DD PHARMACEUTICAL PVT. LTD., Jaipur V. ACIT, Jaipur

ITA 772/JPR/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1841 (ITAT-JAIPUR)
• Duration Of Justice: 3 year(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 18-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P P MEENA
• Keywords: Gift; Business expenditure; Principle of natural justice; Retrospective amendment; Capital expenditure
• Section: 37(1); 37

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKWY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA- @ ITA NO. 772/JP/2014 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2010-11 M/S D.D. PHARMACEUTICAL PVT. LTD., G-1/583, RIICO INDUSTRIAL AREA, SITAPUR, TONK ROAD, JAIPUR. CUKE VS. THE ACIT, CIRCLE - 7, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAACD4394D VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI MAHENDRA GARGIEYA (C.A.) JKTLO DH VKSJ LS @ REVENUE BY : SHRI P.P. MEENA (J.CIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 02/11/2017 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 12/12/2017 VKNS'K@ ORDER PER: VIJAY PAL RAO, J.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LD. CIT (A)-III, JAIPUR DATED 25.09.2014 FOR THE A.Y. 2010- 11. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS ARE AS UNDER:- 1. THE LD. CIT(A) ERRED IN LAW AS WELL AS ON THE F ACTS OF THE CASE IN CONFIRMING THE APPLICATION OF EXPLANATION TO SEC . 37(1) OF THE ACT AND CONSEQUENTLY ERRED IN CONFIRMING THE DISAL LOWANCES MADE OF VARIOUS EXPENSES, SEPARATELY AGITATED IN TH E ENSUING GROUNDS OF APPEAL. THE PROVISIONS SO INVOKED BEING TOTALLY ITA NO. 772/JP/2014 M/S D.D. PHARMACEUTICAL PVT. LTD. VS. ACIT 2 CONTRARY TO THE PROVISIONS OF LAW AND FACTS OF THE CASE HENCE, THE DISALLOWANCES SO MADE KINDLY BE DELETED IN FULL. 2. THE LD. CIT(A) ERRED IN LAW AS WELL AS ON THE FA CTS OF THE CASE IN CONSIDERING THE OPERATION OF THE CBDT CIRCULAR N O. 5/2012 DATED 01.08.2012 AS RETROSPECTIVELY APPLICABLE AND ERRED IN CONFIRMING THE APPLICATION OF THE SAME FOR THE SUBJ ECTED ASSESSMENT YEAR. THE APPLICATION OF THE SAID CBDT C IRCULAR BE HELD PROSPECTIVELY, NOT APPLICABLE IN THE SUBJECTED ASSESSMENT YEAR AND ACCORDINGLY THE DISALLOWANCE BASED THEREUP ON, KINDLY BE DELETED IN FULL. 3. RS. 71,97585/-: THE LD. CIT(A) ERRED IN LAW AS W ELL AS ON THE FACTS OF THE CASE IN CONFIRMING THE ADHOC DISALLOWA NCES TOTALING TO RS. 45,75,552/- OUT OF THE TOTAL EXPENDITURE RS. 71 ,97,585/- INCURRED BY THE ASSESSEE ON ACCOUNT OF ADVERTISEMEN T, PUBLICITY, SALES PROMOTION, TRAVELLING AND OTHER BUSINESS EXPE NDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOS ES FULLY IN ACCORDANCE WITH THE LAW OF LAND AND WITHOUT ANY CON TRAVENTION AND VIOLATION THEREOF. THE DETAILS OF THE IMPUGNED DISALLOWANCE MADE AND CONFIRMED ARE AS UNDER: S.NO. AO AO CIT(A) DISALLOWANCE MAD AMOUNT 3.1 60% OF RS. 40,87,254/ - RS. 24,52,352 CONFIRMED 3.2 OUT O F RS. 7,77,292/ - RS. 7,23,377/ - CONFIRMED 3.3 60% OF RS. 79,410/ - RS. 47,646/ - CONFIRMED 3.4 60% OF RS. 22,47,930/ - RS. 13,48,758/ - CONFIRMED 3.5 60% OF RS. 5,699/ - RS. 3,419/ - CONFIRMED TOTAL RS. 71,97,585/ - RS. 45,75,552/ - RS. 