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

ITA 527/AHD/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 6246 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 03-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Keywords: Maximum Marginal Rate
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMEDABAD BEFORE, SHRI S. S. GODARA, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ITA NO. 527/AHD/2016 (ASSESSMENT YEAR: 2012- 13) ITO, WARD 3(3)(9), AHMEDABAD A PPELLANT VS. M/S. SUNFLOWER PHARMACY, G/5, RUDRA ARCADE, OPP. TRAFFIC HELMET CIRCLE, MEMNAGAR, AHMEDABAD 380052 RESPONDENT PAN: ABQFS1821A /BY REVENUE : SHRI V. K. SINGH, SR. D.R. /BY ASSESSEE : SHRI BANDISH SOPARKAR, A.R. /DATE OF HEARING : 17.01.2018 /DATE OF PRONOUNCEMENT : 19.01.2018 ORDER PER S. S. GODARA, JUDICIAL MEMBER THIS REVENUES APPEAL FOR ASSESSMENT YEAR 2012-13 AR ISES AGAINST THE CIT(A)-3, AHMEDABADS ORDER DATED 21.12.2015, IN CAS E NO. CIT(A)- 3/WD.3(3)(9)/733/2014-15, REVERSING ASSESSING OFFIC ERS DISALLOWING ASSESSEES COMMISSION PAYMENT OF RS.12,97,720/- AND RS.25,44,7 19/- MADE TO TWO DOCTORS NAMELY DR. RAMANBHAI S. PATEL AND DR. RATILAL G. PA TEL; TOTALING TO ITA NO. 527/AHD/16 [ITO VS. M/S. SUNFLOWER PHARMACY ] A.Y. 2012-13 - 2 - RS.38,42,446/- IN VIEW OF CBDTS CIRCULAR NO. 5 OF 2012 DATED 01.08.2012, IN PROCEEDINGS U/S. 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. HEARD BOTH THE PARTIES REITERATING THEIR RESPECTIVE STANDS. CASE FILE PERUSED. 2. THE RELEVANT FACTS PERTAINING TO THE ABOVE SOLE I SSUE OF DISALLOWANCE OF COMMISSION EXPENSES AMOUNTING TO RS.38,42,446/- ARE IN A VERY NARROW COMPASS. THIS ASSESSEE IS A FIRM ENGAGED IN TRADING OF DRUGS AND MEDICINES. IT CLAIMED THE ABOVE COMMISSION EXPENSES AS INCURRED W HOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS U/S. 37(1) OF THE ACT. THE ASSESSING OFFICER WENT INTO A DETAILED DISCUSSION IN ASSESSMENT ORDER DATE D 26.02.2015. HE MAINLY RELIED UPON BOARDS CIRCULAR (SUPRA) TO DISALLOW TH E SAME U/S.37(1) OF THE ACT SINCE OPPOSED TO PUBLIC POLICY. 3. THE CIT(A) REVERSES IMPUGNED DISALLOWANCE IN LOWER APPELLATE PROCEEDINGS AS UNDER: 4.2 DECISION: I HAVE GONE THROUGH THE FACTS, MENTIONED IN THE ASS ESSMENT ORDER AND THE SUBMISSION FILED BY THE APPELLANT CAREFULLY. DURING THE COURSE OF APPELLATE PROCEEDING, THE APPELLANT HAS SUBMITTED THE COPY OF LEDGER ACCOUNTS OF THE DOCTORS TO WHOM COMMISSION PAYMENT MADE. THE LEDGER ACCOUNT SHOWS THAT THE COMMISSION HAS BEER, PAID BYCHEQU.ES AFTER DEDUCTIO N OF TAX. THE APPELLANT HAS SUBMITTED COPY, OF ACKNOWLEDGEMENTS OF FILLING RETU RN OF INCOME ALONG WITH STATEMENT OF TOTAL INCOME, AND AUDITED INCOME AND E XPENDITURE ACCOUNT WITH RELEVANT SCHEDULES IN CASE OF BOTH THE DOCTORS. IT IS SUBMITTED THAT BOTH THE DOCTORS HAVE DECLARED COMMISSION INCOME AND ARE LIA BLE TO TAX AT THE MAXIMUM RATE. THEREFORE, IT WAS CLAIMED THAT THERE IS HO EV ASION OF TAX AS THE INCOME TAX HAS RECEIVED THE TAX HENCE THE-'E IS NO LOSS TO REV ENUE THOUGH THE COMMISSION HAS BEEN PAID BY THE APPELLANT. 