(Per Jitendra Jain J):-

1. This petition challenges notice under Section 148 of the Income Tax Act, 1961 (“the Act”) dated 30 March 2015 for the assessment year (AY) 2008-2009 seeking to reopen the original assessment made under Section 143(3) of the Act. This petition was admitted on 13 April 2016 and the impugned notice was stayed.

2. On 23 September 2008, the Petitioner filed its return of income along with a profit and loss account in which the claim of expenses on account of technical literature and books, gift articles and conference, training and refresher course expenses aggregating to Rs. 2,14,64,363/- was disclosed. The said return of income was selected for scrutiny assessment, and various details were called for, including more information concerning gift articles, technical literature and conference expenses. The Petitioner, by various letters, filed the details on these very issues. On 30 November 2010, an assessment order under Section 143(3) of the Act was passed in which 2% of the expenses incurred on gift articles were disallowed by following the order of CIT(A).

3. On 30 March 2015, the impugned notice under Section 148 of the Act was issued, and the reasons for reopening were furnished on 6 October 2015. On 23 October 2015, the Petitioner raised objections to the reasons for reopening inter alia on the ground that there was no failure to disclose fully and truly all material facts necessary for the assessment and the reliance placed on the Central Board of Direct Taxes (CBDT) vide Circular No.5 of 2012 was not available at the time of the assessment. The Petitioner also made submissions on the applicability of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 and Explanation 1 to Section 37(1) of the Act and prayed for dropping the impugned proceedings. However, the Assessing Officer (AO) rejected the objections vide order dated 28 January 2016, which is also impugned in the present proceedings.

4. It is on the above backdrop that the present petition is filed.

5. Mr. Rastogi, learned senior counsel for the Petitioner, submitted that there is no failure to disclose fully and truly all material facts necessary for assessment. He further submitted that the impugned proceedings are based on change of opinion since the issue was already subject matter of the assessment order and further the CBDT Circular No.5 of 2012 was not applicable for the assessment year under consideration. He relied upon the decision of the Supreme Court in the case of Apex Laboratories (P) Ltd. vs. Deputy Commissioner of Incometax LTU (2022) 135 taxmann.com 286 (SC) . He further submitted that very same issue for very same assessment year had come up for consideration before the Coordinate Bench of this Court in the case of Abbott India Ltd. vs. Assistant Commissioner of Income-tax (2023) 157 taxmann.com 423 (Bombay) and this Court had quashed the reassessment proceedings. He, therefore, submitted that the impugned notice be quashed and set aside.

6. Mr. Suresh Kumar, learned counsel for the Respondent, submitted that the Petitioner did not disclose during the assessment proceedings to whom the gifts were given and, therefore, there was a failure on the part of the Petitioner to disclose fully and truly all material facts necessary for the assessment. He relied upon the decision of the Punjab and Haryana High Court in the case of Commissioner of Income-tax vs. Kap Scan and Diagnostic Centre (P.) Ltd. (2012) 25 taxmann.com 92 (Punjab & Haryana) and submitted that the expenses are not allowable and are in violation of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002. He submitted that this decision has been affirmed by the Supreme Court in the case of Apex Laboratories (P) Ltd. (supra) and, therefore, defended the impugned proceedings. Mr. Suresh Kumar also relied upon the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 and the amendment made in the said regulation on 14 November 2009. He, therefore, prayed that the present petition be dismissed.

7. We have heard learned counsel for the Petitioner and the Respondent and have perused the records with their assistance.

8. Admittedly, there is no dispute that the present proceedings are initiated after a period of four years from the end of the relevant assessment year and, therefore, the pre-condition of failure to disclose fully and truly all material facts necessary for the assessment is to be satisfied.

9. The reasons recorded for reopening the case read as under:-

“Reasons recorded for the re-assessment proceedings in the case of M/s Mapra Laboratories Pvt. Ltd. for A. Y. 2008-09

The assessee filed its return of income on 23/09/2008 declaring total income at Rs. 3,69,48,780/- computed under normal provisions of the Act and book profit of Rs. 4,45,56,287/- computed under Sec. 115JB of the Act. The total income of the assessee was assessed at Rs. 3,92,68,720/- and book profit at Rs. 4,45,56,287/- vide order passed u/s 143(3) of the Act, dated 30/11/2010.

It has come to notice of this office that the assessee has claimed total expenditure of Rs. 214.64 Lakh on account of Technical Literatures & Booklets of Rs.18.61 Lakh, Gift Article of Rs. 45.81 Lakh and Conference, Training, Recruitment and Refresher Course Expense of Rs. 150.22 Lakh includes expenses related to Gift articles, Travel facility, Hospitality, Cash or monetary grant paid to doctors, it is nothing but freebees paid by the assessee company. This is nothing but freebies to persons, medical practitioners or professionals. However, such freebies are prohibited by CBDT vide Circular No.5/2012 [F. No. 225/142/2012-ITA.II], dated 01/08/2012 stated that Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002.

Sec. 37(1) of Income Tax Act provides for deduction of any revenue expenditure (other than those falling under Sec. 30 to 36) from the business income if such expense is laid out/expended wholly or exclusively for the purpose of business or profession. However, the explanation appended to this sub-section denies claim of any such expense, if the same has been incurred for a purpose which is either an offence or prohibited by law.