45,75,552/ - THE DISALLOWANCE SO MADE AND CONFIRMED BY THE CIT(A ) BEING TOTALLY CONTRARY TO THE PROVISIONS OF LAW AND FACTS OF THE CASE, KINDLY BE DELETED IN FULL 4. THE APPELLANT PRAYS YOUR HONOUR INDULGENCES TO A DD, AMEND OR ALTER OF OR ANY OF THE GROUNDS OF THE APPEAL ON OR BEFORE THE DATE OF HEARING. ITA NO. 772/JP/2014 M/S D.D. PHARMACEUTICAL PVT. LTD. VS. ACIT 3 2. THE ASSESSEE IS A PHARMACEUTICAL COMPANY ENGAGE D IN MANUFACTURING OF FORMULATIONS OF NON PATENT/ GENERI C DRUGS AND SELLS THEM IN BRAND NAMES. DURING THE COURSE OF THE ASSES SMENT PROCEEDINGS, THE AO NOTED THAT THE ASSESSEE HAS DEB ITED VARIOUS EXPENSES IN THE PROFIT AND LOSS ACCOUNT OF GIFTS TO BUSINESS GUEST, ENTERTAINMENT EXPENSES, CONFERENCE EXPENSES ON DOCT ORS, TRAVELLING AND CONVEYANCE EXPENSES, MISCELLANEOUS EXPENSES ON DOCTORS. THE AO ANALYSIS THE DETAILS OF THE EXPENSES AND FOUND THAT THESE EXPENSES INCURRED IN GIVING GIFTS AND FREEBIES TO THE DIRECT ORS WHICH IS AGAINST THE REGULATIONS ISSUED BY THE MEDICAL COUNCIL OF INDIA (MCI), THEREFORE, THE SAID EXPENDITURE IS IN VIOLATION OF REGULATIONS ISS UED BY THE MEDICAL COUNCIL OF INDIA. THE AO ALSO PLACED RELIANCE ON TH E CBDT CIRCULAR NO. 5/2012 AND ACCORDINGLY DISALLOWED 60% OF THE TOTAL EXPENDITURE OF RS. 71,97,585/- AMOUNTING TO RS. 45,75,552/-. THE ASSES SEE CHALLENGED THE ACTION BEFORE THE AO BEFORE THE LD (CIT)A AND CONTE NDED THAT THE ENTIRE EXPENDITURE INCURRED BY THE ASSESSEE IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. FURTHER, THESE EXPENSES ARE FU LLY VOUCHED AND DULY SUPPORTED WITH PROPER BILLS AND VOUCHERS RECEI VED ETC. THE LD. CIT(A) DID NOT ACCEPT THE CONTENTION OF THE ASSESSE E AND CONFIRMED THE ITA NO. 772/JP/2014 M/S D.D. PHARMACEUTICAL PVT. LTD. VS. ACIT 4 DISALLOWANCES MADE BY THE AO ON THE BASIS OF MCI RE GULATIONS AND CBDT CIRCULAR DATED 01.08.2012. 3. BEFORE US, THE LD. AR OF THE ASSESSEE HAS SUBMIT TED THAT THE CBDT CIRCULAR DATED 01.08.2012 IS NOT APPLICABLE IN THE ASSESSMENT YEAR UNDER CONSIDERATION AS IT IS APPLICABLE ONLY W.E.F. A. Y. 2013-14. FURTHER, HE HAS SUBMITTED THAT THE MCI REGULATIONS ARE IN THE NATURE OF ADVICE FOR ITS MEMBERS CONSTITUENTS WHICH INCLUDES DOCTORS, MEDICAL PRACTITIONERS, ETC. THEREFORE, THE MCI REGULATIONS HAS PUT AN ETHICS PROHIBITION UPON THEM NOT TO ACCEPT FREEBIES LIKE G IFTS, FEE TRAVEL ARRANGEMENTS ETC. BUT THE SAID MCI REGULATION IS CO MPLETELY SILENT SO FAR AS MEDICAL COMPANIES INCURRING THE EXPENDITURE LIKE ASSESSEE ARE CONCERNED AND THEREFORE, IT DOES NOT PROHIBIT THE P HARMACEUTICAL COMPANIES FOR INCURRING SUCH EXPENDITURE FOR THE PU RPOSE OF THEIR BUSINESS. HENCE, THE LD. AR HAS ARGUED THAT THE MCI REGULATIONS IS NOT APPLICABLE ON THE PHARMACEUTICAL COMPANIES AND CONS EQUENTIAL CBDT CIRCULAR CANNOT BE APPLIED BLINDLY. THE AUTHORITIE S BELOW HAVE PROCEEDED ON MISCONCEPTION AND PURPORTED CONFUSION BY UNDERSTANDING THE MCI REGULATIONS TO BE RESTRICTION PUT ON PHARMA CEUTICAL COMPANIES AND NOT ON THE DOCTORS. SUCH INTERPRETATION IS COMP LETELY CONTRARY TO THE VERY CONTENTS OF THE REGULATIONS ISSUED BY MCI AS IT HAS BEEN CLEARLY ITA NO. 772/JP/2014 M/S D.D. PHARMACEUTICAL PVT. LTD. VS. ACIT 