The ITO, Ward-3(3)(9), Ahmedabad V. M/s. Sunflower Pharmacy, Ahmedabad

ITA 2495/AHD/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7915 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 04-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Gift; Business income; Revenue expenditure
• Section: 143(3); 133(6); 37(1)

Judgement Text

, * ** * ,L ,L,L ,L- -- -,E ,E,E ,E- -- -LH LHLH LH- -- - * ** * IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD LOZJH EGKOHJ IZLKN] U;KF;D LNL; ,OA VEJTHR FLAG] LOZJH EGKOHJ IZLKN] U;KF;D LNL; ,OA VEJTHR FLAG] LOZJH EGKOHJ IZLKN] U;KF;D LNL; ,OA VEJTHR FLAG] LOZJH EGKOHJ IZLKN] U;KF;D LNL; ,OA VEJTHR FLAG] YS [KK LNL; DS LE{KA YS[KK LNL; DS LE{KA YS[KK LNL; DS LE{KA YS[KK LNL; DS LE{KA (BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER & SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ) ./ I.T.A. NO.2495/AHD/2016 ( / ASSESSMENT YEAR : 2011-12) ITO, WARD 3(3)(9), AHMEDABAD. / VS. M/S. SUNFLOWER PHARMACY, G/5, RUDRA ARCADE, OPP. TRAFFIC HELMET CIRCLE, MAMNAGAR, AHMEDABAD ./ ./ PAN/GIR NO. : ABQFS 1821 A ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI PRASOON KABRA, SR. D.R. / RESPONDENT BY : WRITTEN SUBMISSION / DATE OF HEARING 08/12/2017 !'# / DATE OF PRONOUNCEMENT 22/12/2017 $% / O R D E R PER MAHAVIR PRASAD, JUDICIAL MEMBER : THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE OR DER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-3, AHMEDABAD [C IT(A) IN SHORT] VIDE APPEAL NO.CIT(A)-3/ITO/3(3)(5)/517/14-15 DATED 12/06/2015 IN THE MATTER OF ASSESSMENT ORDER UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) RE LEVANT TO THE ASSESSMENT YEAR (AY) 2011-12. 1. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELE TING THE PENALTY LEVIED U/S. 271(1)(C) OF THE ACT OF RS.12,78,996/-. ITA NO.2495/AHD /2016 ITO VS. M/S. SUNFLOWER PHARMACY ASST.YEAR 2011-12 - 2 - 1.1 THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THAT THE COMMISSION WAS PAID TO THE DO CTORS IN VIOLATION OF THE PROVISIONS OF INDIAN MEDICAL CO UNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULA TION, 2002. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. COMMISSIONER OF INCOME TAX (A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 3. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE L D. COMMISSIONER OF INCOME TAX (A) MAY BE SET-ASIDE AND THAT OF THE ASS ESSING OFFICER BE RESTORED. 2. THE BRIEF FACTS OF THE CASE ARE THAT IN THIS CAS E, RETURN OF INCOME FOR A.Y. 2011-12 WAS FILED ON 29.09.2011 DECLARING TOTA L INCOME OF RS.1,78,930/-. ASSESSMENT WAS MADE U/S.143(3) ON 26 /02/2014 DETERMINING TOTAL INCOME OF RS.43,20,960/- AFTER MA KING THE FOLLOWING DISALLOWANCE:- 1. DISALLOWANCE OF COMMISSION RS.41,39,131/- 2. DISALLOWANCE OF PENALTY RS. 2,900/- DURING THE COURSE OF ASSESSMENT PROCEEDINGS, PENALT Y PROCEEDINGS U/S.271(1)(C) OF THE ACT WERE INITIATED FOR FURNISH ING INACCURATE PARTICULARS OF INCOME. NOTICE U/S.274 R.W.S 271(L)( C) WAS ISSUED ON 26.02.2014. 2.1 THE ASSESSEE FILED APPEAL AGAINST THE ORDER PAS SED BY THE A.O. BEFORE THE HON.BLE CIT(A)-3, AHMEDABAD VIDE APPEAL NO. CLT(A)- 3/ITO/3(3)(5)/517/14-15. HON'BLE CIT(A) VIDE HIS OR DER DATED 12/06/2015, DISMISSED THE APPEAL FILED BY THE ASSES SEE, CONFIRMING ADDITION OF RS.41,39,131/- MADE BY THE A.O. ON ACCO UNT OF DISALLOWANCE OF COMMISSION PAID TO THE DOCTORS, OBSERVING THAT T HE APPELLANT HAS FAILED ITA NO.2495/AHD /2016 ITO VS. M/S. SUNFLOWER PHARMACY ASST.YEAR 2011-12 - 3 - TO GIVE ANY KIND OF EVIDENCE TO SHOW THAT THE TWO D OCTORS TO WHOM COMMISSION HAS BEEN PAID, HAVE RENDERED ANY SERCIES TO IT. HON'BLE CIT(A) CONFIRMED THE DISALLOWANCE OF RS.41,39,131/- U/S.37(1) OF THE ACT. ON THESE ADDITION, PENALTY PROCEEDINGS WERE SE PARATELY INITIATED AND THE NOTICE U/S.271(L)(C) OF THE ACT, WAS ISSUED AND SERVED UPON THE ASSESSEE ALONGWITH ORDER PASSED U/S.143(3) OF THE A CT. AS THERE WAS A CHANGE IN THE INCUMBENT A FRESH OPPO RTUNITY WAS GIVEN TO THE ASSESSEE VIDE NOTICE U/S.274 R.W.S 271 (L)(C) OF THE ACT WHICH WAS ISSUED ON 06/08/2015 WITH A REQUEST TO APPEAR B EFORE THE UNDERSIGNED WITHIN 7 DAYS OF RECEIPT OF THIS LETTER OR SUBMIT WRITTEN EXPLANATION ALONGWITH THE NECESSARY EVIDENCE/DOCUME NTS AND TO SHOW CAUSE, WHY THE PENALTY PROCEEDINGS INITIATED AS ABO VE SHOULD NOT BE FINALISED BY LEVY OF PENALTY U/S.271(L)(C) OF THE I .T. ACT, 1961. 