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2021 (1) TMI 557 - AT - Income TaxRevision u/s 263 - payments made by the Assessee to doctors disallowed u/s 37 - Disallowance u/s 14A read with rule 8D - allowability of expenses u/s 43B - HELD THAT - We do not agree with the conclusion of the Ld. PCIT that he had concluded that the order was erroneous, but has not made further investigation to determine, whether the order passed by AO is prejudicial to the interest of revenue. Instead, he remitted this issue back to AO to verify and investigate the issue once again and finalize the assessment order. PCIT should have verified or investigated the issue afresh by asking the assessee to submit all relevant information. Assessee claims the payments were made to doctors on regular consultancy fees and not relating to freebees. It is the duty of Ld. PCIT to establish that these payments were in fact freebees and not regular consultation fees, without actually finding that these are freebees and payments are in violation of conditions specified in Circular No. 5 of 2012, he proceeded to annul the assessment order. The issue involved in this appeal is, whether payments are consultancy fees or freebees. AO has proceeded with the view that there are regular consultancy fees and accepted the submissions of assessee. AO did not discuss anything in his order. The department taking clue from audit query, they are presuming that the payments are relating to freebees. There is no evidence brought on record by the revenue authorities to substantiate that there were actually freebees. Mere presumption without any cogent material to indicate that these payments are actually freebees is far fetched. In our view, Ld. PCIT has not determined the other condition how it is prejudicial to the interest of revenue. As discussed above, the payments were made to doctors, is it freebees or not is the issue. If it is freebees, it is the duty of Ld. PCIT to bring on record that these payments are in fact disallowable under section 37 of the Act. There are various decisions submitted before us by Ld. AR that the payment made to doctors by the pharmaceutical companies and allied healthcare industries are not in violation of Circular No. 5 of 2012. It is applicable only to the practicing doctors. As discussed above, Ld. PCIT has not clearly brought on record that the payments were actually in contravention of circular and provision of section 37(1) of the act. Even on disallowance under section 14A, from the records submitted before us, clearly indicate that the relevant information was submitted before AO and AO has accepted the submissions made by assessee and AO came to conclusion and taken one of the views, which may not be acceptable to Ld. PCIT. PCIT has come to conclusion that the order passed by AO is erroneous, but has not verified nor investigated to determine the other condition i.e. how it is prejudicial to the interest of revenue. As held in numerous case law and it is settle position of law that to initiate proceedings under section 263, twin conditions has to be satisfied. In the given case, Ld. PCIT has not fulfilled second condition before initiating proceedings under section 263 - Decided in favour of assessee.
Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act. 2. Examination of professional fees paid to doctors. 3. Disallowance under Section 14A of the Income Tax Act. 4. Disallowance under Section 43B of the Income Tax Act. 5. Applicability of CBDT Circular No. 5 of 2012. Detailed Analysis: 1. Jurisdiction under Section 263 of the Income Tax Act: The assessee challenged the jurisdiction of the Principal Commissioner of Income Tax (PCIT) to initiate proceedings under Section 263 of the Income Tax Act. The PCIT had issued a notice under Section 263, questioning the assessment order passed by the Assessing Officer (AO) on the grounds that it was erroneous and prejudicial to the interests of the revenue. The Tribunal observed that for the PCIT to invoke Section 263, it must be established that the AO's order was both erroneous and prejudicial to the interests of the revenue. The Tribunal noted that the PCIT had primarily relied on an audit objection and had not conducted an independent inquiry. Citing the Delhi High Court's decision in CIT v. Delhi Airport Metro Express (P.) Ltd, the Tribunal emphasized that the PCIT must undertake an inquiry himself before remanding the matter to the AO. The Tribunal concluded that the PCIT had not fulfilled this requirement and thus, the invocation of Section 263 was not justified. 2. Examination of Professional Fees Paid to Doctors: The PCIT had raised concerns about the professional fees amounting to ?70.89 crores paid to doctors, suggesting that these payments might be in violation of CBDT Circular No. 5 of 2012. The assessee argued that these payments were for professional services rendered by doctors and were not freebees. The Tribunal noted that the AO had accepted the assessee's claim regarding these payments during the original assessment proceedings. The Tribunal also observed that the PCIT had not provided any evidence to suggest that these payments were in the nature of freebees. The Tribunal concluded that the PCIT had not established how the AO's acceptance of these payments was prejudicial to the interests of the revenue. 3. Disallowance under Section 14A of the Income Tax Act: The PCIT had also questioned the AO's computation of disallowance under Section 14A, arguing that the AO had failed to exclude fictitious assets and had considered the net value of investments instead of the gross value. The Tribunal observed that the assessee had provided detailed submissions to the AO regarding the computation of disallowance under Section 14A. The AO had accepted these submissions and made a disallowance accordingly. The Tribunal noted that the PCIT had not provided any specific reasons or evidence to suggest that the AO's computation was erroneous or prejudicial to the interests of the revenue. 4. Disallowance under Section 43B of the Income Tax Act: The PCIT had directed the AO to examine the disallowance under Section 43B, despite not issuing any notice to the assessee on this point. The Tribunal held that the PCIT's direction to examine disallowance under Section 43B was beyond the scope of the show cause notice issued to the assessee. Citing the Punjab and Haryana High Court's decision in CIT v. Roadmaster Industries of India Ltd, the Tribunal emphasized that the assessee must be given notice and an opportunity to respond on all grounds on which the PCIT seeks to revise the assessment order. The Tribunal concluded that the PCIT's direction on this point was in violation of the principles of natural justice. 5. Applicability of CBDT Circular No. 5 of 2012: The PCIT had relied on CBDT Circular No. 5 of 2012 to question the payments made by the assessee to doctors. The assessee argued that the circular was applicable only to medical practitioners and not to companies in the healthcare sector. The Tribunal referred to several decisions, including Solvay Pharma India Ltd v. PCIT and DCIT v. PHL Pharma (P.) Ltd, which had held that CBDT Circular No. 5 of 2012 was applicable only to medical practitioners and not to pharmaceutical companies or allied health sector industries. The Tribunal concluded that the PCIT had erred in applying the circular to the assessee's case. Conclusion: The Tribunal concluded that the PCIT had not established that the AO's order was both erroneous and prejudicial to the interests of the revenue. The Tribunal set aside the order passed under Section 263 and allowed the appeal filed by the assessee. The Tribunal emphasized the need for the PCIT to conduct an independent inquiry and provide specific reasons and evidence before invoking Section 263.
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