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TMI Blog2018 (1) TMI 1623X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act such type of expenditure which are prohibited by law cannot be allowed - HELD THAT:- Assessee has furnished the details of persons to whom the stunts were sold and the AO has collected the evidences only from few persons. The contention of the assessee that sometime discounts were given in the invoice itself were also not properly appreciated or examined by the AO. When certain hospitals have categorically stated that there are two types of patients and one type of patient cashless treatment is to be given by the hospital in that case the hospital purchase the stunts from the assessee company and wherever the cashless treatment is not given, the patient is required to purchase the stunts. The stunt would be directly sold to the patient and the corresponding entries with regard to sale of the stunt is not recorded in the books of accounts of the hospital and the hospital representatives collect the discount by the company agreed upon given by the company. These aspects need to be examined by the AO. In the light of these facts, we are of the considered view that the issue was not been properly examined by the lower authorities and they have disallowed the claim of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e lower authorities before making addition of the cash found during the course of search. Since addition was made without making necessary enquiry, we set aside the order of the CIT(A) and restore the matter to the AO to re-examine the availability of cash during the course of search after making a necessary enquiry in the light of the explanations furnished by the assessee Cash deposit in the bank account - AO noted cash of ₹ 10 lakh was deposited in the bank account but no corresponding entry was found in the cash book - HELD THAT:- We find that assessee has contended before the AO that it was on account of inadvertent mistake, the corresponding entry of deposit of cash was not made on 02.08.2011 in the cash book but it was done on 29.08.2011 though there was no deposit of cash in the bank. But these explanations of the assessee was not examined by the AO nor by the CIT(A). In the light of these facts, we are of the view that since the issue was not properly examined by the lower authorities, matter should be sent back to the AO to readjudicate the issue in the light of assessee s contentions. Accordingly, we set aside the order of the CIT(A) and restore the matter to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The initiation of search and subsequent proceedings are bad in law, without jurisdiction and invalid. 4. The notice u/s 153A of the Act and subsequent proceedings are without jurisdiction and bad in law. 5. The AO / CIT (A) erred in changing opinion on the issues involved in the appeal in the absence of any new information which was not already considered in the earlier assessments done. 6. The order u/s 153A r.w.s. 143(3) of the Act is bad in law and infructuous as the order does not refer to any material which can be said to give rise to undisclosed income or incriminating in nature, hence requires to be cancelled. 7. That the AO / CIT (A) erred in not providing sufficient and adequate opportunity to the appellant as required under law, thereby violating the principles of natural justice, hence the order requires to be cancelled. 8. The AO / CIT (A) erred in not considering the relevant materials, evidences and data, thus the order passed is without application of mind requires to be cancelled. 9. The AO / CIT (A) erred in relying on material and statements without furnishing the same to the appellant before passing of the orders. 10. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was further contended that during the course of second search, no incriminating material was found by the search party on the basis of which the completed assessment can be reopened and assessed further. 5. With regard to AY 2011-12 in ITA No.1925/Bang/2016, the return was filed on 23.09.2011 and the last date for issuance of notice u/s. 143(2) was 30.09.2012. After the expiry of the period for issuing notice u/s. 143(2), the search was conducted on 07.12.2012. In this search no incriminating material was found against the assessee on the basis of which assessment can be framed. In support of the above contentions, the ld. Counsel for the assessee further placed reliance upon the following judgments:- (1) CIT v. Lancy Constructions, ITA Nos.528 to 531/2014 dated 15.12.2015 Karnataka High Court [Paperbook-II, Pages 174 to 179]. (2) DCIT v. Himanshu B. Kanakia, 46 ITR 0756 Trib)(Mum) [Paperbook-II, pages 164 to 173]. (3) CIT v. Singhad Technical Education Society, Civil Appeal No.11080 of 2015 dated 29 August, 2017 [Paperbook-V, pages 790 to 806]. (4) Jagran Prakashan Ltd. v. CIT, 368 ITR 0687 (All) [Paperbook-V, pages 807 to 811]. (5) Kusum Gupta v. DCIT, 35 CCH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the course of search on the basis of which assessment can be framed. The issue whether in the absence of incriminating material, concluded assessment can be reopened or assessed further in the light of search conducted upon the assessee was examined by the Tribunal in the case of DCIT v. P.M.A. Razak Ors. (supra) in detail in the light of various judicial pronouncements and the Tribunal has finally concluded that in the absence of any incriminating material, proceedings u/s. 153A cannot be initiated and concluded assessment cannot be reopened. The relevant observations of the Tribunal are extracted hereunder for the sake of reference:- 14. Having carefully examined the orders of lower authorities in the light of rival submissions and the judgment referred to by the parties, we find that in the case of Canara Housing Development Company, the question of law raised before the Hon ble High Court was with regard to scope of revision under section 263 of the Act with respect to assessment completed under section 143(3) of the Act in the light of the fact that proceedings under section 153A was initiated. For the sake of reference, we extract the question of law referred to Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elopment Company is extracted hereunder for the sake of reference: 10. Section 133A of the Act starts with a non obstante clause. The fetters imposed upon the Assessing Officer by the strict procedure to assume jurisdiction to reopen the assessment under Sections 147 and 148, have been removed by the non obstante clause with which sub section (1) of Section 153A opens. The time-limit within which the notice under Section 148 can be issued, as provided in Section 149 has also been made inapplicable by the non obstante clause. Section 151 which requires sanction to be obtained by the Assessing Officer by issue of notice to reopen the assessment under Section 148 has also been excluded in a case covered by Section 153A. The time-limit prescribed for completion of an assessment or reassessment by Section 153 has also been done away with in a case covered by Section 153A. With all the stops having been pulled out, the Assessing Officer under Section 153A has been entrusted with the duty of bringing to tax the total income of an assessee whose case is covered by Section 153A, by even making reassessments without any fetters, if need be. Therefore, it is clear even if an assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce the assessment is reopened, the assessing authority can take note of the income disclosed in the earlier return, any undisclosed income found during search or and also any other income which is not disclosed in the earlier return or which is not unearthed during the search, in order to find out what is the total income of each year and then pass the assessment order. Therefore, the Commissioner by virtue of the power conferred under Section 263 of the Act gets no jurisdiction to initiate proceedings under the said provision because the condition precedent for initiating proceedings under Section 263 is any order passed under the Act by the Assessing officer is erroneous insofar as it is prejudicial to the interest of the Revenue. Once the order passed by the Assessing officer gets reopened, there is no order which can be said to be erroneous insofar as it is prejudicial to the interest of the Revenue which confers Jurisdiction on the Commissioner to exercise the power of the jurisdiction. 11. The Tribunal has proceeded on the assumption by virtue of the judgment of the special bench of the Mumbai, the scope of enquiry under Section 153A is to be confined only to the undi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtunity to the Revenue to reopen the concluded assessment. The relevant observation of the Hon ble High Court is extracted herein for the sake of reference: 6. In our view, if assessment is allowed to be reopened on the basis of search, in which no incriminating material had been found, and merely on the basis of further investigating the books of account which had been already submitted by the assessee and accepted by the Assessing Officer at the time of regular assessment, the same would amount to the Revenue getting a second opportunity to reopen the concluded assessment, which is not permissible under the law. Merely because a search is conducted in the premises of the assessee, would not entitle the Revenue to initiate the process of reassessment, for which there is a separate procedure prescribed in the statute. It is only when the conditions prescribed for reassessment are fulfilled that a concluded assessment can be reopened. The very same accounts which were submitted by the assessee, on the basis of which assessment had been concluded, cannot be reappreciated by the Assessing Officer merely because a search had been conducted in the premises of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncerned, the jurisdiction to make the original assessment and the assessment under section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. 19. Gujarat High Court has also examined this issue in the case of Pr. CIT Vs. Saumya Construction Pvt. Ltd., and having relied upon the judgment of the Kabul Chawla, Delhi High Court, the Hon ble High Court has held that the very purpose of the provisions of section 153A was to make assessment in the case of search or requisition, thereby it goes without saying that the assessment should be connected with something found during the course of search or the requisition i.e., incriminating materials which reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight of these facts, we have no hesitation in holding that issuance of notice u/s. 153A for completing the assessment is not valid and we accordingly quash the assessment framed consequent thereto. Since we have quashed the assessment, we find no justification to deal with the issues on merit. ITA Nos. 1926 1927/Bang/2016 11. In these appeals, the assessee has assailed the order of CIT(Appeals) inter alia on the common grounds, except difference in quantum. We, however, extract the grounds raised in ITA No.1927/Bang/2016 in which the CIT(Appeals) has passed the lead order and the same was followed in other assessment years on merit:- 1. That the order of the authorities below, in so far as it is against the appellant is against the law, facts, circumstances, natural justice, equity, without jurisdiction, bad in law and all other known principles of law. 2. That the total income computed and the total tax computed is hereby disputed. 3. That the AO / CIT (A) erred in not providing sufficient and adequate opportunity to the appellant as required under law, thereby violating the principles of natural justice, hence the order requires to be cancelled. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and for AY 2013-14 on 20.09.2013. Before concluding the assessment proceedings, the assessee was searched on 07.12.2012. As per provisions of section 153A of the Act, wherever assessment u/s. 153A is required to be framed consequent to the search, pending assessment shall abate and assessment is to be framed u/s 153A r.w.s. 143(3) of the Act. Under these circumstances, we find no infirmity in issuance of notice u/s. 153A of the Act. We therefore reject this ground of assessee raised in this regard. 13. Now coming to the merits, the ld. Counsel for the assessee has assailed the order of the CIT(Appeals) with regard to the additions made after making disallowances of business promotion expenses claimed u/s. 37 of the Act. In this regard, the facts in brief borne out from the record are that the assessee has debited a sum of ₹ 7,68,77,000 as business promotion expenses for AY 2012-13 and ₹ 8,25,00,000 in AY 2013-14, for which the assessee could not furnish the details of Doctorwise expenditure nor could it furnish the confirmation letter from the Doctor. Consequently, the AO has observed that the details of business promotion expenses incurred by the assessee on variou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Simcon Formulation (India) Pvt. Ltd. v. DCIT of Mumbai Tribunal and Hon ble Delhi High Court judgment in the case of Max Hospital v. MCI in W.P.C. No.1334/Del/2013 dated 10.01.2014. 16. The ld. DR, on the other hand, has placed reliance upon the order of the CIT(Appeals). Besides it was also contended by the ld. DR that no details are available on record as to whether the Doctors have attended the Conferences Seminars as faculty members or as delegates. The onus is upon the assessee to establish these facts. In the absence of any evidence in this regard, the revenue has rightly disallowed the claim. 17. Having carefully examined the orders of authorities below in the light of rival submissions, we find that the AO has disallowed the business promotion expenses claimed by the assessee only on the ground that they were incurred on Doctors who attended Seminars Conferences. The revenue has placed reliance upon the Notification issued by the MCI whereby the MCI in exercise of its statutory powers amended Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 on 10.12.2009 and imposed a prohibition on Medical Practitioners and Professional Assoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tures in question incurred by the assessee (a pharmaceutical company) is hit by Explanation 1 below section 37(1) in view of CBDT Circular dated 01.08.2012, interpreting the amendment dated 10.12.2009 brought in Indian Medical Council Regulation 2002 or not. The break-up of sales promotion expenses, which has been disallowed by the AO, are as under: Sr.No Particulars of expenses Amount (in Rs.) 1 Customer Relationship Management expenses (CRM) 7,61,96,260 2 Key Account Management expenses(KAM) 2,56,68,509 3 Gift Articles 9,20,22,518 4 Cost of samples 3,60,85,320 Total 22,99,72,607 The nature of aforesaid expenses has already been explained above. Now whether the nature of such expenditure incurred by the assessee is to be disallowed in view of the CBDT Circular dated 01.08.2012. For the sake of ready reference, the said CBDT Circular No.5/2012 is re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appropriate action. This may be brought to the notice of all the officers of the charge for necessary action. From the perusal of the aforesaid Board Circular, it can be seen that heavy reliance has been placed by the CBDT on the Circulars issued by the Medical Council of India, which is the regulatory body constituted under the Medical Council Act, 1956 . One such regulation has been issued is Indian Medical Council Professional Conduct, Etiquette and Ethics) Regulations, 2002 . The said regulation deals with the professional conduct, etiquette and ethics for registered medical practitioners only. Chapter 6 of the said regulation/notification deals with unethical acts, whereby a physician or medical practitioners shall not aid or abet or commit any of the acts illustrated in clause 6.1 to 6.7 of the said regulation which shall be construed as unethical. Clause 6.8 has been added (by way of amendment dated 10.12.2009) in terms of notification published on 14.12.2009 in Gazette of India. The said clause reads as under:- 6.8 Code of conduct for doctors and professional association of doctors in their relationship with pharmaceutical and allied health sector industry. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... animal experimentations are not done and when these are necessary they are done in a scientific and a humane way. (vii) Ensure that while accepting such an assignment 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. f) Maintaining Professional Autonomy: In dealing with pharmaceutical and allied healthcare industry a medical practitioner shall always ensure that there shall never be any compromise either with his / her own professional autonomy and / or with the autonomy and freedom of the medical institution. g) Affiliation: A medical practitioner may work for pharmaceutical and allied healthcare industries in advisory capacities, as consultants, as researchers, as treating doctors or in any other professional capacity. In doing so, a medical practitioner shall always: (i) Ensure that his professional integrity and freedom are maintained. (ii) Ensure that patients interests are not compromised in any way. (iii) Ensure that such affiliations are within the law. (iv) Ensure that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State Govt. The case of the Petitioner is that the Petitioner hospital is governed by the Delhi Nursing Homes Registration Act, 1953. It is urged that in fact, an inspection was also carried out on 22.07.2011 by Dr. R.N. Dass, Medical Superintendent (Nursing Home) under the Directorate of Health Services, Govt. of NCT of Delhi and the necessary equipments and facilities were found to be in order which negates the observations dated 27.10.2012 of the Ethics Committee of the MCI. It is also the plea of the Petitioner hospital that the Petitioner was not provided an opportunity of being heard and thus the principles of natural justice were violated. 7. In the counter affidavit filed by the Respondents, it is not disputed that the MCI under the 2002 Regulations has jurisdiction limited to taking action only against the registered medical practitioners. Its plea however, is that it has not passed any order against the Petitioner hospital therefore; the Petitioner cannot have any grievance against the impugned order. 8. It is clearly admitted by the Respondent that it has no jurisdiction to pass any order against the Petitioner hospital under the 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting his business income. The Explanation provides an embargo upon allowing any expenditure incurred by the assessee for any purpose which is an offence or which is prohibited by law. This means that there should be an offence by an assessee who is claiming the expenditure or there is any kind of prohibition by law which is applicable to the assessee. Here in this case, no such offence of law has been brought on record, which prohibits the pharmaceutical company not to incur any development or sales promotion expenses. A law which is applicable to different class of persons or particular category of assessee, same cannot be made applicable to all. The regulation of 2002 issued by the Medical Council of India (supra), provides limitation/curb/ prohibition for medical practitioners only and not for pharmaceutical companies. Here the maxim of Expressio Unius Est Exclusio Alterius is clearly applicable, that is, if a particular expression in the statute is expressly stated for particular class of assessee then by implication what has not been stated or expressed in the statute has to be excluded for other class of assessee. If the Medical Council regulation is applicable to medical p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pronouncements. The explanations and evidences furnished by the assessee were confronted to the AO and a remand report was called from him. 21. The CIT(A) re-examined the claim of the assessee but was not convinced with it. 22. Now the assessee is before us. During the course of hearing, the learned counsel for the assessee invited our attention to certain facts with the submission that AO disallowed the discount given by credit notes on the assumption that the gross sales shown in the financial statements was of ₹ 156,77,20,000/- after allowing discount and discount was already allowed in the sale invoice and such discount was duly considered in VAT return. After filing the sales tax return, the assessee company has claimed further discount allowed by way of credit notes of ₹ 23,55,30,000/- in the audited financial statements. The above assumption of the AO is erroneous as the sales shown in the audited financial statement is gross sales less discount which is evident in the audited financial statement 2013-14 which is available at page 139-159 of the paperbook. He further invited our attention to page 151 of the compilation wherein gross sales revenue of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s being served cashless by the hospitals because these payments are made to the hospital by some insurance companies. For the first type of patient who make cash payment whenever any stunt deployed in the patient, the vascular concept of the company/assessee directly sells and bills of these stunts to the patients and patients directly make the payment to the company. Company s representatives come every fortnight and monthly and collect the payment as the representatives of the company come and collect the payment of discount regularly, they do not maintain that record. It was further clarified that payment from hospital was received separately and also they give the receipt separately while stunt payment receipt is given by the company. For the second type of patients who are served cashless hospitals purchase the stunts from the assessee and make the payment by cheque. All these aspects were required to be examined by the lower authorities but they have disallowed the entire payment of discount having doubted the genuineness of payment without having examined the clarification furnished by the assessee. 25. We have also considered the Revenue s contention that sufficient oppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to establish that bad debt has become bad. The learned counsel for the assessee further contended that assessee has taken the same amount into P L account. Therefore, the condition required under section 36(2) is fulfilled. Therefore, the disallowance of bad debt made by the AO is incorrect and the same should be allowed. It was further contended that the CIT(A) did not examine these aspects and confirmed the disallowance. 27. The learned DR placed the reliance upon the order of the CIT(A). 28. Having carefully examined the orders of authorities below in the light of rival submissions, we find force in the contentions of the assessee that after the amendment and as per the Circular No.12/2016 dated 30.05.2016 it is not necessary for the assessee to establish that debt has become irrecoverable. It is enough that bad debt is irrecoverable in the accounts of the assessee. This position has been clarified by the Apex Court through its judgment in the case of TRF Vs. CIT 323 ITR 0397. Thereafter the Board has also issued a Circular in the light of the judgment of the Apex Court and clarified the position that the claim of bad debt in the previous year shall be admissible und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t accepted this explanation on this ground that no corresponding entry was found in the petty cash book on 06.12.2012 maintained at the branch office or the head office at Bangalore. The AO has also noted from the cash book that cash was deposited in the different banks by debiting various parties names and credited in the cash deposit. The AO further noted that there was no corresponding entry of cash received from PGIMER and PRAGMA. On the contrary, one entry of ₹ 10 lakhs was found in the name of M/s. Pragma Hospital dated 30.11.2012. Thereafter, AO wrote a letter to the PGIMER and PRAGMA hospitals to furnish details of the ledger accounts of the assessee company in their books of accounts, date of cash payment, reflection of cash payment in the cash book, name of the person to whom the cash was paid. Thereafter, the AO has also confronted these evidences to the Managing Director of the assessee company and in the absence of satisfactory explanations, the AO made the additions of ₹ 30 lakhs. Assessee preferred an appeal before the CIT(A) but did not find favour with him. 31. Now the assessee is before us with the submission that assessee has explained the source ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough the assessee tried to explain the source of deposits but it was not accepted by the AO and he made the addition of ₹ 10 lakhs on account of unexplained deposit in the bank. Assessee preferred an appeal before the CIT(A) but did not find any favour. 33. Now the assessee preferred an appeal before the Tribunal with the submission that assessee has deposited ₹ 10 lakh on 02.08.2011 in the bank of SBM, Kalkaji Branch but inadvertently its Accountant made an entry in the books of account on 29.08.2011. Those explanations were furnished before the AO but it was not accepted. It was further contended that there was no cash deposit on 29.08.2011. But the sufficient cash was available on 02.08.2011. On account of mistake by the Accountant of the assessee, the deposit of cash was wrongly entered in the books of account on 29.08.2011. Therefore, it requires proper verification by the AO. 34. The learned DR on the other hand placed reliance on the order of the CIT(A). 35. Having carefully examined the order of lower authorities in the light of rival submissions, we find that assessee has contended before the AO that it was on account of inadvertent mistake, the corres ..... X X X X Extracts X X X X X X X X Extracts X X X X
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