2.2 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON VERIFICATION OF THE PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDER ATION IT WAS NOTICED THAT THE ASSESSEE HAD DEBITED AND AMOUNT OF RS.41,3 9,131/- ON ACCOUNT OF COMMISSION, THE DETAILS FURNISHED AND OBTAINED U/S. 133(6) OF THE ACT CLEARLY SHOWS THAT THE SAID COMMISSION WAS PAID TO THE FOLLOWING DOCTORS. (I) DR. RAMANBHAI S. PATEL RS.17,52,130/- (II) DR. RATILAL G. PATEL RS.23,87,001/- TOTAL RS.41,39,131/- THE AO OBSERVED THAT IN VIEW OF THE CIRCULAR ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES BEING CIRCULAR NO.5/2012 (F. NO. 225/142/2012- ITA.II) DATED 01/08/2012, THE COMMISSION PAID BY TH E ASSESSEE IS NOT AN ITA NO.2495/AHD /2016 ITO VS. M/S. SUNFLOWER PHARMACY ASST.YEAR 2011-12 - 4 - ALLOWABLE EXPENSES. FOR READY REFERENCE THE CONTENT S OF THE SAID CIRCULAR IS REPRODUCED HEREUNDER:- 'CIR. NO.5/2012[F.NO.225/142/2012-ITA.II], DATED 1- 8-2012 IT HAS BEEN BROUGHT TO THE NOTICE OF THE BOARD THAT SOME PHARMACEUTICAL AND ALLIED HEALTH SECTOR INDUSTRIES ARE PROVIDING FREEBEES (FR EEBIES) TO MEDICAL PRACTITIONERS AND THEIR PROFESSIONAL ASSOCI ATIONS IN VIOLATION OF THE REGULATIONS ISSUED BY MEDICAL COUNCIL OF INDIA (THE 'COUNCIL') WHICH IS A REGULATORY BODY CONSTITUTED UNDER THE MEDICAL COUNCIL ACT, 1956. 2. THE COUNCIL IN EXERCISE OF ITS STATUTORY POWERS AMENDED THE INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQU ETTE AND ETHICS) REGULATIONS, 2002 (THE REGULATIONS) ON 10-12-2009 I MPOSING A PROHIBITION ON THE MEDICAL PRACTITIONER AND THEIR P ROFESSIONAL ASSOCIATIONS FROM TAKING ANY GIFT, TRAVEL FACILITY, HOSPITALITY, CASH OR MONETARY GRANT FROM THE PHARMACEUTICAL AND ALLIED H EALTH SECTOR INDUSTRIES. 3. SECTION 37(1) OF INCOME TAX ACT PROVIDES FOR DED UCTION OF ANY REVENUE EXPENDITURE (OTHER THAN THOSE FAILING UNDER SECTIONS 30 TO 36) FROM THE BUSINESS INCOME IF SUCH EXPENSE IS LAID OU T/EXPENDED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFE SSION. HOWEVER, THE EXPLANATION APPENDED TO THIS SUB-SECTION DENIES CLA IM OF ANY SUCH EXPENSE, IF THE SAME HAS BEEN INCURRED FOR A PURPOS E WHICH IS EITHER AN OFFENCE OR PROHIBITED BY LAW. THUS, THE CLAIM OF ANY EXPENSE INCURRED IN PROVIDIN G ABOVE MENTIONED OR SIMILAR FREEBEES IN VIOLATION OF THE P ROVISIONS OF INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AN D ETHICS) REGULATIONS, 2002 SHALL BE INADMISSIBLE UNDER SECTI ON 37(1) OF THE INCOME TAX ACT BEING AN EXPENSE PROHIBITED BY THE L AW. THIS DISALLOWANCE SHALL BE MADE IN THE HANDS OF SUCH PHA RMACEUTICAL OR ALLIED HEALTH SECTOR INDUSTRIES OR OTHER ASSESSEE W HICH HAS PROVIDED AFORESAID FREEBEES AND CLAIMED IT AS A DEDUCTABLE E XPENSE IN ITS ACCOUNTS AGAINST INCOME. 4. IT IS ALSO CLARIFIED THAT THE SUM EQUIVALENT TO VALUE OF FREEBEES ENJOYED BY THE AFORESAID MEDICAL PRACTITIONER OR PR OFESSIONAL ASSOCIATIONS IS ALSO TAXABLE AS BUSINESS INCOME OR INCOME FROM OTHER SOURCES AS THE CASE MAY BE DEPENDING ON THE FACTS O F EACH CASE. THE ITA NO.2495/AHD /2016 ITO VS. M/S. SUNFLOWER PHARMACY ASST.YEAR 2011-12 - 5 - ASSESSING OFFICERS OF SUCH MEDICAL PRACTITIONER OR PROFESSIONAL ASSOCIATIONS SHOULD EXAMINE THE SAME AND TAKE AN AP PROPRIATE ACTION. THIS MAY BE BROUGHT TO THE NOTICE OF ALL THE OFFICE RS OF THE CHARGE FOR NECESSARY ACTION.' SECTION 37(1) OF IT ACT, 1961 PROVIDES FOR DEDUCTIO N OF ANY REVENUE EXPENDITURE (OTHER THAN THOSE FAILING UNDER SECTIONS 30 TO 36) FROM THE BUSINESS INCOME IF SUCH EXPENSE IS LAID OU T/EXPENDED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSI ON. HOWEVER, THE EXPLANATION APPENDED TO THIS SUB-SECTION DENIES CLA IM OF ANY SUCH EXPENSE, IF THE SAME HAS BEEN INCURRED FOR A PURPOS E WHICH IS EITHER AN OFFENCE OR PROHIBITED BY LAW. THE CLAIM OF THE ASSE SSEE FOR COMMISSION PAYMENT TO THE DOCTORS AS NARRATED HEREINABOVE IS I N VIOLATION OF THE PROVISIONS OF INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULATIONS, 2002 THEREFORE, THE SAME S HALL BE INADMISSIBLE U/S.37(1) OF THE ACT BEING AN EXPENSE PROHIBITED BY THE LAW AS CLEARLY INDICATED IN THE CIRCULAR. 2.3 AFTER CONSIDERING THE EXPLANATION/SUBMISSION MA DE BY THE ASSESSEE, IN RESPONSE TO THE SHOW-CAUSE NOTICE ISSU ED AND REBUTTING THE ARGUMENTS PUT FOR THE BY THE ASSESSEE AS IN DETAIL DISCUSSED IN BODY OF THE ASSESSMENT ORDER, THE AO COME TO THE CONCLUSION THA T THE SAME IS NOT ACCEPTABLE SO FAR AS THE ALLOW ABILITY OF COMMISSIO N EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT OF THE ASSESSEE. VIDE SUBMI SSION DATED 28/01/2014, THE ASSESSEE SUBMITTED ITS JUSTIFICATIO N FOR ALLOWABILITY OF COMMISSION EXPENSE WHICH THE ASSESSEE HAS REITERATE D IN ITS REPLY DATED 14/02/2014. THE CIRCULAR ISSUED BY THE CENTRAL BOAR D OF DIRECT TAXES ITA NO.2495/AHD /2016 ITO VS. M/S. SUNFLOWER PHARMACY ASST.YEAR 2011-12 - 6 - BEING CIRCULAR NO.5 OF 2012 DATED 01/08/2012 CLARIF IES IN CLEAR TERM THAT SECTION 37(1) OF INCOME TAX ACT PROVIDES FOR DEDUCT ION OF ANY REVENUE EXPENDITURE (OTHER THAN THOSE FAILING UNDER SECTION S 30 TO 36) FROM THE BUSINESS INCOME IF SUCH EXPENSE IS LAID OUT/EXPENDE D WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSI ON. HOWEVER, THE EXPLANATION APPENDED TO THIS SUB-SECTION DENIES CLA IM OF ANY SUCH EXPENSE, IF THE SAME HAS BEEN INCURRED FOR A PURPOS E WHICH IS EITHER AN OFFENCE OR PROHIBITED BY LAW. IN VIEW OF THE SAID C IRCULAR OF THE BOARD, ANY EXPENSE INCURRED IN PROVIDING GIFT, TRAVEL FACI LITY, HOSPITALITY, CASH OR MONETARY GRANT FROM PHARMACEUTICAL AND ALLIED HEALT H SECTOR INDUSTRY OR SIMILAR FREEBEES IN VIOLATION OF THE PROVISION OF I NDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULA TION, 2002 IS NOT ADMISSIBLE U/S.37(1) OF INCOME TAX ACT, 1961 BEING AN EXPENSE PROHIBITED BY LAW. 2.4 THE ASSESSEE ITSELF HAD QUOTED REGULATIONS FRAM ED BY THE MEDICAL COUNCIL OF INDIA NAMELY INDIAN MEDICAL COUNCIL (PRO FESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULATION, 2002 AND THE AMEN DMENT/MODIFICATION THERETO BY NOTIFICATIONS FROM TIME TO TIME. AS PER THE SAID REGULATIONS, THE CODE OF CONDUCT FOR DOCTORS AND PROFESSIONAL ASSOCI ATION OF DOCTORS IN THEIR RELATIONSHIP WITH PHARMACEUTICAL AND ALLIED H EALTH CARE INDUSTRY AND CLEARLY GIVES THE STIPULATIONS IN RESPECT OF (I) GI FT, (II) TRAVEL FACILITIES, (III) HOSPITALITY, (IV) CASH OR MONETARY GRANTS, (V ) MEDICAL RESEARCH, (VI) MAINTAINING PROFESSIONAL AUTONOMY, (VII) AFFILIATIO N, (VIII) ENDORSEMENT, ETC. ITA NO.2495/AHD /2016 ITO VS. M/S. SUNFLOWER PHARMACY ASST.YEAR 2011-12 - 7 - 2.5 AS PER THE SAID STIPULATIONS, IT IS VERY CLEAR THAT A MEDICAL PRACTITIONER SHALL NOT RECEIVE ANY CASH OR MONETARY GRANTS FROM ANY PHARMACEUTICAL AND ALLIED HEALTHCARE INDUSTRY FOR I NDIVIDUAL PURPOSE IN INDIVIDUAL CAPACITY UNDER ANY PRETEXT. FUNDING FOR MEDICAL RESEARCH, STUDY ETC CAN ONLY BE RECEIVED THROUGH APPROVED INS TITUTIONS BY MODALITIES LAID DOWN BY LAW/RULES/GUIDELINES ADOPTE D BY SUCH APPROVED INSTITUTIONS, IN A TRANSPARENT MANNER. IT SHALL ALW AYS BE FULLY DISCLOSED. THUS, IT IS CLEAR THAT THE MEDICAL PRACTITIONERS SH ALL NOT RECEIVE ANY CASH OR MONETARY GRANT UNDER ANY PRETEXT FROM ANY PHARMA CEUTICAL AND ALLIED HEALTHCARE INDUSTRY BUT THE SAME MAY BE FOR SOME ME DICAL RESEARCH, STUDY, ETC. THROUGH APPROVED INSTITUTIONS BY ADOPTI NG THE MODALITIES LAID DOWN BY LAW/RULES/GUIDELINES ADOPTED BY SUCH APPROV ED INSTITUTIONS IN A TRANSPARENT MANNER. IN THE CASE OF ASSESSEE THE COM MISSION PAID IS NOT FOR SUCH ACTIVITIES AND AS PER THE MODALITIES LAID DOWN . 2.6 AS PER THE STIPULATIONS, A MEDICAL PRACTITIONER MAY CARRY OUT, PARTICIPATE IN, WORK IN RESEARCH PROJECT FUNDED BY PHARMACEUTICAL AND ALLIED HEALTHCARE INDUSTRIES BUT, HE IS OBLIGED TO KNOW THE FULFILLMENT OF THE FOLLOWING ITEMS:- (I) ENSURE THAT THE PARTICULAR RESEARCH PROPOSAL HA S THE DUE PERMISSION FROM THE COMPETENT CONCERNED AUTHORITIES . (II) ENSURE THAT SUCH A RESEARCH PROJECTS HAS THE C LEARANCE OF NATIONAL/STATE/INSTITUTIONAL ETHICS COMMITTEES/BODI ES. (III) ENSURE THAT IT FULFILS ALL THE LEGAL REQUIREM ENTS PRESCRIBED FOR MEDICAL RESEARCH. (IV) ENSURE THAT THE SOURCE AND AMOUNT OF FUNDING I S PUBLICLY DISCLOSED AT THE BEGINNING ITSELF. ITA NO.2495/AHD /2016 ITO VS. M/S. SUNFLOWER PHARMACY ASST.YEAR 2011-12 - 8 - (V) ENSURE THAT PROPER CARE AND FACILITIES ARE PROV IDED TO HUMAN VOLUNTEERS, IF THEY ARE NECESSARY FOR THE RESEARCH PROJECT. (VI) ENSURE THAT UNDUE ANIMAL EXPERIMENTATIONS ARE NOT DONE AND WHEN THESE ARE NECESSARY THEY ARE DONE IN A SCIENTI FIC AND A HUMANE WAY. (VII) ENSURE THAT WHILE ACCEPTING SUCH AN ASSIGNMEN T A MEDICAL PRACTITIONER SHALL HAVE THE FREEDOM TO PUBLISH THE RESULTS OF THE RESEARCH IN THE GREATER INTEREST OF THE SOCIETY BY INSERTING SUCH A CLAUSE IN THE MOU OR ANY OTHER DOCUMENT/AGRE EMENT FOR ANY SUCH ASSIGNMENT. IN THE CASE OF THE ASSESSEE THE FULFILLMENT OF THE ABO VE ITEMS IS NOT AT ALL COMING ON THE WAY AS THE COMMISSION IS PAID NOT FOR SUCH AN ACTIVITY ENTITLING THE ASSESSEE FOR CLAIM OF SUCH E XPENSES. 2.7 THE ARGUMENT OF THE ASSESSEE THAT THE CIRCULAR OF THE BOARD SPEAKS ABOUT FREEBIES AND THE SAME IS NOT APPLICABLE TO TH E CASE OF ASSESSEE AS THE COMMISSION EXPENDITURE CANNOT BE TERMED AS FREE BIES TO DOCTORS FROM PHARMACEUTICAL RETAIL STORES. THE SAID ARGUMENT OF THE ASSESSEE CANNOT BE ACCEPTED AS THE SAME IS COVERED STIPULATED ITEM BEI NG CASH OR MONETARY GRANT BUT, NOT FOR ANY RESEARCH, STUDY, ETC. THROUG H APPROVED INSTITUTIONS BY THE MODALITIES LAID DOWN. THE FURTHER ARGUMENT O F THE ASSESSEE THAT THE SAID CIRCULAR IS NOT APPLICABLE TO THE CASE OF ASSE SSEE AS THE SAME IS APPLICABLE TO PHARMACEUTICAL INDUSTRY AND THE ASSES SEE IS NOT AN INDUSTRY IS ALSO NOT ACCEPTABLE AS IT APPLIES TO ALLIED HEAL TH SECTOR, THE ASSESSEE BEING ONE OF THEM AS SUPPLIER OF MEDICINES WHICH TA KES CARE OF HEALTH OF PEOPLE. ITA NO.2495/AHD /2016 ITO VS. M/S. SUNFLOWER PHARMACY ASST.YEAR 2011-12 - 9 - 2.8 IN VIEW OF THE ABOVE DISCUSSION AND IN VIEW OF BOARD'S CIRCULAR, ISSUED IN THIS REGARDS, THE A.O. DISALLOWED THE PAY MENT OF COMMISSION MADE BY THE ASSESSEE TO THE ABOVE SAID TWO DOCTORS NAMELY (I) DR. RAMANBHAI S. PATEL RS.17,52,130/- AND (II) DR. RATI LAL G. PATEL RS.23,87,001/- TOTALING TO RS.41,39,131/- AND ADDED TO THE TOTAL INCOME U/S. 37(1) OF THE ACT. 2.9 HON'BLE CIT(A) AFTER DETAILED DISCUSSION IN PAR A 3 OF THE APPELLATE ORDER DISMISSED THE ASSESSEE'S APPEAL STATING THAT THE APPELLANT HAS FAILED TO GIVE ANY KIND OF EVIDENCE TO SHOW THAT THE TWO D OCTORS TO WHOM COMMISSION HAS BEEN PAID HAVE RENDERED ANY SERVICES TO IT & APPELLANT HAS NOT BEEN ABLE TO JUSTIFY THE PAYMENT OF RS.41,3 9,131/- MADE TO THE DOCTORS & CONFIRMED THE ADDITION MADE BY THE A.O. 2.10 FRESH PENALTY SHOW CAUSE U/S.271(L)(C) OF THE ACT DATED 28/01/2016 WAS ISSUED BY THE AO. IN RESPONSE TO THE SAID NOTIC E, THE ASSESSEE HAS SUBMITTED WRITTEN SUBMISSION/EXPLANATION, VIDE SUBM ISSION DATED 04/02/2016 AND SUBMISSION DATED 06/02/2016, SAME AR E REPRODUCE HEREUNDER: 2.10.1 OUR ABOVE CLIENT HAS BEEN IN RECEIPT OF NOT ICE DATED 28/01/2016 U/S.274 R.W.S 271(1)(C) OF THE I.T. ACT. IT HAS HANDED OVER THE SAME NOTICE TO US WITH INSTRUCTIONS TO SUB MIT AS UNDER: (1) THE PENALTY PROCEEDINGS HAVE BEEN INITIATED AGAINST THE FOLLOWING ADDITION MADE IN THE ASSESSMENT ORDER DATED 26/02/2 014 U/S.143(3) OF THE INCOME TAX ACT, 1961. PARTICULARS RS. DISALLOWANCE OF COMMISSION EXPENSE 41,39,131/- ITA NO.2495/AHD /2016 ITO VS. M/S. SUNFLOWER PHARMACY ASST.YEAR 2011-12 - 10 - DISALLOWANCE OF PENALTY 2,900/- TOTAL 41,42,031/- (2) THE DISALLOWANCE OF COMMISSION EXPENSES IS BEING CO NTESTED IN APPEAL BEFORE INCOME TAX APPELLATE TRIBUNAL, AHMEDA BAD. THE SAID APPEAL HAS BEEN FILLED ON 1 ST SEPTEMBER, 2015. THEREFORE, THE ASSESSMENT ORDER IN WHICH PENALTY PROCEEDINGS IS IN ITIATED, IS SUBJECT MATTER OF APPEAL AND THE QUANTUM OF INCOME AND TAX IS IN DISPUTE AND NOT FINAL. COPY OF APPEAL MEMO IS ENCLOSED HEREWITH . (3) THE SIMILAR ADDITION HAS BEEN DELETED BY HONOUR ABLE COMMISSIONER (APPEAL)-3, AHMEDABAD IN ASSESSEE'S OW N CASE IN RESPECT OF ASSESSMENT YEAR 2012-13 VIDE APPELLATE ORDER DAT ED 21/12/2015. (4) THE ASSESSEE HAS PAID COMMISSION TO THE TWO DOCTORS NAMELY DR. RATILAL G. PATEL AND DR. RAMANLAL S. PATEL FOR CONSULTING THEM FOR THE PURCHASES OF MEDICINES FROM TIME TO TIME. THE SAID EXPENDITURE HAS BEEN DISCLOSED IN PROFIT AND LOSS ACCOUNT AND THE N ECESSARY DETAILS/EXPLANATIONS IN THIS REGARD CALLED FOR BY T HE ASSESSING OFFICER WERE SUBMITTED DURING THE COURSE OF ASSESSMENT PROC EEDINGS. THE ASSESSING OFFICER HAS DISALLOWED THE COMMISSION EXP ENSES BY INVOKING EXPLANATION TO SECTION 37(1) OF THE INCOME TAX ACT, 1961 AND CBDT CIRCULAR NO 5/2012. THE ASSESSEE CONTENDED THAT THE COMMISSION PAID IS NOT COVERED BY CBDT CIRCULAR NO.5/2012 AS THE ASSES SEE IS NOT A PHARMACEUTICAL INDUSTRY AND THE COMMISSION PAYMENT TO DOCTORS IS NOT FREEBIES. THE HONOURABLE COMMISSIONER(APPEAL) HAS N OT GIVEN ANY FINDINGS ON THIS ISSUE AND (5) CONFIRMED THE ADDITION ON THE GROUND THAT THE A SSESSEE HAS NOT RECEIVED ANY SERVICES FROM CONCERNED DOCTORS. THIS ISSUE IS BEING CONTESTED BEFORE HONOURABLE ITAT, AHMEDABAD. IN THE ASSESSMENT ORDER THERE IS NO FINDINGS THAT THE ASSESSEE HAS MA DE CONCEALMENT OF INCOME AND THERE IS NO SUCH EVIDENCE ON RECORD. THE ADDITION HAS BEEN MODE ON INTERPRETATION OF THE APPLICABILITY OR OTHE RWISE OF CBDT CIRCULAR IN CASE OF THE ASSESSEE. IN ASSESSMENT YEA R 2012-13 THE HONOURABLE COMMISSIONER(APPEAL) HAS HELD THAT CBDT CIRCULAR 5/2012 IS NOT APPLICABLE TO THE ASSESSEE. THUS THE BASIS ON WHICH THE DISALLOWANCE HAS BEEN MADE HAS BEEN REMOVED BY THE APPELLATE AUTHORITY IN ASSESSEE'S OWN CASE ON THE SAME FACTS OF THE CASE. ITA NO.2495/AHD /2016 ITO VS. M/S. SUNFLOWER PHARMACY ASST.YEAR 2011-12 - 11 - (6) THUS IN CASE OF THE ASSESSEE THERE IS REJECTION OF THE CLAIM OF EXPENDITURE ONLY. MERE REJECTION OF THE CLAIM OF TH E EXPENDITURE DOES NOT AMOUNT TO CONCEALMENT OF INCOME OR FURNISHING O F INACCURATE PARTICULARS OF INCOME. THE ASSESSEE RELIES ON THE H ONOURABLE SUPREME COURT'S DECISION IN CASE OF CIT VS. RELIANCE PETRO PRODUCTS (P) LTD. [CIVIL APPEAL NO 2463 OF 2010 DATED 17/03/2010. IN VIEW OF ABOVE CIRCUMSTANCES YOU ARE KINDLY REQUE STED TO DROP THE PENALTY PROCEEDING SECTION 271(1)(C) OF THE I.T. AC T, 1961 AND OBLIGE. 2.10.2 FURTHER ASSESSEE FILED A LETTER DATED 06/02/ 2016, RECEIVED BY THIS OFFICE ON 09/02/2016. ASSESSEE IN HIS LETTER STATED THAT IN CONTINUATION OF OUR LETTER DATED 04/02/2016 WE HAVE FURTHER TO STAT E ASUNDER:- (1) THE ASSESSEE HAS PAID COMMISSION TO THE TWO DOCTOR NAMELY DR. RATILAL S PATEL AND DR. ROMANLAL S. PATEL FOR CONSU LTING THEM FOR THE PURCHASES OF MEDICINES FROM TIME TO TIME. THE SAID EXPENDITURE HAS BEEN DISCLOSED IN PROFIT AND LOSS ACCOUNT AND THE N ECESSARY DETAILS/EXPLANATIONS IN THIS REGARD CALLED FOR BY T HE ASSESSING OFFICER WERE SUBMITTED DURING THE COURSE OF ASSESSMENT PROC EEDINGS. THE ASSESSING OFFICER HAS DISALLOWED THE COMMISSION EXP ENSES BY INVOKING EXPLANATION TO SECTION 37(1) OF THE INCOME TAX ACT, 1961 AND CBDT CIRCULAR NO 5/2012. (2) RECENTLY VIDE APPELLATE ORDER DATED 23/12/2015, IN THE CASE OF SYNCON FORMULATIONS (I) LTD, THE HONOURABLE INCOME TAX APPELLATE TRIBUNAL, MUMBAI, HAS HELD THAT THE CBDT CIRCULAR N O.5/2012 DATED 01/08/2012 WAS NOT APPLICABLE IN ASSESSMENT Y EAR 2010-11 AND 2011-12 BECAUSE IT WAS INTRODUCED W.E.F. 01/08/ 2012 I.E. ASSESSMENT YEAR 2013-14. THEREFORE, IT IS SUBMITTED THAT THE BASIS ON WHICH THE DISALLOWANCE HAVE BEEN MADE IN THE ASSESS MENT ORDER IS NOT APPLICABLE. THE COPY OF ITAT ORDER IS ENCLOSED HEREWITH FOR YOUR READY REFERENCE. THE ASSESSEE CONTENDS THAT TH E PAYMENT MADE BY THE ASSESSEE IS NOT COVERED BY THE CBDT CIRCULAR AND ASSUMING BUT NOT ADMITTING THAT THE PAYMENTS MADE BY THE ASS ESSEE IS COVERED UNDER THE SAID CIRCULAR, THE SAID CIRCULAR IS NOT A PPLICABLE IN ASSESSMENT YEAR 2011-12. (3) THE COMMISSION PAID IS NOT COVERED BY CBDT CIRCULAR NO.5/2012 AS THE ASSESSEE IS NOT A PHARMACEUTICAL INDUSTRY AND T HE COMMISSION ITA NO.2495/AHD /2016 ITO VS. M/S. SUNFLOWER PHARMACY ASST.YEAR 2011-12 - 12 - PAYMENTS TO DOCTORS ARE NOT FREEBIES. THE HONOURABL E COMMISSIONER (APPEAL) HAS NOT GIVEN ANY FINDINGS ON THIS ISSUE AND CONFIRMED THE ADDITION ON THE GROUND THAT THE ASSES SEE HAS NOT RECEIVED ANY SERVICES FROM CONCERNED DOCTORS. THIS ISSUE IS BEING CONTESTED BEFORE HONOURABLE ITAT, AHMEDABAD. IN THE ASSESSMENT ORDER THERE IS NO FINDINGS THAT THE ASSESSEE HAS MA DE CONCEALMENT OF INCOME AND THERE IS NO SUCH EVIDENCE ON RECORD. THE ADDITION HAS BEEN MODE ON INTERPRETATION OF THE APPLICABILITY OR OTHERWISE OF CBDT CIRCULAR IN CASE OF THE ASSESSEE. IN ASSESSMEN T YEAR 2012-13 THE HONOURABLE COMMISSIONER (APPEAL) HAS HELD THAT CBDT CIRCULAR 5/2012 IS NOT APPLICABLE TO THE ASSESSEE. THUS THE BASIS ON WHICH THE DISALLOWANCE HAS BEEN MADE HAS BEEN REMOV ED BY THE APPELLATE AUTHORITY IN ASSESSEE'S OWN CASE ON THE S AME FACTS OF THE CASE. (4) THUS IN CASE OF THE ASSESSEE THERE IS REJECTION OF THE CLAIM OF EXPENDITURE ONLY. MERE REJECTION OF THE CLAIM OF TH E EXPENDITURE DOES NOT AMOUNT TO CONCEALMENT OF INCOME OR FURNISHING O F INACCURATE PARTICULARS OF INCOME. THE ASSESSEE RELIES ON THE H ONOURABLE SUPREME COURT'S DECISION IN CASE OF CIT VS. RELIANC E PETROPRODUCTS (P) LTD. [CIVIL APPEAL NO 2463 OF 2010 DATED 17/03/ 2010. 2.11 THE AO HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE AND LEVIED PENALTY BY OBSERVING AS UNDER: 8. I HAVE GONE THROUGH BOTH THE SUBMISSIONS DATED 04/02/2016 AND 06/02/2016 ( RECEIVED ON 09/02/2016) MADE BY THE ASSESSEE, SAME ARE NOT ACCEPTABLE. ADDITION OF RS.41,42,031/- MADE BY THE A.O. IS CONF IRMED BY THE CIT(A) AND PENALTY PROCEEDINGS HAVE BEEN INITIATED BY THE A.O. WHILE PASSING THE ASSESSMENT ORDER. FILING OF APPEAL BEFO RE HON'BLE ITAT HAS NO RELEVANCY WITH THE PENAL PROCEEDINGS, QUANTUM OF ADDITION MAY BE IN DISPUTE IN 2 NO APPEAL, SAME IS CONFIRMED IN 1 ST APPEAL, PENALTY CAN BE LEVIED. AS REGARDS, DELETION OF ADDITION OF SIMILAR ISSUE BY CIT(A) IN RESPECT OF A.Y. 2012-13, DECISION HAS NOT BEEN ACCE PTED BY THE DEPARTMENT AND FURTHER APPEAL IS RECOMMENDED. AS IN DETAILS DISCUSSED IN PARA 3 OF THE ASSESSMENT ORDER, IT IS VERY CLEAR THAT A MEDICAL PRACTITIONER SHALL NOT RE CEIVE ANY CASH OR MONETARY GRANTS FROM ANY PHARMACEUTICAL AND ALLIED HEALTHCARE ITA NO.2495/AHD /2016 ITO VS. M/S. SUNFLOWER PHARMACY ASST.YEAR 2011-12 - 13 - INDUSTRY FOR INDIVIDUAL PURPOSE IN INDIVIDUAL CAPAC ITY UNDER ANY PRETEXT. THE ASSESSEE BEING ONE OF THE UNITS OF PHARMACEUTIC AL AND ALLIED HEALTH CARE INDUSTRY, AS SUPPLIER OF MEDICINES WHICH TAKES CARE OF HEALTH OF PEOPLE, PAYMENT OF COMMISSION MADE TO THE DOCTORS I S NOT ALLOWABLE U/S.37(1) OF I. T. ACT, BEING AN EXPENSE PROHIBITED BY LAW AS PER CIRCULAR NO. 5/2012. THE ASSESSEE HAS CONCEALED THE PARTICUL ARS OF INCOME BY VIOLATING THE PROVISIONS OF SECTION 37(1) OF I. T. ACT, IT IS NOT MERE REJECTION OF CLAIM OF THE EXPENDITURE ONLY. THE ASS ESSEE HAS CONCEALED THE PARTICULARS OF INCOME THE ASSESSEE IS LIABLE FO R PENAL ACTION U/S.271(L)(C) OF THE ACT. VIDE SUBMISSION DATED 06/02/2016, THE ASSESSEE FURT HER SUBMITTED COPY OF THE DECISION NO. ITA NO.6429 & 64 28/MUM/20L2 DATED 23/12/2015 OF ITAT, 'E' BENCH, MUMBAI, WHEREI N IT HAS HELD THAT THE CBDT CIRCULAR NO.5/2012 DATED 01/08/2012 WAS NO T APPLICABLE IN A.Y.2010-11 AND 2011-12, BECAUSE IT WAS INTRODUCED WITH EFFECT FROM 01/08/2012. HEALING ON ABOVE THE ASSESSEE SUBMITTED THAT THE BASIS ON WHICH THE DISALLOWANCE HAVE BEEN MADE IN ASSESSMENT ORDER IS NOT APPLICABLE. THE ASSESSEE SUBMITTED THAT THE PAYMENT MADE BY THE ASSESSEE IS NOT COVERED BY CBDT CIRCULAR, THE SAID CIRCULAR IS NOT APPLICABLE IN A.Y.2011-12. THE DECISION PUT FORTH BY THE ASSESSEE, IS OF HONOU RABLE ITAT, MUMBAI, AND NOT OF JURISDICTION ITAT, GUJARAT, AHME DABAD AND AS SUCH THE DECISION IS NOT BINDING TO THIS OFFICE. THE CIRCULAR NO.5/2012 DATED 01/08/2012 IS APPLICAB LE IN THE CASE OF THE ASSESSEE, SINCE THE CIRCULAR IS HIGHLIG HTING/CLARIFYING THE PROVISION OF SECTION 37(1) OF THE I. T. ACT. THE IN STRUCTION IS CLEARIFICTORY ONLY. IN VIEW OF THE ABOVE DISCUSSION & FACTS, I FIND NO MERITS IN SUBMISSION/EXPLANATION PUT FORTH BY THE ASSESSEE. 9. AS DISCUSSED IN PARA 3 OF THE ASSESSMENT ORDER, THE AO. FIND THAT THE CIRCULAR OF THE BOARD IS APPLICABLE TO THE CASE OF ASSESSEE AS THE COMMISSION EXPENDITURE CANNOT BE TERMED AS FREEBIES TO DOCTORS FROM PHARMACEUTICAL RETAIL STORES, SAME IS COVERED STIPU LATED ITEM BEING CASH OR MONETARY GRANT BUT NO FOR ANY RESEARCH, STUDY, E TC THROUGH APPROVED INSTITUTIONS BY THE MODALITIES LAID DOWN. THE A.O. ALSO FINDS THAT THE SAID CIRCULAR IS APPLICABLE IN THE CASE OF ASSESSEE BEING ALLIED HEALTH SECTOR, THE ASSESSEE BEING ONE OF THEM AS SUPPLIER OF MEDICINES WHICH TAKES CARE OF HEALTH OF PEOPLE. ACCORDINGLY THE A.O , DISALLOWED THE PAYMENT OF COMMISSION MADE BY THE ASSESSEE TO THE D OCTORS, TOTALING TO RS.41,39,131/-AND ADDED TO THE TOTAL INCOME U/S.37( 1) OF THE ACT. ITA NO.2495/AHD /2016 ITO VS. M/S. SUNFLOWER PHARMACY ASST.YEAR 2011-12 - 14 - 10. THE ASSESSEE FILED APPEAL AGAINST THE ORDER PAS SED BY THE A.O., PRAYING FOR DELETION OF ADDITION MADE. THE APPELLAT E AUTHORITY, HON. C.I.T(A)-3, AHMEDABAD VIDE HIS ORDER NO. CIT(A)- 3/ITO/3/3/(5)/517/14-15 DATED 12/06/2015 THE APPEAL FILED, AFTER DETAILED DISCUSSION ON APPELLATE ORDER, DISMISSED T HE APPEAL. 11. IN VIEW OF THE ABOVE, THE AMOUNT OF ADDITIONS M ADE TO THE TOTAL INCOME OF THE ASSESSEE FOR THE PURPOSE OF CLAUSE (C ) OF SUB SECTION (1) OF SECTION 271 IS DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. IT IS CLEAR THAT T HE ASSESSEE HAS CONCEALED THE PARTICULARS OF ITS INCOME AS IT HAS F AILED TO SUBSTANTIATE ITS EXPLANATION, WHICH HAS RESULTED IN DISALLOWANCES OF EXPENSES AND ADDITION OF INCOME. IN VIEW OF THE ABOVE, IT IS CLEAR THAT THE ASSESSEE HAD FURNISHED INACCURATE PARTICULARS OF INCOME TO THE EXTENT OF R S.41,39,131/-. THEREFORE, IT IS A FIT CASE FOR IMPOSING PENALTY U/ S.271(1)(C) OF THE I.T. ACT. 12. SECTION 271(L)(C) IS ATTRACTED WHERE, THE ASSES SING OFFICER OR THE FIRST APPELLATE AUTHORITY IS SATISFIED THAT (A) ANY PERSON HAS FURNISHED INACCURATE PARTICULARS OF HIS INCOME, OR (B) HAS FU RNISHED INACCURATE PARTICULARS OF SUCH INCOME. THE EXPRESSION HAS FUR NISHED INACCURATE PARTICULARS' AND 'HAS FURNISHED INACCURATE PARTICUL ARS' HAVE NOT BEEN DEFINED IN EITHER THE SECTION OR ELSEWHERE IN THE A CT. HOWEVER, NOTWITHSTANDING DIFFERENCES IN THE CIRCUMSTANCES, T HEY LEAD TO THE SAME EFFECT, VIZ., KEEPING OFF A CERTAIN PORTION OF INCO ME. THE FORMER IS DIRECT WHILE THE LATTER MAY BE INDIRECT IN ITS EXECUTION. THE WORD 'FURNISHED INACCURATE PARTICULARS' IS DERIVED FROM LATIN WORD 'CONCELARE' WHICH IMPLIES 'TO HIDE'. IN WEBSTER'S NEW INTERNATIONAL D ICTIONARY, THE WORD HAS BEEN EQUATED 'TO HIDE OR WITHDRAW FROM OBSERVAT ION; TO COVER OR KEEP FROM SIGHT; TO PREVENT DISCOVERY OF; TO WITHHO LD KNOWLEDGE OF'. THERE MAY BE CASES WHERE THE FACTS MAY ATTRACT BOTH THE OFFENCES, AND IN SOME CASES, THERE MAY BE OVERLAPPING OF THE TWO OFFENCES. 13. HAVING REGARD TO THE ABOVE FACTS AND CIRCUMSTAN CES OF THE CASE, IT IS CLEAR THAT THE ASSESSEE HAD FURNISHED INACCUR ATE PARTICULAR HIS INCOME, WITHIN THE MEANING OF SECTION 271(1) (C). T HE COMPUTATION OF PENALTY IS AS UNDER; ITA NO.2495/AHD /2016 ITO VS. M/S. SUNFLOWER PHARMACY ASST.YEAR 2011-12 - 15 - WORKING OF PENALTY U/S.271(1)(C) (A) ASSESSED INCOME AS PER ORDER U/S.250 RS.43,20,958/- DTD. /02/2016. (B) TAX ON [A] RS.13,35,177/- (C) CONCEALED INCOME RS.41,39,141/- (D) ASSESSED INCOME (-) CONCEALED INCOME (A-C) RS. 1,81,817/- [E] TAX ON D RS. 56,181/- [F] (B-E) RS. 12,78,996/- [G] MINIMUM 100% LEVIABLE RS. 12,78,996/- [H] MAXIMUM 300% LEVIABLE RS. 38,39,988/- 5. IN ACCORDANCE WITH THE PROVISIONS OF SECTION 271 (L)(C) OF THE IT ACT, THE MINIMUM PENALTY LEVIABLE IS 100% AND MAXIM UM IS 300% OF TAX SOUGHT TO BE EVADED. CONSIDERING THE FACTS AND CIRC UMSTANCES OF THE CASE, MINIMUM PENALTY @ 100% IS IMPOSED WHICH WORKS OUT TO RS.12,78,996/- AS AGAINST THE MAXIMUM PENALTY OF @ 300% OF RS.38,36,988/-. ISSUED DEMAND NOTICE AND CHALLAN. THE PENALTY ORDER U/S.271(L)(C) OF THE ACT HAS BEEN PASSED AFTER PRIOR APPROVAL OF THE ADDL. CIT, RANGE-3(3), AHMEDA BAD VIDE LETTER NO. ADDL.CIT/RANGE-3(3)/SFP/PENALTY/2015-16 DATED 17/02 /2016. 13. AGAINST THE SAID ORDER ASSESSEE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LD. CIT(A) WHO GIVEN THE FOLLOWING OBSER VATION AND DISMISSED THE APPEAL OF THE ASSESSEE. I HAVE GONE THROUGH THE MOU & OTHER SUBMISSIONS MA DE BY THE APPELLANT IN DETAIL. AT THE OUTSET, IT IS SEEN THAT THE MOU HAS BEEN MADE ON 1-4-2011 I.E. DURING F.Y. 2011-12 RELEVANT TO A. Y. 2012-13. THUS, THE PAYMENT OF COMMISSION TO THE TWO DOCTORS DURING THE YEAR UNDER CONSIDERATION I.E. A.Y.2011-12 IS NOT COVERED BY TH E MOU NOTWITHSTANDING THIS FACT, IT IS ALSO SEEN THAT THE MOU SUBMITTED BY THE APPELLANT IS ON A PLAIN SHEET OF PAPER AND MERELY C ONTAINS THE SIGNATURE ITA NO.2495/AHD /2016 ITO VS. M/S. SUNFLOWER PHARMACY ASST.YEAR 2011-12 - 16 - OF THE DOCTORS. THERE IS NO STAMP OR SEAL OR ANY IN DICATION TO SHOW THAT THE SAME IS AN OFFICIAL DOCUMENT OR TO ESTABLISH IT S GENUINENESS. EVEN MORE PERTINENT IS THE FACT THAT THE NAME OF THE DOC TORS IN THE MOU ARE MERELY GIVEN AS 'DR RAMAN PATEL' AND 'DR. RATILAL P ATEL' WHEREAS AS PER THE ASSESSMENT ORDER, THE NAMES OF THE DOCTORS ARE DR. RAMANBHAI S PATEL & DR RATILAL G PATEL. IT IS QUITE STRANGE THA T AN MOU WHICH IS AN IMPORTANT DOCUMENT, INVOLVING SUCH A CRUCIAL MATTER AND INVOLVING A HUGE AMOUNT OF PAYMENT WOULD BE PREPARED IN SUCH A CASUAL MANNER WITHOUT EVEN THE NAMES OF THE DOCTORS SPELT OUT PRO PERTY. IT IS EVIDENT THAT THE SAME HAS BEEN PREPARED IN A HURRY AS AN AF TERTHOUGHT IN RESPONSE TO THE QUERIES RAISED DURING ASSESSMENT/AP PELLATE PROCEEDINGS. MOREOVER, AS DISCUSSED ABOVE, MERELY SUBMITTING A L IST OF INJECTIONS PURCHASED DURING THE YEAR DOES NOT IN ANY WAY PROVE THAT THE SAME HAS BEEN PURCHASED ON THE ADVICE OF THE DOCTORS. THE AP PELLANT WAS ASKED TO SUBMIT CORRESPONDENCE MADE WITH THE DOCTORS IN RESP ECT OF THE SERVICES RENDERED BY THEM SO AS TO JUSTIFY THE PAYMENT OF CO MMISSION TO THEM. HOWEVER, THE APPELLANT HAS BEEN UNABLE TO PROVIDE A NY CORRESPONDENCE OR COMMUNICATION BETWEEN ITSELF AND THE DOCTORS IN RESPECT OF ANY KIND OF ADVICE RENDERED BY THEM. ONE OF THE PARTNERS OF THE APPELLANT FIRM