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TMI Blog2017 (12) TMI 1552X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty levied 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 26.02.2014. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cil 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 expense incurred in providing above mentioned or similar freebees in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 shall be inadmissible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 notifications from time to time. As per the said regulations, the code of conduct for doctors and professional association of doctors in their relationship with pharmaceutical and allied health care industry and clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. 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 medicines which takes care of health of people. 2.8 In view of the above discussion and in view of Board's Circular, issued in this regards, the A.O. disallowed the payment of commission made by the assessee to the above said t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed 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 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. (6) Thus in case of the assessee there is rejection of the claim o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned 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 claim of the expenditure does not amount to concealment of Income or furnishing of inaccurate particulars of income. The assessee relies on the Honourable Supreme Court's decision in case of CIT vs. Reliance Petroproducts (P) Ltd. [Civil Appeal No 2463 of 2010 dated 17/03/2010." 2.11 The AO has not accepted the explanation of the assessee and levied penalty by observing as under: "8. I have gone through both the submissions dated 04/02/2016 and 06/02/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 sector, the assessee being one of them as supplier of medicines which takes care of health of people. Accordingly the A.O, disallowed the payment of commission made by the assessee to the doctors, totaling to ₹ 41,39,131/-and added to the total income u/s.37(1) of the Act. 10. The assessee filed appeal against the order passed by the A.O., praying for deletion of addition made. The Appellate Authority, Hon. C.I.T(A)-3, Ahmedabad vide his order No. CIT(A)- 3/ITO/3/3/(5)/517/14-15 date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able ₹ 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 leviable is 100% and maximum is 300% of tax sought to be evaded. Considering the facts and circumstances of the case, minimum penalty @ 100% is imposed which works out to ₹ 12,78,996/- as against the maximum penalty of @ 300% of ₹ 38,36,988/-. Issued demand notice and challan. The penalty order U/s.271(l)(c) of the Act has been passed after prior approval of the Addl. CIT, Range-3(3), Ahmedabad vide letter No. Addl.CIT/Range-3(3)/SFP/Penalty/2015-16 dated 17/02/2016." 13. Against the said order assessee preferred first statutory appeal before the ld. CIT(A) who given the following observation and dismissed the appeal of the assessee. "I have gone through the MOU & other submissions made by the appellant in detail. At the outset, it is seen that the MOU has been made on 1-4-2011 i.e. during F.Y. 2011-12 relevant to A.Y. 2012-13. Thus, the payment of commission to the two doctors during the year under consideration i.e. A.Y.2011-12 is not covered by the MOU Notwithstanding this fact, it is also s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 order. Ld. AR submitted an order of co-ordinate bench in ITA No.2546/Ahd/2015 for A.Y.2011-12 in quantum proceeding, wherein Hon'ble Bench held as follows: "5. We shall now turn to the substantive appeal of the assessee. From the perusal of the record, we find that the AO has disallowed commission paid aggregating to ₹ 41,39,131/- to doctors. For this purpose, the Assessing Officer (AO) has relied upon the CBDT Circular No.5/2012 dated 01/08/2012 issued by BDT and observed that the payment made to the doctors contravenes section 37(1) of the Act in view of the Explanation appended to this sub-section. We find that the issue is no longer res Integra and has been examined by the Coordinate Bench of Tribunal in Syncom Formulations (I) Ltd. vs. DCIT in ITA Nos.6429 & 6428/Mum/2012 order dated 23/12/2015. The relevant operative para of the order of the Coordinate Bench is reproduced hereunder:- "5. We have considered rival contentions and found that receiving of gifts by doctors was prohibited by MCI guidelines, giving of the same b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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