K R Medical Clinic Pharmacy, Ahmedabad V. ACIT, Circle-5(2), Ahmedabad

ITA 2790/AHD/2017

• Counselvise Citation: [2019] 113 COUNSELVISE.COM (IT) 6381 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 25-10-2019
• Assessment Year: 2010-2011
• Appeal Filed On: 11-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L P JAIN
• Keywords: Gift
• Section: 37(1); 37

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ITA NO. 2790/AHD/2017 ( / ASSESSMENT YEAR : 2010-11) M/S. K. R. MEDICAL CLINIC PHARMACY VEDANT HOSPITAL NR. SAMVED HOSPITAL NAVRANGPURA AHMEDABAD-380 009 / VS. THE ACIT CIRCLED-5(2) AHMEDABAD ./ ./ PAN/GIR NO. : AAHFK 9190 J ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI S.N. SOPARKAR, SR.ADVODATE WITH MS.URVASHI SHODHAN / RESPONDENT BY : SHRI L.P. JAIN, SR.DR / DATE OF HEARING 25/10/2019 !'# / DATE OF PRONOUNCEMENT 20/11/2019 / O R D E R PER MAHAVIR PRASAD, JUDICIAL MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), AHMEDABAD-5 [CIT(A) IN SHORT] VIDE APPEA L NO.CIT(A)- 5/ITO, WD.5(2)(1)/387/2016-17 DATED 20/10/2017 ARIS ING IN THE ASSESSMENT ORDER PASSED UNDER S.143(3) R.W.S.147 OF THE INCOME TAX ACT, 1961(HEREINAFTER REFERRED TO AS 'THE ACT') DATED 02 /11/2016 RELEVANT TO ASSESSMENT YEAR (AY) 2010-11. ITA NO.2790/AHD/2017 M/S.K R MEDICAL CLINIC PHARMACY VS. ACIT ASST. YEAR 2010-11 - 2 - 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. LD. CIT(A) ERRED IN LAW AND ON FACTS CONFIRMING RE -OPENING OF THE SCRUTINY ASSESSMENT BY AO IN ABSENCE OF ESCAPEM ENT OF INCOME CHARGEABLE TO TAX. LD. CIT(A) OUGHT TO HAVE QUASHED ORDER PASSED BY AO HOLDING IT AS ILLEGAL, UNLAWFUL & VOID AB INITIO. 2. LD. CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING ASSESSMENT FRAMED BY AO U/S.143(3) R W S 147 ON ACCOUNT OF CH ANGE OF OPINION. LD. CIT(A) OUGHT TO HAVE QUASHED REASSESS MENT PROCEEDINGS IMPERMISSIBLE UNDER LAW. 3. LD. CIT ERRED IN LAW AND ON FACTS CONFIRMING ADDITI ON MADE BY AO OF RS.35,78,328/- COMMISSION PAID TO HOSPITALS V IS--VIS PROVISIONS OF MEDICAL COUNCIL (PROFESSIONAL CONDUCT , ETIQUETTE AND ETHICS) REGULATION 2002. 4. LD. CIT ERRED IN LAW AND ON FACTS CONFIRMING ACTION OF AO FOR COMMISSION PAID TO BE IN THE NATURE OF MONETARY BEN EFITS AS PER PROVISIONS OF MEDICAL COUNCIL REGULATION IGNORING C OMMERCIAL NATURE OF THE PAYMENT UNDER THE TERMS OF AGREEMENT WITH THE HOSPITALS. 5. LD.CIT(A) ERRED IN LAW AND ON FACTS NOT CONSIDERING THE SUBMISSIONS THAT THE APPELLANT (PRAYER) AS WELL THE HOSPITALS (RECIPIENT) BOTH WERE PAYING TAXES AT MAXIMUM CHARG EABLE RATE. 6. LD. CIT ERRED IN LAW AND ON FACTS IN BRUSHING ASIDE DECISION OF MUMBAI ITAT HOLDING CBDT CIRCULAR APPLICABLE FROM A Y 2013/14 NOT TO THE YEAR UNDER CONSIDERATION WITHOUT ANY COGENT REASONING. JUDICIAL PROPRIETY REQUIRES LD.CIT TO F OLLOW DECISIONS OF HIGHER AUTHORITIES. 7. INTEREST LEVIED U/S.234B & 234C OF THE ACT IS NOT J USTIFIED. 8. INITIATION OF PENALTY U/S.271(1)(C) OF THE ACT IS N OT JUSTIFIED. ITA NO.2790/AHD/2017 M/S.K R MEDICAL CLINIC PHARMACY VS. ACIT ASST. YEAR 2010-11 - 3 - 2. GROUND NOS.1 TO 6 ARE INTER-CONNECTED. BR IEFLY STATED, FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MED ICINES. THE CASE HAD BEEN REOPENED BECAUSE ASSESSEE HAD DEBITED COMMISS ION EXPENSES OF RS.36,67,506/- OUT OF WHICH AN AMOUNT OF RS.9,08,15 0/- WAS PAID/CREDITED TO M/S.INFECTIOUS DISEASE CLINIC AND RS.26,70,178/- WAS PAID/CREDITED TO M/S.HEMANTO ONCOLOGY CLINIC PVT.LT D. WHICH IS RUN BY UNIT OF DOCTORS. AS PER LD.ASSESSING OFFICER, THIS WAS IN VIOLATION OF THE PROHIBITION IMPOSED BY INDIAN MEDICAL COUNCIL ON ME DICAL PRACTITIONER AND THEIR ASSOCIATION FROM TAKING ANY GIFT, TRAVEL FACILITY, HOSPITALITY, CASH OR MONETARY GRANT ETC. AND AS PER LD.AO, ASSESSEE- FIRM HAD VIOLATED PROVISIONS OF IMC REGULATION 2002 AND CBDT CIRCULAR NO.5/2012 DATED 01/08/2012 APPLICABLE IN THE CASE OF ASSESSEE. HEN CE, LD. AO DISALLOWED THE EXPENSES OF RS.35,78,328/-. 3. THEREAFTER, ASSESSEE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LD.CIT(A) WHO REVISITED THE ISSUE BUT CONFIRMED THE ACTION OF THE LD.AO BY HOLDING THAT PROVISION OF SECTION 37 OF THE ACT ARE ALSO NOT APPLICABLE IN THIS CASE, AS THESE EXPENSES ARE INCURRED IN VIO LATION OF THE PROVISIONS OF INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ET IQUETTE AND ETHICS) REGULATIONS-2002. 4. NOW THE ASSESSEE HAS COME IN APPEAL BEFORE US. 5. WE HAVE GONE THROUGH THE RELEVANT RECORD AND ORD ERS OF THE AUTHORITIES BELOW. NOW QUESTION BEFORE US IS WHETH ER ANY GIFT BEARING ITA NO.2790/AHD/2017 M/S.K R MEDICAL CLINIC PHARMACY VS. ACIT ASST. YEAR 2010-11 - 4 - COMPANY LOGO GIVEN TO DOCTOR FOR ADVERTISING IS EL IGIBLE U/S.37(1) OF THE ACT OR NOT. 6. LD.AR RELIED UPON AN ORDER OF CO-ORDINATE BENCH PASSED IN ITA NO.25495/AHD/2016 WHEREIN SIMILAR FACTS AND CIRCUMS TANCES, THE MATTER WAS DECIDED IN FAVOUR OF ASSESSEE WITH THE FOLLOWIN G OBSERVATION: 2.13 WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMPUGNED ORDER. LD. AR SUBMITTED AN ORDER OF CO-ORDINATE BENCH IN I TA N.2546/AHD/2015 FOR A.Y.2011-12 IN QUANTUM PROCEEDING, WHEREIN HON' BLE 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 DISA LLOWED COMMISSION PAID AGGREGATING TO RS.41,39,131/- TO DOCTORS. FOR THIS PURPOSE, THE ASSESSING OFFICER (AO) HAS RELIED UPON THE CBDT CIRCULAR NO.5 /2012 DATED 01/08/2012 ISSUED BY BDT AND OBSERVED THAT THE PAYMENT MADE TO THE DOCTORS CONTRAVENES SECTION 37(1) OF THE ACT IN VIEW OF THE EXPLANATION APPENDED TO THIS SUB- SECTION. WE FIND THAT THE ISSUE IS NO LONGER RES IN TEGRA AND HAS BEEN EXAMINED BY THE COORDINATE BENCH OF TRIBUNAL IN SYNCOM FORMU LATIONS (I) LTD. VS. DCIT IN ITAFNOS.6429 & 6428/MUM/2012 ORDER DATED 23/12/2 015. THE 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 PROHIBITED UNDER ANY LAW FOR THE TIME BEING IN FORCE. GIVING SMALL GIFTS BEARING COMPANY LOGO TO DOCTORS DOES NOT TANTAMOUNT TO GIVING GIFTS TO DOCTORS BUT IT IS REGARDED AS ADVERTISING EXPENSES. AS REGA RDS SPONSORING DOCTORS FOR CONFERENCES AND EXTENDING HOSPITALITY, PHARMACEUTIC ALS COMPANIES HAVE BEEN SPONSORING PRACTICING DOCTORS TO ATTEND PRESTIGIOUS CONFERENCES SO THAT THEY GATHER CONTEMPORARY KNOWLEDGE ABOUT MANAGEMENT OF C ERTAIN ILLNESS/DISEASE AND LEARN ABOUT NEWER THERAPIES. WE FOUND THAT THE DISALLOWANCE WAS MADE BY THE AO BY RELYING ON THE CBDT CIRCULAR DATED 01.08. 2012 ONWARDS. HOWEVER, THE CIRCULAR WAS NOT APPLICABLE BECAUSE IT WAS INTR ODUCED W.E.F. 01.08.2012. I.E. ASSESSMENT YEAR 2013-2014. ITA NO.2790/AHD/2017 M/S.K R MEDICAL CLINIC PHARMACY VS. ACIT ASST. YEAR 2010-11 - 5 - WHEREAS, THE RELEVANT ASSESSMENT YEAR UNDER CONSIDE RATION IS 2010-2011 AND 2011-2012. ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THE DISALLOWANCE SO MADE BY THE AO IN BOTH THE ASSESSMENT YEARS UNDER CONSID ERATION. ' 6. IN PARITY WITH THE REASONING GIVEN BY THE COORDI NATE BENCH, WE FIND THAT THE DISALLOWANCES MADE BY THE AO ARE NOT JUSTIFIED. ACC ORDINGLY, THE SUBSTANTIVE CLAIM OF THE ASSESSEE IS ALLOWED. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED.' 2.14 SINCE ITAT AHMEDABAD, 'SMC' BENCH HAS DELETED T HE DISALLOWANCE OF RS.41,39,131/- AGAINST WHICH THE PE NALTY OF TE.12,78,996/- WAS LEVIED. NOW THERE IS NO BASIS F OR LEVYING THE PENALTY IS REMAINED THEREFORE WE DIRECT LD.AO TO DELETE THE PE NALTY. 2.I5 IN THE RESULT, APPEAL FILED BY THE DEPARTMENT IS DISMISSED. 7. THE LD.AR ALSO RELIED UPON AN ORDER OF CO-ORDINA TE BENCH, WHEN HONBLE ACCOUNTANT MEMBER WROTE THAT ORDER AND IN S IMILAR FACTS AND CIRCUMSTANCES APPEAL OF THE REVENUE WAS DISMISSED W ITH FOLLOWING OBSERVATION:- '6.2 1 HAVE CONSIDERED THE ASSESSMENT ORDER AND THE SUBMISSIONS MADE BY THE APPELLANT. A PERUSAL OF THE ASSESSMENT ORDER SH OWS THAT THE AO HAD DISALLOWED THE AMOUNT OF RS.47,20,260/- DEBITED AS SALES PROMOTION EXPENSES IN VIEW OF CBDT CIRCULAR NO. 5 OF 2012. THIS CIRCUL AR WAS ISSUED BY THE CBDT TO CURB THE PRACTICE OF PHARMA COMPANIES OFFE RING GIFTS FOR PROMOTION OF THEIR PRODUCTS. THE APPELLANT HAS SUBMITTED DURI NG APPELLATE PROCEEDINGS THAT IT WAS NOT A PHARMACEUTICAL COMPANY BUT WAS EN GAGED IN THE BUSINESS OF SUPPLYING MEDICAL EQUIPMENTS IMPORTED FROM OTHER CO UNTRIES. HENCE, THE SAID CIRCULAR WAS NOT APPLICABLE TO IT. AFTER A