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TMI Blog2018 (8) TMI 1183X X X X Extracts X X X X X X X X Extracts X X X X ..... d on facts in deleting the disallowance of Rs. 47,20,260/- u/s.37 of the Act, without properly appreciating the facts of the case and the material brought on record. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. 4. It is, therefore, prayed that the order of the Ld. CIT(A) may be set aside and that of the Assessing Officer may be restored to the above extent. 5. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary." 3. The first issue raised by the Revenue in this appeal is that ld. CIT(A) erred in deleting the addition made by the AO for Rs. 10,77,754/- u/s 194A r.w.s. 40(a)(ia) of the Act. 4. Briefly stated facts are that the assessee in the present case is a limited company and engaged in the business of Imports & Re-sale of Medical Electronics Equipment & Providing after sales & warranty services for the same. The assessee during the year has claimed interest expenses, which were paid to Non-Banking Financial Companies amounting to Rs. 10,77,754/- only. However, the assessee failed to deduct the TDS on the payment of interest made to such compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir taxable income and the companies have also filed their returns of income and paid the taxes due. The A.O in the remand report has objected to the furnishing of Form 26A stating that as per Rule 31ACB, the certificate of the accountant is to be furnished to the DG[Systems] or to a person authorized by him. A perusal of the relevant Rule shows that Rule 31ACB prescribing the furnishing of Form 26A to DGIT (Systems) or person authorized by DGIT (Systems] was substituted by the IT (Second Amdt] Rules, 2013, w.e.f. 19-2-2013. Prior to its substitution, rule 31ACB, as inserted by the IT (Eleventh Amdt.) Rules, 2012, reads as under: "31ACB. Form for furnishing certificate of accountant under the first proviso to subsection (1) of section 201. - The certificate from an accountant under first proviso to sub section (1) of section 201 shall be furnished in Form No. 26A." Thus, the requirement for furnishing certificate to DGIT(Systems) has been incorporated w.e.f. 19-2-2013 only and prior to amendment on 19-2-2013, ie during the year under consideration in the instant case, there was no requirement of furnishing Form 26A before DGIT(Systems). In view of the fact that Form 26A has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return of income, then the payer (the assessee herein) should not be treated as assessee in default. The said proviso reads as under : Consequences of failure to deduct or Pay 201. (1) Where any person, including the principal officer of a company,- (a) who is required to deduct any sum in accordance with the provisions of this Act; or (b) referred to in sub-section (1A) of section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax: [Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident- (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision rendered thereon is reproduced herein below for the sake of clarity:- "Question: Whether the second proviso to Section 40(a)(ia) (inserted by the Finance Act, 2012), which states that TDS shall be deemed to be deducted and paid by a deductor if resident recipient has disclosed the amount in his return of income and paid tax thereon, is retrospective in nature or not?" Held: Section 40(a)(ia) was introduced by the Finance (No.2) Act, 2004 to ensure that an expenditure should not be allowed as deduction in the hands of an assessee in a situation where income embedded in such expenditure has remained untaxed due to tax withholding lapses by the assessee. Hence, section 40(a)(ia) is not a penalty provision for tax withholding lapse but it is a provision introduced to compensate any loss to the revenue in cases where deductor hasn't deducted TDS an amount paid to deductee and, in turn, deductee also hasn't offered to tax income embedded in such amount. The penalty for tax withholding lapse per se is separately provided under section 271C and, therefore, section 40(a)(i) isn't attracted to the same. Hence, an assessee could not be penalized under section 40(a)(ia) when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under explanation to Section 37(1) of the Act. The AO in support of his claim placed reliance on the CBDT Circular No.5 of 2012 issued on 01.08.2012. Accordingly, the AO disallowed the expenses and added to the total income of the assessee. 9. Aggrieved, assessee preferred an appeal before ld. CIT(A). The assessee before the ld CIT(A) submitted that sales promotion expenses were incurred by supplying accessories to its actual customers/buyers and these were not supplied to any third party. The assessee furnishes the breakup of sales promotion expenses, which is reproduced as under: "(a) Government Sale (Accessories) : 3829092 These expenses include UPS, printer, spares, electrical, DVDs required for running and handling the machine. (b) Doctors/Hospitals Sales (Accessories) : 479094 These expenses include UPS, printer, spares, electrical DVDs required for running and handling the machine. (c) Sundry, spares, electrical items, etc. : 412074 Total Sales Promotion expenses 4720260" The assessee also submitted that there was no show-cause notice issued by the AO before making the disallowance of sales promotion expenses. Similarly, the disallowance has been made mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... III, Ahmedabad vide his order No. CIT(A)-VIII/DCIT/Cir-4/131/12-13 dated 11.10.2013. Respectfully following the decision of my predecessor and in view of the facts of the case, the addition of Rs. 47,20,260/- is deleted. Ground of appeal No.3 is accordingly allowed." Being aggrieved by the order of ld CIT(A) Revenue is in the second appeal before us. The ld. DR before us submitted that the activity of the assessee falls under the allied health sector industry. Therefore, the Circular is very much applicable to the assessee. The Circular was issued by CBDT dated 05/2012 but it was applicable retrospectively. In this regard, the ld DR relied on the judgment of Hon'ble High Court of Himachal Pradesh in the case of Confederation of Indian Pharmaceutical Industry (SSI) (having its registered office at A- 3/314, First Floor, Paschim Vihar, New Delhi - 110063) through its Vice President Sh. T.C. Kansal (Director) M/s Systol Remedies Pvt. Ltd., Trilokpur Road, Opp. Petrol Pump, Kal Amb, Distt. Sirmour (H.P.) vs. 1. The Central Board of Direct Taxes, Norht Block, New Delhi - 1100001, 2. Union of India, through Secretary Ministry of Finance, North Block, New Delhi - 110001 vide CWP No.1079 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors and other professional association free of cost are prohibited in terms of Circular No.5/2012 issued by CBDT dated 01.08.2012. However, the ld CIT(A) reversed the order of AO by observing that the assessee is not a pharmaceutical company. Therefore, the Circular issued by CBDT cannot be applied. The ld. CIT(A) also observed that the assessee had not supplied any item free of cost to the hospitals, but these items were representing part of the machinery and equipments supplied to various parties. Now the issue before us arises for our adjudication ase detailed as under: i. Whether the Circular No.5/2012 issued by CBDT is applicable retrospectively or prospectively. ii. Whether the assessee falls under the category of pharmaceutical company/allied sector undertaking as discussed above. iii. Whether the items supplied by the assessee are part of the machines / equipments supplied to the customers. At the onset, we note that the CBDT circulars are not binding on the Tribunal as held by the Hon'ble Apex Court in the case of CIT Vs. Hero Cycles Private Limited reported in 94 taxman 271 wherein it was observed as under : 14. Moreover, it is well-settled that circulars can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... del : MY LAB 20 PLUS 75 Nos. Euro 9900 Euro 742500 +Custom Duty @ 9.61% Rs.56,817=00 Rs.42,61,275=00 1 Disply-15" high resolution LCD Monitor, Non Interlace, Flicker Free Monitor a) 1024 or more number of channels b) Dynamic range > 150 c) Speckle reduction d) 4D upgradeability of the machine must be more than 25 volumes per second which is optional & price must be fixed. e) Application-Adomen, Obstetrics, Gynaecology, Cardiology, Urology, small parts 2 Broad Bank Multi Frequency Probe- Probe details: * 2 to 5 MHz Frequency Convex Probe - 192 elements and 40 R foot print size. * 3.12 MHz Frequency transvaginal angled probe 192 elements and 10-12 Footprint size. 4 Display mode-B, B+B, B+M, M,CINE (500 frames - Cine Storage). Color mode, bidirectional power Doppler, triplex live, dual live-color & B/w simultaneous. More than 256 frames per second. 5 Digital Scan Converter 512x512x8 with 256 Gray scales. 6 Depth up to 30 Cms (probe dependent) 7 Image processing Separate controls for Dynamic range, gain TGC, Focus, Post Processing and Frame Filters. 8 Magnification 4 x (both in live/ Frozen mode) 9 General Measurements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e explanation to Section 37(1) makes it clear that any expenditure incurred by an assessee for any purpose which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession. The sum and substance of the circular is also the same. In case the assessing authorities are not properly understanding the circular then the remedy lies for each individual assessee to file appeals under the Income-tax Act but the circular which is totally in line with Section 37(1) cannot be said to be illegal. In fact para 4 of the circular quoted hereinabove itself clarifies that the value of the freebies enjoyed by the medical practitioner is also taxable as business income or income from other sources depending on the facts of each case. Therefore, if the assessee satisfies the assessing authority that the expenditure is not in violation of the regulations framed by the medical council then it may legitimately claim a deduction, but it is for the assessee to satisfy the assessing officer that the expense is not in violation of the Medical Council Regulations referred to above. 4. We, therefore, find no merit in the petition, which is accordingly rejected. No ..... X X X X Extracts X X X X X X X X Extracts X X X X
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