The assessee, during the course of assessment proceedings, has failed to disclose these facts before the Assessing Officer. Accordingly, the assessee has claimed expenditure to the tune of Rs.2,13,72,000/- which are not allowable as per Board's Circular coupled with law. Therefore, I have reason to believe that the assessee has debited the inadmissible expenses and accordingly an amount of Rs.2,13,72,000/- has escaped assessment. To put it differently, the assessee has wrongly claimed in admissible expenses by way of non-disclosure of true and full material facts before the Assessing Officer during the course of assessment proceedings, which are necessary for its assessment.

Therefore, I have reasons to believe that claim of Rs. 2,13,72,000 being expenses related to Gift articles, Travel facility, Hospitality, Cash or monetary grant because of failure on part of the assessee to disclose full and true disclosure of income and its particulars, this income has escaped assessment for A.Y. 2008-09. Therefore, I have reasons to believe that the assessee has not disclosed fully and truly all the relevant information necessary during the course of assessment and income to the exteniui Rs. 2,12,72,000/- has escaped assessment.

(P. R. CHAUHAN)

Dy. Commissioner of Income Tax,

Circle 7(2)(1), Mumbai.”

10. In the reasons recorded, the impugned proceedings are initiated based on the CBDT Circular No.5 of 2012 dated 1 August 2012 which in turn refers to Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002. The reasons do not disclose what are the material facts that the Petitioner did not disclose during the assessment proceedings. The reason relies upon the CBDT Circular No.5 of 2012 for the initiation of the proceedings to disallow these expenses. The contention of Mr. Suresh Kumar, learned counsel for the Respondent that the reassessment proceedings are initiated because the Petitioner has not disclosed to whom the payment was made is not borne out from the reasons recorded. On the contrary, the reason states that the expenses claim on account of technical literature and books, gift articles and conference expenses includes expenses related to gift, travel, hospitality, etc. are paid to doctors. Therefore, in our view, since the contention of Mr. Suresh Kumar is not borne out from the reasons recorded and it is a settled position that jurisdictional conditions have to be tested on the touchstone of reasons recorded and nothing can be improved, the contention raised on this count that there was a failure on the part of the Petitioner to disclose to whom the gifts were made is to be rejected.

11. The details of expenses referred to in the reasons are from the profit and loss account, and the submissions made before the AO during the assessment proceedings vide letters dated 17 August 2010 and 8 September 2010. Only after the details of these very expenses were given during the regular assessment proceedings that the AO disallowed 2% of only gift articles by invoking Explanation 1 to Section 37(1) of the Act. Therefore, based on the above facts, the impugned proceedings would amount to invoking powers of review, which Section 147 of the Act does not confer upon the AO. Therefore, on the count that there was no failure to truly and fully disclose material facts, and the issue was examined in the course of the assessment proceedings, therefore, the impugned notice must be quashed and set aside.

12. Mr. Rastogi, learned senior counsel for the Petitioner, is justified in placing reliance on the decision of the Coordinate Bench in the case of Abbott India Ltd. (supra) which was for very same assessment year i.e. 2008-2009 and where an identical issue arose with respect to challenge the reassessment proceedings. The Coordinate Bench, after referring to the CBDT Circular No.5 of 2012 and the decision of the Supreme Court in the case of Apex Laboratories (P) Ltd. (supra), quashed reassessment proceedings on the ground that there is no escapement of income. The Coordinate Bench also noted the CBDT Circular No.5 of 2012 and the decision of the Supreme Court, wherein it is stated that the amendment to Medical Council Regulation with effect from 14 December 2009 would be prospective, i.e. would apply only to those expenses incurred after 14 December 2009 which would be relevant for AY 2010-2011. We are concerned with the assessment year 2008-2009. Therefore, in our view, the decision of the Coordinate Bench in the case of Abbott India Ltd. (supra) also supports the case of the Petitioner and, therefore, following the same, the impugned notice dated 30 March 2015 is required to be quashed and set aside.

13. Mr. Suresh Kumar, learned counsel for the revenue, heavily relied on the Punjab and Haryana High Court's decision in Kap Scan and Diagnostic Centre (P.) Ltd.(supra).

14. In our view, the above decision does not apply to the present case's facts for more than one reason. Firstly, the decision of the Punjab and Haryana High Court deals with the merits of the allowability of sales promotion expenses. In contrast, in the present case, we are concerned with the satisfaction of jurisdictional conditions to reopen the case under Section 147 of the Act. Secondly, the decision was dealing with the assessment year 1997-1998, but the reference was made to the 2002 medical regulations without discussing how they would apply. Therefore, even on this count, this decision cannot be made applicable to the facts of the present case. We have not been shown any decision regulation or rules which required Petitioner-Assessee to disclose during the assessment proceedings that the sales promotion expenses were incurred on the doctors. Therefore, even on this count, in the absence of any obligation, there cannot be any failure to disclose fully and truly all material facts necessary for the assessment. Therefore, for all the above reasons, the decision of Kap Scan and Diagnostic Centre (P.) Ltd.(supra) would not assist the Revenue.

15. In view of above, the Rule is made absolute in terms of prayer clause (a), which reads as follows:-

“(a) to issue a Writ of Certiorari or a Writ in the nature of Certiorari or any other appropriate writ, order or direction under Article 226 of the Constitution of India calling for the records of the Petitioner’s case and after examining the legality, validity and propriety thereof to quash the Impugned Notice (Exhibit “A”) and the Impugned Order (Exhibit”B”).”