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2020 (10) TMI 1201 - AT - Income TaxRevision u/s 263 - prohibition by law within the meaning of Explanation 1 to Sec.37(1) on claiming sales promotion expenses as deduction u/s.37(1) - providing freebies by pharmaceutical companies is a natural corollary violation of the provisions of MCI Regulations, 2002 - HELD THAT - When the order passed by the Pr.CIT-2, Mumbai, under Sec. 263 of the Act, dated 31.03.2017 had been quashed by the Tribunal, and thus, is no more in existence, therefore, the consequential assessment framed by the A.O under Sec.143(3) r.w.s 263 cannot be sustained and has to meet the same fate. In the backdrop of our aforesaid deliberations, we herein, finding no infirmity in the view taken by the CIT(A) who in our considered opinion had rightly vacated the assessment framed by the A.O under Sec.143(3) r.w.s 263, dated 29.09.2017, therefore, uphold his order. The Ground of appeal No.1 filed by the revenue is dismissed.
Issues Involved:
1. Disallowance of sales promotion expenses under Section 37(1) of the Income Tax Act. 2. Validity of the order passed under Section 263 by the Principal Commissioner of Income Tax (Pr.CIT). 3. Consequential assessment framed under Section 143(3) read with Section 263. Issue-wise Detailed Analysis: 1. Disallowance of Sales Promotion Expenses under Section 37(1): The core issue pertains to whether the sales promotion expenses, particularly Medical Conference Expenses amounting to ?31.18 crores, claimed by the assessee, are allowable under Section 37(1) of the Income Tax Act. The Pr.CIT observed that the Assessing Officer (A.O) had not disallowed these expenses despite them being prohibited by the Medical Council of India (MCI) regulations. The A.O., in the original assessment, had allowed these expenses, but the Pr.CIT, invoking Section 263, directed the A.O to disallow them, considering them as freebies to doctors, which is against the MCI guidelines and CBDT Circular No. 5/2012. 2. Validity of the Order Passed under Section 263 by the Pr.CIT: The Tribunal quashed the order passed by the Pr.CIT under Section 263. The Tribunal noted that the A.O had already considered and applied his mind regarding the disallowance of sales promotion expenses in the original assessment. The Tribunal emphasized that the A.O had disallowed a portion of the sales promotion expenses, adhering to the MCI guidelines and CBDT Circular. The Tribunal further highlighted that the Pr.CIT’s observation that the A.O had not examined the details of Medical Conference Expenses was unfounded, as the A.O had indeed scrutinized these expenses. The Tribunal cited several case laws, including the decision in the case of DCIT vs. PHL Pharma Pvt. Ltd., where similar expenses were allowed. The Tribunal concluded that the A.O’s view was legally permissible, and the Pr.CIT’s order under Section 263 was unsustainable. 3. Consequential Assessment Framed under Section 143(3) read with Section 263: Following the quashing of the Pr.CIT’s order under Section 263, the consequential assessment framed by the A.O under Section 143(3) read with Section 263, disallowing the assessee’s claim for deduction of ?31.18 crores, was rendered unsustainable. The Tribunal upheld the CIT(A)’s decision to vacate this assessment, noting that the foundation of the assessment (the Pr.CIT’s order) had been quashed. Consequently, the Tribunal dismissed the revenue’s appeal, affirming that the assessment could not be sustained. Conclusion for A.Y. 2012-13 and A.Y. 2013-14: For both assessment years (A.Y. 2012-13 and A.Y. 2013-14), the Tribunal dismissed the revenue’s appeals. The Tribunal’s decision for A.Y. 2012-13 was applied mutatis mutandis to A.Y. 2013-14, given that the facts and issues were identical. The Tribunal upheld the CIT(A)’s orders vacating the assessments framed under Section 143(3) read with Section 263, thereby dismissing the revenue’s appeals for both years. Order Pronouncement: The Tribunal pronounced the dismissal of the revenue’s appeals in open court on 28.10.2020.
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