Appeal Details
Counselvise Citation
[2019] 117 COUNSELVISE.COM (IT) 0290 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
1 year(s) 9 month(s) 15 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
28-06-2019
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Assessment Year
2013-2014
Appeal Filed On
12-09-2017
Judgement Text
1 ARISTO PHARMACEUTICALS P LTD IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI MAHAVIR SINGH(JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) ITA NO. 5807/MUM/2017 (ASSESSMENT YEAR : 2013-14) ARISTO PHARMACEUTICALS P LTD MERCANTILE CHAMBERS, 3 RD FLOOR, 12, J.N. HEREDIA MARG BALLARD ESTATE, MUMBAI 400 001 PAN : AAACA4495N VS ACIT, RANGE-2(1)(1), MUMBAI APPELLANT RESPONDEDNT ITA NO. 6223/MUM/2017 (ASSESSMENT YEAR : 2013-14) DCIT, CIRCLE-2(1)(1), MUMBAI VS ARISTO PHARMACEUTI CALS P LTD MERCANTILE CHAMBERS, 3 RD FLOOR, 12, J.N. HEREDIA MARG BALLARD ESTATE, MUMBAI 400 001 APPELLANT RESPONDEDNT ASSESSEE BY SHRI AJAY KUMAR RASTOGI REVENUE BY SHRI ANADI VARMA & SHRI AJEY MALIK DATE OF HEARING 07-06-2019 DATE OF PRONOUNCEMENT 28-06-2019 O R D E R PER G MANJUNATHA, AM : THESE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST THE ORDER OF THE CIT(A)-4, MUMBAI DATED 14- 07-2017 FOR THE ASSESSMENT YEAR 2013-14. 2 ARISTO PHARMACEUTICALS P LTD 2. THE GROUNDS RAISED BY THE RESPECTIVE PARTIES ARE AS UNDER:- ITA NO.5807/MUM/2017 1. FOR THAT THE LD. CIT(A) HAS ERRED IN SUSTAINI NG DISALLOWANCE OF SALES PROMOTION EXPENSE AMOUNTING TO RS.1,42,97,051/-. 2. FOR THAT THE LD. CIT(A) HAS ERRED IN HOLDING T HAT EXPENDITURE INCURRED FOR DISTRIBUTION OF COSTLY ARTICLES (EXCEEDING RS.750/- EACH ARTICLE) ARE FREEBIES TO DOCTORS AND PROFESSIONALS. 3. FOR THAT THE LD. CCT~(A) HAS ERRED IN HOLDING THAT THE SUCH EXPENDITURES (EXCEEDING RS.750/- EACH ARTICLES) HAVE BEEN INCURR ED IN VIOLATION OF CBDT CIRCULAR NO. 5/2012 DATED 01.08.2012 AND ARE AGAINS T REGULATIONS ISSUED BY MEDICAL COUNSEL OF INDIA. 4. FOR THAT THE LD. CIT(A) HAS ERRED IN HOLDING T HAT SUCH EXPENDITURES ARE PROHIBITED BY LAW AND THUS HIT BY EXPLANATION TO SE CTION 37(1). 5. FOR THAT THE SUSTENANCE OF DISALLOWANCE OF RS. 1,42,97,051/- IS WRONG, ILLEGAL AND UNJUSTIFIED ON THE FACTS AND IN THE CIR CUMSTANCES OF THE APPELLANT'S CASE. 6. FOR THAT THE WHOLE ORDER SUSTAINING DISALLOWAN CE OF RS.1,42,97,051/- IS BAD IN FACT AND LAW OF THE CASE AND IS FIT TO BE MO DIFIED. 7. FOR THAT THE WHOLE ORDER IS BAD IN FACT AND LA W OF THE CASE AND IS FIT TO BE MODIFIED. ITA NO.6223/MUM/2017 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN ALLOWING RELIEF TO THE ASSESSEE TO THE EXT ENT IMPUGNED IN THE GROUNDS ENUMERATED BELOW: 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF SALES PROMOTION EXP ENSES OF RS. 14,25,13,3807- WITHOUT CONSIDERING CIRCULAR NO. 5/2012 (F.NO. 225/ 142/2012-ITA.II) DATED 01.08.2012. 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF SALES PROMOTION EXP ENSES OF RS. 14,25,13,3807- WITHOUT APPRECIATING THE FACT THAT THE EXPENDITURE WAS INCURRED FOR PROVIDING FREEBIES TO MEDICAL PRACTITIONERS AND THEIR PROFESSIONAL ASS OCIATES IN VIOLATION OF REGULATION ISSUED BY MEDICAL COUNCIL OF INDIA.' 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PHARMACEUTICAL COMPANY ENGAGED IN MANUFACTURING AND SALES OF PHARM ACEUTICALS AND ALLIED PRODUCTS. DURING THE YEAR, THE ASSESSEE HAS DEBITE D AN AMOUNT OF 3 ARISTO PHARMACEUTICALS P LTD RS.15,68,10,431 UNDER THE HEAD SALES PROMOTIONAL A RTICLE EXPENSES. DURING THE ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESS EE TO SUBMIT THE DETAILS OF THE SAME AND ALLOWABILITY OF THE SAME U/S 37(1) OF THE INCOME-TAX ACT, 1961. IN RESPONSE, THE ASSESSEE, VIDE LETTER DATED 15-10- 2015 SUBMITTED FULL PARTICULARS SHOWING THE PARTY FROM WHOM SAID PURCHA SES WERE MADE, THE PARTICULARS OF GIFT ARTICLES PURCHASED, DETAILS OF THE PRODUCTS WHICH IS PRINTED / EMBOSSED ON THE ARTICLES SO PURCHASED, QUANTITY, ET C. THE ASSESSEE FURTHER STATED THAT THE SAID GIFT ARTICLES ARE DISTRIBUTED AMONGST DOCTORS, STOCKISTS AND CHEMISTS THROUGH THEIR MEDICAL REPRESENTATIVES AND ALSO USED DURING VARIOUS MEDICAL CAMPS CONDUCTED BY THE ASSESSEE. THE AO, A FTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSESSEE AND ALSO BY TAKING NOTE OF THE CIRCULAR ISSUED BY THE MEDICAL COUNCIL OF INDIA (MCI, IN SHORT) UNDER THE MEDICAL COUNCIL (PROFESSIONAL CONDUCTS, ETIQUETTES AND ETHICS) REGU LATION ACT, 2002 HELD THAT EXPENDITURE INCURRED UNDER THE HEAD SALES PROMOTIO NAL ARTICLE EXPENSES IS NOT ALLOWABLE AS DEDUCTION U/S 37(1) BECAUSE SUCH E XPENDITURE HAS BEEN INCURRED IN VIOLATION OF PRESCRIBED LAW. THEREFORE , THE SAME CANNOT BE ALLOWED AS DEDUCTION. 4. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREF ERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE HAS FI LED COMPLETE DETAILS OF EXPENSES AND ALSO ARGUED HOW THE SAME IS INCURRED W HOLLY AND EXCLUSIVELY FOR 4 ARISTO PHARMACEUTICALS P LTD THE PURPOSE OF BUSINESS AND WHICH QUALIFIES FOR DED UCTION U/S 37(1) OF THE INCOME-TAX ACT, 1961. THE ASSESSEE ALSO FILED ELAB ORATE WRITTEN SUBMISSIONS ON THE ISSUE OF APPLICABILITY OF CIRCULAR ISSUED BY MCI AND SUBMITTED THAT ANY CIRCULAR ISSUED BY AN AUTHORITY RESTRICTING ITS MEM BERS TO PROHIBIT THEMSELVES FOR NOT ACCEPTING CERTAIN GIFTS FROM THE PHARMACEUT ICAL COMPANIES CANNOT BE EXTENDED TO AN ASSESSEE, WHICH IS ENGAGED IN THE BU SINESS OF MANUFACTURING PHARMACEUTICALS AND ALLOWED TO PRODUCE AND ALSO TO PROMOTE ITS PRODUCTS THROUGH VARIOUS MEANS INCLUDING PUBLICITY, MATERIAL S, ETC. 4. THE LD.CIT(A), AFTER CONSIDERING RELEVANT SUBMIS SIONS OF THE ASSESSEE AND ALSO BY FOLLOWING HIS PREDECESSORS APPELLATE ORDER FOR AY 2011-12, CAME TO THE CONCLUSION THAT WHEREVER THE ASSESSEE HAS INCURRED EXPENDITURE, THE PRICE OF EACH INDIVIDUAL ITEM IS LESS THAN RS.750 WHICH IS N OT COVERED UNDER THE CIRCULAR ISSUED BY MCI, THEREFORE, THE SAME IS ALLOWABLE AS DEDUCTION U/S 37(1) OF THE INCOME-TAX ACT, 1961. HOWEVER, WHEREVER THE PRICE OF INDIVIDUAL ITEM IS ABOVE RS.750 PER ITEM, THEN THE SAME IS COVERED UNDER THE CIRCULAR ISSUED BY MCI, THEREFORE, THE SAME CANNOT BE ALLOWED AS DEDUCTION. ACCORDINGLY, OUT OF TOTAL DISALLOWANCE MADE BY THE AO OF RS.15,68,10,431, SUS TAINED ADDITION TO THE EXTENT OF RS.1,42,97,051 AND DELETED BALANCE AMOUNT OF RS.14,25,13,380. THE RELEVANT FINDINGS OF THE LD.CIT(A) ARE AS UNDER:- 4.4. I HAVE CIRCUMSPECTED THE FACTS AND CIRCUMSTAN CES OF THE CASE AND HAVE CAREFULLY CONSIDERED THE FINDINGS AND REASONIN G OF THE A.O, AND RIVAL 5 ARISTO PHARMACEUTICALS P LTD SUBMISSION OF THE APPELLANT. IN THE APPELLANTS OWN CASE FOR A.Y.2011-12 THE LD. PREDECESSOR HAD GIVEN DETAILED REASONINGS I N HIS APPEAL ORDER IN PARA 5.3.4, 5.3.5, 5.3.6, 5.3.7, 5.3.8 AND 5.3.9 (R EFER CITA ORDER FOR A.Y.2011-12 PAGE NO.41-63 OF PAPER BOOK) WNY SUCH E XPENDITURE IS ALLOWABLE. XXXXXXXXXXXXX FOR A.Y.2013-14 - FOLLOWING MY OWN DECISION FOR A.Y . 2012-13 THE A.O. IS TO BE DIRECTED TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF RS.1,42,97,051/- (FOR A.Y.2013-14) BEING EXPENDITURE WHICH EXCEEDS PRICE OF INDIVIDUAL ITEMS RS.750/- AND DELETE THE BALANCE EXPENDITURE INCURRED ON ARTI CLES COSTING LESS THAN RS.750/-EACH WHICH AMOUNTS TO RS.14,25,13.380/-. TH E DETAILS OF SUCH EXPENDITURE HAS BEEN GIVEN BY THE APPELLANT AT PG. NO.75 TO 96 OF THE PAPER BOOK. FURTHER DETAILS OF EXPENDITURE WHICH EXCEEDS RS.750/- HAS BEEN GIVEN AT PG. NO 97-98 OF THE PAPER BOOK. IT IS ALSO PERTINEN T TO MENTION THAT AT PG NO 105, APPELLANT HAS GIVEN WORKING OF 'SALES PROMOTION EXP ENSES' WITH REGARD TO OVERALL SALES OF 3 YEARS I.E. A.Y.2011-12 TO 2013-14. IT CA N BE SEEN THAT 'SALES PROMOTION EXPENSES: IS ONLY 1.22% OF TOTAL SALES OF RS.1,27,982.81 (LAKHS). THUS THE CLAIM OF THE APPELLANT ABOUT GENUINENESS, OF EX PENDITURE CANNOT BE IGNORED. THUS IN THE FACTS AND CIRCUMSTANCES OF THE CASE, AS POINTED OUT EARLIER THE DISALLOWANCE OF EXPENDITURE IS RESTRICTED TO RS.1,4 2,97,051/-. THE A.O. IS THEREFORE, DIRECTED TO DELETE THE BALANCE DISALLOWA NCE OF EXPENDITURE OF RS.14,25,13,380/-. 6. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE US. 7. THE LD.DR SUBMITTED THAT THE LD.CIT(A) WAS ERRED IN DELETING DISALLOWANCE OF SALES PROMOTION EXPENSES WITHOUT CO NSIDERING CIRCULAR NO.5 OF 2012 DATED 01-08-2012 ISSUED BY THE CBDT WHERE IT W AS CATEGORICALLY STATED THAT ANY KIND OF FREEBIES GIVEN TO DOCTORS AND OTH ER MEDICAL PROFESSIONALS BY A PHARMACEUTICAL COMPANY IS NOT ALLOWABLE U/S 37(1) O F THE INCOME-TAX ACT, 1961 IN VIEW OF SPECIFIC CIRCULAR ISSUED BY MCI PRO HIBITING MEDICAL PROFESSIONAL FROM ACCEPTING FREEBIES FROM PHARMACEUTICAL COMPANI ES. 8. THE LD.AR FOR THE ASSESSEE, ON THE OTHER HAND, S UBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIO N OF ITAT, MUMBAI BENCH A 6 ARISTO PHARMACEUTICALS P LTD IN ASSESSEES OWN CASE FOR AY 2011-12 IN ITA NO.555 3/MUM/2014 & ITA NO.5167/MUM/2015, WHERE UNDER IDENTICAL SET OF FACT S, THE TRIBUNAL, AFTER CONSIDERING VARIOUS ASPECTS OF THE CASE, INCLUDING CIRCULAR ISSUED BY MCI AND CBDT VIDE CIRCULAR NO.5 OF 2012 CAME TO THE CONCLUS ION THAT SALES PROMOTION EXPENDITURE INCURRED BY PHARMACEUTICAL COMPANIES TO BE DISTRIBUTED TO VARIOUS MEDICAL PROFESSIONALS IS NOT HIT BY CIRCULA R ISSUED BY MCI AND ACCORDINGLY, THE SAME IS ALLOWABLE AS DEDUCTION U/S 37(1) OF THE INCOME-TAX ACT, 1961. THE TRIBUNAL WHILE COMING TO THE CONCLU SION HAS CONSIDERED VARIOUS JUDICIAL PRECEDENTS INCLUDING THOSE JUDGEMENTS WHIC H ARE AGAINST THE ASSESSEE, MORE PARTICULARLY, BY HONBLE HIMACHAL PRADESH HIGH COURT IN THE CASE OF CONFEDERATION OF INDIAN PHARMACEUTICAL INDUSTRY (SS I) VS CBDT (2013) 353 ITR 388 (HP) AND ALSO THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS KAP SCAN & DIAGNOSTIC C ENTRE PVT LT D (2012) 344 ITR 476 (P&H). THE LD.CIT(A), AFTER CONSIDERING RELEVANT FACTS, HA S RIGHTLY DELETED ADDITION MADE TOWARDS SALES PROMOTION EXPENSES, BUT SUSTAINE D PARTIAL AMOUNT, WHEREVER AMOUNT INCURRED BY THE ASSESSEE IN RESPECT OF EACH ITEM OF SALES PROMOTION ARTICLE IS OVER AND ABOVE RS.750 WITHOUT APPRECIATING THE FACT THAT ONCE IT WAS HELD THAT CIRCULAR ISSUED BY MCI IS NOT APPLICABLE TO THE PHARMACEUTICAL COMPANIES, THEN NOTHING CAN BE DISAL LOWED BY RELYING UPON THE SAID CIRCULAR. THE TRIBUNAL, AFTER CONSIDERING ALL THESE FACTS HAS ALLOWED TOTAL 7 ARISTO PHARMACEUTICALS P LTD EXPENDITURE DEBITED UNDER THE HEAD SALES PROMOTION EXPENSES AND HENCE, FOR THE YEAR UNDER CONSIDERATION, SINCE THERE IS NO CHA NGE IN FACTS, THEREFORE, THE ADDITION MADE BY THE AO SHOULD BE DELETED. 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES B ELOW. THE ISSUE INVOLVED IN THE PRESENT APPEAL, I.E. WHETHER FREEBIES DISTRIBUT ED TO MEDICAL PROFESSIONALS BY A PHARMACEUTICAL COMPANY IS ALLOWABLE U/S 37(1) OF THE 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 ASSESSEES OWN C ASE FOR AY 2011-12. THE CO-ORDINATE BENCH, AFTER CONSIDERING VARIOUS ASPECT S 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 PROMOTION 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 IS SUED BY THE MEDICAL COUNCIL OF INDIA, FIND THAT THE SAME LAYS D OWN THE CODE OF CONDUCT IN RESPECT OF THE DOCTORS AND OTHER MEDICAL PROFESSIONALS REGISTERED WITH IT, AND ARE NOT APPLICABLE TO THE P HARMACEUTICALS OR ALLIED HEALTH SECTOR INDUSTRIES. RATHER, A PERUSAL OF THE PROVISIONS OF THE INDIAN MEDICAL COUNCIL ACT, 1956, REVEALS TH AT THE SCOPE AND AMBIT OF STATUTORY PROVISIONS RELATING TO PROFESSIO NAL CONDUCT OF REGISTERED MEDICAL PRACTITIONERS UNDER THE INDIAN M EDICAL COUNCIL 8 ARISTO PHARMACEUTICALS P LTD ACT, 1956 IS RESTRICTED ONLY TO THE PERSONS REGISTE RED AS MEDICAL PRACTITIONERS WITH THE STATE MEDICAL COUNCIL AND WH OSE NAME ARE ENTERED IN THE INDIAN MEDICAL REGISTER MAINTAINED U NDER SEC. 21 OF THE SAID ACT. WE ARE OF THE CONSIDERED VIEW THAT TH E SCHEME OF THE INDIAN MEDICAL COUNCIL ACT, 1956 NEITHER DEALS WITH NOR PROVIDES FOR ANY CONDUCT OF ANY ASSOCIATION/SOCIETY AND DEAL S ONLY WITH THE CONDUCT OF INDIVIDUAL REGISTERED MEDICAL PRACTITION ERS. IN THE BACKDROP OF THE AFORESAID FACTS, IT EMERGES THAT TH E APPLICABILITY OF THE MCI REGULATIONS WOULD ONLY COVER INDIVIDUAL MED ICAL PRACTITIONERS AND NOT THE PHARMACEUTICAL COMPANIES OR ALLIED HEALTH SECTOR INDUSTRIES. INTERESTINGLY, THE SCOPE OF THE APPLICABILITY OF THE MCI REGULATIONS WAS LOOKED INTO BY THE HONB LE HIGH COURT OF DELHI IN THE CASE OF MAX HOSPITAL, PITAMPURA VS. MEDICAL COUNCIL OF INDIA (CWP NO. 1334/2013, DATED 10.01.20 14). IN THE AFOREMENTIONED CASE THE MCI HAD FILED AN AFFIDAVIT BEFORE THE HIGH COURT, WHEREIN IT WAS DEPOSED BY THE COUNCIL THAT I TS JURISDICTION IS LIMITED ONLY TO TAKE ACTION AGAINST THE REGISTERED MEDICAL PROFESSIONALS UNDER THE INDIAN MEDICAL COUNCIL (PRO FESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULATIONS, 2002, A ND IT HAS NO JURISDICTION TO PASS ANY ORDER AFFECTING THE RIGHTS /INTEREST OF THE PETITIONER HOSPITAL. WE ARE OF THE CONSIDERED VIEW THAT ON THE BASIS OF THE AFORESAID DEPOSITION OF MCI THAT ITS JURISDI CTION STANDS RESTRICTED TO THE REGISTERED MEDICAL PROFESSIONALS, IT CAN SAFELY BE CONCLUDED THAT THE MCI REGULATIONS WOULD IN NO WAY IMPINGE ON THE FUNCTIONING OF THE ASSESSEE COMPANY WHICH IS EN GAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF PHARMACEUTICA L 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 TO BE FOLLOWED AND ADHERED BY MEDICAL PRACTITIONERS/DOCTORS, AND SUCH A REGULATIO N OR CODE OF CONDUCT WOULD NOT COVER THE PHARMACEUTICAL COMPANY OR HEALTHCARE SECTOR IN ANY MANNER. WE ARE FURTHER OF THE VIEW THAT IN 9 ARISTO PHARMACEUTICALS P LTD THE BACKDROP OF OUR AFORESAID OBSERVATIONS, AS THE MEDICAL COUNCIL OF INDIA DOES NOT HAVE ANY JURISDICTION UNDER LAW T O PASS ANY ORDER OR REGULATION AGAINST ANY HOSPITAL, PHARMACEUTICAL COMPANY OR ANY HEALTHCARE SECTOR, THEN ANY SUCH REGULATION ISSUED BY IT CANNOT HAVE ANY PROHIBITORY EFFECT ON THE MANNER IN WHICH THE PHARMACEUTICAL COMPANY LIKE THE ASSESSEE CONDUCTS I TS BUSINESS. ON THE BASIS OF OUR AFORESAID OBSERVATIONS, WE ARE UNABLE TO COMPREHEND THAT NOW WHEN THE MCI HAS NO JURISDICTIO N UPON THE PHARMACEUTICAL COMPANIES, THEN WHERE COULD THERE BE AN OCCASION FOR CONCLUDING THAT THE ASSESSEE COMPANY HAD VIOLAT ED ANY REGULATION ISSUED BY MCI. WE THUS, IN TERMS OF OUR AFORESAID OBSERVATIONS ARE OF THE CONSIDERED VIEW THAT EVEN I F THE ASSESSEE HAD INCURRED EXPENDITURE ON DISTRIBUTION OF FREEBI ES 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 TH E CODE OF CONDUCT OF THE MEDICAL PRACTITIONERS/DOCTORS, THERE FORE, IN THE ABSENCE OF ANY PROHIBITION ON THE PHARMACEUTICAL CO MPANIES IN INCURRING OF SUCH SALES PROMOTION EXPENSES, THE LAT TER CANNOT BE HELD TO HAVE INCURRED AN EXPENDITURE FOR A PURPOSE WHICH IS AN OFFENCE OR IS PROHIBITED BY LAW. IN THIS REGARD WE ARE REMINDED OF THE MAXIM EXPRESSIO UNIUS EST EXCLUSIO ALTERIUS , WHICH PROVIDES THAT IF A PARTICULAR EXPRESSION IN THE STATUTE IS E XPRESSLY STATED FOR A PARTICULAR CLASS OF ASSESSEE, THEN BY IMPLICATION WHAT HAS NOT BEEN STATED OR EXPRESSED IN THE STATUTE HAS TO BE E XCLUDED FOR OTHER CLASS OF ASSESSES. THUS, NOW WHEN THE MCI REGULATIO NS ARE APPLICABLE TO MEDICAL PRACTITIONERS REGISTERED WITH THE MCI, THEN THE SAME CANNOT BE MADE APPLICABLE TO PHARMACEUTICA L COMPANIES OR OTHER ALLIED HEALTHCARE COMPANIES. 10 ARISTO PHARMACEUTICALS P LTD 22. WE SHALL NOW ADVERT TO THE CBDT CIRCULAR NO. 5/ 2012, DATED 01.08.2012. WE FIND THAT THE AFORESAID CBDT C IRCULAR 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 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 ASSOCIATIONS FR OM TAKING ANY GIFT, TRAVEL FACILITY, HOSPITALITY, CASH OR MONETARY 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 SECTIONS 30 TO 36) FROM THE BUSINESS INCOME IF SUCH EXPENSE IS LAID OUT/EXP ENDED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSI ON. HOWEVER, THE EXPLANATION APPENDED TO THIS SUB-SECTION DENIES CLA IM OF ANY SUCH EXPENSES, IF THE SAME HAS BEEN INCURRED FOR A PURPO SE 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 PR OFESSIONAL ASSOCIATIONS IS ALSO TAXABLE AS BUSINESS INCOME OR INCOME FROM O THER SOURCES AS THE CASE MAY BE DEPENDING ON THE FACTS OF EACH CASE. TH E ASSESSING OFFICERS OF SUCH MEDICAL PRACTITIONER OR PROFESSIONAL ASSOCIATI ONS SHOULD 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 TH E PHARMACEUTICAL 11 ARISTO PHARMACEUTICALS P LTD COMPANIES OR ALLIED HEALTH SECTOR INDUSTRIES TO MED ICAL PRACTITIONERS OR THEIR PROFESSIONAL ASSOCIATIONS IN VIOLATION OF THE PROVISIONS OF INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULATIONS, 2002 SHALL BE IN ADMISSIBLE UNDER SEC. 37(1) OF THE INCOME TAX ACT, 1961, AS TH E SAME WOULD BE AN EXPENSE PROHIBITED BY THE LAW. WE ARE OF 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 STRICTLY FOLLOWED AND ADHERED BY MEDICAL PRACTITIONERS/DOCTORS REGIST ERED WITH THE MCI, HOWEVER THE SAME CANNOT IMPINGE ON THE CONDUCT OF THE PHARMACEUTICAL COMPANIES OR OTHER HEALTHCARE SECTOR IN ANY MANNER. WE FIND THAT NOTHING HAS BROUGHT ON RECORD WHICH COULD PERSUADE US TO CONCLUDE THAT THE REGULATIONS OR NOT IFICATIONS ISSUED BY MCI WOULD AS PER THE LAW ALSO BE BINDING ON THE PHARMACEUTICAL COMPANIES OR OTHER ALLIED HEALTHCARE SECTOR. RATHER, THE CONCESSION MADE BY THE MCI BEFORE THE H ONBLE HIGH COURT OF DELHI IN THE CASE OF MAX HOSPITAL VS. MCI (CWP NO. 1334/2013, DATED 10.01.2014) FORTIFIES OUR AFORESAI D VIEW THAT MCI HAS NO JURISDICTION 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 COUNCIL PROF ESSIONAL (CONDUCT, ETIQUETTE AND ETHICS) REGULATIONS, 2002 HAD EVEN PROVIDED FOR ACTION WHICH SHALL BE TAKEN AGAINST ME DICAL PRACTITIONERS IN CASE THEY CONTRAVENE THE PROHIBITI ONS PLACED ON THEM. WE FIND FROM A PERUSAL OF PARA 6.8.1 THAT IN CASE OF RECEIVING OF ANY GIFT FROM ANY PHARMACEUTICAL OR ALLIED HEALT H CARE INDUSTRY AND THEIR SALES PEOPLE OR REPRESENTATIVES, ACTION S TANDS RESTRICTED TO THE MEMBERS WHO ARE REGISTERED WITH THE MCI. IN OTHER WORDS THE CENSURE/ACTION AS HAD BEEN SUGGESTED ON THE VIO LATION 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 12 ARISTO PHARMACEUTICALS P LTD ARE THUS OF THE CONSIDERED VIEW THAT THE REGULATION S ISSUED BY MCI ARE QUA THE DOCTORS/MEDICAL PRACTITIONERS REGISTERED WITH MCI, AND THE SAME SHALL IN NO WAY IMPINGE UPON THE CONDUCT O F THE PHARMACEUTICAL 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), THEN THE SAME WOULD DEBAR THE DOCTO RS OR THE REGISTERED MEDICAL PRACTITIONERS AND NOT THE PHARMACEUTICAL COMPANIES AND THE ALLIED HEALTHCARE SECTOR FOR CLAI MING 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 APPLICA BILITY OF INDIAN MEDICAL COUNCIL REGULATION, 2002, BY MAKING THE SAME APPLICABLE EVEN TO THE PHARMACEUTICAL COMPANIES OR ALLIED HEALTHCARE SECTOR INDUSTRIES. WE ARE OF THE CONSIDE RED VIEW THAT SUCH AN ENLARGEMENT OF THE SCOPE OF MCI REGULATION TO THE PHARMACEUTICAL COMPANIES BY THE CBDT 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 NOTIFICATION OR ANY REGULATION WHICH HAS NOT BEEN EXPRESSLY PROVIDE D THEREIN. STILL FURTHER, THOUGH THE CBDT CAN TONE DOWN THE RIGOURS OF LAW IN ORDER TO ENSURE A FAIR ENFORCEMENT OF THE PROVISION S BY ISSUING CIRCULARS FOR CLARIFYING THE STATUTORY PROVISIONS, HOWEVER, IT IS DIVESTED OF ITS POWER TO CREATE A NEW IMPAIRMENT AD VERSE TO