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2016 (9) TMI 1041 - ITAT AHMEDABAD

2016 (9) TMI 1041 - ITAT AHMEDABAD - TMI - Disallowance of expenditure considering it as non-business expenditure being gifts given to Doctors - Held that:- We observe that assessee has duly accepted to have given the gifts on various items including mobile phone, jewellery, dinner set etc. to various doctors or maintaining cordial business relationship. We further observe that ld. CIT(A) has rightly observed that all these doctors are earning professional income in the course of providing profe .....

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view that ld. CIT(A) has rightly sustained the addition. We uphold the same and dismiss the ground of assessee. - TDS u/s 194J - payments made to doctors as allowable without deducting TDS - disallowance u/s 40(a)(ia) - Held that:- Respectfully following the judgment of Hon. Delhi High Court in the case of CIT vs. Ansal Landmark Township (P) Ltd. (2015 (9) TMI 79 - DELHI HIGH COURT) and Rajeev Kumar Agarwal vs. Addl. CIT (2014 (6) TMI 79 - ITAT AGRA) wherein it was held that the second provi .....

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tax return by the recipients. Needless to mention that adequate opportunity will be provided to the assessee for filing necessary details to show that the said recipients have reflected the receipts in their books of account and offered the same to tax in the period under consideration. In case the Assessing Officer finds that the recipients have duly paid the taxes on the income, the addition made by the Assessing Officer shall stand deleted. This ground of assessee is allowed for statistical p .....

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stated facts of the case as culled out from the records are that the assessee is a company engaged in the business of running Heart Institute, Critical Care Centre and Diagnostic Centre. Return of income was filed on 29.9.2009 declaring total income at ₹ 86,48,170/-. Case was selected for scrutiny assessment and after making certain additions of ₹ 70,71,345/- income was assessed at ₹ 1,55,19,515/-. 3. Aggrieved, assessee went in appeal before ld. CIT(A) and got part relief. 4. .....

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relating to confirmation of disallowance of expenditure of ₹ 5,97,314/-. During the course of assessment proceedings ld. Assessing Officer came across the expenditure of ₹ 6,44,699/- towards gift expenses. On further perusal it revealed that there were two ledger accounts out of which one related to gifts to employees during the festival occasion at ₹ 47,385/- and the other account relating to gifts given to doctors in total ₹ 5,97,314/-. The assessee was unable to provid .....

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counts for gift expenditures. One ledger account is for gift given to the employees of the appellant. In this account, small sums mostly amounting to ₹ 500/-have been paid to employees as Diwali gift. The total of such expenditure comes to ₹ 47,385/-, Since these are payments made to the employees on the occasion of Diwali, birthday etc., hence, the same are allowable as expenditure for the purpose of business of the appellant as they are also covered by the provisions of FBT. , 5.5 .....

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ases of gifts for doctors', 'amount paid to doctors for gift expenses', 'purchases of Nokia mobile phones for doctors' etc. will not make these expenditures having been incurred for the purpose of ;business. Hence, these are not allowable on account of being non-verifiable. Moreover, if these gifts have been given to doctors, then as per provisions of section 28(iv), the value of these gifts will become income of these doctors arising from the profession being carried on by t .....

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ft expenditures are disallowable as per provisions of section 40(a)(ia) also. 5.6 Accordingly, it is held that the disallowance of expenditures of ₹ 5,97,314/- by the A.O. is correct and accordingly this ground of appeal relating to this amount is dismissed. 6. Ld. AR submitted that - The Assessee has incurred the expenditure of ₹ 5,97,314/- on gifts to doctors for maintaining cordial business relationships with the doctors. The Assessee runs a hospital named "Baroda Heart Insti .....

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ionships with all leading doctors in the cardiac field. The Assessee has given gifts to various doctors on the occasion of birthday or Oivvali to maintain business relationship. The expenses are in the nature of business promotion expenses and therefore the same are allowable u/s. 37 of the Act. The expense incurred are directly related to the business of the Assessee. In the case of ACIT v. Liva Healthcare Ltd. ITA No. 847/Mum/2012 for AY 2008- 09 similar addition was deleted. The AO had disall .....

