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TMI Blog2019 (12) TMI 741X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of such highly skilled Medical Practitioners. There is no burden upon them. So this argument of the Assessing Officer has no substance. The expenditure incurred by the assessee is thus akin to advertisement and sales promotion expenditure incurred in any other businesses and cannot be disallowed for the reasons assigned by the Assessing Officer. AO misses the point that the advertisement expenditure, by its very nature, is not spent for a crystallized quid pro quo or against any services rendered to the payer. Once it is found that the expenditure is in the nature of advertisement expenditure, the question raised by the Assessing Officer loses significance. Un-reconciled amounts as per Individual Transaction Statement ( ITS ) - whether the un-reconciled amount of ITS / AIR can be added to the total income of the assessee when the assessee denies having carried out any such transaction ? - HELD THAT:- We find that the details in the ITS statement are uploaded by the third party and assessee does not exercise any control on the same. There is no authenticity of such details nor are such details verified by any independent authorities as to its correctness and truthfulness. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es incurred on purchase of medical books and journals provided to HealthCare Professionals ('HCPs'). 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the action of the AO in holding that the aforesaid expenses are disallowable under the Explanation to section 37(1) of the Act in view of Circular no. 05/2012 dated 1 August 2012 issued by the Central Board of Direct Taxes ('CBDT') read with the amendment made by the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 ('IMC Regulations') on 10 December 2009. 3. Without prejudice to the above grounds of appeal and in the alternative, the learned CIT(A) erred in ignoring the contentions of the appellant that the IMC Regulations which were issued under the Indian Medical Council Act, 1956 do not apply to pharmaceutical companies. 4. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that the CBDT Circular dated 1 August 2012 is applicable to expenditure incurred during the previous year relevant to AY 2010-11. 5. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... products. The assessee was subject to a scrutiny assessment and an order under Section 143 r.w.s. 144C(3) of the Act was passed after making various additions/ disallowances which, inter alia, included disallowance on account of payment made to doctors in violation of Indian Medical Council (Professional conducts, Etiquette and Ethics) Regulations, 2002 of ₹ 3,51,65,661/- and addition of ₹ 8,10,370/- on account of un-reconciled amounts as per Individual Transaction Statement ( ITS ). In the course of assessment proceedings, the Assessing Officer noted that assessee has debited ₹ 3,09,05,508/- under the head Brand Reminders and ₹ 42,64,153/- under the head Purchase of Medical Books and Journals . It is the case of the Assessing Officer that these payments are in violation of the IMC Regulations issued in 2009 and are also subsequently specifically stated to be disallowed by the CBDT Circular 05/2012. As per the Assessing Officer, assessee should not have made these expenditure in promoting its own brand, with respect to the medicines sold by it, amongst the Medical Practitioners. The Assessing Officer has held that the guidelines and regulations issued by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taraman Co. (P) Ltd vs. CIT (1998) 229 ITR 534 (SC) and held that it would be against public policy to allow under one statute the benefit of deduction of expenditure incurred in violation of the provisions of another statute. He further relied on the decision of the Hon ble Madras High Court in the case of CIT vs. India Cements Ltd (2000) 241 ITR 62 (Mad) wherein it was held that while making the assessment under the Act, the authorities under the Act are not required to close their eyes to the infraction of other applicable laws by the assessee and render such other laws and the penal provisions therein meaningless by allowing a trader or an owner of a business to reap the benefit of the violation of the law. iv. The fourth argument of the assessee was that expenditure incurred by the assessee does not amount to freebies as per Circular No. 05/2012. In this regard, the Assessing Officer observed that the question whether the payment made by the assessee falls within the meaning of the term freebies or not is not relevant. v. Fifthly, it was argued by the assessee that gifts given to the Medical Practitioner are in the form of pens, notepads, USB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amendment made to India Medical Council (Professional Conduct, Etiquettee and Ethics) Regulations, 2002 ( IMC Regulations ) w.e.f. 10.12.2009 wherein certain guidelines were laid down for the Medical Practitioner while dealing with the Pharmaceutical companies. As per the said Guidelines, in dealing with Pharmaceutical and allied health sector industry, a medical practitioner shall not: a) Receive any gift from any pharmaceutical or allied health care industry and their sales people or representative. b) Accept any travel facility inside the country or outside, including rail, air, ship, cruise, tickets, paid vacations, etc, from any pharmaceutical or allied health care industry or their representative for self and family members for vacation or for attending conferences, seminars, workshops, CME programme etc. as a delegate. c) Accept individually any hospitality like hotel accommodation for self and family members under any pretext. d) Receive any cash or monetary grants from any pharmaceutical and allied healthcare industry for individual purpose in individual capacity under any pretext. 6. The Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the Medical Practitioners. Moreover, these items are not distributed frequently, which can lead to influence the decision of the Medical Practitioners and, as such, cannot be said to be against the public policy. 9. It was further argued that the term gift has not been defined in IMC Regulation, but in general parlance gift means something which is given for the benefit of the receiver and without any consideration. The items/ articles given by the assessee for brand reminder cannot be equated with the gift as the same is not given for the exclusive benefit of the receiver. As for doctors, they will derive little or no material benefit out of it. Secondly, it cannot be said that the same is given without consideration. By way of such gift, the assessee is creating brand awareness among the doctors and amongst the general public and that is the consideration the assessee company is getting in return of the items. Thus, it will be wrong to equate the same with the gift which is without consideration. It is more akin to the advertisement and business promotion expenditure. 10. As regards books and journals distributed by the assessee, it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. ITA No. 4605/Mum/2014. The question before the bench in that case was as under: 1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of ₹ 22,99,72,607/- being freebies given by the assessee to doctors, ignoring the fact that such payments are specifically prohibited w.e.f. 10.12.2009 by the Medical Council of India (MCI), which is the competent authority, and therefore, the said expenses are illegal and consequently not allowable as per the Explanation to Section 37(1) of the Income-tax Act, 1961? In this regard, the Tribunal held as under: 6. On a plain reading of the aforesaid notification, which has been heavily relied upon by the department, it is quite apparent that the code of conduct enshrined therein is meant to be followed and adhered by medical practitioners/doctors alone. It illustrates the various kinds of conduct or activities which a medical practitioner should avoid while dealing with pharmaceutical companies and allied health sector industry. It provides guidelines to the medical practitioners of their ethical codes and moral conduct. Now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst the Petitioner hospital therefore; the Petitioner cannot have any grievance against the impugned order. 8. 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 the adequate infrastructure facilities for appropriate post-operative care were in fact in existence or not in the Petitioner hospital and whether the principles of natural justice had been followed or not while passing the impugned order. Suffice it to say that the observations dated27.10.2012 made by the Ethics Committee do reflect upon the infrastructure facilities available in the Petitioner hospital and since it had no jurisdiction to go into the same, the observations were uncalled for and cannot be sustained. [Emphasis added is ours] From the aforesaid decision, it is ostensibly clear that the Medical Council of India has no jurisdiction to pass any order or regulation against any hospital or an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee claiming the expenditure under this section. 8. From a perusal of above amendment/notification in the MCI regulation, it is quite clear again that same is applicable for medical practitioners only and the censure/action which has been suggested by it is only on medical practitioners and not for pharmaceutical companies or allied health sector industries. The violation of the aforesaid regulation would not only ensure a removal of a doctor from the Indian Medical Register or State Medical Register for a certain period of time and it does not impinge upon the conduct of pharmaceutical companies. This important distinction has to be kept in mind that regulation issued by Medical Council of India is qua the doctors/medical practitioners and not for the pharmaceutical companies. As a logical corollary to it, if there is any violation or prohibition as per MCI regulation in terms of section 37(1) r.w.Explanation1, then it is only meant for medical practitioners and not for pharmaceutical company (Assessee Company) for claiming the expenditure. 9. Adverting to the contention of the Ld. CIT DR that CBDT is well empowered to issue such clarific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (underlined for emphasis by us) 14. We further find that the Pune Bench of the Tribunal in the case of Emcure Pharmaceuticals Ltd vs. DCIT in ITA No. 1532/Pun/2015, on identical facts, following the decisions of our co-ordinate bench in the case of DCIT vs. PHL Pharma Pvt. Ltd., 49 CCH 0124 and in the case of Solvay Pharma India Ltd. ITA No. 3585/Mum/2016, held as under: 9. The above judgmental laws are relevant for the proposition that the circular issued by the CBDT enlarging the scope of disallowance to the pharmaceutical companies is without any enabling notification or circular of the Medical Council of India. Considering the settled legal position on the issue, we are of the opinion that the issue now stands covered in favour of the assessee. The pharmaceutical company like the assessee is outside the scope of the circulars by the Medical Council of India or the CBDT. Therefore, the conclusions of the AO/ CIT(A) in this regard are reversed. Thus, the grounds raised by the assessee are required to be allowed. (underlined for emphasis by us) As is evident from above, the pharmaceutical companies are outside the sco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure, the question raised by the Assessing Officer loses significance. 17. Before parting, we may also notice that the case law relied on by the learned DR is distinguishable on facts. The question in the case of Liva Healthcare Ltd. (supra) was pertaining to allowance of expenditure incurred on overseas travelling of the doctors and distribution of free samples, whereas in the present case, the question pertains to allowance of expenditure incurred by the assessee on brand reminder in the form of distribution of articles containing logo of the assessee having maximum value of ₹ 1,000/-. As such, the facts of both the case are different and thus, the ratio laid down in that case is not applicable to the facts of the present case. 18. In light of the above discussion, we hereby set-aside the order of the CIT(A) and direct the Assessing Officer to delete the addition. Accordingly, this Ground of appeal raised by the assessee is allowed. 19. The next issue pertains to addition on account of un-reconciled amounts as per Individual Transaction Statement ( ITS ). In the course of assessment proceedings, the assessee was asked to reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issions and perused the material on record. The limited issue is whether the un-reconciled amount of ITS / AIR can be added to the total income of the assessee when the assessee denies having carried out any such transaction. We find that the details in the ITS statement are uploaded by the third party and assessee does not exercise any control on the same. There is no authenticity of such details nor are such details verified by any independent authorities as to its correctness and truthfulness. Such details could be the preliminary basis for the Assessing Officer to estimate the income and expenditure of the assessee but certainly not the sole basis to arrive at the conclusion that the income reported in the ITS belongs to the assessee. This becomes more relevant when the assessee denies having carried out any such transaction reported in the ITS statement. In such cases, the burden shifts on the Assessing Officer to prove with supporting evidence to establish that the income was, in fact, earned by the assessee or that the expenditure pertains to the assessee. 23. In the present case, the assessee denied to have carried out the un-reconciled transac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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