AN ASSESSEE OR TO A CLASS OF ASSESSEE WITHOUT ANY SANC TION OR AUTHORITY OF LAW. WE ARE OF THE CONSIDERED VIEW THAT THE CIRC ULARS WHICH ARE ISSUED BY THE CBDT MUST CONFIRM TO THE TAX LAWS AND THOUGH ARE MEANT FOR THE PURPOSE OF GIVING ADMINISTRATIVE RELI EF 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 A REGULATION ISSUED UNDER A DIFFERENT ACT SO 13 ARISTO PHARMACEUTICALS P LTD AS TO IMPOSE ANY KIND OF HARDSHIP OR LIABILITY ON T HE 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 HESITATE TO OBSERVE, DESPITE ABS ENCE OF ANYTHING PROVIDED BY THE MCI IN ITS REGULATIONS ISS UED UNDER THE MEDICAL COUNCIL ACT, 1956, CONTEMPLATING THAT THE R EGULATION OF CODE OF CONDUCT WOULD ALSO COVER THE PHARMACEUTICAL COMPANIES AND HEALTHCARE SECTOR, HOWEVER PROVIDES THAT IN CAS E A PHARMACEUTICAL OR ALLIED HEALTH SECTOR INDUSTRY INC URS ANY EXPENDITURE IN PROVIDING ANY GIFT, TRAVEL FACILITY, CASH, MONETARY GRANT OR SIMILAR FREEBIES TO MEDICAL PRACTITIONERS OR THEIR PROFESSIONAL ASSOCIATIONS IN VIOLATION OF THE INDIA N MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULA TIONS, 2002, THE EXPENDITURE INCURRED ON THE SAME SHALL BE DISAL LOWED 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 MEDICAL COUNCIL REGULATIONS, CLEARLY IMPINGE S ON THE CONDUCT OF THE PHARMACEUTICAL AND ALLIED HEALTH SEC TOR INDUSTRIES IN CARRYING OUT ITS BUSINESS. WE THUS, IN THE ABSEN CE OF ANY SANCTION OR AUTHORITY OF LAW ON THE BASIS OF WHICH IT COULD SAFELY BE CONCLUDED THAT THE EXPENDITURE INCURRED BY THE ASSE SSEE COMPANY ON SALES PROMOTION EXPENSES BY WAY OF DISTRIBUTION OF ARTICLES TO THE STOCKISTS, DISTRIBUTORS, DEALERS, CUSTOMERS AND DOCTORS, IS IN THE NATURE OF AN EXPENDITURE WHICH HAD BEEN INCURRE D FOR ANY PURPOSE WHICH IS EITHER AN OFFENCE OR PROHIBITED BY LAW, THUS CONCLUDE THAT THE SAME WOULD NOT BE HIT BY THE EXPLANATION TO SEC. 37(1) OF THE ACT. 14 ARISTO PHARMACEUTICALS P LTD 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 OR IMPOSES A NEW KIND OF IMPARITY, CANNOT BE RECKONED RETROSPECTIVELY. WE ARE OF THE CONSIDERED VIEW THAT THOUGH A BENEVOLENT CIRCULAR MAY APPLY RETROSPECTIVELY, BUT A CIRCULAR IMPOSING A BURDEN HAS TO BE APPLY PROSPECTIVELY ONL Y. OUR AFORESAID VIEW IS FORTIFIED BY THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF DIRECTOR OF INCOME-TAX VS. S.R .M.B DAIRY FARMING PVT. LTD. (2018) 400 ITR 9 (SC). THE HONBL E APEX COURT IN ITS AFORESAID JUDGMENT HAS HELD THAT B ENEFICIAL 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 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 C OORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. PHL PHARMA (P) LTD. (2017) 49 CCH 124 (MUM), WHEREIN THE TRIBUNAL AFTER DELIBERATING AT LENGTH ON TWO ASPECTS VIZ. (I) VALIDITY OF THE C IRCULAR IN THE BACKDROP OF ENLARGEMENT OF SCOPE OF MCI REGULATION TO THE PHARMACEUTICAL COMPANIES BY THE CBDT, WITHOUT ANY E NABLING 15 ARISTO PHARMACEUTICALS P LTD 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: 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS MADE B Y LD. CIT DR AS WELL AS LD. SR. COUNSEL, MR J.D. MISTRY, PERUSED THE RELEVA NT FINDING GIVEN IN THE IMPUGNED ORDERS AND MATERIAL REFERRED TO BEFORE US. THE ENTIRE CONTROVERSY REVOLVES AROUND, WHETHER THE EXPENDITURES IN QUESTI ON INCURRED BY THE ASSESSEE (A PHARMACEUTICAL COMPANY) IS HIT BY EXPLA NATION 1 BELOW SECTION 37(1) IN VIEW OF CBDT CIRCULAR DATED 01.08.2012, IN TERPRETING THE AMENDMENT DATED 10.12.2009 BROUGHT IN INDIAN MEDICAL COUNCIL REGULATION 2002 OR NOT. THE BREAK-UP OF SALES PROMOTION EXPENSES, WHICH HAS BEEN DISALLOWED BY THE AO, ARE AS UNDER: SR.NO PARTICULARS OF EXPENSES AMOUNT (IN RS.) 1 CUSTOMER RELATIONSHIP MANAGEMENT EXPENSES (CRM) 7,61,96,260 2 KEY ACCOUNT MANAGEMENT EXPENSES(KAM) 2,56,68,509 3 GIFT ARTICLES 9,20,22,518 4 COST OF SAMPLES 3,60,85,320 TOTAL 22,99,72,60 7 THE NATURE OF AFORESAID EXPENSES HAS ALREADY BEEN E XPLAINED ABOVE. NOW WHETHER THE NATURE OF SUCH EXPENDITURE INCURRED BY THE ASSESSEE IS TO BE DISALLOWED IN VIEW OF THE CBDT CIRCULAR DATED 01.08 .2012. FOR THE SAKE OF READY REFERENCE, THE SAID CBDT CIRCULAR NO.5/2012 I S REPRODUCED HEREUNDER: INADMISSIBILITY OF EXPENSES INCURRED IN PROVIDING FREEBEES TO MEDICAL PRACTITIONER BY PHARMACEUTICAL AND ALLIED H EALTH SECTOR INDUSTRY CIRCULAR NO. 5/2012 [F. NO. 225/142/2012-ITA.II], D ATED 1-8-2012 IT HAS BEEN BROUGHT TO THE NOTICE OF THE BOARD THAT SOME PHARMACEUTICAL AND ALLIED HEALTH SECTOR INDUSTRIES ARE PROVIDING FREEB EES (FREEBIES) TO MEDICAL PRACTITIONERS AND THEIR PROFESSIONAL ASSOCIATIONS I N VIOLATION OF THE REGULATIONS ISSUED BY MEDICAL COUNCIL OF INDIA (THE 'COUNCIL') WHICH IS A REGULATORY BODY CONSTITUTED UNDER THE MEDICAL COUNCIL ACT, 1956. 2. THE COUNCIL IN EXERCISE OF ITS STATUTORY POWERS AMENDED THE INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS ) REGULATIONS, 2002 (THE REGULATIONS) ON 10-12-2009 IMPOSING A PROHIBITION O N THE MEDICAL PRACTITIONER AND THEIR PROFESSIONAL ASSOCIATIONS FROM TAKING ANY GIFT, TRAVEL FACILITY, 16 ARISTO PHARMACEUTICALS P LTD HOSPITALITY, CASH OR MONETARY GRANT FROM THE PHARMA CEUTICAL 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 SUCH EXPENSE, IF THE SAME HAS BEEN INCURRED FOR A PURPOSE WHICH IS EITHER AN OFFENCE O R 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 INDUSTRIES O R OTHER ASSESSEE WHICH HAS PROVIDED AFORESAID FREEBEES AND CLAIMED IT AS A DED UCTIBLE 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 SOURCES AS THE CASE MAY BE DEPENDING ON THE FACTS OF EACH CASE. THE ASSESSING OFFICERS OF SUCH MEDICAL PRACTITIONER OR PROFESSIONAL ASSOCIATIONS SHOULD EX AMINE 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. FROM THE PERUSAL OF THE AFORESAID BOARD CIRCULAR, I T CAN BE SEEN THAT HEAVY RELIANCE HAS BEEN PLACED BY THE CBDT ON THE CIRCULA RS ISSUED BY THE MEDICAL COUNCIL OF INDIA, WHICH IS THE REGULATORY BODY CONS TITUTED UNDER THE MEDICAL COUNCIL ACT, 1956. ONE SUCH REGULATION HAS BEEN IS SUED IS INDIAN MEDICAL COUNCIL PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULATIONS, 2002. THE SAID REGULATION DEALS WITH THE PROFESSIONAL CONDUCT , ETIQUETTE AND ETHICS FOR REGISTERED MEDICAL PRACTITIONERS ONLY. CHAPTER 6 OF THE SAID REGULATION/NOTIFICATION DEALS WITH UNETHICAL ACTS, WHEREBY A PHYSICIAN OR MEDICAL PRACTITIONERS SHALL NOT AID OR ABET OR COMM IT ANY OF THE ACTS ILLUSTRATED IN CLAUSE 6.1 TO 6.7 OF THE SAID REGULATION WHICH S HALL BE CONSTRUED AS UNETHICAL. CLAUSE 6.8 HAS BEEN ADDED (BY WAY OF AME NDMENT DATED 10.12.2009) IN TERMS OF NOTIFICATION PUBLISHED ON 1 4.12.2009 IN GAZETTE OF INDIA. THE SAID CLAUSE READS AS UNDER:- 6.8 CODE OF CONDUCT FOR DOCTORS AND PROFESSIONAL A SSOCIATION OF DOCTORS IN THEIR RELATIONSHIP WITH PHARMACEUTICAL AND ALLIED H EALTH SECTOR INDUSTRY. 6.8.1 IN DEALING WITH PHARMACEUTICAL AND ALLIED HEA LTH SECTOR INDUSTRY, A MEDICAL PRACTITIONER SHALL FOLLOW AND ADHERE TO THE STIPULATIONS GIVEN BELOW: A) GIFTS: A MEDICAL PRACTITIONER SHALL NOT RECEIVE ANY GIFT FROM ANY PHARMACEUTICAL OR ALLIED HEALTH CARE INDUSTRY AND T HEIR SALES PEOPLE OR REPRESENTATIVES. B) TRAVEL FACILITIES: A MEDICAL PRACTITIONER SHALL NOT ACCEPT A ANY TRAVEL FACILITY INSIDE THE COUNTRY OR OUTSIDE, INCLUDING RAIL, AIR, SHIP, CRUISE TICKETS, PAID VACATIONS ETC. FROM ANY PHARMACEUTICAL OR ALLIED HE ALTHCARE INDUSTRY OR THEIR 17 ARISTO PHARMACEUTICALS P LTD REPRESENTATIVES FOR SELF AND FAMILY MEMBERS FOR VAC ATION OR FOR ATTENDING CONFERENCES, SEMINARS, WORKSHOPS, CME PROGRAMME ETC AS A DELEGATE. C) HOSPITALITY: A MEDICAL PRACTITIONER SHALL NOT AC CEPT INDIVIDUALLY ANY HOSPITALITY LIKE HOTEL ACCOMMODATION FOR SELF AND F AMILY MEMBERS UNDER ANY PRETEXT. D) CASH OR MONETARY GRANTS: A MEDICAL PRACTITIONER SHALL NOT RECEIVE ANY CASH OR MONETARY GRANTS FROM ANY PHARMACEUTICAL AND ALLI ED HEALTHCARE INDUSTRY FOR INDIVIDUAL PURPOSE IN INDIVIDUAL CAPACITY UNDER ANY PRETEXT. FUNDING FOR MEDICAL RESEARCH, STUDY ETC. CAN ONLY BE RECEIVED T HROUGH APPROVED INSTITUTIONS BY MODALITIES LAID DOWN BY LAW / RULES / GUIDELINES ADOPTED BY SUCH APPROVED INSTITUTIONS, IN A TRANSPARENT MANNER . IT SHALL ALWAYS BE FULLY DISCLOSED. E) MEDICAL RESEARCH: A MEDICAL PRACTITIONER MAY CAR RY OUT, PARTICIPATE IN WORK, IN RESEARCH PROJECTS FUNDED BY PHARMACEUTICAL AND ALLIED HEALTHCARE INDUSTRIES. A MEDICAL PRACTITIONER IS OBLIGED TO KN OW THAT THE FULFILMENT OF THE FOLLOWING ITEMS: (I) TO (VII) WILL BE AN IMPERATIVE FOR UNDERTAKING ANY RESEARCH ASSIGNMENT / PROJECT FUNDED BY INDUSTRY FOR BEING PROPER AND ETH ICAL. THUS, IN ACCEPTING SUCH A POSITION A MEDICAL PRACTITIONER SHALL:- (I) ENSURE THAT THE PARTICULAR RESEARCH PROPOSAL(S) HAS THE DUE PERMISSION FROM THE COMPETENT CONCERNED AUTHORITIES. (II) ENSURE THAT SUCH A RESEARCH PROJECT(S) HAS THE CLEARANCE OF NATIONAL/ STATE / INSTITUTIONAL ETHICS COMMITTEES / BODIES. (III) ENSURE THAT IT FULFILS ALL THE LEGAL REQUIREM ENTS PRESCRIBED FOR MEDICAL RESEARCH. (IV) ENSURE THAT THE SOURCE AND AMOUNT OF FUNDING I S PUBLICLY DISCLOSED AT THE BEGINNING ITSELF. (V) ENSURE THAT PROPER CARE AND FACILITIES ARE PROV IDED TO HUMAN VOLUNTEERS, IF THEY ARE NECESSARY FOR THE RESEARCH PROJECT(S). (VI) ENSURE THAT UNDUE ANIMAL EXPERIMENTATIONS ARE NOT DONE AND WHEN THESE ARE NECESSARY THEY ARE DONE IN A SCIENTIFIC AND A H UMANE WAY. (VII) ENSURE THAT WHILE ACCEPTING SUCH AN ASSIGNMEN T A MEDICAL PRACTITIONER SHALL HAVE THE FREEDOM TO PUBLISH THE RESULTS OF TH E RESEARCH IN THE GREATER INTEREST OF THE SOCIETY BY INSERTING SUCH A CLAUSE IN THE MOU OR ANY OTHER DOCUMENT / AGREEMENT FOR ANY SUCH ASSIGNMENT. F) MAINTAINING PROFESSIONAL AUTONOMY: IN DEALING WI TH PHARMACEUTICAL AND ALLIED HEALTHCARE INDUSTRY A MEDICAL PRACTITIONER S HALL ALWAYS ENSURE THAT THERE SHALL NEVER BE ANY COMPROMISE EITHER WITH HIS / HER OWN PROFESSIONAL AUTONOMY AND / OR WITH THE AUTONOMY AND FREEDOM OF THE MEDICAL INSTITUTION. G) AFFILIATION: A MEDICAL PRACTITIONER MAY WORK FOR PHARMACEUTICAL AND ALLIED HEALTHCARE INDUSTRIES IN ADVISORY CAPACITIES, AS CO NSULTANTS, AS RESEARCHERS, AS TREATING DOCTORS OR IN ANY OTHER PROFESSIONAL CAPAC ITY. IN DOING SO, A MEDICAL PRACTITIONER SHALL ALWAYS: (I) ENSURE THAT HIS PROFESSIONAL INTEGRITY AND FREE DOM ARE MAINTAINED. (II) ENSURE THAT PATIENTS INTERESTS ARE NOT COMPRO MISED IN ANY WAY. (III) ENSURE THAT SUCH AFFILIATIONS ARE WITHIN THE LAW. (IV) ENSURE THAT SUCH AFFILIATIONS / EMPLOYMENTS AR E FULLY TRANSPARENT AND DISCLOSED. 18 ARISTO PHARMACEUTICALS P LTD H) ENDORSEMENT: A MEDICAL PRACTITIONER SHALL NOT EN DORSE ANY DRUG OR PRODUCT OF THE INDUSTRY PUBLICALLY. ANY STUDY CONDUCTED ON THE EFFICACY OR OTHERWISE OF SUCH PRODUCTS SHALL BE PRESENTED TO AND / OR THROUG H APPROPRIATE SCIENTIFIC BODIES OR PUBLISHED IN APPROPRIATE SCIENTIFIC JOURN ALS IN A PROPER WAY. 6. ON A PLAIN READING OF THE AFORESAID NOTIFICATION , WHICH HAS BEEN HEAVILY RELIED UPON BY THE DEPARTMENT, IT IS QUITE APPARENT THAT THE CODE OF CONDUCT ENSHRINED THEREIN IS MEANT TO BE FOLLOWED AND ADHER ED BY MEDICAL PRACTITIONERS/DOCTORS ALONE. IT ILLUSTRATES THE VAR IOUS KINDS OF CONDUCT OR ACTIVITIES WHICH A MEDICAL PRACTITIONER SHOULD AVOI D WHILE DEALING WITH PHARMACEUTICAL COMPANIES AND ALLIED HEALTH SECTOR I NDUSTRY. IT PROVIDES GUIDELINES TO THE MEDICAL PRACTITIONERS OF THEIR ET HICAL CODES AND MORAL CONDUCT. NOWHERE THE REGULATION OR THE NOTIFICATION MENTIONS THAT SUCH A REGULATION OR CODE OF CONDUCT WILL COVER PHARMACEUT ICAL COMPANIES OR HEALTH CARE SECTOR IN ANY MANNER. THE DEPARTMENT HAS NOT B ROUGHT ANYTHING ON RECORD TO SHOW THAT THE AFORESAID REGULATION ISSUED BY MEDICAL COUNCIL OF INDIA IS MEANT FOR PHARMACEUTICAL COMPANIES IN ANY MANNER . ON THE CONTRARY, BEFORE US THE LEARNED SENIOR COUNSEL, SHRI MISTRY B ROUGHT TO OUR NOTICE THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF MAX HOSPITAL VS. MCI IN WPC 1334/2013 JUDGMENT DATED 10.01.2014, WHEREIN TH E MEDICAL COUNCIL OF INDIA ADMITTED THAT THE INDIAN MEDICAL COUNCIL REGU LATION OF 2002 HAS JURISDICTION TO TAKE ACTION ONLY AGAINST THE MEDICA L PRACTITIONERS AND NOT TO HEALTH SECTOR INDUSTRY. RELEVANT PORTION OF THE SAI D JUDGMENT READS AS UNDER: 6. THE PETITIONER'S GRIEVANCE IS TWOFOLD. FIRSTLY, THAT SINCE THE MEDICAL COUNCIL OF INDIA (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHIC S) REGULATIONS, 2002 (THE REGULATIONS) HAVE BEEN FRAMED IN EXERCISE OF THE PO WER CONFERRED UNDER SECTION 20-A READ WITH SECTION 33 (M) OF THE INDIAN MEDICAL COUNCIL ACT, 1956, THESE REGULATIONS DO NOT GOVERN OR HAVE ANY C ONCERN WITH THE FACILITIES, INFRASTRUCTURE OR RUNNING OF THE HOSPITALS AND SECONDLY, THAT THE ETHICS COMMITTEE OF THE MCI ACTING UNDER THE REGULATIONS HAD NO JURISDICTION TO PASS ANY DIRECTION OR JUDGMENT ON THE INFRASTRUCTURE OF ANY HOSPITAL WHI CH POWER RESTS SOLELY WITH THE CONCERNED STATE GOVT. THE CASE OF THE PETITIONER IS THAT THE PETITIONER HOSPITAL IS GOVERNED BY THE DELHI NU RSING HOMES REGISTRATION ACT, 1953. IT IS URGED THAT IN FACT, AN INSPECTION WAS ALSO CARRIED OUT ON 22.07.2011 BY DR. R.N. DASS, MEDICAL SUPERINTENDENT (NURSING HOME) UNDER THE DIRECTORATE OF HEALTH SERVICES, GOVT. OF NCT OF DELHI AND THE NECESSARY EQUIPMENTS AND FACILITIES WERE FOUND TO BE IN ORDER WHICH NEGATES THE OBSERVATIONS DATED 27.10.2012 OF THE ETHICS COMMITT EE OF THE MCI. IT IS ALSO THE PLEA OF THE PETITIONER HOSPITAL THAT THE PETITI ONER WAS NOT PROVIDED AN OPPORTUNITY OF BEING HEARD AND THUS THE PRINCIPLES OF NATURAL JUSTICE WERE VIOLATED. 7. IN THE COUNTER AFFIDAVIT FILED BY THE RESPONDENT S, IT IS NOT DISPUTED THAT THE MCI UNDER THE 2002 REGULATIONS HAS JURISDICTION LIMITED TO TAKING ACTION ONLY AGAINST THE REGISTERED MEDICAL PRACTITIONERS . ITS PLEA HOWEVER, IS THAT IT HAS NOT PASSED ANY ORDER AGAINST THE PETITIONER HOSPITA L THEREFORE; THE PETITIONER CANNOT HAVE ANY GRIEVANCE AGAINST THE IMPUGNED ORDE R. 8. IT IS CLEARLY ADMITTED BY THE RESPONDENT THAT IT HAS NO JURISDICTION TO PASS ANY ORDER AGAINST THE PETITIONER HOSPITAL UNDER THE 2002 REGULATIONS. IN FACT, IT IS STATED THAT IT HAS NOT PASSED ANY ORDER AGAIN ST THE PETITIONER HOSPITAL. 19 ARISTO PHARMACEUTICALS P LTD THUS, I NEED NOT GO INTO THE QUESTION WHETHER THE A DEQUATE INFRASTRUCTURE FACILITIES FOR APPROPRIATE POST-OPERATIVE CARE WERE IN FACT IN EXISTENCE OR NOT IN THE PETITIONER HOSPITAL AND WHETHER THE PRINCIPLES OF NATURAL JUSTICE HAD BEEN FOLLOWED OR NOT WHILE PASSING THE IMPUGNED ORDER. S UFFICE IT TO SAY THAT THE OBSERVATIONS DATED 27.10.2012 MADE BY THE ETHICS CO MMITTEE DO REFLECT UPON THE INFRASTRUCTURE FACILITIES AVAILABLE IN THE PETI TIONER HOSPITAL AND SINCE IT HAD NO JURISDICTION TO GO INTO THE SAME, THE OBSERVATIO NS WERE UNCALLED FOR AND CANNOT BE SUSTAINED. [EMPHASIS ADDED IS OURS] FROM THE AFORESAID DECISION, IT IS OSTENSIBLY CLEAR THAT THE MEDICAL COUNCIL OF INDIA HAS NO JURISDICTION TO PASS ANY ORDER OR REGU LATION AGAINST ANY HOSPITAL OR ANY HEALTH CARE SECTOR UNDER ITS 2002 REGULATION . SO ONCE THE INDIAN MEDICAL COUNCIL REGULATION DOES NOT HAVE ANY JURISD ICTION NOR HAS ANY AUTHORITY UNDER LAW UPON THE PHARMACEUTICAL COMPANY OR ANY ALLIED HEALTH SECTOR INDUSTRY, THEN SUCH A REGULATION CANNOT HAVE ANY PROHIBITORY EFFECT ON THE PHARMACEUTICAL COMPANY LIKE THE ASSESSEE. IF ME DICAL COUNCIL REGULATION DOES NOT HAVE ANY JURISDICTION UPON PHARMACEUTICAL COMPANIES AND IT IS INAPPLICABLE UPON PHARMA COMPANIES LIKE ASSESSEE TH EN, WHERE IS THE VIOLATION OF ANY OF LAW/REGULATION? UNDER WHICH PROVISION THE RE IS ANY OFFENCE OR VIOLATION IN INCURRING OF SUCH KIND OF EXPENDITURE. THE RELEVANT PROVISION OF SECTION 37(1) READS AS UNDER: (1) ANY EXPENDITURE (NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXP ENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE), LAID OUT OR EXPENDED WHO LLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION SHALL BE ALL OWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEADS PROFITS AND GAIN S OF BUSINESS OR PROFESSION EXPLANATION 1 FOR THE REMOVAL OF DOUBTS, IT IS HE REBY DECLARED THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO H AVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE. THE AFORESAID PROVISION APPLIES TO AN ASSESSEE WHO IS CLAIMING DEDUCTION OF EXPENDITURE WHILE COMPUTING HIS BUSINESS INCOME. TH E EXPLANATION PROVIDES AN EMBARGO UPON ALLOWING ANY EXPENDITURE INCURRED B Y THE ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW. THIS MEANS THAT THERE SHOULD BE AN OFFENCE BY AN ASSESSEE WHO IS CL AIMING THE EXPENDITURE OR THERE IS ANY KIND OF PROHIBITION BY LAW WHICH IS AP PLICABLE TO THE ASSESSEE. HERE IN THIS CASE, NO SUCH OFFENCE OF LAW HAS BEEN BROUGHT ON RECORD, WHICH PROHIBITS THE PHARMACEUTICAL COMPANY NOT TO INCUR A NY DEVELOPMENT OR SALES PROMOTION EXPENSES. A LAW WHICH IS APPLICABLE TO DI FFERENT CLASS OF PERSONS OR PARTICULAR CATEGORY OF ASSESSEE, SAME CANNOT BE MAD E APPLICABLE TO ALL. THE REGULATION OF 2002 ISSUED BY THE MEDICAL COUNCIL OF INDIA (SUPRA), PROVIDES LIMITATION/CURB/PROHIBITION FOR MEDICAL PRACTITIONE RS ONLY AND NOT FOR PHARMACEUTICAL COMPANIES. HERE THE MAXIM OF EXPRES SIO UNIUS EST EXCLUSIO ALTERIUS IS CLEARLY APPLICABLE, THAT IS, IF A PART ICULAR EXPRESSION IN THE STATUTE IS EXPRESSLY STATED FOR PARTICULAR CLASS OF ASSESSE E THEN BY IMPLICATION WHAT HAS NOT BEEN STATED OR EXPRESSED IN THE STATUTE HAS TO BE EXCLUDED FOR OTHER CLASS OF ASSESSEE. IF THE MEDICAL COUNCIL REGULATIO N IS APPLICABLE TO MEDICAL PRACTITIONERS THEN IT CANNOT BE MADE APPLICABLE TO PHARMA OR ALLIED HEALTH CARE COMPANIES. IF SECTION 37(1) IS APPLICABLE TO AN ASS ESSEE CLAIMING THE EXPENSE THEN BY IMPLICATION, ANY IMPAIRMENT CAUSED BY EXPLA NATION1 WILL APPLY TO THAT ASSESSEE ONLY. ANY IMPAIRMENT OR PROHIBITION BY ANY LAW/REGULATION ON A 20 ARISTO PHARMACEUTICALS P LTD DIFFERENT CLASS OF PERSON/ASSESSEE WILL NOT IMPINGE UPON THE ASSESSEE CLAIMING THE EXPENDITURE UNDER THIS SECTION. 7. BEFORE US THE LEARNED CIT DR STRONGLY RELIED UPO N THE FACT THAT CBDT CIRCULAR, WHILE CLARIFYING THE APPLICABILITY OF EXP LANATION 1 TO SECTION 37(1) ON MEDICAL PRACTITIONERS AND PHARMACEUTICAL COMPANIES HAVE INTERPRETED THAT INDIAN MEDICAL COUNCIL REGULATION IS APPLICABLE FOR PHARMACEUTICAL COMPANIES ALSO. HE ALSO BROUGHT TO OUR NOTICE THAT ANOTHER NO TIFICATION WAS ISSUED BY INDIAN MEDICAL COUNCIL WHICH WAS PUBLISHED ON 01.12 .2016 WHICH FURTHER PROHIBITS SUCH KIND OF EMBARGO ON MEDICAL PRACTITIO NERS AND HAVE ADDED PARA 6.8.1 AND ALSO GIVEN INSTANCES OF ACTION WHICH SHAL L BE TAKEN UPON MEDICAL PRACTITIONERS. THE RELEVANT CLAUSE OF THE SAID NOTI FICATION AS RELIED UPON BY HIM IS REPRODUCED HEREUNDER: 6.8. CODE OF CONDUCT FOR DOCTORS IN THEIR RELATIONS HIP WITH PHARMACEUTICAL AND ALLIED HEALTH SECTOR INDUSTRY THE SECTION 68.1(B) SHALL BE SUBSTITUTED IN TERMS O F NOTIFICATION PUBLISHED ON 01.02.2016 IN GAZETTE OF INDIA, AS UNDER: (B) TRAVEL FACILITIES: A MEDICAL PRACTITIONER SHALL NOT ACCEPT ANY TRAVEL FACILITY INSIDE THE COUNTRY OR OUTSIDE, INCLUDING RAIL, ROAD , AIR, SHIP, CRUISE TICKETS, PAID VACATION, ETC., FROM ANY PHARMACEUTICAL OR ALLIED H EALTHCARE INDUSTRY OR THEIR REPRESENTATIVES FOR SELF AND FAMILY MEMBERS FOR VAC ATION OR FOR ATTENDING CONFERENCES, SEMINARS, WORKSHOPS, CME PROGRAMME ETC . AS A DELEGATE (III) ACTION TO BE TAKEN BY THE COUNCIL FOR VIOLATI ON OF SECTION 6.8 AS AMENDED VIDE NOTIFICATION DATED 10/12/2009, SHALL BE PRESCR IBED BY FURTHER AMENDING THE SECTION 6.8.1 AS UNDER:- SECTION ACTI ON 6.8.1 IN DEALING WITH PHARMACEUTICAL AND ALLIED HEALTH SECTOR INDUSTRY, A MEDICAL PRACTITIONER SHALL FOLLOW AND ADHERE TO THE STIPULATIONS GIVEN BELOW: - A)GIFTS: A MEDICAL PRACTITIONER SHALL NOT RECEIVE ANY GIFT FROM ANY PHARMACEUTICAL OR ALLIED HEALTH CARE INDUSTRY AND THEIR SALES PEOPLE OR REPRESENTATIVES; GIFTS MORE THAN RS. 1,000/ - UPTO RS. 5,000/- : CENSURE GIFTS MORE THAN RS. 5,000/- UPTO RS. 10,000/- : REMOVAL FROM INDIAN MEDICAL REGISTER OR STATE MEDICAL REGISTER FOR 3 (THREE) MONTHS GIFTS MORE THAN RS. 10,000/ - TO RS. 50,000/- : REMOVAL FROM INDIAN MEDICAL REGISTER OR STATE MEDICAL REGISTER FOR 6(SIX) MONTHS. 21 ARISTO PHARMACEUTICALS P LTD GIFTS MORE THAN RS. 50,000/- TO RS. 1,00,000/ - : REMOVAL FROM INDIAN MEDICAL REGISTER OR STATE MEDICAL REGISTER FOR 1 (ONE) YEAR. GIFTS MORE THAN RS. 1,00,000/ - : REMOVAL FOR A PERIOD OF MORE THAN 1 (ONE) YEAR FROM INDIAN MEDICAL REGISTER OR STATE MEDICAL REGISTER B) TRAVEL FACILITIES: A MEDICAL PRACTITIONER SHALL NOT ACCEPT ANY TRAVEL FACILITY INSIDE THE COUNTRY OR OUTSIDE, INCLUDING RAIL, ROAD, AIR, SHIP, CRUISE TICKETS, PAID VACATIONS ETC. FROM ANY PHARMACEUTICAL OR ALLIED HEALTHCARE INDUSTRY OR THEIR REPRESENTATIVES FOR SELF AND FAMILY MEMBERS FOR VACATION OR FOR ATTENDING CONFERENCES, SEMINARS, WORKSHOPS, CME PROGRAMME ETC. AS A DELEGATE. EXPENSES FOR TRAVEL FACILITIES MORE THAN RS. 1,000/ - UPTO RS. 5,000/ -: CENSURE EXPENSES FOR TRAVEL FACILITIES MORE THAN RS. 5,000/-UPTO RS. 10,000/-: REMOVAL FROM INDIAN MEDICAL REGISTER OR STATE MEDICAL REGISTER FOR 3 (THREE) MONTHS. EXPENSES FOR TRAVEL FACILITIES MORE THAN RS.10,000/-TO RS. 50,000/-: REMOVAL FROM INDIAN MEDICAL REGISTER OR STATE MEDICAL REGISTER FOR 6 (SIX) MONTHS. EXPENSES FOR TRAVEL FACILITIES MORE THAN MORE THAN RS. 50,000/- TO RS. 1,00,000/-: REMOVAL FROM INDIAN MEDICAL REGISTER OR STATE MEDICAL REGISTER FOR 1 (ONE) YEAR. EXPENSES FOR TRAVEL FACILITIES MORE THAN RS. 1,00,000/-: REMOVAL FOR A PERIOD OF MORE THAN 1 (ONE) YEAR FROM INDIAN MEDICAL REGISTER OR STATE MEDICAL REGISTER 22 ARISTO PHARMACEUTICALS P LTD C) HOSPITALITY: A MEDICAL PRACTITIONER SHALL NOTACCEPT INDIVIDUALLY ANY HOSPITALITY LIKE HOTEL ACCOMMODATION FOR SELF AND FAMILY MEMBERS UNDER ANY PRETEXT. EXPENSES FOR HOSPITALITY MORE THAN RS. 1,000/-UPTO RS. 5,000/-: CENSURE EXPENSES FOR HOSPITALITY MORE THAN RS. 5,000/-UPTO RS. 10,000/-: REMOVAL FROM INDIAN MEDICAL REGISTER OR STATE MEDICAL REGISTER FOR 3 (THREE) MONTHS. EXPENSES FOR HOSPITALITY MORE THAN RS. 10,000/-TO RS. 50,000/-: REMOVAL FROM INDIAN MEDICAL REGISTER OR STATE MEDICAL REGISTER FOR 6 (SIX) MONTHS. EXPENSES FOR HOSPITALITY MORE THAN MORE THAN RS. 50,000/-TO RS. 1,00,000/: REMOVAL FROM INDIAN MEDICAL REGISTER OR STATE MEDICAL REGISTER FOR 1 (ONE) YEAR. EXPENSES FOR HOSPITALITY MORE THAN RS. 1,00,000/-: REMOVAL FOR A PERIOD OF MORE THAN 1 (ONE) YEAR FROM INDIAN MEDICAL REGISTER OR STATE MEDICAL REGISTER. D) CASH OR MONETARY GRANTS:- A MEDICAL PRACTITIONER SHALL NOT RECEIVE ANY CASH OR MONETARY GRANTS FROM ANY PHARMACEUTICAL AND ALLIED HEALTHCARE INDUSTRY FOR INDIVIDUAL PURPOSE IN INDIVIDUAL CAPACITY UNDER ANY PRETEXT. FUNDING FOR MEDICAL RESEARCH, STUDY ETC. CAN ONLY BE RECEIVED THROUGH APPROVED INSTITUTIONS BY MODALITIES LAID DOWN BY LAW / RULES / GUIDELINES ADOPTED BY SUCH APPROVED INSTITUTIONS, IN A TRANSPARENT MANNER. IT SHALL ALWAYS BE FULLY DISCLOSED CASH OR MONETARY GRANTS MORE THAN RS. 1,000/-UPTO RS. 5,000/-: CENSURE. CASH OR MONETARY GRANTS MORE THAN RS. 5,000/-UPTO RS.10,000/-: REMOVAL FROM INDIAN MEDICAL REGISTER OR STATE MEDICAL REGISTER FOR 3 (THREE) MONTHS. CASH OR MONETARY GRANTS MORE THAN RS.10,000/-TO RS. 50,000/-: REMOVAL FROM INDIAN MEDICAL REGISTER OR STATE MEDICAL REGISTER FOR 6 (SIX) MONTHS. 23 ARISTO PHARMACEUTICALS P LTD CASH OR MONETARY GRANTS MORE THAN MORE THAN RS. 50,000/-TO RS. 1,00,000/-: REMOVAL FROM INDIAN MEDICAL REGISTER OR STATE MEDICAL REGISTER FOR 1 (ONE) YEAR. CASH OR MONETARY GRANTS MORE THAN RS. 1,00,000/-: REMOVAL FOR A PERIOD OF MORE THAN 1 (ONE) YEAR FROM INDIAN MEDICAL REGISTER OR STATE MEDICAL REGISTER. FROM THE AFORESAID NOTIFICATION, LD. CIT DR SUBMITT ED THAT SO MANY VIOLATIONS AND CENSURES HAVE BEEN PRESCRIBED FOR ANY EXPENDITU RES/ OR BENEFIT GIVEN TO DOCTORS, THUS, VIOLATION OF SUCH GUIDELINES FOR INC URRING SUCH KIND OF EXPENDITURES CANNOT BE HELD TO BE ALLOWABLE EXPENDI TURE. CBDT IS WELL WITHIN ITS POWER TO CLARIFY AND INTERPRET THE LAW AND PROH IBIT ALLOWANCE OF ANY EXPENDITURE WHICH VIOLATES ANY STATUTE OR IS IN NAT URE OF OFFENCE. 8. FROM A PERUSAL OF ABOVE AMENDMENT/NOTIFICATION I N THE MCI REGULATION, IT IS QUITE CLEAR AGAIN THAT SAME IS APPLICABLE FOR MEDIC AL PRACTITIONERS ONLY AND THE CENSURE/ACTION WHICH HAS BEEN SUGGESTED BY IT IS ON LY ON MEDICAL PRACTITIONERS AND NOT FOR PHARMACEUTICAL COMPANIES OR ALLIED HEAL TH SECTOR INDUSTRIES. THE VIOLATION OF THE AFORESAID REGULATION WOULD NOT ONL Y ENSURE A REMOVAL OF A DOCTOR FROM THE INDIAN MEDICAL REGISTER OR STATE ME DICAL REGISTER FOR A CERTAIN PERIOD OF TIME AND IT DOES NOT IMPINGE UPON THE CON DUCT OF PHARMACEUTICAL COMPANIES. THIS IMPORTANT DISTINCTION HAS TO BE KEP T IN MIND THAT REGULATION ISSUED BY MEDICAL COUNCIL OF INDIA IS QUA THE DOCTO RS/MEDICAL PRACTITIONERS AND NOT FOR THE PHARMACEUTICAL COMPANIES. AS A LOGICAL COROLLARY TO IT, IF THERE IS ANY VIOLATION OR PROHIBITION AS PER MCI REGULATION IN TERMS OF SECTION 37(1) R.W.EXPLANATION1, THEN IT IS ONLY MEANT FOR MEDICAL PRACTITIONERS AND NOT FOR PHARMACEUTICAL COMPANY (ASSESSEE COMPANY) FOR CLAIM ING THE EXPENDITURE. 9. ADVERTING TO THE CONTENTION OF THE LD. CIT DR TH AT CBDT IS WELL EMPOWERED TO ISSUE SUCH CLARIFICATION, IT IS SEEN THAT THE CB DT CIRCULAR DATED 01.08.2012 (SUPRA) IN ITS CLARIFICATION HAS ENLARGED THE SCOPE AND APPLICABILITY OF INDIAN MEDICAL COUNCIL REGULATION 2002 BY MAKING IT APPLI CABLE TO THE PHARMACEUTICAL COMPANIES OR ALLIED HEALTH CARE SECT OR INDUSTRIES. SUCH AN ENLARGEMENT OF SCOPE OF MCI REGULATION TO THE PHARM ACEUTICAL COMPANIES BY THE CBDT IS WITHOUT ANY ENABLING PROVISIONS EITHER UNDER THE PROVISIONS OF INCOME TAX LAW OR BY ANY PROVISIONS UNDER THE INDIA N MEDICAL COUNCIL REGULATIONS. THE CBDT CANNOT PROVIDE CASUS OMISSUS TO A STATUTE OR NOTIFICATION OR ANY REGULATION WHICH HAS NOT BEEN E XPRESSLY PROVIDED THEREIN. THE CBDT CAN TONE DOWN THE RIGOURS OF LAW AND ENSUR E A FAIR ENFORCEMENT OF THE PROVISIONS BY ISSUING CIRCULARS AND BY CLARIFYI NG THE STATUTORY PROVISIONS. CBDT CIRCULARS ACT LIKE CONTEMPORANEA EXPOSITIO I N INTERPRETING THE STATUTORY PROVISIONS AND TO ASCERTAIN THE TRUE MEANING ENUNCI ATED AT THE TIME WHEN STATUTE WAS ENACTED. HOWEVER THE CBDT IN ITS POWER CANNOT CREATE A NEW IMPAIRMENT ADVERSE TO AN ASSESSEE OR TO A CLASS OF ASSESSEE WITHOUT ANY SANCTION OF LAW. THE CIRCULAR ISSUED BY THE CBDT MU ST CONFIRM TO TAX LAWS AND 24 ARISTO PHARMACEUTICALS P LTD FOR PURPOSE OF GIVING ADMINISTRATIVE RELIEF OR FOR CLARIFYING THE PROVISIONS OF LAW AND CANNOT IMPOSE A BURDEN ON THE ASSESSEE, LEAVE A LONE CREATING A NEW BURDEN BY ENLARGING THE SCOPE OF A DIFFERENT REGULA TION ISSUED UNDER A DIFFERENT ACT SO AS TO IMPOSE ANY KIND OF HARDSHIP OR LIABILITY TO THE ASSESSEE. IN ANY CASE, IT IS TRITE LAW THAT THE CBDT CIRCULAR WHICH CREATES A BURDEN OR LIABILITY OR IMPOSES A NEW KIND OF IMPARITY, SAME C ANNOT BE RECKONED RETROSPECTIVELY. THE BENEFICIAL CIRCULAR MAY APPLY RETROSPECTIVELY BUT A CIRCULAR IMPOSING A BURDEN HAS TO BE APPLIED PROSPECTIVELY O NLY. HERE IN THIS CASE THE CBDT HAS ENLARGED THE SCOPE OF INDIAN MEDICAL COUN CIL REGULATION, 2002 AND MADE IT APPLICABLE FOR THE PHARMACEUTICAL COMPANIES . THEREFORE, SUCH A CBDT CIRCULAR CANNOT BE RECKONED TO HAVE RETROSPECTIVE E FFECT. THE SAME CBDT CIRCULAR HAD COME UP FOR CONSIDERATION BEFORE THE C O-ORDINATE BENCH OF THE ITAT, MUMBAI BENCH IN THE CASE OF SYNCOM FORMULATIO NS (I) LTD. (IN ITA NOS. 6429 & 6428/MUM/2012 FOR A.YS. 2010-11 AND 2011-12, VIDE ORDER DATED 23.12.2015), WHEREIN TRIBUNAL HELD THAT CBDT CIRCUL AR WOULD NOT BE NOT BE APPLICABLE IN THE A.YS. 2010-11 AND 2011-12 AS IT W AS INTRODUCED W.E.F. 1.8.2012. 