9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2018 (1) TMI 797 - AT - Income TaxRevision u/s 263 - Allowability of expenditure for the purpose of marketing of its products and dissemination of knowledge etc. - allowable busniss expenditure - Held that - CBDT circular which creates a burden or liability or imposes a new kind of imparity, same cannot be reckoned retrospectively. The beneficial circular may apply retrospectively but a circular imposing a burden has to be applied prospectively only. Here in this case the CBDT has enlarged the scope of Indian Medical Council Regulation, 2002 and made it applicable for the pharmaceutical companies. Therefore, such a CBDT circular cannot be reckoned to have retrospective effect. The free sample of medicine is only to prove the efficacy and to establish the trust of the doctors on the quality of the drugs. This again cannot be reckoned as freebies given to the doctors but for promotion of its products. The pharmaceutical company, which is engaged in manufacturing and marketing of pharmaceutical products, can promote its sale and brand only by arranging seminars, conferences and thereby creating awareness amongst doctors about the new research in the medical field and therapeutic areas, etc. Every day there are new developments taking place around the world in the area of medicine and therapeutic, hence in order to provide correct diagnosis and treatment of the patients, it is imperative that the doctors should keep themselves updated with the latest developments in the medicine and the main object of such conferences and seminars is to update the doctors of the latest developments, which is beneficial to the doctors in treating the patients as well as the pharmaceutical companies. - Decided in favour of assessee.
Issues Involved:
1. Whether the order passed by the Assessing Officer (AO) is erroneous and prejudicial to the interest of revenue. 2. Applicability of Medical Council of India (MCI) regulations to pharmaceutical companies. 3. Validity of invoking Section 263 by the Commissioner of Income Tax (CIT). 4. Nature and allowability of advertisement and publicity expenses under Section 37 of the Income Tax Act. 5. Applicability of CBDT Circular No. 5/2012 to the assessment year under consideration. Issue-wise Detailed Analysis: 1. Whether the order passed by the AO is erroneous and prejudicial to the interest of revenue: The CIT held that the AO's order was erroneous and prejudicial to the interest of revenue due to lack of proper enquiry and decision regarding the advertisement and publicity expenses incurred by the assessee. The AO did not call for the books of accounts or any corroborative evidence such as invoices or vouchers, nor did the assessee file any such details suo-motto. 2. Applicability of Medical Council of India (MCI) regulations to pharmaceutical companies: The CIT rejected the assessee’s contention that MCI regulations are applicable only to medical practitioners and not to pharmaceutical companies. The assessee argued that the expenditure incurred was not in the nature of freebies to doctors and that MCI regulations apply only to doctors, not pharmaceutical companies. The Tribunal noted that the MCI regulations are applicable only to medical practitioners and not to pharmaceutical companies, and hence, the question of the assessee incurring expenditure in violation of these regulations does not arise. 3. Validity of invoking Section 263 by the CIT: The assessee contended that the AO had called for and examined the details of the advertisement and publicity expenses during the assessment proceedings, and thus, the assessment order was neither erroneous nor prejudicial to the interest of revenue. The Tribunal observed that the AO had indeed called for the details and examined the nature of the expenditure before allowing it as a business expense. Therefore, the CIT’s invocation of Section 263 was not justified. 4. Nature and allowability of advertisement and publicity expenses under Section 37 of the Income Tax Act: The assessee argued that the expenses incurred on advertisement and publicity were for creating awareness among doctors about its products and were essential for business promotion. The Tribunal agreed that such expenses were in the nature of sales and business promotion and should be allowed as business expenses. The Tribunal also noted that the gift articles and free samples provided by the assessee were for promoting its products and not freebies to doctors. 5. Applicability of CBDT Circular No. 5/2012 to the assessment year under consideration: The assessee relied on the Tribunal’s decision in the case of Syncom Formulations (I) Ltd., where it was held that CBDT Circular No. 5/2012 was not applicable for assessment years prior to its introduction in A.Y. 2013-14. The Tribunal concurred that the circular was not applicable to the assessment year under consideration (A.Y. 2011-12) and thus could not be used to disallow the expenses. Conclusion: The Tribunal concluded that the AO had conducted a proper enquiry and examination of the expenses before allowing them as business expenses. The MCI regulations were not applicable to pharmaceutical companies, and the CBDT Circular No. 5/2012 did not apply to the relevant assessment year. Therefore, the CIT’s order invoking Section 263 was not justified, and the appeal of the assessee was allowed. The assessment order was neither erroneous nor prejudicial to the interest of revenue.
|
