TMI Blog2019 (11) TMI 327X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of the Act. Here the simplicitor case is that the assessee during the course of search in the statement recorded under section 132(4) of the Act admitted this to be the income to avoid litigation and to buy peace of mind. It is good piece of evidence for making assessment but not for levy of penalty under section 271AAB of the Act because for levy of penalty falsity of the expense is a pre-requisite under the provision. Hence, we delete the penalty and allow the appeal of the assessee on merits. Appeal of the assessee is allowed - ITA No. 6883/Mum/2016 - - - Dated:- 30-10-2019 - Sri Mahavir Singh, JM And Sri Manoj Kumar Aggarwal, AM For the Appellant : Shri J.D. Mistry, Madhur Aggarwal, AR For the Respondent : Shri Satishchandra Rajore, DR ORDER PER MAHAVIR SINGH, JM: This appeal of assessee is arising out of the order of the Commissioner of Income Tax (Appeals)]-49, Mumbai [in short CIT(A)], in appeal No. CIT(A)-49/IT-180/2015-16 vide dated 21.09.2016. The Assessment was framed by the Dy. Commissioner of Income Tax, Circle-7(2), Mumbai (in short ACIT/ITO/ AO) for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The return of income of the assessee for the year was neither due nor filed on the date of search as the previous year had not ended. The assessee filed its original return of income under section 139(1) of the Act on 26.03.2013 declaring a total income of ₹ 124,62,03,530/- and the assessment under section 143(3) was also made on the same figure of ₹ 124,62,03,530/- on 30.03.2015. In the assessment under section 143(3), there is no addition to the returned income was made and there is no demand on account of tax and interest. 4. During the course to search action, the assessee declared unaccounted additional income under section 132(4) of the Act on the following issues. The assessee claimed that it had voluntarily declared the following items in its return of income filed under section 139(1) of the Act originally. The above chart in Para 3 shows the declared income under section 132(4) of the Act v/s return of income filed under section 139(1) of the Act. 5. In the assessment order under section 143(3) of the Act, the AO at pages 3 to 7 and 9 referred to and stated that penalty under section 271(1)(c) is initiated for furnishing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Purchases of capital goods resulting in excess claim of depreciation: ₹ 15,95,863/- The Penalty was levied by the AO and confirmed by the CIT(A). The CIT(A) has decided the issues as under: - 7.4.2. I find that, the appellant has admitted to erroneous and false nature of the expenses recorded in the books of accounts and has admitted to such undisclosed income in trio course of statement given u/s. 132(4) of the Act. Further, other conditions stated in section 271kAB(a) have been satisfied The assessment year falls within the specified previous year as per clause (b) and the undisclosed income admitted falls within the meaning of *undisclosed income as per clause (c) (ii) to Explanation below section 271AAB which is defined as any income of the specified previous year represented either wholly or partly by any entry in respect of an expenses recorded in the books of account or other documents maintained in the normal course relating to the specified previous year which is found to be false and would not have been found to be so had the search not been conducted. I find that the appellant has wrongly claiming the expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levy of penalty with respect to the amount of undisclosed income of ₹ 43114706/-, on account of expenses admitted as undisclosed income in the statement given u1s132(4) of the Act, during the search. since the disallowances of ₹ 408.20,3191- has been made by the appellant in the return of income on its own. The A 0. is accordingly directed to recompute the quantum of penalty by restricting the undisclosed income on account of inadmissible payment to doctors, for levy of penalty uIs.271AAB to ₹ 431.14.706/- and allow appropriate relief to the appellant Ground No.4 and 5 are allowed and Ground No. 7 is partly allowed. 7.4.4 As regards expense on doctors, it has been held in the case of ACIT Vs. Liva Healthcare Ltd reported at (2016] 73 taxmann.com 171 (Mumbai - Trib) that the CBDT circular No 5/2012 dated 1108/2012 is Clarificatory and clarifies that any expenses incurred in violation of the provisions of Indian Medical Council (Professional Conduct. Etiquette and Ethics) Regulations. 2002 shall be inadmissible under section 37(1) of the Income Tax Act. being an expense prohibited by the law. Therefore, the additional income offered on this accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion can be allowed as a deduction or not. The assessee submits that the said amount cannot be said to be undisclosed income so as to come within the ambit of section 271AAB of the Act. The assessee has not claimed the expenses in the return of income on the ground that the said expenses may not come within the ambit of section 37 of the Act in view of Circular No. 5/2012 dated 01.08.2012 issued by the Central Board of Direct Taxes. The assessee submits that the claim and allowability of deduction under the Act would be examination and determination by the assessee at the time of filing of income. Therefore, the assessee argued that once expenditure has been incurred and recorded in the books of the assessee, the same cannot be said to be an 'undisclosed income' on the ground that it is an inadmissible expenditure under the Act. The assessee stated that 'undisclosed income' is defined in clause (c) of the Explanation to section 271AAB of the Act as under:- Explanation. -For the purposes of this section, (c) undisclosed income means- (c) any income of the spec/fled previous year represented, either wholly o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not made any claim of such expenses under section 35(2AB) of the Act till the time of the search, as the claim of the same would be made while filing the return of income. The assessee stated that there is no dispute that expenditure has been incurred by the assessee. The only question is whether the same has been used for the purpose of research and development or not, which would be determined only after the audit and finalization of the books of account. Therefore, the assessee argued that for the detailed reasons given for the 'sales promotion expenses', the expenses on Research and development expenses cannot be said to come within the ambit of undisclosed income under section 271AAB of the Act. 12. The next item of Sales promotion expenses of ₹ 4,08,20,319/- incurred after the date of search. It was contended that the AO erred in applying section 271AAB of the Act even to 'sales promotion expenses' of ₹ 4,08,20,319/- admittedly incurred subsequent to the date of the search. The assessee explained that the sales promotion expenses incurred after the date of search and disallowed by the assessee voluntarily in filing the return of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of any disallowance under the explanation to Section 37(1) of the Act does not arise as what can be disallowed is only those items of expenses which are prohibited by Law and not prohibited by any ethical guidelines or anything else. It is further explained that the entire Medical Council Regulations are applicable to the medical professionals and not to the pharma companies. On just a plain reading of the regulations it is clear that what it says is that the medical professionals will not accept any gift etc. from pharma companies but nowhere it says that the pharma companies will not give any gift etc. to medical professionals and accordingly the guidelines are only applicable to medical professionals and not to the pharma companies at all. 15. Accordingly, in view of the above legal position, we noted that the entire expenditure incurred by assessee on doctors are pure marketing business expense required and incurred wholly and exclusively for the purpose of the business of the company and is allowable as a business expense u/s 37(1) of the Act as it is not hit by the explanation thereof. However, at the time of search, it was pointed out by the search party t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentary evidences and proofs of payment. There is no dispute regarding genuineness of incurring of such expenses and it is also not the case of revenue that the expenditure is not incurred. Further, the assessee has recorded this expenditure in the books of account maintained during normal course of business. In regard to disallowance of deduction under section 35(2AB) of ₹4,67,96,325/- and R D stock difference of ₹14,05,680/-. It was contended that the expenses on Research and Development which is entitled for deduction under section 35(2AB) of the Act are as per the books of accounts and recorded in the books of accounts. Further, R D stock difference was consumed in R D but stock register maintained by technical persons was not updated as on the date of the search but during search it was pointed out by the search party that a part of the deduction so claimed may not be utilized be allowable in the assessment. Hence, it was thought that it was not appropriate to contest this claim of deduction and it was decided to withdraw the claim of deduction in the statement under section 132(4) of the Act. In regard to reversal of depreciation of ₹15,95,863/-, the names ..... X X X X Extracts X X X X X X X X Extracts X X X X
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