JENBURKT PHARMACEUTICALS LTD, MUMBAI V. DCIT 10(2)(1), MUMBAI

ITA 6007/MUM/2017

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8157 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Assessment Year: 2012-2013
• Appeal Filed On: 25-09-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJEEV GUBGOTRA
• Keywords: Gift; Business expenditure; Principle of natural justice; Corroborative evidences

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE HONBLE SH. SANDEEP GOSAIN , J M & HONBLE SH. MANOJ KUMAR AGGARWAL, A M ./ I.T.A. NO . 6007 /MUM/201 7 ( / ASSESSMENT YEAR: 2012 - 13 ) JENBURKT PHARMACEUTICALS LTD NIRMALA APARTMENT 93, JP ROAD, ANDHERI(W), MUMBAI - 400058 / VS. DCIT 10(2)(1) 703, C - 10, PRATYAKSHKAR BHAVAN, BKC, MUMBAI - 400 051 ./ ./ PAN NO. AA A CJ0256E ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI RAVINDRA POOJARY , A R / RESPONDENTBY : SHRI RAJEEV GUBGOTRA , DR / DATE OF HEARING : 27.12 .2018 / DATE OF PRONOUNCEMENT : 27.12.2018 / O R D E R PER SANDEEP GOSAIN, J UDICIAL MEMBER : THE P RESENT APPE AL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF LD. CIT (APPEAL) 17, MUMBAI DATED 30.06.17 F OR AY 20 12 - 13. 2 I.T.A. NO. 6007 /MUM/201 7 JENBURKT PHARMACEUTICALS LTD 2 . THE SOLITARY CONTESTED GROUND RAISED BY THE ASSESSEE RELATES TO CHALLENGING THE ORDER OF LD. CIT (A) IN CONFIRMING THE DISALLOWANCE OF RS. 39,13,700/ - (CLAIMED UNDER THE HEAD SALES PROMOTION) INCURRED ON DOCTORS FOR RENDERING DIFFERENT KIND OF SERVICES. 3 . LD. AR APPEARING ON BEHALF OF THE ASSES SEE SUBMITTED BEFORE US THAT THIS GROUND IS COVERED BY THE ORDER OF HONBLE ITAT IN ITA NO. 1894 /MUM/15 FOR AY 2011 - 12 IN ASSESSEES OWN CASE , WHEREIN THE IDENTICAL GROUND RA ISED IN THE PRESENT APPEAL HAS ALREADY BEEN DECIDED ON MERITS. 4 . ON THE OTHER HAND, LD. DR FAIRLY AGREED TO THE CONTENTION OF LD. AR THAT THE ISSUE IS COVERED IN FAVOUR OF ASS ESSEE. 5 . WE HAVE HEARD BOTH THE PARTIES AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. WE FIND THAT THE IDENTICAL GROUND HAS ALREADY BEEN DECIDED BY THE COORDINATE BENCH OF HONBLE ITAT 3 I.T.A. NO. 6007 /MUM/201 7 JENBURKT PHARMACEUTICALS LTD IN 1894/MUM/15 FOR AY 2011 - 12 IN ASSESSEES OWN CASE . THE OPERATIVE PORTION OF THE ORDER OF HONBLE ITAT PASSED IN I T A NO. CONTAINED IN PARA NO. 5 & 6 , WHICH IS REPRODUCED BELOW: - 5. WE HAVE HEARD THE COUNSELS FOR BOTH THE PARTIES AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY THE REVENUE AUTHORITIES. AS PER THE FACTS OF THE PRESENT CASE, THE AO DURING THE ASSESSMENT PROCEEDINGS, HAD NOTICED THAT PAYMENTS OF RS. 33,82,783/ - WERE MADE TOWARDS SPONSORING OF DOCTORS AND THE SAID AMOUNT WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT ON ACCOUNT OF SALES PROMOTION EXPENSES. THE AO WAS OF THE VIEW THAT SINCE THE CIRCULAR WAS ISSUED BY THE CBDT, THIS AMOUNT NEEDS TO BE DISALLOWED. BEFORE US, THE LD. AR SUBMITTED THAT THE ASSESSEE I S IN THE BUSINESS OF MANUFACTURING AND MARKETING OF PHARMACEUTICALS FORMULATION. THE MEDICAL PRACTITIONERS PLAY A VERY MAJOR ROLE IN GENERATION PRESCRIPTION OF A PARTICULAR PRODUCT OF A COMPANY WHICH GOES A LONG WAY IN DEVELOPMENT OF A COMPANY. IT WAS FURT HER SUBMITTED BY LD. AR THAT TO EDUCATE MEDICAL PRACTITIONERS, THE ASSESSEE HAS TO INCUR CERTAIN EXPENDITURE IN THE NATURE OF SPONSORING THEM FOR ATTENDING VARIOUS SEMINARS, SYMPOSIUM, ETC. AND IN TURN THE MEDICAL PRACTITIONERS HELPS COMPANY IN IDENTIFYING A PROPER MOLECULE SO THAT COMPANY IS BENEFITTED IN FUTURE. IT WAS FURTHER SUBMITTED BY THE LD. 4 I.T.A. NO. 6007 /MUM/201 7 JENBURKT PHARMACEUTICALS LTD AR THAT THE EXPENDITURE INCURRED ARE LEGALLY ALLOWABLE AS BUSINESS EXPENSES. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDERS PASSED BY REVENUE AUTHORITIES. IT WAS FURTHER SUBMITTED BY LD. DR THAT THE PAYMENTS MADE TO THE DOCTORS ARE DISALLOWABLE AS THE CBDT HAD ISSUED CIRCULAR DATED 01.08.12, THEREFORE KEEPING IN VIEW THE AMENDMENT IN THE MEDICAL COUNCIL OF INDIA(MCI) REGULATION VIDE NOTIFICATION DATED 10.12.09 , IT WAS SUBMITTED THAT IN THE NOTIFICATION, A MEDICAL PRACTITIONER HAS NOT BEEN ALLOWED TO RECEIVE ANY GIFT, TRAVEL FACILITY, HOSPITALITY AND CASH OR MONETARY GRANTS FROM ANY PHARMACEUTICAL OR ALLIED HEALTHCARE INDUSTRY AND VIOLATION OF THESE CONDUCTS ARE LIABLE FOR PUNISHMENT AS PER MCI CODE OF ETHICS REGULATIONS, 2002. LD. DR FURTHER SUBMITTED THAT THE CBDT HAS CLARIFIED VIDE CIRCULAR NO. 5/2012 THAT DISALLOWANCE SHALL BE MADE IN THE HANDS OF SUCH PHARMACEUTICAL OR ALLIED HEALTH SECTOR INDUSTRIES OR OTHE R ASSESSEE WHICH HAS PROVIDED AFORESAID FREEBEES AND CLAIMED IT AS A DEDUCTIBLE EXPENSE IN ITS ACCOUNTS AGAINST INCOME. OUR ATTENTION WAS DRAWN BY LD. AR TO THE ORDER OF HONBLE ITAT IN ITA NO. 6429 AND 6428/MUM/2012 IN CASE TITLED SYNCOM FORMULATIONS (I ) LTD VRS. DCIT WHEREIN IDENTICAL ISSUE WAS DECIDED BY HONBLE ITAT AND THE OPERATIVE PORTIONS IS REPRODUCED BELOW: - 5 I.T.A. NO. 6007 /MUM/201 7 JENBURKT PHARMACEUTICALS LTD WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT RECEIVING OF GIFTS BY DOCTORS WAS PROHIBITED BY MCI GUIDELINES, GIVING OF THE SAME BY MANUFACTURER IS NOT PROHIBITED. UNDER ANY LAW FOR THE TIME BEING IN FORCE. GIVING SMALL GIFTS BEARING COMPANY LOGO TO DOCTORS DOES NOT TANTAMOUNT TO GIVING GIFTS TO DOCTORS BUT IT IS REGARDED AS ADVERTISING EXPENSES. AS REGARDS SPONSORING, DOCTORS FOR CON FERENCES AND EXTENDING HOSPITALITY, PHARMACEUTICALS COMPANIES HAVE BEEN SPONSORING PRACTICING DOCTORS TO ATTEND PRESTIGIOUS CONFERENCES SO THAT THEY GATHER CONTEMPORARY KNOWLEDGE ABOUT 'MANAGEMENT OF CERTAIN ILLNESS/DISEASE AND LEARN ABOUT NEWER THERAPIES WE FOUND THAT THE DISALLOWANCE WAS MADE BY THE AO BYRELYING ON THE CBDT CIRCULAR DATED 01.08.2012 ONWARDS. HOWEVER, THE CIRCULAR WAS NOT APPLICABLE BECAUSE IT WAS INTRODUCED WEF.01.082012 I.E. ASSESSMENT YEAR 2013 - 2014, WHEREAS THE RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION IS 2010 - 2011 AND 2011 - 2012. ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THE DISALLOWANCE SO MADE BY THE AO IN BOTH THE ASSESSMENT YEARS UNDER CONSIDERATION 6 I.T.A. NO. 6007 /MUM/201 7 JENBURKT PHARMACEUTICALS LTD AFTER ANALYZING THE AFOREMENTIONED ORDER PASSED BY HONBLE ITAT AND AFTER HEARING THE PARTIES AT LENGTH, WE FIND THAT IDENTICAL ISSUE HAS ALREADY BEEN DECIDED BY THE COORDINATE BENCH OF HONBLE ITAT AND THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THE FACTS OF THE AFOREMENTIONED CASE. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF T HE COORDINATE BENCH OF ITAT AND IN ORDER TO MAINTAIN JUDICIAL CONSISTENCY WHICH IS APPLICABLE MUTATIS MUTANDIS IN THE CASE OF THE ASSESSEE, WE ALLOW THESE GROUNDS OF APPEAL FILED BY THE ASSESSEE. GROUND NO. 2. 6. THIS GROUND RAISED BY THE ASSESSEE RELATES TO CONFIRMING THE DISALLOWANCES OF RS. 3,30,000/ - REPRESENTING PAYMENT MADE TO M/S. DEEP ENTERPRISE AND NAVDEEP TRADING COMPANY TOWARDS COST OF GIFT ARTICLE, AS UNSUBSTANTIATED. 6. WE HAVE HEARD THE COUNSELS FOR BOTH THE PARTIES AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY THE REVENUE AUTHORITIES. AS PER THE FACTS OF THE PRESENT CASE, THE ASSESSEE HAS CLAIMED EXPENSES ON ACCOUNT OF PAYMENTS MADE TO M/S DEEP ENTERPRISES AND M/S NAVDEEP TRADING COMPANY FOR PURCHASE OF DIFFERENT KINDS OF GIFT ITEMS FOR DISTRIBUTING THE SAME THROUGH THE FIELD STAFFS AND MEDICAL PRACTITIONERS. THE LD. AO DISALLOWED THE SAID 7 I.T.A. NO. 6007 /MUM/201 7 JENBURKT PHARMACEUTICALS LTD EXPENSES AFTER RECEIVING INFORMATION FROM SALES TAX DEPARTMENT WHEREIN T HESE CONCERNS WERE NOTIFIED AS SUSPICIOUS DEALERS /BOGUS PARTIES. LD. AR APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT PAYMENTS WERE MADE TO THE ABOVE SUPPLIERS BY CROSS AND ACCOUNT PAYEE CHEQUES. IT WAS FURTHER SUBMITTED BY LD. AR THAT THE SAID PA YMENTS WERE DULY REFLECTED IN THE BANK STATEMENT WHICH WERE PRODUCED BEFORE THE REVENUE AUTHORITIES. LD. AR FURTHER SUBMITTED THAT SINCE THESE GIFT ITEMS INCLUDING PENS WERE DISTRIBUTED TO THE FIELD STAFF AND MEDICAL PROFESSIONALS AND WERE NEVER PURCHASED FOR THE PURPOSE OF RESELLING AND THEREFORE ENTRIES OF THE PURCHASES WERE NEVER ENTERED IN THE STOCK REGISTER. IT WAS ARGUED THAT THE AO HAD ACTED ONLY ON THE INFORMATION FOR THE SALES TAX DEPARTMENT TO THE EFFECT THAT THE SUPPLIERS OF PENS I.E. /S DEEP ENT ERPRISES AND M/S NAVDEEP TRADING COMPANY WERE NOT GENUINE AND THEY HAD NOT DEPOSITED SALES TAX (VAT) COLLECTED BY THEM FROM THE ASSESSEE COMPANY. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDERS PASSED BY REVENUE AUTHORITIES. AFTER HEARING THE ARGUMENTS FOR BOTH THE PARTIES AT LENGTH AND ALSO PERUSING THE MATERIAL PLACED ON RECORD, WE FIND THAT THE AO HAD DISALLOWED THE EXPENSES BY HOLDING THAT SINCE THE ONUS LIES ON THE ASSESSEE TO ESTABLISH ALONGWITH SUPPORTING EVIDENCES 8 I.T.A. NO. 6007 /MUM/201 7 JENBURKT PHARMACEUTICALS LTD THAT THE ALLEGED TRANSACTIONS S HOWN IN THE NAME OF M/S DEEP ENTERPRISES AND M/S NAVDEEP TRADING COMPANYWERE GENUINE. IT WAS FURTHER HELD BY AO THAT THE ASSESSEE HAD NOT DISCHARGED ITS OWN, THEREFORE THE PURCHASES WERE NOT HELD TO BE GENUINE. WE HAVE NOTED THAT THE AO HAS NOT MENTIONED A NY REASONS TO DISBELIEVE THE DOCUMENTS PUT FORTH BY THE ASSESSEE OR ANY INSTANCE OF INCORRECTNESS OF SUCH DOCUMENTS. IN THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE HAS NO CONTROL OVER THE SUPPLIERS OR TO VERIFY FROM THE SALES TAX D EPARTMENT REGARDING THE FACT THAT WHETHER VAT CHARGED FROM ASSESSEE WAS DEPOSITED BY THE SUPPLIERS OR NOT. THEREFORE, DRAWING INFERENCE OF THE SAID EXPENDITURE BEING BOGUS OR NOT GENUINE ACCORDING TO US IS AGAINST THE PRINCIPLES OF NATURAL JUSTICE. IN OUR CONSIDERED VIEW, THAT SHOULD NOT HAVE BEEN THE SOLE BASIS FOR MAKING ENTIRE DISALLOWANCE. THEREFORE, CONSIDERING THE NATURE OF TRANSACTIONS AND THE MODE OF PAYMENTS, WE FIND THAT THE DISALLOWANCE OF TOTAL EXPENDITURE SEEMS TO BE UNREASONABLE AND THE CAUSE OF JUSTICE WILL BE MET BY RESTRICTING THE DISALLOWANCE TO 10%. ACCORDINGLY AO IS DIRECTED TO RESTRICT THE DISALLOWANCE TO 10% OF THE TOTAL EXPENDITURE. THE BALANCE AMOUNT OF DISALLOWANCE IS DIRECTED TO BE DELETED. RESULTANTLY, THIS GROUND OF APPEAL IS ALLO WED. 9 I.T.A. NO. 6007 /MUM/201 7 JENBURKT PHARMACEUTICALS LTD 6. AFTER HAVING GONE THROUGH THE FACTS OF THE PRESENT CASE AS WELL AS CONSIDERING THE ORDERS PASSED BY REVENUE AUTHORITIES AND HONBLE ITAT AS MENTIONED ABOVE IN ASSESSEES OWN CASE , W E FIND THAT THE IDENTICAL ISSUE HAS ALREADY BEEN DECIDED BY THE HON BLE ITAT IN ITA NO. 1894/MUM/15 FOR AY 2011 - 12 IN ASSESSEES OWN CASE . T HEREFORE , RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF HONBLE ITAT AND IN ORDER TO MAINTAIN JUDICIAL CONSISTENCY , WE APPLY THE SAME FINDINGS IN THE PRESENT CASE WHICH ARE APPLICABLE MUTATIS MUTANDIS IN THE PRESENT CASE. GROUND NO. 2 . 7 . THE OTHER GROUND S RAISED BY THE ASSESSEE RELATES TO CHALLENGING THE ORDER OF LD. CIT(A) IN CONFIRMING THE DISALLOWANCE U/S 14A, BUT LD. AR HAS MOVED A LETTER DATED 26.12.18 THEREBY INFORMING THAT THIS GROUND IS NOT BEING PRESSED BY THEM. HENCE, CONSIDERING THE ABOVE FACTS, WE DISMISS THIS GROUND AS NOT PRESSED. 10 I.T.A. NO. 6007 /MUM/201 7 JENBURKT PHARMACEUTICALS LTD GROUND N O. 3 8 . THIS GROUND RAISED BY THE ASSE SSEE IS GENERAL IN NATURE, THUS REQUIRES NO SPECIFIC ADJUDICATION. 9 . IN THE NET RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS PARTLY A LLOWED WITH NO ORDER AS TO COST. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH DEC , 2018 . SD/ - SD/ - ( MANOJ KUMAR AGGARWAL ) (SANDEEP GOSAIN) / A COUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 27 . 12 .201 8 SR.PS . DHANANJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F I LE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI