K R Medical Clinic Pharmacy, Ahmedabad V. The Pr. CIT-5, Ahmedabad

ITA 903/AHD/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 9694 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 13-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KRISHNA MURARI
• Assessee Lawyers: S N SOPARKAR
• Keywords: Gift; Business income; Maximum Marginal Rate; Revenue expenditure
• Section: 143(3); 142(1); 37(1); 37; 263; 63

Judgement Text

, LH LHLH LH IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD L LL LOZJH OZJH OZJH OZJH OLHE OLHE OLHE OLHE VGEN VGEN VGEN VGEN] YS[KK ] YS[KK ] YS[KK ] YS[KK LNL; ,OA LNL; ,OA LNL; ,OA LNL; ,OA EK/KQFERK EK/KQFERK EK/KQFERK EK/KQFERK JKW; JKW;JKW; JKW;] U;KF;D ] U;KF;D ] U;KF;D ] U;KF;D LNL; LNL; LNL; LNL; DS LE{KA DS LE{KA DS LE{KA DS LE{KA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SMT MADHUMITA ROY, JUDICIAL MEMBER ITA NO.903/AHD/2017 ( / ASSESSMENT YEAR : 2012-13) M/S. K.R. MEDICAL CLINIC PHARMACY, COMMERCE COLLEGE ROAD, NR. SAMVED HOSPITAL, NAVRANGPURA, AHMEDABAD 380 009 / VS. PCIT-5 1 ST FL, NARAYAN CHAMS, NR. PATANG HOTEL, AHMEDABAD 380 009. ./ ./ PAN/GIR NO. : AAHFK 9190 J ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI S. N. SOPARKAR, A.R. / RESPONDENT BY : SHRI KRISHNA MURARI, CIT-D.R. / DATE OF HEARING 04/07/2018 !'# / DATE OF PRONOUNCEMENT 26/09/2018 $% / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-5, AHMEDABAD, DATED 23.03.2017 FOR THE ASSESSMENT YEAR (AY) 2012-13. 2. GROUNDS OF APPEAL OF THE ASSESSEE ARE RAISED AS UNDER: 1. LD. CIT ERRED IN LAW AND ON FACTS IN INVOKING PR OVISIONS OF SECTION 263 OF THE ACT SEEKING TO REVISE SCRUTINY A SSESSMENT U/S ITA NO.903/AHD/2017 K. R. MEDICAL CLINIC PHARMACY V. PCIT ASST.YEAR 2012-13 - 2 - 143 (3) OF THE ACT HOLDING IT AS ERRONEOUS AND PREJ UDICIAL TO THE INTEREST OF REVENUE. 2. LD. CIT ERRED IN LAW AND ON FACTS IN DIRECTING A O TO EXAMINE COMMISSION PAID TO THE HOSPITALS VIS-A-VIS PROVISIO NS OF MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS ) REGULATIONS 2002 DULY VERIFIED BY AO DURING SCRUTIN Y PROCEEDINGS. 3. LD. CIT ERRED IN LAW AND ON FACTS IN DIRECTING A O TO REFRAME ASSESSMENT FOR DETERMINING WHETHER COMMISSION PAID TO THE HOSPITALS WAS IN THE NATURE OF MONETARY BENEFITS AS PER PROVISIONS OF THE MEDICAL COUNCIL REGULATION NOT AP PRECIATING COMMERCIAL NATURE OF PAYMENT AS PER AGREEMENT. 4. LD. CIT ERRED IN LAW AND ON FACTS HOLDING COMMIS SION PAID AS INADMISSIBLE EXPENDITURE U/S 37(1) OF THE ACT CITIN G CBDT CIRCULAR 5 OF 2012 IGNORING THAT COMMISSION IS PAID WHOLLY & EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 5. LD. CIT ERRED IN LAW AND ON FACTS IN BRUSHING AS IDE DECISION OF MUMBAI ITAT HOLDING CBDT CIRCULAR APPLICABLE FROM A Y 2013/14 & NOT TO THE YEAR UNDER CONSIDERATION WITHO UT ANY COGENT REASONING. JUDICIAL PROPRIETY REQUIRES LD. C IT TO FOLLOW DECISIONS OF HIGHER AUTHORITIES. 6. LD. CIT ERRED IN LAW AND ON FACTS IN HOLDING ORD ER AS PREJUDICIAL TO THE INTEREST OF REVENUE IGNORING THAT TAX WAS DE DUCTED FROM COMMISSION AND PARTIES TO THE AGREEMENT PAID INCOME TAX AT THE MAXIMUM MARGINAL RATE. THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTE R , EDIT, DELETE, MODIFY OR CHANGE ALL OR ANY OF THE GROUNDS OF APPEAL AT THE TIME OF OR BEFORE THE HEARING OF THE APPEAL. 3. THE ONLY GRIEVANCE OF THE ASSESSEE IS THAT LD. C IT ERRED IN HOLDING THE ORDER OF THE AO PASSED UNDER SECTION 143(3) OF THE ACT AS ERRONEOUS IN SO FAR PREJUDICIAL TO THE INTEREST OF THE REVENU E UNDER SECTION 263 OF THE ACT. ITA NO.903/AHD/2017 K. R. MEDICAL CLINIC PHARMACY V. PCIT ASST.YEAR 2012-13 - 3 - 4. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM AND ENGAGED IN THE TRADING BUSINESS OF MEDICINES. THE A SSESSEE FILED ITS RETURNS OF INCOME FOR THE YEAR UNDER CONSIDERATION DATED 27 TH JULY 2012 DECLARING TOTAL INCOME OF RS. 36,45,685/- ONLY. THE RETURN OF INCOME WAS PROCESSED U/S 143(1) OF THE ACT. HOWEVER, SUBSEQUEN TLY, THE CASE OF THE AO WAS SELECTED UNDER SCRUTINY AND ACCORDINGLY NOTI CE U/S 143(2) WAS ISSUED UPON THE ASSESSEE VIDE LETTER DATED 8 TH AUGUST 2013. ACCORDINGLY, THE ASSESSMENT WAS FRAMED BY THE AO U/S 143(3) OF T HE ACT AFTER MAKING CERTAIN ADDITIONS/DISALLOWANCES TO THE TOTAL INCOME OF THE ASSESSEE VIDE ORDER DATED 30 TH JUNE 2014. SUBSEQUENTLY, THE LD. CIT OBSERVED THAT THE ASSESSE E HAD PAID THE COMMISSION DURING THE YEAR TO THE FOLLOWING PARTIES . SR. NO. NAME OF THE PARTY AMOUNT 1. M/S. INFECTIOUS DISEASE CLINIC 31,16,437/- 2. M/S. HEMATO ONCOLOGY CLINIC PVT. LTD. 35,98,462/- TOTAL 68,46,334/- 4.1 THE CIT WAS OF THE VIEW THAT THE COMMISSION EXP ENSES CLAIMED BY THE ASSESSEE AND ALLOWED BY THE AO IN THE ASSESSMEN T ORDER FRAMED U/S 143(3) OF THE ACT ARE NOT ELIGIBLE FOR DEDUCTION DU E TO THE FOLLOWING REASONS: I. BOTH THE PARTIES TO WHOM THE ASSESSEE PAID THE COMM ISSION WERE OWNED/MANAGED BY THE TEAM OF THE DOCTORS. ITA NO.903/AHD/2017 K. R. MEDICAL CLINIC PHARMACY V. PCIT ASST.YEAR 2012-13 - 4 - II. THERE WERE SEPARATE AGREEMENTS BETWEEN THE ASSESSEE AND THE PARTIES AS DISCUSSED ABOVE. AS PER THE AGREEMENT, T HE ASSESSEE WAS LIABLE TO PAY THE COMMISSION TO THE ABOVE PARTI ES FOR THE SALES OF MEDICINES TO THE PATIENTS AS RECOMMENDED B Y THE DOCTORS OF THE PARTIES AS DISCUSSED ABOVE. 4.2 IN VIEW OF ABOVE FACTS, THE LD CIT WAS OF THE V IEW THAT THE PAYMENT TO THE DOCTORS IS NOT ELIGIBLE FOR DEDUCTIO N U/S 37(1) OF THE ACT AS IT WAS PROHIBITED UNDER THE PROVISIONS OF INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULA TIONS, 2002. 4.3 ACCORDINGLY, THE LD CIT ISSUED A NOTICE U/S 263 OF THE ACT FOR ITS EXPLANATION/ JUSTIFICATION FOR THE DEDUCTION OF THE COMMISSION EXPENSES. 4.4 IN COMPLIANCE WITH IT, THE ASSESSEE SUBMITTED A S UNDER: I. THE COMMISSION WAS PAID TO THE PARTIES AS DISCUSSED ABOVE AFTER TAKING THE TDS AND THE AO DULY VERIFIED THIS FACT DURING THE ASSESSMENT PROCEEDINGS. II. THE PAYMENT OF COMMISSION WAS PAID ON THE BASIS OF COMMERCIAL AGREEMENTS AND NOT UNDER FREE BEEZ AS PR OVIDED IN THE REGULATION OF INDIAN MEDICAL COUNCIL. THUS, THERE WAS NO VIOLATION OF ANY PROVISIONS OF INDIAN MEDICAL COUNC IL AS DISCUSSED ABOVE. III. THERE WAS NO LOSS TO THE REVENUE AS THE ASSESSEE AN D THE PARTIES ABOVE ARE CHARGED TO TAX AT THE MAXIMUM MARGINAL RA TE UNDER THE ACT. AS SUCH, THE RECIPIENTS OF THE COMMISSION HAVE OFFERED IT TO TAX. IV. THE ASSESSEE DULY DISCLOSED ALL THE MATERIAL FACTS DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT. ITA NO.903/AHD/2017 K. R. MEDICAL CLINIC PHARMACY V. PCIT ASST.YEAR 2012-13 - 5 - V. THE CBDT CIRCULAR NO.5/2012 DATED 01.08.2012 WAS EF FECTIVE FROM THE ASSESSMENT YEAR 2013-14, AND THEREFORE THE SAME CANNOT BE APPLIED FOR THE YEAR UNDER CONSIDERATION. 