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TMI Blog2019 (10) TMI 731X X X X Extracts X X X X X X X X Extracts X X X X ..... be expenditure, (b) such expenditure must not be of the nature described in sections 30 to 36, (c) the expenditure must not be in the nature of capital expenditure or personal expenditure of the assessee, and (d) expenditure must be laid out or expended wholly and exclusively for the purpose of business or profession. The expression wholly employed in section 37 refers to quantification of expenditure while expression exclusively refers to the motive, objective and purpose of the expenditure. Thus, if the nature of this expenditure is being viewed with angle of commercial organization, then it would reveal that these were essential expenditure for the purpose of a pharmaceutical industry. The only caveat for their non-disallowance is Explanation 1 appended to section 37, which is applicable on the expenditure which are incurred for infringement of any law. This aspect has been elaborately discussed by the Co-ordinate Bench in the above cases, and therefore, respectfully following the decision of the ITAT in the case of Aristo Pharmaceuticals P.Ltd. [ 2019 (7) TMI 862 - ITAT MUMBAI] we allow the appeal of the assessee, and delete the disallowances. - Decided in favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 263 of the Income Tax Act, 1961 and harboured a belief that the assessment order passed by the AO was erroneous and prejudicial to the interest of the Revenue, and therefore, it is to be set aside for adjudication afresh on particular issue. Accordingly, an order was passed under section 263 on 25.3.2015. The ld.Commissioner has set aside the assessment order with the following directions: To examine the issue of expenditure raised in notice u/s. 263 dated 25.06.2014 with reference to the details filed by the assessee during the assessment proceedings in response to the show, cause notice issued by the Assessing Officer on 24.01.2013 and 'details filed on 26.08.2013 during the proceedings u/s. 263 and'make1 disallowance of expenditure not allowable, as per CBDT's Circular No.5/2012 dated 01.08.2012 being in violation to the provisions of Indian Medical Council (Profession conduct, Etiquette and Ethics) Regulations Act, 2002 issued by the Medical Council of India and Notification dated 10.12.2009 issued by the Medical Council of India after providing an opportunity of being heard to the assessee. 4. Armed with the above dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,423 3,02,32,474 5 Patron Networking Expenses 1,61,80,203 1,56,74,305 33,406 4,000 60,000 1,57,71,711 4,08,492 6 Sales promotion expenses 71,91,609 43,814 29,37,485 3,809 1,000 29,86,108 42,05,501 7 Travelling Expenses for Doctors 22,74,606 5,15,849 17,41,878 22,57,727 16,879 Total 8,21,31,305 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,02,32,543 1,00,67,842 5. A perusal of the above details would indicate that the assessee has debited under different heads viz. business convention, CME expenses, MCM expenses, promotional material, patron networking expenses, sales promotion expenses, travelling expenses. In the first column, it has shown the nature of expenditure. Thereafter, shown total quantum of expenditure and thereafter bifurcated this expenditure under heads, gifts, hospitality, travel facility, etc. The ld.AO on an analysis of both these tables arrived at a conclusion that freebies given to the doctors at ₹ 3,55,20,081/- is an unallowable expenditure under section 37(1). Similarly, certain expenditure, which were not in the nature of freebies, but in the opinion of the AO, these are equated to freebies, and he worked out a disallowance at ₹ 1,02,32,543/-. 6. Dissatisfied with this disallowance, the assessee carried the matter in appeal before the ld.CIT(A). It has filed written submissions, but could not meet approval of the ld.CIT(A). The ld.CIT(A) has concurred with the AO and the basic reason operated in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Diagnostic Centre P.Ltd., 344 ITR 476. Before the Hon ble Allahabad High Court, the issue was whether expenditure incurred by an assessee on the ground that commission paid to Government doctors incurred by the assessee is in contravention of the public policy and not allowable as expenditure. The Hon ble High Court has replied this question against the assessee and held that commission paid to Government doctors is against the public policy and immoral. For that purpose, Hon ble High Court has made reference to the decision of Hon ble Supreme Court as well as its earlier decisions. Similarly, Hon ble P H High Court has also not upheld the allowance of claim of expenditure by a diagnostic centre for giving commission to those doctors who have referred patients to such diagnostic centre for investigation. Dissatisfied with the order of the ld.CIT(A), the assessee is in appeal before the Tribunal. 8. The ld.counsel for the assessee at the very outset contended that this issue has been debated in series of judgment at the end of the ITAT, Benches not only at Ahmedabad but in Mumbai also. He has placed on record copies of twelve decisions, and latest is in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mall organization in comparison to Cadila and other big pharmaceutical companies, where the expenditure under these heads have been incurred in crores of rupees, because these companies have higher volume of turnover. He prayed that the ld.CIT(A) has erred in not appreciating the nature of assessee s business, and how a circular issued by the CBDT after the circular of Medical Council of India under Medical Council Act, 1956 can be given a retrospective effect. He further contended that impact of both these circulars have been discussed elaborately in these decisions. 10. On the other hand, the ld.DR relied upon the orders of the Revenue authorities. He contended that a short question in this appeal is, whether gifts in the shape of hotel accommodation, travel concession, hospitality and valuables given by pharmaceutical companies to medical professional should be treated as genuine business expenditure or it should be appreciated while considering medical profession and needs of the society in India. He pointed out that the ld.CIT(A) has emphasized this aspect in para-9 and 10 which has been extracted in earlier part of this order. He basically relied upon this ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1956, reveals that the scope and ambit of statutory provisions relating to professional conduct of registered medical practitioners under the Indian Medical Council Act, 1956 is restricted only to the persons registered as medical practitioners with the State Medical Council and whose name are entered in the Indian Medical Register maintained under Sec. 21 of the said Act. We are of the considered view that the scheme of the Indian Medical Council Act, 1956 neither deals with nor provides for any conduct of any association/society and deals only with the conduct of individual registered medical practitioners. In the backdrop of the aforesaid facts, it emerges that the applicability of the MCI regulations would only cover individual medical practitioners and not the pharmaceutical companies or allied health sector industries. Interestingly, the scope of the applicability of the MCI regulations was looked into by the Hon'ble High Court of Delhi in the case of Max Hospital, Pitampura v. Medical Council of India (CWP No. 1334/2013, dated 10.01.2014). In the aforementioned case the MCI had filed an 'Affidavit' before the High Court, wherein it was deposed by the council t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prohibited by law. In this regard we are reminded of the maxim Expressio Unius Est Exclusio Alterius , which provides that if a particular expression in the statute is expressly stated for a particular class of assessee, then by implication what has not been stated or expressed in the statute has to be excluded for other class of assesses. Thus, now when the MCI regulations are applicable to medical practitioners registered with the MCI, then the same cannot be made applicable to pharmaceutical companies or other allied healthcare companies. 22. We shall now advert to the CBDT Circular No. 5/2012, dated 01.08.2012. We find that the aforesaid CBDT Circular reads as under:- Inadmissibility of expenses incurred in providing freebees to medical practitioner by pharmaceutical and allied health sector industry Circular No. 5/2012 [F.No. 225/142/2012-ITA.II], dated 1-8-2012 It has been brought to the notice of the Board that some pharmaceutical and allied health sector Industries are providing freebess (freebies) to medical practitioner and their professional associations in violation of the regulations issued b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical Council (Professional Conduct, Etiquette and Ethics) regulations, 2002 shall be inadmissible under Sec. 37(1) of the Income-Tax Act, 1961, as the same would be an expense prohibited by the law. We are of the considered view that as observed by us hereinabove, the code of conduct enshrined in the notifications issued by MCI though is to be strictly followed and adhered by medical practitioners/doctors registered with the MCI, however the same cannot impinge on the conduct of the pharmaceutical companies or other healthcare sector in any manner. We find that nothing has brought on record which could persuade us to conclude that the regulations or notifications issued by MCI would as per the law also be binding on the pharmaceutical companies or other allied healthcare sector. Rather, the concession made by the MCI before the Hon'ble High Court of Delhi in the case of Max Hospital v. MCI (CWP No. 1334/2013, dated 10.01.2014) fortifies our aforesaid view that MCI has no jurisdiction to pass any order or regulation against any hospital, pharmaceutical company or any healthcare sector. We further find that MCI had by adding Para 6.8.1 to its earlier notification issued as India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving administrative relief or for clarifying the provisions of law, but the same cannot impose a burden on the assessee, leave alone creating a new burden by enlarging the scope of a regulation issued under a different act so as to impose any kind of hardship or liability on the assessee. We thus, are unable to persuade ourselves to subscribe to the rigours contemplated in the CBDT Circular No. 5/2012, dated 01.08.2012, which we would not hesitate to observe, despite absence of anything provided by the MCI in its regulations issued under the Medical Council Act, 1956, contemplating that the regulation of code of conduct would also cover the pharmaceutical companies and healthcare sector, however provides that in case a pharmaceutical or allied health sector industry incurs any expenditure in providing any gift, travel facility, cash, monetary grant or similar freebies to medical practitioners or their professional associations in violation of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, the expenditure incurred on the same shall be disallowed in the hands of such pharmaceutical or allied health sector industry. We are of the considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In other words, a beneficial circular has to be applied prospectively. Thus, when the circular is against the assessee they have a right to claim the enforcement of the same prospectively. It is further submitted that for the period in question, trade notices had been issued classifying the circuit breakers under heading No. 85.35 or 85.36. When the approved classification was proposed to be revised to reclassify the single panel circuit breakers under heading No.85.37 of the tariff, such re-classification can take effect only prospectively from the date of communication of the show-cause notice proposing reclassification. We find that the aforesaid CBDT Circular No. 5/2012, dated 01.08.2012 had came up for consideration before a coordinate bench of the Tribunal in the case of DCIT v. PHL Pharma (P) Ltd. [2017] 49 CCH 124 (Mum), wherein the Tribunal after deliberating at length on two aspects viz. (i) validity of the circular in the backdrop of enlargement of scope of MCI regulation to the pharmaceutical companies by the CBDT, without any enabling provisions either under the Income Tax Law or under the Indian Medical Council Regulations; and (ii). the prospectiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons viz. (a) there must be expenditure, (b) such expenditure must not be of the nature described in sections 30 to 36, (c) the expenditure must not be in the nature of capital expenditure or personal expenditure of the assessee, and (d) expenditure must be laid out or expended wholly and exclusively for the purpose of business or profession. The expression wholly employed in section 37 refers to quantification of expenditure while expression exclusively refers to the motive, objective and purpose of the expenditure. 14. Thus, if the nature of this expenditure is being viewed with angle of commercial organization, then it would reveal that these were essential expenditure for the purpose of a pharmaceutical industry. The only caveat for their non-disallowance is Explanation 1 appended to section 37, which is applicable on the expenditure which are incurred for infringement of any law. This aspect has been elaborately discussed by the Co-ordinate Bench in the above cases, and therefore, respectfully following the decision of the ITAT in the case of Aristo Pharmaceuticals P.Ltd. (supra) we allow the appeal of the assessee, and delete the disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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