WHO ALSO ATTENDED APPELLATE PROCEEDINGS ON ONE OF T HE DATES OF HEARING, PRODUCED A HAND WRITTEN NOTE BOOK WITH THE NAMES OF MEDICINES CLAIMING THAT THE SAME HAD BEEN DISCUSSED WITH THE DOCTORS OVER THE PHONE. THE SAME CANNOT BY ANY STRETCH OF IMAGINATIO N, BE ACCEPTED AS EVIDENCE OF SERVICES RENDERED. IT IS THUS SEEN THAT THE APPELLANT HAS FAILED TO GI VE ANY KIND OF EVIDENCE TO SHOW THAT THE TWO DOCTORS TO WHOM COMMISSION HAS BEEN PAID, HAVE RENDERED ANY SERVICES TO IT. THE GENUINENESS OF THE MOU ITSELF IS ALSO NOT ESTABLISHED. MOREOVER, CLAUSE NO.3 OF THE MOD T ALKS OF PROFESSIONAL FEES AND NOT COMMISSION, IN ANY CASE T HE SAID MOU DOES NOT PERTAIN TO THE YEAR UNDER CONSIDERATION. IN VIE W OF THESE FACTS, IT IS CLEAR THAT THE APPELLANT HAS NOT BEEN ABLE TO JUSTI FY THE PAYMENT OF RS.41,39,131/- TO DR. RAMANBHAI S PATEL (RS. 17,52, 130/-) AND TO DR RATILAL G PATEL.(RS.23,87,001/-)- THE DISALLOWANCE OF RS. 41,39,131/- U/S. 37(1) OF THE IT ACT IS THEREFORE CONFIRMED. GR OUNDS OF APPEAL NO. 2 TO 4 ARE DISMISSED. 14. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IM PUGNED ORDER. LD. AR SUBMITTED AN ORDER OF CO-ORDINATE BENCH IN I TA ITA NO.2495/AHD /2016 ITO VS. M/S. SUNFLOWER PHARMACY ASST.YEAR 2011-12 - 17 - NO.2546/AHD/2015 FOR A.Y.2011-12 IN QUANTUM PROCEED ING, WHEREIN HONBLE BENCH HELD AS FOLLOWS: 5. WE SHALL NOW TURN TO THE SUBSTANTIVE APPEAL OF THE ASSESSEE. FROM THE PERUSAL OF THE RECORD, WE FIND THAT THE AO HAS DISALLOWED COMMISSION PAID AGGREGATING TO RS.41,39,131/- TO DO CTORS. FOR THIS PURPOSE, THE ASSESSING OFFICER (AO) HAS RELIED UPON THE CBDT CIRCULAR NO.5/2012 DATED 01/08/2012 ISSUED BY BDT AND OBSERV ED THAT THE PAYMENT MADE TO THE DOCTORS CONTRAVENES SECTION 37( 1) OF THE ACT IN VIEW OF THE EXPLANATION APPENDED TO THIS SUB-SECTIO N. WE FIND THAT THE ISSUE IS NO LONGER RES INTEGRA AND HAS BEEN EXAMINE D BY THE COORDINATE BENCH OF TRIBUNAL IN SYNCOM FORMULATIONS (I) LTD. V S. DCIT IN ITA NOS.6429 & 6428/MUM/2012 ORDER DATED 23/12/2015. TH E RELEVANT OPERATIVE PARA OF THE ORDER OF THE COORDINATE BENCH IS REPRODUCED HEREUNDER:- '5. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT RECEIVING OF GIFTS BY DOCTORS WAS PROHIBITED BY MCI GUIDELINES, GIVING OF THE SAME BY MANUFACTURER IS NOT PROHIBITE D UNDER ANY LAW FOR THE TIME BEING IN FORCE. GIVING SMALL GIFTS BEARING COMPANY LOGO TO DOCTORS DOES NOT TANTAMOUNT TO GIVI NG GIFTS TO DOCTORS BUT IT IS REGARDED AS ADVERTISING EXPENSES. AS REGARDS SPONSORING DOCTORS FOR CONFERENCES AND EXTENDING HO SPITALITY, PHARMACEUTICALS COMPANIES HAVE BEEN SPONSORING PRAC TICING DOCTORS TO ATTEND PRESTIGIOUS CONFERENCES SO THAT T HEY GATHER CONTEMPORARY KNOWLEDGE ABOUT MANAGEMENT OF CERTAIN ILLNESS/DISEASE AND LEARN ABOUT NEWER THERAPIES. WE FOUND THAT THE DISALLOWANCE WAS MADE BY THE AO BY RELYING ON T HE CBDT CIRCULAR DATED 01.08.2012 ONWARDS. HOWEVER, THE CIR CULAR WAS NOT APPLICABLE BECAUSE IT WAS INTRODUCED W.E.F. 01. 08.2012. I.E. ASSESSMENT YEAR 2013-2014. WHEREAS, THE RELEVANT AS SESSMENT YEAR UNDER CONSIDERATION IS 2010-2011 AND 2011-2012 . ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THE DISALL OWANCE SO MADE BY THE AO IN BOTH THE ASSESSMENT YEARS UNDER CONSIDERATION. ' 6. IN PARITY WITH THE REASONING GIVEN BY THE COORDI NATE BENCH, WE FIND THAT THE DISALLOWANCE MADE BY THE AO IS NOT JU STIFIED. ACCORDINGLY, THE SUBSTANTIVE CLAIM OF THE ASSESSEE IS ALLOWED. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. ITA NO.2495/AHD /2016 ITO VS. M/S. SUNFLOWER PHARMACY ASST.YEAR 2011-12 - 18 - 15. SINCE ITAT AHMEDABAD, SMC BENCH HAS DELETED T HE DISALLOWANCE OF RS.41,39,131/- AGAINST WHICH THE PE NALTY OF RS.12,78,996/- WAS LEVIED. NOW THEY ARE REMAINS NO BASIS AT ALL LAVING THE PENALTY FOR CONCEALMENT, THEREFORE, WE CANCEL T HE PENALTY. 16. IN THE RESULT, APPEAL FILED BY THE DEPARTMENT I S DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 22/12/2017 SD/- SD/- VEJTHR FLAG VEJTHR FLAG VEJTHR FLAG VEJTHR FLAG &' $ ( $ ) ()* $ ) ( AMARJIT SINGH ) ( MAHAVIR PR ASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 22/12/2017 PRITI YADAV, SR. PS !'# $#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. , -. / / CONCERNED CIT 4. / () / THE CIT(A)-3, AHMEDABAD. 5. 012 **-. , -.# , '&$,$ / DR, ITAT, AHMEDABAD 6. 245 6 / GUARD FILE. % & / BY ORDER, 0 * //TRUE COPY// '/& () ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD