9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2017 (12) TMI 996 - AT - Income TaxAddition of incurred advertisement, sales promotion, entertainment, travelling, business and miscellaneous expenses on doctors and business guests - prohibition on the doctors and medical practitioners from receiving gifts, freebies from the pharmaceutical companies/ individuals - Held that - 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 37(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 01.01.2012. Thus, when the genuineness of the expenditure is not doubted then the claim of the assessee cannot be disallowed in view of the binding precedent of Hon ble jurisdiction High Court in case of Dr. Anil Gupta Vs. ACIT 2017 (12) TMI 931 - RAJASTHAN HIGH COURT - Decided in favour of assessee.
Issues Involved:
1. Application of Explanation to Section 37(1) of the Income Tax Act. 2. Retrospective applicability of CBDT Circular No. 5/2012 dated 01.08.2012. 3. Adhoc disallowances of various business expenses totaling ?45,75,552 out of ?71,97,585. Issue-wise Detailed Analysis: 1. Application of Explanation to Section 37(1) of the Income Tax Act: The assessee, a pharmaceutical company, incurred various expenses on gifts, entertainment, conferences, and travel for doctors and business guests. The Assessing Officer (AO) disallowed 60% of these expenses, amounting to ?45,75,552, citing that they were against the Medical Council of India (MCI) regulations and thus prohibited by law under Explanation to Section 37(1). The assessee argued that the MCI regulations apply only to doctors, not pharmaceutical companies, and thus the expenses should not be disallowed. The Tribunal, referencing the jurisdictional High Court's decision in Dr. Anil Gupta Vs. ACIT, concluded that since the AO did not question the genuineness of the expenses, they should not be disallowed under Section 37(1). 2. Retrospective Applicability of CBDT Circular No. 5/2012 dated 01.08.2012: The assessee contended that the CBDT circular should apply prospectively from AY 2013-14, not retrospectively. The CIT(A) held that the circular was clarificatory and thus applicable retrospectively. However, the Tribunal found that the MCI regulations, which came into effect on 14.12.2009, were the basis for disallowance, not the CBDT circular. The Tribunal emphasized that the circular only clarified existing regulations and did not introduce new prohibitions. 3. Adhoc Disallowances of Various Business Expenses Totaling ?45,75,552 out of ?71,97,585: The AO made adhoc disallowances of various business expenses, which were confirmed by the CIT(A). The assessee argued that the expenses were wholly and exclusively for business purposes and fully vouched. The Tribunal, following the jurisdictional High Court's decision, ruled that the disallowance was not justified as the genuineness of the expenses was not in question. The Tribunal set aside the orders of the authorities below and allowed the claim of the assessee. Conclusion: The Tribunal allowed the appeal of the assessee, setting aside the disallowances made by the AO and confirmed by the CIT(A). The Tribunal emphasized that the genuineness of the expenses was not doubted and that the MCI regulations did not apply to pharmaceutical companies. The CBDT circular was deemed clarificatory and not the basis for disallowance. The Tribunal's decision was in line with the jurisdictional High Court's ruling in Dr. Anil Gupta Vs. ACIT.
|