10. FROM THE PERUSAL OF THE NATURE OF EXPENDITURE I NCURRED BY THE ASSESSEE, IT IS SEEN THAT UNDER THE HEAD CUSTOMER RELATIONSHIP MANAGEMENT, THE ASSESSEE ARRANGES NATIONAL LEVEL SEMINAR AND DISCUS SION PANELS OF EMINENT DOCTORS AND INVITING OF OTHER DOCTORS TO PARTICIPAT E IN THE SEMINARS ON A TOPIC RELATED TO THERAPEUTIC AREA. IT ARRANGES LECTURES A ND SPONSORS KNOWLEDGE UPGRADE COURSE WHICH HELPS PHARMACEUTICAL COMPANIES TO MAKE AWARE OF THE PRODUCTS AND MEDICINES MANUFACTURED AND LAUNCHED BY IT. UNDER KEY ACCOUNT MANAGEMENT, THE ASSESSEE MAKES ENDEAVOUR TO CREATE AWARENESS AMONGST CERTAIN CLASS OF KEY DOCTORS ABOUT THE PRODUCTS OF THE ASSESSEE AND THE NEW DEVELOPMENTS TAKING PLACE IN THE AREA OF MEDICINE A ND PROVIDING CORRECT DIAGNOSIS AND TREATMENT OF THE PATIENTS. THE SAID A CTIVITIES BY THE ASSESSEE ARE TO MAKE THE DOCTORS AWARE OF ITS PRODUCTS AND R ESEARCH WORK CARRIED OUT BY IT FOR BRINGING THE MEDICINE IN THE MARKET AND I TS RESULTS ARE BASED ON SEVERAL LEVELS OF TESTS AND APPROVALS. UNLESS THE P HARMACEUTICAL COMPANIES MAKE AWARE OF SUCH KIND OF PRODUCTS TO KEY DOCTORS OR MEDICAL PRACTITIONERS, THEN ONLY IT CAN SUCCESSFULLY LAUNCH ITS PRODUCTS/M EDICINES. THIS KIND OF EXPENDITURE IS DEFINITELY IN THE NATURE OF SALES AN D BUSINESS PROMOTION, WHICH HAS TO BE ALLOWED. COMING TO THE GIFT ARTICLES AND FREE SAMPLES OF MED ICINES, IT IS SEEN THAT THE ASSESSEE GIVES VARIOUS KIND OF ARTICLES LIKE, DIARI ES, PEN SETS, CALENDARS, PAPER WEIGHTS, INJECTION BOXES ETC. EMBOSSED WITH BOLD LO GO OF ITS BRAND NAME AND THE PRODUCT NAME SO THAT THE DOCTORS REMEMBERS THE BRAND OF THE ASSESSEE AND ALSO THE NAME OF THE MEDICINE. ALL THE GIFT ART ICLES, AS POINTED OUT BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW AND ALSO BEFO RE US ARE VERY CHEAP AND LOW CAST ARTICLES WHICH BEARS THE NAME OF ASSESSEE AND IT IS PURELY FOR THE PROMOTION OF ITS PRODUCT, BRAND REMINDER, ETC. THES E ARTICLES CANNOT BE RECKONED AS FREEBIES GIVEN TO THE DOCTORS. EVEN THE FREE SAMPLE OF MEDICINE IS ONLY TO PROVE THE EFFICACY AND TO ESTABLISH THE TRU ST OF THE DOCTORS ON THE QUALITY OF THE DRUGS. THIS AGAIN CANNOT BE RECKONED AS FREEBIES GIVEN TO THE DOCTORS BUT FOR PROMOTION OF ITS PRODUCTS. THE PHAR MACEUTICAL COMPANY, WHICH IS ENGAGED IN MANUFACTURING AND MARKETING OF PHARMA CEUTICAL PRODUCTS, CAN PROMOTE ITS SALE AND BRAND ONLY BY ARRANGING SEMINA RS, CONFERENCES AND THEREBY CREATING AWARENESS AMONGST DOCTORS ABOUT TH E NEW RESEARCH IN THE MEDICAL FIELD AND THERAPEUTIC AREAS, ETC. EVERY DAY THERE ARE NEW DEVELOPMENTS TAKING PLACE AROUND THE WORLD IN THE A REA OF MEDICINE AND THERAPEUTIC, HENCE IN ORDER TO PROVIDE CORRECT DIAG NOSIS AND TREATMENT OF THE 25 ARISTO PHARMACEUTICALS P LTD PATIENTS, IT IS IMPERATIVE THAT THE DOCTORS SHOULD KEEP THEMSELVES UPDATED WITH THE LATEST DEVELOPMENTS IN THE MEDICINE AND TH E MAIN OBJECT OF SUCH CONFERENCES AND SEMINARS IS TO UPDATE THE DOCTORS O F THE LATEST DEVELOPMENTS, WHICH IS BENEFICIAL TO THE DOCTORS IN TREATING THE PATIENTS AS WELL AS THE PHARMACEUTICAL COMPANIES. FURTHER AS POINTED OUT AN D CONCLUDED BY THE LEARNED CIT(A) THERE IS NO VIOLATION BY THE ASSESSE E IN SO FAR AS GIVING ANY KIND OF FREEBIES TO THE MEDICAL PRACTITIONERS. THUS , SUCH KIND OF EXPENDITURES BY A PHARMACEUTICAL COMPANIES ARE PURELY FOR BUSINE SS PURPOSE WHICH HAS TO BE ALLOWED AS BUSINESS EXPENDITURE AND IS NOT IMPAI RED BY EXPLANATION 1 TO SECTION 37(1). 11. BEFORE US, THE LD. CIT DR HAS ALSO MUCH HARPED UPON THE DECISION OF THE HONBLE HIMACHAL PRADESH HIGH COURT IN THE CASE OF CONFEDERATION OF INDIAN PHARMACEUTICAL INDUSTRY (SS) VS. CBDT (SUPRA), IN S UPPORT OF THE ARGUMENT THAT CBDT CIRCULAR HAS BEEN APPROVED AND CONFIRMED BY THE HIGH COURT AND THEREFORE, IT HAS A HUGE BINDING PRECEDENCE. FROM T HE PERUSAL OF THE SAID JUDGMENT OF THE HONBLE HIGH COURT, IT IS SEEN THAT IN THAT CASE THE VALIDITY OF CIRCULAR NO.5/12 DATED 1.8.2012 WAS CHALLENGED. THE HONBLE HIGH COURT THOUGH UPHELD THE VALIDITY OF THE SAID CIRCULAR BUT WITH A RIDER THAT IF THE ASSESSEE SATISFIES THE ASSESSING AUTHORITY THAT THE EXPENDITURE IS NOT IN VIOLATION OF THE REGULATION FRAMED BY THE MEDICAL C OUNCIL, THEN IT MAY LEGITIMATELY CLAIM THE DEDUCTION. THE ASSESSEE HAS TO SATISFY THE AO THAT THE EXPENDITURE IS NOT IN VIOLATION OF THE MEDICAL COUN CIL REGULATION. THUS, IF THE ASSESSEE BRINGS OUT THAT THE MCI REGULATION IS NOT APPLICABLE TO THE ASSESSEE BEFORE THE AO, THE SAME CANNOT BE APPLIED BLINDLY. 12. AT THE TIME OF HEARING, OUR ATTENTION WAS ALSO DRAWN TO THE DECISION OF TRIBUNAL OF OUR CO-ORDINATE BENCH IN THE CASE OF L IVA HEALTHCARE LIMITED ITA NOS. 904 & 945/MUM/2013, DECIDED VIDE ORDER DATED 12.09.2016. IN COUNTER, TO THIS DECISION THE LEARNED COUNSEL, SHRI JD MISTR Y DISTINGUISHED THE SAID JUDGMENT AND SUBMITTED THAT THE FACTS OF THE CASE I N THE LIVA HEALTHCARE (SUPRA) WERE SUBSTANTIALLY DIFFERENT FROM THE FACTS OF THE PRESENT CASE. IN THE CASE OF LIVA HEALTHCARE, THE HONBLE TRIBUNAL DISAL LOWED SUCH EXPENSES U/S. 37(1) OF THE ACT ON THE GROUND THAT THEY WERE NOT I NCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AS THE SAME WERE INCURRED TO CREATE GOOD RELATIONS WITH THE DOCTORS IN LIEU OF EXPECTED FAVOURS FROM DOCTORS FOR RECOMMENDING TO THE PATIENTS THE PHARMACEUTICAL PRO DUCTS DEALT WITH BY THE COMPANY TO GENERATE MORE AND MORE BUSINESS AND PROF ITS FOR THE ASSESSEE COMPANY. THE TRIBUNAL ALSO RECORDED THE FACT THAT T HE SPOUSE OF THE DOCTORS ALSO ACCOMPANIED THE DOCTORS FOR OVERSEAS TRIPS TO ISTANBUL AND EXPENSES WERE INCURRED FOR CRUISE TRAVELS TO ISLAND, GALA DI NNER, COCKTAILS, GALA ENTERTAINMENT ETC. OF SUCH DOCTORS. IN ASSESSEES C ASE IT IS AN ADMITTED FACT THAT EXPENSES HAVE NOT BEEN INCURRED FOR THE PURPOS E PERSONAL BENEFIT/ENJOYMENT OF THE DOCTORS OR THEIR SPOUSES. IN THE CASE OF LIVA, THE QUESTION AS TO WHETHER SUCH IMC REGULATIONS CAN BE APPLICABLE TO PHARMA COMPANIES WAS NOT ARGUED BEFORE THE HONBLE BENCH. HE REITERATED THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF MAX HOSPITA L (SUPRA) AND THE JURISDICTIONAL TRIBUNAL IN THE CASE OF SYNCOM (SUPR A) HAVE HELD THAT SUCH IMC REGULATIONS APPLY ONLY TO MEDICAL PRACTITIONERS. HE FURTHER SUBMITTED THAT THE TRIBUNAL IN THE CASE OF ACIT VS. LIVA HEALTHCARE LT D. (ITA 847/MUM/2012) FOR A.Y. 2008-09, HAS DECIDED SIMILAR ISSUE IN FAVOUR O F THE ASSESSEE. HOWEVER, IN A.Y. 2009-10, HONBLE TRIBUNAL WHILE NOTING THE FAC T THAT CONSISTENCY HAS TO BE ADOPTED, DISTINGUISHED THE ORDER OF A.Y. 2008-09 AS UNDER: 26 ARISTO PHARMACEUTICALS P LTD THE ASSESSEE HAS CONTENDED THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR O F THE ASSESSEE IN ITA NO. 388/MUM/2012 FOR ASSESSMENT YEAR 2008-09. IN OUR CO NSIDERED VIEW, PRINCIPLES OF RES JUDICATA IS NOT APPLICABLE TO INC OME TAX PROCEEDINGS ALTHOUGH WE ARE FULLY AGREEABLE THAT PRINCIPLES OF CONSISTEN CY IS TO BE MAINTAINED (HONBLE SUPREME COURT DECISION IN RADHA SOAMI SATS ANG V. CIT (1992) 193 ITR 321 (SC) BUT IN THE INSTANT ASSESSMENT YEAR, WE HAVE OBSERVED THAT THESE OVERSEAS TRIPS FOR DOCTORS AND THEIR SPOUSES WERE ORGANIZED BY THE ASSESSEE WHEREBY NO DETAILS OF THE CONTENTS OF SEMI NAR, IF ANY CONDUCTED BY THE ASSESSEE OVERSEAS HAS BEEN BROUGHT ON RECORD AN D ALSO EVEN THE SPOUSES ACCOMPANIED THE DOCTORS TO THE OVERSEAS TRIP WHICH INCLUDED CRUISE VISIT TO ISLAND, GALA DINNERS, COCKTAIL, GALA ENTERTAINMENT ETC. RATHER THAN BEING DIRECTED TOWARDS SEMINAR FOR PRODUCT INFORMATION DI SSEMINATION OR DIRECTED TOWARDS KNOWLEDGE ENHANCEMENT OR KNOWLEDGE SHARING ORIENTED AS NO DETAILS OF SEMINAR AND ITS COURSE CONTENT IS BROUGHT ON REC ORD RATHER THE TRIP IS DIRECTED TOWARDS LEISURE AND ENTERTAINMENT OF DOCTO RS AND THEIR SPOUSES WHICH IN OUR VIEW APPEARS TO BE CLEARLY A DISTINGUI SHABLE FEATURE IN THIS YEAR ENABLING US TO TAKE A DIVERGENT VIEW AND THE EXPENS ES INCURRED BY THE ASSESSEE CANNOT BE ALLOWED AS BUSINESS EXPENDITURE U/S. 37 OF THE ACT AS IT IS CLEARLY HIT BY EXPLANATION TO SECTION 37 OF THE ACT BEING AGAINST PUBLIC POLICY AS UNETHICAL PROHIBITED BY LAW. IN VIEW OF THE ABOVE, HE POINTED OUT THAT IN THE AB OVE DECISION FOR A.Y. 2009- 10 IN THE CASE OF LIVA HEALTHCARE, THERE WAS A SPEC IFIC FINDING OF A FACT THAT NO DETAILS HAVE BEEN FILED WITH RESPECT TO ANY SEMINAR HAS BEEN CONDUCTED FOR DOCTORS AND THAT THE TRIPS WERE DIRECTED TOWARDS LE ISURE AND ENTERTAINMENT OF DOCTORS AND THEIR SPOUSES. THIS WAS A DISTINGUISHAB LE FEATURE FOR THE HONBLE TRIBUNAL TO TAKE A CONTRARY VIEW FROM A.Y. 2008-09. HE FURTHER SUBMITTED THAT THE HONBLE TRIBUNAL IN THE CASE OF LIVA HEALTHCARE LTD. VS. ACIT (ITA NO. 4791/MUM/2014) FOR A.Y. 2010-11 HAS FOLLOWED THE DE CISION OF LIVA HEALTHCARE (SUPRA) FOR A.Y. 2008-09 AND HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. THIS, FURTHER BRINGS OUT THE FACT THA T THE HONBLE TRIBUNAL DISALLOWED THE EXPENSES U/S. 37(1) OF THE ACT IN TH E CASE OF LIVA HEALTHCARE FOR A.Y. 2009-10 ONLY ON THE GROUND THAT THE SAME W ERE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 13. APART FROM THE AFORESAID DISTINGUISHING FEATURE S AS HIGHLIGHTED BY THE LEARNED SENIOR COUNSEL, WE FIND THAT ON THE FACTS I TSELF IN THE CASE OF LIVA HEALTHCARE (2009-2010) (SUPRA), THERE WAS A CLEAR C UT MATERIAL ON RECORD THAT THE DOCTORS ALONG WITH THEIR SPOUSES WERE TAKEN TO FOREIGN TOURS AND CRUISE TRAVEL ETC., IN LIEU OF EXPECTED FAVOURS FROM DOCTO RS. IN THE LIGHT OF THESE FACTS AND MATERIAL THE TRIBUNAL HAS DECIDED THE ISSUE AGA INST THE ASSESSEE BY NOT FOLLOWING THE EARLIER YEAR PRECEDENCE AND SUBSEQUEN T YEAR ORDERS OF THE SAME ASSESSEE. AS BROUGHT ON RECORD BEFORE US, WE FIND T HAT SIMILAR ISSUE OF ALLOWANCE OF SUCH EXPENDITURE IN THE CASE OF PHARMA CEUTICAL COMPANIES HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE, IN THE CASE OF UCB INDIA PVT. LTD. V. ITO (ITA NO. 6681/MUM/2013 ORDER DATED 13.05.2016, WHEREIN IT WAS HELD THAT CBDT CIRCULAR CANNOT HAVE A RETROSPECTIVE EFFE CT. THIS JUDGMENT WAS LOST SIGHT OF BY THE BENCH. IN ANY CASE ON CAREFUL PERUS AL OF THE TRIBUNAL ORDER IN THE CASE OF LIVA HEALTHCARE (SUPRA) WE FIND THAT TH E TRIBUNAL THOUGH HAS INCORPORATED THE RELEVANT PROVISIONS AND CLAUSES OF THE INDIAN MEDICAL COUNCIL REGULATION 2002, HOWEVER, HAS NOT ELABORATED OR DW ELL UPON AS TO HOW THIS MCI REGULATION WHICH IS STRICTLY MEANT FOR MEDICAL PRACTITIONERS AND DOCTORS CAN BE MADE APPLICABLE TO PHARMACEUTICAL COMPANIES. THERE HAS TO BE SOME ENABLING PROVISION OR SPECIFIC CLAUSE IN THE SAID R EGULATION WHEREBY THE PHARMACEUTICAL COMPANIES ARE BARRED FROM CONDUCTING SEMINARS OR 27 ARISTO PHARMACEUTICALS P LTD CONFERENCES BY SPONSORING THE DOCTORS. THE ENTIRE C ONDUCT RELATES TO DOCTORS AND MEDICAL PRACTITIONERS AND LISTS OUT THE CENSURE S AND FINES IMPOSED UPON THEM. WHAT HAS NOT BEEN PROVIDED IN THE MCI REGULAT ION CANNOT BE SUPPLIED EITHER BY THE COURT OR BY THE CBDT. THERE HAS TO BE EXPRESS PROVISION UNDER THE LAW WHEREBY PHARMACEUTICAL COMPANIES ARE PROHIB ITED TO CONDUCT CONFERENCES OR SEMINAR OR GIVE FREE SAMPLES. IN THE TRIBUNAL DECISION OF LIVA HEALTHCARE, STRONG REFERENCE HAS BEEN MADE TO HONB LE HIMACHAL PRADESH HIGH COURT (SUPRA), THAT THE SAID CBDT CIRCULAR HAS BEEN UPHELD. ON THIS ASPECT WE HAVE ALREADY DISCUSSED IN DETAIL HEREIN A BOVE THAT, FIRSTLY, HIGH COURT ITSELF CARVES OUT A RIDER THAT ASSESSEE IS FR EE TO DEMONSTRATE BEFORE THE AO THAT THIS CIRCULAR IS NOT APPLICABLE ON FACTS OF THE CASE; AND SECONDLY, CBDT CIRCULAR WHICH CREATES NEW IMPAIRMENT AND IMPOSES D ISALLOWBILITY NOT ENVISAGED IN ANY OF THE ACT OR REGULATION CANNOT BE RECKONED TO BE RETROSPECTIVE. ANOTHER STRONG REFERENCE HAS BEEN MA DE TO THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. KAP SCAN AND DIAGNOSTIC CENTRE (P.) LTD. [2012] 25 TAXMANN.COM 9 2, WHEREIN COMMISSION WAS PAID TO THE PRIVATE DOCTORS FOR REFERRING THE P ATIENTS FOR DIAGNOSIS TO THE ASSESSEE COMPANY. IN BACKGROUND OF THESE FACTS AND ISSUES INVOLVED, THE HONBLE HIGH COURT HELD THAT SAID PAYMENT OF COMMIS SION IS WRONG AND IS OPPOSED TO BE A PUBLIC POLICY. IT SHOULD BE DISCOUR AGED AS IT IS NOT A FAIR PRACTICE. THE RATIO OF SAID DECISION CANNOT BE APPL IED ON THE FACTS OF THE PRESENT CASE BECAUSE THERE IS NO VIOLATION OF ANY L AW OR ANYTHING WHICH IS OPPOSED TO PUBLIC POLICY. SIMILARLY, THERE IS REFER ENCE TO THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF ESKAYEF (NOW K NOWN AS SMITHKLINE BEECHAM) PHARMACEUTICALS (INDIA) LIMITED V. CIT (20 00) 111 TAXMAN 561(SC), WHICH WAS GIVEN IN CONTEXT OF SECTION 37(3 A) OF THE ACT. IN THE SAID CASE THE ASSESSEE HAD CLAIMED EXPENDITURE ON DISTRI BUTION OF PHYSICIANS SAMPLES U/S. 37. IN THE BACKGROUND OF SUCH CLAIM TH E HONBLE APEX COURT HELD THAT, IF THE EXPENDITURE FALLS WITHIN THE BARE MINI MUM IT WILL NOT BE CAUGHT BY SUBSECTION (3A) OF SECTION 37. ON THE CONTRARY, THE HONBLE APEX COURT OBSERVED THAT PHYSICIANS SAMPLES ARE NECESSARY TO A SCERTAIN THE EFFICACY OF MEDICINE AND INTRODUCE IT IN THE MARKET FOR CIRCULA TION AND IT IS ONLY BY THIS METHOD THE PURPOSE IS ACHIEVED. IN SUCH CASES GIVIN G A PHYSICIAN SAMPLES FOR REASONABLE PERIOD IS ESSENTIAL TO THE BUSINESS OF M ANUFACTURE AND SALE OF MEDICINE. IT IS ONLY IF A PARTICULAR MEDICINE HAS B EEN INTRODUCED BY THE MARKET AND ITS USES ARE ESTABLISHED THEN GIVING OF FREE SA MPLES COULD ONLY BE THE MEASURE OF SALE/ PROMOTION AND DEVELOPMENT WOULD TH US BE HIT BY SUBSECTION (3A). SAID DECISION NO WAY PROHIBITS THE NATURE OF EXPENDITURE WHICH HAS BEEN INCURRED IN THE CASE OF THE ASSESSEE. THEREFORE, SU CH A REFERENCE TO A HONBLE APEX COURT DECISION IS NOT GERMANE TO THE ISSUE INV OLVED. THUS, IN OUR OPINION, THE AFORESAID DECISION OF THIS TRIBUNAL IS CLEARLY DISTINGUISHABLE AND CANNOT BE HELD TO BE APPLICABLE AND ALSO WE HAVE AL READY GIVEN OUR INDEPENDENT FINDING AS TO ALLOWABILITY OF EXPENSES IN THE HANDS OF THE ASSESSEE AS BUSINESS EXPENDITURE. STILL FURTHER, THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF INDIA MEDTRONIC PVT. LTD. VS. DCIT (2018) 52 CCH 43 (MUM), FOLLOWING THE VIEW TAKEN BY THE TRIBUNAL IN THE CAS E OF PHL PHARMA PVT. LTD. (SUPRA), HAD CONCLUDED THAT THE MCI GUIDE LINES ARE ONLY APPLICABLE TO THE DOCTORS AND THE MEDICAL PROFESSIO NALS REGISTERED WITH THE COUNCIL, AND CANNOT GOVERN THE OTHER TAX E NTITIES LIKE DRUG 28 ARISTO PHARMACEUTICALS P LTD MANUFACTURING COMPANIES OR INDIVIDUALS OTHER THAN T HE DOCTORS. IN THE BACKDROP OF THE AFORESAID OBSERVATIONS, THE TRI BUNAL HAD OBSERVED THAT THE MCI GUIDELINES CANNOT DECIDE THE ALLOWABILITY OR OTHERWISE OF AN EXPENDITURE IN THE HANDS OF SUCH OT HER ENTITIES UNDER THE INCOME-TAX ACT, 1961. IT WAS FURTHER OBSE RVED BY THE TRIBUNAL THAT THE INCOME TAX ACT IS AN INDEPENDENT CODE IN ITSELF AND THE BUSINESS INCOME OF AN ASSESSEE HAS TO BE AS SESSED AND TAXED AS ENVISAGED UNDER THE PROVISIONS OF THE ACT. ON THE BASIS OF THE LIMITED SCOPE OF APPLICABILITY OF THE MCI GUIDE LINES TO A PARTICULAR CLASS OF THE SOCIETY VIZ. DOCTORS OR MED ICAL PRACTITIONERS REGISTERED WITH THE COUNCIL, THE TRIBUNAL HAD CONCL UDED THAT THE GUIDELINES ISSUED BY MCI WOULD ONLY REGULATE THE CO DE OF CONDUCT OF THE DOCTORS AND THE MEDICAL PRACTITIONERS REGIST ERED WITH IT AND WOULD NOT BE APPLICABLE TO OTHER ENTITIES. 25. WE THUS, IN THE BACKDROP OF THE AFORESAID SETTL ED POSITION OF LAW AS REGARDS THE PROSPECTIVE APPLICABILITY OF AN OPPRESSIVE CIRCULAR, ARE OF THE CONSIDERED VIEW THAT AS THE CB DT AS PER ITS CIRCULAR NO. 5/2012, DATED 01.08.2012 HAD ENLARGED THE SCOPE OF INDIAN MEDICAL COUNCIL REGULATION, 2002, AND HAD MA DE THE SAME APPLICABLE TO THE PHARMACEUTICAL COMPANIES, THUS TH E SAME CANNOT BE RECKONED TO HAVE A RETROSPECTIVE EFFECT. WE FIND THAT A COORDINATE BENCH OF THE TRIBUNAL VIZ. ITAT, MUMBAI IN THE CASE OF SYNCOM FORMULATIONS (I) LTD. VS. DCIT-8(3), MUMBAI (ITA NO. 6428 & 6429/MUM/2012, DATED 23.12.2015) FOR A.YS 2010-11 AND 2011-12 HAD CONCLUDED THAT THE AFORESAID CBDT CIRCU LAR NO. 5/2012, DATED 01.08.2012 WOULD NOT BE APPLICABLE TO THE A.YS 2010-11 AND 2011-12, AS THE SAME WAS INTRODUCED W.E .F. 01.08.2012. WE THUS, IN TERMS OF OUR AFORESAID OBSE RVATIONS ARE OF THE CONSIDERED VIEW THAT THE AFOREMENTIONED CBDT CI RCULAR NO. 5/2012, DATED 01.08.2012 WOULD NOT BE APPLICABLE TO THE CASE OF THE ASSESSEE BEFORE US FOR A.Y. 2011-12. 29 ARISTO PHARMACEUTICALS P LTD 26. WE SHALL NOW ADVERT TO THE JUDICIAL PRONOUNCEME NTS WHICH HAD BEEN RELIED UPON BY THE LD. D.R BEFORE US : (I) DCIT, CIRCLE-13(1), NEW DELHI VS. OCHOA LABORATORIE S LTD., NOIDA (ITA NO. 4114/DEL/2009, DATED 25.08.2017) THAT THE AFORESAID ORDER PASSED BY THE ITAT, DELHI PERTAINED TO THE ALLOWABILITY OF EXPENSES INCURRED BY THE ASSESSEE I N RESPECT OF HOTEL BOOKINGS AT NEW DELHI, COCHIN OR KOCHI AGAINST DER MACON CONFERENCE AT HYDERABAD, PROVIDING FREE AIR TRAVEL , STAY AND FOOD IN HOTELS, LOCAL CAR CONVEYANCE ETC., WHICH WERE HELD BY THE TRIBUNAL AS BEING AKIN TO GIVING COMMISSIONS TO THE DOCTORS FOR PRESCRIBING MEDICINES MANUFACTURED BY THE ASSESSEE COMPANY. T HE FACTS INVOLVED IN THE SAID CASE BEING DISTINGUISHABLE AS AGAINST THAT OF THE PRESENT ASSESSEE BEFORE US, THUS WOULD NOT ASSI ST THE CASE OF THE REVENUE. (II) ACIT, CIRCLE-6(3), MUMBAI VS. LIVA HEALTHCARE LTD., MUMBAI (ITA NO. 904/MUM/2013, DATED 12.09.2016) IN THE AFORESAID ORDER PASSED BY THE COORDINATE BEN CH OF THE TRIBUNAL, EXPENSES WERE INCURRED BY THE ASSESSEE FO R CREATING GOOD RELATIONS WITH THE DOCTORS IN LIEU OF EXPECTED FAVO URS FROM THEM FOR RECOMMENDING TO THE PATIENTS THE PHARMACEUTICALS PR ODUCTS OF THE COMPANY. WE FIND THAT THE TRIBUNAL WHILE ADJUDICATI NG THE CASE OF DCIT-8(2), MUMBAI VS. PHL PHARMA (P.) LTD. HAD CONS IDERED THE AFORESAID ORDER OF THE TRIBUNAL. (III) CONFEDERATION OF INDIAN PHARMACEUTICAL INDUSTRY (SS I) VS. THE CENTRAL BOARD OF DIRECT TAXES (CWP NO. 10793 OF 201 2, DATED 26.12.2012)(HP) : WE FIND THAT THE AFORESAID JUDGMENT OF THE HONBLE HIGH COURT OF HIMACHAL PRADESH WAS CONSIDERED BY THE ITAT, MUMBAI BENCH C, MUMBAI IN THE CASE OF DCIT-8(2), MUMBAI VS. PHL PHA RMA (P.) LTD. 30 ARISTO PHARMACEUTICALS P LTD THE TRIBUNAL AFTER CONSIDERING THE AFORESAID JUDGME NT HAD OBSERVED THAT AS HELD BY THE HIGH COURT, IF THE ASS ESSEE WAS ABLE TO ESTABLISH THAT THE MCI REGULATION WAS NOT APPLICABL E TO THE ASSESSEE, THEN THE SAME COULD NOT BE BLINDLY APPLIE D IN ITS CASE. (IV) CIT VS. KAP SCAN AND DIAGNOSTIC CENTRE (P.) LTD. (2012) 344 ITR 476 (P&H) : WE FIND THAT THE JUDGMENT IN THE AFORESAID CASE WAS RENDERED IN CONTEXT OF THE COMMISSION PAID BY THE ASSESSEE COMP ANY WHICH WAS RUNNING A SCANNING AND A DIAGNOSTIC CENTRE TO T HE PRIVATE DOCTORS FOR REFERRING PATIENTS FOR DIAGNOSIS/SCANNI NG. THUS, THE FACTS INVOLVED IN THE CASE BEFORE THE HIGH COURT AR E DISTINGUISHABLE AS AGAINST THOSE IN THE CASE OF THE ASSESSEE BEFORE US. STILL FURTHER, THE SAID JUDGMENT WAS ALSO CONSIDERED BY THE TRIBUN AL WHILE PASSING THE ORDER IN THE CASE OF DCIT-8(2), MUMBAI VS. PHL PHARMA (P.) LTD. 27. WE THUS, IN TERMS OF OUR AFORESAID OBSERVATIONS CONCLUDE THAT THE ASSESSEE WAS DULY ENTITLED FOR CLAIM OF SA LES PROMOTION EXPENSES OF RS. 9,70,82,317/- INCURRED ON THE DISTR IBUTION OF ARTICLES TO THE STOCKISTS, DISTRIBUTORS, DEALERS, C USTOMERS AND DOCTORS. THUS, THE ORDER OF THE CIT(A) SUSTAINING T HE DISALLOWANCE OF THE SALES PROMOTION EXPENSES TO THE EXTENT OF RS . 66,49,685/- IS SET ASIDE. IN TERMS OF OUR AFORESAID OBSERVATIONS T HE ENTIRE DISALLOWANCE OF THE SALES PROMOTION EXPENSES OF RS. 9,70,82,317/- MADE BY THE A.O IS DELETED. 28. THE APPEAL OF THE ASSESSEE VIZ. ITA NO. 5553/MU M/2014 IS ALLOWED AND THE APPEAL OF THE REVENUE VIZ. ITA NO. 6129/MUM/2014 IS DISMISSED. ITA NO. 5479 & 5747/MUM/2015 A.Y. 2012-13 31 ARISTO PHARMACEUTICALS P LTD 29. WE SHALL NOW TAKE UP THE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE FOR A.Y. 2012-13. THE ASSE SSEE ASSAILING THE ORDER PASSED BY THE CIT(A) TO THE EXTENT HE HAD SUSTAINED THE DISALLOWANCE OF SALES PROMOTION EXPENSES OF RS. 77, 42,416/-, HAS RAISED BEFORE US THE FOLLOWING GROUNDS OF APPEAL 1. FOR THAT THE LD. CIT(A) HAS ERRED IN SUSTAINING DISALLOWANCE OF SALES PROMOTION EXPENSE AMOUNTING TO RS.77,42,416/-. 2. FOR THAT THE LD. CIT(A) HAS ERRED IN HOLDING THA T EXPENDITURE INCURRED FOR DISTRIBUTION OF COSTLY ARTICLES (EXCEEDING RS.7 50/- EACH ARTICLE) ARE FREEBIES TO DOCTORS AND PROFESSIONALS. 3. FOR THAT THE LD. CIT(A) HAS ERRED IN HOLDING THA T THE SUCH EXPENDITURES (EXCEEDING RS.750/- EACH ARTICLES) HAV E BEEN INCURRED IN VIOLATION OF CBDT CIRCULAR NO. 5/2012 DATED 01.0 8.2012 AND ARE AGAINST REGULATIONS ISSUED BY MEDICAL COUNSEL OF IN DIA. 4. FOR THAT THE LD. CIT(A) HAS ERRED IN HOLDING THA T SUCH EXPENDITURES ARE PROHIBITED BY LAW AND THUS HIT BY EXPLANATION TO SE CTION 37(1). 