MACLEODS PHARMACEUTICALS LTD, MUMBAI V. ADDL CIT 8(2), MUMBAI

ITA 7404/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3026 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 11-12-2014
• Court: TRIBUNAL
• Department Lawyers: N P SINGH
• Keywords: Gift
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B , MUMBAI BEFORE SHRI R.C. SHARMA , ACCOUNTANT MEMBER AND SHRI SAN DEEP GOSAIN , JUDICIAL MEMBER ./ ITA NO S . 7404 & 7405 /M/201 4 ( / ASSESSMENT YEAR ; 20 10 - 11 & 2011 - 12 ) MACLEODS PH ARMACEUTICALS LTD. 304 ATLANT ARCADE MAROL CHURCH RD. ANDHERI (E) MUMBAI 4000 0 59 PAN: A AACM4100C / VS. A DDL. CIT 8 ( 2 ) MUMBAI ( / APPELLANT) ( / RESPONDENT) ASSESSEE BY : SHRI A SHOK BANSAL (AR) RE VENUE BY : SHRI N. P. SINGH ( CIT. DR) / DATE OF HEARING : 1 3 . 0 7 .201 6 / DATE OF PRONOUNCEMENT : 21.09 .2016 / O R D E R PER R.C.SHARMA (A.M.) : THESE ARE THE APPEALS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A), FOR ASSESSMENT YEAR 2010 - 11 & 2011 - 12, IN THE MATTER OF ORDER PASSED UNDER SECTION 143(3) OF THE I.T. ACT. 2. COMMON GRIEVANCE OF THE ASSESSEE IN BOTH THE YEARS RELATE TO DISALLOWANCE ON ACCOUNT OF SALES PROMOTION EXPENSES. 3. RIVAL CONTENTIONS HAVE BEEN HEARD ON RECORD AND PERUSED . FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING & DEALING IN PHARMACEUTICAL PRODUCTS, NAMELY TABLETS, CAPSULES, LIQUIDS, INJECTIBLES ETC. THE ASSESSEE COMPANY HAS MANUFACTURING PLANT AT PAL GHAR, DAMAN PHASE - I(3 UNITS), DAMAN PHASE - II, KABRA, DHANLAXMI, SARIGAM, AND BADDI. THE ASSESSEE COMPANY ALSO HAS ONE R&D UNIT AT MUMBAI. DURING THE ASSESSMENT YEAR 2010 - 2011, THE ASSESSEE HAS SHOWN GROSS PROFIT AND NET PROFIT HAS BEEN SHOWN @47.86% AND @1 5.55% RESPECTIVELY. SEPARATE BALANCE SHEETS AND PROFITS & LOSS ACCOUNTS FOR EACH PLANT AND R&D UNIT HAVE BEEN OBTAINED, EXAMINED AND PLACED ON RECORD. F ROM THE RECORD, WE IT A NO S . 7404 & 7405 /M/201 4 2 FOUND THA T DURING THE ASSESSMENT PROCEEDINGS, THE LD. AO WHILE GOING THROUGH THE PROF IT & LOSS ACCOUNT OF THE ASSESSEE COMPANY FOR THE A.Y.2010 - 11 , FOUND TH A T THE A S S E SS E E H A S DEBITED SAL E S PR O M O TI O N E X P E N S ES . T HE AUTHORIZED REPRESENTAT IV E OF THE ASSESSEE WA S R E QUESTED TO INFORM ABOUT THE NATURE AND DETAILS OF TH E SE EXP E N S ES. THE A SSE S SEE FILED DETAILS OF THESE EXPENSES AND SUBMITTED THAT THESE EXPENSES WERE INCURRED IN THE REGULAR COURSE OF BUSINESS AND INCLUDES PAYMENTS MADE FOR PROMOTIONAL ITEMS , FREEBIES GI V EN TO VARIOUS MEDICAL PRACTIT I ON E R S IN TH E C O UNTR Y AS WELL AS A BROAD . I T WAS FUR TH E R E X PL A IN E D TH A T TH ES E EXPENS E S ALS O INCLUD E A M O UNT S IN C URRED ON VA RIOUS FIELD STAFF OF TH E C O MP A N Y WH I CH ARE SPRE A D THROUGH O UT THE COUNTRY . DURING THE COURSE OF A S SES S M E NT PRO C E E DINGS, THE ATTENTI O N O F THE AUTHOR I ZED REPRESENTAT IV E OF THE ASSESSEE W AS DRA W N BY AO TO WA RDS A MENDMENT