2018 (11) TMI 1124 - AT - Income Tax

Allowable busniss expenses - Disallowance of expenditure incurred towards appointment of faculty doctor or assessee s consultant doctor in a medical conference out of conference expenses - AO has disallowed these expenditure by observing that these expenses are incurred by the staff on behalf of doctors and accordingly is a freebie which is not allowable in the light of circular - Held that - Assessee s high end technological products and to carry out heart valve surgeries, which are very complex in nature, the doctors/surgeons also need training. In the medical conferences, the doctors are also provided skill set training wherein live surgeries are performed so as to educate the doctors about the use of the new technologically advanced products. Considering the need, the assessee nominates few selected doctors/surgeons to attend the training. These doctors/surgeons further provide training to other doctors so as to also make them also aware about the use of Assessee s product. It was also brought to our notice that these life saving devices necessary for the well-being of the society as a whole and it is in the interest of the patients that the doctors are trained. After going through the details of expenditure so incurred, we found that the expenditure incurred by the assessee is not in violation of the provisions of any statute so as to render it excessive and inadmissible. The expenditure incurred by the assessee is on account of business exigencies and not in violation of any statute. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of expenditure aggregating to ?1,20,66,377 on the ground of violation of MCI regulations.
2. Applicability of CBDT Circular No. 5 dated 1st August 2012 to AY 2010-11.
3. Pro-rata disallowance of conference expenses amounting to ?4,79,990.
4. Disallowance of expenditure amounting to ?47,643 for providing lunch and snacks to doctors.
5. Levying of interest under section 234B of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Expenditure Aggregating to ?1,20,66,377:
The assessee challenged the disallowance of various expenditures, including those incurred on doctors attending medical conferences, sponsorship of scientific and technical sessions, and conducting clinical research. The CIT(A) had partly confirmed the addition, disallowing ?33,30,321 incurred towards the appointment of faculty doctors in medical conferences. The assessee argued that these expenses were not in violation of MCI regulations and were necessary for business promotion. The Tribunal noted that the expenses were not gifts or freebies but were incurred to promote the assessee's products and create awareness among doctors. The Tribunal also referenced the decision in the case of Syncom Formulations (I) Ltd., where it was held that MCI guidelines apply to doctors and not to pharmaceutical companies.

2. Applicability of CBDT Circular No. 5 to AY 2010-11:
The assessee contended that the CBDT Circular No. 5 dated 1st August 2012, which disallowed certain expenditures, was not applicable to AY 2010-11. The Tribunal agreed, citing the decision in Syncom Formulations (I) Ltd., which clarified that the circular was applicable from AY 2013-14 onwards. Therefore, the disallowance based on this circular was not justified for AY 2010-11.

3. Pro-rata Disallowance of Conference Expenses Amounting to ?4,79,990:
The assessee argued against the pro-rata disallowance of conference expenses incurred from December 10, 2009, to December 13, 2009, stating that the MCI regulations were published on December 14, 2009. The Tribunal found that the expenses were incurred before the publication of the MCI guidelines and thus should not be disallowed.

4. Disallowance of Expenditure for Providing Lunch and Snacks to Doctors:
The CIT(A) had upheld the disallowance of ?47,643 incurred for providing lunch and snacks to doctors at various conferences. The Tribunal noted that these expenses were not in the nature of gifts or freebies but were incurred during the course of business activities. Therefore, the Tribunal found no merit in the disallowance.

5. Levying of Interest under Section 234B:
The assessee challenged the levy of interest under section 234B of the Income Tax Act. The Tribunal did not specifically address this issue in detail, but the overall context suggests that the disallowances leading to the interest levy were not justified, implying that the interest should also be reconsidered.

Conclusion:
The Tribunal allowed the appeal of the assessee, directing the deletion of the disallowances made by the Assessing Officer and upheld by the CIT(A). The Tribunal emphasized that the expenditures were incurred for business promotion and were not prohibited by any statute. The CBDT Circular No. 5 was not applicable for the relevant assessment year, and the MCI guidelines did not apply to pharmaceutical companies. The Tribunal's decision was pronounced in the open court on 20/11/2018.