5 PUT SOME RESTRICTIONS AND PROHIBITIONS ON THE MEDIC AL PRACTITIONERS WHO FALL WITHIN THE JURISDICTION OF THE MCI AND NOT ON THE PHARMACEUTICAL COMPANIES. AS PER THE MCI REGULATIONS ONLY MEDICAL PRACTITIONERS WERE PROHIBITED TO RECEIVE GIFTS AND OTHER FREEBIES FAC ILITIES FROM THE MEDICAL COMPANIES/ INDIVIDUALS ETC. AND THEREFORE, IT WAS N OT A PROHIBITION PUT ON THE MEDICAL COMPANIES/ INDIVIDUALS DEALING WITH THE MANUFACTURING AND SALES OF THE MEDICINE TO THE PUBLIC. THE LD. AR HAS FURTHER CONTENDED THAT EVEN OTHERWISE PUTTING A PROHIBITION UPON MEDICAL COMPANIES IS BEYOND THE JURISDICTION OF MCI. CONSEQ UENTLY THE MCI REGULATIONS COULD NOT HAVE AN EFFECT AS PROVIDED FO R ANY DISALLOWANCE OF EXPENSES INCURRED BY THE PHARMACEUTICAL COMPANIE S. IN SUPPORT OF HIS CONTENTION THE LD. AR OF THE ASSESSEE HAS RELIE D UPON THE DECISION DATED 12.01.2017 OF MUMBAI BENCHES OF THE TRIBUNAL IN CASE OF DY. CIT V/S PHL PHARMA P. LTD IN ITA NO. 4605/MUM/2014. TH E LD. AR HAS ALSO RELIED UPON THE DECISION OF THE HONBLE JURISDICTI ON RAJASTHAN HIGH COURT DATED 18.07.2017 IN CASE OF DR. ANIL GUPTA VS . ADDL. CIT IN ITA NO. 485/2008. ALTERNATIVELY, THE LD. AR HAS SUBMITT ED THAT AS PER THE EXPLANATION TO SECTION 37(1) OF THE ACT AN EXPENDIT URE IS NOT ALLOWABLE IF IT IS INCURRED FOR ANY PURPOSE WHICH IS OFFENCE AND PROHIBITED BY LAW. HOWEVER, IN THE INSTANT CASE THE VARIOUS DISALLOWAN CES MADE BY THE AO ITA NO. 772/JP/2014 M/S D.D. PHARMACEUTICAL PVT. LTD. VS. ACIT 6 ARE ONLY MINOR IRREGULARITIES OR THE CONTRAVENTION INVITING FINES BUT ARE NOT THE EXPENDITURE INCURRED IN THE NATURE AS CONTE MPLATED BY EXPLANATION TO SECTION 37(1). THE EXPENDITURE INCUR RED BY THE ASSESSEE EVEN IT IS IN CONTRAVENTION OF THE MCI REGULATIONS IT CANNOT BE HELD AS AN OFFENCE. THE WORDS OFFENCE IS NOT DEFINED IN T HE INCOME TAX ACT, HOWEVER, IT IS DEFINED IN SECTION 3(38) OF THE GENE RAL CLAUSES ACT, 1887 WHICH MEANS BY ANY ACT OR OMISSION MADE PUNISHABLE BY ANY LAW FOR THE TIME BEING IN FORCE. THE EXPRESSION PROHIBITED BY LAW IS ALSO NOT DEFINED IN THE INCOME TAX ACT HOWEVER, WHEN THE E XPENDITURE INCURRED BY THE ASSESSEE IS NOT PROHIBITED BY LAW A ND THE ETHICAL GUIDANCE ISSUED BY THE MCI CANNOT BE APPLIED AS PRO HIBITION. HE HAS ALSO RELIED UPON THE DECISION OF THE MUMBAI BENCHES OF THE TRIBUNAL IN CASE OF MACLEODS PHARMACEUTICALS LTD. VS. ADDL. CI T (2016 74 TAXMANN.COM 250. 4. ON THE OTHER HAND, LD. DR HAS SUBMITTED THAT THE MCI REGULATIONS ARE EQUALLY APPLIED TO PHARMACEUTICAL A ND ALLIED INDUSTRIES, THEREFORE, THE GIFT AND OTHER EXPENSES ARE COVERED BY THE EXPLANATION TO SECTION 37(1) OF THE INCOME TAX ACT. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION IN CASE OF APEX LABOR ATORIES (P.) LTD. V. ACIT (2017) [TS-5503-ITAT-2017 ( CHENNAI)-O] AND SU BMITTED THAT THE ITA NO. 772/JP/2014 M/S D.D. PHARMACEUTICAL PVT. LTD. VS. ACIT 7 TRIBUNAL HELD THAT IN VIEW OF THE MEDICAL COUNCIL O F INDIA (PROFESSIONAL CONDUCT, ETHIQUETTE ETHICS) REGULATION, 2002, EXPE NDITURE INCURRED BY THE TAXPAYER BY WAY OF FREEBIES AND GIFTS TO DOCTOR S AND MEDICAL PRACTITIONERS WAS NOT ALLOWABLE BUSINESS EXPENDITUR E U/S 37(1) OF THE