PERUSAL OF THE SUBMISSIONS MADE BY THE APPELLANT, I AM OF THE OPINION THAT DISALLOWANC E OF SALES PROMOTION EXPENSES BY APPLYING PROVISIONS OF CIRCULAR NO.5/20 12 CANNOT BE MADE SINCE ITA NO.2790/AHD/2017 M/S.K R MEDICAL CLINIC PHARMACY VS. ACIT ASST. YEAR 2010-11 - 6 - THE APPELLANT IS. NOT A PHARMACEUTICAL COMPANY. THE ITEMS WHICH WERE GIVEN BY THE APPELLANT COMPANY WERE NOT FREE ITEMS BUT WE RE PART AND PARCEL OF THE MACHINERIES AND EQUIPMENTS THAT WERE SUPPLIED BY IT TO VARIOUS CUSTOMERS. FURTHER, IT IS ALSO SEEN THAT MOST OF THE EXPENSES INCURRED IS ON ACCOUNT OF SALES MADE TO GOVERNMENT HOSPITALS. MOST OF THESE E XPENSES PERTAIN TO THE COST OF ACCESSORIES AND PERIPHERALS SUPPLIED TO CUSTOMER S AND NEEDED FOR THE OPERATION OF THE MACHINES. MOREOVER, AN SIMILAR ADD ITION ON IDENTICAL FACTS IN THE APPELLANT'S OWN CASE FOR ASST. YEAR 2010-11 WAS DECIDED IN FAVOUR OF THE APPELLANT BY THE LEARNED CIT (A)-VIII, AHMEDABAD VI DE HIS ORDER NO. CIT (A)- VIII/DCLT/CIR-4/131/12-13 DATED 11.01.2013. RESPEC TFULLY FOLLOWING THE DECISION OF MY PREDECESSOR AND IN VIEW OF THE FACTS OF THE CASE, THE ADDITION OF RS.47,20,260/- IS DELETED. GROUND OF APPEAL NO.3 I S ACCORDINGLY ALLOWED. 8. SINCE IN SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE ITAT HAS GRANTED RELIEF THUS, IN PARITY WITH THE ABOVE SAID ORDER, WE ALLOW THIS GROUND OF APPEAL OF ASSESSEE AND DIRECT ASSESSING O FFICER TO ALLOW THE CLAIM OF EXPENSES TO THE TUNE OF RS.35,78,328/-. 9. SO FAR AS GROUND NO.7 WITH REGARD TO LEVY OF INT EREST U/S.234B & 234C OF THE ACT IS CONCERNED, SAME ARE CONSEQUENTI AL IN NATURE AND SO WE NEED NOT TO DECIDE THE SAME AT THIS STAGE. 10. SO FAR AS GROUND NO.8 WITH REGARD TO INITIAT ION OF PENALTY U/S.271(1)(C) OF THE ACT IS CONCERNED, SAME IS AL SO CONSEQUENTIAL IN NATURE AND WE NEED NOT TO DECIDE THE SAME AT THIS S TAGE. ITA NO.2790/AHD/2017 M/S.K R MEDICAL CLINIC PHARMACY VS. ACIT ASST. YEAR 2010-11 - 7 - 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 20/11/2019 SD/- SD/- ( WASEEM AHMED ) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER J UDICIAL MEMBER AHMEDABAD; DATED 20/11/2019 &.., .(.. / T.C. NAIR, SR. PS !'#' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. )*+ , / CONCERNED CIT 4. , ( ) / THE CIT(A), AHMEDABAD-5 5. /01 ((*+ , *+# , ) / DR, ITAT, AHMEDABAD 6. 145 6 / GUARD FILE. / BY ORDER, / ( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION 30/10/2019 ( DICTATION-PAD 7- PAGES ATTACHED AT THE END OF THIS FILE ) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 01/11/2019/19.11.19 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.20.11.2019 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 21.11.2019 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER