TMI Blog2017 (12) TMI 1552X X X X Extracts X X X X X X X X Extracts X X X X ..... ied u/s. 271(1)(c) of the Act of ₹ 12,78,996/-. 1.1 The CIT(A) has erred in law and on facts in not appreciating that the commission was paid to the doctors in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulation, 2002. 2. On the facts and circumstances of the case, the Ld. Commissioner of Income tax (A) ought to have upheld the order of the Assessing Officer. 3. It is, therefore, prayed that the order of the Ld. Commissioner of Income tax (A) may be set-aside and that of the Assessing Officer be restored. 2. The brief facts of the case are that in this case, return of income for A.Y. 2011-12 was filed on 29.09.2011 declaring total income of ₹ 1,78,930/-. Assessment was made u/s.143(3) on 26/02/2014 determining total income of ₹ 43,20,960/- after making the following disallowance:- 1. Disallowance of commission ₹ 41,39,131/- 2. Disallowance of penalty ₹ 2,900/- During the course of assessment proceedings, penalty proceedings u/s.271(1)(c) of the Act were initiated for furnishing inaccurate particulars of income. Notice u/s.274 r.w.s 271(l)(c) was issued on 26.02.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utical 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 'Council') which is a regulatory body constituted under the Medical Council Act, 1956. 2. The council in exercise of its statutory powers amended the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 (the regulations) on 10-12-2009 imposing a prohibition on the medical practitioner and their professional associations from taking any Gift, Travel facility, Hospitality, Cash or monetary grant from the pharmaceutical and allied health sector Industries. 3. Section 37(1) of Income Tax Act provides for deduction of any revenue expenditure (other than those failing under sections 30 to 36) from the business Income if such expense is laid out/expended wholly or exclusively for the purpose of business or profession. However, the explanation appended to this sub-section denies claim of any such expense, if the same has been incurred for a purpose which is either an offence or prohibited by law. Thus, the claim of any expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued by the Central Board of Direct Taxes being Circular No.5 of 2012 dated 01/08/2012 clarifies in clear term that Section 37(1) of Income Tax Act provides for deduction of any revenue expenditure (other than those failing under sections 30 to 36) from the business Income if such expense is laid out/expended wholly or exclusively for the purpose of business or profession. However, the explanation appended to this sub-section denies claim of any such expense, if the same has been incurred for a purpose which is either an offence or prohibited by law. In view of the said Circular of the Board, any expense incurred in providing gift, travel facility, hospitality, cash or monetary grant from pharmaceutical and allied health sector industry or similar freebees in violation of the provision of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulation, 2002 is not admissible u/s.37(1) of Income Tax Act, 1961 being an expense prohibited by law. 2.4 The assessee itself had quoted regulations framed by the Medical Council of India namely Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulation, 2002 and the amendment/modification thereto by no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssignment a medical practitioner shall have the freedom to publish the results of the research in the greater interest of the society by inserting such a clause in the MOU or any other document/agreement for any such assignment. In the case of the assessee the fulfillment of the above items is not at all coming on the way as the commission is paid not for such an activity entitling the assessee for claim of such expenses. 2.7 The argument of the assessee that the Circular of the Board speaks about freebies and the same is not applicable to the case of assessee as the commission expenditure cannot be termed as freebies to doctors from pharmaceutical retail stores. The said argument of the assessee cannot be accepted as the same is covered stipulated item being cash or monetary grant but, not for any research, study, etc. through approved institutions by the modalities laid down. The further argument of the assessee that the said Circular is not applicable to the case of assessee as the same is applicable to pharmaceutical industry and the assessee is not an industry is also not acceptable as it applies to allied health sector, the assessee being one of them as supplier of medi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4) The assessee has paid commission to the two doctors namely Dr. Ratilal G. Patel and Dr. Ramanlal S. Patel for consulting them for the purchases of medicines from time to time. The said expenditure has been disclosed in profit and loss account and the necessary details/explanations in this regard called for by the assessing officer were submitted during the course of assessment proceedings. The assessing officer has disallowed the commission expenses by invoking explanation to section 37(1) of the Income tax Act, 1961 and CBDT Circular no 5/2012. The assessee contended that the commission paid is not covered by CBDT Circular no.5/2012 as the assessee is not a pharmaceutical industry and the commission payment to doctors is not freebies. The Honourable Commissioner(Appeal) has not given any findings on this issue and ( 5) confirmed the addition on the ground that the assessee has not received any services from concerned doctors. This issue is being contested before Honourable ITAT, Ahmedabad. In the assessment order there is no findings that the assessee has made concealment of income and there is no such evidence on record. The addition has been mode on interpretation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is covered under the said circular, the said circular is not applicable in assessment year 2011-12. ( 3) The commission paid is not covered by CBDT Circular no.5/2012 as the assessee is not a pharmaceutical industry and the commission payments to doctors are not freebies. The Honourable Commissioner (Appeal) has not given any findings on this issue and confirmed the addition on the ground that the assessee has not received any services from concerned doctors. This issue is being contested before Honourable ITAT, Ahmedabad. In the assessment order there is no findings that the assessee has made concealment of income and there is no such evidence on record. The addition has been mode on interpretation of the applicability or otherwise of CBDT Circular in case of the assessee. In assessment year 2012-13 the Honourable Commissioner (Appeal) has held that CBDT Circular 5/2012 is not applicable to the assessee. Thus the basis on which the disallowance has been made has been removed by the appellate authority in assessee's own case on the same facts of the case. ( 4) Thus in case of the assessee there is rejection of the claim of expenditure only. Mere rejection of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent order is not applicable. The assessee submitted that the payment made by the assessee is not covered by CBDT Circular, the said circular is not applicable in A.Y.2011-12. The decision put forth by the assessee, is of honourable ITAT, Mumbai, and not of Jurisdiction ITAT, Gujarat, Ahmedabad and as such the decision is not binding to this office. The circular no.5/2012 dated 01/08/2012 is applicable in the case of the assessee, since the circular is highlighting/clarifying the provision of section 37(1) of the I. T. Act. The instruction is clearifictory only. In view of the above discussion facts, I find no merits in submission/explanation put forth by the assessee. 9. As discussed in para 3 of the assessment order, the AO. Find that the Circular of the Board is applicable to the case of assessee as the commission expenditure cannot be termed as freebies to doctors from pharmaceutical retail stores, same is covered stipulated item being cash or monetary grant but no for any research, study, etc through approved institutions by the modalities laid down. The A.O. also finds that the said Circular is applicable in the case of assessee being allied health se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear that the assessee had furnished inaccurate particular his income, within the meaning of section 271(1) (c). The computation of penalty is as under; WORKING OF PENALTY U/s.271(1)(c) ( A) Assessed Income as per Order u/s.250 Dtd. /02/2016. Rs.43,20,958/- ( B) Tax on [A] ₹ 13,35,177/- ( C) Concealed Income Rs.41,39,141/- ( D) Assessed Income (-) Concealed Income (A-C) ₹ 1,81,817/- [ E] Tax on D ₹ 56,181/- [ F] ( B-E) ₹ 12,78,996/- [ G] Minimum 100% leviable ₹ 12,78,996/- [ H] Maximum 300% leviable Rs. 38,39,988/- 5. In accordance with the provisions of Section 271(l)(c) of the IT Act, the minimum penalty lev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctors in respect of any kind of advice rendered by them. One of the partners of the appellant firm who also attended appellate proceedings on one of the dates of hearing, produced a hand written note book with the names of medicines claiming that the same had been discussed with the doctors over the phone. The same cannot by any stretch of imagination, be accepted as evidence of services rendered. It is thus seen that the appellant has failed to give any kind of evidence to show that the two doctors to whom commission has been paid, have rendered any services to it. The genuineness of the MOU itself is also not established. Moreover, clause No.3 of the MOD talks of professional fees and not commission, in any case the said MOU does not pertain to the year under consideration. In view of these facts, it is clear that the appellant has not been able to justify the payment of ₹ 41,39,131/- to Dr. Ramanbhai S Patel (Rs. 17,52,130/-) and to Dr Ratilal G Patel.(Rs.23,87,001/-)- The disallowance of ₹ 41,39,131/- u/s. 37(1) of the IT Act is therefore confirmed. Grounds of appeal No. 2 to 4 are dismissed. 14. We have gone through the relevant record and impugned orde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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