INCOME TAX ACT. THE LD. DR HAS SUBMITTED THAT THE A SSESSEE IN THE SAID CASE CLAIMED THAT THE PROVISIONS OF MCI REGULATIONS , 2002 APPLIED TO DIRECTORS ONLY. THE LD. DR HAS ALSO RELIED UPON THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V. K AP SCAN AND DIAGNOSTIC CENTER (P.) LTD. TS-5878-HC-2010 (PUNJAB & HARYANA). THUS THE LD. DR HAS SUBMITTED THAT THE HONBLE HIGH COUR T HAS HELD COMMISSION PAID BY THE DIAGNOSTIC CENTER TO PRIVATE DOCTORS FOR REFERRING PATIENTS FOR DIAGNOSIS COULD NOT BE ALLOW ED AS A BUSINESS EXPENDITURE. HE HAS ALSO RELIED UPON THE DECISION O F MUMABI BENCHES OF THE TRIBUNAL IN THE CASE OF ACT V. LIVA HEALTHCARE LTD. [TS-6132-ITAT (MUMBAI)-O] WHEREIN THE TRIBUNAL HELD THAT EXPENSES INCURRED BY TAXPAYER PHARMACEUTICAL COMPANY ON OVERSEAS TOURS O F DOCTORS TO INCREASE THEIR SALES AND PROFITABILITY WAS NOT AN A LLOWABLE EXPENDITURE AS OVERSEAS TRIP WERE DIRECTED TOWARDS LEISURE AND ENTERTAINMENT OF DOCTORS AND THEIR SPOUSES RATHER THAN BEING DIRECT ED TOWARDS SEMINAR FOR PRODUCT INFORMATION. FURTHER, EXPENSES INCURRED TOWARDS FREE ITA NO. 772/JP/2014 M/S D.D. PHARMACEUTICAL PVT. LTD. VS. ACIT 8 SAMPLES DISTRIBUTED TO PHYSICIANS WILL BE ALLOWABLE ONLY IF FREE SAMPLES OF PHYSICIANS/DOCTORS AT INITIAL STAGE OF INTRODUCT ION TO TEST EFFICACY OF PRODUCTS. HE HAS RELIED UPON THE ORDERS OF THE AUTH ORITIES BELOW. 5. WE HAVE CONSIDERED THE RIVALS SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PHARMACEUTICALS. THE ASSESSEE HAS CLAIMED TO HAVE INCURRED ADVERTISEMENT, SALES PROMOTION, ENTERTAINM ENT, TRAVELLING, BUSINESS AND MISCELLANEOUS EXPENSES ON DOCTORS AND BUSINESS GUESTS TOTAL AMOUNT TO RS. 71,97,585/-. THE AO NOTED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS HIT BY EXPLANATION TO S ECTION 37(1) OF THE ACT IN VIEW OF THE MCI REGULATIONS, 2002 WHICH WERE ISSUED ON 10.12.2009 W.E.F. 14.12.2009 PROHIBITING THE DOCTOR S AND MEDICAL PRACTITIONERS FROM RECEIVING GIFTS, FREEBIES FROM T HE PHARMACEUTICAL COMPANIES/ INDIVIDUALS. ACCORDINGLY, THE AO DISALLO WED 60% OF THE SAID EXPENDITURE AMOUNTING TO RS. 45,75 552/-.THE DETAIL S OF THE EXPENDITURE AND DISALLOWANCE MADE BY THE AO ARE AS UNDER:- GOA HEAD OF DISALLOWANCE DISALLOWANCE MADE BY THE AO EXPENSES CLAIMED % DISALLOWED AMOUNT OF DISALLOWANCE 3.1 ADVERTISEME NT & SALES PROMOTION EXPENSES (AS GIFT TO DOCTORS) RS. 40,87,254/ 60% RS. 24,52,352/- ITA NO. 772/JP/2014 M/S D.D. PHARMACEUTICAL PVT. LTD. VS. ACIT 9 3.2 ADVERTISEMENT & SALES PROMOTION EXPENSES RS. 7,77,292/ - RS. 7,23,377/ - 3.3 ENTERTAINMENT EXPENSES FOR BUSINESS AGENT RS. 79,410/ - (RS. 44,276/- +RS. 35,134/-) 60% R S. 47,646/ - 3.4 TRAVELLING & CONVEYANCE FOR BUSINESS GUESTS RS. 22,47,930/- 60% RS. 13,48,758/- 3.5 MISCELLANEOUS EXPENSES ON DOCTOR RS. 5,699/ - 60% RS. 3,419/ - AMOUNT OF DISALLOWANCE RS. 71,97,585/- RS. 45,75,552/- AGGRIEVED BY THE ACTION OF THE AO IN DISALLOWING TH E EXPENDITURE THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A), HOWEVER , IT COULD NOT SUCCEED AS THE LD. CIT(A) HAS DECIDED IN THIS ISSUE IN PARA 4.3 IS AS UNDER:- 4.3 I HAVE CAREFULLY CONSIDERED THE FINDINGS OF TH E A.O. AND ALSO THE SUBMISSION OF THE APPELLANT. IT MAY BE NOTED TH AT AS PER EXPLANATION TO THE SEC. 37(1) OF IT ACT ANY EXPENDI TURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT DEEMED TO HAVE BEEN INC URRED FOR THE PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE. IN TH IS BACKGROUND IT MAY BE NOTED THAT AS PER THE REGULATIONS ISSUED BY MCI, NOTIFIED ON 14.12.2009 WHICH IS A STATUTORY BODY OF GOVT. OF INDIA CERTAIN PAYMENTS/EXPENDITURE INCURRED ON ACCOUNT OF GIFTS/TRAVEL FACILITIES/HOSPITALITY AND CASH AND MONITORY GRANTS TO THE MEDICAL PRACTITIONERS BY ANY PHARMACEUTICAL COMPANIES OR AN Y INDIVIDUAL DEALING IN HEALTH CARE FOR PHARMACEUTICAL SECTORS W AS PROHIBITED AND ACCORDINGLY AS PER EXPLANATION TO SEC. 37(1), S UCH CLAIM OF EXPENDITURE UNDER THE INCOME TAX ACT WAS NOT TO BE ALLOWED. THERE IS NO DISPUTE ON THE FACT THAT SUCH PROHIBITI ON CAME INTO ITA NO. 772/JP/2014 M/S D.D. PHARMACEUTICAL PVT. LTD. VS. ACIT 10 EFFECT W.E.F. 14.12.2009 AS ALSO THAT THE ASSESSEE IS A PHARMACEUTICAL COMPANY AND COVERED UNDER SUCH REGUL ATION ISSUED BY MCI. THE ONLY DISPUTE OF THE ASSESSEE IS THAT THE CIRCULAR ISSUED BY THE CBDT W.E.F. 01.08.2012 SUBSE QUENT TO SUCH REGULATION ISSUED BY MCI ON 14.12.2009 SHOULD BE EFFECTIVE FROM 01.08.2012 I.E. FROM A.Y. 2013-14. HOWEVER, SU CH CONTENTION IS DEVOID OF ANY MERIT IN AS MUCH AS THE PROHIBITION OF LAW IN RESPECT OF SUCH EXPENDITURE WAS INTRODUCED B Y THE MCI W.E.F. 14.12.2009 AND NOT BY THE CBDT BY WAY OF CIR CULAR DATED 01.08.2012. IN FACT THE CIRCULAR ISSUED BY THE CBDT IS ONLY OF CLARIFICATORY NATURE EXPLAINING THE SAME FACTS WHIC H HAVE BEEN STATED BY THE MCI. THE IMPORTANT ISSUE TO BE NOTED IS THAT EVEN IF SUCH CIRCULAR WOULD NOT HAVE BEEN ISSUED BY THE CBD T SUCH TYPE OF EXPENSES/ PAYMENTS WOULD CERTAINLY QUALIFIED FOR DISALLOWANCE BECAUSE OF THE PROHIBITION/ ILLEGALITY FIXED BY THE MCI. IT IS ALSO A SETTLED LAW THAT THE CIRCULARS OF CLARIFICATORY NAT URE ARE TO BE ENFORCED WITH RETROSPECTIVE EFFECT. ACCORDINGLY PRI MA FACIE THERE IS NO MERIT IN THE CONTENTION OF THE APPELLANT. AS REGARDS THE CASE LAWS RELIED UPON BY THE APPELLANT, IT MAY BE STATE D THAT AS THE CIRCULAR ISSUE BY THE CBDT IS OF CLARIFICATORY NATU RE THEREFORE THE CASE LAWS RELIED UPON BY THE APPELLANT WILL NOT HAV E ANY APPLICABILITY IN THIS CASE. ACCORDINGLY THE GROUND OF APPEAL IS DISMISSED. BEFORE US, THE ASSESSEE AS WELL AS DEPARTMENT HAS P LACED RELIANCE ON SERIES OF DECISIONS WHEREIN TWO DIVERGENT VIEWS WER E TAKEN BY THIS TRIBUNAL. HOWEVER, THE HONBLE JURISDICTION HIGH CO URT IN CASE OF DR. ANIL GUPTA VS. ACIT (SUPRA) WHILE DEALING WITH AN IDENTI CAL ISSUE HAS HELD IN PARA 5 TO 11 ARE AS UNDER:- 5. THE TRIBUNAL WHILE CONSIDERING THE CASE OF THE APPELLANT HAS OBSERVED AS UNDER:- ITA NO. 772/JP/2014 M/S D.D. PHARMACEUTICAL PVT. LTD. VS. ACIT 11 8. WE MAY SUBMIT THAT EXPENSES ARE VOUCHED, COMPAR ABLE FROM EARLIER YEAR, INCURRED WHOLLY AND EXCLUSIVELY FOR T HE PURPOSE OF BUSINESS. ON TEST CHECH BASIS FEW PERSON WERE PROD UCED AND EXAMINED BY AO. SECTION 37(1) PROVIDES THAT:- (I) ANY EXPENDITURE, (II) NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR (III) PERSONAL EXPENSES OF THE ASSESSEE (IV) EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTIN G THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAIN OF BUSI NESS OR PROFESSION. 6. COUNSEL FOR THE APPELLANT CONTENDED THAT IN VIEW OF THE DECISION OF THE DELHI HIGH COURT IN CASE OF MAX HOS PITAL, PITAMPURA VS. MEDICAL COUNCIL OF INDIA; ILR (2014) 1 DELHI 620 WHERE EXPENSES ARE REQUIRED TO BE ALLOWED TO THE HO SPITAL AS BUSINESS EXPENSES AND WHEREIN THE DELHI HIGH COURT HAS OBSERVED AS UNDER:- IN THE COUNTER AFFIDAVIT FILED BY THE RESPONDENT, IT IS NOT DISPUTED THAT THE MCI UNDER THE 2002 REGULATIONS HA S JURISDICTION LIMITED TO TAKING ACTION ONLY AGAINST THE REGISTERE D MEDICAL PRACTITIONERS. ITS PLEA HOWEVER, IS THAT IT HAS NO T PASSED ANY PETITIONER CANNOT HAVE ANY GRIEVANCE AGAINST THE IM PUGNED ORDER. AT THE SAME TIME, IT IS STATED THAT ONLY SIMPLE OBS ERVATIONS WERE MADE BY THE ETHICS COMMITTEE OF THE MCI ABOUT THE S TATE OF AFFAIRS IN THE PETITIONER HOSPITAL AND THE SAME DID NOT HARM ANY LEGAL RIGHT OR INTEREST OF THE PETITIONER. IT WILL BE APPOSITE TO EXTRACT THE RELEVANT PARAGRAPHS OF THE COUNTER AFFI DAVIT FILED BY THE MCI AS UNDER:- 4. PRELIMINARY OBJECTIONS: (I) THAT THE INSTANT WRIT PETITION IS NOT MAINTAINA BLE UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA AS THERE IS NOT CA USE OF ACTION FOR FILING OF THIS INSTANT PETITION. THE MCI HAS NOT PA SSED ANY ORDER AGAINST THE PETITIONER IN THE IMPUGNED MINUTES OF M EETING DATED 27.10.2012, THEREFORE, THERE IS NO CAUSE OF ACTION FOR FILING THE INSTANT WRIT PETITION. ITA NO. 772/JP/2014 M/S D.D. PHARMACEUTICAL PVT. LTD. VS. ACIT 12 (II) THAT THE MCI HAS NOT PASSED ANY ORDER AGAINST THE PETITIONER AND NOR DOES THE IMPUGNED MINUTES OF MEETING DATED 27.10.2012 AFFECT ANY LEGAL RIGHT OR INTEREST OF THE PETITIONE R WHICH THE PETITIONER SEEKS TO ENFORCE BY FILING THIS WRIT PET ITION AND THUS THE SAME IS NOT MAINTAINABLE. (III) THAT THE JURISDICTION OF MCI IS LIMITED ONLY TO TAKE ACTION AGAINST THE REGISTERED MEDICAL PROFESSIONALS UNDER THE INDIAN MEDICAL COUNCIL ( PROFESSIONAL CONDUCT, ETIQUETTE A ND ETHICS) REGULATIONS, 2002 (HEREINAFTER THE ETHICS REGULATI ONS) AND HAS NO JURISDICTION TO PASS ANY ORDER AFFECTING RIGHTS/ INTERESTS OF ANY HOSPITAL, THEREFORE THE MCI COULD NOT HAVE PASSED A ND HAS NOT BE ASSAILED BEFORE THIS HONBLE COURT IN WRIT JURISDIC TION. (IV) THAT A SIMPLE OBSERVATION MADE BY THE ETHICS C OMMITTEE OF MCI ABOUT THE STATE OF AFFAIRS IN THE PETITIONER HO SPITAL HAS HARMED NO LEGAL RIGHT/INTEREST OF THE PETITIONER FO R WHICH A WRIT CAN BE ISSUED BY THIS HONBLE COURT AGAINST THE ANS WERING RESPONDENT. (V) THAT THE PETITIONER CONTENDS THAT AN ADVERSE OR DER HAS BEEN PASSED BY THE MCI AND THAT TOO WITHOUT HEARING THE PETITIONER. BOTH THESE CONTENTIONS OF THE PETITIONER ARE INCORR ECT AND BY THE MCI AGAINST THE PETITIONER AS MCI DOES NOT HAVE ANY SUCH JURISDICTION; SECONDLY, THE PETITIONER WAS THROUGHO UT REPRESENTED BEFORE THE ETHICS COMMITTEE OF MCI DURING THE PROCE EDINGS INITIATED ON COMPLAINT OF ONE MR. SUNIL MANCHANDA A GAINST SOME OF THE DOCTORS WORKING IN THE PETITIONER HOSPITAL. THE PETITIONER WAS HEARD THROUGH IS ADVOCATES ON SEVERAL OCCASIONS AND HAD SUBMITTED SEVERAL DOCUMENTS ALSO IN SUPPORT OF THEI R STAND. 