4.5 HOWEVER, THE LD CIT DISREGARDED THE CONTENTION OF THE ASSESSEE AND HELD THAT THE ORDER PASSED BY THE AO U/S 143(3) IS ERRONEOUS IN SO FAR PREJUDICIAL TO THE INTEREST OF THE REVENUE BY OBSER VING AS UNDER: 4. THE REPLY OF THE ASSESSEE FIRM IS CONSIDERED B UT NOT FOUND ACCEPTABLE. THE ASSESSEE FIRM HAD CLAIMED EXPENDITU RE AGAINST COMMISSION PAYMENT TO M/S. INFECTIOUS DISEASE CLINIC AND M/S. HEMATO ONCOLOGY CLINIC PVT. LTD TO EXTENT OF RS.31,16.437/- AND R S.35,98,462/- RESPECTIVELY. FOR THIS THE ASSESSEE FIRM HAS EN TERED INTO AN AGREEMENT WITH THESE ABOVE MENTIONED TWO PARTIES. THESE BUSIN ESS ENTITIES WERE MANAGED AND GOVERNED BY THE GROUP OF DOCTORS AND TH ESE PARTNERS/DIRECTOR DOCTORS HAD RECOMMENDED THE MEDICINES TO THEIR PATI ENTS AND AGAINST THE SALE OF SUCH MEDICINE THE ASSESSEE FIRM HAD PAID SP ECIFIED COMMISSION TO THESE BUSINESS ENTITIES. THIS COMMISSION PAYMENT TO THESE ENTITIES, OWNED BY THE DOCTORS ULTIMATELY REACHED TO THE DOCTORS W HO ARE FINAL BENEFICIARIES. THUS THE AGREEMENT WAS EXECUTED JUST TO SHOW THAT THEIR ARRANGEMENT IS NOT HIT BY THE NOTIFICATION ISSUED B Y THE MCI. IT IS PERTINENT TO MENTION HERE THAT MERE EXECUTION OF A CONTRACT B ETWEEN TWO PARTIES DOES NOT CHANGE THE NATURE OF ANY UNETHICAL ACTIVITY WHI CH INTO A LAWFUL ACTIVITY. THE CONTENTION OF THE ASSESSEE THAT EXECUTION OF THE CONTRACT GIVES IMMUNITY FROM SECTION 37 OF THE INCOME TAX ACT IS NOT FOUND CORRECT. THE EXPLANATION 1 TO SECTION 37 CLEARLY PROHIBITED A NY EXPENDITURE WHICH WAS INCURRED BY THE ASSESSEE FOR ANY PURPOSE WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR PURPO SE OF BUSINESS AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE. IN THIS REGARD, IN NOTIFICATION ISSUED BY INDIAN MEDIC AL COUNCIL ON 10.12.2009 A: PARA 6.8 HAS SPECIFIED THE CODE OF CONDUCT FOR D OCTORS AND THEIR PROFESSIONAL ASSOCIATION WITH REGARD TO THEIR RELAT IONSHIP WITH PHARMACEUTICAL AND ALLIED HEALTH SECTOR INDUSTRY. T HE ABOVE ARRANGEMENT OF COMMISSION AGAINST RECOMMENDATION OF PRESCRIPTIO N MEDICINE BETWEEN THE ASSESSEE FIRM AND BUSINESS ENTITIES OWNED, GOVE RNED AND MANAGED BY GROUP OF DOCTORS FAILS IN LEGAL PARLANCE OF 'FREE B EEZ' WHICH COVERED ANYTHING PROVIDED FREE OF COST OR IN FORM OF ANY BE NEFIT OR ADVANTAGE OR ITA NO.903/AHD/2017 K. R. MEDICAL CLINIC PHARMACY V. PCIT ASST.YEAR 2012-13 - 6 - PRIVILEGE. THE SAID COMMISSION PAYMENT IS JUST AN A RRANGEMENT TO GIVE BENEFIT TO DOCTORS INDIRECTLY AGAINST THEIR RECOMME NDATION OF MEDICINE TO PATIENTS WHICH WAS PURCHASED FROM THE ASSESSEE FIRM . 4.2 THE INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDU CT, ETIQUETTE AND ETHICS) REGULATIONS, 2002 ISSUED EN 10.12.2009 COVERED THESE ISSUED. THE PARA DEALING WITH 'ENDORSEMENT' IN CLAUSE 6.8 W HICH HAS BEEN ADDED TO INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ET IQUETTE AND ETHICS) REGULATIONS, 2002 IS REPRODUCED BELOW: MEDICAL PRACTITIONER SHALL NOT ENDORSE ANY DRUG OR PRODUCT OF THE INDUSTRY PUBLICLY. IN A STUDY CONDUCTED ON THE EFFICACY OR OTHERWISE O F SUCH PRODUCTS SHALL BE PRESUMED TO AND/OR THROUGH APPROPRIATE SCIENTIFIC B ODIES ARE PUBLISHED IN APPROPRIATE SCIENTIFIC JOURNALS IN A PROPER WAY. THE PARA DEALING WITH 'MAINTAINING PROFESSIONAL AUT ONOMY' IN CLAUSE 6.8 WHICH HAS BEEN ADDED TO INDIAN MEDICAL COUNCIL (PRO FESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULATIONS, 2002 IS REPRODUC ED BELOW: IN DEALING WITH PHARMACEUTICAL AND ALLIED HEALTH C ARE INDUSTRY MEDICAL PRACTITIONER SHALL ALWAYS ENSURE THAT THERE SHALL N EVER BE ANY COMPROMISE EITHER WITH HIS/HER OWN PROFESSIONAL AUTONOMY AND O R WITH THE AUTONOMY AND OR FREEDOM OF THE MEDICAL INSTITUTION THE CBDT'S CIRCULAR NUMBER 5/2012 IS REPRODUCED BE LOW: IT HAS BEEN BROUGHT 10 THE NOTICE OF THE BOARD TH AT SOME PHARMACEUTICAL AND ALLIED HEALTH SECTOR INDUSTRIES ARE PROVIDING FREEBEES (FREEBIES) TO MEDICAL PRACTITIONERS AND THEIR PROFESSIONAL ASSOCIATIONS IN VIOLATION OF THE REGULATIONS ISSUED BY MEDICAL COUNCIL OF INDIA (THE COUNSEL) WHICH IS A REGULATORY BODY CONSTITUTED UNDER THE MEDICAL COUNCIL ACT. 195 6. 2. THE COUNCIL IN EXERCISE OF ITS STATUTORY POWERS AMENDED THE INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AN D ETHICS) REGULATIONS 2002 (THE REGULATIONS) ON 10-12-2009 IMPOSING A PRO HIBITION ON THE MEDICAL PRACTITIONER AND THEIR PROFESSIONAL ASSOCIATIONS FR OM TAKING ANY GIFT. TRAVEL FACILITY, HOSPITALITY, CASH OR MONETARY GRAN T FROM THE PHARMACEUTICAL AND ALLIED HEALTH SECTOR INDUSTRIES. ITA NO.903/AHD/2017 K. R. MEDICAL CLINIC PHARMACY V. PCIT ASST.YEAR 2012-13 - 7 - 3. SECTION 37(1) OF INCOME TAX ACT PROVIDES FOR DED UCTION OF ANY REVENUE EXPENDITURE (OTHER THAN THOSE FAILING UNDER SECTION S 30 TO 36) FROM THE BUSINESS INCOME IF SUCH EXPENSE IS LAID OUT, EXPEND ED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION. HOWEVER, THE EXPLANATION APPENDED TO THIS SUB-SECTION DENIES CLAIM OF ANY SUCH EXPENS E, IF THE SAME HAS BEEN INCURRED FOR A PURPOSE WHICH IS EITHER AN OFFENCE O R PROHIBITED BY LAW. THUS, THE CLAIM OF ANY EXPENSE INCURRED IN PROVIDIN G ABOVE MENTIONED OR SIMILAR FREEBEES IN VIOLATION OF THE PROVISIONS OF INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS REGULAT IONS. 2002 SHALL BE INADMISSIBLE UNDER SECTION 37(1) THE INCOME TAX ACT BEING AN EXPENSE PROHIBITED BY THE LAW. THIS DISALLOWANCE SHALL BE MADE M THE HANDS OF SUCH PHARMACEUTICAL OR ALLIED HEALTH SECTOR INDUSTRIES O R OTHER ASSESSEE WHICH HAS PROVIDED AFORESAID FREEBEES AND CLAIMED IT AS A DED UCTABLE EXPENSE IN ITS ACCOUNTS AGAINST INCOME.' IN VIEW OF ABOVE CIRCULAR, IT COMES OUT THAT IF ANY EXPENSE WAS INCURRED IN VIOLATION OF THE PROVISIONS OF INDIAN MEDICA L COUNCIL (PROFESSIONAL CONDUCT ETIQUETTE AND ETHICS) REGULATIONS, 20 02, IT SHALL NOT BE ADMISSIBLE UNDER SECTION 37(1) OF THE INCOME TAX A CT. 4.3 THE PLEA OF THE ASSESSEE THAT THE CIRCULAR OF CBDT 5/2012 WAS APPLICABLE FROM A.Y. 2013-14 IS NOT ACCEPTABLE AS T HE ABOVE CODE OF CONDUCT WERE ENFORCED THROUGH PROVISIONS OF INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REG ULATIONS, 2002,. FURTHER, THE JUDGMENT RELIED UPON RELATED TO MAN UFACTURING COMPANY WHICH IS TOTALLY DIFFERENT FROM THE ASSESSEE. 4.4 THEREFORE, IT BECOMES VERY CLEAR THAT THE COMM ISSION PAID TO M/S INFECTIOUS DISEASE CLINIC AND M/S. HEMATO ONCOLOGY CLINIC PVT. LTD TO THE EXTENT OF RS. 31.15,437/- AND RS. 35,98,462/- RESPE CTIVELY IS NOT ADMISSIBLE EXPENDITURE UNDER SECTION 37(1) OF THE IT ACT IN AC CORDANCE WITH CBDT; CIRCULAR 5 OF 2012. BUT, THE AO HAS ERRONEOUSLY ADM ITTED THE SAME CLAIM OF THE ASSESSEE FIRM. 5.0 FROM THE ABOVE DISCUSSION, IT IS CLEAR THAT THE ASSESSING OFFICER HAS FAILED TO CONDUCT PROPER ENQUIRY AND VERIFICATION O N THE ISSUE CITED ABOVE. HENCE, THE ASSESSMENT MACE BY ASSESSING OFFICER, TH E ACIT CIRCLE-5(2) AHMEDABAD U/S 143(3] OF THE ACT ON 30.06.2014 IS ER RONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. INVOKING TH E PROVISIONS OF SECTION 263 ITA NO.903/AHD/2017 K. R. MEDICAL CLINIC PHARMACY V. PCIT ASST.YEAR 2012-13 - 8 - IN THE INCOME TAX ACT, 1961, I HEREBY SET ASIDE THE ASSESSMENT PROCEEDINGS WITH THE DIRECTION TO THE ASSESSING OFFICER TO FRAM E THE ASSESSMENT AFRESH AFTER PROPER EXAMINATION, ENQUIRY AND VERIFICATION OF ALL THE ISSUES INCLUDING THOSE CITED ABOVE AND AFTER ALLOWING REAS ONABLE OPPORTUNITY TO THE ASSESSEE. 4.6 BEING AGGRIEVED BY THE ORDER OF LD ASSESSEE IS IN APPEAL BEFORE US. 5. THE LD AR BEFORE US FILED A PAPER BOOK WHICH IS RUNNING FROM PAGES 1-56 AND REITERATED THE SUBMISSIONS AS MADE B EFORE THE LD CIT U/S 263 OF THE ACT. 5.1 THE LD. AR ALSO SUBMITTED THAT THE ORDER OF THE AO WAS HELD TO BE ERRONEOUS ON ACCOUNT OF NON-VERIFICATION OF COMMISS ION EXPENSES. AS PER THE LD. AR, THE OBSERVATION OF THE LD. CIT IS NOT C ORRECT. 5.2 THE LD. AR BEFORE US FURTHER SUBMITTED THAT THE ISSUE OF COMMISSION EXPENSES WAS DULY VERIFIED AND EXAMINED BY THE AO DURING THE ASSESSMENT PROCEEDINGS. 5.3 THE LD. AR IN SUPPORT OF HIS CLAIM DREW OUR ATT ENTION ON THE NOTICE ISSUED BY THE AO U/S 142(1) OF THE ACT VIDE LETTER DATED 09/04/2014 WHICH IS PLACED ON PAGE 41-45 OF THE PAPER BOOK. TH E RELEVANT PORTION OF THE NOTICE READS AS UNDER: PLEASE GIVE DETAILS OF THE TAXES DEDUCTED AT SOURC E AND ALSO IF SUCH TAXES WERE REMITTED TO THE GOVT. ACCOUNT WITHIN THE PRESC RIBED TIME (IN RESPECT OF PAYMENTS MADE BY WAY OF ANY INTEREST, COMMISSION OR BROKERAGE, RENT, ITA NO.903/AHD/2017 K. R. MEDICAL CLINIC PHARMACY V. PCIT ASST.YEAR 2012-13 - 9 - ROYALTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICE TO WHICH SECTION 40(A)(IA) APPLIES). 5.4 THE LD AR FURTHER DREW OUR ATTENTION ON THE REP LY SUBMITTED BY THE ASSESSEE IN RESPONSE TO THE NOTICE ISSUED U/S 142(1 ) OF THE ACT WHICH IS PLACED ON PAGES 49-50 OF THE PAPER BOOK. THE RELEVA NT EXTRACT OF THE SUBMISSION IS EXTRACTED BELOW: (1) AS REGARDS THE COMMISSION EXPENSES: WITH REGARDS TO THE COMMISSION EXPENSES DEBITED AND INCREASED DURING THE YEAR AT RS.68,46,334/- WE HAVE TO SAY THAT THES E ARE SALES COMMISSION PAID WHICH IN TURN GIVES US THE BUSINESS AND THE NECESSARY TDS HAD ALSO BEEN DEDUCTED AND PAID TO THE CREDIT O F THE CENTRAL GOVERNMENT FOR THE SAME. A CHART SHOWING THE PAN OF THE PARTIES TO WHOM THE COMMISSION WAS PAID AND RATE OF COMMISSION ON SALES IS ALSO ATTACHED HEREWITH. THE PROOFS OF THE TDS CHALLANS P AID HAVE ALSO BEEN ATTACHED HEREWITH. COPIES OF THE RELEVANT AGREEMENT S ENTERED INTO WITH THE SAME COMPANIES ARE ALSO HEREBY ATTACHED FOR YOU R REFERENCE. 5.5 THE LD AR ALSO DREW OUR ATTENTION ON THE AGREEM ENTS FOR THE COMMISSION WHICH ARE PLACED ON PAGES 51 TO 56 OF TH E PB. 5.6 IN VIEW OF THE ABOVE, THE LD AR SUBMITTED THAT THE ORDER CANNOT BE HELD AS ERRONEOUS IN SO FAR PREJUDICIAL TO THE INTE REST OF REVENUE ON ACCOUNT OF NON-VERIFICATION AND EXAMINATION. IN THI S PROPOSITION THE LD. AR RELIED ON THE JUDGMENT OF HONBLE SUPREME COURT OF INDIA IN THE CASE OF CIT VS. KWALITY STEEL SUPPLIERS COMPLEX REPORTED IN 395 ITR 01, WHEREIN, IT WAS HELD AS UNDER: 8. AT THE SAME TIME, THIS COURT HAS ALSO LAID DOWN TH AT THIS PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR ITA NO.903/AHD/2017 K. R. MEDICAL CLINIC PHARMACY V. PCIT ASST.YEAR 2012-13 - 10 - COMMITTED BY THE ASSESSING OFFICER. WHILE INTERPRET ING THE EXPRESSION 'PREJUDICIAL TO THE INTERESTS OF THE REVENUE', IT I S ALSO HELD THAT ORDER OF THE ASSESSING OFFICER CANNOT BE TERMED AS PREJUDICI AL SIMPLY BECAUSE ASSESSING OFFICER ADOPTED ONE OF THE COURSES PERMIS SIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE, OR WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DID NOT AGREE. (SEE CIT V. ARVIND JEWELLERS [2003] 259 ITR 502/[20 02] 124 TAXMAN 615 (GUJ.) ) 9. IT IS CLEAR FROM THE ABOVE THAT WHERE TWO VIEW ARE POSSIBLE AND THE ASSESSING OFFICER HAS TAKEN ONE VIEW AND THE CIT AG AIN REVISED THE SAID ORDER ON THE GROUND THAT HE DOES NOT AGREE WITH THE VIEW TAKEN BY THE ASSESSING OFFICER, IN SUCH CIRCUMSTANCES THE ASSESS MENT ORDER CANNOT BE TREATED AS AN ORDER ERRONEOUS OR PREJUDICAL TO T HE INTEREST OF THE REVENUE. REASON IS SIMPLE. WHILE EXERCISING THE REV ISIONARY JURISDICTION, THE CIT IS NOT SITTING IN APPEAL. 5.7 THE LD AR ALSO RELIED ON THE ORDER OF BOMBAY HI GH COURT IN THE CASE OF CIT VS. GABRIEL INDIA LTD. REPORTED IN 203 ITR 108, WHEREIN IT WAS HELD AS UNDER: THE ITO IN THIS CASE HAD MADE ENQUIRIES IN REGARD TO THE NATURE OF THE EXPENDITURE INCURRED BY THE ASSSSEE. THE ASSESSEE H AD GIVEN A DETAILED EXPLANATION IN THAT REGARD BY A LETTER IN WRITING. ALL THESE WERE PART OF THE RECORD OF THE CASE. EVIDENTLY, THE CLAIM WAS AL LOWED BY THE ITO ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSE E. THIS DECISION OF THE ITO COULD NOT BE HELD TO BE 'ERRONEOUS' SIMPLY BECA USE IN HIS ORDER HE DID NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD . MOREOVER, IN THE INSTANT CASE, THE COMMISSIONER HIMSELF, EVEN AFTER INITIATING PROCEEDINGS FOR REVISION AND HEARING THE ASSESSEE, COULD NOT SAY THAT THE ALLOWANCE OF THE CLAIM OF THE ASSESSEE WAS ERRO NEOUS AND THAT THE EXPENDITURE WAS NOT REVENUE EXPENDITURE BUT AN EXPE NDITURE OF CAPITAL NATURE. HE SIMPLY ASKED THE ITO TO RE-EXAMINE THE M ATTER. THAT WAS NOT PERMISSIBLE. HENCE, THE PROVISIONS OF SECTION 263 W ERE NOT APPLICABLE TO THE INSTANT CASE AND, THEREFORE, THE COMMISSIONER W AS NOT JUSTIFIED IN SETTING ASIDE THE ASSESSMENT ORDER. ITA NO.903/AHD/2017 K. R. MEDICAL CLINIC PHARMACY V. PCIT ASST.YEAR 2012-13 - 11 - 5.8 THE LD. AR FURTHER SUBMITTED THAT THE ORDER COU LD NOT BE HELD AS ERRONEOUS MERELY ON THE GROUND THAT THE AO HAS NOT GIVEN ANY FINDING IN HIS ORDER ON THE DISPUTED ISSUE. 5.9 THE LD COUNSEL IN THIS REGARD RELIED ON THE JUD GMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF RAYLON SILK MILLS VS. CIT REPORTED IN 221 ITR 155, WHEREIN, IT WAS HELD AS UNDER: IT IS AN ESSENTIAL CONDITION OF EXERCISE OF THE PO WER UNDER SECTION 263 THAT THE COMMISSIONER MUST FIND THAT THE ERROR WHIC H IS FOUND IN THE ORDER OF THE ITO IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE PREJUDICE WHICH HAD BEEN HELD TO BE CONTRARY TO THE INTERESTS OF THE REVENUE WAS STATED TO BE THE ONLY ONE, NAMELY, IN N OT HOLDING ENQUIRY INTO THE GOODWILL ACCOUNT BY THE ITO AND NOT ON ANY OTHER GROUNDS. THE CONCLUSION OF THE COMMISSIONER THAT THE ORDER WAS P REJUDICIAL TO THE INTERESTS OF THE REVENUE WAS NOT A MATTER OF SUBJEC TIVE SATISFACTION OF THE COMMISSIONER. THAT WAS TO BE FOUNDED ON THE OBJECTI VE MATERIAL AFTER ASSESSING THE CONTENTIONS RAISED BY THE ASSESSEE ON OPPORTUNITY OF HEARING BEING AFFORDED TO HIM BEFORE PASSING THE OR DER. 5.10 IN THIS REGARD, THE LD AR ALSO RELIED ON THE J UDGMENT OF GUJARAT HIGH COURT IN THE CASE OF CIT VS. NIRMA CHEMICAL WO RKS PVT. LTD. REPORTED IN 309 ITR 67, WHEREIN, IT WAS HELD AS UND ER: 24. THERE IS ANOTHER ASPECT OF THE MATTER. THE ASSESSE E HAD CHALLENGED JURISDICTION OF THE COMMISSIONER OF INCOME-TAX TO E XERCISE POWERS UNDER SECTION 263 OF THE ACT. FOR AN ORDER OF THE A SSESSING OFFICER TO BE INTERFERED WITH IN EXERCISE OF REVISIONAL POWERS TH E COMMISSIONER OF INCOME-TAX HAS TO FIND IN THE FIRST INSTANCE THAT T HE ORDER IS ERRONEOUS AND, SECONDLY, THE ORDER IS PREJUDICIAL TO THE INTE RESTS OF THE REVENUE. THE CONDITIONS ARE TWIN CONDITIONS AS HELD BY THE A PEX COURT AND BOTH OF THEM HAVE TO BE FULFILLED BEFORE THE COMMISSIONE R OF INCOME-TAX CAN ITA NO.903/AHD/2017 K. R. MEDICAL CLINIC PHARMACY V. PCIT ASST.YEAR 2012-13 - 12 - EXERCISE JURISDICTION UNDER SECTION 263 OF THE ACT. IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. V. CIT [2000] 243 IT R 83 THE APEX COURT HAS HELD (HEADNOTE) : 'THE PHRASE 'PREJUDICIA L TO THE INTERESTS OF THE REVENUE' HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. EVERY LOSS OF REVE NUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER CANNOT BE TREA TED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. FOR EXAMPLE, WHEN AN INCOME-TAX OFFICER ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND I T HAS RESULTED IN LOSS OF REVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME-TAX OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE, UNLESS THE VIEW TAKEN BY THE INCOME-TA X OFFICER IS UNSUSTAINABLE IN LAW.' 25. APPLYING THE AFORESAID TESTS TO THE FACTS OF THE C ASE IT IS NOT POSSIBLE TO UPHOLD THE ORDER OF THE TRIBUNAL AS REGARDS JURI SDICTION AFTER CONSIDERING THE LAW ENUNCIATED BY THE APEX COURT. T HE ASSESSING OFFICER AFTER MAKING DUE INQUIRIES, AS NOTED HEREIN BEFORE, ADOPTED ONE VIEW AND GRANTED PARTIAL RELIEF UNDER SECTION 80-I OF THE ACT. THE COMMISSIONER OF INCOME-TAX TAKES A DIFFERENT VIEW O F THE MATTER. HOWEVER, THAT WOULD NOT BE SUFFICIENT TO PERMIT THE COMMISSIONER OF INCOME-TAX TO EXERCISE POWERS UNDER SECTION 263 OF THE ACT BECAUSE WHEN TWO VIEWS ARE POSSIBLE AND THE COMMISSIONER OF INCOME-TAX DOES NOT AGREE WITH THE VIEW TAKEN BY THE ASSESSING OFFI CER, THE ASSESSMENT ORDER CANNOT BE TREATED AS ERRONEOUS AND PREJUDICIA L TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAINABLE IN LAW. THAT IS NOT THE POSITION IN T HE PRESENT CASE. IN FACT EVEN THE PARTIAL DENIAL OF RELIEF UNDER SECTION 80- I OF THE ACT HAS BEEN FOUND TO BE INCORRECT BY THE APPELLATE AUTHORITY. T HEREFORE, EXISTENCE OF TWO VIEWS STANDS ESTABLISHED. IN THE AFORESAID CIRC UMSTANCES, THE COMMISSIONER OF INCOME-TAX COULD NOT HAVE EXERCISED JURISDICTION UNDER SECTION 263 OF THE ACT AS PER SETTLED LEGAL P OSITION. 26. THE VIEW EXPRESSED BY THIS COURT IN THE CASE OF SH ASHI THEATRE (P.) LTD. (SUPRA), THEREFORE, IS IN CONSONANCE WITH NOT ONLY THE REQUIREMENT OF LAW BUT CONCLUDES THE ISSUE INSOFAR AS THE PRESE NT CASE IS CONCERNED. JUST AS IT IS NOT POSSIBLE TO DECIDE GRANT OF INVES TMENT ALLOWANCE IN RELATION TO ONE OR THE OTHER ITEM WITHOUT CONSIDERI NG THE ELIGIBILITY THEREOF, SIMILARLY DEDUCTION UNDER SECTION 80-I OF THE ACT CANNOT BE CONSIDERED WITHOUT DECIDING WHETHER A PARTICULAR PO RTION OF PROFITS AND ITA NO.903/AHD/2017 K. R. MEDICAL CLINIC PHARMACY V. PCIT ASST.YEAR 2012-13 - 13 - GAINS HAS BEEN DERIVED FROM AN INDUSTRIAL UNDERTAKI NG WHICH FULFILS THE REQUISITE CONDITIONS STIPULATED BY THE SECTION. 27. IN THE AFORESAID SET OF FACTS AND CIRCUMSTANCES OF THE CASE AND THE VIEW THAT THE COURT HAS ADOPTED, IT IS NOT NECESSAR Y TO ENTER INTO ANY DISCUSSION AS REGARDS MERITS OF THE CONTROVERSY WHI CH HAS BEEN BROUGHT BEFORE THIS COURT BY THE OTHER QUESTIONS AT THE INS TANCE OF THE ASSESSEE AND THE QUESTION AT THE INSTANCE OF THE REVENUE. TH E REFERENCE IS ANSWERED ACCORDINGLY BY HOLDING THAT THE TRIBUNAL C OMMITTED AN ERROR IN UPHOLDING THE EXERCISE OF POWERS UNDER SECTION 2 63 OF THE ACT BY THE COMMISSIONER OF INCOME-TAX TO BE VALID IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WHEN NOT ONLY WAS THERE A PROHIBITION AS STIPULATED BY EXPLANATION (C) OF SECTION 263 OF THE ACT BUT EV EN THE TWIN REQUIREMENTS, VIZ., PRE-CONDITIONS FOR EXERCISE OF JURISDICTION UNDER SECTION 263 OF THE ACT WERE NOT FULFILLED. 5.11 THE LD AR ALSO SUBMITTED THAT THE CIRCULAR WAS ISSUED DATED 01-08- 2012 WHICH IS EFFECTIVE FROM A.Y. 2013-14. THEREFOR E, THE SAME CANNOT BE APPLIED TO THE YEAR UNDER CONSIDERATION. 6. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT THE RE WAS NO DISCUSSION IN THE BODY OF THE ASSESSMENT ORDER. THE REFORE NO INFERENCE CAN BE DRAWN THAT THE AO HAS APPLIED HIS MIND TO TH E DISPUTED ISSUE DURING THE ASSESSMENT PROCEEDINGS. THE LD. DR VEHEM ENTLY SUPPORTED THE ORDER OF THE LD. CIT. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ISSUE IN THE INSTANT CASE RELATES TO THE FACTS WHETHER THE ORDER PASSED BY THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. ITA NO.903/AHD/2017 K. R. MEDICAL CLINIC PHARMACY V. PCIT ASST.YEAR 2012-13 - 14 - 7.1 IN THIS REGARD, WE FIND THAT THE LD CIT U/S 263 HAS HELD THAT THE ORDER OF THE AO IS ERRONEOUS IN SO FAR PREJUDICIAL TO THE INTEREST OF THE REVENUE ON ACCOUNT OF NON-VERIFICATION OF THE COMMI SSION EXPENSES. HOWEVER, WE DISAGREE WITH THE FINDING OF LD CIT U/S 263 OF THE ACT ON THE GROUND THAT THE AO HAS APPLIED IS MIND DURING T HE ASSESSMENT PROCEEDINGS WITH REGARD TO THE COMMISSION EXPENSES, WHICH HAS BEEN ELABORATELY DISCUSSED IN THE PRECEDING PARAGRAPH. 7.2 ONCE, IT IS CLEAR THAT THE NECESSARY VERIFICATI ON WAS CARRIED OUT BY THE AO DURING THE ASSESSMENT PROCEEDINGS THEN THE A SSESSMENT ORDER CANNOT BE HELD AS ERRONEOUS IN SO FAR PREJUDICIAL T O THE INTEREST OF REVENUE ON THE GROUND OF NON-VERIFICATION. IN THIS REGARD, WE FIND SUPPORT AND GUIDANCE FROM THE JUDGMENT OF NIRMA CHEMICAL WORKS PVT. LTD.(SUPRA). 7.3 THE NEXT QUESTION WHICH MAY ARISE WHETHER THE V ERIFICATION/ INQUIRY CONDUCTED BY THE AO DURING THE ASSESSMENT P ROCEEDINGS IS ADEQUATE OR INADEQUATE. IN THIS CONNECTION, WE NOTE THAT THE ORDER OF THE AO CANNOT BE HELD ERRONEOUS IN SO FAR PREJUDICIAL T O THE INTEREST OF REVENUE EVEN THE AO HAS CONDUCTED INADEQUATE INQUIR Y DURING THE ASSESSMENT PROCEEDINGS. WE FIND SUPPORT AND GUIDANC E FROM THE JUDGMENT OF GABRIEL INDIA LTD. (SUPRA). ITA NO.903/AHD/2017 K. R. MEDICAL CLINIC PHARMACY V. PCIT ASST.YEAR 2012-13 - 15 - 7.4 THUS, WE CONCLUDE THAT THE AO PASSED THE ORDER U/S 143(3) OF THE ACT AFTER VERIFICATION AND APPLICATION OF MIND. THU S ON THIS GROUND, THE ORDER OF THE AO CANNOT BE HELD ERRONEOUS IN SO FAR PREJUDICIAL TO THE INTEREST OF THE REVENUE. 7.5 AS WE HAVE DECIDED THE ISSUE IN FAVOR OF THE AS SESSEE ON THE TECHNICAL COUNT, THEREFORE, WE REFRAIN OURSELVES FR OM ADJUDICATING THE OTHER GROUNDS/ARGUMENTS RAISED BY THE LD AR AND LD DR IN THE COURSE OF THE HEARING. THUS, THE ASSESSEE SUCCEEDS IN THIS AP PEAL. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 26/09/2018 SD/- SD/- E/KQFERK JKW; E/KQFERK JKW; E/KQFERK JKW; E/KQFERK JKW; OLHE VGEN OLHE VGEN OLHE VGEN OLHE VGEN U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; YKS[KK LN YKS[KK LN YKS[KK LN YKS[KK LNL; L; L; L; (MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 26/09/2018 PRITI YADAV, SR.PS !'# $#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. & '( ) / CONCERNED CIT 4. ) () / THE CIT-5, AHMEDABAD. 5. ,-. //'( , '(# , 12$&$ / DR, ITAT, AHMEDABAD. 6. .34 5 / GUARD FILE. % & / BY ORDER, , / //TRUE COPY// '/& () ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD