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2021 (9) TMI 1205 - AT - Income TaxDisallowance out of Business and Promotion expenses - disallowing payments made towards conferences and promotion of products under the head Business and Promotion expenses u/s 37 - Scope of MCI regulation - as per revenue expenses incurred by the assessee were in violation of the CBDT Circular No. 5/2012, dated 01.08.2012 which was based on the notification of the Medical Council of India (MCI) - expenses wholly and exclusively incurred by a pharmaceutical company or a health sector industry - HELD THAT - Enlargement of the scope of MCI regulation to the pharmaceutical companies or other health sector industry by the CBDT is de hors any enabling provision either under the Income Tax Act or under the Indian Medical Council Regulations. In our considered view, though the CBDT can tone down the rigours 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 its powers to create a new impairment adverse to an assessee, or to a class of assesses, without any sanction or authority of law. We find that the aspect that the CBDT is divested of its powers to enlarge the scope of MCI regulation by extending the same to pharmaceutical companies without any enabling provision either under the Income tax Act or the Indian Medical Regulations was also deliberated upon by the Tribunal in the case of Aristo Pharmaceuticals Pvt. ltd. Vs. ACIT . 2018 (7) TMI 1883 - ITAT MUMBAI . The expenditure incurred by the assessee towards, Bangalore Orthopaedic Society Conference for practical use of products and Payments made towards travelling expense of doctors for attending the workshops organized at France a/w the expenditure incurred towards their stay, honorarium fees would not be hit by the Explanation to Sec. 37 - A.O was not justified in disallowing the aforesaid expenses that were incurred by the assessee wholly and exclusively in the normal course of its business by bringing the same within the realm of the Explanation to Sec. 37(1) - Decided in favour of assessee.
Issues Involved:
1. Disallowance of Business and Promotion Expenses under Section 37 of the Income Tax Act, 1961. Issue-Wise Detailed Analysis: Disallowance of Business and Promotion Expenses - ?12,79,359 Background: The assessee, engaged in trading and distribution of orthopedic implantable devices, filed its return for AY 2015-16, declaring a loss of ?1,64,02,283. The Assessing Officer (A.O) disallowed business promotion expenses amounting to ?12,79,359 under Section 37 of the Income Tax Act, 1961, citing violation of CBDT Circular No. 5/2012 and MCI Regulations, which prohibit certain expenses. Assessee's Arguments: 1. The expenses were incurred wholly and exclusively for business purposes and should be deductible under Section 37(1) of the Act. 2. The CBDT Circular and MCI Regulations apply to medical practitioners, not pharmaceutical companies or health sector industries. 3. The assessee relied on the ITAT Mumbai decision in the case of Dy. CI-8(2) Vs. PHL Pharma P. Ltd., which supported their claim. Revenue's Arguments: The Revenue upheld the disallowance, arguing that the expenses violated CBDT Circular No. 5/2012 and MCI Regulations, thus making them inadmissible under the 'Explanation' to Section 37(1) of the Act. Tribunal's Findings: 1. Nature of Expenses: - The expenses for holding conferences and workshops were aimed at making medical professionals conversant with the products, and thus, were not gifts or freebies. - Such expenditures were incurred in the normal course of business and should be allowable under Section 37(1). 2. Applicability of CBDT Circular and MCI Regulations: - The Tribunal referenced the ITAT decision in Aristo Pharmaceuticals Pvt. Ltd. Vs. ACIT, which clarified that MCI Regulations apply only to medical practitioners, not pharmaceutical companies or health sector industries. - The CBDT Circular cannot impose obligations adverse to the assessee without statutory backing. 3. Judicial Precedents: - The Tribunal relied on the Delhi High Court decision in MAX Hospital Vs. MCI, where MCI admitted that its jurisdiction was limited to medical practitioners and did not extend to pharmaceutical companies. - The Tribunal concluded that the MCI Regulations and CBDT Circular No. 5/2012 do not apply to the assessee, a pharmaceutical company. Conclusion: The Tribunal allowed the appeal, holding that: - The expenses of ?12,79,359 were incurred wholly and exclusively for business purposes and were not prohibited by law. - The CBDT Circular and MCI Regulations do not apply to the assessee. - The disallowance by the A.O was unjustified. General Ground: The general ground of appeal was dismissed as not pressed. Final Order: The appeal of the assessee was allowed, and the order was pronounced in the open court on 23/09/2021.
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