Income Tax Appellate Tribunal - Panji
Santosh Jawa, Jaipur vs Acit, Jaipur on 4 August, 2017
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI BHAGCHAND, AM AND SHRI KUL BHARAT, JM
M.A. No. 29/JP/2017
Arising out if ITA No. 708/JP/2016
fu/kZkj.k o"kZ@Assessment Year : 2011-12.
Smt. Santosh Jawa, cuke The ACIT
548, Udai Marg, Vs. Circle-6,
Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN No. ABXPJ 6662 R
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal (CA)
jktLo dh vksj ls@ Revenue by : Shri R.A. Verma( Addl.CIT)
lquokbZ dh rkjh[k@ Date of Hearing : 07.07.2017.
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 04/08/2017.
vkns'k@ ORDER
PER SHRI KUL BHARAT, JM.
This Miscellaneous Application filed by the assessee seeking rectification of the Tribunal's order dated 27.12.2016 passed in ITA No. 708/JP/2016.
2. Ld. Counsel for the assessee strongly urged that there is mistake apparent from record, which needs rectification. Ld. Counsel reiterated the submissions as made in the Miscellaneous Application.
3. On the contrary, Ld. Departmental Representatives opposed the submissions and submitted that, what the Ld. Counsel is seeking through the Miscellaneous Application is beyond the scope of the provision of section 254 of the Act. He submitted that there is no apparent mistake on the record. He submitted that the Tribunal has affirmed view of the authorities below that the expenditure is not extended wholly and exclusively for the purpose of business. Now, the assessee is 2 MA No. 29/JP/2017.
Smt. Santosh Jawa, Jaipur.
trying to get this view of this Tribunal reviewed under the garb of the present Miscellaneous Application, for seeking rectification of mistake.
4. We have heard the rival contentions, perused the material available on record. The Tribunal at in Para 3.2 decided the issue of allowability of expenditure related to sale and promotion expenditure claim by the assessee by observing as under:-
"3.2 We have heard the rival contentions, perused the material available on record and gone through the orders of the authorities below. As per section 37(1), any expenditure not being expenditure of the nature described in section 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly or exclusively for the purpose of business or profession shall be allowed in computing the income chargeable under the head Profits and Gains of business or profession. However, explanation to section 37(1) reads as under:-
"Explanation - For the removal of doubts, it is herby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law hall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure."
The first requirement for allowance of any expenditure would be that it is expended wholly and exclusively for the business purposes. The AO has enumerated at page 4 of the assessment order the expenses incurred for reimbursing the expenditure of the Doctors. We are unable to find that how these expenditures are related to the business of the assessee. The requirement of law is that the expenditure ought to have been incurred wholly and exclusively for the purpose of business. The assessee has not brought any material on record suggesting that by incurring these 3 MA No. 29/JP/2017.
Smt. Santosh Jawa, Jaipur.
expenditures the business of the assessee is benefited or there is any relation with the expenditure as incurred by the assessee and business of the assessee. It is noticed that either the purchases are made by the various doctors for their personal usage or payment towards such gadgets are made by the assessee. The assessee is in the business of wholesale trading in medicine under the name and styled as M/s. Jawa Laboratories. The assessee was required to demonstrate that these expenditures are made for the promotion of business or otherwise related to business. In the absence of such material, in our considered view, such expenses cannot be allowed. We find that the disallowance is made by the AO on the ground that such expenditure is not allowable in view of Circular No. 5 of 2012 of CBDT. The ld. Counsel for the assessee has placed reliance on the decision of Hon'ble Punjab & Haryana High Court rendered in the case of CIT vs. KAP Scan and Diagnostic Centre P. Ltd., 344 ITR 476 (P&H). In that case the assessee had made payment of commission to the private doctors for referring business for diagnosis. In the case in hand there is no material suggesting that these payments were made towards commission for referring business to the assessee. Therefore, this decision would not help the assessee. Another decision of the Hon'ble High Court of Madhya Pradesh is also distinguishable with the facts of the present case as in that case there was a relation between the payment of money and the business purposes. In the case of Dr. T.A. Quereshi vs. CIT, 287 ITR 547 (SC) relied upon by the ld. Counsel for the assessee, here also there was a direct nexus between the business of the assessee. The ld. Counsel placed reliance on the decision of the Coordinate Bench in ITA Nos. 6429 & 6428/Mum/2012. In that case also the gift related to the Logo of the company. In the present case the assessee was required to demonstrate the expenditure in relation to business. So far the reasoning given by the AO that the expenditures were prohibited by law, in our considered view, this issue is covered by the decision of the Coordinate Bench. Therefore, in our view the issue requires fresh consideration by the 4 MA No. 29/JP/2017.
Smt. Santosh Jawa, Jaipur.
AO. We thus set aside the order of ld. CIT (A) and restore the issue to the file of AO for decision afresh."
4. The submissions of the assessee as stated in para 2 to 4 of the Miscellaneous Application are reproduced herein below for the sake of clarity.
"2. The ground nos. 1 to 3 of this appeal was against the action of Ld. CIT(A) in confirming the disallowance of Rs. 6,87,833/- out of sales & promotion and advertisement expenses on the ground that it is prohibited by the Indian Medical Council At, 1956 and thus disallowable in view of explanation to Sec. 37 and CBDT Circular No. 5/2012 dated 01.08.2012.
3. In course of hearing, the Ld. AR of the assessee referred to a decision of Mumbai ITAT in case of Macleods Pharmaceuticals Ltd. in ITA Nos. 7404 & 7405/2014 for AY 2011-11 & 2011-12 order dated 31.09.2016 where under the similar facts the Hon'ble ITAT considering its earlier decision in case of Syncom Formulations held that once the genuineness of expenses is not doubted and there is no allegation to the effect that expenses were not incurred for the purpose of business, the MI Guidelines and the CBDT Circular dated 01.08.2012 by applying Explanation to Sec. 37 is not correct as the Circular is effective from AY 2013-14. Considering this the Hon'ble Bench in course of hearing pronounced that the case of the assessee is covered by the said decision of Mumbai ITAT.
4. However, in the order passed by the Hon'ble ITAT it was held that, the reasoning given by the AO that the expenditures were prohibited by law is covered by the decision of Co-ordinate Bench but at the same time the matter was set aside to the AO for fresh consideration. In setting aside the order of the AO the hon'ble Bench made the following observations which either are not borne out from the orders of the lower authorities or are incorrect:
(i) At page 3, Para 3.2 it is observed that the assessee has not brought any material on record suggesting that by incurring these 5 MA No. 29/JP/2017.
Smt. Santosh Jawa, Jaipur.
expenditures the business of the assessee is benefited or there is any relation with the expenditure as incurred by the assessee and the business of the assessee. In making this observation, it missed the attention of the Hon'ble Bench that the lower authorities have not disputed that expenditure incurred is not for the purpose of business but the same is disallowed on the ground that it is prohibited by the Indian Medical council (Professional Conduct, Etiquette and Ethics) Regulation,2002 which is not allowable in view of explanation of Sec. 37(1) read with CBDT Circular which is only clarificatory in nature. Thus, the incurring of the expenditure for the purpose of business is already accepted by the lower authorities.
(ii) At page 4, middle Para of the order, it s observed that the Ld. Counsel for the assessee has placed reliance on the decision of Hon'ble Punjab & Haryana High Court rendered in case of CIT vs. KAP Scan and Diagnostic Centre Pvt. Ltd. 344 ITR 476 which is on payment to commission to private doctors for referring the business for diagnosis whereas in the case in hand there is no material suggesting that these payments were made towards commissioner for referring business towards the assessee. Therefore, this decision would not help the assessee. In making this observation it is ignored that this case is relied by the Ld. CIT(A) at page 12 of its order against the assessee and not relied by the assessee. The Ld. AR of the assessee in his written submission at page 4, Para 8 has distinguished this decision as the case of the assessee is not towards payment of commission to the doctors but for sponsoring the doctors for conference, reimbursement of expenses of doctors, etc.
(iii) At page 4 last 2 lines, the decision relied by the Ld. AR in ITA Nos. 6429 & 6248/MUM/2016 in case of Syncom Formulations India Ltd. has been referred by the Hon'ble Bench and distinguished on the ground that in this case gifts related to the Logo of the Company but in the present case assessee was required to demonstrate the expenditure in relation to the business. It is submitted that in this case, the expenditure was not only on account of gifs bearing company logo to doctors but also towards sponsoring doctors for 6 MA No. 29/JP/2017.
Smt. Santosh Jawa, Jaipur.
conferences and extending hospitality as evident from Para 5 of this order (PB 19). The assessee has also incurred expenditure towards sponsoring conferences for doctors and for extending the hospitality as evident from Page 4 of the assessment order. Thus, this case is directly application to the assessew where similar disallowance made by the AO was deleted by the Hon'ble Bench."
5. This Tribunal in the order which is sought to be rectified had restored the matter to AO for the purpose of verifying the claim of the assessee that this expenditure was incurred for the purpose of business. Since the coordinate bench in ITA Nos. 6429 & 6248/Mum/2016 allowed the claim on the ground that gifts given to the Doctors were bearing logo of the company and that tantamount to advertisements and promotions of the company, is a business and expenditure.
In the present case, there is no such material that goes to demonstrate that the expenditure as incurred by the assessee was for business purpose. The Assessing Officer at page 4 & 5 of his order has reproduced some of the expenditures claimed by the assessee.
For the sake of clarity same is also reproduced herein below.
S.No. Nature Amount Reimbursed by Expenses
Jawa incurred by
Pharmaceuticals Jawa
Pvt. Ltd. Laboratories.
1. Spnsorship of 260159/- 198954/- 61205/-
doctors
2. Reimbursement 1572619/- 1202643/- 369976/-
of expenses of
doctors
3. Conference 466075/- 356426/- 109649/-
registration fee
of doctors
4. CME of doctors 181000/- 138418/- 42582/-
5. Other expenses 437478/- 334557/- 102921/-
7
MA No. 29/JP/2017.
