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TMI Blog2021 (9) TMI 542X X X X Extracts X X X X X X X X Extracts X X X X ..... der of the Assessing Officer is without jurisdiction. 3. For that the Commissioner of Income Tax (Appeals) erred in upholding the disallowance of sales promotion expenses made by the Assessing Officer amounting to Rs. 1,18,67,354/- uls.37(1). 4. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the Indian Medical Council (Professional conduct, Etiquette and Ethics) regulations 2002, only restricts a medical practitioner from receiving any gift from any pharmaceutical or allied health care industry. 5. For that the Commissioner of Income Tax (Appeals) failed to appreciate that there is no prohibition on the pharmaceutical industry from giving freebies and gifts to distributors and retailers. 6. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the CBDT Circular No.5/2012 dated 01.08.2012 is contrary to law. 7. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the gifts were not given to any medical practitioner and were only given to the distribution centres of appellant's principal. 8. For that without prejudice to the contention that the sales promotion expenses cannot be disallowed u/s.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 8D. 3.2 The CIT(A) ought to have considered the CBDT circular No.5/2014 wherein it is clarified that, disallowance u/s.14A r.w.r.8D has to be made even if the taxpayer in a particular year not earned any exempt income. 4. For these and other grounds that may be adduced at the time of hearing, it is prayed that the Order of the learned Commissioner of Income Tax (Appeals) be set aside and that of the Assessing Officer be restored. 4. The brief facts of the case are that the assessee company is engaged in the business of manufacture and export of pharmaceuticals and allied products, filed its return of income for the assessment year 2010-11 on 28.09.2010, declaring 'nil' total income after claiming deduction u/s.80IC of the Income Tax Act, 1961 (hereinafter the 'Act'). The assessment for the impugned assessment year has been computed u/s.143(3) of the Act on 05.02.2013 and determined total income at Rs. 1,87,40,468/- by making additions towards disallowance u/s.14A r.w.rule 8D of Income Tax Rules, 1962 (hereinafter the ' IT Rules') for Rs. 3,67,943/- and disallowance of sales promotion expenses u/s.37(1) of the Act, for Rs. 1,18,67,354/- and further recomputed deduction claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors is in violation of proviso to Section 37(1) of the Act and hence, not allowable as deduction. Further, the AO has recomputed deduction claimed u/s.80IC of the Act, by reducing income pertains to marketing activity including sales promotion expenses and free samples given to the medical practitioners. On appeal, the ld.CIT(A) has allowed partial relief, where she had confirmed disallowance of sales promotion expenses on the ground that the assessee has not established nexus between expenditure and business activity, however allowed relief in respect of free samples given to medical practitioners. 6. The ld.AR for the assessee submitted that this issue is squarely covered in favour of the assessee by the decision of ITAT in assessee's own case for the assessment year 2012-13 in ITA No.2755/Chny/2018, where the Tribunal after considering circular issued by Medical Council of India and also the CBDT circular No.5 of 2012, held that guidelines issued by Medical Council of India on medical practitioners is not applicable to the assessee, which is manufacturing pharmaceutical products. The ld.AR further submitted that the Tribunal had also considered circular issued by CBDT and held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ld AR relied on the decisions of the Hon'ble Supreme Court in the case of S.A.Builders Ltd V. CIT reported in 288 ITR 1 (SC) and in the case of Hero Cycles (P) Ltd V. CIT reported in 379 ITR 347 (SC) and also the decision of Hon'ble Delhi High Court in the case of CIT V. Dalmia Cement (Bharat) Ltd reported in 254 ITR 377 (Del), wherein it was held that the assessee's nexus between the expenditure and the purpose of the business had to be looked into from the point of view of businessman and not from the point of the revenue. The ld AO cannot step into the shoes of the assessee to decide whether the expenditure is required to be incurred by the assessee or not. b) The ld AR stated that the CBDT Circular No.5 / 2012 which the ld AO relied on to hold the expenditure incurred by the assessee is an offence is dated 01.08.2012 and hence the same would not be applicable to the impugned assessment year i.e. AY 2012-13. In support of this proposition, he relied on the co-ordinate bench decision of Mumbai Tribunal in the case of Macleods Pharmaceuticals Ltd V. Additional CIT reported in 161 ITD 291 and Syncom Formulations (I) Ltd V. DCIT in ITA No.6429 / Mum / 2012, wherein it has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... practitioners are the receiving hands ( i.e the persons receiving the various gifts etc). Hence there is no need to segregated between two parties and that the Circular should be read in totality. 