The Jaipur bench of ITAT comprising Vijay Pal Rao (judicial member) and Vikram Singh Yadav (accountant member) recently held that the circular issued by the Central Board of Direct Taxes (CBDT) restricting amenities to doctors is
The assessee is a pharmaceutical company engaged in manufacturing of formulations of non-patent/ generic drugs and sells them in brand names.
During the course of assessment, the AO noted that the assessee has debited various expenses in the profit and loss account. The AO analyses the details of the expenses and found that these expenses incurred in giving gifts and freebies to the Directors which is against the regulations issued by the Medical Council of India (MCI), also placed reliance on CBDT circular No. 5/2012 and accordingly disallowed 60% of the total expenditure of Rs. 71,97,585/- amounting to Rs. 45,75,552/-.
The assessee challenged the matter before (CIT) A, contended that the entire expenditure incurred by the assessee is wholly and exclusively for the purpose of business and also added that these expenses are fully vouched and duly supported with proper bills and vouchers received etc.
But this contention was not enough for the appellate authority to confirm the action of AO as wrong. Later CIT (A) granted the disallowance confirmed by AO.
Aggrieved assessee carried the matter before the tribunal and submitted that the CBDT circular dated 01.08.2012 is not applicable in the assessment year under consideration as it is applicable only for the A. Y. 2013-14. On the other hand, revenue has submitted that the MCI Regulations are equally applied to pharmaceutical and allied industries, therefore, the gift and other expenses are covered by the explanation to Section 37(1) of the Income Tax Act.
Before ITAT the assessee as well as Department has placed reliance on series of decisions while following those decisions the bench had an opinion that the 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 in view of the binding precedent of jurisdiction High Court.