NOTIFICATION DATED 10 - 12 - 2009 ISSUED BY MEDICAL COUNCIL OF INDIA ACCORDING TO WHICH I N DEALING WITH PHARMACEUTICAL AND ALLIED HEALTH SECTOR INDUSTRY , A MEDICAL PRACTITIONER SHALL FOLLOW AND ADHERE TO CERTAIN STIPULATIONS . THE AO STATED THAT AS MENTIONED IN THE NOTIFICATION A MEDICAL PRACTITIONER HAS NOT BEEN ALLOWED TO RECEIVE ANY GIFT , TRAVEL FACILITY, HOSPITALITY AND CASH OR MONETAR Y GRANTS FROM ANY PHARMACEUTICAL OR ALLIED HEALTHCARE INDUSTR Y. 4. THE AO REFERRED CBDT CIRCUL AR NO. 05/2012 DATED 1 - 8 - 2012 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES, NEW DELHI VIDE F.NO.225/142/2012 - ITA - II AND HELD THAT AS PER CBDT CIRCULAR DATED 1 - 8 - 2012, THESE EXPENDITURE CANNOT BE ALLOWED AS PER EXPLANATION TO SECTION 37(1). BY APPLYING THE SA ID CIRCULAR, THE AO DISALLOWED PART OF THE THESE SALES PROMOTIONAL EXPENSES. 5. BY THE IMPUGNED THE CIT(A) CONFIRMED THE ACTION OF AO IN BOTH THE YEARS UNDER CONSIDERATION, AGAINST WHICH, ASSESSEE IS IN FURTHER APPEAL BEFORE US. 6 . LD. AR APPEARING ON BE HALF OF THE ASSESSEE FILED COPY OF THE DECISION OF THE COORDINATE BENCH IN THE CASE OF SYCOM FORMULATIONS INDIA LTD., ITA NO.6429/M/2012, ORDER DATED 23 - 12 - 2015 AND CONTENDED THAT ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THIS ORDER OF CO - ORDINATE B ENCH. IT WAS IT A NO S . 7404 & 7405 /M/201 4 3 SUBMITTED THAT THIS DECISION OF COORDINATE BENCH SUPPORT S THE PROPOSITION THAT CBDT CIRCULAR DATED 1 - 8 - 2012 IS P RO SPECTIVE, THEREFORE, APPLICABLE FROM ASSESSMENT YEAR 2013 - 14. AS PER LD. AR NO DISALLOWANCE CAN BE MADE FOR THE YEARS UNDER CONS IDERATION I.E. 2010 - 11 & 2011 - 12 ON THE BASIS OF CBDT CIRCULAR DATED 1 - 8 - 12. LD. AR DREW OUR ATTENTION TO THE PRECISE OBSERVATION OF THE TRIBUNAL WITH REGARD TO NATURE OF EXPENDITURE SO INCURRED AND APPLICABILITY OF CBDT CIRCULAR DATED 1 - 8 - 2012, WHICH WAS HELD TO BE APPLICABLE FROM THE ASSESSMENT YEAR 2013 - 2014. 7 . ON THE OTHER HAND, LD. DR RELIED ON THE ORDER OF LOWER AUTHORITIES AND CONCEDED THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE DECISION OF COORDINA TE BENCH IN THE CASE OF SYNCOM FORMULATIONS (SUPRA). HOWEVER, NO DECISION TO THE CONTRARY WAS PLA CED ON RECORD BY LD. DR. 8 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. FROM THE RECORD WE FOUND T HAT ASSESSEE IS ENGAGED IN MANUFACTURING AND DEALING IN PHARMACEUTICALS PRODUCTS NAMELY TABLETS, CAPSULES, LIQUIDS AND INJECTIBLES ETC. DURING THE YEARS UNDER CONSIDERATION ASSESSEE HAS INCURRED EXPENDITURE O N SALES PROMOTION, PART OF WHICH WAS DISALLOWED BY AO BY APPLYING CBDT CIRCULAR DATED 1 - 8 - 2012 ON THE PLEA THAT EXPLANATION TO SECTION 37(1) WERE APPLICABLE. LD. AR HA S PLACED ON RECORD ORDER OF THE COORDINATE BENCH IN THE CASE OF SYNCOM FORMULATIONS (I) (SUPRA) WHEREIN EXACTLY SIMILAR ISSUE WAS CONSIDE RED BY BENCH . WE HAVE ALSO GONE THROUGH THE JUDICIAL PRONOUNCEMENT IN THE CASE OF SY N COM FORMULATIONS (SUPRA) , WHEREIN THE TRIBUNAL HELD AS UNDER : - ITA NO.6429/MUM/2013(AY : 2010 - 2011) 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIE F ARE THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING OF VARIOUS PHARMACEUTICALS PRODUCTS AND HAVING SALES WITHIN AND OUTSIDE INDIA. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.4,32,11,406/ - UNDER THE HEAD SALES PROMOTION E XPENSES. ACCORDINGLY THE DETAILS WERE CALLED FOR AND NOTICED THAT AN AMOUNT OF RS.22,45,000/ - WAS RELATING TO FREEBIES GIVEN TO MEDICAL PRACTITIONERS. THE AO DISALLOWED RS.22,45,000/ - BY INVOKING EXPLANATION TO SECTION 37(1) AND CBDT CIRCULAR DATED 1 - 8 - 20 12. 4. BY THE IMPUGNED ORDER THE CIT(A) CONFIRMED THE DISALLOWANCE. IT A NO S . 7404 & 7405 /M/201 4 4 5. 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 LA W 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 CONFERENCES AND EXTENDING HOSPITALITY, PHARMACEUT ICALS 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 BY RELYING ON THE CBDT CIRCULAR DATED 01.08.2012 ONWARDS. HOWEVER, THE CIRCULAR WAS NOT APPLICABLE BECAUSE IT WAS INTRODUCED W.E.F.01.08.2012. I.E. ASSESSMENT YEAR 2013 - 2014, WHEREAS THE RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION IS 2010 - 2011 AND 2 011 - 2012. ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THE DISALLOWANCE SO MADE BY THE AO IN BOTH THE ASSESSMENT YEARS UNDER CONSIDERATION. WE HAD CAREFULLY GONE THROUGH THE ORDER OF THE TRIBUNAL IN THE CASE OF SYNCOM FORMULATIONS (I) LTD.(SUPRA) AND ALSO D ELIBERATED ON THE JUDICIAL PRONOUNCEMENTS REFERRED BY LOWER AUTHORITIES IN THEIR RESPECTIVE ORDERS IN THE CONTEXT OF FACTUAL MATRIX OF INSTANT CASES . FROM THE RECORD WE FOUND THAT D URING THE COURSE OF ASSESSMENT THE AO ASKED THE ASSESSEE TO INFORM REGARDIN G NATURE AND DETAILS OF EXPENSES. THE ASSESSEE HAD SUPPLIED FULL DETAILS OF EXPENDITURE DULY INDICATING THE NATURE OF EXPENDITURE AND BUSINESS NECESSITY FOR INCURRING THESE EXPENDITURE BY PHARMACEUTICAL INDUSTRIES. THE AO OBSERVED THAT EXPENDITURE S DEBITED ON ACCOUNT OF SALES PROMOTION ARE COVERED B Y EXPLANATION TO SECTION 37(1). BY APPLYING CBDT CIRCULAR DATED 1 - 8 - 2012, THE AO DISALLOWED PART OF THE EXPENSES HOLDING THAT EXPLANATION TO SECTION 37(1) W ILL BE APPLICABLE. 9. WE HAD CAREFULLY GONE THROUGH THE DETAILS OF EXPENDITURE SO INCURRED UNDER THE HEAD SALES PROMOTION EXPENSES AND FOUND THAT EXPENDITURE SO INCURRED WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEES BUSINESS . THE RELEVANT AS SESSMENT YEAR S UNDER CONSIDERATION ARE A.YS.2010 - 2011 & 2011 - 2012 DURING WHICH THERE WAS NO CBDT CIRCULAR AS REFERRED BY AO FOR MAKING DISALLOWANCE BY BRANDING THE EXPENDITURE AS COVERED BY EXPLANATION TO SECTION 37(1) OF THE ACT. WE FOUND THAT THE EXPENDI TURES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, THEREFORE, SAME CANNOT BE IT A NO S . 