TTK Healthcare Ltd., CHENNAI V. DCIT, CHENNAI

ITA 1641/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8023 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 18-10-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 03-06-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Keywords: Gift; Business income; Depreciation; Business expenditure; Difference of opinion; Change of opinion; Revenue expenditure
• Section: 37(1); 147; 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . . . , . . ! ' , # $% BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ITA NOS.1641, 1642 & 1643/MDS/2016 ASSESSMENT YEARS: 2003-04, 2011-12 & 2012-13 M/S.TTK HEALTHCARE LTD., NO.6, CATHEDRAL ROAD, CHENNAI 600 086. PAN : AABCT 3312 J V. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE -3(1), CHENNAI 600 034. ( &' /APPELLANT) ( ()&' /RESPONDENT) ./ ITA NO.2109/MDS/2016 * +* /ASSESSMENT YEAR : 2012-13 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE -3(1), NEW BLOCK, 4 TH FLOOR, 121, MAHATMA GANDHI ROAD, NUNGAMBAKKAM, CHENNAI 600 034. V. M/S.TTK HEALTHCARE LTD., NO.6, CATHEDRAL ROAD, CHENNAI 600 086. PAN : AABCT 3312 J ( &' /APPELLANT) ( ()&' /RESPONDENT) ASSESSEE BY : SHRI SAROJ KUMAR PARIDA, ADVOCA TE REVENUE BY : SHRI A.V.SREEKANTH, JCIT ,-# /DATE OF HEARING : 18.10.2016 ./+ ,-# /DATE OF PRONOUNCEMENT : 25.11.2016 2 I.T.A. NOS.1641,1642, 1643 & 2109/MDS/2016 /O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: ALL THE APPEALS OF THE ASSESSEE ARE DIRECTED AGAI NST THE RESPECTIVE ORDER OF CIT(A) -11, CHENNAI. SINCE COMMON ISSUE AR ISES FOR CONSIDERATION IN ALL THE APPEALS, WE HEARD THE SAME TOGETHER AND DISPOSING OF THE SAME BY THIS COMMON ORDER. 2. LET US FIRST TAKE THE ASSESSEES APPEAL FOR THE YEAR 2003-04 IN ITA 1641/MDS/2016. THE FIRST GROUND OF APPEAL IS WITH R EGARD TO RE-OPENING OF THE ASSESSMENT UNDER SECTION 147 OF THE ACT. SHR I SAROJ KUMAR PARIDA, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS CHALLENGING THE RE-OPENING ASSESSMENT ON THE GROUND THAT THERE IS A CHANGE OF OPINION. THE LEARNED COUNSEL FOR THE ASSE SSEE VERY FAIRLY SUBMITTED THAT THE ASSESSMENT WAS RE-OPENED WITHIN A PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. THE LEARNED COUNSEL FURTHER SUBMITTED THAT HE IS PLACING RELIANCE ON TH E GROUND RAISED BEFORE THIS TRIBUNAL. 3. WE HEARD SHRI A.V.SREEKANTH, THE LEARNED REPRESE NTATIVE FOR THE DEPARTMENT ALSO. ACCORDING TO THE LEARNED DEPARTMEN T REPRESENTATIVE, 3 I.T.A. NOS.1641,1642, 1643 & 2109/MDS/2016 THE INCOME ESCAPED ASSESSMENT IN THE ORIGINAL PROCE EDING. THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY REOPENED THE ASSE SSMENT WITHIN A PERIOD OF FOUR YEARS. THE ASSESSING OFFICER HAS NOT EXPRES SED ANY OPINION IN THE ORIGINAL ASSESSMENT. THEREFORE, IT IS NOT A CASE OF CHANGE OF OPINION. THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY REOPEN ED THIS. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER RE-OPENED THE ASSESSMENT UNDER SECTION 147 ON THE G ROUND THAT THE ASSESSEE WAS NOT ELIGIBLE TO SET OFF THE BUSINESS L OSS AND DEPRECIATION OF THE AMALGAMATED COMPANY. IT IS NOT IN DISPUTE THAT THE ASSESSMENT WAS RE-OPENED WITHIN A PERIOD OF FOUR YEARS FROM THE EN D OF THE RELEVANT ASSESSMENT YEAR. MOREOVER, THE SO CALLED BUSINESS L OSS AND DEPRECIATION OF THE AMALGAMATED COMPANY NAMELY M/S.TTK BIOMED LT D. AND TTK MEDICAL DEVICES LTD. WAS NOT CONSIDERED BY THE ASSE SSING OFFICER. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINI ON THAT THE ASSESSMENT WAS RIGHTLY RE-OPENED BY THE ASSESSING OFFICER. THE REFORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND THE SAME IS CONFIRMED. 4 I.T.A. NOS.1641,1642, 1643 & 2109/MDS/2016 5. THE NEXT GROUND OF APPEAL IS WITH REGARD TO CARR Y FORWARD OF LOSS OF M/S.TTK BIOMED LTD. WE HEARD SHRI A.V.SREEKANTH, THE LEARNED REPRESENTATIVE FOR THE DEPARTMENT AND SHRI SAROJ KU MAR PARIDA, THE LEARNED COUNSEL FOR THE ASSESSEE. THIS ISSUE WAS CO NSIDERED BY THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSM ENT YEAR 2004-05 AND THIS TRIBUNAL FOUND THAT A SIMILAR ISSUE WAS DECIDE D AGAINST THE ASSESSEE BY THIS TRIBUNAL FOR THE ASSESSMENT YEAR 2000-01 IN ITA NO.369/MDS/2009 DATED 16.07.2010. ACCORDINGLY, AN I DENTICAL ISSUE WAS DISALLOWED BY THIS TRIBUNAL IN VIEW OF THE DECISION OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05 . THEREFORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH T HE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY, THE SAME IS CONFIRMED. 6. NOW COMING TO THE ASSESSMENT YEARS 2011-12 & 201 2-13, THE ISSUE ARISES FOR CONSIDERATION IS DISALLOWANCE OF G IFT SAID TO BE GIVEN TO THE MEDICAL PRACTITIONERS FOR PROMOTING / MARKETING THE PRODUCTS MANUFACTURED BY THE ASSESSEE. SHRI SAROJ KUMAR PARI DA, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CBDT BY CIRCULAR NO.5/2012 DATED 1 ST AUGUST, 2012 FOUND THAT THE MEDICAL COUNCIL OF IND IA IN EXERCISE OF ITS STATUTORY POWER FRAMED A REGULATION PROHIBIT ING THE MEDICAL PRACTITIONER AND THEIR PROFESSIONAL ASSOCIATE FROM TAKING ANY GIFT, TRAVEL 5 I.T.A. NOS.1641,1642, 1643 & 2109/MDS/2016 FACILITY, HOSPITALITY, CASH OR MONETARY GRANT FROM THE PHARMACEUTICAL AND ALLIED HEALTH SECTOR INDUSTRIES, INSTRUCTED ITS OFF ICERS TO DISALLOW SUCH EXPENSES AS INADMISSIBLE UNDER SECTION 37(1) OF THE INCOME TAX ACT. IT HAS ALSO CLARIFIED THAT AN EQUIVALENT VALUE OF FREE BEES ENJOYED BY THE AFORESAID MEDICAL PRACTITIONER OR PROFESSIONAL ASSO CIATIONS IS ALSO TAXABLE AS BUSINESS INCOME OR INCOME FROM OTHER SOURCES. TH IS CIRCULAR MAY NOT BE APPLICABLE FOR THE ASSESSMENT YEAR 2011-12 & 201 2-13. THEREFORE, THE CLAIM OF THE ASSESSEE HAS TO BE ALLOWED AS BUSINESS EXPENDITURE. ON A QUERY FROM THE BENCH, WHAT ARE THE NATURE OF THE GI FT GIVEN BY THE ASSESSEE TO THE MEDICAL PRACTITIONERS AND THE DETAI LS OF THE MEDICAL PRACTITIONERS WHO HAVE SAID TO HAVE RECEIVED THE GI FT, THE LEARNED COUNSEL SUBMITTED THAT THE GIFT GIVEN BY THE ASSESSEE IS NO T IN DISPUTE. WHAT IS DISPUTED IS AN ALLOWANCE OF THE CLAIM ON THE BASIS OF THE REGULATION FRAMED BY MEDICAL COUNCIL PROHIBITING THE MEDICAL P RACTITIONERS TO RECEIVE THE GIFT. ON A FURTHER QUERY FROM THE BENCH, THE LE ARNED COUNSEL SUBMITTED THAT THE ASSESSEE MAY NOT BE ABLE TO GIVE THE DETAILS OF THE MEDICAL PRACTITIONERS WHO HAVE RECEIVED THE GIFT FR OM THE ASSESSEE. 7. WE HEARD SHRI A.V.SREEKANTH, THE LEARNED DEPARTM ENT REPRESENTATIVE ALSO. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF MEDICAL AND HEALTH CARE PRO DUCTS. IN THE COURSE 6 I.T.A. NOS.1641,1642, 1643 & 2109/MDS/2016 OF ITS BUSINESS ACTIVITY, THE ASSESSEE CLAIMS THAT IT GAVE GIFT TO THE MEDICAL PRACTITIONERS AND PROFESSIONAL ASSOCIATES F OR MARKETING THE DRUG AND OTHER MEDICAL PRODUCTS MANUFACTURED BY THE ASSE SSEE. THE QUESTION ARISES FOR CONSIDERATION IS WHETHER THE COST OF THE GIFT CAN BE ALLOWED AS EXPENDITURE UNDER SECTION 37 OF THE INCOME TAX ACT WHILE COMPUTING THE TAX OF AN INCOME TAX. APPARENTLY, THE GIFT WAS GIVE N TO THE MEDICAL PRACTITIONERS AND PROFESSIONAL ASSOCIATES FOR PRESC RIBING THE DRUGS AND MEDICAL DEVICES MANUFACTURED BY THE ASSESSEE TO THE RESPECTIVE PATIENTS. IN ORDER TO PREVENT SUCH PRACTICE IN INDIA, THE MED ICAL COUNCIL OF INDIA, IN EXERCISE OF STATUTORY POWER FRAMED A REGULATION CAL LED INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS ) REGULATIONS, 2002. THE SOLE OBJECT OF ENACTING THIS REGULATION IS TO P ROHIBIT THE MEDICAL PRACTITIONERS AND PROFESSIONAL ASSOCIATES FOR PRESC RIBING THE DRUGS AND OTHER MEDICAL DEVICES ONLY ON THE BASIS OF THE GIFT SAID TO BE GIVEN BY THE CONCERNED MANUFACTURING COMPANIES. FOR THE PURPOSE OF ALLOWING THE CLAIM OF THE ASSESSEE, IT IS NECESSARY TO EXAMINE T HE GENUINENESS OF THE GIFT SAID TO BE GIVEN BY THE ASSESSEE. MERELY, BECA USE THE ASSESSEE CLAIMS THAT GIFT WAS GIVEN TO THE MEDICAL PRACTITIO NERS AND PROFESSIONAL ASSOCIATES THAT CANNOT BE ALLOWED WITHOUT VERIFYING THE GENUINENESS OF THE GIFT ACTUALLY GIVEN. THE MEDICAL PROFESSIONALS TO WHOM THE GIFT SAID TO BE GIVEN NEEDS TO BE EXAMINED AND ASCERTAINED WHETH ER THEY ACTUALLY 7 I.T.A. NOS.1641,1642, 1643 & 2109/MDS/2016 RECEIVED GIFT FROM ASSESSEE. UNFORTUNATELY, THE DET AILS OF THE MEDICAL PROFESSIONAL ARE NOT FURNISHED EITHER TO THE ASSESS ING OFFICER OR BEFORE THIS TRIBUNAL TO EXAMINE THE GENUINENESS OF THE GIF T SAID TO BE GIVEN BY THE ASSESSEE. UNDER THE INCOME TAX ACT FOR ALLOWING ANY CLAIM AS EXPENDITURE, THE GENUINENESS OF TRANSACTION HAS TO BE EXAMINED. SINCE THE DETAILS ARE NOT FURNISHED BY THE ASSESSEE EITHE R BEFORE THE ASSESSING OFFICER OR BEFORE THIS TRIBUNAL, THE GENUINENESS CA NNOT BE ASCERTAINED AT ALL. 8. MOREOVER, ARTICLE 21 OF THE CONSTITUTION OF INDI A GUARANTEES RIGHT TO LIFE. RIGHT TO LIFE GUARANTEED UNDER ARTICLE 21 OF CONSTITUTION IS NOT A MERE ANIMAL EXISTENCE. THE CITIZENS OF THIS COUNTRY HAVE A RIGHT TO LEAD A DIGNIFIED LIFE AND RIGHT TO HAVE HEALTH CARE FROM Q UALIFIED MEDICAL PRACTITIONERS. SUCH A RIGHT GUARANTEED UNDER THE CO NSTITUTION CANNOT BE DEFEATED BY PHARMACEUTICAL COMPANIES BY GIVING GIFT TO THE MEDICAL PRACTITIONERS FOR PRESCRIBING THE DRUGS MANUFACTURE D BY THEM. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT GIV ING GIFT TO THE MEDICAL PRACTITIONERS FOR PROMOTING OR MARKETING THE PRODUC TS MANUFACTURED BY THE PHARMACEUTICAL COMPANY WITH AN INTENTION TO ABA TE THE MEDICAL PRACTITIONERS TO PRESCRIBE THE DRUGS MANUFACTURED B Y THEM IS AGAINST THE PUBLIC POLICY AND ALSO CONTRARY TO THE PROVISIONS O F ARTICLE 21 OF THE 8 I.T.A. NOS.1641,1642, 1643 & 2109/MDS/2016 CONSTITUTION OF INDIA. THE RIGHT TO LIFE GUARANTEED UNDER ARTICLE 21 OF THE CONSTITUTION CANNOT BE DEFEATED BY ALLOWING THE PHA RMACEUTICAL COMPANIES TO MARKET THEIR PRODUCTS BY GIVING GIFT T O THE MEDICAL PRACTITIONERS. THIS TRIBUNAL IS OF THE CONSIDERED O PINION THAT THE CITIZEN OF THIS COUNTRY DESERVES BETTER MEDICAL TREATMENT. THE MEDICAL TREATMENT SHALL BE MADE AVAILABLE BY THE STATE AT A REASONABL E COST. THE PRACTICE OF MARKETING THE DRUGS OR MEDICAL DEVICES ON EXTRANEOU S CONSIDERATION CANNOT BE ALLOWED TO CONTINUE ANY FURTHER. THEREFOR E, THE GIFT SAID TO BE GIVEN BY THE ASSESSEE IS AGAINST THE PUBLIC POLICY. HENCE, EVEN IF THE SO CALLED GIFT IS GENUINE TRANSACTION, THE SAME CANNOT BE ALLOWED AS BUSINESS EXPENDITURE UNDER SECTION 37 OF THE INCO ME TAX ACT. IN THE CASE BEFORE US, THE GENUINENESS OF THE GIFT IS ALSO NOT PROVED BY THE ASSESSEE BY GIVING THE NAME AND ADDRESS OF THE DOCT ORS TO WHOM THE GIFT WAS SAID TO BE GIVEN. THEREFORE, THIS TRIBUNAL DO N OT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY, THE SAME IS CONFIRMED. 9. NOW COMING TO THE ASSESSMENT YEAR 2012-13, IN TH E DEPARTMENT APPEAL, THE FIRST GROUND OF APPEAL IS WITH REGARD T O DISALLOWANCE OF LOGO CHARGES. SHRI A.V.SREEKANTH, THE LEARNED DEPARTMENT REPRESENTATIVE SUBMITTED THAT THE ASSESSEE CLAIMED LOGO CHARGES OF RS.1,35,42,344/-. 9 I.T.A. NOS.1641,1642, 1643 & 2109/MDS/2016 ON THE BASIS OF THE AGREEMENT SAID TO BE ENTERED IN TO BETWEEN THE ASSESSEE AND M/S.T.T.KRISHNAMACHARI & CO., A PARTNE RSHIP FIRM, THE ASSESSEE OBTAINED A LICENSE TO USE THE LOGO (TTK). THE ASSESSEE HAS PAID 0.5% OF THE SALES AS LOGO CHARGES DURING THE YEAR U NDER CONSIDERATION. THE CIT(A) BY PLACING RELIANCE ON THE ORDER OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09 IN ITA NO.2030/MDS/2011, ALLOWED THE CLAIM OF THE ASSESSEE . ACCORDING TO THE LEARNED REPRESENTATIVE, THE LOGO CHARGES PAID BY TH E ASSESSEE IS NOT FOR BUSINESS PURPOSES AND THEREFORE, THE SAME CANNOT BE ALLOWED. 