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expenditure and allowable as deduction. [Polyplex Corporation Ltd. Vs. ITO.(2009) 122 TTJ (Del) 949] We rely on decision of the ITAT. Ahd in case of Surat Electricity Co. Ltd. Vs. ACIT [(2010) 128 TTJ (Ahd) 696J]where it was held that if the expenditure has been incurred by the assessee voluntarily, even without necessity, hut it is for promotion of business, the deduction would be permissible u/s. 37(1). We also rely on decision of Hon'ble Karnataka High Court in case of Mysore Kirloskar L .....

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lery, dinner set etc. to various doctors or maintaining cordial business relationship. We further observe that ld. CIT(A) has rightly observed that all these doctors are earning professional income in the course of providing professional services and they have received these gifts. We agree with this view that looking to the materiality of the amount which is ₹ 5,97,314/- it was necessary on the part of the assessee to provide complete details containing names, addresses of the doctors who .....

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ing Officer came across the expenditure in the name of laboratory charges of ₹ 53,41,049/-. Prima facie ld. Assessing Officer was of the belief that this amount being expenditure in the nature of professional fees paid to Dr. Dhiren Shah and others, was required to be subjected to tax u/s 194J of the Act. However, when the same was enquired from assessee it came up that no such TDS has been deducted. As per assessee reason for non-deduction of TDS was that services were provided by Dr. Dhi .....

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ons of section 40(a)(ia) of the Act and disallowed the expenditure of ₹ 53,41,049/- for nondeduction of TDS u/s 194J of the Act. Aggrieved, assessee when came in appeal before ld. CIT(A) but could not succeed as ld. CIT(A) sustained the addition by observing as under :- 6.6 I have considered the contentions of the A.O. and the agreement between the appellant and Dr. Dhiren Shah. From the Agreement clause (c), it is evident that the hospital has agreed to provide. facilities to Dr. Dhiren S .....

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ppellant's claim that Dr. Dhiren Shah is not providing any professional services to the hospital is not correct. The appellant is running a Heart Care Institute and it is well known that for smooth running of such type of hospital, laboratory services are a must. Without such services, the hospital simply cannot run. To say that the laboratory is only serving the interest of the patients and not the hospital is incorrect statement. The laboratory is serving the patients only through the hosp .....

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use (c) says that the doctors shall keep informed the company and staff about the charges to be levied for different types of tests and also educate the staff of the company for raising the bills and making collection for the charges for different tests and services rendered through the laboratory. Clause (e), similarly, states that in spite of patient admitted to the hospital and test covered by the package offered by the hospital, the Doctor shall not directly raise any bill or recover charges .....

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nal services to the ital. The persons availing these packages are visiting the hospital knowing only about the hospital and they are not concerned as to where these tests are carried out. The location of the laboratory in the premises of the hospital and also similarity in the names shows that for all practical purposes, this laboratory is being declared to public as part and parcel of the hospital. Hence, it is evident that the laboratory is making professional services to the hospital and not .....

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p a control on the doctor in order to see that he is not over charging them. Thus, these also shows that the doctor is providing professional services to the hospital only. 6.8 Similarly, clause (k) makes it obligatory on the doctor and his staff to follow the rules and regulations of the hospital and also abide by the directions given by the person in charge of the hospital from time to time for proper administration of the hospital. Similarly, clause (d) of section 3 makes it obligatory on par .....

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tor and keep the said policy in force from time to time. If the appellant's contentions are true and the laboratory was not rendering any professional services to the company, then there would have been no need for the company to take insurance for professional indemnity for the services rendered by the laboratory. The very fact that the company proposed to take insurance for professional indemnity for services rendered by the doctor shows that the company is availing the professional servic .....

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has been mentioned as 'Baroda Heart Institute Clinical Laboratory'. But, watermark on the bill is read as 'BHIRC' which is abbreviated form of 'Baroda Heart Institute & Research Centre' - the name of the hospital being run by the appellant company. It is the contention of the appellant that it provides cardiac care. The presence of this watermark also shows that it is the hospital is representing to the patients that the laboratory services are being rendered by the h .....

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n view of the same provisions of section 1943 cannot be made applicable. But the facts of this decision are different from the case in hand. From the discussions made above, it is clear that the recipient of services rendered by Dr. Dhiren Shah and Dr Sudhir Rao is hospital run by the appellant company and not the patients. Hence, this decision is not applicable to the present case. 6.11 Without prejudice to the other submission made by the appellant in this regard, the appellant has also submit .....

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consideration before ITAT, Kolkata B' Bench in the case of DCIT vs. Ashika Stock Brokings Ltd. 44 SOT 556 (Kol.) vide order dated 19.11.2010, the Bench has refused to follow the decision in the case of Jaipur Vidyut Vitaran Nigam Ltd. (supra) and has held that even if the sum has already been paid to the contractors or the sub-contractors on which tax is deductible at source as per the provisions of the Act, section 40(a)(ia) be attracted. It may be mentioned here that the decision in the ca .....

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40(a)(ia), of professional fees paid to him is upheld. So far as payments made to Dr. Sudhir Rao is concerned, the appellant has not made any submissions or submitted copies of bills etc. of this doctor either before the A.O. or before the undersigned. In the absence of any details, the payments made to Dr. Sudhir Rao of ₹ 6,20,679/- is not allowable in itself. Moreover, in view of the discussions made in the case of Dr. Dhiren Shah and it has been claimed by the appellant that Dr. Sudhir .....

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non deduction of TDS. The AO has treated it as payment of professional fees us. 194J and thereby disallowed the entire payment. Before the AO as well as the CIT(A) it was contended that payment for laboratory charges is not in the nature of professional fees and therefore section 194J is not applicable. However, without admitting and without going into the issue of applicability of section 194J we submit that after insertion of second proviso in section 40(a)(ia) w.e.f. 1-4-2013 disallowance can .....

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Refer para 6 to 8.1 on page 194 to 196 of Index-II. Ansal Land Mark Township (P) Ltd. v. CIT ITA 160/2015 Delhi High Court. Refer para 5 to 14 on page 200 to 207 of Index - II. Selprint v. CITlA) - 33. Mumbai ITA No. 3688/Mum/2012 for AY 2008- 09. Refer para 3 to 6 on page 210 to 212 of Index - II. Santosh Kumar Kedia v. ITO ITA No. 1905/Kol/2014 AY 2007-08. Refer para 10 on page 226 of Index- II. Ballabh Das Agarwal v. ITO ITA NO. 1278/Kol/2011 AY 2008- 09. Refer para 5 to 7 on page 233 to 236 .....

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of hearing ld. AR has submitted that without going into applicability of section 194J of the Act for the payment kindly refer to the second proviso in section 40(a)(ia) of the Act inserted w.e.f. 1.4.2013 as per which disallowance cannot be made in case the assessee proves that the recipient of the sum has included the income in his return of income and has paid due taxes. We further observe that in the case of Ansal Land Mark Township (P) Ltd. vs. CIT in ITA No.160/2015 similar issue came up b .....

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of the Revenue by observing as under :- 13. Turning to the decision of the Agra Bench of ITAT in Rajiv Kumar Agarwal v. ACIT (supra ) , the Court finds that it has undertaken a thorough analysis of the second proviso to Section 40 (a)(ia) of the Act and also sought to explain the rationale behind its insertion. In particular, the Court would like to refer to para 9 of the said order which reads as under: On a conceptual note, primary justification for such a disallowance is that such a denial o .....

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this provision is not for the purpose of penalizing for the tax deduction at source lapses. There are separate penal provisions to that effect. Deincentivizing a lapse and punishing a lapse are two different things and have distinctly different, and sometimes mutually exclusive, connotations. When we appreciate the object of scheme of section 40(a)(ia), as on the statute, and to examine whether or not, on a "fair, just and equitable" interpretation of law- as is the guidance from Hon&# .....

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edded in such expenditure has remained untaxed due to tax withholding lapses by the assessee. It is not, in our considered view, a penalty for tax withholding lapse but it is a sort of compensatory deduction restriction for an income going untaxed due to tax withholding lapse. The penalty for tax withholding lapse per se is separately provided for in Section 271 C, and, section 40(a)(ia) does not add to the same. The provisions of Section 40(a)(ia), as they existed prior to insertion of second p .....

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treated as retrospective in nature even though it may not state so specifically, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced. In view of these discussions, as also for the detailed reasons set out earlier, we cannot subscribe to the view that it could have been an "intended consequence" to punish the assessees for non deduction of tax at source by declining the deduction in respect of related .....

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