Asst. Commissioner of Income tax Cir. 2, Belgaum V. Dr. Sanddp Madhwapathy (HUF), Belgaum

ITA 323/PAN/2013

• Counselvise Citation: 32324114 RSA 2013
• Duration Of Justice: 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 10-03-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 25-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B BARTHAKUR
• Keywords: Gift; Fair market value
• Section: 37(1)

Judgement Text

- 1 - ITA 323/PNJ/2013 IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI P. K. BANSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER ITA NO. 323 /PNJ/20 13 (ASST. YEAR 2010 - 11 ) THE ASSTT. COMMISSIONER OF INCOME TAX , APPELLANT CIRCLE 2, BELGAUM. VS DR. SANDEEP MADHWAPATHY (HUF), RESPONDENT PROP. K. K. MEDICALS, ASHOK NAGAR , BELGAUM. PAN : AAEHD9797B APPELLANT BY : SHRI B. BARTHAKUR (DR) RESPONDE NT BY : SHRI PRAMOD VAIDYA (CA ) DATE OF HEARING: 10/03/2014 DATE OF ORDER : 14 /03 /201 4 O R D E R PER D. T. GARASIA JM THIS APPEAL IS FILED BY THE DEPARTMENT AGAINST THE ORDER PASSED BY CIT (APPEALS) - BELGAUM DATED 02.08.2013. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE AS UNDER: - (1) THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THE FACTS OF THE CASE AND ALLOWING THE COMMISSION PAYMENT TO THE HOSPITAL RUN BY A PHYSICIAN, IGNORING THE NATURE OF PAYMENT AS PROHIBITED BY THE PROVISIONS OF THE INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULATIONS, 2002 AND CODE OF ETHICS DRAFTED BY PHARMACEUTICAL COUNCIL OF INDIA. (2) THE LEARNED CIT(A) ERR ED IN HOLDING THAT THE CODE OF ETHICS REGULATIONS, 2002 OF MEDICAL COUNCIL OF INDIA PROHIBITS A 'PHYSICIAN' AND NOT TO THE HUF OR COMPANY WHEREAS, THE KEY PERSON INVOLVED IN BOTH THE CONCERNS IS THE SAME PERSON WHO IS A PHYSICIAN. - 2 - ITA 323/PNJ/2013 (3) THE LEARNED CIT(A) ER RED IN HOLDING THAT THE KEY PERSON VIZ KARTA OF HUF RUNNING THE DRUG STORE I.E. THE ASSESSEE AND THE RECEIVER OF THE COMMISSION VIZ BELGAUM CANCER HOSPITAL PVT LTD WHERE THE KARTA OF HUF IS CHAIRMAN DID NOT DIRECTLY OR INDIRECTLY BENEFIT FROM THE COMMISSIO N PAYMENT. THIS IS FACTUALLY INCORRECT AS THE PAYMENT HAS BEEN GIVEN BY WAY OF A COLOURABLE ARRANGEMENT TO AVOID TAX LIABILITY BY ENHANCING EXPENSES 'OF HUF AND TRANSFERRING PROFIT TO THE COMPANY WHO IS INCURRING LOSSES, EVEN AFTER PAYMENT OF RENT AND HENCE , RATIO OF THE HON'BLE SUPREME COURT DECISION IN THE CASE OF MCDOWELL & CO V. CTO 154 ITR 148 (SC) IS APPLICABLE TO THE ASSESSEE'S CASE. (4) THE LEARNED CIT( A) ERRED IN CONCLUDING THAT THE CODE OF ETHICS REGULATION, 2002 DOES NOT HAVE THE FORCE OF LAW AND ITS VIOLATION IS NOT AN OFFENCE UNDER ANY ACT, IGNORING THE FACT THAT THE INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULATIONS, 20 02, HAVE BEEN CREATED BY THE MEDICAL COUNCIL OF INDIA UNDER THE POWERS CONFERRED TO IT UNDER SECTION 20A READ WITH SECTION 33(M) OF THE INDIAN MEDICAL COUNCIL ACT, 1956 (102 OF 1956). (5) THE LEARNED CIT(A) ERRED IN NOT CONSIDERING THE FACT THAT THE MEDICAL COUNCIL OF INDIA IS A REGULATORY BODY CONSTITUTED UNDER THE MEDICAL COUNCIL ACT, 1956 AND ANY VIOLATION OF THE SAID REGULATIONS BY THE MEDICAL PRACTITIONER AND THEIR PROFESSIONAL ASS OCIATIONS WILL ATTRACT DISCIPLINARY PROCEEDINGS. PARA - 7.5 OF THE INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE .AND ETHICS) .REGULATIONS, 2002 PROVIDES FOR CONVICTION BY A COURT OF LAW FOR OFFENCES INVOLVING MORAL TURPITUDE / CRIMINAL ACTS. (6) THE LEARNED CIT(A) FAILED IN IGNORING THE CONCLUSIONS DRAWN BY THE ASSESSING OFFICER THAT EVEN THE PHARMACIST IS PROHIBITED BY GIVING COMMISSION UNDER THE CODE OF ETHICS DRAFTED BY PHARMACEUTICAL COUNCIL OF INDIA AND AS SUCH, THE DECISION IS PERVERSE. (7) THE LEARNED CIT(A) ERRED IN NOT CONSIDERING THE DECISION OF JURISDICTIONAL HIGH COURT OF KARNATAKA, RELIED UPON BY THE ASSESSING OFFICER IN THE CASE OF CIT V. BANGALORE ARRACK CO 201 ITR 25 ITR (KARN) WHEREIN, IT HAS BEEN HELD THAT ANY EXPENDITURE INCURRED WHICH IS AGAINST PUBLIC POLICY IS NOT AN ALLOWABLE EXPENDITURE. (8) THE LEARNED CIT(A) FAILED TO CONSIDER THAT THE MEDICAL COUNCIL OF INDIA IS A REGULATORY BODY CONSTITUTED UNDER THE MEDICAL COUNCIL ACT, 1956 AND ANY VIOLATION OF THE REGULATIONS BY THE ME DICAL PRACTITIONER AND THEIR PROFESSIONAL ASSOCIATIONS WILL ATTRACT PROVISIONS OF EXPLANATION TO SECTION 37(1) OF THE I.T. ACT, 1961. - 3 - ITA 323/PNJ/2013 (9) THE LEARNED CIT(A) ERRED IN NOT CONSIDERING CIRCULAR NO.05/2012 DATED 1.10.2012 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES, NEW DELHI CLARIFYING THAT THE CLAIM OF EXPENSES INCURRED IN VIOLATION OF PROVISIONS OF INDIAN MEDICAL COUNCIL REGULATIONS, 2002 ARE APPLICABLE TO MEDICAL PRACTITIONERS AND THEIR PROFESSIONAL ASSOCIATIONS VIZ PHARMACEUTICAL AND ALLIED SECTOR INDUSTRY WHICH INCLUDES DRUG STORES, IN PROVIDING FREEBIES TO MEDICAL PRACTITIONERS IS INADMISSIBLE UNDER SECTION 37(1) OF THE I.T. ACT, 1961. (10) THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF COMMISSION ONLY TO THE EXTENT OF 20% MADE U/S 40A(2)(A) WHEN THE AO HAS CLEARLY BROUGHT OUT ON RECORD THAT THE COMMISSION PAYMENT MADE BY THE ASSESSEE HUF TO THE HOSPITAL, WHERE THE ASSESSEE IN HIS INDIVIDUAL CAPACITY, IS A CHAIRMAN, IS NOT COMMENSURATE WITH ANY SERVICES OR FACILITIES PROVIDED BY THE HOSPITAL AS THE ASSESSEE HAS ALREADY PAID RENT OF RS. 1,20,000/ - TO THE HOSPITAL FOR USING PART OF PREMISES FOR RUNNING A MEDICAL SHOP. 2. THE SHORT FACTS OF THE CASE ARE AS UNDER: - THE ASSESSEE (HUF) HAS FILED HIS RETURN OF INCOME FOR A.Y. 2010 - 11 ON 15/10/2010 DECLARING TAXABLE INCOME OF RS. 1168650/ - . THE ASSESSEE IS RUNNING THE BUSINESS OF PHARMACY UNDER THE NAME AND STYLE M/S K. K. MEDICALS WHICH IS PROPRIETARY CONCERN OF DR. SAN DEEP MADHWAPATHY IN HUF CAPACITY. DR. SANDEEP MADHWAPATHY IS CHAIRMAN AND LEADING DOCTOR OF M/S BELGAUM CANCER HOSPITAL PVT. LTD (HEREINAFTER REFER TO AS BCHPL) TO WHICH THE ASSESSEE M/S K. K MEDICAL HAS PAID A COMMISSION OF RS. 2299830/ - WHICH WAS DISALLO WED BY AO. THE AO HAS DISALLOWED THE COMMISSION PAID BY THE ASSESSEE ON THE GROUND THAT ASSESSEE HAS PAID THIS COMMISSION IN VIOLATION OF CODE OF ETHICS REGULATION 2002 DT. 11/03/2002 OF MEDICAL COUNCIL OF INDIA. AS PER THE RULES A PHYSICIAN SHALL NOT GI VE COMMISSION IN CONSIDERATION OF OR PROCURING ANY PATIENT FOR MEDICAL TREATMENT. AS PER SECTION 37(1) ANY EXPENDITURE INCURRED BY THE ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN SUCH EXPENDITURE. 3. MATTER CARRIED TO CIT (A) AND CIT (A) HAS ALLOWED THE CLAIM BY OBSERVING AS UNDER: - 7.1 THE ASSESSING OFFICER HAS CONCLUDED THAT THE PAYMENT OF COMMIS SION IN ITS ENTIRETY IS HELD TO BE UNREASONABLE HAVING REGARD TO THE FAIR - 4 - ITA 323/PNJ/2013 MARKET VALUE OF GOODS, SERVICES OR THE FACILITIES FOR WHICH THE PAYMENTS ARE MADE (AS THERE IS NO NEUS REGARDING FAIR MARKET VALUE OF GOODS, SERVICES, SINCE THE RENT IS PAID ALREADY FOR THE FACILITY) AND ALSO THIS PAYMENT IS NOT FOR THE LEGITIMATE NEEDS OF ASSESSEE HUF'S BUSINESS. RESULTANTLY THE PAYMENT OF COMMISSION OF RS. 22,99,830/ - HAS BEEN DISALLOWED AND ADDED BACK TO THE RETURNED INCOME OF THE ASSESSEE BY THIS A.O ON THIS GROU ND ALSO. IN THIS CONTEXT, IT IS NOTEWORTHY TO MENTION HERE THAT BCHPL IS THE ONLY CANCER HOSPITAL OF ITS KIND IN NORTHERN KARNATAKA PROVIDING SPECIALIZED TREATMENT TO CANCER PATIENTS AND THE BUSINESS OF THE APPELLANT DEPENDS SOLELY ON IT. IF THERE WERE NO BCHPL, THE APPELLANT WOULD HAVE PRACTICALLY NO BUSINESS IN BELGAUM AND THEREFORE, ITS ENTIRE BUSINESS IS DEPENDENT ON EXISTENCE AND RUNNING OF BCHPL. IT IS A FACT THAT AFTER PAYING COMMISSION TO BCHPL, THE APPELLANT HAS RETURNED CONSIDERABLE INCOME AND HAS ALSO PAID TAXES IN THE HIGHEST SLAB AS APPLICABLE AND THE AMOUNT PAID BY THE APPELLANT HAS BEEN DULY REFLECTED IN THE BOOKS OF ACCOUNT OF BCHPL AND IT HAS BEEN TAKEN INTO CONSIDERATION FOR ARRIV ING AT ITS TAXABLE INCOME WHICH IS MORE THAN THE COMMISSION RECEIVED. IN THIS VIEW OF THE MATTER, IN MY VIEWS TO SAY THAT THE ENTIRE AMOUNT OF COMMISSION OF RS.22,99,830/ - PAID BY THE APPELLANT IS EXCESSIVE OR UNREASONABLE WITHIN THE MEANING OF SECTION 40A (2)(A) IS WITHOUT BASIS AND UNCALLED FOR . THEREFORE, HAVING REGARD TO THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE INCLUDING THE FACT THAT NEITHER THE A.O NOR THE APPELLANT HAS CITED ANY PARALLEL CASE TO SUBSTANTIATE HIS CASE, THAT THE AMOUNT PAID AS COMMISSION IS SUBSTANTIAL AND THAT THE BCHPL HAS PROVIDED CAPTIVE AND READY BUSINESS TO THE APPELLANT, A DISALLOWANCE OF 20% OF THE AMOUNT OF TOTAL COMMISSION PAID BY THE APPELLANT WHICH COMES TO RS.4,59,966/ - SHOULD MEET THE ENDS OF JUSTICE AND IT SHAL L ALSO BE IN CONFORMITY WITH THE DISALLOWANCE MADE IN THE APPELLANT'S OWN CASE IN THE PREVIOUS YEAR. THUS, WITH THE CONFIRMATION OF AN AMOUNT OF RS. 4,59,966/ - , THE APPELLANT GETS A RELIEF OF RS.18,39,864/ - . - 5 - ITA 323/PNJ/2013 8. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. 4. THE CIT (A) HAS ALSO HELD THAT THERE IS NO VIOLATION OF CODE OF ETHICS BY MEDICAL COUNCIL OF INDIA BY ASSESSEE BY OBSERVING AS UNDER: - 6.2 THIS ARGUMENT OF THE AO IS HAVING TWO BROAD ASPECTS TO IT AND THERE FORE, IT IS DEALT WITH ACCORDINGLY: (1) VIOLATION OF CODE OF ETHICS REGULATIONS OF MCI: PART 6.4 UNDER THE HEAD 'UNETHICAL ACTS', OF THE CHAPTER 6 OF THE CODE OF ETHICS REGULATIONS, 2002 DATED 11 - 03 - 2002 OF MEDICAL COUNCIL OF INDIA AS REPRODUCED ABOVE HAS BROADLY TWO PARTS AND EACH PART HAS TWO LIMBS TO IT. FIRST PART: A PHYSICIAN I) SHALL NOT GIVE, SOLICIT, OR RECEIVE NOR SHALL HE OFFER TO GIVE SOLICIT OR RECEIVE, ANY GIFT, GRATUITY, COMMISSION OR BONUS II) IN CONSIDERATION OF OR RETURN FOR THE REFERRING, RECOMMENDING OR PROCURING OF ANY PATIENT FOR MEDICAL, SURGICAL OR OTHER TREATMENT. SECOND PART: A PHYSICIAN I ) SHALL NOT DIRECTLY OR INDIRECTLY, PARTICIPATE IN OR BE A PARTY TO ACT OF DIVISION, TRANSFERENCE, ASSIGNMENT, SUBORDINATION, REBATING, SPLITTING OR REFUNDING OF ANY FEE II) FOR MEDICAL, SURGICAL OR OTHER TREATMENT. WHEREAS THE FIRST LIMB OF BOTH THE PARTS PROVIDES THAT PHYSICIAN SHALL NOT GIVE OR TAKE ANY FAVOUR OR GRATIFICATION. THE SECOND LIMB OF BOTH THE PARTS SPECIFY THE PURPOSE FOR WHICH A PHYSICIAN MAY NOT GIVE OR TAKE SUC H FAVOUR OR GRATIFICATION. FOR AN ACT TO COME WITHIN THE PURVIEW OF ABOVEMENTIONED PROHIBITORY CLAUSE OF THE CODE, BOTH THE LIMBS OF EITHER OR BOTH THE PARTS SHOULD BE INDEPENDENTLY SATISFIED. A PLAIN READING OF THE ABOVE STATED PROVISIONS OF CODE OF ETHIC S REGULATION, 2002 OF MEDICAL COUNCIL OF INDIA WOULD REVEAL THAT IT INTER ALIA PROHIBITS A PHYSICIAN FROM GIVING OR RECEIVING ANY COMMISSION IN CONSIDERATION OF OR RETURN FOR THE REFERRING, RECOMMENDING OR PROCURING OF ANY PATIENT FOR MEDICAL, SURGICAL O R - 6 - ITA 323/PNJ/2013 OTHER TREATMENT. PHYSICIAN AS DEFINED IN THE SAID CODE MEANS DOCTORS WITH QUALIFICATION OF MBBS OR MBBS WITH POST GRADUATE DEGREE/ DIPLOMA OR WITH EQUIVALENT QUALIFICATION IN ANY MEDICAL DISCIPLINE. IN THE INSTANT CASE, FIRSTLY, NEITHER THE GIVER OF COMMISSION I.E., M/S K. K. MEDICALS DEALING IN TRADING OF PHARMACEUTICAL GOODS IS A PHYSICIAN NOR M/S BCHPL IS A PHYSICIAN, DR. SANDEEP MADHWAPATHY IN HIS HUF CAPACITY ACTS AS A TRADER OF PHARMACEUTICAL GOODS AND NOT AS A PHYSICIAN. BCHPL IS A COMPANY, A S EPARATE AND INDEPENDENT LEGAL ENTITY RUNNING HOSPITAL BUSINESS. IT IS NOT THE CASE OF THE AO THAT COMMISSION PAID BY THE APPELLANT HAS BEEN RECEIVED BY DR. SANDEEP MADHWAPATHY IN HIS INDIVIDUAL CAPACITY AS A PHYSICIAN EITHER DIRECTLY OR INDIRECTLY. IT IS A LSO NOT THE CASE OF THE AO THAT MR. SANDEEP MADHWAPATHY IN HIS INDIVIDUAL CAPACITY HAS INDIRECTLY BENEFITTED FROM THE COMMISSION RECEIVED BY BCHPL. THEREFORE IT IS CLEAR THAT IN THE PRESENT CASE NEITHER THE GIVER NOR THE RECIPIENT OF COMMISSION IS A PHYSIC IAN. SECONDLY, THE COMMISSION HAS BEEN RECEIVED BY THE HOSPITAL PURSUANT TO AN AGREEMENT FOR GIVING CAPTIVE BUSINESS TO THE APPELLANT AND NOT IN CONSIDERATION OF OR RETURN FOR THE REFERRING, RECOMMENDING OR PROCURING OF ANY PATIENT FOR MEDICAL, SURGICAL OR OTHER TREATMENT. THE APPELLANT PHARMACY BEING ONLY A TRADER IN PHARMACEUTICAL GOODS, IT DOES NOT DEAL IN HANDLING PATIENTS FOR MEDICAL, SURGICAL OR OTHER TREATMENT. THE INCOME OF THE APPELLANT IS ONLY FROM TRADING IN PHARMACEUTICAL GOODS AND NOT AS A PHYS ICIAN. THEREFORE, EVEN ASSUMING THAT 'BCHPL' IS A 'PHYSICIAN', IT CANNOT REFER THE PATIENTS TO THE APPELLANT FOR THE SPECIFIED PURPOSES OF MEDICAL, SURGICAL OR OTHER TREATMENT. IT IS THUS CLEAR THAT NEITHER THE RECIPIENT NOR THE GIVER OF COMMISSION IN THE INSTANT CASE IS GOVERNED BY SUCH REGULATIONS OF MCI NOR THE PURPOSE FOR WHICH THE REGULATIONS HAVE BEEN PROMULGATED HAVE BEEN VIOLATED BY ANY PARTY EVEN THOUGH THEY ARE NOT GOVE RNED BY SUCH REGULATIONS. CODE OF ETHICS MADE BY THE MEDICAL COUNCIL OF INDIA APPLIES ONLY TO THE MEMBER PHYSICIANS AND NOT TO A PHARMACY OR TO A COMPANY RUNNING HOSPITAL BUSINESS. FURTHER, THE CODE OF CONDUCT OF MCI IS APPLICABLE ONLY TO ITS MEMBERS AND I N THE PRESENT CASE, NEITHER THE BCHPL NOR THE APPELLANT M/S K.K.MEDICALS IS A MEMBER OF MCI. THEREFORE, THE QUESTION OF THEM BEING GOVERNED BY ITS CODE DOES NOT APPLY. - 7 - ITA 323/PNJ/2013 THEREFORE, IT IS SEEN THAT THERE IS NO VIOLATION OF CODE OF ETHICS MADE BY THE MEDICAL C OUNCIL OF INDIA BY THE APPELLANT. 2) DISALLOWANCE U/S 37(1) OF THE I.T.ACT: WITHOUT PREJUDICE TO THE ABOVE MENTIONED FIRST ASPECT, THE OTHER ASPECT TO IT PERTAINS TO THE DETERMINATION OF THE FACT AS TO WHETHER THE EXPENDITURE OF COMMISSION INCURRED BY THE ASSESSEE IS AN OFFENCE OR IT IS AN EXPENDITURE INCURRED FOR THE PURPOSE WHICH IS PROHIBITED BY LAW SO AS TO ATTRACT DISALLOWANCE UNDER EXPLANATION TO SECTION 37(1). IN THE INSTANT CASE MEDICAL COUNCIL OF INDIA (MCI ) HAS MADE CODE OF ETHICS REGULATION 2002 FOR PRESCRIBING STANDARDS OF PROFESSIONAL CONDUCT AND ETIQUETTE. THE CODE OF ETHICS REGULATION 2002 MADE BY THE MEDICAL COUNCIL OF INDIA DOES NOT HAVE THE FORCE OF LAW AND ITS VIOLATION IS NOT AN OFFENCE UNDER ANY ACT. IT ONLY REGULATES THE CONDUCT OF ITS MEMBERS WHO UPON BECOMING ITS MEMBERS SUBMIT THEMSELVES TO THE GOVERNANCE BY THESE REGULATIONS. ITS VIOLATION IS NEITHER AN OFFENCE NOT ITS VIOLATION CAN BE ENFORCED IN THE SAME MANNER AS VIOLATION OF ANY OTHER LAW ENACTED BY THE LEGISLATURE. THEREFORE, IN THIS VIEW OF THE MATTER, INVOCATION OF THE PROVISIONS OF EXPLANATION TO SEC. 37(1) OF THE I.T. ACT BY THE AO IN THIS CASE IN MY VIEWS IS UNDESIRABLE. 5. LD. DR SUBMITTED THAT ASSESSEE HUF RUNNING MEDICAL SHOP HAVE MADE PAYMENT TO M/S BELGAUM CANCER HOSPITAL AS PER THE AGREEMENT ON COMMISSION OF SALES DT. 01/06/2005 . THE ASSESSEE HUF HAS PAID THIS COMMISSION TO CANCER HOSPITAL WHICH IS RUN BY DR. SANDEEP MA DHWAPATHI. THIS ASSESSEE HUF HAS ENTERED INTO CONTRACT WITH A PHYSICIAN BY OFFERING HIM COMMISSION ON SALES OF MEDICINE IS IN VIOLATION A CODE OF ETHICS FORMULATED BY PHARMACY COUNCIL OF INDIA. THE ASSESSEE HUF HAS MADE PAYMENT OF COMMISSION TO BELGAUM CAN CER HOSPITAL IS ILLEGAL AND ILLEGITIMATE AS IT IS IN CLEAR AND COMPLETE VIOLATION OF CODE OF ETHICS REGULATIONS 2002 OF MEDICAL COUNCIL OF INDIA. AS PER SECTION 37(1) OF THE I.T. ACT ANY PAYMENT MADE IN VIOLATION OF IN LAW CANNOT BE ALLOWED AS EXPENDITURE. - 8 - ITA 323/PNJ/2013 6. LD. AR RELIED UPON THE ORDER OF CIT (A). LD. AR SUBMITTED THAT IN THIS CASE ASSESSEE HUF HAS MADE PAYMENT TO BELGAUM CANCER HOSPITAL. WHILE CODE OF ETHICS REGULATION MEDICAL COUNCIL OF INDIA IS APPLICABLE TO THE TRANSACTION BETWEEN PHARMA COMPANIES AN D A PHYSICIAN. LD. AR DRAWN OUR ATTENTION TO THE PAPER BOOK PAGE 5 WHEREIN IN A.Y. 2009 - 10 THE SAME ASSESSEE HAS GIVEN INCENTIVE TO BELGAUM CANCER HOSPITAL ON ACCOUNT OF PATIENT REFERRED BY HOSPITAL TO THE ASSESSEE FOR PURCHASE OF MEDICINES. THE SAME AGREE MENT IN RESPECT OF ARRANGEMENT MADE BY GIVING INCENTIVE WAS VERIFIED BY AO AND HE HAS DISALLOWED 20% OF INCENTIVE. THUS, THE DEPARTMENT HAS ACCEPTED THE PAYMENT OF INCENTIVE IN A.Y. 2009 - 10 THEREFORE SAME HAS TO BE ALLOWED IN THIS YEAR. THE LD. AR SUBMITTE D THAT THE ASSESSEE AND THE CANCER HOSPITAL BOTH ARE PAYING THE TAX AT HIGHER RATE THEREFORE THERE CANNOT BE ANY TAX AVOIDANCE. 7. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE WE FIND THAT THE C IT (A) HAS INTERPRETED THE CODE OF ETHICS REGULATION 2002 OF MEDIC AL COUNCIL OF INDIA. AS PER PARA 6.4 OF CODE OF ETHICS REGULATION IT PROHIBITS PHYSICIAN FROM GIVING OR RECEIVING ANY COMMISSION IN CONSIDERATION OF OR RETURN FOR REFERRING, RECOMMENDING OR PROCURING ANY PATIENT FOR MEDICAL, SURGERICAL AND OTHER TREATMENT. THE DOCTOR WITH QUALIFICATION WITH MBBS OR MBBS WITH POST GRADUATE DEGREE OR DIPLOMA IN ANY MEDICAL DISCIPLINE IS CALLED PHYSICIAN. IN THE INSTANT CASE M/S K. K. MEDICAL IS TRADING IN PHARM ACEUTICALS GOODS IS NOT PHYSICIAN, BELGAUM CANCER HOSPITAL PVT. LTD IS NOT A PHYSICIAN. DR. SANDEEP MADHWAPATHI IN HIS HUF CAPACITY ACTS AS A TRADER OF PHARMACEUTICAL GOODS NOT AS PHYSICIAN. BCHPL IS COMPANY IS SEPARATE AND INDEPENDENT LEGAL ENTITY RUNNING THE HOSPITAL BUSINESS. THE COMMISSION PAID BY THE ASSESSEE IS NOT RECEIVED BY DR. SANDEEP MADHWAPATHI IN HIS INDIVIDUAL CAPACITY AS A PHYSICIAN EITHER DIRECTLY OR INDIRECTLY. IN THE INSTANT CASE THE COMMISSION RECEIVED BY HOSPITAL PURSUANT TO AN AGREEMENT FOR GIVING CAPTIVE BUSINESS TO THE ASSESSEE. CIT (A) WAS OF A VIEW THAT IN THIS CASE NEITHER COMMISSION PAYER NOR RECEIPT OF COMMISSION IS PHYSICIAN; THEREFORE, MEDICAL COUNCIL OF INDIA CODE OF ETHICS IS NOT APPLICABLE TO THE ASSESSEE. - 9 - ITA 323/PNJ/2013 8. THE CIT (A) HAS HELD THAT ASSESSEE HAS MADE PAYMENT OF COMMISSION TO HOSPITAL WHICH IS UNREASONABLE AND HE HAS DISALLOWED 20% OF THE TOTAL COMMISSION. THE CIT (A) HELD THAT AO CONCLUDED THAT PAYMENT OF COMMISSION IS UNREASONABLE HAVING REGARDS TO THE FARE MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENTS ARE MADE. WE HAVE GONE THROUGH THE ORDER OF AO THE ONLY OBJECTION OF THE ASSESSEE THAT THE ASSESSEE HAS NOT MADE PAYMENT FOR LEGITIMATE NEEDS OF THE BUSINESS . THE CIT (A) HELD THAT THE ASSESSEE HAS P AID HIGHEST TAX MOREOVER THE BCHPL HAS ALSO PAID THE TAX AT HIGHER SLAB THEREFORE THERE IS NO TAX EVASION. WE ARE OF THE VIEW THAT CIT (A) IS JUSTIFIED IN HIS ACTION AND OUR INTERFERENCE IS NOT REQUIRED. 9 . IN THE RESULT THE APPEAL OF THE DEPARTMENT IS DI SMISSED. JUDGMENT PRONOUNCED IN OPEN COURT ON 14 /03/2014 SD/ - SD/ - (P. K. BANSAL) (D. T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER PANAJI / GOA DATED: - 14 /03/2014 *NANU * COPY TO : 1 . APPELLANT 2 . RESPONDENT 3 . CIT, BELGAUM 4 . CIT(A), BELGAUM 5 . D.R 6 . GUARD FILE BY ORDER SR. PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI, GOA