1 AM INCLINED TO AG REE WITH THE APPELLANT FOR FOLLOWING REASONS:- (I) THE APPELLANT BEING RETAIL MEDICAL STORE IS NOT PHARMACEUTICAL INDUSTRY WHEREAS THE CODE OF CONDUCT STATED ABOVE TALKS ABOU T THE RELATIONSHIP OF DOCTORS WITH PHARMACEUTICAL AND ALLIED HEALTH CARE INDUSTRY. ITA NO. 527/AHD/16 [ITO VS. M/S. SUNFLOWER PHARMACY ] A.Y. 2012-13 - 3 - (II) THE COMMISSION PAID IS NOT FOR PURCHASE OF MED ICINES BY PATIENTS FROM THE APPELLANT ON BASIS OF PRESCRIPTIONS GIVEN BY SA ID DOCTORS DURING THE CONSULTATION. THEY ARE GIVING ADVICE FOR PURCHASE O F MEDICINES I.E. THE TYPE OF MEDICINES, QUANTITY, AND MAINTENANCE OF STOCK OF ME DICINES ETC. THIS ADVICE HAS PREVENTED THE UNNECESSARY BLOCKAGE, OF FUNDS AND SA VED THE COST OF FUNDS. (III) THE APPELLANT IS RETAIL PHARMACEUTICAL STORE AND ENGAGED IN BUSINESS OF PURCHASE AND SALE OF MEDICINES AND HEALTHCARE PRODU CTS. SINCE, THE APPELLANT IS. NOT MANUFACTURING ANY BRANDED MEDICINES, IT CANNOT BE CONSIDERED AS PHARMACEUTICAL INDUSTRY. (IV) THE APPELLANT HAS DEDUCTED TAX AT SOURCE FROM THE COMMISSION PAYMENT MADE TO BOTH THE DOCTORS WHO ARE PAYING THE INCOME TAX AT MAXIMUM MARGINAL RATE, HENCE EVASION OF TAXES THROUGH PAYMENT OF COM MISSION IS RULED OUT. THE COMMISSION IS PAID FOR ADVISORY SERVICES RENDERED U S PER INFORMATION ON RECORD, THE SAME IS EXPEDIENT TO THE CONDUCT OF BUSINESS BY THE APPELLANT. (V) THE COMMISSION IS PAID FOR ADVISORY SERVICES RE CEIVED. SUCH SERVICES FROM DOCTORS TO PHARMACEUTICAL RETAIL SHOP DOES NOT VIOLATE THE CODE OF CONDUCT DECLARED BY MEDICAL COUNCIL OF INDIA. THEREFORE, TH E COMMISSION EXPENDITURE INCURRED BY THE APPELLANT IS NOT FOR ANY PURPOSE WH ICH IS AN OFFENCE OR PROHIBITED BY LAW AND IS NOT HIT BY EXPLANATION TO SECTION 37(1) OF IT ACT, 1961. (VI) SINCE THE PAYMENT OF COMMISSION IS NOT THE VIO LATION OF PROVISION OF INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT ,ETIQU ETTE AND ETHICS) REGULATION, 2002, THE EXPENDITURE IS ADMISSIBLE U/S 37(1) OF THE IT ACT,1961 AND CBDT CIRCULAR NO.5/2012 DATED 01/08/2012 IS CONSIDE RED NOT APPLICABLE IN INSTANT CASE. (VII) THE ASSESSING OFFICER HAS NOT ESTABLISHED THR OUGH INDEPENDENT INQUIRIES THAT THE SERVICES HAVE NOT BEEN RECEIVED BY THE APP ELLANT IN LIEU OF COMMISSION PAID TO TWO DOCTORS. ALSO SUCH PAYMENTS CANNOT BE CELLED AS FREEBEES, HE TERM WHICH IS APPLICABLE TO THE MANUFACTURER OF PHARMACE UTICAL PRODUCTS. IN VIEW OF ABOVE FACTS, THE ADDITION MADE OF RS.38, 42,446/- IS HEREBY DELETED. THE GROUNDS NO.2 TO 4 ARE ALLOWED . 4. LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY CO NTENDS THAT THE CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN REVER SING THE ABOVE COMMISSION EXPENDITURE DISALLOWANCE AS THE ASSESSING OFFICER H AD RIGHTLY INVOKED THE BOARDS CIRCULAR DATED 01.08.2012 (SUPRA). WE FIND NO MERIT IN THE INSTANT SOLE ARGUMENT. LEARNED COUNSEL REPRESENTING ASSESSEE PLA CES BEFORE US A CO-ORDINATE BENCH ORDER IN ITA NO.2546/AHD/2015 IN ASSESSEES CA SE ITSELF IN PRECEDING ASSESSMENT YEAR DECIDED ON 10.11.2017 HOLDING THE A BOVE CIRCULAR TO ITA NO. 527/AHD/16 [ITO VS. M/S. SUNFLOWER PHARMACY ] A.Y. 2012-13 - 4 - BE APPLICABLE ONLY FROM ASSESSMENT YEAR 2013-14. W E THEREFORE ADOPT JUDICIAL CONSISTENCY IN FACTS OF THE INSTANT CASE TO AFFIRM THE CIT(A)S FINDINGS UNDER CHALLENGE DELEING THE IMPUGNED DISALLOWANCE. 5. THIS REVENUES APPEAL IS ACCORDINGLY DISMISSED. [PRONOUNCED IN THE OPEN COURT ON THIS THE 19 TH DAY OF JANUARY, 2018.] SD/- SD/- ( PRADIP KUMAR KEDIA ) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD: DATED 19/01/2018 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE ! / CONCERNED CIT 4 !- / CIT (A) ( )*+ ,--. . /0 / DR, ITAT, AHMEDABAD 1 +23 45 / GUARD FILE. BY ORDER / . // . /0