April 2022

Business expenditure — Disallowance — Expenses prohibited in law — CBDT Circular No. 5 dated 1st August, 2012 disallowing expenses in providing free gifts or facilities to medical practitioners by pharmaceutical and allied health sector industry — Circular not applicable retrospectively — Expenses deductible for earlier years

K. B. Bhujle, Advocate

2 Principal CIT vs. Goldline Pharmaceuticals Pvt. Ltd.
[2022] 441 ITR 543 (Bom)
A.Y.: 2010-11; Date of order: 14th January, 2022
S. 37(1) of ITA, 196
1

Business expenditure — Disallowance — Expenses prohibited in law — CBDT Circular No. 5 dated 1st August, 2012 disallowing expenses in providing free gifts or facilities to medical practitioners by pharmaceutical and allied health sector industry — Circular not applicable retrospectively — Expenses deductible for earlier years

The assessee manufactured and traded in medicines. For the A.Y. 2010-11, the assessee claimed deduction u/s 37 of the Income-tax Act of expenditure incurred towards tour and travel expenses of medical practitioners to enable them to attend conferences held in different parts of the world. The Assessing Officer applied CBDT Circular No. 5 of 2012 and disallowed proportionate expenditure.

The Tribunal allowed the assessee’s claim and held that the disallowance of expenditure on the basis of Board’s Circular No. 5 of 2012, dated 1st August, 2012 was without merit.

On appeal by the Revenue, the Bombay High Court upheld the decision of the Tribunal and held as under:

“i) Under the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 as amended on 10th December, 2009 the Medical Council of India imposed a prohibition on medical practitioners and their professional associations from taking any gift, travel facility, hospitality, cash or monetary grant from pharmaceutical and allied health sector industries. According to Circular No. 5 of 2012, dated 1st August, 2012 ([2012] 346 ITR (St.) 95) issued by the CBDT claim of any expense incurred in providing the aforesaid or similar freebees in violation of the provisions of the said regulations were held inadmissible u/s. 37(1) of the Income-tax Act, 1961 being an expense prohibited in law. It was further stated that such disallowance would be made in the hands of such pharmaceutical or allied health sector industries or other assessee which had provided such freebees.

ii) The Board’s Circular No. 5 of 2012, dated 1st August, 2012 could not have been applied retrospectively to the A.Y. 2010-11. The circular imposed a new kind of imparity and therefore, the Tribunal had consistently held that the Board’s Circular No. 5 of 2012 would not have any retrospective effect but would operate prospectively from 1st August, 2012. These decisions of the Tribunal were not assailed before the High Court. The Tribunal was justified in deleting the disallowance and its order need not be interfered with.”

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