INDOCO REMEDIES LIMITED, MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-6(1), MUMBAI

ITA 6532/MUM/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 7177 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-09-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 08-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMATHA MULLAMUDI
• Keywords: Bogus purchase; Gift; Business income; Depreciation; Opportunity of being heard; Revenue expenditure
• Section: 143(3); 115JB; 133(6); 37(1); 201; 80IC; 192; 80IC; 13; 22; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHR I MANOJ KUMAR AGGARWAL , ACCOUNTANT MEMBER ITA NO. 6532 / MUM . /20 17 ( ASSESSMENT YEAR : 20 13 14 ) ITA NO.6533/MUM./2017 ( ASSESSMENT YEAR : 2014 15 ) INDOCO REMEDIES LTD. 166, CST ROAD, SANTACRUZ (E) MUMBAI 400 098 PAN AAAC I 0380C . APPELLANT V/S DY. COMMISSIONER OF INCOME TAX CIRCLE 6 ( 1) , MUMBAI . RESPONDENT ITA NO.4591/MUM./2017 ( ASSESSMENT YEAR : 2012 13 ) DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 6(1), MUMBAI . APPELLANT V/S INDOCO REMEDIES LTD. 166, CST ROAD, SANTACRUZ (E) MUMBAI 400 098 PAN AAACI0380C . RESPONDENT ITA NO.4536/MUM./2017 ( ASSESSMENT YEAR : 2012 13 ) ITA NO.4537/MUM./2017 ( ASSESSMENT YEAR : 2011 12 ) INDOCO REMEDIES LTD. 166, CST ROAD, SANTACRUZ (E) MUMBAI 400 098 PAN AAACI0380C . APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 34, MUMBAI . RESPONDENT 2 INDOCO REMEDIES LTD. ITA NO.4628/MUM./2017 ( ASSESSMENT YEAR : 2011 12 ) ITA NO.4629/MUM./2017 ( ASSESSMENT YEAR : 2011 12 ) DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 6(1), MUMBAI . APPELLANT V/S INDOCO REMEDIES LTD. 166, CST ROAD, SANTACRUZ (E) MUMBAI 400 098 PAN AAACI0380C . RESPONDENT ASSESSEE BY : SHRI MADHUR AGARWAL REVENUE BY : MS. SAMATHA MULLAMUDI DATE OF HEARING 2 1 .0 8. 2020 DATE OF ORDER 03.09.2020 O R D E R PER BENCH THIS GROUP OF SEVEN APPEALS COMPRISES OF TWO SETS OF CROSS APPEALS, AN APPEAL BY THE REVENUE ARISING OUT OF ORDER PASSED UNDER SECTION 154 OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) AND ANOTHER TWO APPEALS BY THE ASSESSE E. ALL THESE APPEALS ARISE OUT OF FIVE SEPARATE ORDERS PASSED BY THE LEARNED COMMI SSIONER (APPEALS), MUMBAI, PERTAINING TO THE ASSESSMENT YEAR S 2011 12, 2012 13, 2013 14 AND 2014 15. 3 INDOCO REMEDIES LTD. 2. SINCE , ALL THESE APPEALS PERTAIN TO THE SAME ASSESSEE INVOLVING COMMON ISSUES ARISING OUT OF IDENTICAL SET OF FACTS AND CIRCUMSTANCES, THEREFORE, AS A MATTER OF CONVENIENCE, THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS CONSOLIDATED ORDER. ITA NO.4628/MUM./2017 REVENUES APPEAL A.Y. 2011 12 3. THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE BEING AGGRIEVED WITH THE DECISION OF LEARNED COMMISSIONER (APPEALS) IN ANNULLING THE ORDER PASSED UNDER SECTION 154 OF THE ACT BY THE ASSESSIN G OFFICER. 4. BRIEF FACTS ARE, THE ASSESSEE , A RESIDENT COMPANY , IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PHARMACEUTICAL S AND TRADING IN BULK DRUG AND FORMULATIONS. FOR THE ASSESSMENT YEAR UNDER DISPUTE, THE ASSESSEE FILED ITS RETURN OF INCOME ON 29 TH SEPTEMBER 2011 DECLARING NIL INCOME UNDER THE NORMAL PROVISIONS AFTER CLAIMING DEDUCTION UNDER SECTION 80IC OF THE ACT. HOWEVER , THE ASSESSEE DECLARED BOOK PROFIT OF ` 56,88,44,331, UNDER SECTION 115JB OF THE ACT. SUBSEQUENTLY, THE ASSESSEE FILED A REVISE D RETURN OF INCOME OF INCOME REVISING THE BOOK PROFIT DECLARED UNDER SECTION 115JB OF THE ACT. 5. BE THAT AS IT MAY, THE RETURN OF INCOME FILED BY THE ASSESSEE WAS SELECTED FOR SCRUTINY AND AFTER CALLING FOR NECESSARY INFORMATION INCLUDING THE BOOKS OF ACCO UNT AND EXAMINING THEM, THE ASSESSING 4 INDOCO REMEDIES LTD. OFFICER COMPLETED THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT VIDE ORDER DATED 12 TH FEBRUARY 2014. WHILE DOING SO, THE ASSESSING OFFICER EXAMINED ASSESSEES CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT AND APPOR TIONED/RE ALLOCATED CERTAIN COMMON EXPENSES TO THE UNIT AT BADDI FOR WHICH DEDUCTION UNDER SECTION 80IC OF THE ACT WAS CLAIMED. AS A RESULT OF SUCH RE ALLOCATION OF EXPENDITURE, THE DEDUCTION CLAIMED UNDER SECTION 80IC OF THE ACT WAS REDUCED BY AN AMOUNT O F ` 4,07,02,900. AGAINST THE ASSESSMENT ORDER SO PASSED, THE ASSESSEE PREFERRED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. IN THE MEANWHILE, THE ASSESSING OFFICER , ALLEGING INCORRECT ALLOWANCE OF DEDUCTIO N UNDER SECTION 80IC OF THE ACT AS WELL AS R&D EXP ENSES UNDER SECTION 35 OF THE ACT, INITIATED PROCEEDINGS UNDER SECTION 154 OF THE ACT AND ULTIMATELY PASSED AN ORDER UNDER SECTION 154 OF THE ACT ON 29 TH JULY 2015. IN THE SAID ORDER, TH E ASSESSING OFFICER HELD THAT WHILE COMPLETING THE ASSESSMENT, THE ASS ESSING OFFICER HAS WRONGLY ALLOCATED THE ACTUAL REVENUE EXPENDITURE INSTEAD OF TOTAL R&D EXPENDITURE INCLUDING THE AMOUNT ON WHICH THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 35(2AB) OF THE ACT. FURTHER, THE ASSESSING OFFICER HELD THAT THE DEDUCTION O F R&D EXPENDITURE HAS TO BE ALLOWED A S PER THE AMOUNT MENTIONED IN FORM NO.3CL, ISSUED BY THE DSIR. AGAINST THE ORDER PASSED UNDER SECTION 154 OF THE ACT, THE ASSESSEE PREFERRED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 5 INDOCO REMEDIES LTD. 6. AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE IN THE CONTEXT OF THE F ACTS AND MATERIAL ON RECORD, LEARNED COMMISSIONER (APPEALS) OBSERVED THAT THE ISSUE S ON WHICH THE ASSESSING OFFICER HAS INVOKED HIS POWERS UNDER SECTION 154 OF THE ACT ARE DEBATABLE ISSUE S . FURTHER, HE OB SERVED THAT THE ALLOCATION OF EXPENDITURE BETWEEN THE HEAD OFFICE AND BADDI UNIT WAS EXAMINED BY THE ASSESSING OFFICER IN COURSE ASSESSMENT PROCEEDINGS AND AFTER TAKING NOTE OF ALL THE RELEVANT FACTS, THE ASSESSING OFFICER HAS R E ALLOCATED CERTAIN EXPENDITURE TO THE BADDI UNIT. THUS, HE HELD THAT THE ALLOCATION OF R&D EXPENDITURE TO THE BADDI UNIT SHOULD BE MADE AS PER THE ASSESSMENT ORDER. ACCORDINGLY, HE ALLOWED ASSESSEES APPEAL. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED , THE ISSUES ON WHICH THE ASSESSING OFFICER EXERCISED POWER OF RECTIFICATION UNDER SECTION 154 OF THE ACT ARE NOT DEBATABLE ISSUE S , BUT ONLY CONCERNING THE QUANTUM OF DEDUCTION ALLOWED. THEREFORE, IT IS A RECTIFIABLE MISTAKE. 8. PER CONTRA, THE LEARNED COUNSEL FOR THE ASSESSEE HEAVILY RELYING UPON THE OBSERVATION S OF LEARNED COMMISSIONER (APPEALS) SUBMITTED , THE ALLOCATION OF EXPENDITURE BETWEEN ELIGIBLE AND NON ELIGIBLE UNIT S BEING A DEBATABLE ISSUE, THE ASSESSING OFFICER COULD NOT HAVE PASSED THE ORDER UNDER SECTION 154 OF THE ACT. FURTHER, HE SUBMITTED , UNDER ID ENTICAL FACTS AND CIRCUMSTANCES THE ASSESSING OFFICER HAS PASSED AN 6 INDOCO REMEDIES LTD. ORDER UNDER SECTION 154 OF THE ACT IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2010 11, WHICH WAS REV ERSED BY THE LEARNED COMMIS SIONER (APPEALS). HE SUBMITTED , WHILE DECIDING REVENUES APPEAL, THE TRIBUNAL HAS AGREED WITH THE OBSERVATIONS OF LEARNED COMMISSIONER (APPEALS) THAT THE ISSUES ON WHICH THE ASSESSING OFFICER HAS EXERCISED POWER UND ER SECTION 154 OF THE ACT, ARE DEBATABLE ISSUE S . THUS, HE SUBMITTED , THE AFORESAID DECISION OF THE TRIBUNAL SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT APPEAL . 9. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. A READING OF THE ASSESSMENT ORDER PASSED UNDER SECTION 143( 3) OF THE ACT CLEARLY REVEAL S THAT THE ASSESSING OFFICER WHILE EXAMINING ASSESSEES CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT IN RESPECT OF BADDI UNIT HAS EXAMINED ALL THE RELEVANT FACTS AND HAS THEREAFTER APPORTIONED/ RE ALLOCATED CERTAIN COMMON EXP ENDITURE TO THE BADDI UNIT RESULTING IN DISALLOWANCE OF ` 4,07,02,900, OUT OF THE DEDUCTION CLAIMED UNDER SECTION 80IC OF THE ACT. IT IS ALSO RELEVANT TO OBSERVE , THE AFORESAID DECISION OF THE ASSESSING O FFICER WAS CHALLENGED BEFORE LEARNED COMMISSIONER (A PPEALS) AND THE ENTIRE ISSUE RELATING TO THE ALLOCATION OF EXPENDITURE TO THE BADDI UNIT WAS SUBJECT MATTER OF THE AP PEAL. AS RIGHTLY OBSERVED BY LEARNED COMMISSIONER (APPEALS) , WHILE COMPLETING THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT, THE ASSESSING OFFICER HAS ALLOCATED THE COMMON EXPENDITURE INCLUDING R&D 7 INDOCO REMEDIES LTD. EXPENDITU RE TO DIFFERENT UNITS ON PRO RATA BASIS. IT IS ALSO A FACT THAT IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS NEVER GIVEN ANY FINDING THAT THE ELIGIBLE DEDUCTION UNDER SECTION 35 OF THE ACT HAS TO BE ALLOCATED TO VARIOUS UNITS. THUS , WHEN THE ASSESSING OFFICER AFTER APPLYING HIS MIND TO THE FACTS AND MATERIAL ON RECORD IN THE COURSE OF ASSESSMENT PROCEEDINGS HAS COMPUTED DEDUCTION UNDER SECTION 80IC OF THE ACT ON RE ALLOCATION OF CERT AIN EXPENDITURE , PROCEEDINGS UNDER SECTION 154 OF THE ACT COULD NOT HAVE BEEN INITIATED ONLY BECAUSE IT IS FELT THAT CERTAIN EXPENDITURE HAS BEEN IMPROPERLY ALLOCATED . WHEN THE FACTS ON RECORD SHOW THAT THE ASSESSEE W AS MAINTAINING SEPARATE BOOKS OF ACCOUN T IN RESPECT OF ITS VARIOUS UNITS, ALLOCATION OF COMMON EXPENSES TO DIFFERENT UNITS BY ITSELF IS A DEBATABLE ISSUE. THAT BEING THE CASE, THE ASSESSING OFFICER HAVING DEALT WITH SUCH DEBATABLE ISSUE IN THE ASSESSMENT ORDER, IT CANNOT BE DEALT WITH AGAIN IN RECTIFICATION PROCEEDINGS UNDER SECTION 154 OF THE ACT WHICH IS ONLY MEANT TO RECTIFY MISTAKE S APPARENT ON THE FACE OF RECORD. NOTABLY, UNDER SIMILAR FACTS AND CIRCUMSTANCES , THE ASSESSING OFFICER HAD INITIATED PROCEEDINGS AND PASSED UNDER SECTION 154 OF THE ACT IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2010 11 RE ALLOCATING, THE R&D EXPENDITURE ON THE BASIS OF DEDUCTION CLAIMED UNDER SECTION 35(2AB) OF THE ACT. THE SAID ORDER HAVING BEEN ANNULLED BY L EARNED COMMISSIONER (APPEALS), THE REVENUE CAME IN APPEAL BEFORE THE TRIBUNAL. THE TRIBUNAL WHILE DECIDING THE ISSUE IN ITA NO.4627/MUM./2017, DATED 27 TH AUGUST 8 INDOCO REMEDIES LTD. 2019, HAVING AGREED WITH THE VIEW EXPRESSED BY LEARNED COMMISSIONER (APPEALS) THAT THE ISSUES O N WHICH PROCEEDINGS UNDER SECTION 154 OF THE ACT, HAS BEEN INITIATED ARE DEBATABLE ISSUE S, UPHELD THE DECISION OF LEARNED COMMISSIONER (APPEALS). FACTS BEING IDENTICAL, THE AFORESAID DECISION OF THE CO ORDINATE BENCH WILL CLEARLY APPLY. IN VIEW OF THE AFOR ESAI D, WE UPHOLD THE DECISION OF LEARNED COMMISSIONER (APPEALS) BY DISMISSING THE GROUNDS RAISED BY THE REVENUE. 10. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ITA NO.4537/MUM./2017 ASSESSEES APPEAL A.Y. 2011 12 11. THE ONLY ISSUE RAISED IN THE PRESENT AP PEAL RELATES TO DISALLOWANCE OF ` 4,07,02,900, OUT OF DEDUCTION CLAIMED UNDER SECTION 80IC OF THE ACT. 12. AS DISCUSSED EARLIER, IN THE RETURN OF INCOME FILED FOR THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 80IC OF THE ACT IN RESPECT OF THE BADDI UNIT. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER WHILE EXAMINING THE CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT, NOTICED THAT T HE ASSESSEE HAS NOT APPORTIONED THE HEAD OFFICE EXPENSES AND SOME OTHER EXPENSES IN PROPER RATIO TO THE BADDI UNIT. AFTER CALLING FOR THE NECESSARY DETAILS AND VERIFYING THEM, THE ASSESSING OFFICER OBSERVED THAT AS AGAINST THE TOTAL SALES TURNOVER DURING T HE YEAR AMOUNTING TO ` 9 INDOCO REMEDIES LTD. 478.47 CRORE, THE SALE TURNOVER OF BADDI UNIT WAS ` 164.15 CRORE , WORKING OUT TO 35% OF THE TOTAL SALES. ACCORDINGLY, ON A PRO RATA BASIS HE APPORTIONED 35% OF THE COMMON EXPENSES TO BADDI UNIT. THIS RESULTED IN REDUCTION OF ASSESSEE S CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT BY ` 4,07,02,900. THOUGH, THE ASSESSEE CHALLENGED THE AFORESAID DISALLOWANCE BEFORE LEARNED COMMISSIONER (APPEALS), HOWEVER IT WAS UNSUCCESSFUL. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED, WHILE DECID ING SIMILAR ISSUE IN PRECEDING YEARS THE TRIBUNAL HAS RESTORED THE ISSUE TO THE ASSESSING OFFICER. 13. THE LEARNED DEPARTMENTAL REPRESENTATIVE ALSO AGREED WITH THE AFORESAID SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE. 14. WE HAVE CONSIDERED RIVAL SUBMIS SIONS AND PERUSED THE MATERIAL ON RECORD. THE HEAD OFFICE EXPENSES WHICH WERE ALLOCATED TO THE BADDI UNIT BY THE ASSESSING OFFICER ARE AS UNDER: R&D EXPENSES ` 3,26,94,848 DEPRECIATION ON HEAD OFFICE ASSETS ` 80,08,052 TOTAL: ` 4,07,02,900 15. IT IS SEEN FROM THE MATERIAL ON RECORD THAT SIMILAR ALLOCATION OF R&D EXPENSES AND DEPRECIATION ON HEAD OFFICE ASSETS WERE MADE IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2009 10. THE TRIBUNAL WHILE DECIDING THE ISSUE IN ITA NO.4478/MUM./2012, DATED 9 TH OCT OBER 2013, 10 INDOCO REMEDIES LTD. RESTORED THE IS SUE TO THE ASSESSING OFFICER. FURTHER, WHILE CONSIDERING IDENTICAL ISSUE IN ASSESSEES OWN CASE IN THE ASSESSMENT YEAR 2010 11, THE TRIBUNAL IN ITA NO.4538/MUM./2017, DATED 27 TH AUGUST 2019, FOLLOWING ITS ORDER IN ASSESSMENT YEAR 2009 10 ALSO RESTORED THE ISSUE TO THE ASSESSING OFFICER FOR RE ADJUDICATION. FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING THE CONSISTENT VIEW OF THE TRIBUNAL IN ASSESSEES OWN CASE AS NOTED ABOVE, WE RESTORE THE ISSUE TO THE ASSESSING OFFICER FOR RE ADJU DICATION AFTER DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 16. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO.4629/MUM./2017 REVENUES APPEAL A.Y. 2011 12 17. IN GROUNDS NO.1 TO 4, THE REVENUE HAS CHALLENGED THE DELETION OF DISALLOWANCE OF EXPENDITURE INCURRED TOWARDS GIFT S/FREEBIES GIVEN TO THE D OCTORS. 18. BRIEF FACTS ARE, IN THE C OURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD CLAIMED EXPENDITURE OF ` 1,45,84,149, TOWARDS GIFT AND PRESENTATION ARTICLES GIVEN TO DOCTORS . S TATING THAT SUCH GIFTS ARE IN CONTRAVENTION OF MEDICAL COUNCIL OF INDIA (MCI) REGULATIONS, WHEREIN , IT HAS BEEN PROVIDED THAT MAK ING SUCH PERSONAL GIFTS TO THE D OCTORS IS AN UNETHI CAL ACT, THE ASSESSING OFFICER 11 INDOCO REMEDIES LTD. HELD THAT THE EXPENDITURE CLAIMED CANNOT BE ALLOWED IN VIEW OF EXPLANATION TO SECTION 37(1) OF THE ACT. BEING AGGRIEVED WITH SUCH DISALLOWANCE, THE ASSE SSEE PREFERRED APPEAL BEFORE LEARNED COMMISSIONER (APPEALS). 19. AFTER CONSI DERING THE SUBMISSIONS OF THE ASSESSEE IN THE CONTEXT OF THE FACTS AND MATERIAL ON RECORD AS WELL AS THE JUDICIAL PRECEDENTS CITED BEFORE HIM, LEARNED COMMIS SIONER (APPEALS) HELD THAT THE M CI REGULATIONS ARE APPLICABLE TO THE D OCTORS AND MEDICAL PRACTITION ERS AND NOT TO PHARMACEUTICAL COMPANIES. FURTHER, HE HELD THAT CBDT CIRCULAR NO.5 OF 2012 DATED 1 ST AUGUST 2012, WOULD APPLY PROSPECTIVELY. W H ILE DOING SO, HE ALSO RELIED UPON THE DECISIONS RENDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN THE PRECEDING A SSESSMENT YEAR S . THUS, ON THE AFORESAID PREMISES, HE DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 20. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED , B EFORE THE ASSESSING OFFICER ASSESSEE HAD NOT FURNISHED THE BREAK UP OF THE GIFT ITEMS GIVEN TO THE D OCTORS. THEREAFTER, REFERRING TO THE OBSERVATIONS OF TH E ASSESSING OFFICER AS WELL AS M CI REG ULATIONS AND CBDT CIRCULAR NO.5 OF 2012 DATED 1 ST AUGUST 2012, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED , THE DISALLOWANCE MADE BY THE ASSESSING OFFI CER SHOULD BE RESTORED. 12 INDOCO REMEDIES LTD. 21. THE LEARNED COUNSEL FOR THE ASSESSEE STRONGLY RELYING UPON THE OBSERVATIONS OF LEARNED COMMISSIONER (APPEALS) SUBMITTED , M CI REGULATI ONS ARE APPLICABLE ONLY TO THE D OCTORS AND NOT PHARMACEUTICAL COMPANI ES. THEREFORE, BY RELYING UPON M CI GUIDELINES, THE EXPENDITURE CLAIMED BY THE ASSESSEE CANNOT BE DISALLOWED. FURTHER, HE SUBMITTED , CBDT CIRCULAR NO.5 OF 2012 DATED 1 ST AUGUST 201 2, CANNOT ENLARGE THE SCOPE OF M CI GUIDELINES OR THE PROVISIONS OF THE ACT IN THE ABSENCE OF ANY ENABLI NG PROVISIONS. THEREFO RE, EVEN THE CBDT CIRCULAR NO.5 OF 2012 CANNOT BE PRESSED INTO ACTION TO DISALLOW ASSESSEES EXPENDITURE IRRESPECTIVE OF WHETHER SUCH CIRCULAR WILL APPLY PROSPECTIVELY OR RETROSPECTIVELY . FURTHER, HE SUBMITTED , IDENTICAL ISSUE HAS BEE N DECIDED IN FAVOUR OF THE ASSESSEE IN ITS OWN CASE IN THE PRECEDING ASSESSMENT YEAR S . ADDITIONALLY, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS OTHERWISE SQUARELY COVERED BY THE FOLLOWING DECISIONS OF THE TRIBUNAL: I) MEDLEY PHARMACEUT ICALS LTD. V/S DCIT, ITA NO.2344/ MUM./2018, DATED 22.07.2020; II) DCIT V/S PHL PHARMACEUTICALS LTD., 78 TAXMANN.COM 36; III) AISHIKA PHARMA PVT. LTD. V/S ITO, 106 TAXMNN.COM 192 (DEL.); IV) PEE RLESS HOSPITE X HOSPITAL AND RESEARCH CENTRE LTD. V/S DCIT, 144 TAXMANN.COM 583; V) ARISTO PHARMACEUTICALS PVT. LTD. V/S ACIT, 107 TAXMANN.COM 119; VI) DCIT V/S INDIA MEDTRONICS PVT. LTD., 112 TAXMANN.COM 119; 13 INDOCO REMEDIES LTD. VII) SOLVAY PHARMA INDIA LTD. V/S PCIT, 89 TAXMANN.COM 249; AND VIII) DCIT V/S PIRAMAL ENTERPRISES, 117 TAXMANN.COM 970. 22. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD IN THE LIGHT OF DECISIONS RELIED UPON. UNDISPUTEDLY, THE EXPENDITURE INCURRED TOWARDS PROVIDING GIFT S/FREEBIES TO D OCTOR S/ MEDICAL PROFES SIONALS WAS DISALLOWED BY THE ASSESSING OFFICER PURELY ON THE GROUND THAT AS PER MCI REGULATION S, 2002, DOCTORS/ MEDICAL PRACTITIONERS ARE DEBARRED FROM ACCEPTING ANY GIFT , TRAVEL FACILITY, HOSPITALITY/ CASH OR MON ETARY GRANT FROM PHARMACEUTICAL AND ALLIED H EALTH SECTOR INDUSTRIES. FURTHER, IN THE COURSE OF HEARING, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS ALSO REFERRED TO CBDT CIRCULAR NO.5 OF 2012 DATED 1 ST AUGUST 2012, WHILE JUSTIFYING THE DISALLOWANCE OF THE AFORESAID EXPENDITURE BY THE ASSESSING OFFIC ER. IT IS THE SAY OF THE ASSESSEE FROM THE VERY BEGINNING THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IN PROVIDING GIFTS/ FREEBIES IS ONLY FOR THE PURPOSE OF BUSINESS PROMOTION AS SUCH GIFT ITEMS BEAR ASSESSEES LOGO. IT HAS BEEN SUBMITTED BY THE ASSESSEE THAT THE EXCEPTION PROVIDED UNDER THE EXPLANATION TO SECTION 37(1) OF THE ACT WOULD NOT BE APPLICABLE AS THE ASSESSEE CANNOT BE ACCUSED OF INFRACTION OF ANY LAW. IT IS THE SAY OF THE ASSESSEE THAT THE MCI REGULATIONS ARE ONLY APPLICABLE TO THE DOCTORS/ MED ICAL PRACTITIONERS AND NOT TO THE PHARMACEUTICAL COMPANIES. 14 INDOCO REMEDIES LTD. 23. IN OUR VIEW, THE AFORESAID CONTENTION OF THE ASSESSEE DESERVES ACCEPTANCE. THE CO ORDINATE BENCH IN PHL PHARMA LTD. (SUPRA) HAS HELD THAT MCI REGULATIONS ARE APPLICA BLE ONLY TO THE DOCTORS/ MEDICA L PRACTITIONER S AND NOT TO PHARMACEUTICAL COMPANIES. THEREFORE, THE MCI REGULATIONS CANNOT BE BROUGHT INTO PLAY TO INVOKE EXPLANATION TO SECTION 37(1) OF THE ACT FOR DISALLOWING EXPENDITUR E CLAIMED BY THE ASSESSEE. THE B ENCH HAS ALSO HELD THAT CBDT CIRCULAR NO.5 OF 2012 DATED 1 ST AUGUST 2012, CANNOT ENLARGE THE SCOPE OF MCI REGULATIONS DE HOR S ANY ENABLING PROVISION EITHER UNDER THE ACT OR THE MCI REGULATIONS. THE BENCH HAS OBSERVED , THOUGH , CBDT CAN TONE DOWN THE RIGORS OF LAW IN ORDER TO ENSU RE A FA I R ENFORCEMENT OF THE PROVISIONS BY ISSUING CIRCULARS FOR CLARIFYING THE STATUTORY PROVISIONS, HOWEVER, IT IS DIVESTED OF ALL ITS POWER TO CREATE A NEW IMPAIRMENT ADVERSE TO AN ASSESSEE OR TO A CLASS OF ASSESSEE S WITHOUT ANY SANCTION OR AUTHORITY OF LAW. THE AFORESAID LEGAL PROPOSITIONS HAVE BEEN SUBSEQUENTLY REITERATED IN A NUMBER OF DECISIONS RENDERED BY THE TRIBUNAL WHICH ARE AS UNDER: I) ARISTO PHARMACEUTICALS PVT. LTD. V/S ACIT, 107 TAXMANN.COM 119; II) MEDLEY PHARMACEUTICALS LTD. V/S DCIT, ITA NO.2344/ MUM./2018, DATED 22.07.2020; AND III) AISHIKA PHARMA PVT. LTD. V/S ITO, 106 TAXMNN.COM 192 (DEL.) . 15 INDOCO REMEDIES LTD. 24. THUS, FROM THE RATIO LAID DOWN IN THE AFORESAID DECISION S , IT CAN BE SAFELY CONCLUDED THAT NEITHER THE MCI REGULATIONS 2002 NOR THE CBDT CIRCULAR NO.5 OF 2012 DATED 1 ST AUGUST 2012, WOULD BE APPLICABLE TO THE PHARMACEUTICAL COMPANIES. THAT BEING THE CASE, THE EXPENDITURE INCURRED BY THE ASSESSEE CANNOT BE DISALLOWED ALLEGING INFRACTION OF LAW IN TERMS OF EXPLANATION 1 TO SECTION 37(1) OF THE ACT. THE DE CISION S RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE CLEARLY SUPPORTS THE AFORESAID VIEW. THAT BEING THE CASE, THE DISPUTED EXPENDITURE CLAIMED BY THE ASSESSEE IS ALLOWABLE. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LEARNED COMMISSIONER (APPEALS) IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. T HESE GROUNDS ARE DISMISSED. 25. IN GROUND NO.5, THE REVENUE HAS CHALLENGED RESTRICTION OF DISALLOWANCE ON ACCOUNT OF BOGUS PURCHASE. 26. BRIEF FACTS ARE, DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ON THE BASIS OF INFORMATION RECEIVED FROM THE SALES TAX DEPARTMENT THAT PURCHASES WORTH ` 23,86,994 CLAIMED TO HAVE BEEN MADE FROM THREE PARTIES ARE NON GENUINE , CALLED UPON THE ASSESSEE TO PROVE THE GENUINENESS OF SUCH PURCHASES. FURTHER, TO INDEPENDENTLY VERIFY THE AUTHENTICITY OF SUCH PURCHASES, THE ASS ESSING OFFICER ISSUED NOTICE S UNDER SECTION 133(6) OF THE ACT TO THE CONCERNED PARTIES. IT IS ALLEGED THAT ALL SUCH NOTICES RETURNED BACK UNSERVED. THUS, HOLDING 16 INDOCO REMEDIES LTD. THAT GENUINENESS OF THE AFORESAID PURCHASES COULD NOT BE PROVED, THE ASSESSING OFFICER DISALLO WED THE ENTIRE AMOUNT OF ` 23,86,994. WHILE CONSIDERING SUCH DISALLOWANCE DISPUTED BY THE ASSESSEE, LEARNED COMMISSIONER (APPEALS) OBSERVED THAT THE ASSESSING OFFICER HAS NOT REJECTED THE BOOKS OF ACCOUNT, HENCE , THE CONSUMPTION OF THE DISPUTED PURCHASES C ANNOT BE DENIED. THEREFORE, RELYING UPON CERTAIN JUDICIAL PRECEDENTS, LEARNED COMMISSIONER (APPEALS) OBSERVED THAT IN SUCH CIRCUMSTANCES, THE ENTIRE PURCHASES CANNOT BE DISALLOWED, BUT THE PROFIT ELEMENT INVOLVED IN SUCH PURCHASES CAN BE CONSIDERED FOR DIS ALLOWANCE. ACCORDINGLY, HE RESTRICTED THE DISALLOWANCE TO 12.5% OF THE ALLEGED NON GENUINE PURCHASES. 27. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AS RIGHTLY OBSERVED BY LEARNED COMMISSIONER (APPEALS), THE ASSESSING OFFICER HAS NOT REJECTED THE BOOKS OF ACCOUNT. FURTHER, HE HAS NOT RAISED ANY DOUBT WITH REGARD TO THE CONSUMPTION OF GOODS AND TURNOVER OF SALES. THEREFORE, THE ONLY DOUBT WHICH REMAINS IS WITH REGARD TO THE ACTUAL SOURCE OF PURCHASES. IN SUCH CIRCUMSTANCE S, AS PER THE SETTLED PRINCIPLE OF LAW, THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES CAN BE CONSIDERED FOR ADDITION. KEEPING IN VIEW THE DECISION RENDERED IN SIMILAR NATURE OF CASE, WE ARE OF THE CONSIDERED OPINION THAT THE DISALLOWANCE @ 12.5% IS REASONABLE, HENCE , DOES NOT REQUIRE ANY INTERFERENCE. ACCORDINGLY, UPHOLDING THE ORDER OF LEARNED 17 INDOCO REMEDIES LTD. COMMISSIONER (APPEALS), WE DISMISS THE GROUND RAISED BY THE REVENUE. 28. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ITA NO.4536/MUM./2017 ASSESSEES APPEAL A.Y. 2012 13 29. THE ONLY ISSUE IN DISPUTE IN THIS APPEAL IS IN RELATION TO PART DISALLOWANCE OF DEDUCTION CLAIMED UNDER SECTION 80IC OF THE ACT BY RE ALLOCATING CERTAIN EXPENDITURE TO BADDI UNIT WHICH IS ELIGIBLE TO CLAIM DEDUCTION UNDER SECTION 80IC OF THE ACT. AS DISCUS SED EARLIER, THE ASSESSEE IN THE RETURN OF INCOME FILED FOR THE IMPUGNED ASSESSMENT YEAR HAD CLAIMED DEDUCTION UNDER SECTION 80IC OF THE ACT IN RESPECT OF ITS MANUFACTURING UNIT AT BADDI. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER WHILE VERIF YING ASSESSEES CLAIM UNDER SECTION 80IC OF THE ACT WAS OF THE VIEW THAT CERTAIN COMMISSION AND HEAD OFFICE EXPENSES WHICH HAVE NOT BEEN ALLOCATED TO THE BADDI UNIT SHOULD BE ALLOCATED ON PRO RATA BASIS. ACCORDINGLY, HE COMPARED THE TOTAL SALES AS AGAINST THE SALES EFFECTED BY THE BADDI UNIT AND FOUND THAT THE SALE OF BADDI UNIT WORKS OUT TO 35% OF THE TOTAL SALES. THUS, HE ALLOCATED 35% OF THE EXPENDITURE INCURRED UNDER THE HEAD PACKING AND DELIVERY CHARGES, ANALYTICAL EXPENSES, ADVERTISEMENT AND SALES PRO MOTION EXPENSES, R&D EXPENSES AND DEPRECIATION ON HEAD OFFICE ASSETS TO THE BADDI UNIT. AS A RESULT OF SUCH ALLOCATION, THE DEDUCTION 18 INDOCO REMEDIES LTD. CLAIMED UNDER SECTION 80IC OF THE ACT WAS REDUCED BY AN AMOUNT OF ` 5,80,98,881. THOUGH , THE ASSESSEE CHALLENGED THE AFORE SAID DISALLOWANCE BEFORE LEARNED COMMISSIONER (APPEALS), HOWEVER, THE DISALLOWANCE WAS UPHELD. 30. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED , WHILE DECIDING IDENTICAL ISSUE IN ASSES SEES OWN CASE IN THE PRECEDING ASSESSMENT YEAR S , THE TRIBUNAL HAS FULLY ALLOWED THE EXPENDITURE RELATING TO PACKING AND DELIVERY CHARGES, ANALYTICAL EXPENSES, ADVERTISEME NT AND SALES PROMOTION EXPENSES. WHEREAS, THE ISSUE RELATING TO THE CLAIM OF R&D EXPE NSES AND DEPRECIATION ON HEAD OFFICE ASSET S HAS BEEN RESTORED BACK TO THE ASSESSING OFFICER FOR FRESH ADJUDICATION. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS NOT DISPUTED THE AFORESAID FACTUAL POSITION. ON A PERUSAL OF RECORD, WE FIND THAT WHILE DECIDING ASSESSEES APPEAL ON IDENTICAL ISSUE IN ASSESSMENT YEAR 2008 09 IN ITA NO.7373/MUM./2011, DATED 23 RD OCTOBER 2012, THE TRIBUNAL HAS FULLY ALLOWED ASSESSEES CLAIM OF EXPENDITURE RELATING TO PACKING AND DELIVERY CHARGES, ANALYTICAL EXPENSES, ADVERTISEME NT AND SALES PROMOTION EXPENSES. WHEREAS , WHILE DECIDING ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2009 10 IN ITA NO.4478/MUM./2012, DATED 9 TH OCTOBER 2013, THE TRIBUNAL HAS RESTORED THE ISSUE RELATING TO RE ALLOCATION OF DEPRECIATION ON HEAD OFFICE ASSETS AN D R&D EXPENSES 19 INDOCO REMEDIES LTD. TO BADDI UNIT BACK TO THE ASSESSING OFFICER FOR RE ADJUDICATION. FOLLOWING THE AFORESAID ORDERS, THE TRIBUNAL WHILE DECIDING ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2010 11 IN ITA NO.4538/MUM./2017, DATED 27 TH AUGUST 2019, HAS DIRECTED THE ASSESSING OFFICER TO ALLOW THE EXPENDITURE INCURRED TOWARDS PACKING AND DELIVERY CHARGES, ANALYTICAL EXPENSES, ADVERTISEMENT AND SALES PROMOTION EXPENSES, WHEREAS, DIRECTED HIM TO RE ADJUDICATE AFRESH THE ISSUE OF REALLOCATION OF R& D EXPENSES AND DEPRECIATION ON HEAD OFFICE ASSETS TO THE BADDI UNIT . FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING THE CONSISTENT VIEW OF THE TRIBUNAL IN ASSESSEES OWN CASE AS NOTED ABOVE, WE ALLOW ASSESSEES CLAIM OF EXPENSES WITH REGARD TO PACKING AND D ELIVERY CHARGES, ANALYTICAL EXPENSES, ADVERTISEME NT AND SALES PROMOTION EXPENSES. WHEREAS, THE ISSUE RELATING TO RE ALLOCATION OF DEPRECIATION ON HEAD OFFICE ASSETS AND R&D EXPENSES ARE RESTORED BACK TO THE ASSESSING OFFICER FOR FRESH ADJUDICATION AFTER PR OVIDING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND IS PARTLY ALLOWED. 31. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ITA NO.4591/MUM./2017 REVENUES APPEAL A.Y. 2012 13 32. THE ONLY DISPUTE IN THE PRESENT APPEAL RELATES TO DELETION OF DISALLOWANCE OF EX PENDITURE INCURRED TOWARDS GIFT/FREEBIES GIVEN TO D OCTORS. 20 INDOCO REMEDIES LTD. 33. THIS ISSUE IS IDENTICAL TO THE ISSUE RAISED IN GROUNDS NO.1 TO 4 OF ITA NO.4629/MUM./2017. FOLLOWING OUR DECISION THEREIN, W E UPHOLD THE ORDER OF LEARNED COMMISSIONER (APPEALS) BY DISMISSING THE GROUNDS RAISED BY THE REVENUE. 34. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ITA NO.6532/MUM./2017 ASSESSEES APPEAL FOR A.Y. 2013 14 ITA NO.6533/MUM./2017 ASSESSEES APPEAL FOR A.Y. 2014 15 35. THE FIRST COMMON ISSUE RAISED IN GROUND NO.1, IN BOTH THE APPEALS RELATES TO DISALLOWANCE OF EXPENDITURE INCURRED TOWARDS PROVIDING GIFT/FREEBIES TO D OCTORS. 36. AS COULD BE SEEN, THOUGH , LEARNED COMMISSIONER (APPEALS) HAD ALLOWED THE AFORESAID EXPENDITURE CLAIMED BY THE ASSESSEE IN ASSESSMENT YEAR S 2011 12 AND 2012 13, HOWEVER, HE UPHE LD THE DISALLOWANCE IN THE IMPUGNED ASSESSMENT YEAR ON THE RE ASONING THAT CBDT CIRCULAR NO.5 OF 2012 DATED 1 ST AUGUST 2012, WOULD BE APPLICABLE TO THE IMPUGNED ASS ESSMENT YEAR S . AS DISCUSSED EARLIER BY US WHILE DECIDING SIMILAR ISSUE IN ITA NO. 4629/MUM/2017 , SUPRA, CBDT CIRCULAR NO.5 OF 2012 DATED 1 ST AUGUST 2012, IRRESPECTIVE OF THE FACT WHETHER IT WILL APPLY RETROSPECTIVELY OR PROSPECTIVELY , WOULD NOT BE APPLICAB LE TO THE PHARMACEUTICAL COMPANIES AS THE CBDT DOES NOT HAVE ANY POWER 21 INDOCO REMEDIES LTD. TO ENLARGE THE SCOPE OF MCI REGULATIONS IN THE ABSENCE OF ANY ENABLING PROVISIONS EITHER IN THE ACT OR MCI REGULA TIONS. THEREFORE, OUR REASONING/ DECISION WHILE ALLOWING ASSESSE ES CLAIM OF SUCH EXPENDITURE AS CONTAINED IN PARA GRAPH S 22 TO 24 OF THIS ORDER , WOULD APPLY MUTATIS MUTANDIS TO THESE APPEALS ALSO. THEREFORE, THE EXPENDITURE CLAIMED BY THE ASSESSEE IS ALLOWED. ACCORDINGLY, WE DELETE THE DISALLOWANCE S MADE BY THE ASSESS ING OFFICE R AND SUSTAINED BY LEARNED COMMISSIONER (APPEALS) IN BOTH THE YEARS . THESE GROUNDS ARE ALLOWED. 37. THE NEXT COMMON ISSUE AS RAISED IN GROUND NO.2 OF BOTH THE APPEALS RELATES TO PART DISALLOWANCE OF DEDUCTION CLAIMED UNDER SECTION 80IC OF THE ACT BY RE ALLOCATING DEPRECIATION ON HEAD OFFICE ASSETS AND R&D EXPENSES TO BADDI UNIT. 38. THE AFORESAID ISSUE IS IDENTICAL TO THE ISSUE RAISED IN ITA NO. 4537/M UM./2017, DEALT BY US EARLIER. FOLLOWING OUR DECISION IN PARAGRAPH 14 AND 15 OF THIS ORDER, WE RESTORE THE ISSUE TO THE ASSESSING OFFICER FOR FRESH ADJUDICATION AFTER PROVIDING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THESE GROUNDS ARE ALLOWED FOR S TATISTICAL PURPOSES. 39. IN THE RESULT, APPEALS ARE PARTLY ALLOWED. 40. TO SUM UP, ASSESSEES APPEAL IN ITA NO.4537/MUM./2017, IS ALLOWED FOR STATISTICAL PURPOSES; ASSESSEES APPEAL IN ITA 22 INDOCO REMEDIES LTD. NO.4536/MUM./2017, IS PARTLY ALLOWED; ASSESSEES APPEAL IN ITA NO. 6532/M UM./2017 & ITA NO.6533/MUM/ 2017 ARE PARTLY ALLOWED; AND REVENUES APPEALS BEING ITA NO.4628/MUM./2017 , ITA NO.4629/MUM./2017 AND ITA NO.4591/MUM/2017 ARE DISMISSED. ORDER PRONOUNCED THROUGH NOTICE BOARD UNDER RULE 34(4) OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1963 ON 03.09.2020 SD/ - MANOJ KUMAR AGGARWAL ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 03.09.2020 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT, MUMBAI