7. IT IS CLEARLY ADMITTED BY THE RESPONDENT THAT IT HAS NO JURISDICTION TO PASS ANY ORDER AGAINST THE PETITION ER HOSPITAL UNDER THE 2002 REGULATIONS. IN FACT, IT IS STATED THAT IT HAS NOT PASSED ANY ORDER AGAINST THE PETITIONER HOSPITAL. THUS, I NEED NOT GO INTO THE QUESTION WHETHER THE ADEQUATE INFRASTRUCTU RE FACILITIES FOR APPROPRIATE POST-OPERATIVE CARE WERE IN FACT IN EX ISTENCE OR NOT IN THE PETITIONER HOSPITAL AND WHETHER THE PRINCIPL ES OF NATURAL JUSTICE HAD BEEN FOLLOWED OR NOT WHILE PASSING THE IMPUGNED ITA NO. 772/JP/2014 M/S D.D. PHARMACEUTICAL PVT. LTD. VS. ACIT 13 ORDER. SUFFICE IT TO SAY THAT THE OBSERVATIONS DATE D 27.10.2012 MADE BY THE ETHICS COMMITTEE DO REFLECT UPON THE IN FRASTRUCTURE FACILITIES AVAILABLE IN THE PETITIONER HOSPITAL AND SINCE IT HAD NO JURISDICTION TO GO INTO THE SAME, THE OBSERVATIONS WERE UNCALLED FOR AN CANNOT BE SUSTAINED. 7. HE HAS ALSO RELIED UPON THE DECISION IN CASE OF DR. T.A. QUERESHIL VS. COMMISSION OF INCOME TAX REPORTED IN (2006) 287 ITR 0547 WHERE THE EXPENSES WERE ALLOWED FOR BUSINE SS LOSS AS A RESULT OF SEIZURE OF HEROINE. 8. HOWEVER, COUNSEL FOR THE RESPONDENT MR. JAIN CON TENDED THAT ACTION OF THE RESPONDENT UNETHICAL AND IN VIEW OF T HE DECISION OF PUNJAB & HARYANA HIGH COURT IN CASE OF COMMISSIONER OF INCOME TAX VS. KAP SCAN AND DIAGNOSTIC CENTRE P. LTD. REPO RTED IN (2012) 344 ITR 476 AND ALSO THE DECISION OF SUPREME COURT IN CASE OF M/S MADDI VENKATARAMAN AND CO. (P) LTD. VS. COMMISS IONER OF INCOME TAX REPORTED IN (1998 299 ITR 534 WHEREIN PA RA 24 AND 25 IT HAS BEEN HAD AS UNDER:- 24. IN THE INSTANT CASE THE ASSESSEE HAD INDULGED I N TRANSACTIONS IN VIOLATION OF THE PROVISIONS OF FOREIGN EXCHANGE ( REGULATION) ACT. THE ASSESSEES PLEA IS THAT UNLESS IT ENTERED INTO SUCH A TRANSACTION, IT WOULD HAVE BEEN UNABLE TO DISPOSE O F THE UNSOLD STOCK OF INFERIOR QUALITY OF TOBACCO. IN OTHER WORD S, THE ASSESSEE WOULD HAVE INCURRED A LOSS. SPUR OF LOSS CANNOT BE A JUSTIFICATION FOR CONTRAVENTION OF LAW. THE ASSESSEE WAS ENGAGED IN TOBACCO BUSINESS, THE ASSESSEE WAS EXPECTED TO CARRY ON THE BUSINESS IN ACCORDANCE WITH LAW. IF THE ASSESSEE CONTRAVENES TH E PROVISION OF FERA TO CUT DOWN ITS LOSSES OR TO MAKE LARGER PROFI TS WHILE CARRYING ON HE BUSINESS, IT WAS ONLY TO BE EXPECTED WHAT PROCEEDINGS WILL BE TAKEN AGAINST THE ASSESSEE FOR VIOLATION OF THE ACT. THE EXPENDITURE INCURRED FOR EVADING THE PROVI SIONS OF THE ACT AND ALSO THE PENALTY LEVIED FOR SUCH EVASION CA NNOT BE ALLOWED AS DEDUCTION. AS WAS LAID DOWN BY LORD STER NDALE IN THE CASE OF ALEXANDER VON GLEHN (SUPRA) THAT IT WAS NOT ENOUGH THAT THE DISBURSEMENT WAS MADE IN THE COURSE OF TRADE. I T MUST BE FOR THE PURPOSE OF THE TRADE. THE PURPOSE MUST BE A LAW FUL PURPOSE. ITA NO. 772/JP/2014 M/S D.D. PHARMACEUTICAL PVT. LTD. VS. ACIT 14 25. MOREOVER, IT WILL BE AGAINST PUBLIC POLICY TO A LLOW THE BENEFIT OF DEDUCTION UNDER ONE STATUTE, OF ANY EXPENDITURE INCURRED IN VIOLATION OF THE PROVISIONS OF ANOTHER STATUTE OR A NY PENALTY IMPOSED UNDER ANOTHER STATUTE. IN THE INSTANT CASE, IF THE DEDUCTIONS CLAIMED ARE ALLOWED THE PENAL PROVISIONS OF FERA WILL BECOME MEANINGLESS. IT HAS ALSO TO BE BORNE IN MIND THAT EVASION OF LAW CANNOT BE A TRADE PURSUIT. THE EXPENDITURE I N THIS CASE CANNOT, IN ANY WAY, BE ALLOWED AS WHOLLY AND EXCLUS IVELY LAID OUT FOR THE PURPOSE OF ASSESSEES BUSINESS. 9. WE HAVE HEARD COUNSEL FOR BOTH THE SIDES. 10. SECTION 37 OF THE INCOME ACT READS AS UNDER:- 37(1) ANY EXPENDITURE (NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASS ESSEE), LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURP OSES OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTIN G THE INCOME CHARGEABLE UNDER THE HEAD, PROFITS AND GAINS OF BU SINESS OR PROFESSION. [EXPLANATION.- FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR AN Y PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW S HALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUS INESS OR PROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE M ADE IN RESPECT OF SUCH EXPENDITURE.] 11. COUNSEL FOR THE RESPONDENT HAS STRONGLY RELIED UPON EXPLANATION BUT IN VIEW OF THE OBSERVATIONS MADE BY THE AO WHERE HE HAS ALLOWED THE PART EXPENSES OF THE HOSPI TAL, IN THAT VIEW OF THE MATTER, WE ARE OF THE OPINION THAT THE CIT(A) OBSERVATIONS WHICH ARE MADE BY THE CIT ARE REQUIRED TO BE ACCEPTED. THE EXPLANATION CANNOT COME INTO PLAY ON APPEAL WHICH WAS FILED AT THIS STAGE. EVEN OTHERWISE IN INCOME T AX PROCEEDINGS THE MEDICAL ETHICS WILL NOT BE TAKEN INTO CONSIDERA TION. AT THE MOST EVEN IF IT IS A PROFESSIONAL MISCONDUCT IT IS TO BE DEALT WITH MY MEDICAL COUNCIL OF INDIA. THE INCOME TAX AUTHORI TY CANNOT ITA NO. 772/JP/2014 M/S D.D. PHARMACEUTICAL PVT. LTD. VS. ACIT 15 DECIDE THE MEDICAL ETHICS WHEN THE ORIGINAL AUTHORI TY HAS PARTLY ALLOWED THE EXPENSES. RESPECTFULLY THE FOLLOWING THE DECISION OF THE JUR ISDICTION HIGH COURT (SUPRA) WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND ALLOW THE CLAIM OF THE ASSESSEE. WE MAKE IT CLEAR THAT THE AO HAS NOT DOUBTED THE GENUINENESS OF THE EXPENDITURE INCURRED BY THE ASSESSEE BUT THE DISALLOWANCE WAS MADE BY THE AO ONLY ON THE GROUND THAT THE SAID EXPENDITURE IS HIT BY THE EXPLANATION TO SECTION 3 7(1) BEING PROHIBITED BY THE MCI REGULATIONS, 2002 ISSUED ON 10.12.2012 W .E.F. 14.12.2012 AND CONSEQUENTLY CBDT CIRCULAR NO. 5/2012 DATED 0 1.01.2012. THUS, WHEN THE GENUINENESS OF THE EXPENDITURE IS NOT DOUB TED THEN THE CLAIM OF THE ASSESSEE CANNOT BE DISALLOWED IN VIEW OF THE BINDING PRECEDENT OF HONBLE JURISDICTION HIGH COURT. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON 12/12/2017 SD/- SD/- FOE FLAG ;KNO FOT; IKWY JKO (VIKRAM SINGH YADAV) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 12/12/2017. * SANTOSH. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: ITA NO. 772/JP/2014 M/S D.D. PHARMACEUTICAL PVT. LTD. VS. ACIT 16 1. VIHYKFKHZ@ THE APPELLANT- M/S D.D. PHARMACEUTICAL PVT. LTD., G-1/583, RIICO INDUSTRIAL AREA, SITAPUR, TONK ROAD, JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT- THE ACIT, CIRCLE - 7, JAIPUR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 772/JP/2014} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR