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TMI Blog2017 (9) TMI 317X X X X Extracts X X X X X X X X Extracts X X X X ..... tel (2013 (12) TMI 1480 - GUJARAT HIGH COURT) as regards burden of discharging the initial onus. It is also not in dispute that the ITAT dealt only with one of the disallowances in the sum of ₹ 13,14,548 and not the other two disallowances in the sum of ₹ 19,06,000 and ₹ 8 lakhs. Since the ITAT has not dealt with these aspects, the Court is of the view that it is necessary to remand the matter back to the ITAT and considers all the three disallowances in the entire appeal alongwith the question whether the CBDT’s Circular No. 05/2012 dated 1st August 2012 would apply to the AY in question of the Assessee on merits afresh. - ITA 321/2017 - - - Dated:- 24-8-2017 - MR. S. MURALIDHAR AND MR. PRATHIBA M. SINGH, JJ. For The Appellant : Mr. M.S. Syali, Senior Advocate with Mr. Mayank Nagi, Advocate For The Respondent : Mr. Rahul Kaushik, Senior Standing counsel ORDER 1. This appeal under Section 260A of the Income Tax Act, 1961 ( Act ) is by the Assessee, Boston Scientific India Private Limited, against an order dated 30th November 2016 passed by the Income Tax Appellate Tribunal ( ITAT ) in ITA No. 6806/Del/2015 for the Assessment Year ( AY ) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Direct Taxes ( CBDT ) on 1st August 2012. The Assessee filed its reply on 27th August 2015. However, the DRP in its order dated 19th October 2015 observed that the said expenses included gifts and freebies and therefore, it should be disallowed in view of Explanation to Section 37 (1) of the Act read with the aforementioned CBDT Circular. The AO was directed to quantify the amount of disallowance after taking into account the complete details of the said expenditure. 8. On 30th November 2015, the AO passed a final assessment order under Section 143 (3) read with Section 144C of the Act incorporating the directions issued by the DRP. The AO on the specific heads of advertisement and business promotion and travel related expenses made the following disallowances: (i) Expenditure of ₹ 13,14,548/- was stated to be constituting freebies provided to medical consultants and other doctors, disallowable in view of Explanation to Section 37(1) of the Act, read with CBDT Circular No. 5/2012 dated 1st August 2012. (ii) Expenditure of ₹ 19,06,000/- incurred on conducting seminars, conventions, meetings etc. for the purposes of Appellant's business, on the groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done in that regard as far as the Assessee is concerned. Reliance was placed on the decision of the Himachal Pradesh High Court in Confederation of Indian Pharmaceutical Industry (SSI) v. Central Board of Direct Taxes (2013) 353 ITR 388 (HP) and of the Gujarat High Court in Commissioner of Income Tax III v. Ashok J. Patel (2014) 43 Taxmann.com 227 (Guj). 13. Mr. Rahul Kaushik, learned Senior standing counsel appearing for the Revenue was unable to dispute that the ITAT had failed to answer two of the questions raised before it pertaining to the expenditure of ₹ 19,06,000 and ₹ 8 lakhs incurred by the Assessee for organizing seminars and conferences even what was disallowed by the AO under Section 37 (1) of the Act. Mr. Kaushik further submitted that in view of CBDT Circular 05 of 2012 it was plain that the expenditure so incurred could not have been allowed by the AO as the Assessee has failed demonstrate it was for the purpose of the Assessee s business and was a valid expenditure in terms of the MCI Guidelines. 14. At the outset it must be noted that Section 37 (1) of the Act is in the nature of a residuary clause covering business expenses that are no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbers for vacation or for attending conferences, seminars, workshops, CME Programme etc. as a delegate. It also sets out that what action shall be contemplated in the event of violation of specific guidelines. 17. The MCI guidelines have attained the force of law with the aforementioned Circular No. 5/2012, paras 3 and 4 of which read as under: 3. Section 37(1) of the Income-tax Act provides for deduction of any revenue expenditure (other than those falling under sections 30 to 36) from the business income if such expense is laid out/expended wholly or exclusively for the purpose of business or profession. However, the explanation appended to this sub-section denies claim of any such expense, if the same has been incurred for a purpose which is either an offence or prohibited by law. Thus, the claim of any expense incurred in providing above mentioned or similar freebies in violation of the provisions of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 shall be inadmissible under section 37(1) of the Income-tax Act being an expense prohibited by the law. This disallowance shall be made in the hands of such pharmaceutical or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsultant doctors does not, according to the Assessee, fall within the purview of CBDT Circular No. 5/2012 read with the MCI Regulations. 21. It was also contended that the doctors attended these events/conferences in their personal capacity to enhance their own knowledge/understanding; they were not under any obligation to purchase, prescribe or recommend the Assessee s products to other doctors or represent the Assessee in these conferences. What was prohibited was sponsorship of the travelling expenses and attending the conference and events as 'delegates' on behalf of the pharmaceutical and allied industries. It was stated that such travel facilities provided by the Assessee to the doctors/medical practitioners fall outside the purview of Circular No. 5 of 2012 read with MCI Regulations. 22. The above contentions of the Assessee were not dealt with by the ITAT in the impugned order. On merits, the ITAT in paras 51 and 52 of the impugned order held: 51. The Assessee in the paper book has filed brochure, bills and travel details of the doctors and the destination where the seminars ITA have been conducted but did not bring anything on record to show that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging the initial onus. Thereafter, it was open to the Revenue to prove to the contrary. It was not going to be possible for the Assessee to show that Dr Saxena actually delivered any lectures, attended any meetings, provide training courses and seminars for Assessee etc. The ITAT appears not to have considered the legal position as explained in Commissioner of Income Tax v. United Hotels Limited (2009) 177 Taxman 417 (Del) and CIT v. Ashok J. Patel ( supra ) as regards burden of discharging the initial onus. 24. It is also not in dispute that the ITAT dealt only with one of the disallowances in the sum of ₹ 13,14,548 and not the other two disallowances in the sum of ₹ 19,06,000 and ₹ 8 lakhs. Since the ITAT has not dealt with these aspects, the Court is of the view that it is necessary to remand the matter to the ITAT. 25. Even as regards the disallowance in the sum of ₹ 13,14,548 which was considered by the ITAT, since the ITAT proceeded on surmises and conjectures and failed to deal with the contentions of the Assessee in that regard, it is only fair that the ITAT considers the entire appeal of the Assessee on merits afresh. 26. For all ..... X X X X Extracts X X X X X X X X Extracts X X X X
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