Battle on Freebies to doctors before AY 2010-11: ‘Reason’ is the link between ‘conclusion’ and ‘evidence’ for reopening assessment; Law applicable in relevant AY to be applied only
While re-opening assessments, the reasons recorded should be clear and unambiguous and should not suffer from any vagueness. Reasons provide the link between evidence and conclusion. Reasons are based on evidence which lead to a conclusion that some income has escaped assessment and due to which the same should be re-opened. This reason should disclose the fact and material not disclosed by the assessee fully and truly. The same was held by The Bombay High Court In the case of Hindustan Lever Ltd. Vs. R.B. Wadkar, Assistant Commissioner of Income-Tax and Others [2004 ITR 332 Vol.268].
As far as ‘freebies’ to doctors being disallowed as per Circular No.5/2012 is concerned, the same referred to the position of the regulations of 2002 after its amendment in the year 2009 and, therefore, neither the circular nor regulation 6.8 incorporated w.e.f. 10 December 2009 would apply to cases pertaining to earlier assessment years.
In the case of Apex Laboratories (P) Ltd. Vs. Deputy Commissioner of Income tax LTU [ 135 taxmann.com 286 (SC)], where the assessee being a pharmaceutical company had incurred expenditure by giving freebies to the medical practitioners and accordingly, claimed exemption for the said expenditure under Section 37(1) of the Act for the assessment year 2010-11; The assessing offcer partially allowed the exemption claimed by the assessee on the expenses so incurred by placing reliance upon Circular No.5/12. The CIT (Appeals), Tribunal, as also the jurisdictional High Court upheld the said Order and subsequently, also by the Apex Court. However, in the aforementioned case, the claim before the Apex Court pertained to the assessment yea 2010- 11, to which amendment incorporated in the Regulations 2009 was squarely applicable. The second thing which needs to be highlighted is that in the aforementioned case, the revenue had permitted partial exemption for expenses incurred till 14 December 2009 and held the assessee eligible for the benefit under Section 37(1) but disallowed the expenses incurred thereafter in view of the amendment of 2009. The Apex Court in fact in the judgment Apex Laboratories (P.) Ltd. (supra), has also clearly held that “the CBDT Circular being clarifcatory in nature and was in effect from the date of implementation of Regulation 6.8 of 2002 Regulations, i.e. from 14 December 2009. Hence, law to be applied is the one that is in force in the relevant assessment year, unless otherwise provided expressly or by necessary implication – CIT Vs. Insthmian Steamship Lines [ 20 ITR 572 (SC)] and Reliance Jute & Industries Ltd. Vs. Commissioner of Income-tax [ 2 Taxman 417 (SC)].
On the basis of the above the re-opening in the case of ABBOTT INDIA LIMITED Vs THE ASSISTANT COMMISSIONER OF INCOME-TAX [2023-VIL-22-BOM-DT], was quashed.