Income Tax Appellate Tribunal - Mumbai
Dupen Laboratories P.Ltd, Mumbai vs Assessee on 18 December, 2015
ITA No.5195 and 5107/Mum/2013
Assessment Year: 2010-11
IN THE INCOME TAX APPELLATE TRIBUNAL "D" BENCH, MUMBAI
[BEFORE S/SHRI B. R. BASKARAN, ACCOUNTANT MEMBER
AND AMARJIT SINGH, JUDICIAL MEMBER]
आयकर अपील सं/ I.T.A. No.5195/Mum/2013
( नधा रण वष / Assessment Year: 2010-11)
The Asst. Commissioner of बनाम/ M/s. Dupen Laboratories Pvt.
Income Tax, Range- 9(1), Ltd., 44/A, 5 t h Floor, Dheeraj
Vs.
Mumbai, Room No.223, 2 n d Heritage, S. V. Road,
Floor, Aayakar Bhavan, Santacruz (W ),
M. K. Road, Mumbai 400 020. Mumbai 400 054
आयकर अपील सं/ I.T.A. No. 5107/Mum/2013
( नधा रण वष / Assessment Year: 2010-11)
M/s. Dupen Laboratories Pvt. बनाम/ The Asst. Commissioner of
Ltd., 44/A, 5 t h Floor, Dheeraj Income Tax, Range- 9(1),
Vs.
Heritage, S. V. Road, Mumbai, Room No.223, 2 n d
Santacruz (W ), Floor, Aayakar Bhavan,
Mumbai 400 054 M. K. Road, Mumbai 400 020
थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAACD2943E
(अपीलाथ /Appellant) .. ( यथ / Respondent)
Department by: Shri Kailash P. Gaikwad, Sr. AR
Assessee by: S/Shri Nitesh Joshi /
P. P. Bhandari
सन
ु वाई क तार ख / Date of Hearing: 02.09.2015
घोषणा क तार ख /Date of Pronouncement: 18.12.2015
आदे श / O R D E R
PER AMARJIT SINGH, JM: These two cross appeals, one by the Revenue being ITA
No.5159/Mum/2013 and the other by the assessee being ITA No.5107/Mum/2013 by the assessee are directed against the order of the learned Commissioner of Income Tax (Appeals)-19, Mumbai [hereinafter referred to as "the CIT(A)] dated 03-05-2013 passed in appeal No. CIT(A)-19/ACIT-9(1)/IT.77/2012-13 for the assessment year 2010-11 and these appeals are being taken up together for adjudication for the sake convenience, having common question of law and facts involved therein.
1ITA No.5195 and 5107/Mum/2013 Assessment Year: 2010-11
2. The assessee filed return of income for the assessment year 2010-11 declaring total at loss to the tune of Rs.8,11,543/-. The assessee has shown book profit at Rs.1,15,95,750/-. The assessee is engaged in the business of manufacturing of pharmaceutical products. The return was processed u/s 143(1) of the Income Tax Act, 1961 and notice u/s 143(2) of the Act was issued on 24- 08-2011 by the AO. After affording an opportunity of being heard to the assessee, the AO disallowed the expenditure to the tune of Rs.37,60,594/- incurred on account of distribution of samples of medicines to the physicians free of cost. The A.O. also added the disallowance computed u/s. 14A of the Act. The Assessing Officer added both the disallowances u/s. 115JB of the Act also. Consequently, the assessee went in appeal before the learned CIT(A) who confirmed disallowance to the tune of Rs.37,60,594/- for computing total income under normal provision of the Act. However, learned CIT(A) held that the said disallowance is not required to be included in Book Profit computed u/s. 115JB of the Act. However he confirmed disallowance made u/s 14A of the Act and its inclusion in the Book Profit. Being aggrieved, the Revenue as well as the assessee, both are in appeal before us.
3. We have heard the arguments advanced by both the parties and have perused the materials available on record. The learned Departmental Representative [hereinafter referred to as "the DR"] argued that the learned CIT(A) has wrongly excluded the expenses to the tune of Rs.37,60,594/- which was disallowed u/s 37(1) of the Act for computing book profit u/s 115JB of the Act, hence, his such action is wrong in law and facts of the case and on that basis he submitted that the present appeal may be allowed by setting aside the order of the learned CIT(A).
4. On the other hand, the learned Authorized Representative [hereinafter referred to as "the AR"] for the assessee argued that the AO has wrongly disallowed the expenditure incurred on account of distribution of samples of 2 ITA No.5195 and 5107/Mum/2013 Assessment Year: 2010-11 medicines which is required to be allowed in view of the provisions of section 37(1) of the Act; therefore, in this regard the order of the learned CIT(A) is also wrong, against the law and facts of the case. He submitted that the disallowance of expenses made in computing total income under normal provision of the Act are not required to be added u/s 115JB of the Act. It is also argued by the learned AR of the assessee that the observation of the learned CIT(A) in upholding the order of the AO increasing the book profit u/s 115JB of the Act by Rs.1,89,385/-, being disallowance made u/s 14A of the Act is on wrong footing and hence, is liable to be set aside.
5. With due regard to the contentions raised by the representative of both the parties, it comes to our notice that the bone contention of the assessee is that the assessee has incurred an expenditure of Rs.37,60,594/- on account of sample distribution of medicines to the physicians free of cost and the said expenditure is required to be allowed. On appraisal of the order of the learned CIT(A), it has come to our notice that the learned CIT(A) rejected the claim of the assessee on the basis of CBDT Circular No.5/2012 [F.No.225/142/2012 - ITA.II] dated 01- 08-2012 and in view of the judgment in the case titled as Convention of Indian Pharmaceuticals Industries Vs CBDT, CW No.10793 of 2012 dated26-12-2012, wherein the Rules and Regulations of Medical Council of India has been described. During the course of hearing, the learned representative of the assessee has argued that distribution of samples of medicines free of cost to the physicians is for the business purpose of the assessee and it is allowable u/s 37(1) of the Act. In support of his contentions, the learned representative of the assessee has placed reliance on the decision reported in 162 CTR 0089 ESKAYEF Vs CIT (SC). No doubt, the said law has been settled for the purpose of section 37(3A) which has now been deleted by the Finance Act, 1985 with effect from 01-04-1986. In the said law, the expenditure incurred on distribution of samples of medicines for the purpose of publicity or sale 3 ITA No.5195 and 5107/Mum/2013 Assessment Year: 2010-11 promotion was held to be allowed within the ambit of section 37(3A) and the said sub-section was subject to the limitation as to the allowability therein contained. No doubt, after deletion of the said sub-section, it is required to be seen whether the case of the assessee falls within the purview of section 37 of the Act or not. Distribution of samples of medicines to the physicians free of cost cannot be parted with the business purpose, as the object of supply of free samples of medicines is only to find out by the medical practitioners about the curative value of the medicines and such confidence could be created mainly by the medical practitioners, when they use such medicines towards treatment of the patients. Moreover, the real person who can create market for medicines are the medical practitioners and when compared to other industrial products, medicines are not ordinary products of consumption and its consumption is for only to get rid of some ailments. Reputation of such medicines would have to be confirmed by the medical practitioners and, therefore, the samples of medicines were distributed to them. In brief, distribution of samples of medicines to the physicians free of cost cannot be parted with the business conducted by the assessee. Section 37(1) of the Act speaks about the expenditure incurred for the purpose of business. Expenditure incurred upon supply of samples of medicines free of cost to the physicians is not required to be differentiated with the business in any manner. Taking into account all the facts and circumstances of the case, we are of the opinion that the learned CIT(A) has erred in confirming the order of the AO while declining the expenditure incurred for the said purpose. Therefore, it is observed that the expenditure incurred for providing the samples of medicines free of cost to the medical practitioners is liable to be allowed as business expenditure and, therefore, the order of the learned CIT(A) is hereby set aside in this regard and the file is hereby order to restore before Assessing Officer to reassess the assessment of assessee in view of the above said observations.
4ITA No.5195 and 5107/Mum/2013 Assessment Year: 2010-11
6. The next issue contested in assessee's appeal relates to the inclusion of amount disallowed u/s 14A of the Act to the book profit. This issue is decided against the assessee by Hon'ble Delhi High Court in the case of CIT vs. Goetze India Ltd. (ITA No.1179/2010 & ITA 1306/2010 dated 09.12.2013). Accordingly, we uphold the order of learned CIT(A) on this issue.
7. The disallowance of expenses made while computing total income under normal provision of the Act have not been prescribed to be included under the provision of section 115JB of the Act. Hence we uphold the matter of learned CIT(A) on this issue.
8. In the result, the appeal of the Assessee is hereby ordered to be partly allowed as well as appeal of the revenue is hereby order to be dismissed.
Order pronounced in the open court at the time of hearing on 18th December, 2015 Sd/- Sd/-
(B. R. BASKARAN) (AMARJIT SINGH)
लेखा सद य / ACCOUNTANT MEMBER &या'यक सद य/JUDICIAL MEMBER
मुंबई Mumbai; *दनांक Dated : 18th December, 2015
व.'न.स./ LK Deka, Sr. PS
5
ITA No.5195 and 5107/Mum/2013
Assessment Year: 2010-11
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. आयकर आयु+त(अपील) / The CIT(A)-
4. आयकर आयु+त / CIT
5. ,वभागीय 'त'न/ध, आयकर अपील य अ/धकरण, मुंबई / DR, ITAT, Mumbai
6. गाड2 फाईल / Guard file.
आदे शानस ु ार/ BY ORDER, स या,पत 'त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील#य अ$धकरण, मुंबई / ITAT, Mumbai 6