10. WE HEARD SHRI SAROJ KUMAR PARIDA, THE LEARNED C OUNSEL FOR THE ASSESSEE ALSO. IT IS NOT IN DISPUTE THAT THE LOGO ( TTK) OWNED BY M/S.T.T.KRISHNAMACHARI & CO., A PARTNERSHIP FIRM. U NDER INCOME TAX ACT, THE PARTNERSHIP FIRM IS AN INDEPENDENT AND SEPARATE ASSESSABLE UNIT. THEREFORE, THE ASSESSEE OBTAINED A LICENSE FROM M/S .T.T.KRISHNAMACHARI & CO., FOR USING THE LOGO (TTK). IN PURSUANT TO THE AGREEMENT, THE ASSESSEE HAS PAID 0.5% OF THE SALES AS LOGO CHARGES . THIS TRIBUNAL EXAMINED THE AGREEMENT FOR THE ASSESSMENT YEAR 2008 -09 AND FOUND THAT THE LOGO CHARGES PAID BY THE ASSESSEE ARE REVE NUE EXPENDITURE. ACCORDINGLY, CONFIRMED A SIMILAR ORDER OF THE CIT(A ). IN VIEW OF THE ORDER OF THIS TRIBUNAL FOR THE ASSESSMENT YEAR 2008-09 IN THE ASSESSEES OWN 10 I.T.A. NOS.1641,1642, 1643 & 2109/MDS/2016 CASE ALLOWING A SIMILAR PAYMENT OF LOGO CHARGES AS REVENUE EXPENDITURE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE W ITH THE ORDER OF THE CIT(A) AND ACCORDINGLY, THE SAME IS CONFIRMED. 11. THE NEXT GROUND OF APPEAL IS DEPOT CHARGES PAID TO M/S.TTK & CO AT 3% OF THE SALES. SHRI A.V.SREEKANTH, THE LEARNED DEPARTMENT REPRESENTATIVE SUBMITTED THAT THE ASSESSING OFFICER CLAIMED 3% OF THE SALES AS DEPOT CHARGES. HOWEVER, THE ASSESSING OFFI CER RESTRICTED THE SAME TO 2%. THE CIT(A) BY PLACING RELIANCE ON THE O RDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE ALLOWED THE CLAIM OF THE ASS ESSEE AT 3%. ACCORDING TO THE LEARNED REPRESENTATIVE, 3% OF THE SALE TURNOVER IS HIGHLY EXCESSIVE. THEREFORE, THE CIT(A) OUGHT NOT TO HAVE ALLOWED THE CLAIM OF THE ASSESSEE. 12. WE HEARD SHRI SAROJ KUMAR PARIDA, THE LEARNED C OUNSEL FOR THE ASSESSEE ALSO. THE CIT(A) AFTER CONSIDERING THE ORD ER OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10 IN ITA NO.1783/MDS/2012, FOUND THAT THE PAYMENT OF DEPOT C HARGES AT 3% OF THE SALES ARE REASONABLE AND NOT EXCESSIVE. A SIMIL AR VIEW ALSO WAS TAKEN BY CIT(A) FOR THE ASSESSMENT YEAR 2011-12. 11 I.T.A. NOS.1641,1642, 1643 & 2109/MDS/2016 13. IN VIEW OF THE ORDER OF THIS TRIBUNAL IN THE AS SESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10 IN ITA NO.1783/MDS/2012 , THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY, THE SAME IS CONFIRMED. 14. IN THE RESULT, ALL THE APPEALS FILED BY THE ASS ESSEE AS WELL AS BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED ON 25 TH NOVEMBER, 2016 AT CHENNAI. SD/- SD/- ( . . ! ' ) ( . . . ) (D.S. SUNDER SINGH) (N.R.S. GANESAN) # /ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 0 /DATED, THE 25 TH NOVEMBER, 2016. SP. , (-!1 21+- /COPY TO: 1. &' /APPELLANT 2. ()&' /RESPONDENT 3. 3- ( )/CIT(A) 4. 3- /CIT, 5. 14 (- /DR 6. * 5 /GF.