQUETTE AND ETHICS) REGULATIONS, 2002 - AS AME NDE D F RO M TIME T O TIME , READ WITH SECTION 20A OF THE INDIAN ME DICAL C OUN CIL ACT 1956 , CAN BE ALL OW ED AS A DEDU CTION UNDER SECTI ON 37(1) OF TH E INCOME TAX ACT, 19 61 READ WITH EXPLANATION THERETO, IN THE HANDS OF THE PHARMACEUTICAL COMPANIES ? 2 . WHEN T HE GRI EVANCES RAISED BY THE ASSESSING OFFICER, AS REFERRED TO IN PARAGRAPH 1 A BOV E, CAME UP FOR OUR CONSIDERATION , WE NOTICED THA T THE REL AT ED MAT ER IAL FACTS ARE LI KE THIS. BY WAY OF THESE APPEALS, THE ASSESSING OFFI CER HAS CHALLENGED CORRECTNESS OF A CO NSOLIDATED ORDER DATED 27 TH JUNE 20 18, PASSED BY THE LEARNED CIT(A) , IN THE MATTER OF ASSESSMENT UND ER SEC TION 143(3) R.W.S. 153A OF THE INCOME TAX ACT, 1961 FO R THE ASSESSMENT YEARS 2011 - 12 AND 20 1 2 - 13 . THE ONLY GRIEVANCE RA ISED IN THESE TWO APPEALS, AS NOTED EARLIER , IS BY RAISED BY WAY OF A QUESTION REQUIRING OUR ADJUDICATION, AS T O WHETHER T HE LEARN ED CIT(A) WAS ERRED IN DELETING THE DISALLOWAN CE MADE ( OF RS 111,11,70,500 FO R THE AS SESS MENT YEAR 2 011 - 12 AND OF RS 137,62,61,659 FOR THE AS SESSMENT YEAR 2012 - 13 - AGGREGATING TO RS 248, 74, 32,259 ) ON ACCOUNT OF FREE BIES TO THE DOCTORS . THE ASSESS EE B EFORE US IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING PHA RMACEUTICAL PRODUCTS , SUCH AS TABLETS, CAPSULES, LIQUIDS AND INJECT A BLES ETC. THIS IS A CASE IN WHICH THE ASSESSEE COMPANY WAS SUBJE CTED TO A S EAR CH AND SEIZURE OPERAT ION ON 28 TH J ANUARY 201 6. IT WAS IN THIS BACKDROP THAT THE ASSESSMENTS WERE REOPENED, AND THE PRESENT ASSESSMENT PR OCEEDINGS UNDER SECT ION 153A R.W .S 143(3) WERE IN ITIATED. DURING THE CO URSE OF THESE ASSESSMENT PROCEEDING S, THE AS SE SSI NG OFFICER NOTED THAT WH ILE THE ASSESSEE HAS RS 221.25 CRORES ON SALES PROMOTION SO F AR AS THE ASSESSMENT YEAR 2 012 - 13 IS CONCERNED, AND RS 139.07 CRORES SO FAR AS THE A SSESSMENT YEAR 2011 - 12 IS CONCERNED, THE AMOUNTS SPENT TO THE EXTENT O F RS 137.62 CRORE S FOR THE ASSESSMENT YEAR 2 012 - 1 3 AND RS 111.11 C RORES FOR THE ASSESSME NT YEAR 201 1 - 12 PERTAINS TO PAYMEN TS OF FREEBIES T O DOCTORS . T HESE AMOUNTS , ACCORDING TO THE ASSESSING OFFICER, INCLUDED PAYMENTS MADE FOR GIFTS, PROMOTION ITEMS, FACI LI TIES ETC GIVEN TO VA RIOUS MEDICAL PRACTIT IONERS WITHI N T HE COUNTRY AS WELL AS ABROAD . AS FOR T HE DETAILS OF EXPENSES IN QUESTION, FOR EXAMPLE , THE BREAKUP OF EX PENSES ON AC COUNT OF FREEBIES TO DOCTORS FOR THE ASSESSMENT YEAR 2012 - 13 IS , AS GIVEN AT PAG E 47 OF THE PAPER - BOO K, AS FOLLOW: ITA NOS. 5168 & 5169/MUM/20 1 8 ASSESSMENT YEAR: 2011 - 12 AND 2012 - 13 P AGE 3 OF 21 CATEGORY AMOU NT ( IN RS) CORPORATE GIF TS RS 60,12,56,051 CUSTOMER RELATION MANAGE MENT - SPONSOR RS 18,42,07,762 G IFT CA RDS RS 54,11,77,227 JOURNA LS, BOOKS AND MA GAZINES RS 1, 24,22,482 MEDICAL IN STRUMENTS A ND BOOKS RS 3, 71,98 ,134 TOTAL RS 1 37 ,62,61,656 3 . THE ASSESSING OFFICER , IN THIS BAC KDROP , TOOK NOTE OF THE CONTENT OF THE CBDT CIRCULAR NO. 05/2012 DATED 1 ST AUGUST 2012, TOOK NOTE OF T H E AMENDMENT IN THE MEDICAL COUN CIL OF I NDIA REGULA TIONS VIDE GAZ ETTE N OTIFI CATION DAT ED 10 TH DEC EMBER , 2009, AND EXP LANATION SECTION 37( 1) OF THE ACT , AND PUT THE ASSESSEE TO NOTICE AS TO WHY THESE EXPENSES NOT BE DISALLOWED AS IT IS CLEAR FROM THE EXPLANATION 1 TO SECTION 37 OF THE ACT AND TH E GUIDELINE S ISSUED BY ME DICAL COUN C IL OF INDIA AND THE C IRCULA R ISSUED B Y THE CE NTRAL BOARD OF DIRE CT TAXES THAT THE SALES PROM OTION EX PENSES MADE BY THE ASSESSEE ARE PROHIBITED IN LAW (AND) THEREFORE , THESE ARE DEEMED TO HAVE BEEN NOT I NCURRED FOR THE PU RPOSE OF BU SINESS AND PRO FE SSIO N, AN D HENCE NOT AN ALLOWA BLE EX PENDITURE . THE STAND OF THE ASSESSEE WAS THAT A COORDINATE BE NCH, IN ASSESSEE S OWN CASE, HAS ALLOWED SUCH EXPENDI TURE MAINLY ACCEPTING THE PLEA THAT NO DISALLOWAN CE OF SUCH SALES PROMOTION EXPENSES CO U LD BE MADE BY APPLY ING C BDT CIRCULAR DATED 1 - 8 - 2012 INSO FAR AS CBDT CIRCULAR WAS EFFECTIVE FROM AY 2013 - 14 , AND THAT , IN V IEW OF THE DECISION OF ANOTHER COORDINATE BENCH IN THE CASE OF DCIT VS PHL PHARMA PVT LTD [( 2017) 163 ITD 10 (MUM)] THE D ISALLOWANCE COULD NOT BE SUSTAI NED A S THE MCI GUIDELINES BIND O NLY THE MEDICAL PROFESSIONALS AND NOT THE PHARMACEUTICAL CO MPANIES. THE ASSESSING OFFICER, HOWEV ER, PROCEEDE D TO MAKE THE DISALLOWANCE S OF RS 111,11,70,500 FO R THE ASSESSMENT YEAR 2011 - 12 AND O F RS 137,62 ,61,659 FOR TH E AS SE SSMEN T YEAR 2012 - 13 , ON AC COUNT OF PAYMENTS MADE FOR FREEBIES TO THE DOCTORS, BY GIVING DETAILED REASONS, COMMON IN BOTH OF THESE YEARS, AS FOLLOWS: 1. BOARD, VIDE CIRCULAR N O. 05/2012 (F.NO. 22 5/142/2012 - I TA.I I ), DATED 01.08. 2012 STATED THAT INDIAN M EDICAL COUNC IL (PROFESSIONAL COND UCT, ITA NOS. 5168 & 5169/MUM/20 1 8 ASSESSMENT YEAR: 2011 - 12 AND 2012 - 13 P AGE 4 OF 21 ETIQUETTE AND ETHICS) REGULATIONS, 2002, ON 10.12.2009 IMPOSED A PROHIBITION ON MEDICAL PRACTITIONERS AND THEIR PROFESSIONAL ASSOCIATIONS FROM TAKING ANY GIFT, T RAVEL FACILITY, HOSPITALITY, CAS H OR MONETA RY GRANT FROM PHARMAC EUTIC AL AND ALLIED HEALTH SECTO R INDUSTRIES. 2. SECTION 37(1) OF INCOME TAX ACT PROVIDES FOR DEDUCTION OF ANY REVENUE EXPENDITURE (OTHER THAN THOSE FAILING UNDER SECTION 30 TO 36) FROM BUSINESS INCOME IF SUCH EXPENSE IS LAID O UT/EXPENDED WHOLLY OR EXC LUSIVEL Y FOR THE PURPOSE OF BUSIN ESS O R PROFESSION. 3. HOWEVER, THE EXPLANATION APPENDED TO THIS SUB - SECTION DENIES CLAIM OF ANY SUCH EXPENSE, IF THE SAME HAS BEEN INCURRED FOR A PURPOSE WHICH IS EITHE R AN OFFENCE OR PROHIBITED BY LA W. 4. THUS, T HE CLAIM OF AN Y EXPEN SE IN CURRED IN PROVIDING F REEBE ES IN VIOLATION OF THE PROVISIONS OF INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULATIONS, 2002 SHALL NOT BE ADMISSIBLE UNDER SECTION 370) OF THE INCOME TAX ACT BEING AN EXPENSE PROHIBITED BY THE LA W. TH IS DISALLOWANCE SHALL BE M ADE IN THE HANDS OF SUCH PHARMACEUTICAL OR ALLIED HEALTH SECTOR INDUSTRIES OR OTHER ASSESSEE WHICH HAS PROVIDED AFORESAID FREEBIES AND CLAIMED IT AS A DEDUCTIBLE EXPENSE IN ITS ACCOUNTS AGAINST INCOME. 5. O NCE THIS HAS B EEN PRO HIBIT ED BY THE MEDICAL COU NCIL UNDER THE POWERS VESTED IN IT, SECTION 37(1) OF INCOME TAX ACT COMES IN TO PLAY. THE AMENDMENT TO THE INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULATIONS, 2002 WOULD ONLY BE CL ARIFICATORY IN NATURE . 6. FU RTHER, THE EXPLANATIO N INS ERTED TO THE SECTION 37(1) BY THE FINANCE ACT (NO.2), 1998 IS WITH RETROSPECTIVE EFFECT FROM 01.04.1962. THEREFORE, THE EXPENSE OF THE NATURE SPECIFICALLY MENTIONED TO BE NOT ALLOWABLE IN THE C APTIONED CI RCULAR OF CBDT WOULD HAVE ITS APPLICABILITY IN RESPE CT OF THE CASES OF THE EARLIER PERIOD YEARS AS WELL. THE EXPLANATION TO SECTION 37(1) IS ON THE STATUTE W.E.F. 1ST APRIL, 1962. THE SAME HAS S IMPLY BEEN CLARIFIED BY WAY OF A CIRCULAR ISSUED BY CBDT. 7. THE MEDICAL COUNC IL OF I NDIA IN EXERCISE OF POWERS CONF ERRED UNDER SECTION 20A REA D WITH SECTION 33(M) OF THE INDIAN MEDICAL COUNCIL ACT, 1956 (MC) HAS MADE ' THE INDIAN MEDICAL COUNCIL (PROFESSION AL CONDUCT, ETIQUETTE AND ETHICS) REGULATIONS 2002, WHICH DESC RIBES UNETHICA L ACTS UNDER CHAPTER 6 OF THE SAI D REG ULATIONS. THE MCI HAS MADE AMENDMENT IN THE ABOVE REGULATION VIDE NOTIFICATION DATED 10 - 12 - 2009. AS PER SAID NOTIFICATION A MEDICAL PRACTITION ER IS NOT ALLOWED TO RECEIVE ANY GIFT, TRAVEL FACIL ITY , HOSPIT ALITY, CASH OR MONETA RY GR ANTS FROM THE PHARMAC EUTIC ALS OR ALLIED HEALTH CARE INDUSTRY AND VIOLATION OF THESE CONDUCTS ARE LIABLE FOR PUNISHMENT AS PER THE INDIAN MEDICAL COUNCIL (PROFESSIONAL C ONDUCT, ETIQUETTE AND ETHICS) REGULATIONS, 2002. THE HON'BLE HI MACHAL PRADESH HIGH C OURT IN CASE OF CONFEDERAT ION O F INDIAN PHARMACEUTICAL INDUSTRIES HAS UPHELD THE VALIDITY OF CIRCULAR NO. 5 OF 2012 ISSUED BY THE CBDT. THE HON'BLE HIGH COURT HAS ITA NOS. 5168 & 5169/MUM/20 1 8 ASSESSMENT YEAR: 2011 - 12 AND 2012 - 13 P AGE 5 OF 21 ALSO OBSE RVED THAT ANY VIOLATION OF THE SAME WILL ATTRACT THE PROVISIONS OF EXPLANATIO N TO SE CTION 37(1) OF THE ACT. 8. I N THE CASE KAP SCAN AND DIAGNOSTIC CENTRE (P) LTD. THE HON'BLE HIGH COURT OF PUNJAB & HARYANA HELD THAT PAYMENTS WHICH ARE OPPOSED TO PUBLIC POLIC Y BEING IN THE NATURE OF UNLAWFUL CONSIDERATION CANN OT EQUALLY BE RECOGNIZED. IT CAN NOT B E HELD THAT BUSINESSM EN AR E ENTITLED TO CONDUCT THEIR BUSINESS EVEN CONTRARY TO LAW AND CLAIM DEDUCTIONS OF PAYMENTS AS BUSINESS EXPENDITURE, NOTWITHSTANDING THAT SUCH PAYMENTS ARE ILLEGAL OR OPPOSED TO PUBLIC POLICY OR HAVE PERNI CIOUS CONSEQUE NCES TO THE SOCIETY AS A WHOLE. T HE CO URT FURTHER HELD THAT IF DEMANDING OF SUCH COMMISSION WAS BAD, PAYING IT WAS EQUALLY BAD. BOTH WERE PRIVIES TO A WRO NG. THEREFORE SUCH COMMISSION PAID TO PRIVATE DOCTORS WAS OPPOSED TO THE PUBL IC POLICY A ND SHOULD BE D ISCOURA GED. THE PAYMENT OF COMMIS SION BY THE ASSESSEE TOR REFERRING PATIENTS TO IT CANNOT BY ANY STRETCH OF IMAGINATION BE ACCEPTED TO BE LEGAL OR AS PER PUBLIC POLICY. UNDOUBTEDLY, IT IS NOT FAIR PRACTICE AND HAS TO BE TERMED AS A GAINST THE PUBLIC POLICY. 9. IN TH E CAS E OF CONFEDERATION OF INDI AN PHARMACEUTICAL INDUSTRY (SUPRA), THE HON'BLE HIGH COURT OF HIMACHAL PRADESH HAS OBSERVED THAT MCI HAS IMPOSED CER TAIN PROHIBITION ON MEDICAL PRACTITIONERS AS MENTIONED ABOVE UNDER THE INDIAN MEDICAL CO UNCIL (PROFESS IONAL C ONDUC T, ETIQUETTE AND ETHI CS) R EGULATIONS 2002. THE COURT HELD THAT THIS REGULATION IS A VERY SALUTARY REGULATION WHICH IS IN INTEREST OF THE PATIE NTS AND THE PUBLIC. THIS COURT IS NOT OBLIVIOUS TO THE INCREASING COMPLAINTS THAT THE ME DICAL PRACTITI ONERS D O NOT PRESCRIBE GENERIC ME DICIN ES AND PRESCRIBE BRANDED MEDICINES ONLY I N LIEU OF THE GIFTS AND OTHER FREEBIES GRANTED TO THEM BY SOME PARTICULAR P HARMACEUTICAL INDUSTRIES, ONCE THIS HAS BEEN PROHIBITED BY THE MEDICAL COUNCI L UNDER THE POWERS VESTED IN IT, SECT ION 37(1) OF THE INCO ME - TA X ACT COMES INTO PLAY. THE COURT FURTHER HELD THAT THE EXPLANATION TO SECTION 37 (1) MAKES IT CLEAR THAT ANY EXPENDI TURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS PROHIBITED BY LAW SHALL NOT BE DEE MED TO HAVE BE EN INCU RRED FOR THE PURPOSE OF BU SINES S OR PROFESSION. THEREFORE, IF THE ASSESSEE SATISFIES THE ASSESSING AUTHORITY THAT THE EXPENDITURE IS NOT IN VIOLATI ON OF THE REGULATIONS FRAMED BY THE MEDICAL COUNCIL THEN IT MAY LEGITIMATELY CLAIM A DED UCTION, BUT IT IS FOR THE ASSESSEE TO SATISFY T HE AS SESSING OFFICER THAT THE EXPENSE IS NOT IN VIOLATION OF THE MEDICAL COUNCIL REGULATIONS REFERRED ABOVE. 10. IN THE CASE OF LIVA HEALTHCARE LTD, THE HON'BLE MUMBAI ITAT HAS HELD THAT THE CBDT CIRCU LAR DATED 0 1.08.2012 IS M ERELY A CLAR IFICATION IN NATURE A ND CR EATES A BAR ON SUCH ILLEGAL PAYMENTS BEING AGAINST PUBLIC POLICY, THE SAID BAR ALWAYS EXISTED IN THE STAT UTE BY VIRTUE OF THE EXISTENCE OF EXPLANATION OF SECTION 37 OF THE ACT WHICH WAS INSERTE D BY FINANC E ACT, 1998 W. E.F. 01 - 04 - 1 962. 11. THEREFORE, IT I S AMP LY CLEAR FROM THE ABOVE DISCUSSION THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE IS NOT ALLOWABLE UNDER THE PROVISIONS OF THE ACT. ITA NOS. 5168 & 5169/MUM/20 1 8 ASSESSMENT YEAR: 2011 - 12 AND 2012 - 13 P AGE 6 OF 21 10.11 THUS, RS. 1376261659 IS DISALLOWED (WHICH HAS BEEN INCURR ED FOR GIFT S, PROVIDING T RAVEL F ACILI TIES & HOSPITALITY TO MEDI CAL PRACTITIONERS) FROM THE TOTAL EXPENDITURE INCURRED FOR SALES PROMOTION KEEPING IN VIEW THE DISCUSSION IN PARAS ABOVE AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. AS APPARENT FROM THE ABOV E DISCUSSIO N, IT IS CLEAR THAT T HE NA TURE OF PRE AND POST MCI N OTIFICATION EXPENSES FOR FREEBEES TO DOCTORS ARE ILLEGAL IN NATURE. THESE ILLEGAL PRACTICES WER E LATER ON NOTICED BY MEDICAL COUNCIL OF INDIA AND CENTRAL BOARD OF DIRECT TAXES WHICH RESULTED IN THE AMENDM ENT MADE IN TH E MEDIC AL CO UNCIL OF INDIA (MCI) REGUL ATIONS VIDE NOTIFICATION DATE 10.12.2009 AND CIRCULAR NO. 05/2012 DATED 01.08.2012 ISSUED BY T HE CENTRAL BOARD OF DIRECT TAXES, NEW DEL HI VIDE F.NO. 225/142/2012 - ITA - II RESPECTIVELY. IN ABSENCE OF THESE NO TIFICATION AND CIRCUL AR AL SO, THE FREEBEES TO D OCTOR S ARE ILLEGAL IN NATU RE AND LIABLE TO BE DISALLOWED U/ S 37(1) OF THE ACT. 4 . QUITE CLEARLY, THEREFORE, THE ASSESSING OFFI CER DISALLOWED THE SALES PROMOTION EXPEN SES NOT ONLY IN THE LIGHT OF THE CBDT CI RCULAR (SUPRA) B UT ALSO IN T HE LIGHT OF A COORDIN ATE BENCH DECISION OF THIS T RIBUNAL IN THE CASE OF ACIT VS LIVA HEALTHCARE LTD [(2016) 161 ITD 63 (M UM)] , IN THE LIGHT OF HON BLE H IMACHAL PRADESH HIGH COURT DECIS ION IN THE CASE OF C ONFEDERATION OF INDIAN PHARMA CEUTICAL I NDUSTRY VS C ENTRAL BOARD OF DIR EC T TA XES [(201 3 ) 335 ITR 388 (HP) ] , IN THE LIGHT OF HON BLE PUNJAB & HARYANA H IGH C OURT JUDGMENT IN THE CASE OF C IT VS KAP SCAN & DIAG NOSTIC CENTRE PV T LTD [(2012) 344 ITR 476 (P&H)] , AND IN THE LI GHT OF H I S ANALYSIS ABOUT T HE S COP E OF EXPLANATI ON TO SEC TIO N 37 (1 ) READ WITH THE PROVISIONS OF THE MEDICAL COU NCIL OF INDIA REGULATIONS . NONE OF THESE ISSUES WERE DEALT WITH IN THE JUDICIAL PRECEDENT RELIED UPON B Y THE LEA RNED CIT(A). IR ONICALLY, HOWE VER, LEARNED CI T(A) PROCEEDED A S IF TH E DIS ALLOWANCE IS ON THE B ASIS OF THE CBD T CIRCULAR SIMPLIC ITER, AND HE SIMPLY , AS HE PUT IT IN THE ABSENCE OF ANY CHANGE IN FACT S OR CHANGES IN THE LAW IN T HIS REGARD , FOLLOWED AN EARLIER ORDER IN ASSESSEE S OWN CASE, W HICH, INTER ALI A , OBSERVED AS FOLLOWS : WE H AD CAREFULLY GONE THR OUGH THE DETAILS OF EXPENDITU RE SO INCURRED UNDER THE HEAD SALES PROMOTION EXPENSES AND FOUND THAT EXPENDITURE SO INCURRED WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEES BUSINES S. THE RELE VANT ASSESSMENT YEA RS UNDER CO NSIDE RATION ARE A.YS. 2 010 - 2011 AND 2011 - 2012 DURING WHICH THERE WAS NO CBDT CIRCULAR AS REFERRED BY AO FOR MAKING DISALLOWANCE BY BRANDING THE EXPENDITURE AS COVERED BY EXPLANATION TO SECTION 37(1) OF THE ACT. WE F OUND THAT T HE EXPENDITURES WER E INCURRED WHOLL Y AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, THEREF ORE, SAME CANNOT BE DISALLOWED BY APPLYING CBDT CIRCULAR DATED 1 - 8 - 2012 IN RESPECT OF YEARS UNDER CONSIDERATION. THE TRIBUNAL IN THE CASE OF SYNCOM FORMULATI ONS (I) LTD .(SUPRA) VIDE ORDER 23 - 12 - 2015 HAVE DEALT WITH EXACTL Y S IMILAR ISSUE WHEREIN ALSO ASSESS EE WAS ENGAGED IN ITA NOS. 5168 & 5169/MUM/20 1 8 ASSESSMENT YEAR: 2011 - 12 AND 2012 - 13 P AGE 7 OF 21 MANUFACTURING OF VARIOUS PHARMACEUTICAL PRODUCTS AND HAVING SALES WITHIN AND OUTSIDE INDIA. EXACTLY SIMILAR EXPENDITURE INCURRED UNDER THE HEAD OF SAL ES PROMOTION EXPENS ES WAS DISA LLOWE D BY THE AO BY APP LYI NG CBDT CIRCULAR DATED 1 - 8 - 2012, WHEREIN EXPLANATION TO SECTION 37(1) WAS INVOKED, WHICH WAS CONFIRMED BY THE CIT(A). THE ASSESSEE CAME BEFORE THE TRIBUNAL AND THE TRIBUNAL HELD THAT CBDT C IRCULAR DAT ED 1 - 8 - 2012 WAS AP PLICABLE FO R A.Y .2013 - 14 AND ONWAR DS AND NOT APPLICABLE TO PRIOR ASSE SSMENT YEARS. THE TRIBUNAL AFTER OBSERVING THAT NATURE OF EXPENSES ALLOWED THE SAME. THE TRIBUNAL FURTHER OBSERVED THAT SPONSORING DOCTORS FOR CONFERENCES AN D EXTENDING HOSPITALITY BY PHA RMACEUTICAL S COM PANIES, TO ATTEND PRE STIGIOUS CONFERENCES SO THAT THE Y GATHER CONTEMPORARY KNOWLEDGE ABOUT MANAGEMENT OF CERTAIN ILLNESS/DISEASE AND LEARN ABOUT NEWER THERAPIES, WHICH CAN PROMOTE ASSESSEES BUSINESS AS PHARMAC EUTICAL MAN UFACTURER. UNDER TH ESE FACTS A ND CI RCUMSTANCES THE TRIBU NAL HELD THAT NO DISALLOWANCE OF SUCH SALES PROMOTION EXPENSES CAN BE MADE BY APPLYING CBDT CIRCULAR DATED 1 - 8 - 2012, INSOFAR AS CBDT CIRCULAR WAS EFFECTIVE FROM A.Y.2013 - 2014. IN THE INSTAN T CASE BEFO RE US THE RELEVANT ASSESSMENT YEARS ARE A.Y.2010 - 2011 & 2011 - 2012 DURING WHICH THIS CBD T CIRCULAR WAS NOT APPLICABLE. AS PER THE DETAILS OF EXPENSES PLACED ON RECORD, WE FOUND THAT SAME WAS IN THE NATURE OF SALES PROMOTION. NEITHER THE AO NOR T HE CIT(A) H AD DOUBTED GENUINEN ESS OF THE EXPENSES NOR THERE IS ANY ALLEGATION TO THE EFFECT THAT EX PENSES WERE NOT INCURRED FOR THE PURPOSE OF BUSINESS. EVEN THE G.P. AND N.P. RATE SHOWN BY ASSESSEE NOWHERE INDICATES THAT ASSESSEE HAD CLAIMED ANY EXCESSIVE EXPENDITUR E UNDER THE HEAD SA LES PROMOTI ON. HOWEVER, NO DECISION T O THE CONTRARY WAS BROUGHT TO OU R NOTICE BY LD. DR, UNDER THESE CIRCUMSTANCES, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF SYNCOM FORMULATIONS (I) LTD. (SUPRA), WE DO NOT FIND A NY JUSTIFICATION IN THE ORDERS OF LOWER AUTHORITIES FOR DISALLOWING SALES PROMOTION EXPE NSES UNDER EXPLANATION TO SECTION 37(1) . 5 . THE ASSESSING OFFI CER IS AGGRIEVED OF THE RELIEF SO GRANTED BY THE LEARNED C IT(A) AND IS IN APPEAL BEFORE US . 6 . WE H AVE HEARD THE RIVAL CO NT ENTIONS, PERUSED THE MATERIAL ON RE CORD AND D ULY CONSIDERED FACTS O F THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 7 . WE FIND THAT THERE IS NO DISPUTE ABOUT THE FOUNDATIONAL FACTUAL POSITION THAT T HE ASSESSEE HAS EXTENDE D FREE BIES TO THE MEDIC AL PROFESSI ONALS SU CH AS CORPORATE GI FT S, SPONSORING THE MEDICAL PRO F ESSIONALS, PRESENTING THEM WITH GIFT CAR DS WHICH ARE A S GOOD AS CASH AT THE RELATED COMMERCIAL ESTABLISHMENTS, COSTS OF J OURNALS, BOOKS AND MA GAZINES FOR THE MEDICA L PROFESSIONALS , AND ME DICAL INSTR UMENTS AND BOOKS . THESE EX PENSES AGG REGATE TO AS MUCH AS R S 111,11,70,500 FOR THE ASSESSMENT YEAR 2011 - 12 AND OF RS 137,62,61,659 FOR THE ASSESSMENT YEAR 20 12 - 13 . THERE I S ALSO NO DISPUTE THAT SO FAR A S T H E IND IAN MEDICAL COUNCIL ITA NOS. 5168 & 5169/MUM/20 1 8 ASSESSMENT YEAR: 2011 - 12 AND 2012 - 13 P AGE 8 OF 21 (PROFESSIONAL C ONDUCT, ET IQUETTE AND ETHICS) REGULA TIONS, 2002 ARE CONCERNED, MEDI C AL PROFESSIONALS ARE FORBIDDEN FRO M ACCEPTING SUCH FREEBIES; LEARNED COUNSEL DID NOT EVEN DISPUTE THIS POSITION, AND RIGHTLY SO PERHAPS. YET, NOTWITHSTAN DING E XPLAN ATION TO SECTION 37 (1) AS IT THEN WAS [ EXPLANATION 1 TO SEC TION 37(1) NOW], THE DEDUCTION F OR THESE EXPENSES HAS BEEN ALL OWED. THE REASON ING ADOPTED BY THE LEARNED C IT(A) PROCEEDS ON THE BASIS, AS CAN BE SEEN AB OVE, THAT SINCE THE CBDT CIRC ULAR S WAS APPLI CABLE ONLY FROM THE ASS ESSMENT YEA R 2 013 - 14, THE DISALLO WA NC E UNDER THE AFORESAID CIRCU LA R C OULD NOT HAVE BEEN MADE ON THE BASIS OF TH IS CIRCULAR. THIS APPROACH PROCEEDS ON THE FALLACY THAT THE IMPUGNED DISALLOWANC ES WERE MADE ON THE BASIS OF CB DT CIRCULAR SIM PLIC I TER, WHEREAS, AS WE HAVE N OTED EARLIER AS WELL, THE ASSESSING OFFI CER DISALLOWED TH E SALES PROMOTION EXPEN SES NOT ONLY IN THE LIGHT OF THE CBDT CIRCULAR (SUPRA) BUT ALSO IN THE LIGHT OF A COORDIN ATE BENCH DECISION OF THIS T RIBUNAL IN T HE CASE OF ACIT VS LIVA HEALTHCARE LTD [(2016) 161 ITD 63 (M UM)] , IN TH E LIGHT OF HON BLE H IMACHAL PRA D ESH HIGH COURT DECIS ION IN THE CASE OF C ONFEDERATION OF INDIAN PHARMA CEUTICAL INDUSTRY VS CENTRAL BOARD OF DIR ECT TA XES [(201 3 ) 335 ITR 388 (HP) ] , IN THE LIGHT OF H ON BLE PUNJAB & HARYANA H IGH C OURT JUDGMENT IN THE CASE OF C IT VS KAP SCAN & DIAG NOSTIC CEN T RE PV T LTD [(2012) 344 ITR 476 (P&H)] , AND IN THE LI GHT OF H I S ANALYSIS ABOUT THE S COPE OF EXPLANATI ON TO SEC TION 37(1 ) READ WITH THE PROVISIONS OF THE M EDICAL COU N CIL OF INDIA REGULATION S . IN ANY CASE, THE COORDINATE BENC H DECIS ION RELIED UPON BY TH E L E A R NED CIT(A) DID NOT TAKE INTO ACCOUNT ANOTHER COORDIN ATE BENCH DECIS ION IN THE CASE OF LIVE HEA LTHCARE (SUPRA) AND HON BLE HP HIGH COURT S JUDGMENT IN T HE CASE OF C ONFEDERATION OF INDIAN PHARMA CEUT ICAL INDUSTRY (SUPRA), WHI CH WERE RENDERED P RIOR TO TH AT D ATE BU T NO T TAKEN INTO ACCOUNT BY THE COOR DINATE BEN CH. AS TO WHAT SHOULD BE PRECEDENCE VALUE OF SUCH A COORDINATE BEN CH DECISION, WE FIND GUIDANCE FROM HON BLE AP HIGH COURT S FULL BENCH DE CISION I N THE CASE OF CIT VS B R C ONSTRUCTIONS [(199 3 ) 202 ITR 2 2 2 (AP - FC)] WHEREIN THEIR LORDS HIPS HAS OBSE RVED THAT A PRECEDENT CEASES TO BE A BINDING PRECEDENT (III) WHEN IT IS INC ONSISTENT WITH THE EARLIER DECI SIONS OF TH E SAME RANK; AND (IV) W HEN IT IS R ENDERED PER INCURIAM . CLE A RLY, THEREFORE, THE DECISIONS WH ICH DISREGARD EARLIER B INDING DECISIONS ON THE SAME ISSUE, CEASE TO BE A BINDING JUDICIAL PR ECEDENT , AND THE COORDINAT E BENCH DECISION IN ASSESSEE S OWN CASE THUS CEASES TO BE A B INDING PRECEDENT . 8 . BE THAT AS IT MAY, L ET US DEAL WITH THIS CB DT C IRC ULAR ASPECT FIRST. IT IS ON LY ELEMENTA RY THAT THE CIRCULARS ISSU ED BY THE CENTRA L BOARD OF DI RECT TAXES DO NOT BIND THE APPELLATE AUT HORITIES - NOT EVEN THE INCOME TAX AUTHORITIES SUCH AS COMMISSIONER (APPEALS) , ITA NOS. 5168 & 5169/MUM/20 1 8 ASSESSMENT YEAR: 2011 - 12 AND 2012 - 13 P AGE 9 OF 21 LEAVE ASIDE TH IS TRIBUNAL AND H ON BLE COURTS A BO VE AS INCOME TAX APPELLA TE TRIBUNAL AND THE HO N BLE C OURTS AR E WELL BEYOND TH E LIMITED CLA SS OF PERSONS TO WH ICH SECTION 11 9 APPLIES - I.E. INCOME - TAX AUTHORITIES WHICH ARE DEFINED U NDER SECTION 116 . THERE IS ALSO NO DOU BT ABOUT THE F UNDAMENTAL LEGAL POSI TION THAT NO CBD T CIRCU LAR, BY ITS ELF, CAN PUT AN ASSESSEE T O ANY DISADVANTA GE VIS - - VIS THE PROVISIONS OF THE ACT, INASMUCH WHILE THESE C I RCULARS CA N TONE DOWN THE RIGOUR OF LAW , THESE CIRCULARS CANNOT BE ADVERSE TO THE ASSESSEE , AND, AS N OTED BY HON BLE SUPREME CO URT, A C IRCULAR CAN NOT EVEN IMPOSE ON THE TAX - PAYER A BURDEN HIGHER THAN W HAT THE ACT ITSELF ON A TRUE INTERPRETATION ENVISAGES . THE JUDICIAL PRECEDENTS IN SU PPORT OF THIS PROPO SITION, IF NEEDED, ARE UCO BAN K VS CIT [( 1999 ) 237 ITR 889 (SC )] , NAVNIT LAL C JHAVERI VS K K SEN [(1965) 56 ITR 198 (SC)] . AS NOTED BY HON BLE SU PREME C OURT, IN THE CASE OF K ESHAVJI RAVJI & CO VS CIT [( 1990 ) 183 ITR 1 (SC)] . NOTHING, THEREFORE , TURNS ON THE CBDT CIRCULAR , SO FAR AS VALIDITY OF DISALLOWANCE IN QUE ST IO N I S CONCERNED . WHETHER THE CIRCULAR IS RETROSPECTIVE OR IS PRO SP ECTIVE, WHETHER THE CIRCULAR WAS ISSUED BEF ORE THE COMMENCEMENT OF THE RELEVANT ASSESSMENT YEAR, OR AFTER THAT, IS , THUS , WHOLLY IRR ELEVANT AND SOMEWHAT SUPERFLUOUS. THE E NTIRE RA TIONALE OF THE APPROACH ADOPTED BY THE LEARNED CIT (A) CANNOT THUS MEET OUR J UDICIAL APPRO VAL. IT IS ALSO IMPORTANT TO NOTE THAT, IN ANY EVENT, THE DECISION RELIED UPON BY THE LEARNED CIT(A) HAD NO OCCASION TO DEAL WITH THE BINDING JUDICIAL PRECEDENTS IN T HE CASE S OF LIVA HEALTHCARE (S UPRA ) , C ONFEDERATION OF INDIAN PHARMA CEUTICAL INDUSTRY (SU PRA), KAL SCAN AN D DIAGNO STICS (SUPRA) AND E VEN ANALY SIS, ON MERITS, ON THE SCOPE OF EXPLAN ATION TO SECTION 37(1) READ WITH MCI REGULATIONS. 9. COMING BACK TO THE C ONTENT OF T HE CBDT C IRCULAR (SUPRA), WE ARE OF THE CO NSIDERED V IEW THAT W HAT IS MAT ERI A L IS WHETHER THE INT ERPRETATION ASSIGNED IN THE CIRC ULAR TO THE PROVISIONS OF THE ACT, I.E. EXP LANATION TO SE CTION 37(1), IS CORRECT OR NOT, BECAUSE THE TRUE T EST, AS NO TED BY H ON BLE SUPREME COURT IN K E SH AVJI RAVIJI & CO S CASE (SUPRA) , IS A S TO WHAT THE B URDEN THAT THE ACT ITSELF ON A TRUE INTERPRETATION ENVISAGES . IF THE BURDEN SO ENVISAGED ON A TRUE INTERPRETATIO N OF THE LAW IS LES SER THAN THE BURDEN ENV ISAGED BY TH E CB DT CIRC ULAR, IGNORE THAT EXTRA B UR DEN, BUT WHEN THE BURDEN THAT THE ACT I TSELF THAT A CORRECT INTERP RETATIO N OF LAW ENVISAGES IS EQUAL TO OR HIGHER THAN THE BURDEN ENVISAGED BY THE CBDT CIRC ULAR , THAT B U RDEN OF LAW CANNOT BE NEGATED BECAUSE THE CIRCULA R ALSO SO S TATE S. IN OTHER WORDS, WH ILE AN ASSESSIN G OFFICER DOES NOT GET ANY HELP FROM THE CBDT CIRCULAR, IN A ITA NOS. 5168 & 5169/MUM/20 1 8 ASSESSMENT YEAR: 2011 - 12 AND 2012 - 13 P AGE 10 OF 21 S ITUATION IN WHICH THE CBDT CIRC ULAR ALSO STATES SOMETHING WHICH THE CORRECT INTERPRETATION OF LAW ENV ISAGES , JUST BECAUSE CBDT CIRCU LAR ALSO ST ATES SO , SU CH A CORRECT INTER PRETATI ON OF LAW CA NNO T BE I GNORED EITHER . 1 0 . LET US, IN THIS LIGHT, SEE WHAT THE HON BLE H IMACHAL PRADESH HIGH COURT, IN THE CASE OF C ONFEDERATION OF INDIAN PHARMA CEUTICAL INDUSTRY VS CENTRAL BOARD OF DIR ECT TA XES [(201 3 ) 335 IT R 38 8 (HP) ] HAS HELD. THEIR LO RDSHIPS HA VE , I NTER AL IA, HELD THAT THE EXPLANATION TO SECTION 37(1) MAKES IT CLEAR THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE B EEN INCURRED FOR THE PUR POSE OF BUSINESS OR PROFESSION . THE SUM AND S UBSTANCE OF THE CIRCULAR I S ALSO THE SAME . IN CASE THE ASSES SING AUTHORITIES ARE NOT PROPERLY UNDERSTANDING THE CIRCULAR THEN THE REMEDY LIES FOR EACH INDIVIDUAL ASSESSEE TO FILE APPEALS UNDER THE INCOME - TAX ACT BUT THE CIRCULAR WHICH IS TOT ALLY IN LINE WI TH SECTION 37(1) CANNOT BE SAID TO BE ILLEGAL . IN FACT PARAG RAPH 4 OF THE CIRCULAR QUOTED HEREINABOVE ITSELF CLARIFIES THAT THE VALUE OF THE FREEBIES ENJOYED BY THE MEDICAL PRACTITIONER I S ALSO TAXABLE AS BUSINE SS I NCOME OR INCOME FROM OTHER SOURCES DEPEND ING ON THE FACTS OF EACH C ASE. THEREFORE, IF THE ASSES SEE SA TISFIES THE ASSESSING AUTHORITY THAT THE EXPENDITURE IS NOT IN VIOLATION OF THE REGULATIONS FRAMED BY THE MEDICAL COUNCIL THEN IT MAY LEGITIMATE LY CLAI M A DEDUCTION, BUT IT IS FOR T HE ASSESSEE TO SATISFY THE ASSESSING OFFI CER THAT THE EXPENSE IS NOT IN VIO LATION OF THE MEDICAL COUNCIL REGULATIONS REFERRED TO ABOVE [ EMP HASIS, BY UNDERLINING , BY US] . WHAT IS THUS STATED TO BE THE INTERPRETATION OF EXPLAN ATIO N TO SECTION 37(1) ASSIGNE D IN THE CBD T C IRCULAR IN QUESTION IS ALS O THE UNDERSTANDING OF HON BLE H IM ACHAL PRADESH HIGH COURT IN THE CASE OF CONFEDERATION OF INDIAN PHARMACEUTICAL INDUST RY (SUPRA) . 11. ONCE A JUDICIAL FORUM HIGHER THAN THIS T RIBUNAL , AS HON BLE HIGH COURT INDEED IS, HOLDS THA T THE INTERPRETATION TO TH E SCOPE OF EXPLANATION TO SECTION 37(1), AS GIVEN IN THE CIRCULAR, IS A CORRECT LEGAL INTERPRETATION, IT CANNOT BE OPEN TO US TO DISCAR D THE INTERPRETATION SO APPROVED TO BE CORR ECT LEG AL I NTERPRETATION JUST BECAUSE IT IS SO STATE D IN THE CBDT CIRC ULAR. ITA NOS. 5168 & 5169/MUM/20 1 8 ASSESSMENT YEAR: 2011 - 12 AND 2012 - 13 P AGE 11 OF 21 12. THE FAC T THAT THIS JUDICIAL PRECEDENT IS FROM A NON - JURISDICTIONAL H I GH COURT DOES NOT ALTER THE POSITION, AS IS EXPLAINED BY A COORDINATE BE NCH OF THIS TRIBUNAL IN ITS RECEN T DECIS ION CASE OF SIRO CLINIPHAR M PVT LTD VS ITO [(20 21) 131 TAXMANN.73 (MUM)] AS FOLLOWS: 7. WHILE ON THIS ISSUE, WE MAY USEFULLY TAKE NOTE OF THE OBSERVATIONS OF HON'BLE SUPREME COURT IN THE CASE OF ACCE V. DUNLOP INDIA LTD. [(1985) 154 ITR 172 (SC)], WHEREI N THE THEIR LORDSHIPS QUOTED, WI TH APPROVAL, FRO M THE DECISION OF HOUSE OF LORDS TO THE EFFECT THAT 'WE DESIRE TO ADD AND AS WAS SAID IN CASSELL & CO. LTD. V. BROOME [1972] AC 1027 (HL), WE HOPE IT WILL NEVER BE NECESSARY FOR US TO SAY SO AGAIN THAT 'IN TH E HIE RARCHICAL SYSTEM OF COURTS' WHICH EXISTS IN OUR COUNTRY, 'IT IS NECES SARY FOR EACH LOWER TIER', INCLUDING THE HIG H COURT, 'TO ACCEPT LOYALLY THE DECISION OF THE HIGHER TIERS'. 'IT IS INEVITABLE IN HIERARCHICAL SYSTEM OF COURTS THAT THERE ARE DEC ISIONS OF T HE SUPREME APPELLATE TRIBUN AL WHICH DO NOT ATTRACT THE UNANIMOUS APPR OVAL OF ALL MEMBERS OF THE JUDICIARY... BUT THE JUDICIAL SYSTEM ONLY WORKS IF SOMEONE IS ALLOWED TO HAVE THE LAST WORD, AND THAT LAST WORD, ONCE SPOKEN, IS LOYALLY ACCEPTED' AN D OBSE RVED THAT. . . 'THE BETTER WISDO M OF THE COURT B ELOW MUST YIELD TO THE HIG HER WISDOM OF THE COURT ABOVE. THAT IS THE S TRENGTH OF THE HIERARCHICAL JUDICIAL SYSTEM.' THE PRINCIPLE IS THUS UNAMBIGUOUS. AS A RULE, THEREFORE, JUDICIAL DISCIPLINE WARRANTS THAT T HE WI SDOM OF A LOWER TIER IN THE JUDICIARY HAS T O MAKE WAY FOR HIGHER WISD OM OF THE TIERS ABOVE. UNLIKE THE DECISIONS OF HON'BLE JURISDICTIONAL HIGH COURT, WHICH BIND US IN LETTER AND IN SPIRIT ON ACCOUNT OF THE BINDING FORCE OF LAW, THE DECISIONS OF HON'B LE NO N - JURISDICTIONAL HIGH COURT ARE FOLLOWED BY THE LOWER AUTHORITIES ON ACCOUNT OF THE PERSUASIVE EFFECT OF THESE DE CISIONS AND ON ACCOUNT OF THE CONCEPT OF JUDICIAL PROPRIETY. IN THE CASE OF CIT V. GODAVARI DEVI SARAF [(1979) 113 ITR 589 (BOM)], H ON'BLE JURI SDICTIONAL HIGH COURT TOOK NOTE OF A NON - JU RISDICTIONAL HIGH COURT AN D HELD THAT THE TRIBUNAL, OUTSIDE THE JURISD ICTION OF THAT HON'BLE HIGH COURT AND IN THE ABSENCE OF A JURISDICTIONAL HIGH COURT DECISION TO THE CONTRARY, COULD NOT BE FAULTED F OR FOL LOWIN G THE SAME. THEIR LORDSHIPS OBSERVED THAT, 'IT SHOULD NOT BE OVERLOOK ED THAT THE INCOME - TAX ACT IS AN ALL - INDIA S TATUTE. UNTIL A CONTRARY DECISION IS GIVEN BY ANY OTHER COMPETENT HIGH COURT, WHICH IS BINDING ON A TRIBUNAL IN THE STATE OF BOMB AY, IT HAS TO PROCEED ON THE FOOTING T HAT THE LAW DECL ARED BY THE HIGH COURT, TH OUGH OF ANOTHER STATE, IS THE FINAL LAW OF T HE LAND'. OF COURSE, THESE OBSERVATIONS WERE IN THE CONTEXT OF A PROVISION BEING HELD TO BE UNCONSTITUTIONAL, AN ISSUE ON WHICH THE TRIBUN AL CO ULD NOT HAVE ADJUDICATED AN YWAY, AS EVIDENT FROM THE OBSERVATION 'ACT UALLY, THE QUESTION OF AUTHORITATIVE OR PERS UASIVE DECISION DOES NOT ARISE IN THE PRESENT CASE BECAUSE A TRIBUNAL CONSTITUTED UNDER THE ACT HAS NO JURISDICTION TO GO INTO THE Q UESTIO N OF CONSTITUTIONALITY OF THE PR OVISIONS OF THAT STATUTE' BUT NEVERTHELESS THE RESPECT FOR THE HIGHER JUDICIAL FORUM W AS UNAMBIGUOUS. IN TEJ INTERNATIONAL PVT LTD V. DCIT [(2000) 69 TTJ 650 (DEL)], A COORDINATE BENCH HAS, ON THIS ISSUE, OBSERVED THAT 'IN T HE HI ERARCHICAL JUDICIAL SYSTEM THAT WE HAVE, BE TTER WISDOM OF THE COURT B ELOW HAS TO YIELD TO HIGHER WISDOM OF THE CO URT ABOVE AND, THEREFORE, ONE A AUTHORITY HIGHER THAN THIS TRIBUNAL HAS EXPRESSED AN OPINION ON THAT ISSUE, WE ARE NO LONGER AT LIBE RTY TO RELY UPON EARLIER DECISIONS OF ITA NOS. 5168 & 5169/MUM/20 1 8 ASSESSMENT YEAR: 2011 - 12 AND 2012 - 13 P AGE 12 OF 21 THIS TRIBUNAL EV EN IF WE WERE A PARTY TO T HEM. SUCH A HIGH COURT BEING A NON - JURISDICT IONAL HIGH COURT DOES NOT ALTER THE POSITION'. . .. ONCE THEIR LORDSHIPS OF A HIGHER JUDICIAL FORUM EXPRESS THEIR ESTEEMED VIEWS ON A NY SUBJECT, THE VIEWS EXPRE SSED BY U S, IN T HE PAST, ON THAT ISSUE, HA VE TO MAKE WAY FOR THE HIGHER WISDOM OF THE IR LORDSHIPS. AS FOR THE FACETS NOT ARGUED NOR NOT CONSIDERED, EVEN IF ANY, AS IS LAID DOWN BY THE APEX COURT IN THE CASE OF AMBIKA P RASAD MISHR A V. STATE OF UP AIR 1980 S C 1762 : [1980] 3 SCC 719 (P. 1764 OF AIR 1980 SC) 'EVERY NEW DISCOVERY NOR ARGUMENTA TIVE NOVELTY CANNOT UNDO OR COMPEL RECONSIDERATION OF A BINDING PRECEDENT A DECISION DOES NOT LOSE ITS AUTHORITY MERELY BECAUSE IT WA S BADL Y ARG UED, INADEQUATELY CONSIDERE D OR FALL ACIOUSL Y REASONED....' SIMILARLY, IN THE CASE OF KESHO RAM & CO. V. UNION OF INDIA [1989] 3 SCC 151, IT WAS STATED BY THE SUPREME COURT THUS: 'THE BINDING EFFECT OF A DECISION OF THIS COURT (AS INDEED ANY SUPE RIOR C OURT) DOES NOT DEPEND UPON WHETH ER A PART ICULAR ARGUMENT WAS CONSIDERED OR NOT, PROVIDED THE POINT WITH THE REFERENCE TO WHICH THE ARGUMENT IS ADVANCED SUBSEQUENTLY WAS ACTUALLY DECIDED IN THE EARLIER DECISION'. THE MORE WE PONDER UPON THE CORRECT CO URSE T O BE ADOPTED IN SUCH MATTERS AS IS BEFORE US, TH E MORE WE ARE CONVINCED WI TH RESPECT TO THE BINDING NATURE OF DECISIO NS OF EVEN HON'BLE NON - JURISDICTIONAL HIGH COURTS, UNLESS THERE ARE SPECIFIC GOOD REASONS NOT TO DO SO. THE DOUBTS, IF AT ALL, AND SO MEWHAT NIGH TMARISH DOUBTS AT THAT, ARI SE ABOUT THE MAN NER IN WHICH BANK OF INDIA DECISION (SUPRA) COULD BE INTERPRETED SO A S TO DESTABILIZE THE WELL SETTLED NORMS OF JUDICIAL DISCIPLINE, BUT NEITHER DO WE NEED TO PERPETUATE AN ERROR, EVEN IF THERE BE ANY, NOR DO WE N EED TO EXAMINE TO THAT ASPE CT ANY DE EPER AT THIS STAGE. THERE IS, THU S, NO LEGALLY SUSTAINABLE JUSTIFICATION, ON THE FACTS OF THIS CASE, TO DISREGARD THE VIEWS EXPRESSED BY HON'BLE MADRAS HIGH COURT IN .. . GIVEN THE IMPORTANT JUDICIAL DEVELOPM ENTS B Y WAY OF A BINDING LE GAL PRECEDE NT, DIRECTLY ON THE ISSUE, EVEN IF FROM A NON - JURISDICTIONAL HIGH COURT, WE CANNOT SI MPLY TREAT THIS ISSUE AS COVERED BY DECISIONS OF THE COORDINATE BENCH, AND THUS DISREGARD THE ESTEEMED VIEWS EXPRESSED BY A HIGHER JU DICIAL FORU M. 1 3 . WHEN WE PUT OUR AB O VE UNDERSTAN DING TO LEA RNED COUNSEL FOR TH E ASSESSEE, HE MAKES SE VERAL SU BMISSIONS, I N DEFENCE , ON THIS POINT . 1 4 . LEAR NED COUNSEL SUBMITS THAT FIRSTL Y , IN T HE TEXT OF THE JUDGMENT IN THE CASE OF C ONFEDERATION OF INDIAN P HAR MA CEUTICAL INDUSTRY (SUPRA) , I N THE CASE OF I T IS SPECIFICALLY STATES T HAT THIS JUDGMENT I T IS SPECIFICALLY STATED THAT THIS JUDGMENT HAS NOT BEEN CL EAR ED BY THEIR LORDSHIPS FOR PUBLICATION, T HAT IN ANY CASE A JUDGMENT IN THE WRIT JURISDICT ION , AS IS TH IS CASE , HAS A MUCH LESSER EVIDE NTIARY VALUE V IS - - VIS A JUDGMENT IN APP ELLATE JURISDICTION , AND, FI NALL Y, SINCE HON BLE DELHI H I GH COU R T IN THE CASE OF MAX HOS PITA L VS MEDICAL COUN CIL OF INDIA (WP NO. 1334 OF 2 013; JUDGMENT DATED 10 TH JANUARY 20 14), HA S C ATEGORICALLY HEL D THAT THE PRO VISIONS OF ME DI CAL COUN CIL OF INDIA ONLY BIND THE MEDICAL PROFESSIONALS AND NOT THE ITA NOS. 5168 & 5169/MUM/20 1 8 ASSESSMENT YEAR: 2011 - 12 AND 2012 - 13 P AGE 13 OF 21 O T HERS, SUCH AS HOSP ITALS AND PHARMACEUTICAL COMP ANIES, HON BLE DELH I HIGH COUR T IS PRESUMED TO HAVE CONSCIOUSL Y DEPARTED FROM THE VIEW TAK EN BY HON BLE H IMACHAL PRADESH HI GH COURT IN THE CASE OF C ONFEDERATION OF INDIAN PHARMA CEUTICAL INDUSTRY (SUP RA). LEAR NED COUNSEL SUBMITS THAT ONCE HON BLE D ELHI H I GH C OURT HOLDS THAT THE PROV ISIONS OF MCI REGULATIONS DO NOT EVEN APPLY TO PERSONS O THER THA N M EDICAL PROFESSIO NALS, THE VERY BASIS OF IMPUGN ED DISALLOWANC E IN PRINCIP LE CEASES TO HOLD GOOD IN LAW. WE ARE THUS U RGED TO DISREGARD THE HON BLE HP HIGH COURT JUDG MENT (SUPRA) AS IN APPLICABLE ON THE FACTS O F THE CASE AND , IN ANY EVENT, NO LONGE R GOOD L AW. 1 5 . IT IS DIFFICULT TO UNDER STAND, MUCH LES S AP PROVE, THE ARGUMENT OF THE LEA RNED COUNSEL THAT SINCE HON BLE HP HIGH C OURT S JUDGMENT IN THE CASE OF C ONFEDERATION OF INDIAN PHARMA CEUTICAL INDUSTRY (SUP RA). IS AN U N REPORT ED JUDGMENT OR IT IS A JUDGMENT IN THE WRIT JURISDICTION RATHER T HAN AN APPELLATE JURIS DICTION, IT D OES NOT BIND U S . WHETHER THE JUDGMENT IS REPORTED OR IS U NREPORTED , THERE IS NO DIFFERENCE SO FAR AS ITS BINDING NATURE IS CONCERNED, AND THE SA ME IS THE POSITION AS TO WH ETHER T HE JUDG ME NT I S IN WRIT JURISDICTION OR IN APPELLATE JURISDICTION. IT IS NOT THE EVIDENTIARY VA LUE BUT THE BINDING PRECEDENCE VALUE OF A JUDGMEN T FROM THE HON BLE C O URT ABOVE THAT IS REALL Y MATTER S. THE EXPRESSION EVIDENTIARY VALUE , AS USED BY THE LEARNED C OUNSEL, I S , THEREFORE, SOMEWHAT IN APPROP RIATE IN THE PRESE NT CONTEXT . A JU DGMENT OF THE HON BLE COURT A B OVE AS FOR PA RAMOUNT IMPORTANCE TO US AS IT CONST ITUTE S A BI NDING JUDICIAL PRECEDENT FOR US ON T HE POINT DECIDES IN THE SAID JUDGMENT. THE DISTINCTIO NS BEING CA NVASSED BY THE LEARNED COUNSEL BETWEEN UNREPOR TED JUDG MENTS VIS - - VI S REPOR TED JUDGMENTS , AND BETWEEN JUDGMENTS , IN WRIT JURIS DICT IONS , VIS - - VIS APPELLATE JURISDICTIONS ARE DISTINCTIONS WITHOU T ANY MATERIAL DIFFERENCE SO FAR AS RELE VANCE TO US IS CONCER NE D. WE ARE UNABLE TO SEE ANY LE G ALLY SUSTAINABLE MERITS IN THE SE ARGUM ENTS SO ADVANC ED BY THE AS S ESSEE. AS REGARDS LEARNED COUNSEL S RELIANC E ON HON BLE DELHI H I GH COURT S JUDGMENT IN THE C ASE OF MAX HO SPITAL (SUPRA) IS CONCERNED, IT IS IMPORT ANT TO UN DE RSTAND THAT IT WAS A CASE IN WH ICH ETHICS COMMITTEE OF THE MEDI CAL COU N CIL OF INDIA, UPON A COMP LAINT ALLE G ING DEATH OF A PATIENT DUE TO MED ICAL NEGLIGENCE , PASSED AN ORDER PUNISHING THE ER RING DOCTORS BUT THIS ORDER ALSO HAD CERTAIN ADVERSE REM ARKS AGAI NS T THE MAX H OSPITAL AS WELL. AGG RIEVED BY THESE OBSERVATIONS, MAX HOSP ITAL FILED A WRIT PETITION CONTENDING THAT ( I ) SINCE THE MEDICAL COUNC IL OF INDIA (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULATIONS, 2002 (THE REGULATIONS) HAVE BEEN FR AMED IN E XE RCISE OF THE POWER CONFERRED UN D ER SECTION 20 - A READ WITH SECTION 33 (M) OF THE INDIAN MEDICAL COUNCIL ACT, 1956, THESE REGULATIONS DO ITA NOS. 5168 & 5169/MUM/20 1 8 ASSESSMENT YEAR: 2011 - 12 AND 2012 - 13 P AGE 14 OF 21 NOT G OVERN OR HAVE ANY CONCERN WITH THE FACILITIES, IN FRASTRUCTURE OR RUNNING OF THE HOSPITALS AND SECONDLY, T HAT THE E TH ICS COMMITTEE OF THE MCI ACTING UNDER THE REGULATIONS HAD NO JURISDIC TION TO PASS ANY DIRECTION OR JUDGMENT ON THE INFRASTRUCTURE OF ANY HOS PITAL WHICH POWER RESTS SOLELY WITH THE CONCERNED STATE GOVT AND (II) THAT THE PETITIONER WAS NOT PROVI DED AN OP PO RTUNITY OF BEING HEARD AND THUS THE PRINCIPLES OF NATURAL JUSTICE WER E VIOLATED . WHILE DEALING WITH THESE GRIE VANCES, HON BLE DELHI H I GH CO URT HAS HELD, IN ITS OPERATIVE P ORTION OF THE JUDGMENT - WHICH IS RE PRODUCED BELOW IS ENTIRE TY, AS FOLLOWS : 8. IT I S CLEARLY ADMITTE D BY THE RESPON DENT THAT IT HAS NO JURISD ICTION TO P ASS ANY ORDER AGAINST THE PETITIONER HOSPITAL UNDER THE 2002 REGULATIONS . IN FACT, IT IS STATED THAT IT HAS NOT PASSED ANY ORDER AGAINST THE PETITIONER HOSPITAL. THUS, I NEED N OT GO INT O THE QUESTION WHET HER THE ADEQUAT E INFRASTRUCTURE FACILITIE S FOR APPRO PRIATE POST - OPERATIVE CARE WERE INFACT IN EXISTENCE OR NOT IN THE PETITI ONER HOSPITAL AND WHETHER THE PRINCIPLES OF NATURAL JUSTICE HAD BEEN FOLLOWED OR NOT WHILE PASSING THE I MPUGNED O RD ER. SUFFICE IT TO SAY THAT THE O BSERVATIONS DATED 27.10.20 12 MADE BY THE ETHICS COMMITTEE DO RE FLECT UPON THE INFRASTRUCTURE FACILITIES AVAIL ABLE IN THE PETITIONER HOSPITAL AND SINCE IT HAD NO JURISDICTION TO GO INTO THE SAME, THE OBSERVATIONS W ERE UNCAL LE D FOR AND CANNOT BE SUSTAINED. 9. SINCE THE MCI HAD NO JURISDICTION TO GO INTO THE INFRASTRUCT URE FACILITIES, I NEED NOT ALSO GO INTO THE AS PECT THAT IN THE YEAR 2011, THE FACILITIES AVA ILABLE IN THE HOSPITAL WERE INSPECTED AND WERE FOUND TO BE IN ORDER . 10. THE PETITION THEREFORE HAS TO SUCCEED. I HEREBY ISSUE A WRIT OF CERTIORARI QUASHING THE AD VERSE OBSERVATIONS PASSED BY THE MCI AGAINST T HE PETITIONER HOSPITAL HIGHLIGHTED IN PARA 1 AB OVE. 16. IN OUR HUMBLE UNDERSTANDING , THIS JUDGMENT DOES NOT NE GATE , DILUTE , OR EVEN D EAL WIT H, RATIO DEC I DENDI OF, OR EVE N CASUAL OBSERVAT IONS IN, HONBLE HP HIGH COURT S JUDGMENT IN THE CASE O F C ONFEDERATION OF INDIAN PHARMA CEUTIC AL INDUSTRY (SUP RA). THESE JUDGMENTS ARE IN ALTO GETHER DIFFERE NT FIEL DS. WHILE HON B L E HP HIGH COURT DEALS WITH THE INTERPRETATION OF EXP LANAT ION TO SECT ION 37 (1), HON BLE DELHI H IGH COURT DEALS WITH THE POWE RS OF T HE MCI TO PASS AN ORDER AGAINST A HO SPI TAL IN DELHI ON THE QUESTION OF ADEQUACY RE GARDING INFRASTRUC TU RE FACILITI ES BY HO SPITA LS IN DELHI , AND THAT TO O WITHOUT AFFORDING AN OPPORTUNIT Y OF H EARING TO THE SAID H O SPITAL . AS FOR THE AFFIDAVIT FILED BY THE M E DI CAL COU NCIL OF INDIA, WHICH HAS BEEN REFERRED TO BY THE LE ARNED COUNSEL, ALL IT STATES IS THAT THAT T HE JURISDIC TION OF MCI I S LIMITED ONLY TO TAK E ACTION AGAINST THE REGISTERED MEDI CAL PROFESSIONALS UNDER TH E INDIAN ITA NOS. 5168 & 5169/MUM/20 1 8 ASSESSMENT YEAR: 2011 - 12 AND 2012 - 13 P AGE 15 OF 21 MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULATIONS, 2002 (HEREINAFTER THE 'ETHICS RE GULATIONS') AND HAS NO JURISDICTIO N TO PASS A NY ORDER AFFE CTING RIGHTS/INTEREST S OF ANY HOSPITAL, T HEREFORE THE MCI COULD NOT HAVE PASSED AND HAS NOT PASSED, ANY ORDER AGAINST THE PETITION ER WHICH CAN BE ASSAILED BEFORE THIS HON'BLE COURT IN WRIT JURISDICTION BUT TH EN T HIS AFFIDAVIT CANNO T, AND DOES NOT, DILUTE THE LAW LAID DOWN BY HON BLE HP HIGH COURT IN THE CASE OF C ONFEDERATION OF INDIAN P HARMA CEUTIC AL INDUSTRY (SUP RA). IN ANY EVENT, A N ACTION BEING CONTRARY TO LAW IS ONE THING AND AN AUTHORITY TO TAKE NOTE OF SUCH VIOLATION OF LAW AND SUITABLY P UNISH IS ANOT HER FOR SUCH A VIOLAT ION IS ANOTHER. HON BLE DELHI H I GH C OURT JU DGMENT IN MAX HOSPI TAL S CASE (SUPRA) HAS NO BEARING ON THE QUESTI ON AS TO WH ETHER GIVING FREE BIES TO THE MEDICAL PROFESSIONALS IS IN VIOLATION OF LAW OR NOT. THIS IS A LSO WELL SE TTLED IN LAW, IN CLUDING BY HON BLE JURISDICTIONAL HIGH C OURT IN THE CA SE OF CIT V. SUDHIR JAYAN TILAL MULJI [ ( 1995 ) 214 ITR 154 (BOM) ] , A JUDIC IAL PRECEDENT IS ONLY ' AN AUTHORITY FOR WHAT IT ACTUALLY DECIDES AND NOT WHAT MAY COME TO FOLLOW FROM SOME OBSERV ATIONS WHICH FIND PLACE THEREIN '. THE PROPOSITIONS WHICH ARE ASSUMED B Y THE COURT TO BE CORRECT FOR THE PURPOSE OF DECIDING THE SAME AR E, ACCOR DING TO THIS JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT, LACK PRECEDENCE . IN ANY CASE, IT IS NO T EVEN RELE VANT FOR DECI DING THE I SSUE BEFORE US. NOTHIN G, THEREFORE , TURNS ON HO N BLE DELHI HIGH COURT S J UD GMENT IN THE CAS E OF MA X H OSPITALS (SUPRA) . 17. LEARNED COUNSEL HAS THEN SUBMITTED THAT MEDICAL COUN CIL OF INDIA REGULATIONS B IND THE MEDICAL PR OF ESSIONALS AND NOT THE P HARMACEUTICAL COMPANI ES, AN D, THEREF ORE, THESE REGULATIO NS CANNOT BE PRESSED INTO SER VICE FOR DISALLO WING THE BONA FIDE BUSINESS EX PENSES INCURRED BY THE PHARMACEUTICAL COMPANIES. THIS CONTENTI ON IS ONLY FIT TO BE N OT ED AND REJECTE D. THE REL E VANT QUES TION IS NOT WHETHER PHARMA CEUTICAL COMPANIES ARE ALLOWED TO I NCUR SUCH AN EXPENDIT URE O R NOT, THE RELEVANT QUESTION IS WHETHER THE PURPOSE OF WHICH THE EXPENDITURE IS INCURRED IS PROHI BITED BY L AW OR NOT, AND IF THE PURPOSE IS UN LAWFUL, AS TO WHAT ARE THE IN E V I TAB LE COROLLARIES OF INCURRING EXPENSES FOR A NY PURPOSE . WHICH IS PRO H IBITED BY LAW , AND ONE OF THESE COR OLLARIES, UNDER EXPLANAT ION TO SECTION 37 (1) IS THAT SUCH AN EXPENSE IS THAT IT SH ALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PU RPOSE OF BUSIN ESS OR PROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE . IF THERE IS A PROHIBITION F OR INCURRING AN ITEM OF EXPENDI TURE BY THE PHARMACEUTICAL COMPANIES, SUCH EXPEN D ITURE CANNOT BE INCU RRED AT ALL AND TH E DISCUSSI ONS ABOUT ITS ADMISSIBILI TY AS DEDUCTION ARE WHOLLY ACADEMIC. THE TRUE TEST , THERE FORE, IS WHETHER THE EXPENSE IS INCURRED FOR ANY ITA NOS. 5168 & 5169/MUM/20 1 8 ASSESSMENT YEAR: 2011 - 12 AND 2012 - 13 P AGE 16 OF 21 PURPOSE WH ICH IS PROHIBITED BY LAW OR NOT . WHEN ACCEPTANCE OF F REE BIES BY THE DOCTORS IS PROHIBITED BY L AW, AS UNDI S PUTEDLY IS TH E POSITION, CAN IT BE SAID THAT EXTEN DING THESE FREEBIES DOES NOT CONSTITUTE EXPENDITU RE FOR A PURPOSE THAT IS PROHIBITED BY LAW. IT MAY BE PERFECTLY LEGAL FOR A CORPORATE TO SEND FREE FIRST - CLASS TICKETS AND HOTEL VOUCHERS FOR V ACATIONS AB R OAD TO ANYONE BUT WHEN THEY EXTEND SUCH FREEBIES TO THE PUBLIC SERVAN TS , WHO ARE FOR BIDDEN UNDER T HE LAW FROM ACCEPTING THE SAME, IT CANNOT BE SA ID THAT THE EXPENDIT URE IS MADE FO R A PURPOSE NOT PROHIBITED BY LAW. THE TRUE TEST , THEREFORE, IS W HETHER SUCH A TRANSACTION IS LEGALLY PERMISSIB LE IN PRINCIPLE . WHEN IT IS NOT PERMISSIB LE IN LAW, FOR W HATEVER REASONS, THE P URPOSE OF THE TRANSACTION IS REQUIRED TO BE TREATED AS PROHIBITED BY LAW . LET US IN THIS LIGHT , LOOK AT SE CTI ON 20A (1) A ND (2) O F THE INDIA N MEDICAL COUN CIL AC T 1956 , WH ICH P ROVIDES THAT THE COUNCIL MAY PRESCRIBE STANDARDS OF PROFESSIONAL CONDUCT AND ETIQUETTE AND A CODE OF ETHIC S FOR MEDICAL PRACTITIONERS AND THAT ( REGULATIONS MADE BY THE COUNCI L UNDER SUB - SECTION (1) MA Y SPECI FY WHICH VI OLATIONS THERE OF SHALL CONSTIT UTE I NFAMOUS CONDUCT IN ANY PROFESSIONAL RESPECT, THAT IS TO SAY, PROFESSIONAL MISCONDUCT, AND SUCH PROVISION SHALL HAV E EFFECT NOTWITHSTANDING ANYTHING CONTAINED IN ANY LAW FOR THE TIME BEING IN FORCE . I T IS UNDE R POWERS VE STED UNDER SEC TION 20A OF THE INDIA N MEDICAL C O UN C IL ACT 1956 THAT THE INDIAN MEDICAL COUNCIL (PROFESSIONAL C ONDUCT, ETIQUETTE AND ETHICS) REGULATIONS, 2002 HAVE BEEN F RAMED AND UNDER RULE 6.8 THERE OF, AS I T CAME INTO EFF ECT VIDE GAZETTE NOTIFIC ATION DATED 14 TH DEC EMBER 2009, IT IS INT ER A L IA PRO VIDED AS FOLLOWS: 6.8.1 IN DEALING WITH PHARMACE UTICAL AND ALLIED HEALTH SECTOR INDUSTR Y, A MEDICAL PRACTITIONER SHALL FOLLOW AND ADHERE TO THE STIPULATIONS GIVEN BELOW: - A) GIFTS: A MEDICAL PRAC TITION ER SHALL NO T RECEIVE ANY GIFT FROM ANY PHA RMACE UTICAL OR ALLIED HEALTH CARE INDUSTRY AND THEIR SALES PE OPLE OR REPRESENTATIVES . B) TRAVEL FACILITIES: A MEDICAL PRACTITIONER SHALL NOT ACCEPT ANY TRAVEL FACILITY INSIDE THE CO UNTRY OR OUTSIDE, INCLUDIN G RAIL , AIR, SHIP , CRUISE TICK ETS, PAID VACATIO NS ET C. FROM ANY PHARMACEUTICAL OR ALLIED HEALTHCARE INDUSTRY OR THEIR REPRESENTATIVES FOR SELF AND FAMILY MEMBERS FOR VACATION OR FOR ATTENDING CONFERENCES, SEMINARS, WORKSHOP S, CME PROGRAMME ETC AS A DELEGA TE . C ) HOSPITALI TY: A MEDICAL PRACTITIONER SHAL L NOT ACCEPT INDIVIDUALLY ANY HOSPITALITY LIKE HOTEL ACCOMMODATION FOR SELF AND FAMILY MEMBERS UNDER ANY PRETEXT. ITA NOS. 5168 & 5169/MUM/20 1 8 ASSESSMENT YEAR: 2011 - 12 AND 2012 - 13 P AGE 17 OF 21 D) CASH OR MONETARY GRANTS: A MEDICAL PRACTITIONER SHALL NOT RE CEIV E ANY CASH OR MONETARY GRA NTS FR OM ANY PHAR MACEUTICAL AND ALLIED HEALTHCAR E IND USTRY FOR INDIVIDUAL PURPOSE IN INDIVIDUAL CAPACITY UNDER ANY PRETEXT. .. ( RULE 6.8.1 E, F, G AND H ARE NOT REPRODUCED, AS THESE ARE NOT RELEVANT FOR THE PRESE NT P UR POSES) 18. THIS RULE SO FRAMED UNDER SECTION 20 A DOES NOT O NLY HAVE THE AUTHORIT Y OF LAW , THESE PROVISIONS SHALL HAV E EFFECT NOTWITHSTANDING ANYTHING CONTAINED IN ANY LAW FOR THE TIME BEING IN FORCE . CLEARLY, THEREFORE, ANY GIFT S AND FREEBIES OR ANY KIND ARE PROHIBITED TO BE ACCEPTED BY T HE MEDICAL PROF ESSIONAL S NOTWITHSTANDING ANY THING CONTAINED IN ANY LAW FOR THE TIME BEING IN FORC E . AS A COROLLARY TO TH IS LEGAL POSITION, ANY PAYMENTS OF SUCH A NATURE AS ABOV E ARE FOR ANY P URPOSES WHICH IS PROHIBITED B Y LAW AND, AS SUCH, THESE E XP ENS ES SH ALL N OT BE DEEMED TO HAVE BEEN INCURRE D FOR THE PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE . L ET US ALSO SEE I T FR OM THE PERSPECTIVE THAT ONCE HON BLE HIMAC HAL PRADESH HIGH COURT, IN THE CASE O F C ONFEDERAT ION OF PHARMACEUTICAL INDU STRY (SUPRA) , HOLDS THAT IF THE ASSESSEE SATISFIES THE ASSESSING AUTHORITY THAT THE EXPENDITURE IS NOT IN VIOLATION OF THE REGULATIONS FRAMED BY THE MEDICAL COUNCIL THEN IT MAY LEGITIMATELY CLAIM A DEDUCTIO N, BUT IT I S FOR THE AS SESSEE TO SATISFY THE ASSE SSING OFFICER T HAT THE EXPENSE IS NOT IN VIOLATION OF THE MEDICAL COUNCIL REGULATIONS REFERRED TO ABOVE , IT CANNOT BE OPEN TO US TO HOL D THAT , IRRESPECTIVE OF WHETHER THE EXPENDITURE IS IN VIOLATION OF THE MCI REGU LATIONS OR NOT , THE EXPL ANATION TO SECTION 37(1) WILL NOT BE INVOKED. THE BETTER WISDOM OF THE COORDINAT E BENCH HAS TO MAKE WAY FOR THE HIGHER W I SDOM OF HON B LE COURTS ABOVE, AND IT IS THIS JUDICIAL DISCIPL INE WHICH IS THE TRUE ST RENGTH O F OUR HIERARCHICAL JUDICIAL S YST E M - SEE ACCE V. DUNLOP INDIA LTD. [(1985) 154 ITR 172 (SC)] . 19. IN VIEW OF THE AB OVE DISCUSSIONS, IT IS CLEAR THAT T HE REGULA TIONS PROHIBITING THE ACCEPTANCE OF FREEBIES BY THE MEDICAL PROFESSIONA LS PROVIDE , UNDER SECTION 20A OF THE INDIA N ME DICAL C OUN C IL ACT 1956 READ WITH RULE 6.8 OF I NDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULATIONS, 2002 , AS AME NDE D F RO M TIME T O TIME, THAT SUCH FREEBIES CANNOT BE L AWFULLY ACCEPTED BY MEDICAL PROFESSIONALS , AND, THE REFORE, ANY EXPENDI TURE INCURRED FOR EXTENDING THESE FREEB IES TO THE ME DICAL PROFESSIONALS IS FOR A ITA NOS. 5168 & 5169/MUM/20 1 8 ASSESSMENT YEAR: 2011 - 12 AND 2012 - 13 P AGE 18 OF 21 P URPOSE WH ICH IS PROHIBI TED BY LAW . ON THESE FACTS, THERE FORE, EXP LANAT ION TO SE CTION 37(1) IS CLEARLY ATT RAC TED. 20. IT IS AN OPEN SECRET, SECRET IF IT IS, TH AT ALL THES E FRE E BIES EXTEND ED BY THE PHARMACEUTICAL COMPANIES TO THE MEDICAL PROFESSION ALS , MORE OFTEN THAN NOT, COME WITH STRINGS ATTACHED , AND THAT IS WHAT MAKES TH E EXPENDITURE IN QUEST ION FOR A PURPOSE W HICH IS , AS DISCUSSED EARLIER, PROHIBITED BY LA W . THE P L E A OF THE LEARNED COUNSEL THAT TH ESE REGULATIONS DO NOT B IND PHARMACEUTICAL COMPANI ES , AND, THEREFORE, EXTENDING THESE FREEBIES TO MEDICAL PRO FESSIONALS CA NOT BE TREATED AS PROHIBITED BY LAW I S THUS WHOLLY IRRE LEVANT IN THE PRESENT CONTEXT . WH AT IS MATER IAL I S THAT THE EXPENDITURE IN QUES TION IS INCURRED FOR THE P U RPOSES WHICH ARE PROHIBITED IN LAW , AND THAT IS WH AT DISQUALIFIES TH E EXPENDITURE IN QU ESTION FROM DEDUCTION UND ER SECTION 37(1) BY VIRT UE O F EXP LANATION THERE TO. THE FREEBIES FROM PH ARMACEUTICA L COM PANIES CANNOT , UNDER SECTION 20A OF THE INDIAN ME DICAL C OUN CIL ACT 1956 READ WITH RULE 6.8 OF INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULATIONS, 2002 , AS AME NDE D F RO M TIME T O TIME , BE L AWFULLY ACCEPTED BY MEDIC AL PROFESSI ONALS AND, THEREFORE, AN EXTENSIO N OF SUCH FREEBIES IS FOR A PURPOSE PROHIBITED BY LAW . TH E STAND OF THE ASSES SING OFFICER C ANNOT, THERE FORE, BE FAULTED. 21. IN ANY CASE, THE ILL EFFECTS OF THIS NOT SO HOLY NEXUS BETWEEN SOME UNSCRUPULOUS MEDIC AL PROFESSI ONALS AND SOME GREEDY PHARMACEUTICAL COMPANIES HA VE PLAYED HAV OC WITH THE REPUTAT ION OF ONE OF THE NOBLEST PROFESSIONS IN THE W ORLD , AND THIS PAM PERING OF THE MEDICAL PRO FESSIONALS IS PERCEIVED AS AT THE COST OF THE H ELPLESS END CO NSUMER , I.E. THE PATIEN TS SEEKING MEDICAL HELP - OVERWHELMINGLY FROM T HE MOS T UNDERPRIVILE GED SECTIONS OF THE FELLO W CITIZEN RY . HON BLE PRIM E MINISTER ECHOED THESE FEELINGS WHEN, ON 19 TH APRIL 20 18, HE EXPLAINED HOW THE USE OF GENERIC MEDICINES , THROUGH JAN A USHADHALYA , HAS BROUGH T DOWN MEDICINE COST BY ALMOST 85% , AN D SUBTLY HI NTED TOWARDS THIS NOT SO HOLY NEXUS BETWEEN MEDICAL PROFESSIONALS AND PHARMACEUTICAL COMPANIES BY OBSERVING THAT IN THE SAME WAY .. THE PERSON WHO WRITES THE MEDICINE ALSO GETS SOMETHING. YOU MUST KNOW THAT THE D OCTORS' CONFERENCE IS SOMETIMES IN SIN GAPORE, SOM ETIMES IT IS IN DUBA I. IT IS NOT BECAUSE SOMEONE IS S ICK THERE; IT IS SO BECAUSE IT IS NECESSARY FOR THE PHARMACEUTICAL COMPANIES ( HTTPS://WW W.NARENDRAMODI.IN/PRELIMINARY - TEXT - OF - PM - S - INTERACTION - IN - BHARAT - KI - BAAT - SABKE - SAATH - PROGRAMME - AT - LONDON -- 539744 ) . IF GOVERNMENT CAN BRING DOW N THE EFFECTI VE COST OF MEDIC INE B Y 8 5% BY SELLING THE SAME ITA NOS. 5168 & 5169/MUM/20 1 8 ASSESSMENT YEAR: 2011 - 12 AND 2012 - 13 P AGE 19 OF 21 MEDICINE BY IT S G ENERIC NAME , ONE CAN IMA GI NE HOW END USERS HAVE BEEN TAKEN FOR A R IDE ALL ALONG - AND THESE FREEBIES HAVE PLAYED A CR ITICAL ROLE IN TH OSE MANOEUVRINGS . NOT ONLY IT IS WHOLLY I LLE GAL THAT MEDICAL PROFESSIONALS ARE E XTEN DED FREEBIES BY THE PHAR MACEU TIC AL COM PANIES, BUT SUCH GRATIFICATIONS ARE ALSO CLEARLY OPPOSED TO PUBLIC POL ICY AS WELL - AS IS RECO GNIZED BY HON BLE P UNJAB & HAR YANA HIGH COURT IN THE CASE OF KAP SCAN S CASE (SUPRA). 2 2 AS REGARDS LEARNED CO UNSEL S R ELIA NCE ON T HE DECISION OF A COORDINATE BE NCH IN T HE CASE OF MEDLEY PHARMACEUTICALS LTD VS DC IT AND VI CE VERSA [(2020) 118 TA X MANN.COM 44 (MUM)] , THAT IS A CASE IN WHICH THE COORDINATE BE NCH HAS QUASHED THE REASSESSMENT PROCEEDI NGS BUT THEN MADE SOME OBSER VATI ONS, WHI CH EVEN ACCORDING TO THE COORDINATE BE NCH ARE AC ADEMIC IN NATURE , ON MERITS WHICH PRIMAR ILY RELY UP ON ANOTHER COO RDINATE BE NCH DECISION. THESE OBSERVATIONS THUS ARE MORE OF AN OBITER DICT UM AND NOT BINDING IN NATURE . 23. IN ANY EVENT, THIS D ECISION R EFERS TO ANOTHER CO ORDINAT E BE NCH DECISION, WH ICH DECI SIO N, IN TURN, REFERS TO AND RELIES UPON YET ANOTHER COORDINATE BENCH DECISION IN THE CASE OF DCIT VS PHL PHARMA PVT LTD [(2017) 163 ITD 10 (MUM)] . INCIDENTALLY, PHL PHAR MA DECISION (SUPRA) WAS THE FIRS T DECISI ON DEALING WITH TH E PERIOD POST INSERT ION OF R ULE 6.8.1 IN THE INDIAN MEDICAL COUNCIL (PROFESSIONAL C ONDUCT, ETIQUETTE AND ETHICS) REGULATIONS, 2002 AND THE REASONING A DOPTED THEREIN IS A LS O FOLLOWED BY A LARGE NUMBER OF OTHER COORD INATE B E NCH DECI SIONS - I NCLUDING MANY DECI SIONS CITED AT THE B AR AS WE LL. ALL THESE DECISION S PRIMARILY BANK ON HON BLE DELHI HIGH C OURT S JUDGMENT IN THE CASE OF MAX H OSPI TAL (S UPRA) IN SUPPORT OF TH E STAND THAT THE MCI REGULATIONS DO ES NOT COME IN THE WAY OF T HE PHARMACEUTICA L COMPANIES E XT ENDING FR EEB IES TO THE MEDICAL PROFESSIONALS, AND, THERE FORE, E XPLANATION TO SE CTION 37(1 ) [NOW EXPLANATION 1 TO SECTION 37(1 )] CANNOT B E INVOKED . WE HAVE RESERVATIONS ON THIS PROPOSITION , AND WE HA VE DISCU SSED OUR R ESER VATI ONS AT CONSIDERAB LE LENGTH IN PARAGRAPH S 15 T O 19 A BOVE. THIS DECISION ALSO HOLDS THAT THE CBDT CIRCULAR , WHICH CREATES NEW IMPAIRMENT AND IMPOSES DISALLOWBILITY NOT ENVISAGED IN ANY OF THE ACT OR REGULATION S , CANNOT BE RECKONED TO BE RETROSPECTIVE , BUT TH EN, AS WE HAVE AN ALY ZED IN 8 TO 11 ABOVE, W HAT I S S TATED TO BE THE INTERPRETATION OF EXPLANATION TO SECTION 37(1) ASSIGNED IN THE CBD T CIRCULAR IN QUESTION IS ALSO THE UNDERSTANDING OF HON BLE H IM ACHAL PRADESH HIGH COURT IN THE CASE OF CONFEDERATION OF IND IAN PHARMACEUTICAL I NDUST RY (SUP RA) AND O NC E A JUDICIAL FORUM HIGHER THAN THIS TRIBUNAL, AS HON BLE HIGH COURT INDEED IS, HOLDS THAT THE ITA NOS. 5168 & 5169/MUM/20 1 8 ASSESSMENT YEAR: 2011 - 12 AND 2012 - 13 P AGE 20 OF 21 INTERPRETATION TO THE SCOPE OF EXPLANATION TO SECTION 37(1), AS GIVEN IN THE CIRCULAR, IS A CORRECT LEGAL INTER P RETATI ON, IT CANNOT BE OP EN TO US TO D ISCAR D THE INTE RPRETATION SO APPROVED TO BE CORRECT LEGAL INTERPRETATION JUST BECAUSE IT IS SO STATED IN THE CBDT CIRC ULAR. NOTHING, THEREFORE, TURNS ON THE CBDT CIRCULAR HAVING AN ONLY A PROSPECTIVE EF FECT; T HAT IS W H OLLY I MMATERIAL. WE , THEREFORE , REGRET OUR INABIL ITY TO BE PER SUADED BY THE PHL PHARMA DECISION (SUPRA). THIS COORDINATE BE NCH DEC ISION ALSO COMES IN CONFLICT WITH THE DECISION OF ANOTHER COORDINATE BE NCH IN THE C ASE OF LIVE HEALTHCARE (SUPRA), WHEREIN, E V EN DEA LING WITH PRE 2011 - 12 PE RIOD, TH AT COORDINA TE BE NCH HAD HELD THAT THE EXPENDITURE ON FREEBIES TO MEDICAL PROFESSIONALS WILL ATTRACT DISALLOWANCE UNDER EXPLANATION TO SECTION 37(1). THI S DECISION WAS DISREGARDED BY THE COORDINATE BE NCH IN PHL PHARMA C ASE (S UPRA) BY POINTING OU T, W HAT THEY PER CEIVED AS , LACUN AS IN THE SAID ORDER. THERE IS , THUS, NO MEETING GROUND BETWEEN THESE TWO DIAMETRICALLY OPPOSED SCHOOL S OF T HO UGHT - ONE FOLLOWED BY PHL PHARMA (SUPRA), AND THE OTHER FOLLOWED BY LIV A H EALTHC ARE (SU P RA) . A S A COORDI NATE BE NCH OF EQUAL ST RENGTH, IT IS NOT F OR US TO DISREGARD THE DECISIONS IN THE CASE OF PHL PHARMA (SUPRA) BU T , WITH DUE RESPE CT THOUGH WITHOUT THE SLIGHTEST HESITAT ION , WE DO INDEED HAVE OUR CO NSIDERED RESERVATIONS ON IT S CORRECTNESS. 24. T HE MORE WE PONDER ABOUT THE RA TIONALE OF PHL PHARMA DECISION (SUPRA), THE MORE CONVINCED WE ARE THAT THIS DECISIO N CALLS FOR RECONSIDERATION BY A LARGER BENCH. IN OUR HUMBLE UNDERSTANDING , CONCLUSIONS ARRIVED IN THE SAID DECISION DO NOT REFLECT THE CORRE CT L EG AL POSITION, AND THE SAME IS THE POSI T ION WITH RESPECT T O A LARGE NUM BER OF OTHER COORDINATE BE NCH DECISIONS FOLLOWING THE SAID DECISION OR FOLLOWING THE LINE OF REASONING IN THE SAID DECISION - AS DISCUSSED ABOV E. HOWEVER, IN ALL FAIRNESS, WHIL E WE MAY OR MAY NOT AGRE E WITH A COOR DINATE BE NC H DECISION, IT CANN OT BE OPEN TO US TO DISR EGARD THE SAME , LEST SUCH JUDICIAL INCONSISTENCY SHOULD SHAKE PUBLIC CONFIDENCE IN THE ADMINISTRATION OF JUSTICE AND LEST ONE OF THE FUNDAMENTAL LEGITIMATE EXPECTATI ONS O F TH E STAKEHOLDERS, I.E. THOSE E XERCISING J UDICIAL FUNCTIONS W ILL FOLLOW THE REASON OR GROUND OF THE JUDICIAL DECISION IN THE EARLIER CASES ON IDENTICAL MATTERS, WILL STAND DECLINED. IT IS, HOWEVER, EQUALLY TRUE , TO BORROW THE WORDS OF HONBLE SUPRE ME CO URTS AS ARTICULATED IN THE CAS E OF UNION OF INDIA VS PARAS LAM INATES PVT LTD [(1990) 186 ITR 722 (SC)], THAT IT IS VITAL TO THE ADMINISTRATION OF JUSTICE THAT THOSE EXERCISING JUDICIAL POWER MUST HAVE THE NECESSARY FREEDOM TO DOUBT THE CORRECTNESS OF AN E ARLI ER DECISION IF AND WHEN SU BS EQUENT PROC EEDINGS BEING TO LI GHT WHAT IS PERCEIVED BY THEM AS AN ERRONEOUS DECISION IN THE EARLIER CASE AND THAT IN SUCH ITA NOS. 5168 & 5169/MUM/20 1 8 ASSESSMENT YEAR: 2011 - 12 AND 2012 - 13 P AGE 21 OF 21 CIRCUMSTANCES, IT IS BUT NATURAL AND REASONABLE AND INDEED EFFICACIOUS THAT THE CASE IS REFERRE D TO A LA RGER BENCH . TAKING A CUE FR OM THE PATH SO GUIDED BY HON B LE SUPREME CO U RT IN THE CASE OF PARAS LAMINATES (SUPRA) , WE RECOMM END CONSTITUTION OF A BENCH OF THREE OR MORE MEMBERS TO CONSIDER THE QUESTION AS TO W HETHER OR NOT AN ITEM OF EXPENDITUR E ON ACCOU NT OF FREEBIES TO MEDICAL PROFESSIONA LS, WHICH I S H IT BY RULE 6. 8.1 OF INDI AN MEDICAL COUNCIL (PROFESSIONAL C ONDUCT, ETIQUETTE AND ETHICS) REGULATIONS, 2002 - AS AME NDE D F RO M TIME T O TIME , READ WITH SECTION 20A OF THE INDIAN ME DICAL C OUN CIL ACT 19 56 , CAN BE A LLO W ED AS A DEDU CTION UNDER SECTION 37(1) OF T H E INCOME TAX ACT, 1961 REA D WITH EXPLANATION THERETO, IN THE HANDS OF THE PHARMACEUTICAL COMPANIES . 2 5 . THE RE GISTRY IS DIRECT E D TO PLA CE THE CASE RECORDS FOR APPROPRIATE CONSIDERATION BY THE H ON BLE PRES IDE NT. ORDERED, ACCORDING LY . SD/ - SD/ - SA KTIJIT DEY PRAMOD KUMAR ( JUDICIAL MEMBER ) ( VIC E PRESI DENT) MU MBAI, DATED THE 14 TH DAY OF OCTO BER , 20 21 CO PIES TO : (1) TH E AP PE LLANT ( 2) THE RESP ONDENT (3) CIT ( 4) CIT( A) (5) D R (6) GUARD FILE BY ORDER TRUE COPY A S S IST ANT REGI STRAR / SR PS INCOME TAX APPELL ATE TRIBUNAL MUMBAI BEN CHE S, M UMBAI