5. FOR THAT THE SUSTENANCE OF DISALLOWANCE OF RS.77 ,42,416/- IS WRONG, ILLEGAL AND UNJUSTIFIED ON THE FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANT'S CASE. 6. FOR THAT THE WHOLE ORDER SUSTAINING DISALLOWANCE OF RS.77,42,4161- IS BAD IN FACT AND LAW OF THE CASE AND IS FIT TO BE MO DIFIED. 7. FOR THAT THE WHOLE ORDER IS BAD IN FACT AND LAW OF THE CASE AND IS FIT TO BE MODIFIED. 8. FOR THAT THE OTHER GROUNDS, IF ANY, SHALL BE UR GED AT THE TIME OF HEARING OF THE APPEAL 30. THE REVENUE ON THE OTHER HAND HAS ASSAILED THE ORDER OF THE CIT(A) FOR A.Y. 2012-13 ON THE GROUND THAT HE HAD E RRED IN DELETING THE DISALLOWANCE OF SALES PROMOTION EXPENSES OF RS. 10,60,02,763/-BY RESTRICTING THE DISALLOWANCE OF TH E SAME ONLY IN RESPECT OF THE EXPENDITURE INCURRED BY THE ASSESSEE ON SALES PROMOTION ARTICLES COSTING MORE THAN RS. 750/- PER ARTICLE, BY RAISING BEFORE US THE FOLLOWING GROUNDS APPEAL : 32 ARISTO PHARMACEUTICALS P LTD ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN ALLOWING RELIEF TO THE ASSESSEE TO THE EXTENT IMPUGNED IN THE GROUNDS ENUMERATED BELOW: 1. THE ORDER OF THE CIT(A) IS OPPOSED TO LAW AND FACT OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT(A) HAS ERRED IN ALLOWING ALL SALES PROMOTION ARTICLES COSTING UP TO THE COST PRICE OF RS. 750/- EACH U/S. 37(1), ON THE GROUND T HAT THESE ARE WHOLLY AND EXCLUSIVELY INCURRED FOR THE ASSESSEE'S BUSINES S PURPOSES WHEN SUPPORTING EVIDENCES HAVE NOT BEEN FURNISHED BY THE ASSESSEE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT(A) HAS ERRED IN ALLOWING SALES PROMOTION EXPENSES, WIT HOUT APPRECIATING THE PROHIBITION IMPOSED B THE MEDICAL COUNCIL OF INDIA ON MEDICAL PRACTITIONERS FROM ACCEPTING GIFTS, TRAVEL FACILITI ES, HOSPITALITY, CASH OR MONETARY GRANTS (FREEBIES) FROM PHARMACEUTICAL AND ALLIED HEALTHCARE SECTOR INDUSTRY AND THE CIRCULAR NO 5/2012 ISSUED B Y CBDT NOT TO ALLOW SUCH EXPENSES WHICH ARE PROHIBITED BY LAW. 31. BRIEFLY STATED, THE ASSESSEE COMPANY HAD E-FILE D ITS RETURN OF INCOME FOR A.Y. 2012-13 ON 21.09.2012, DECLARING A TOTAL INCOME OF RS. 270,68,80,787/-. THE CASE OF THE ASSESSEE WA S THEREAFTER TAKEN UP FOR SCRUTINY ASSESSMENT UNDER SEC. 143(2) OF THE ACT. THE A.O INTER ALIA CARRYING OUT A DISALLOWANCE OF RS. 11,37,45,179/- O F SALES PROMOTION EXPENSES ASSESSED THE INCOME OF THE ASSESSEE COMPANY UNDER SEC. 143(3) AT RS. 282,06,25,970/-. T HE BOOK PROFIT OF THE ASSESSEE UNDER SEC. 115JB WAS COMPUTE D BY THE A.O AT RS. 365,71,93,685/-. THE A.O WHILE FRAMING THE A SSESSMENT HAD DISALLOWED THE ENTIRE AMOUNT OF SALES PROMOTION EXP ENSES OF RS. 11,37,45,179/- FOR THE REASON VIZ. (I) THE MEDICAL COUNCIL OF INDIA (MCI) HAD IMPOSED PROHIBITION ON MEDICAL PRACTITION ERS FROM ACCEPTING GIFTS, TRAVEL FACILITIES, HOSPITALITIES, CASH OR MONETARY GRANTS (KNOWN AS FREEBIES) FROM PHARMACEUTICAL AN D ALLIED HEALTH CARE SECTOR INDUSTRY; AND (II) THE CBDT CIRCULAR NO . 5/2012 ISSUED VIDE F.NO. 225/142/2012-ITA.II, DATED 01.08.2012 HA D CLARIFIED THAT SUCH FREEBIES SHALL BE INADMISSIBLE UNDER SE C. 37(1) OF THE ACT, BEING AN EXPENSE PROHIBITED BY THE LAW. ON THE BASIS OF THE AFORESAID DELIBERATIONS THE A.O BEING OF THE VIEW T HAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON DISTRIBUTIO N OF FREEBIES 33 ARISTO PHARMACEUTICALS P LTD WAS INADMISSIBLE AS PER THE EXPLANATION TO SEC. 37(1) OF THE ACT, THUS DISALLOWED THE ENTIRE AMOUNT OF SALES PROMOTIO N EXPENSES OF RS. 11,37,45,179/- DEBITED BY THE ASSESSEE UNDER TH E SAID HEAD OF EXPENDITURE. 32. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN A PPEAL BEFORE THE CIT(A). THE CIT(A) AFTER DELIBERATING ON THE CO NTENTIONS ADVANCED BY THE ASSESSEE BEFORE HIM, OBSERVED THAT THE ISSUE UNDER CONSIDERATION WAS SQUARELY COVERED BY THE ORD ER PASSED BY HIS PREDECESSOR WHILE DISPOSING OFF THE APPEAL OF T HE ASSESSEE FOR THE IMMEDIATELY PRECEDING YEAR VIZ. A.Y. 2011-12. T HE CIT(A) FOLLOWING THE VIEW TAKEN BY HIS PREDECESSOR, THUS R ESTRICTED THE DISALLOWANCE OF THE SALES PROMOTION EXPENDITURE TO THE EXTENT OF RS. 77,42,416/- I.E THE EXPENDITURE WHICH WAS INCUR RED BY THE ASSESSEE ON SALES PROMOTION ARTICLES COSTING MORE T HAN RS. 750/- PER ARTICLE. IN THE BACKDROP OF HIS AFORESAID OBSER VATIONS THE CIT(A) RESTRICTED THE DISALLOWANCE TO THE EXTENT OF RS. 77 ,42,416/- AND DELETED THE BALANCE ADDITION/DISALLOWANCE OF RS. 10 ,60,02,763/- [RS. 11,37,45,179/- (-) RS. 77,42,416/-]. 33. THAT BOTH THE ASSESSEE AND THE REVENUE BEING AG GRIEVED WITH THE ORDER OF THE CIT(A) HAS CARRIED THE MATTER BY WAY OF CROSS APPEALS BEFORE US. WE FIND THAT THE ISSUE INVOLVED IN THE PRESENT CASE VIZ. DISALLOWANCE OF SALES PROMOTION EXPENDITU RE REMAINS THE SAME, AS WAS THERE BEFORE US IN THE ASSESSES OWN CA SE FOR THE IMMEDIATELY PRECEDING YEAR VIZ. A.Y. 2011-12 AS HAD BEEN ADJUDICATED BY US HEREINABOVE, EXCEPT FOR THE FACT THAT IN THE PRESENT CASE THE CBDT CIRCULAR NO. 5/2012, DATED 01 .08.2012 HAD CAME INTO FORCE DURING THE YEAR UNDER CONSIDERATION . BE THAT AS IT MAY, WE ARE OF THE CONSIDERED VIEW THAT AS DELIBERA TED BY US AT LENGTH HEREINABOVE, THE AFOREMENTIONED CBDT CIRCULA R NO. 5/2012, DATED 01.08.2012 HAD ENLARGED THE SCOPE OF MCI REGULATIONS AND MADE THE SAME APPLICABLE TO THE PHA RMACEUTICAL 34 ARISTO PHARMACEUTICALS P LTD COMPANIES, WITHOUT ANY ENABLING PROVISION EITHER UN DER THE INCOME TAX ACT OR THE INDIAN MEDICAL COUNCIL REGULA TIONS. WE ARE OF THE CONSIDERED VIEW THAT AS OBSERVED BY US HEREI NABOVE, THE CBDT BY EXTENDING THE SCOPE AND GAMUT OF THE MCI RE GULATION HAD BY SO DOING TRAVERSED BEYOND THE SCOPE OF ITS J URISDICTION AND PROVIDED CASUS OMISSUS TO THE REGULATION ISSUED BY MCI, WHICH THOUGH HAD NOT BEEN EXPRESSLY PROVIDED THEREIN. WE THUS, BEING OF THE VIEW THAT AS THE CBDT IS DIVESTED OF ITS POWER TO CREATE A NEW IMPAIRMENT ADVERSE TO AN ASSESSEE OR TO A CLASS OF ASSESSEE WITHOUT ANY SANCTION OR AUTHORITY OF LAW, THEREFORE , ARE UNABLE TO PERSUADE OURSELVES TO SUBSCRIBE TO THE RIGOURS CONT EMPLATED AS REGARDS THE PHARMACEUTICAL COMPANIES OR THE ALLIED HEALTHCARE SECTOR IN THE CBDT CIRCULAR NO. 5/2012, DATED 01.08 .2012. WE WOULD NOT HESITATE TO OBSERVE THAT DESPITE AN ABSEN CE OF ENLARGEMENT OF THE SCOPE OF THE REGULATIONS ISSUED BY THE MCI UNDER THE MEDICAL COUNCIL ACT, 1956, THEREIN BRINGI NG WITHIN THE SWEEP OF ITS CODE OF CONDUCT THE PHARMACEUTICAL COM PANIES AND ALLIED HEALTH SECTOR INDUSTRY, THE CBDT HAD HOWEVER IN ALL ITS WISDOM PROVIDED THAT IN CASE A PHARMACEUTICAL OR AL LIED HEALTH SECTOR INDUSTRY INCURS ANY EXPENDITURE IN PROVIDING ANY GIFT, TRAVEL FACILITY, CASH, MONETARY GRANT OR SIMILAR FREEBIES TO MEDICAL PRACTITIONERS AND THEIR PROFESSIONAL ASSOCIATIONS I N VIOLATION OF THE INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQU ETTE AND ETHICS) REGULATIONS, 2002, THE SAME SHALL BE DISALL OWED IN THE HANDS OF SUCH PHARMACEUTICAL OR ALLIED HEALTH SECTO R INDUSTRY. WE ARE UNABLE TO PERSUADE OURSELVES TO SUBSCRIBE TO TH E BURDEN IMPOSED BY THE CBDT VIDE ITS AFORESAID CIRCULAR NO. 5/2012, DATED 01.08.2012 ON THE PHARMACEUTICAL OR ALLIED HEALTHCA RE SECTOR INDUSTRIES, WHICH AS OBSERVED BY US HEREINABOVE, DE SPITE THERE BEING AN ABSENCE OF ANY ENABLING PROVISIONS UNDER T HE INCOME TAX LAW OR THE INDIAN MEDICAL COUNCIL REGULATIONS, THER EIN CONTEMPLATING AN AUTHORITY TO REGULATE THE CONDUCT OF THE 35 ARISTO PHARMACEUTICALS P LTD PHARMACEUTICAL AND ALLIED HEALTH SECTOR INDUSTRIES, HAD CLEARLY IMPINGED ON THE CONDUCT OF BUSINESS BY THE LATTER. WE THUS, IN THE ABSENCE OF ANY SANCTION OR AUTHORITY OF LAW ON THE BASIS OF WHICH IT COULD SAFELY BE CONCLUDED THAT THE ASSESSEE COMPANY WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE O F PHARMACEUTICALS AND ALLIED PRODUCTS, HAD IN THE GAR B OF SALES PROMOTION EXPENSES INCURRED EXPENDITURE IN RESPECT OF ARTICLES DISTRIBUTED TO THE STOCKISTS, DISTRIBUTORS, DEALERS , CUSTOMERS AND DOCTORS, FOR A PURPOSE WHICH IS EITHER AN OFFENCE O R PROHIBITED BY LAW, ARE THUS OF THE CONSIDERED VIEW THAT SUCH EXPE NDITURE INCURRED BY THE ASSESSEE WOULD NOT BE HIT BY THE EXPLANATION TO SEC. 37(1) OF THE ACT. 34. WE THUS, IN TERMS OF OUR AFORESAID OBSERVATIONS CONCLUDE THAT THE ASSESSEE WAS DULY ENTITLED FOR CLAIM OF SA LES PROMOTION EXPENSES OF RS. 11,37,45,179/- INCURRED ON THE DIST RIBUTION OF ARTICLES TO THE STOCKISTS, DISTRIBUTORS, DEALERS, C USTOMERS AND DOCTORS. THUS, THE ORDER OF THE CIT(A) SUSTAINING T HE DISALLOWANCE OF THE SALES PROMOTION EXPENSES TO THE EXTENT OF RS , 77,42,416/- IS SET ASIDE. THE ENTIRE DISALLOWANCE OF THE SALES PRO MOTION EXPENSES OF RS. 11,37,45,179/- MADE BY THE A.O IS DELETED. 10. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH VIEW TAKEN BY THE CO- ORDINATE BENCH IN ASSESSEES OWN CASE FOR AY 2011-1 2, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO ERROR IN THE FINDI NGS RECORDED BY THE LD.CIT(A) INSOFAR AS DELETION OF ADDITION MADE BY THE AO TOWA RDS SALES PROMOTION EXPENSES AND HENCE, WE ARE INCLINED TO UPHOLD THE F INDINGS OF THE LD.CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE. 36 ARISTO PHARMACEUTICALS P LTD 11. AS REGARDS APPEAL FILED BY THE ASSESSEE, SINCE THE TRIBUNAL HAD ALREADY CONSIDERED THE ISSUE AND DELETED TOTAL ADDITION MAD E BY THE AO, BY FOLLOWING THE ORDER OF THE TRIBUNAL FOR AY 2011-12, WE DIRECT THE AO TO DELETE ADDITION SUSTAINED BY THE LD.CIT(A). 12. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED AND APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28-06-2019. SD/- SD/- (MAHAVIR SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 28 TH JUNE, 2019 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI
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