M/s D.D. Pharmaceutical Pvt. Ltd. Vs. The ACIT (ITAT Jaipur)
The assessee is engaged in the business of manufacturing of pharmaceuticals. The assessee has claimed to have incurred advertisement, sales promotion, entertainment, traveling, business and miscellaneous expenses on doctors and business guests total amount to Rs. 71,97,585/-. The AO noted that the expenditure incurred by the assessee is hit by explanation to Section 37(1) of the Act in view of the MCI Regulations, 2002 which were issued on 10.12.2009 w.e.f. 14.12.2009 prohibiting the doctors and medical practitioners from receiving gifts, freebies from the pharmaceutical companies/ individuals. Accordingly, the AO disallowed 60% of the said expenditure amounting to Rs. 45,75552/-.
Ld. AR of the assessee has submitted that the CBDT circular dated 01.08.2012 is not applicable in the assessment year under consideration as it is applicable only w.e.f. A.Y. 2013-14.
AO has not doubted the genuineness of the expenditure incurred by the assessee but the disallowance was made by the AO only on the ground that the said expenditure is hit by the explanation to Section 37(1) being prohibited by the MCI Regulations, 2002 issued on 10.12.2012 w.e.f. 14.12.2012 and consequently CBDT Circular no. 5/2012 dated 01.01.2012. Thus, when the genuineness of the expenditure is not doubted then the claim of the assessee cannot be disallowed .
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
This is an appeal filed by the assessee against the order of ld. CIT (A)-III, Jaipur dated 25.09.2014 for the A.Y. 2010-11. The assessee has raised the following grounds are as under:-
“1. The ld. CIT(A) erred in law as well as on the facts of the case in confirming the application of explanation to sec. 37(1) of the Act and consequently erred in confirming the dis allowances made of various expenses, separately agitated in the ensuing grounds of appeal. The provisions so invoked being totally contrary to the provisions of law and facts of the case hence, the dis allowances so made kindly be deleted in full.
2. The ld. CIT(A) erred in law as well as on the facts of the case in considering the operation of the CBDT Circular No. 5/2012 dated 01.08.2012 as retrospectively applicable and erred in confirming the application of the same for the subjected assessment year. The application of the said CBDT circular be held prospectively, not applicable in the subjected assessment year and accordingly the dis allowance based thereupon, kindly be deleted in full.
3. Rs. 71,97585/-: The ld. CIT(A) erred in law as well as on the facts of the case in confirming the adhoc dis allowances totaling to Rs. 45,75,552/- out of the total expenditure Rs. 71,97,585/- incurred by the assessee on account of advertisement, publicity, sales promotion, traveling and other business expenditure incurred wholly and exclusively for business purposes fully in accordance with the law of land and without any contravention and violation thereof. The details of the impugned dis allowance made and confirmed are as under:
