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15-01-2020, Aristo Pharmaceuticals, Section 37(1), 30, 36, Tribunal Mumbai

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8 months 5 days ago #12059 by amit
Section - 37(1), 30, 36, 20A
Order Date - 15-01-2020
Favouring - Assessee
Court - Tribunal Mumbai
Appellant - Aristo Pharmaceuticals Pvt . Ltd.
Respondent - DCIT
Justice - MAHAVIR SINGH, JM & MANOJ KUMAR AGGARWAL, AM
Citation - 120Taxpundit124
Appeal No. - I .T.A. No.1104/Mum/2018
Asstt. Year - 2014-15

Order

PER : Manoj Kumar Aggarwal

1. Aforesaid cross-appeals for Assessment Year [in short referred to as ‘AY’] 2014-15 contest the order of Ld. Commissioner of Income-Tax (Appeals)-4, Mumbai, [in short referred to as ‘CIT(A)’], Appeal No. CIT(A)-4/IT-268/DCIT-2(1)(1) dated 15/01/2018. The grounds raised by the assessee read as under: -

1. For that the Ld. CIT(A) has erred in sustaining disallowance of Rs.1,04,96,044/- being expenditure incurred on 'Sales Promotion Articles .

2. For that the Ld. CIT(A) has erred in fixing the limit of Gift Articles exceeding the cost of Rs.750/- each while sustaining disallowance of Rs.1,04 96,044/-.

3. For that the Ld. CIT(A) has erred in sustaining disallowance of Rs.23,63,65,631/- being expenditure incurred and debited under the head 'Medical Conference Expense.

4. For that the Ld. CIT(A) has erred in holding that the regulations dated 11/03/2002 and 10/12/2009 issued by MCI would fall within the meaning of 'Delegated
Legislation’ and hence the same is 'law' and does not require specific legislation by the legislature and its accent by the Hon'ble President of India.

5. For that the Ld. CIT(A) has erred in holding that the regulations issued by MCI have all the tenets of a valid law being a 'delegated legislation’ and is required to be implemented as such.

6. For that the Ld. CIT(A) has erred in holding that expenditure incurred in violation of such regulation by anyone would constitute an offence and is prohibited by law and as such the expendi ure would be hit by Explanation to Section 37(1).

7. For that the Ld. CIT(A) has erred in holding that the absence of punishment to entities other than medical practitioner cannot be a ground for not holding such expenditure as offence and/or prohibited by law in the hands of entity incurring the expense.

8. For that the Ld. CIT(A) has erred in holding that when the receipt of freebies is an offence and/or prohibited by law in the hands of doctors, the payment thereof by the payer as a necessary corollary will be an offence which is prohibited by law.

9. For that the Ld. CIT(A) has erred in holding that the contention of the appellant that MCI is not the Regulatory Authority cannot be accepted in view of judgment of the Hon'ble Himachal Pradesh High Court wherein the validity of Circular No.5/2012 has been upheld.

10. For that the Ld. CIT (A) has failed to appreciate that the regulations issued by MCI are not 'law' and that MCI is not a regulatory authority for the appellant.

11. For that the Ld. CIT(A) has erred in not following the orders of ITAT, Mumbai Bench in the case of PHL Pharma Ltd. in ITA No.4605/ Mumbai/2014.

12. For that the Ld. CIT(A) has erred has erred in holding that the order of Hon'ble Tribunal cannot be blindly applied in view of decision of the Hon'ble Himachal Pradesh High Court.

13. For that the Ld. CIT(A) has erred has erred in holding that since the expenditure incurred is in violation of Regulations framed by MCI and, therefore, the same is not an allowable deduction.

14. For that the Ld. CIT(A) has erred in holding that the ITAT, Mumbai Bench had no occasion to consider that the Regulations have been issued by MCI in exercise of power u/s 33 of the MCI Act, 1956 by following proper procedure and mandate of law and accordingly would come within the ambit of 'delegated legislation' and violation thereof would be hit by Explanation to Section 37.

15. For that the Ld. CIT(A) has erred in holding that the decision of the ITAT in its entirety is not applicable to the appellant's case.

16. For that the Ld. CIT(A) has erred in ignoring the judgment of Hon'ble Delhi High Court in the case of Max Hospital.

17. For that the sustenance of disallowance of Rs. 1,04,96,044/ and Rs.23,63,65,631/- are wrong, illegal and unjustified on the facts and in the circumstances of the appellant's case.

18. For that the whole order is bad in facts and law of the case and is fit to be modified.

The grounds raised by the revenue read as under: -

On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in allowing relief to the assessee to the extent impugned in the grounds enumerated below:

1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of sales promotion expenses of Rs.13,93,11,578/- without considering Circular No. 5/2012 (F.No. 225/142/2012-ITA.II) dated 01.08.2012.

2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of sales promotion expenses of Rs.13,93,11,578/- without appreciating the fact that the expenditure was incurred for providing freebies to medical practitioners and their professional associates in violation of regulation issued by Medical Council of India."

3. For these and other grounds that may be urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the AO be restored.

2.1 Facts on record would reveal that the assessee being resident corporate assessee is stated to be engaged in manufacturing and sale of pharmaceuticals and allied products. The assessment for year under consideration was framed u/s 143(3) on 28/12/2016 wherein the assessee was saddled with disallowance of expenditure on sales promotional articles for Rs.1498.07 Lacs and disallowance of medial conference expenditure for Rs.2363.65 Lacs, while computing its income.

2.2 The perusal of para 5.1 of the quantum assessment order would reveal that expenditure on sales promotional articles represent cost of gift articles which are stated to be distributed amongst doctors, stockiest, and chemists through assessee’s Medical Representative and also by way of distribution during medical camps conducted by the assessee from time to time. The expenditure on gift articles having a value of more than Rs.750/- per article aggregated to Rs.104.96 Lacs out of total expenditure of Rs.1498.07 Lacs. During assessment proceedings, it was pointed out by the assessee that substantial relief was granted, on this account, by first appellate authority for AYs 2011-12 & 2012-13 and the cross-appeals were pending before the Tribunal. However, following consistent stand taken by department in AYs 2011- 12 to 2013-14, the entire expenditure of Rs.1498.07 Lacs was disallowed by Ld. AO and added back to the income of the assessee.

2.3 The Medical Conference Expenditure of Rs.2363.65 Lacs, as per assessee’s submissions dated 20/12/2016, represented Registration fees directly paid to organizers for doctors attending the conferences, travelling expenses of doctors for attending conferences, stay charges for attending conferences, food expenditure during conferences, expenditure on stall and other activity, expenditure on holding medical camps for detection and awareness of diseases and expenditure on distribution of gift articles etc. The head-wise break-up of the expenditure has already been tabulated in para 6.2 of the quantum assessment order.

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