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TMI Blog2017 (12) TMI 996X X X X Extracts X X X X X X X X Extracts X X X X ..... 12-12-2017 - SHRI VIJAY PAL RAO, JM AND SHRI VIKRAM SINGH YADAV, AM For The Assessee : Shri Mahendra Gargieya (C.A.) For The Revenue : Shri P.P. Meena (J.CIT) ORDER PER: VIJAY PAL RAO, J.M. This is an appeal filed by the assessee against the order of ld. CIT (A)-III, Jaipur dated 25.09.2014 for the A.Y. 2010-11. The assessee has raised the following grounds are as under:- 1. The ld. CIT(A) erred in law as well as on the facts of the case in confirming the application of explanation to sec. 37(1) of the Act and consequently erred in confirming the disallowances made of various expenses, separately agitated in the ensuing grounds of appeal. The provisions so invoked being totally contrary to the provisions of law and facts of the case hence, the disallowances so made kindly be deleted in full. 2. The ld. CIT(A) erred in law as well as on the facts of the case in considering the operation of the CBDT Circular No. 5/2012 dated 01.08.2012 as retrospectively applicable and erred in confirming the application of the same for the subjected assessment year. The application of the said CBDT circular be held prospectively, not applicable in the sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ysis the details of the expenses and found that these expenses incurred in giving gifts and freebies to the Directors which is against the regulations issued by the Medical Council of India (MCI), therefore, the said expenditure is in violation of regulations issued by the Medical Council of India. The AO also placed reliance on the CBDT Circular No. 5/2012 and accordingly disallowed 60% of the total expenditure of ₹ 71,97,585/- amounting to ₹ 45,75,552/-. The assessee challenged the action before the AO before the ld (CIT)A and contended that the entire expenditure incurred by the assessee is wholly and exclusively for the purpose of business. Further, these expenses are fully vouched and duly supported with proper bills and vouchers received etc. The ld. CIT(A) did not accept the contention of the assessee and confirmed the disallowances made by the AO on the basis of MCI Regulations and CBDT circular dated 01.08.2012. 3. Before us, the ld. AR of the assessee has submitted that the CBDT circular dated 01.08.2012 is not applicable in the assessment year under consideration as it is applicable only w.e.f. A. Y. 2013-14. Further, he has submitted that the MCI regulati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities or the contravention inviting fines but are not the expenditure incurred in the nature as contemplated by explanation to Section 37(1). The expenditure incurred by the assessee even it is in contravention of the MCI Regulations it cannot be held as an offence. The words offence is not defined in the Income Tax Act, however, it is defined in Section 3(38) of the General Clauses Act, 1887 which means by any act or omission made punishable by any law for the time being in force. The expression prohibited by law is also not defined in the Income Tax Act however, when the expenditure incurred by the assessee is not prohibited by law and the ethical guidance issued by the MCI cannot be applied as prohibition. He has also relied upon the decision of the Mumbai Benches of the Tribunal in case of Macleods Pharmaceuticals Ltd. Vs. Addl. CIT (2016 74 Taxmann.com 250. 4. On the other hand, ld. DR has submitted that the MCI Regulations are equally applied to pharmaceutical and allied industries, therefore, the gift and other expenses are covered by the explanation to Section 37(1) of the Income Tax Act. In support of his contention he has relied upon the decision in case of Apex La ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said expenditure amounting to ₹ 45,75 552/-.The details of the expenditure and disallowance made by the AO are as under:- GOA Head of disallowance Disallowance made by the AO Expenses claimed % disallowed Amount of disallowance 3.1 Advertisement Sales promotion expenses (as gift to doctors) ₹ 40,87,254/ 60% ₹ 24,52,352/- 3.2 Advertisement Sales promotion expenses ₹ 7,77,292/- ₹ 7,23,377/- 3.3 Entertainment expenses for business agent ₹ 79,410/- (Rs. 44,276/+Rs. 35,134/-) 60% ₹ 47,646/- 3.4 Travelling conveyance for business guests ₹ 22,47,930/- 60% ₹ 13,48,758/- 3.5 Miscellaneous expenses on doctor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I. It is also a settled law that the Circulars of clarificatory nature are to be enforced with retrospective effect. Accordingly prima facie there is no merit in the contention of the appellant. As regards the case laws relied upon by the appellant, it may be stated that as the Circular issue by the CBDT is of clarificatory nature therefore the case laws relied upon by the appellant will not have any applicability in this case. Accordingly the ground of appeal is dismissed. Before us, the assessee as well as Department has placed reliance on series of decisions wherein two divergent views were taken by this Tribunal. However, the Hon ble jurisdiction High Court in case of Dr. Anil Gupta Vs. ACIT (supra) while dealing with an identical issue has held in para 5 to 11 are as under:- 5. The Tribunal while considering the case of the appellant has observed as under:- 8. We may submit that expenses are vouched, comparable from earlier year, incurred wholly and exclusively for the purpose of business. On test chech basis few person were produced and examined by AO. Section 37(1) provides that:- ( i) any expenditure, ( ii) not being in the nature of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iction. ( iv) That a simple observation made by the Ethics committee of MCI about the state of affairs in the petitioner Hospital has harmed no legal right/interest of the petitioner for which a writ can be issued by this Hon ble Court against the answering respondent. ( v) That the petitioner contends that an adverse order has been passed by the MCI and that too without hearing the petitioner. Both these contentions of the petitioner are incorrect and by the MCI against the petitioner as MCI does not have any such jurisdiction; secondly, the petitioner was throughout represented before the Ethics Committee of MCI during the proceedings initiated on complaint of one Mr. Sunil Manchanda against some of the doctors working in the petitioner hospital. The petitioner was heard through is advocates on several occasions and had submitted several documents also in support of their stand. 7. It is clearly admitted by the respondent that it has no jurisdiction to pass any order against the petitioner hospital under the 2002 Regulations. In fact, it is stated that it has not passed any order against the petitioner hospital. Thus, I need not go into the question whether th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be against public policy to allow the benefit of deduction under one statute, of any expenditure incurred in violation of the provisions of another statute or any penalty imposed under another statute. In the instant case, if the deductions claimed are allowed the penal provisions of FERA will become meaningless. It has also to be borne in mind that evasion of law cannot be a trade pursuit. The expenditure in this case cannot, in any way, be allowed as wholly and exclusively laid out for the purpose of assessee s business. 9. We have heard counsel for both the sides. 10. Section 37 of the Income Act reads as under:- 37(1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head, Profits and Gains of Business or Profession . [ Explanation.- For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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