GLAXO SMITH KLINE PHARMACEUTICALS LTD., MUMBAI V. THE PR. CIT -8, MUMBAI

ITA 826/MUM/2021

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1017 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 11-10-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 17-05-2021
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business expenditure; Principle of natural justice; Tax effect; Tax effect
• Section: 37; 263; 43B; 143(3); 2(A)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “G” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI RAHUL CHAUDHARY (JUDICIAL MEMBER) ITA No. 826/MUM/2021 Assessment Year: 2014-15 Glaxo Smith Kline Pharmaceuticals Limited, GSK House, Dr. Annie Besant Road, Worli, Mumbai-400030. Vs. The PCIT-8, Aayakar Bhavan, M.K. Road, Mumbai-400020. PAN No. AAACG 4414 B Appellant Respondent Assessee by : None Revenue by : Mr. Rakesh Garg, CIT-DR Date of Hearing : 12/10/2022 Date of pronouncement : 12/10/2022 ORDER PER OM PRAKASH KANT, AM This appeal by the assessee is directed against revision order dated 22.03.2021 passed by the Ld. Pr. Commissioner of Income-tax- 8, Mumbai (in short ‘the Ld. PCIT’) for assessment year 2014-15, raising following grounds: On the facts and in circumstances of the case and in law, the learned Pr. CIT: Revision under section 263 of the Act 1. erred in passing passing revisionary order under section 263 of the Act revising the assessment Act dated 20 February 2018, without appreciating that section 263 cannot be invoked unless the conjunctive conditions that assessment order passed is erroneous in law as well as prejudicial to the interests of the revenue, 2. erred in passing the order under section 263 of the Act without providing sufficient opportunity of being heard and without considering the adjournment letter filed by the Appellant and therefore the order under section 263 of the Act passe violation of principles of natural justice, bad in law and void; 3. erred in passing the revisionary order under section 263 of the Act, without appreciating that section 263 cannot be invoked in case where the view taken by the learned Pr. CIT is bas presumption that, inadequate enquiry being made by the AO without pointing out any specific error or defect to show the assessment order is erroneous as well as prejudicial to of the revenue; 4. erred in passing the revisionary order under section 263 of the Act revising the assessment order under section 143(3) of the Act dated 20 February 2018, wherein AO has already applied his mind during the course of assessment proceedings on the same set of facts without any change in law and therefore the Pr. CIT while passing revisionary order under section 263 of the Act wants to substitute his view and thereby, order sought to be revised under On the facts and in circumstances of the case and in law, the learned Pr. Revision under section 263 of the Act erred in passing passing revisionary order under section 263 of the Act revising the assessment order under section 143(3) of the Act dated 20 February 2018, without appreciating that section 263 cannot be invoked unless the conjunctive conditions that assessment order passed is erroneous in law as well as prejudicial to the interests of the revenue, are satisfied; erred in passing the order under section 263 of the Act without providing sufficient opportunity of being heard and without considering the adjournment letter filed by the Appellant and therefore the order under section 263 of the Act passe violation of principles of natural justice, bad in law and void; erred in passing the revisionary order under section 263 of the Act, without appreciating that section 263 cannot be invoked in case where the view taken by the learned Pr. CIT is bas presumption that, inadequate enquiry being made by the AO without pointing out any specific error or defect to show the assessment order is erroneous as well as prejudicial to of the revenue; erred in passing the revisionary order under section 263 of the Act revising the assessment order under section 143(3) of the Act dated 20 February 2018, wherein AO has already applied his mind during the course of assessment proceedings on the same set of facts without any change in law and therefore the Pr. CIT while passing revisionary order under section 263 of the Act wants to substitute his view and thereby, order sought to be revised under Glaxo Smith Kline ITA No. 826/M/2021 2 On the facts and in circumstances of the case and in law, the learned Pr. erred in passing passing revisionary order under section 263 of order under section 143(3) of the Act dated 20 February 2018, without appreciating that section 263 cannot be invoked unless the conjunctive conditions that assessment order passed is erroneous in law as well as prejudicial erred in passing the order under section 263 of the Act without providing sufficient opportunity of being heard and without considering the adjournment letter filed by the Appellant and therefore the order under section 263 of the Act passed is in violation of principles of natural justice, bad in law and void; erred in passing the revisionary order under section 263 of the Act, without appreciating that section 263 cannot be invoked in case where the view taken by the learned Pr. CIT is based on the presumption that, inadequate enquiry being made by the AO without pointing out any specific error or defect to show the assessment order is erroneous as well as prejudicial to the interest erred in passing the revisionary order under section 263 of the Act revising the assessment order under section 143(3) of the Act dated 20 February 2018, wherein AO has already applied his mind during the course of assessment proceedings on the same set of facts without any change in law and therefore the Pr. CIT while passing revisionary order under section 263 of the Act wants to substitute his view and thereby, order sought to be revised under section 263 is neither erroneous/prejudicial to the interest revenue; 5. erred in relying on Explanation 2(a) to section 263 of the Act without appreciating that in the facts of this case, adequate enquiry was made by the AO and the assessment order is neither erroneous nor prejudicial to the interest of the rev 6. without prejudice to above, erred in invoking the provisions of section 263 of the Act in respect of issues ie () disallowance of physician samples; and (1) disallowance of conference expenses on doctors, without appreciating that these issues are su of appeal before the CIT(A) and hence present revisionary proceeding is not maintainable on these issue; 7. erred in passing order under section 263 of the Act on provision for pricing matters written back" of INR 5,67,46,000, when such issue was these write back pertains to provision which was never claimed as deduction and hence order passed under section 143(3) is not an erroneous order Directing AQ to disallow balance 30% of expenditure i purchase manufacture of physician samples of INR 7 effect INR 2,44, 8. erred in holding that the expenditure incurred on distribution of physician samples is not allowable as business expenditure and is hit by Explanation to s Indian Medical Council (Professional conduct, Etiquette and Ethics) Regulations, 2002 (MCI Regulations') section 263 is neither erroneous/prejudicial to the interest revenue; erred in relying on Explanation 2(a) to section 263 of the Act without appreciating that in the facts of this case, adequate enquiry was made by the AO and the assessment order is neither erroneous nor prejudicial to the interest of the revenue; without prejudice to above, erred in invoking the provisions of section 263 of the Act in respect of issues ie () disallowance of physician samples; and (1) disallowance of conference expenses on doctors, without appreciating that these issues are su of appeal before the CIT(A) and hence present revisionary proceeding is not maintainable on these issue; erred in passing order under section 263 of the Act on provision for pricing matters written back" of INR 5,67,46,000, when such issue was never raised during the course of 263 proceeding and as these write back pertains to provision which was never claimed as deduction and hence order passed under section 143(3) is not an erroneous order Directing AQ to disallow balance 30% of expenditure i purchase manufacture of physician samples of INR 7.18.35.712 (tax effect INR 2,44,16,958) erred in holding that the expenditure incurred on distribution of physician samples is not allowable as business expenditure and is hit by Explanation to section 37 of the Act as beng prohibited by Indian Medical Council (Professional conduct, Etiquette and Ethics) Regulations, 2002 (MCI Regulations') Glaxo Smith Kline ITA No. 826/M/2021 3 section 263 is neither erroneous/prejudicial to the interest of the erred in relying on Explanation 2(a) to section 263 of the Act without appreciating that in the facts of this case, adequate enquiry was made by the AO and the assessment order is neither enue; without prejudice to above, erred in invoking the provisions of section 263 of the Act in respect of issues ie () disallowance of physician samples; and (1) disallowance of conference expenses on doctors, without appreciating that these issues are subject matter of appeal before the CIT(A) and hence present revisionary erred in passing order under section 263 of the Act on provision for pricing matters written back" of INR 5,67,46,000, when such never raised during the course of 263 proceeding and as these write back pertains to provision which was never claimed as deduction and hence order passed under section 143(3) is not an Directing AQ to disallow balance 30% of expenditure incurred on purchase manufacture of physician samples of INR 7.18.35.712 (tax erred in holding that the expenditure incurred on distribution of physician samples is not allowable as business expenditure and is ection 37 of the Act as beng prohibited by Indian Medical Council (Professional conduct, Etiquette and 9. erred in not appreciating that the MCI Regulations are applicable only to individual medical applicable to the pharmaceutical companies: 10. erred in not appreciating that the giving physician samples to doctors is a normal business practice and entire expenditure is incurred wholly and exclusively for the purpose of business Directing AO to disallow balance 30% of sales promotion/ conference expenses on doctors of INR 3,34,64,782 (tax effect INR 1,13,74,679) 11. erred in holding that the sales promotion expenses/conference expenses on doctors are not allowable as business expenditure and are hit by Explanation to section 37 of the Act as being prohibited by MCI Regulations 12. erred in not appreciating that the MCI Regulations are applicable only to individual medical practitioners/ doctors and not applicable to the pharmaceutical companies; 13. erred in not appreciating that the expenditure on honorarium fees paid to the doctors and expenditure on sponsorship, registration, travelling, accommodation and other subsistence support expenditure is incurred on account of agreement with the doctors for professional services rendered and is incurred wholly and exclusively for the purpose of business Disallowance of alleged difference of INR 2,00,81,152/ profit on sale of fixed asset reduced from the head 'Profit from business/ profession' and sale assets 'Residential Building' depreciable @5% (tax effect INR 68,25,584) erred in not appreciating that the MCI Regulations are applicable only to individual medical pracutioners/ doctors and not applicable to the pharmaceutical companies: erred in not appreciating that the giving physician samples to doctors is a normal business practice and entire expenditure is incurred wholly and exclusively for the purpose of business AO to disallow balance 30% of sales promotion/ conference expenses on doctors of INR 3,34,64,782 (tax effect INR erred in holding that the sales promotion expenses/conference expenses on doctors are not allowable as business expenditure and e hit by Explanation to section 37 of the Act as being prohibited by MCI Regulations erred in not appreciating that the MCI Regulations are applicable only to individual medical practitioners/ doctors and not applicable to the pharmaceutical companies; ed in not appreciating that the expenditure on honorarium fees paid to the doctors and expenditure on sponsorship, registration, travelling, accommodation and other subsistence support expenditure is incurred on account of agreement with the doctors ofessional services rendered and is incurred wholly and exclusively for the purpose of business Disallowance of alleged difference of INR 2,00,81,152/ profit on sale of fixed asset reduced from the head 'Profit from business/ profession' and sale consideration reduced from block of assets 'Residential Building' depreciable @5% (tax effect INR Glaxo Smith Kline ITA No. 826/M/2021 4 erred in not appreciating that the MCI Regulations are applicable octors and not erred in not appreciating that the giving physician samples to doctors is a normal business practice and entire expenditure is incurred wholly and exclusively for the purpose of business AO to disallow balance 30% of sales promotion/ conference expenses on doctors of INR 3,34,64,782 (tax effect INR erred in holding that the sales promotion expenses/conference expenses on doctors are not allowable as business expenditure and e hit by Explanation to section 37 of the Act as being prohibited erred in not appreciating that the MCI Regulations are applicable only to individual medical practitioners/ doctors and not ed in not appreciating that the expenditure on honorarium fees paid to the doctors and expenditure on sponsorship, registration, travelling, accommodation and other subsistence support expenditure is incurred on account of agreement with the doctors ofessional services rendered and is incurred wholly and Disallowance of alleged difference of INR 2,00,81,152/- between profit on sale of fixed asset reduced from the head 'Profit from consideration reduced from block of assets 'Residential Building' depreciable @5% (tax effect INR 14. erred in holding that the appellant has claimed excess deduction of INR 2,00,81,152/ fixed assets o under the head 'profits and gains of business or profession' and INR 21.41,02,848 reduced from block of assets building; 15. erred in not appreciating that profit on sale of various depreciable assets of IN 23 income, whereas the total sale consideration on sale depreciable assets was IN 27,35.93,384/ blockof various assets and included sale consideration of INR 21,41,02,848/ residential building) and and therefore there was no excess deduction claimed by the appellant; Disallowance of deduction of provision for pricing formulation written back of INR 16. erred in directing AO to verify the provision for pricing formulation of INR 5,67,46,000/ contingent in nature and disallowable under section 43B of the Act: 17. should "provision fo 5,67,46,000/ years, the same was not claimed as deduction and thereby reversal of the said provisio 2. The assessment u/s 143(3) r.w.s. 144C(4) of the Income Act, 1961 (in short ‘the Act’) was passed by the Assessing Officer on erred in holding that the appellant has claimed excess deduction of INR 2,00,81,152/- being the difference between profit on sale of fixed assets of IN 23,41,84,000/- reduced while computing income under the head 'profits and gains of business or profession' and 21.41,02,848 reduced from block of assets building; erred in not appreciating that profit on sale of various depreciable assets of IN 23,41,84,000 was reduced while calculating business income, whereas the total sale consideration on sale depreciable assets was IN 27,35.93,384/- which was reduced from blockof various assets and included sale consideration of INR 21,41,02,848/- on sale of residential house (reduced from blockof residential building) and and therefore there was no excess deduction claimed by the appellant; Disallowance of deduction of provision for pricing formulation written back of INR 5.67,46,000/- (INR 1,92,87,965) erred in directing AO to verify the provision for pricing formulation of INR 5,67,46,000/- as to whether the same is contingent in nature and disallowable under section 43B of the have appreciated that the said amount represents "provision for pricing formumations written back" of INR 5,67,46,000/- and underline provision when created in earlier years, the same was not claimed as deduction and thereby reversal of the said provision in current year is rightly not offered to tax; The assessment u/s 143(3) r.w.s. 144C(4) of the Income Act, 1961 (in short ‘the Act’) was passed by the Assessing Officer on Glaxo Smith Kline ITA No. 826/M/2021 5 erred in holding that the appellant has claimed excess deduction being the difference between profit on sale of reduced while computing income under the head 'profits and gains of business or profession' and 21.41,02,848 reduced from block of assets building; erred in not appreciating that profit on sale of various depreciable ,41,84,000 was reduced while calculating business income, whereas the total sale consideration on sale of such which was reduced from blockof various assets and included sale consideration of INR ale of residential house (reduced from blockof residential building) and and therefore there was no excess Disallowance of deduction of provision for pricing formulation erred in directing AO to verify the provision for pricing whether the same is contingent in nature and disallowable under section 43B of the have appreciated that the said amount represents r pricing formumations written back" of INR and underline provision when created in earlier years, the same was not claimed as deduction and thereby reversal ghtly not offered to tax; The assessment u/s 143(3) r.w.s. 144C(4) of the Income-tax Act, 1961 (in short ‘the Act’) was passed by the Assessing Officer on 20.02.2018. The Ld. PCIT called for the records and thereafter issued show cause notice to the assessee and submission of the assessee assessment order passed by the assessee prejudicial to the interest of the Revenue in terms of section 263 of the Act. 3. Aggrieved, the assessee is before the Tribunal raising grounds as reproduced above. 4. None appeared on behalf of the assessee despite notifying Even no adjournment application Representative (DR) drawn out attention t filed by the assessee Officer has not passed the consequential assessment order and the time limit for which the present appeal has become a 20.02.2018. The Ld. PCIT called for the records and thereafter show cause notice to the assessee and after submission of the assessee, passed the impugned order holding the assessment order passed by the assessee as erroneous in so far as prejudicial to the interest of the Revenue in terms of section 263 of Aggrieved, the assessee is before the Tribunal raising grounds as reproduced above. None appeared on behalf of the assessee despite notifying ven no adjournment application was filed. The Ld. Departmental Representative (DR) drawn out attention to letter dated 28.06.2022 filed by the assessee, wherein it is mentioned that the Assessing Officer has not passed the consequential assessment order and the which had already expired on 31.03.2022. Therefore, the present appeal has become academic. Glaxo Smith Kline ITA No. 826/M/2021 6 20.02.2018. The Ld. PCIT called for the records and thereafter after considering passed the impugned order holding the s erroneous in so far as prejudicial to the interest of the Revenue in terms of section 263 of Aggrieved, the assessee is before the Tribunal raising the None appeared on behalf of the assessee despite notifying. filed. The Ld. Departmental o letter dated 28.06.2022 wherein it is mentioned that the Assessing Officer has not passed the consequential assessment order and the already expired on 31.03.2022. Therefore, 5. In view of the above submission, we are of the opinion that no purpose will be served in adjudicating this appeal when for passing consequential order has already expired and consequential assessment order has been passed has only rendered academic. Accordingly, we dismiss the appeal as infructuous. 5.1 However, in case, the assessee wants to press the grounds raised, the assessee is at liberty to file a Miscellaneous Application for seeking recall of the order, 6. In the result, the appeal filed by the assessee is dismissed. Order pronounced in the open Court in Sd/- (RAHUL CHAUDHARY JUDICIAL MEMBER Mumbai; Dated: 12/10/2022 Dragon Legal/Rahul Sharma, Sr. P.S. In view of the above submission, we are of the opinion that no purpose will be served in adjudicating this appeal when for passing consequential order has already expired and consequential assessment order has been passed, thus t has only rendered academic. Accordingly, we dismiss the appeal as However, in case, the assessee wants to press the grounds raised, the assessee is at liberty to file a Miscellaneous Application for seeking recall of the order, if so advised. In the result, the appeal filed by the assessee is dismissed. nounced in the open Court in 12/10/2022. Sd/- RAHUL CHAUDHARY) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Glaxo Smith Kline ITA No. 826/M/2021 7 In view of the above submission, we are of the opinion that no purpose will be served in adjudicating this appeal when limitation for passing consequential order has already expired and no thus the matter has only rendered academic. Accordingly, we dismiss the appeal as However, in case, the assessee wants to press the grounds raised, the assessee is at liberty to file a Miscellaneous Application In the result, the appeal filed by the assessee is dismissed. /10/2022. - OM PRAKASH KANT) ACCOUNTANT MEMBER Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// Copy of the Order forwarded to : BY ORDER, (Sr. Private Secretary) ITAT, Mumbai Glaxo Smith Kline ITA No. 826/M/2021 8 BY ORDER, (Sr. Private Secretary) ITAT, Mumbai