7404 & 7405 /M/201 4 5 DISALLOWED BY APPLYING CBDT CIRCULAR DATED 1 - 8 - 2012 IN RESPECT OF YEARS UNDER CONSIDERATION. THE TRIBUNAL IN THE CASE OF SYNCOM FORMULATIONS (I) LTD.(SUPRA) V IDE ORDER 23 - 12 - 2015 HAVE DEALT WITH EXACTLY SIMILAR ISSUE WHEREIN ALSO ASSESSEE WAS ENGAGED IN MANUFACTURING OF VARIOUS PHARMACEUTICAL PRODUCTS AND HAVING SALES WITHIN AND OUTSIDE INDIA. EXACTLY SIMILAR EXPENDITURE INCURRED UNDER THE HEAD OF SALES PROMOTI ON EXPENSES WAS DISALLOWED BY THE AO BY APPLYING CBDT CIRCULAR DATED 1 - 8 - 2012, WHEREIN EXPLANATION TO SECTION 37(1) WAS INVOKED, WHICH WAS CONFIRMED BY THE CIT(A). THE ASSESSEE CAME BEFORE THE TRIBUNAL AND THE TRIBUNAL HELD THAT CBDT CIRCULAR DATED 1 - 8 - 20 12 WAS APPLICABLE FOR A.Y.2013 - 14 AND ONWARDS AND NOT APPLICABLE TO PRIOR ASSESSMENT YEARS. THE TRIBUNAL AFTER OBSERVING THAT NATURE OF EXPENSES ALLOWED THE SAME. THE TRIBUNAL FURTHER OBSERVED THAT SPONSORING DOCTORS FOR CONFERENCES AND EXTENDING HOSP ITALITY BY PHARMACEUTICALS COMPANIES, TO ATTEND PRESTIGIOUS CONFERENCES SO THAT THEY GATHER CONTEMPORARY KNOWLEDGE ABOUT MANAGEMENT OF CERTAIN ILLNESS/DISEASE AND LEARN ABOUT NEWER THERAPIES , WHICH CAN PROMOTE ASSESSEES BUSINESS AS PHARMACEUTICAL MAN UFACTURE R . UNDER THESE FACTS AND CIRCUMSTANCES THE TRIBUNAL HELD THAT NO DISALLOWANCE OF SUCH SALES PROMOTION EXPENSES CAN BE MADE BY APPLYING CBDT CIRCULAR DATED 1 - 8 - 2012 , INSOFAR AS CBDT CIRCULAR WAS EFFECTIVE FROM A.Y.2013 - 2014. IN THE INSTANT CASE BEF ORE US THE RELEVANT ASSESSMENT YEAR S ARE A.Y.2010 - 2011 & 2011 - 2012 DURING WHICH THIS CBDT CIRCULAR WAS NOT APPLICABLE. A S PER THE DETAILS OF EXPENSES PLACED ON RECORD, WE FOUND THAT SAME WAS IN THE NATURE OF SALES PROMOTION. NEITHER THE AO NOR THE CIT(A) HA D DOUBTED GENUINENESS OF THE EXPENSES NOR THERE IS ANY ALLEGATION TO THE EFFECT THAT EXPENSES WERE NOT INCURRED FOR THE PURPOSE OF BUSINESS. EVEN THE G.P. AND N.P. RATE SHOWN BY ASSESSEE NOWHERE INDICATES THAT ASSESSEE HAD CLAIMED ANY EXCESSIVE EX PENDITURE UNDER THE HEAD SALES PROMOTION. HOWEVER, NO DECISION TO THE CONTRARY WAS BROUGHT TO OUR NOTICE BY LD. DR, U NDER THESE CIRCUMSTANCES, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF SYNCOM FORMULATIONS (I) LTD. (SUPRA) , WE DO NOT FIND IT A NO S . 7404 & 7405 /M/201 4 6 ANY JUSTIFICATION IN THE ORDERS OF LOWER AUTHORITIES FOR DISALLOWING SALES PROMOTION EXPENSES UNDER EXPLANATION TO SECTION 37(1) DURING THE ASSESSMENT YEAR 2010 - 11 AND 2011 - 12 UNDER CONSIDERATION. 10 . IN THE RESULT, BOTH APPEALS OF ASSES SEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21.09 . 201 6 . SD/ - SD/ - (SANDEEP GOSAIN ) (R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /MUMBAI; /DATED 21.09 . 201 6 * AKV /PKM,PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPOND ENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / THE DR CONCERNED BENCH , 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI