ACIT RG 9(1), MUMBAI V. DUPEN LABORATORIES P.LTD, MUMBAI

ITA 5195/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1944 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 24-02-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 22-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KAILASH P GAIKWAD SR
• Assessee Lawyers: NITESH JOSHI P P BHANDARI
• Keywords: Business expenditure; Question of law
• Section: 14A; 115JB; 37(1); 37

Judgement Text

ITA NO.5195 AND 5107/MUM/2013 ASSESSMENT YEAR: 2010-11 1 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI [BEFORE S/SHRI B. R. BASKARAN, ACCOUNTANT MEMBER AND AMARJIT SINGH, JUDICIAL MEMBER] / I.T.A. NO.5195/MUM/2013 ( / ASSESSMENT YEAR: 2010-11) THE ASST. COMMISSIONER OF INCOME TAX, RANGE- 9(1), MUMBAI, ROOM NO.223, 2 ND FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI 400 020. / VS. M/S. DUPEN LABORATORIES PVT. LTD., 44/A, 5 TH FLOOR, DHEERAJ HERITAGE, S. V. ROAD, SANTACRUZ (W), MUMBAI 400 054 / I.T.A. NO. 5107/MUM/2013 ( / ASSESSMENT YEAR: 2010-11) M/S. DUPEN LABORATORIES PVT. LTD., 44/A, 5 TH FLOOR, DHEERAJ HERITAGE, S. V. ROAD, SANTACRUZ (W), MUMBAI 400 054 / VS. THE ASST. COMMISSIONER OF INCOME TAX, RANGE- 9(1), MUMBAI, ROOM NO.223, 2 ND FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI 400 020 ./ ./ PAN/GIR NO. : AAACD2943E ( / APPELLANT ) .. ( / RESPONDENT ) DEPARTMENT BY: SHRI KAILASH P. GAIKWAD, SR. AR ASSESSEE BY: S/SHRI NITESH JOSHI / P. P. BHANDARI / DATE OF HEARING: 02.09.2015 !' /DATE OF PRONOUNCEMENT: 18.12.2015 #$ / O R D E R PER AMARJIT SINGH, JM: THESE TWO CROSS APPEALS, ONE BY THE REVENUE BEING I TA NO.5159/MUM/2013 AND THE OTHER BY THE ASSESSEE BEIN G ITA NO.5107/MUM/2013 BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE LEAR NED COMMISSIONER OF INCOME TAX (APPEALS)-19, MUMBAI [HEREINAFTER REFERRED TO AS T HE CIT(A)] DATED 03-05-2013 PASSED IN APPEAL NO. CIT(A)-19/ACIT-9(1)/IT.77/2012-13 FOR TH E ASSESSMENT YEAR 2010-11 AND THESE APPEALS ARE BEING TAKEN UP TOGETHER FOR ADJUDICATIO N FOR THE SAKE CONVENIENCE, HAVING COMMON QUESTION OF LAW AND FACTS INVOLVED THEREIN. ITA NO.5195 AND 5107/MUM/2013 ASSESSMENT YEAR: 2010-11 2 2. THE ASSESSEE FILED RETURN OF INCOME FOR THE ASSE SSMENT YEAR 2010-11 DECLARING TOTAL AT LOSS TO THE TUNE OF RS.8,11,543/ -. THE ASSESSEE HAS SHOWN BOOK PROFIT AT RS.1,15,95,750/-. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PHARMACEUTICAL PRODUCTS. THE RETUR N WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961 AND NOTICE U/S 143(2) O F THE ACT WAS ISSUED ON 24- 08-2011 BY THE AO. AFTER AFFORDING AN OPPORTUNITY O F BEING HEARD TO THE ASSESSEE, THE AO DISALLOWED THE EXPENDITURE TO THE TUNE OF RS.37,60,594/- INCURRED ON ACCOUNT OF DISTRIBUTION OF SAMPLES OF M EDICINES TO THE PHYSICIANS FREE OF COST. THE A.O. ALSO ADDED THE DISALLOWANCE COMPUTED U/S. 14A OF THE ACT. THE ASSESSING OFFICER ADDED BOTH THE DISALLOW ANCES U/S. 115JB OF THE ACT ALSO. CONSEQUENTLY, THE ASSESSEE WENT IN APPEAL BE FORE THE LEARNED CIT(A) WHO CONFIRMED DISALLOWANCE TO THE TUNE OF RS.37,60,594/ - FOR COMPUTING TOTAL INCOME UNDER NORMAL PROVISION OF THE ACT. HOWEVER, LEARNED CIT(A) HELD THAT THE SAID DISALLOWANCE IS NOT REQUIRED TO BE INCLUDE D IN BOOK PROFIT COMPUTED U/S. 115JB OF THE ACT. HOWEVER HE CONFIRMED DISALL OWANCE MADE U/S 14A OF THE ACT AND ITS INCLUSION IN THE BOOK PROFIT. BEING AGGRIEVED, THE REVENUE AS WELL AS THE ASSESSEE, BOTH ARE IN APPEAL BEFORE US. 3. WE HAVE HEARD THE ARGUMENTS ADVANCED BY BOTH THE PARTIES AND HAVE PERUSED THE MATERIALS AVAILABLE ON RECORD. THE LEAR NED DEPARTMENTAL REPRESENTATIVE [HEREINAFTER REFERRED TO AS THE DR ] ARGUED THAT THE LEARNED CIT(A) HAS WRONGLY EXCLUDED THE EXPENSES TO THE TUN E OF RS.37,60,594/- WHICH WAS DISALLOWED U/S 37(1) OF THE ACT FOR COMPUTING B OOK PROFIT U/S 115JB OF THE ACT, HENCE, HIS SUCH ACTION IS WRONG IN LAW AND FAC TS OF THE CASE AND ON THAT BASIS HE SUBMITTED THAT THE PRESENT APPEAL MAY BE A LLOWED BY SETTING ASIDE THE ORDER OF THE LEARNED CIT(A). 4. ON THE OTHER HAND, THE LEARNED AUTHORIZED REPRES ENTATIVE [HEREINAFTER REFERRED TO AS THE AR] FOR THE ASSESSEE ARGUED TH AT THE AO HAS WRONGLY DISALLOWED THE EXPENDITURE INCURRED ON ACCOUNT OF D ISTRIBUTION OF SAMPLES OF ITA NO.5195 AND 5107/MUM/2013 ASSESSMENT YEAR: 2010-11 3 MEDICINES WHICH IS REQUIRED TO BE ALLOWED IN VIEW O F THE PROVISIONS OF SECTION 37(1) OF THE ACT; THEREFORE, IN THIS REGARD THE ORD ER OF THE LEARNED CIT(A) IS ALSO WRONG, AGAINST THE LAW AND FACTS OF THE CASE. HE SU BMITTED THAT THE DISALLOWANCE OF EXPENSES MADE IN COMPUTING TOTAL INCOME UNDER NO RMAL PROVISION OF THE ACT ARE NOT REQUIRED TO BE ADDED U/S 115JB OF THE ACT. IT IS ALSO ARGUED BY THE LEARNED AR OF THE ASSESSEE THAT THE OBSERVATION OF THE LEARNED CIT(A) IN UPHOLDING THE ORDER OF THE AO INCREASING THE BOOK P ROFIT U/S 115JB OF THE ACT BY RS.1,89,385/-, BEING DISALLOWANCE MADE U/S 14A O F THE ACT IS ON WRONG FOOTING AND HENCE, IS LIABLE TO BE SET ASIDE. 5. WITH DUE REGARD TO THE CONTENTIONS RAISED BY THE REPRESENTATIVE OF BOTH THE PARTIES, IT COMES TO OUR NOTICE THAT THE BONE CONTE NTION OF THE ASSESSEE IS THAT THE ASSESSEE HAS INCURRED AN EXPENDITURE OF RS.37,60,59 4/- ON ACCOUNT OF SAMPLE DISTRIBUTION OF MEDICINES TO THE PHYSICIANS FREE OF COST AND THE SAID EXPENDITURE IS REQUIRED TO BE ALLOWED. ON APPRAISAL OF THE ORDE R OF THE LEARNED CIT(A), IT HAS COME TO OUR NOTICE THAT THE LEARNED CIT(A) REJECTED THE CLAIM OF THE ASSESSEE ON THE BASIS OF CBDT CIRCULAR NO.5/2012 [F.NO.225/142/ 2012 ITA.II] DATED 01- 08-2012 AND IN VIEW OF THE JUDGMENT IN THE CASE TIT LED AS CONVENTION OF INDIAN PHARMACEUTICALS INDUSTRIES VS CBDT, CW NO.10793 OF 2012 DATED26-12-2012, WHEREIN THE RULES AND REGULATIONS OF MEDICAL COUNCI L OF INDIA HAS BEEN DESCRIBED. DURING THE COURSE OF HEARING, THE LEARNE D REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT DISTRIBUTION OF SAMPLES OF MEDICINES FREE OF COST TO THE PHYSICIANS IS FOR THE BUSINESS PURPOSE OF THE ASSES SEE AND IT IS ALLOWABLE U/S 37(1) OF THE ACT. IN SUPPORT OF HIS CONTENTIONS, T HE LEARNED REPRESENTATIVE OF THE ASSESSEE HAS PLACED RELIANCE ON THE DECISION REPORT ED IN 162 CTR 0089 ESKAYEF VS CIT (SC). NO DOUBT, THE SAID LAW HAS BEE N SETTLED FOR THE PURPOSE OF SECTION 37(3A) WHICH HAS NOW BEEN DELETE D BY THE FINANCE ACT, 1985 WITH EFFECT FROM 01-04-1986. IN THE SAID LAW, THE EXPENDITURE INCURRED ON DISTRIBUTION OF SAMPLES OF MEDICINES FOR THE PURPOS E OF PUBLICITY OR SALE ITA NO.5195 AND 5107/MUM/2013 ASSESSMENT YEAR: 2010-11 4 PROMOTION WAS HELD TO BE ALLOWED WITHIN THE AMBIT O F SECTION 37(3A) AND THE SAID SUB-SECTION WAS SUBJECT TO THE LIMITATION AS T O THE ALLOWABILITY THEREIN CONTAINED. NO DOUBT, AFTER DELETION OF THE SAID SUB -SECTION, IT IS REQUIRED TO BE SEEN WHETHER THE CASE OF THE ASSESSEE FALLS WITHIN THE PURVIEW OF SECTION 37 OF THE ACT OR NOT. DISTRIBUTION OF SAMPLES OF MEDICINE S TO THE PHYSICIANS FREE OF COST CANNOT BE PARTED WITH THE BUSINESS PURPOSE, AS THE OBJECT OF SUPPLY OF FREE SAMPLES OF MEDICINES IS ONLY TO FIND OUT BY THE MED ICAL PRACTITIONERS ABOUT THE CURATIVE VALUE OF THE MEDICINES AND SUCH CONFIDENCE COULD BE CREATED MAINLY BY THE MEDICAL PRACTITIONERS, WHEN THEY USE SUCH MEDIC INES TOWARDS TREATMENT OF THE PATIENTS. MOREOVER, THE REAL PERSON WHO CAN CRE ATE MARKET FOR MEDICINES ARE THE MEDICAL PRACTITIONERS AND WHEN COMPARED TO OTHE R INDUSTRIAL PRODUCTS, MEDICINES ARE NOT ORDINARY PRODUCTS OF CONSUMPTION AND ITS CONSUMPTION IS FOR ONLY TO GET RID OF SOME AILMENTS. REPUTATION OF SUC H MEDICINES WOULD HAVE TO BE CONFIRMED BY THE MEDICAL PRACTITIONERS AND, THEREFO RE, THE SAMPLES OF MEDICINES WERE DISTRIBUTED TO THEM. IN BRIEF, DISTRIBUTION OF SAMPLES OF MEDICINES TO THE PHYSICIANS FREE OF COST CANNOT BE PARTED WITH THE B USINESS CONDUCTED BY THE ASSESSEE. SECTION 37(1) OF THE ACT SPEAKS ABOUT THE EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS. EXPENDITURE INCURRED UPON SUPP LY OF SAMPLES OF MEDICINES FREE OF COST TO THE PHYSICIANS IS NOT REQUIRED TO B E DIFFERENTIATED WITH THE BUSINESS IN ANY MANNER. TAKING INTO ACCOUNT ALL THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION THAT THE LEARNED CI T(A) HAS ERRED IN CONFIRMING THE ORDER OF THE AO WHILE DECLINING THE EXPENDITURE INCURRED FOR THE SAID PURPOSE. THEREFORE, IT IS OBSERVED THAT THE EXPENDI TURE INCURRED FOR PROVIDING THE SAMPLES OF MEDICINES FREE OF COST TO THE MEDICA L PRACTITIONERS IS LIABLE TO BE ALLOWED AS BUSINESS EXPENDITURE AND, THEREFORE, THE ORDER OF THE LEARNED CIT(A) IS HEREBY SET ASIDE IN THIS REGARD AND THE FILE IS HEREBY ORDER TO RESTORE BEFORE ASSESSING OFFICER TO REASSESS THE ASSESSMENT OF ASS ESSEE IN VIEW OF THE ABOVE SAID OBSERVATIONS. ITA NO.5195 AND 5107/MUM/2013 ASSESSMENT YEAR: 2010-11 5 6. THE NEXT ISSUE CONTESTED IN ASSESSEES APPEAL RE LATES TO THE INCLUSION OF AMOUNT DISALLOWED U/S 14A OF THE ACT TO THE BOOK PR OFIT. THIS ISSUE IS DECIDED AGAINST THE ASSESSEE BY HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. GOETZE INDIA LTD. (ITA NO.1179/2010 & ITA 1306/2010 DATED 09.12.2013). ACCORDINGLY, WE UPHOLD THE ORDER OF LEARNED CIT(A) ON THIS ISSUE. 7. THE DISALLOWANCE OF EXPENSES MADE WHILE COMPUTIN G TOTAL INCOME UNDER NORMAL PROVISION OF THE ACT HAVE NOT BEEN PRESCRIBE D TO BE INCLUDED UNDER THE PROVISION OF SECTION 115JB OF THE ACT. HENCE WE UP HOLD THE MATTER OF LEARNED CIT(A) ON THIS ISSUE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS HER EBY ORDERED TO BE PARTLY ALLOWED AS WELL AS APPEAL OF THE REVENUE IS HEREBY ORDER TO BE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF H EARING ON 18 TH DECEMBER, 2015 SD/- SD/- (B. R. BASKARAN) (AMARJIT SINGH) # / ACCOUNTANT MEMBER & ' # /JUDICIAL MEMBER ( ) MUMBAI; *# DATED : 18 TH DECEMBER, 2015 . ' . ./ LK DEKA LK DEKA LK DEKA LK DEKA , ,, , SR. PS SR. PS SR. PS SR. PS ITA NO.5195 AND 5107/MUM/2013 ASSESSMENT YEAR: 2010-11 6 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. + ( ) / THE CIT(A)- 4. + / CIT 5. ,- . ''/0 , /0' , ( ) / DR, ITAT, MUMBAI 6. . 12 3 / GUARD FILE. / BY ORDER, , ' //TRUE COPY// / !' (DY./ASSTT. REGISTRAR) '# $ , ( ) / ITAT, MUMBAI