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2020 (9) TMI 402 - AT - Income TaxRectification u/s 154 - Deduction u/s 80IC on re allocation of certain expenditure - HELD THAT - while completing the assessment under section 143(3) of the Act, the Assessing Officer has allocated the common expenditure including R D expenditure to different units on pro rata basis. It is also a fact that in the assessment order, the Assessing Officer has never given any finding that the eligible deduction under section 35 of the Act has to be allocated to various units. Thus, when the Assessing Officer after applying his mind to the facts and material on record in the course of assessment proceedings has computed deduction under section 80IC of the Act on re allocation of certain expenditure, proceedings under section 154 of the Act could not have been initiated only because it is felt that certain expenditure has been improperly allocated. When the facts on record show that the assessee was maintaining separate books of account in respect of its various units, allocation of common expenses to different units by itself is a debatable issue. That being the case, the Assessing Officer having dealt with such debatable issue in the assessment order, it cannot be dealt with again in rectification proceedings under section 154 of the Act which is only meant to rectify mistakes apparent on the face of record. - Decided against revenue. Disallowance of deduction claimed u/s 80IC - HELD THAT - Similar allocation of R D expenses and depreciation on Head Office assets were made in assessee s own case in assessment year 2009 10. The Tribunal while deciding the issue 2013 (10) TMI 1541 - ITAT MUMBAI restored the issue to the Assessing Officer. Further, while considering identical issue in assessee s own case in the assessment year 2010 11, the Tribunal following its order in assessment year 2009 10 also restored the issue to the AO for re adjudication. Facts being identical, respectfully following the consistent view of the Tribunal in assessee s own case as noted above, we restore the issue to the Assessing Officer for re adjudication after due opportunity of being heard to the assessee. Ground is allowed for statistical purposes. Disallowance of expenditure incurred towards gifts/freebies given to the doctors - claim disallowed by the Assessing Officer purely on the ground that as per MCI Regulations, 2002, doctors/medical practitioners are debarred from accepting any gift, travel facility, hospitality/cash or monetary grant from pharmaceutical and allied health sector industries - HELD THAT - The Co ordinate Bench in PHL Pharma Ltd. 2017 (1) TMI 771 - ITAT MUMBAI has held that MCI Regulations are applicable only to the doctors/medical practitioners and not to pharmaceutical companies. MCI Regulations cannot be brought into play to invoke Explanation to section 37(1) of the Act for disallowing expenditure claimed by the assessee. Bench has also held that CBDT circular no.5 of 2012 dated 1st August 2012, cannot enlarge the scope of MCI Regulations de hors any enabling provision either under the Act or the MCI Regulations. Though, CBDT can tone down the rigors of law in order to ensure a fair enforcement of the provisions by issuing circulars for clarifying the statutory provisions, however, it is divested of all its power to create a new impairment adverse to an assessee or to a class of assessees without any sanction or authority of law. Thus neither the MCI Regulations 2002 nor the CBDT circular no.5 of 2012 dated 1st August 2012, would be applicable to the pharmaceutical companies. That being the case, the expenditure incurred by the assessee cannot be disallowed alleging infraction of law in terms of Explanation 1 to section 37(1) of the Act. Bogus purchase - CIT-A restricted the disallowance to 12.5% of the alleged non genuine purchases - HELD THAT - As rightly observed by Commissioner (Appeals), AO has not rejected the books of account. Further, he has not raised any doubt with regard to the consumption of goods and turnover of sales. Therefore, the only doubt which remains is with regard to the actual source of purchase - As per the settled principle of law, the profit element embedded in such purchases can be considered for addition - we are of the considered opinion that the disallowance @ 12.5% is reasonable, hence, does not require any interference. Part disallowance of deduction claimed under section 80IC by re allocating certain expenditure to Baddi unit which is eligible to claim deduction u/s 80IC - HELD THAT - Tribunal while deciding assessee s appeal for the assessment year 2010 11 has directed the Assessing Officer to allow the expenditure incurred towards packing and delivery charges, analytical expenses, advertisement and sales promotion expenses, whereas, directed him to re adjudicate afresh the issue of reallocation of R D expenses and depreciation on Head Office assets to the Baddi unit. Facts being identical, respectfully following the consistent view of the Tribunal in assessee s own case as noted above, we allow assessee s claim of expenses with regard to packing and delivery charges, analytical expenses, advertisement and sales promotion expenses. Whereas, the issue relating to re allocation of depreciation on Head Office assets and R D expenses are restored back to the Assessing Officer for fresh adjudication after providing due opportunity of being heard to the assessee. Ground is partly allowed.
Issues Involved:
1. Validity of the order passed under section 154 of the Income Tax Act. 2. Disallowance of deduction claimed under section 80IC of the Income Tax Act. 3. Deletion of disallowance of expenditure incurred towards gifts/freebies given to doctors. 4. Disallowance on account of bogus purchases. 5. Allocation of certain expenditures to Baddi unit for deduction under section 80IC. Issue-wise Detailed Analysis: 1. Validity of the Order Passed Under Section 154 of the Income Tax Act: The Revenue challenged the decision of the Commissioner (Appeals) in annulling the order passed under section 154 by the Assessing Officer (AO). The AO had re-allocated certain common expenses to the Baddi unit, reducing the deduction claimed under section 80IC. The Commissioner (Appeals) observed that the issues on which the AO invoked section 154 were debatable and had already been examined during the assessment proceedings. Consequently, the Tribunal upheld the Commissioner (Appeals)'s decision, stating that rectification under section 154 is not permissible for debatable issues. 2. Disallowance of Deduction Claimed Under Section 80IC of the Income Tax Act: The assessee's appeal contested the disallowance of ?4,07,02,900 out of the deduction claimed under section 80IC. The AO had apportioned 35% of the common expenses to the Baddi unit based on its sales turnover ratio. The Tribunal noted that similar issues in previous years had been restored to the AO for re-adjudication. Following this precedent, the Tribunal restored the issue to the AO for fresh adjudication, allowing the assessee's appeal for statistical purposes. 3. Deletion of Disallowance of Expenditure Incurred Towards Gifts/Freebies Given to Doctors: The AO disallowed ?1,45,84,149 claimed by the assessee for gifts/freebies given to doctors, citing MCI Regulations and CBDT circular no.5 of 2012. The Commissioner (Appeals) deleted the disallowance, stating that MCI Regulations apply to doctors, not pharmaceutical companies, and the CBDT circular cannot enlarge the scope of MCI Regulations. The Tribunal upheld this view, referencing multiple judicial precedents, and dismissed the Revenue's appeal. 4. Disallowance on Account of Bogus Purchases: The AO disallowed ?23,86,994 for non-genuine purchases based on information from the Sales Tax Department. The Commissioner (Appeals) restricted the disallowance to 12.5% of the alleged non-genuine purchases, as the AO had not rejected the books of account or questioned the consumption of goods. The Tribunal upheld this decision, stating that the profit element in such purchases should be considered for addition, and dismissed the Revenue's appeal. 5. Allocation of Certain Expenditures to Baddi Unit for Deduction Under Section 80IC: The AO had allocated 35% of certain expenses (packing and delivery charges, analytical expenses, advertisement and sales promotion expenses, R&D expenses, and depreciation on Head Office assets) to the Baddi unit, reducing the deduction claimed under section 80IC by ?5,80,98,881. The Tribunal noted that similar issues in previous years had been partly allowed and partly restored to the AO. Following this precedent, the Tribunal allowed the expenses related to packing and delivery charges, analytical expenses, and advertisement and sales promotion expenses, while restoring the issue of R&D expenses and depreciation on Head Office assets to the AO for fresh adjudication. Summary of Judgments: - Assessee's appeal in ITA no.4537/Mum./2017 is allowed for statistical purposes. - Assessee's appeal in ITA no.4536/Mum./2017 is partly allowed. - Assessee's appeals in ITA no.6532/Mum./2017 and ITA no.6533/Mum./2017 are partly allowed. - Revenue's appeals in ITA no.4628/Mum./2017, ITA no.4629/Mum./2017, and ITA no.4591/Mum./2017 are dismissed.
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