Medley Pharmaceuticals Ltd. v. Dy. CIT [ITA No.
2344/Mum/2018, ITA No. 1212/Mum/2019, dt. 22-7-2020] : 2020 TaxPub(DT) 2921
(Mum.-Trib.)
Sales Promotional spend to doctors -- CBDT circular
validity/retrospectivity -- Section 37(1) explanation thereto.
Facts:
Assessee a pharmaceutical company had spent sales promotion
to doctors in cash and in kind. Assessing officer disallowed part of the
expenditure in the scrutiny assessment but for Rs. 6.25 crores which was
disallowed by reopening the scrutiny assessment. On appeal, Commissioner
(Appeals) concurred with views of the assessing officer. On higher appeal to
ITAT, assessee claimed that reopening was only a mere change of opinion with no
fresh facts unearthed thus was invalid besides the fact that the expenditure of
Rs. 6.25 crores was allowable on certain grounds.
Held in favour of the assessee that the reopening was
unwarranted and the expenditure on freebies and promos to doctors was an
allowable expenditure for the said assessment year and it was not hit by
explanation to section 37(1).
The grounds of the argument on allowability of the
expenditure by assessee were --
(i) that though the Medical
Council Regulations, 2002 would apply to medical practitioners but the same
were not applicable to the pharmaceutical companies;
(ii) that as the CBDT
Circular No. 5 of 2012, dated 1-8-2012 imposing prohibition on the medical
practitioners and their professional associations from taking any gifts, travel
facility, hospitality, cash or monetary grant from the pharmaceutical and
allied healthcare sector industries was applicable prospectively, therefore,
the same was not applicable in the case of the assessee for the year under
consideration, i.e., assessment year 2012-13;
(iii) that the circular issued
by CBDT cannot impose an obligation adverse to an assessee.
On each of the above points the ITAT answered in the
affirmative holding that --
-- the regulations of Medical
council of India would apply only to medical practitioners registered under
council regulations and not to Pharmaceutical entities, hospitals or ancillary
healthcare providers.
-- the circular since being a
taxing circular cannot be read retrospective only prospective.
-- the CBDT went beyond its
powers to restrict an expenditure citing legality when it did not have any
right or say in Medical council of India regulations.
Applied: Aristo
Pharmaceuticals Pvt. Ltd. v. ACIT (ITA No. 6680/Mum/2012, ITAT Mumbai dated
26-7-2018) : 2018 TaxPub(DT) 5275 (Mum-Trib),
Max Hospital, Pitampura v. Medical Council of India [CWP No. 1334/2013, dated
10-1-2014] (Del-HC)