Smt. Santosh Jawa, Jaipur.
of doctors
Total 2917331/- 2230998/- 686333/-
Some examples of expenses debited under the above 5 heads are as follows:-
1. 13/04/2010 - Being cheque issued in favour of Dr. Ramesh M. Patel, Gandhinagar for registration charge for DOC conference 16 to 18 April - Rs. 2500/-
2. 16/04/2010 - Being Cheque issued to Dr. Rajan Agarwal, New Delhi towards reimbursement of book purchase - Rs. 5800/-
3. 16/04/2010 - Being cheque issued in favour of Dr. Lt. Col. S.K. Mishra for registration charge for DOC conference 16 to 18 April - Rs. 1300/-
4. 13/05/2010 - Being cheque issued in favour of Sunway Luggage towards the payments of purchase for Dr. Chetan Gajjar, Bhavnagar - Rs. 5670/-
5. 14/05/2010 - Being cash paid for gift items - Rs. 1310/-
6. 01/06/2010 - Being cheque issued in favour of Dr. Brajesh Chaudhary, Jabalpur towards payment of TV purchase - Rs. 10,000
7. 01/07/2010 - Being cheque issued in favour of Dr. V.N. Rai, Bulandashahar towards reimbursement purchasing of Sony player - Rs.2500
8. 19/08/2010 - Being cheque issued in favour of Dr. P.S. Girdhar, Thanjavur towards reimbursement of hotel charge - Rs. 1080
9. 01/09/2010 - Being cheque issued in favour of Dr. Shashi Bhushan Kumar, New Delhi towards reimbursement of purchase mobile phone - Rs.8500
10. 01/09/2010 - Being cheque issued in favour of Dr. B.D. Khare, Bareli towards reimbursement of purchasing printer HP 14580 Ink jet - Rs. 4950
11. 01/10/2010 - Being cheque issued in favour of Dr. Dheeran gupta, Gurgaon, towards registration charges AIOC 2011 - Rs. 4750
12. 30/10/2010 - Being hotel expenses paid for Dr. Kartikeya Sangal, as per bill amount Rs. 11873/- less payment made by us Rs. 9445/- and balance amount paid by doctor 8 MA No. 29/JP/2017.
Smt. Santosh Jawa, Jaipur.
13. 26/11/2010 - Being cheque issued in favour of Dr. Satyajit Pal, North Tripura towards flight fare for attending AIOC 2011 - Rs. 12,000
14. 16/12/2010 - Being amount paid for doctor lunch - Rs. 5100/-
15. 29/12/2010 - Being amount paid for doctor gifts - Rs. 2300/-
16. 16/01/2011 - Being cheque issued in favour of Dr. Rajesh Malpani, Tonk towards purchasing of furniture - 5000/-
17. 21/01/2011 - Being cheque issued in favour of Dr. Dushyant Bansal, Hapur towards reimbursement of purchasing one microwave - Rs. 5000/-
18. 21/02/2011 - Being cheque issued in favour of Dr. Ajay Pawar, New Delhi towards reimbursement of hard disk purchase - Rs. 4800/-
19. 31/03/2011 - Being cheque issued in favour of Dr. Ashok Kumar Dubey, Sidhi towards purchasing of refrigerator - Rs. 7000 b. Advertisement Expenses It was noticed that the following three expenses are in the nature of gifts/freebies to doctors:-
1. Dr. S.C. Mishra - Rs. 8000/-
2. Dr. Sunil Kumar - Rs. 5000/-
3. Dr. Malay Sarkar - Rs. 2000/-"
6. The assessee has not controverted these expenditures and also has not stated as to how this expenditure was for the business purpose. Under these facts, the issue was restored to the file of the assessee for verifying the claim whether this expenditure was for the purpose of business of the assessee. In our view, merely because the assessee is in the business of Pharmaceuticals and payments made to the Doctors in various forms is not sufficient to treat such expenditure as business expenditure. The assessee is required to demonstrate nexus between the expenditure and its purpose in the business. The assessee is also required to 9 MA No. 29/JP/2017.
Smt. Santosh Jawa, Jaipur.
demonstrate that such expenditure is purely for business purposes. Therefore, what the assessing is seeking through this miscellaneous application, in our view, would tantamount to review of the order dated 27/12/2016 which is beyond the scope of section 254. Hence, this Miscellaneous Application of the assessee is dismissed.
7. In the result, Miscellaneous Application of the Assessee is dismissed. Order is pronounced in the open court on Friday, the 04thday of August 2017.
Sd/- Sd/-
( HkkxpUn ½ ( dqy Hkkjr)
( BHAGCHAND) ( KUL BHARAT )
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Jaipur
Dated:- 04/08/2017.
Pooja/
vkns'k dh izfrfyfi vxzfs "kr@Copy of the order forwarded to:
1. The Appellant- Smt. Santosh Jawa, 548, Udai Marg, Jaipur.
2. The Respondent - The ACIT, Circle-6, Jaipur.
3. The CIT(A).
4. The CIT,
5. The DR, ITAT, Jaipur
6. Guard File (MA No. 29/JP/2017) vkns'kkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar