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TMI Blog2023 (5) TMI 1054X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing 80IB Deduction in respect of increased income due to addition on account of alleged concealed production - CIT(A) did not allow this claim of the assessee for the reason that the additional income is not supported by the amount mentioned in Form 10CCB basis which the deduction u/s.80IB is allowed - HELD THAT:- Respectfully following the said decision of the co-ordinate bench, we see no reason to interfere with the decision of the CIT(A) in rejecting the claim of the assessee that 80IB deduction be allowed in respect of increase in the business income due to addition on account of concealed production. This ground is dismissed. Sales promotion expenses - For the year under consideration there is no critical evaluation of the expenses and post the Hon ble Supreme Court judgment, the dictum laid down, same needs to be followed and each of the expenditure needs to be evaluated to see if the disallowance is justified. In the present case, the A.O. had primarily made disallowance by referring the CBDT Circular No.5/2012 dated 01.08.2012. The A.O. has not critically examined the nature of expenditure incurred by the assessee. In the larger interest of justice, in view of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee filed the return of income declaring a taxable income at Rs.81,83,793/- after claiming deduction under sections 80G and 80IB amounting to Rs.30,20,66,215/-. For A.Y. 2011-12, the assessee offered taxable income of Rs.24,38,48,900/- after claiming deduction under sections 80G and 80IB amounting to Rs.11,96,35,535/-. The case was selected for scrutiny and the statutory notices were duly served on the assessee. The Assessing Officer concluded the assessment by making a disallowance of Rs.19,73,90,622/- for AY 2010-11 towards concealed sales arising out of concealed production. The Assessing Officer made a similar disallowance for A.Y. 2011-12 for an amount of Rs.17,30,96,446/-. Aggrieved, the assessee filed appeal before the CIT(A), who confirmed the above addition made by the Assessing Officer. The Ld.CIT(A) also did not accept the submissions of the assessee that the addition made should be allowed as deduction under section 80IB for the reason that Form 10CCB was not filed for the enhanced income and, therefore, the addition made cannot be allowed as deduction under section 80IB of the Act. 3. During the course of appellate proceedings, a functional note was submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tity of finished products reported was unreasonably lesser. The Assessing Officer was of the view that the excessive consumption of raw materials revealed that the assessee has not correctly reported the production of finished goods and accordingly concluded that the assessee had not reported the production to carry out sales outside its books. The Assessing Officer computed the excessive consumption as per below table and accordingly made addition towards suppressed sales:- Sl no Name of the unit Value of the unrecorded production unit wise AY 2010-11 AY 2011-12 1 Jammu unit 9,86,18,888 2 Daman unit-2 4,55,99,871 3 Daman unit-3 1,28,74,470 4 Daman unit-4 4,02,97,393 TOTAL 19,73,90,622 4.2. Aggri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BMR also gives a clear picture of actual raw material input and the ultimate finished goods produced for these batches. (vi)The sample of the Finished Goods Transfer Note (FGTN) also has been filed for each of the respective BMR submitted which give the final output of the batch which is transferred to the finished goods warehouse (vii) The complete set of argument along with BMR were produced during the second remand proceeding. The AO has examined and analysed threadbare and has not found any infirmity in the Appellants argument. From the above it is clear that the basis of computation of wastages and ultimate v suppression of production as concluded by the AO in the assessment order is scientifically unsustainable. In any scientific manufacturing process leading to production of various drugs it cannot be presumed or surmised that one plus one is always equal to two. The prescribed authority DPCO has prescribed a range of wastages in the process of manufacturing of pharmaceutical drugs. Thus, the theoretical The MRP of these products in the relevant year were lower than what is taken by A.O. b) The A.O. has erred in taking MRP as the realization price of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unable to persuade ourselves to subscribe to his view that the excess wastage of raw material would ipso facto lead to an inference of suppressed/unaccounted production carried out by the assessee. In our considered view, the aforesaid observation of the CIT(A) de hors any material evidencing the factum of suppressed/unaccounted production carried out by the assessee, cannot be accepted. Unexplained wastage of raw material, in our understanding can only lead to a consequential addition/disallowance of the cost of such raw material as had been debited by the assessee in its books of accounts‟ for the year under consideration. Accordingly, we modify the order of the CIT(A) and therein direct the A.O to restrict the disallowance in respect of the excess raw material wastage in terms of our aforesaid observations. Ground of appeal No. 1 is partly allowed. 4.5 The Ld.AR submitted that the facts are identical for the years under consideration also and accordingly prayed that the above decision of the co-ordinate bench be followed. 4.6 The Ld.DR relied on the order of the lower authorities. 5. We heard the parties and perused the materials available on record. We notice t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditures are prior to 10.12.2009 when MCI guidelines came into effect. Thus it has been contended that MCI guidelines came on 10.12.2009 hence expenditure prior to this date should not be treated in violation of section 37(1) of the Act. (iii) The appellant has also stressed upon that there are number of expenditure, though categorized under sales promotion however they are not related to the Doctors in any manner. Such expenditures have been identified as under: Particular Total amount Disallowed Allowed Details Advertisement Publicity A/C 40,33,942 - 40,33,942 Unrelated to Doctors Leave Behind A/C 78,73,279 - 68,73,279 These are not gifts / freebies Product reminder 4,31,41,360 4,31,41,360 - Retail Push Scheme 3,323 3,323 Unrelated to Doctors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be allowed, the CIT(A) held that the assessee has not shared any details such as item, recipient doctors, their confirmation of receiving only one gift in a year etc., and therefore the said claim cannot be entertained. The Ld.CIT(A) concluded that the submissions of the assessee are not based on correct appreciation of law and the impugned expenses are clearly hit by Explanation to section 37(1) of the Act. The CIT(A) however gave partial relief to the assessee after taking into account the break-up of expenses submitted by the assessee as above and disallowed a sum of Rs.6,09,51,441. With the similar observations the CIT(A) disallowed a sum of Rs.7.00,00,520 for AY 2011-12. 7.3 The Ld. AR submitted that the coordinate bench in assessee s own case for AY 2012-13 has considered the same issue on merits and held that the A.O on merits was not justified in disallowing the sale promotion expenses by bringing the same within the realm of the explanation to Sec. 37(1) of the Act. The ld AR further submitted that the insertion of explanation 3 to section with effect from 1/4/22 is prospective in nature and therefore cannot be applicable in assessee s case and therefore the issue is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pex Laboratories Pvt. Ltd. v. DCIT (supra), many of the judicial pronouncements had held that MCI Regulations are not applicable on pharmaceutical companies and expenses incurred by such companies are not violative of CBDT Circular based on summary evaluation of expenditure. Even the coordinate bench in assessee s own case for AY 2012-13 has also taken a similar view basis the overall examination of expenses to hold that explanation to section 37(1) is not applicable to the sales promotion expenses. For the year under consideration there is no critical evaluation of the expenses and post the Hon ble Supreme Court judgment, the dictum laid down, same needs to be followed and each of the expenditure needs to be evaluated to see if the disallowance is justified. In the present case, the A.O. had primarily made disallowance by referring the CBDT Circular No.5/2012 dated 01.08.2012. The A.O. has not critically examined the nature of expenditure incurred by the assessee. In the larger interest of justice, in view of the latest judgment of the Hon ble Apex Court, which has examined the very same issue, it becomes necessary to examine the exact nature of expenses incurred by the assessee f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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