2.4. We find that the expenditure incurred by the assessee towards sales promotion, advertisement and publicity expenses were incurred in line with the business of the assessee and that the revenue had not doubted the genuineness of the incurring of such expenditure. We find that the only grievance of the revenue is that the assessee need not have incurred that expenditure (i.e getting into the propriety of a transaction) and further the said expenditure is hit by the CBDT Circular No.5 / 2012. It is well settled that the revenue cannot step into the shoes of the assessee to decide whether the expenditure is required to be incurred by the assessee or not where the genuineness of the same is not questioned. The ld AO has to see whether the particular expenditure incurred is not personal in nature , is not capital in nature and incurred wholly and exclusively for the purpose of business of the assessee. When assessee is able to provide the business nexus of incurrence of certain expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an assessee claiming the expense then by implication, any impairment caused by Explanation 1 will apply to that assessee only. Any impairment or prohibition by any law/regulation on a different class of person/assessee will not impinge upon the assessee claiming the expenditure under this section. 24. We observe that the CBDT Circular dated 1-8-2012 (supra) in its clarification has enlarged the scope and applicability of 'Indian Medical Council Regulation 2002' by making it applicable to the pharmaceutical companies or allied health care sector industries. Such an enlargement of scope of MCI regulation to the pharmaceutical companies by the CBDT is without any enabling provisions either under the provisions of Income Tax Law or by any provisions under the Indian Medical Council Regulations. The CBDT cannot provide casus omissus to a statute or notification or any regulation which has not been expressly provided therein. The CBDT can tone down the rigours of law and ensure a fair enforcement of the provisions by issuing circulars and by clarifying the statutory provisions. CBDT circulars act like 'contemporaneaexpositio' in interpreting the statutory provisions and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of whether the disallowance of aforesaid expenditure would correspondingly go to increase the claim of deduction u/s 80IC of the Act. We find that this is a legal claim made by the assessee which could be raised for the first time before this tribunal and accordingly deem it fit to admit the same and take up for adjudication. The issue of whether deduction u/s.80IC of the Act should be computed on the profits as increased by the disallowance u/s.37(1) of the Act is covered in favour of the assessee by the decisions in CIT V.Gem Plus Jewellery India Ltd 330 ITR 175 (Bom) and DCIT V. Vertex Infosoft Solution (P) Ltd 37 ITR (Trib) 521. Further it would be pertinent to hold that the issue now stands settled by the CBDT Circular No.37 / 2016 dated 02.11.2016 where the Board had clarified that the deduction under Chapter VI-A will be on such profits including disallowance under sections 32, 40(a)(ia), 40A(3), 43B etc of the Act which will include disallowance made u/s.37(1) as well. 2.9. We also find from the computation of income made by the ld AO, that the ld AO had disallowed the entire Sales promotion, advertisement and publicity expenses u/s 37(1) of the Act separately. Further he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made in shares and securities which yielded exempt income and thus, interest expenses cannot be disallowed. 11. The ld.DR on the other hand submitted that the ld.CIT(A) has erred in directing the AO to delete disallowance made u/s.14A r.w.rule 8D(2)(ii) without appreciating the fact that there is no exception provided under Rule 8D to exclude interest expenses, if assessee proves availability of own funds. 12. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. As regards arguments of the ld.AR for the assessee on the issue of satisfaction as required u/s.14A(2) of the Act, we find that the Hon'ble Supreme Court in the case of Maxopp Investment Ltd vs. CIT, 402 ITR 640 has settled the controversy, where it has been clearly held that the issue of satisfaction comes into play only when the assessee has made suo-motto disallowance of expenses relatable to exempt income, but the AO did not accept disallowance made by the assessee. In this case, the assessee has not made any suo-motto disallowance of expenses and hence, the question of recording satisfaction as required u/s.14A(2) of the Act does not arise. As regards ..... X X X X Extracts X X X X X X X X Extracts X X X X
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