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TMI Blog2021 (2) TMI 725X X X X Extracts X X X X X X X X Extracts X X X X ..... t was concerning A.Y's 2012-2013 and 2013-2014. In all the appeals, the assessee had raised the grounds challenging the notice issued u/s 153A of the I.T.Act. Apart from challenging the notice, the assessee had raised grounds relating to merits on three issues, viz., (i) disallowance of business promotion expenses, (ii) disallowance of discount given to the customers, and (iii) disallowance of bad debts written off (this issue is not there for A.Y's 2007-2008 to A.Y's 2009-2010) 2.1 In the first part of the ITAT's order concerning A.Y's 2007- 2008 to 2011-2012 in ITA No.1921/Bang/2016 to 1925/Bang/2016 (cases which we are concerned now), the Tribunal quashed the assessment orders by holding that the notice issued u/s 153A of the I.T.Act was not valid on the ground that no incriminating material was found for these years, whose assessment has already been concluded u/s 143(3) of the I.T.Act. While doing so, the Tribunal placed reliance on various judicial pronouncements as detailed in the order. Since the assessments for A.Y's 2007-2008 to 2011-2012 were quashed, the issues on merits were not adjudicated (para 10 at page 14 of the Tribunal order). 2.2 As regards the second p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was stated that the order of the ITAT for assessment years 2012-2013 and 2013-2014 has attained finality as no appeal was preferred by the Revenue before the Hon'ble High Court. It was submitted that the same decision / directions rendered for A.Y's 2012-2013 and 2013-2014 may be taken in these assessment years as well. We shall adjudicate each of the issues as under. (i) Disallowance of business promotion expenses (for assessment years 2007-2008 to 2011-2012 - Ground No.12) 4. The Tribunal in its earlier order dated 29.01.2018 for assessment years 2012-2013 and 2013-2014 elaborately discussed the above issue in para 13 to 18. The Tribunal at para 17 and 18 held that the expenses incurred on doctors before 01.08.2012 is to be allowed as revenue expenditure. The relevant finding of the Tribunal reads as follow:- '13. Now coming to the merits, the ld. Counsel for the assessee has assailed the order of the CIT(Appeals) with regard to the additions made after making disallowances of business promotion expenses claimed u/s. 37 of the Act. In this regard, the facts in brief borne out from the record are that the assessee has debited a sum of Rs. 7,68,77,000 as business promotion exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aculty members, therefore no disallowance can be made having invoked the Notification of MCI and Explanation to 37(1) of the Act. In support of his contentions, the ld. Counsel for the assessee has placed reliance upon the order of Tribunal in the case of DCIT v. PHL Pharma Pvt. Ltd., 146 DTR 0149, Simcon Formulation (India) Pvt. Ltd. v. DCIT of Mumbai Tribunal and Hon'ble Delhi High Court judgment in the case of Max Hospital v. MCI in W.P.C. No.1334/Del/2013 dated 10.01.2014. 16. The ld. DR, on the other hand, has placed reliance upon the order of the CIT(Appeals). Besides it was also contended by the ld. DR that no details are available on record as to whether the Doctors have attended the Conferences & Seminars as faculty members or as delegates. The onus is upon the assessee to establish these facts. In the absence of any evidence in this regard, the revenue has rightly disallowed the claim. 17. Having carefully examined the orders of authorities below in the light of rival submissions, we find that the AO has disallowed the business promotion expenses claimed by the assessee only on the ground that they were incurred on Doctors who attended Seminars & Conferences. The reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under for the sake of reference:- "5. We have considered the rival contentions made by ld. CIT DR as well as ld. Sr. Counsel, Mr J.D. Mistry, perused the relevant finding given in the impugned orders and material referred to before us. The entire controversy revolves around, whether the expenditures in question incurred by the assessee (a pharmaceutical company) is hit by Explanation 1 below section 37(1) in view of CBDT Circular dated 01.08.2012, interpreting the amendment dated 10.12.2009 brought in Indian Medical Council Regulation 2002 or not. The break-up of sales promotion expenses, which has been disallowed by the AO, are as under: Sr.No Particulars of expenses Amount (in Rs.) 1 Customer Relationship Management expenses (CRM) 7,61,96,260 2 Key Account Management expenses(KAM) 2,56,68,509 3 Gift Articles 9,20,22,518 4 Cost of samples 3,60,85,320 Total 22,99,72,607 The nature of aforesaid expenses has already been explained above. Now whether the nature of such expenditure incurred by the assessee is to be disallowed in view of the CBDT Circular dated 01.08.2012. For the sake of ready reference, the said CBDT Circular No.5/2012 is reproduced hereun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the notice of all the officers of the charge for necessary action." From the perusal of the aforesaid Board Circular, it can be seen that heavy reliance has been placed by the CBDT on the Circulars issued by the Medical Council of India, which is the regulatory body constituted under the 'Medical Council Act, 1956'. One such regulation has been issued is "Indian Medical Council Professional Conduct, Etiquette and Ethics) Regulations, 2002". The said regulation deals with the professional conduct, etiquette and ethics for registered medical practitioners only. Chapter 6 of the said regulation/notification deals with unethical acts, whereby a physician or medical practitioners shall not aid or abet or commit any of the acts illustrated in clause 6.1 to 6.7 of the said regulation which shall be construed as unethical. Clause 6.8 has been added (by way of amendment dated 10.12.2009) in terms of notification published on 14.12.2009 in Gazette of India. The said clause reads as under:- "6.8 Code of conduct for doctors and professional association of doctors in their relationship with pharmaceutical and allied health sector industry. 6.8.1 In dealing with Pharmaceutical and all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entific and a humane way. (vii) Ensure that while accepting such an assignment a medical practitioner shall have the freedom to publish the results of the research in the greater interest of the society by inserting such a clause in the MoU or any other document / agreement for any such assignment. f) Maintaining Professional Autonomy: In dealing with pharmaceutical and allied healthcare industry a medical practitioner shall always ensure that there shall never be any compromise either with his / her own professional autonomy and / or with the autonomy and freedom of the medical institution. g) Affiliation: A medical practitioner may work for pharmaceutical and allied healthcare industries in advisory capacities, as consultants, as researchers, as treating doctors or in any other professional capacity. In doing so, a medical practitioner shall always: (i) Ensure that his professional integrity and freedom are maintained. (ii) Ensure that patients' interests are not compromised in any way. (iii) Ensure that such affiliations are within the law. (iv) Ensure that such affiliations / employments are fully transparent and disclosed. h) Endorsement: A medical practitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1953. It is urged that in fact, an inspection was also carried out on 22.07.2011 by Dr. R.N. Dass, Medical Superintendent (Nursing Home) under the Directorate of Health Services, Govt. of NCT of Delhi and the necessary equipments and facilities were found to be in order which negates the observations dated 27.10.2012 of the Ethics Committee of the MCI. It is also the plea of the Petitioner hospital that the Petitioner was not provided an opportunity of being heard and thus the principles of natural justice were violated. 7. In the counter affidavit filed by the Respondents, it is not disputed that the MCI under the 2002 Regulations has jurisdiction limited to taking action only against the registered medical practitioners. Its plea however, is that it has not passed any order against 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for any purpose which is an offence or which is prohibited by law. This means that there should be an offence by an assessee who is claiming the expenditure or there is any kind of prohibition by law which is applicable to the assessee. Here in this case, no such offence of law has been brought on record, which prohibits the pharmaceutical company not to incur any development or sales promotion expenses. A law which is applicable to different class of persons or particular category of assessee, same cannot be made applicable to all. The regulation of 2002 issued by the Medical Council of India (supra), provides limitation/curb/ prohibition for medical practitioners only and not for pharmaceutical companies. Here the maxim of "Expressio Unius Est Exclusio Alterius" is clearly applicable, that is, if a particular expression in the statute is expressly stated for 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 assessee. If the Medical Council regulation is applicable to medical practitioners then it cannot be made applicable to Pharma or allied health care companies. If section 37(1) is app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 29.01.2018) and in the case of DCIT v. Bayer Pharmaceuticals Private Limited (ITA No.6222/Mum/2018 order dated 18.09.2019) submitted that the legal principle enunciated in these orders of the Tribunal are as follows:- (i) On the specific question as to whether the payments to doctors are prohibited w.e.f. 10.12.2009 as per MCI guidelines, it was held that MCI guidelines are applicable only for medical practitioners and not for pharma companies (page 3, 5 of Bayer order). (ii) As a logical corollary, if there is any violation of MCI regulation in terms of Section 37(1), it is meant for medical practitioners and not for pharma companies (page 6 of Bayer order) (iii) CBDT Circular dated 1.08.2012 enlarging the scope of MCI regulation to pharma companies is without any enabling provisions either under Income Tax Act or under MCI regulations (page 7 of Bayer order) (iv) Even after the Circular, if the assessee satisfies the A.O. that the expenses are not in violation of the MCI guidelines, it can be claimed as deduction (page 8 of Bayer order). (v) In any case, the CBDT circular cannot have retrospective effect it was specifically held that the CBDT circular is not applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the MCI Regulations, effective from 10.12.2009, came under the embargo placed by Explanation u/s 37(1) after 10.12.2009. (iii) Circular 5/2012 of the CBDT is clarificatory on the scope of Explanation 37(1). (iv) The decision of the Hon'ble Tribunal has been rendered without the knowledge of Explanation u/s 37(1) of the Act. 4.4 We have heard rival submissions and perused the material on record. From CBDT Circular No.5/2012 dated 01.08.2012 and MCI Regulation 6.8 (published in Gazette on 14.12.2009) it is clear that expenditure incurred by the assessee on doctors alone is liable for disallowance by virtue of Explanation 1 to section 37 of the I.T.Act. This also made clear in ITAT order dated 29.01.2018. However, we notice for these A.Y's, the A.O. had disallowed the entire expenditure under the head `business promotion expenses', which included expenses on cath lab, marketing, travel of staff, paramedicines etc. We make it clear that if at all any disallowance is called for, only the expenditure related to doctors alone should have been disallowed by the A.O. 4.4.1 The further question is, what is the cut off date of disallowance of expenses relating to doctors, whether it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar view was held in the following cases: (i) Bayer Pharmaceutical P. Ltd. ITA No.6222/ Mum/2018 - A.Y. 2011-12. (ii) Medley Pharmaceuticals Ltd. ITA No.2344/Mum/ 2018 A.Y.2012-13. (iii) Aristo Pharmaceuticals Ltd. ITA No.5553/Mum/ 14 & 5479/Mum/15 A.Y. 2011-12 & 2012-13. 4.4.3 No contra decision has been brought to our notice. Therefore, in the light of the above said ITAT order and ITAT order dated 29.01.2018 in assessee's own case for A.Y. 2012- 2013 and 2013-2014, we hold that expenditure relating to doctors incurred by the assessee prior to 01.08.2012 need to be allowed as revenue expenditure. Since we are concerned with A.Y's 2007-2008 to 2011-2012, the CBDT Circular No.5/2012 dated 01.08.2012 does not have effect on these cases. Accordingly, we direct the A.O. to delete the disallowance of business promotion expenses in A.Y. 2007-2008 to 2011- 2012. Hence ground No.12 is allowed. Disallowance of discount to customers (Ground No.13) (concerning A.Y's 2007-2008 to 2011-2012) 5. The learned AR submitted the following:- (i) The year-wise details of discounts submitted to the A.O. are at pages 713 and 714 of the paper book. (ii) The invoice-wise details of the disco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sale transaction is an unilateral practice followed in any business organizations. In many a times, the sale amount recorded in the books are not realized for various reasons. When the sale ultimately fortifies, the initially recorded price may not be realized and if there is a shortfall in the realization for any compelling business reasons, the same cannot be treated as sales returns and such shortfall, if any, is passed out for discount for which credit note is raised from the customers. Therefore, the realized of the realizable price is only considered for profit or loss. It was further contended before the CIT(A) that the fundamental reason for this practice is only to tax the real income as held through various judicial pronouncements. The explanations and evidences furnished by the assessee were confronted to the AO and a remand report was called from him. 21. The CIT(A) re-examined the claim of the assessee but was not convinced with it. 22. Now the assessee is before us. During the course of hearing, the learned counsel for the assessee invited our attention to certain facts with the submission that AO disallowed the discount given by credit notes on the assumption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carefully examined the material available on record in the light of rival submissions, we find that the assessee has given the discounts on its gross sales. Sometimes discount was given at the time of issuing of invoice. The AO has doubted the discount given by the assessee on its different sales on the basis of the statement of those parties to whom the discount was given. During the course of assessment proceedings, the receipt of discount was accepted by certain recipients and it was also explained by few hospitals. The discrepancies in amount of payment and the discount were also explained by certain hospitals. Through letter it was explained by Pragma Hospital that there are 2 types of patients being served cashless by the hospitals because these payments are made to the hospital by some insurance companies. For the first type of patient who make cash payment whenever any stunt deployed in the patient, the vascular concept of the company/assessee directly sells and bills of these stunts to the patients and patients directly make the payment to the company. Company's representatives come every fortnight and monthly and collect the payment as the representatives of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with regard to discount given to the hospital on cashless treatments or on paid treatment, the issue requires proper examination by making necessary enquiry. Accordingly, the issue is restored back to the AO for fresh adjudication." 5.3 The direction of the ITAT in above order are two folds, namely - (a) Discounts given in the invoice itself should be allowed without making any further enquiry; and (b) Discounts given to hospitals may be allowed after making enquiry. 5.4 Pursuant to the ITAT order, the A.O. passed order u/s 143(3) r.w.s. 254 of the I.T.Act (copy placed at pages 62 to 73 of the paper book dated 19.08.2020), wherein, the A.O. after examination of confirmation of parties produced by the assessee, allowed certain discounts given to customer and disallowed portion where assessee failed to produce the details. 5.5 In light of the ITAT order dated 29.01.2018 for A.Y's 2012- 2013 and 2013-2014, we restore the issue of discount given to customer, to A.O. for de novo consideration with following directions, namely - (a) Discounts given in the invoice itself should be allowed without making any further enquiry; and (b) Discounts given to hospitals may be allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the material on record. This issue has been discussed in detail in the Hon'ble Tribunal's order for A.Y's 2012-2013 and 2013- 2014 at paragraphs 26 to 29 of the order, wherein the A.O. has been directed to allow the claim of bad debts. The relevant discussion and finding of the ITAT concerning above issue reads as follow:- "26. Next ground relates to the disallowance of bad debts written off. In this regard, our attention was invited to the fact that AO has made the disallowance of bad debt having observed that assessee has not established that amount has gone bad inspite of all efforts taken by him. In this regard, the learned counsel for the assessee has contended that after the amendment, the bad debt is required to be written off in the books of account and the assessee is not required to establish that bad debt has become bad. The learned counsel for the assessee further contended that assessee has taken the same amount into P & L account. Therefore, the condition required under section 36(2) is fulfilled. Therefore, the disallowance of bad debt made by the AO is incorrect and the same should be allowed. It was further contended that the CIT(A) did not examine these aspec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the assessment order. Aggrieved by the assessment order appeal is filed before the ITAT Bangalore and ITAT Bangalore by considering the Supreme Court judgment in the case of TRF v. CIT 323 ITR 0397 and jurisdictional High Court order in the case of Amco Batteries vs. ACIT 232 Taxmann 0351 has deleted the addition made by the A.O. and allowed in the favour of assessee company." 6.4 For these assessment years as well, the Revenue has not established that conditions stipulated u/s 36(2) of the I.T.Act was not fulfilled with respect to any of the debts which were written off by the assessee during the previous years. Under these circumstances, we are of the view that disallowance made by the Revenue authorities is incorrect as the assessee is only required to write off the bad debts and is not required to establish that it has become really bad. Accordingly, we direct the A.O. to allow the claim of bad debt raised by the assessee. 6.5 Therefore, ground No.15 for Asst.Year 2010-2011 and Ground No.13 for Asst.Year 2011-2012 are allowed. 7. In the result, the appeals filed by the assessee for Asst.Year's 2007-2008 to 2011-2012 are partly allowed for statistical purposes, as indicated ..... X X X X Extracts X X X X X X X X Extracts X X X X
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