Income Tax Appellate Tribunal - Ahmedabad
Siemens Healthcare Diagnostics Ltd., ... vs Dy.Cit.,Circle-4,, Baroda on 20 January, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "B" BENCH AHMEDABAD
BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER,
AND SHRI S. S. GODARA, JUDICIAL MEMBER.
ITA Nos.3003 & 3107/Ahd/2011
along with
ITA No.49 & 79/Ahd/2012
(Assessment Years:2006-07 & 2007-08)
Deputy Commissioner of Income Tax,
Circle-4, Baroda Appellant
Vs.
M/s. Siemens healthcare Diagnostics Ltd.,
589, Sayajipura, Ajwa Road, Baroda,
Vadodara - 390007 Respondent / Cross Appellant
PAN: AAACB8542M
राज व क ओर से/By Revenue : Shri James Kurian, Sr. D.R.
आवेदक क ओर से/By Assessee : Shri J. P. Shah, A.R.
सन
ु वाई क तार ख/Date of Hearing : 11.01.2017
घोषणा क तार ख/Date of
Pronouncement : 20.01.2017
ORDER
PER S. S. GODARA, JUDICIAL MEMBER
The Revenue and assessee have filed the instant two cross appeals each for assessment year 2006-07 & 2007-08 against CIT(A)-III, Baroda's separate orders dated 14.09.2011 & 14.10.2011 in appeal nos. CAB/III- 154/09-10 & CAB/III-239/10-11 respectively in proceedings under section 143(3) of the Income Tax Act, 1961; in short "the Act".
ITA No. 3003 & 3107/Ahd/2011, 49 & 79 /Ahd/2012 (M/s. Siemens healthcare Diagnostics Ltd.) A.Ys. 2006-07 & 2007-08 -2-
2. A combined perusal of the instant cross appeals reveals that Revenue's sole grievance in its appeal ITA No.3003/ Ahd /2011 and first substantive ground in latter appeal ITA No.49/Ahd/2012 challenge the CIT(A)'s order deleting disallowance of claim of depreciation amounting to Rs.42,61,735/- and Rs.2,46,35,881/-; respectively allegedly over looking the statutory provision enshrined in Section 32 of the Act. Its case is that the assessee had already placed its medical instruments with customers and therefore, the same cannot be held to have been used for its business purpose. The Revenue accordingly seeks to revive Assessing Officer's action making the above impugned disallowance in both the assessment years before us.
3. Learned Senior Departmental Representative Shri James Kurian submits at the outset that the CIT(A) has followed his order in preceding assessment year allowing assessee's identical claim of depreciation. He then produces before us tribunal's order in assessee's case itself in ITA No.1842/Ahd/2010 decided on 12.11.2013 restoring the very issue back to the Assessing Officer for factual verification as to whether the assessee's assets in question stood transferred to its customers or not. Learned co- ordinate bench directs the Assessing Officer to allow assessee's depreciation claim in case it is not found to have transferred the medical equipments to the concerned customers/patients.
4. Shri Shah seeks to distinguish relevant facts in the impugned assessment year vis-à-vis those involved in the said preceding assessment year on the ground that the Assessing Officer herein has nowhere doubted assessee's ownership over the relevant surgical equipments. He invites our attention to Assessing Officer's findings in assessment year 2006-07 stated to be very much unambiguous as follows:
"5.9. I have considered the reply of the assessee. The same is not acceptable. As directed by the Addl. CIT that the instruments placed with the customers were not ITA No. 3003 & 3107/Ahd/2011, 49 & 79 /Ahd/2012 (M/s. Siemens healthcare Diagnostics Ltd.) A.Ys. 2006-07 & 2007-08 -3- used for the business purpose of the assessee and depreciation u/s.32 is not allowable on the instruments placed with the customers. It is also noted that the assessee has not charged anything from the customers for the use of these equipments for their business purpose. It is also a fact that besides this placement of instruments in place of its customers, the assessee has also sold these instruments to those customers who have purchased it. The rate of sale of product, strips, kits, etc. are also the same for both the customers to whom he has sold the instrument and to whom he has placed machinery at their places without any consideration. Therefore, it is proved that the assessee has not derived any extra benefit for placing these equipments at their places. Further, the case laws relied on by the assessee is relating to the ownership of the asset whereas in the instant case the ownership of the assessee is not in dispute. However, these documents placed at the customers' place were not used directly by the assessee's business. It has been used by the customers' for carrying out their own businesses. Therefore, it can not be held that the assessee" has used these assets for its business. Further, in the decision of Yellamma Dasappa Hospital [2007] [159 Taxman 58], the Hon. High Court of Karnataka has held that for the purpose of claiming depreciation u/s.32, the fixed assets should be used for the purpose of business. For the purpose of claiming depreciation; when the Legislature has chosen to use the word "used", one has to give a full meaning to it and avoid reading something not intended by the legislation. After all, these benefits are provided for certain purposes. That purpose is used in terms of the stature. If the machinery is not used, section 32 is not applicable and, hence, the assessee could have any benefits, if granted, would result in reading something which is not provided in the statute in terms of section 32. Here, in this case, the assessee has not at all used the equipments kept at the customers' premises. Therefore, depreciation claimed by the assessee at Rs.42,61,735 on these equipments u/s.32 is not allowed. Penalty proceedings u/s.271(1)(c) of the Income-tax Act, 1961 are separately initiated."
5. Shri Shah's case accordingly is that the Assessing Officer nowhere holds the assessee to have transferred its surgical instruments to its customers. It is apparent from above extracted para 5.9 that the Assessing Officer's observations are very much self contradictory if we go by different portions therein. He is of the view in former portion that the assessee has also sold its equipments to customers. He however opines in middle portion that the assessee's ownership over the equipments in question is not in dispute. We thus feel it appropriate that the Assessing Officer shall carry out a detailed exercise in tune with ld. co-ordinate bench's directions (supra) in the impugned assessment year as well. He shall prepare a detailed list of assessee's equipments. If he finds it not to have transferred ownership thereof to its customers/patients, the impugned depreciation relief would be ITA No. 3003 & 3107/Ahd/2011, 49 & 79 /Ahd/2012 (M/s. Siemens healthcare Diagnostics Ltd.) A.Ys. 2006-07 & 2007-08 -4- held allowable. The Revenue's sole substantive ground in its former appeal ITA No.3003/Ahd/2011 as well as the main case are accepted for statistical purposes. Same order to follow in its first substantive ground in latter appeal ITA No.49/Ahd/2012.
6. We now advert to Revenue's latter substantive ground in its appeal ITA No.49/Ahd/2012 challenging CIT(A)'s order deleting disallowance/addition of Rs.6,28,920/- made to Royal College Pathologist, London towards reimbursement of travelling expenses allegedly without considering the fact that there was no corroborative evidence to prove that the same was indeed incur wholly and exclusively for the purpose of the business. We deem it appropriate at this stage to reproduce CIT(A)'s finding comprising of Assessing Officer's conclusion and assessee's observations as under:
"6. The third ground of appeal is regarding the disallowance of payment made to Royal College Pathologists, London towards reimbursement of traveling expenses holding that the sum paid is nothing but donation in nature and hence not allowable u/s 37(1) of the Act.
6.1 While making this addition the AO has stated as follows:
1. "I have considered the reply of the assessee. Perusal of the letter it was noticed that the payment was made to airfare [London - Delhi- London Business Class] of the two speakers from the UK for the educational meeting schedule to be held at the Appollo Hospital, New Delhi between February 2-4 2007. However, the assessee has not been able to establish the business expediency for bearing the airfare of two speakers and the benefit derived by the on account of reimbursement of airfare. As per section 37(1), any expenditure not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee, laid our or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "profits and gains of business or profession". As per section 37, the onus is on the assessee to prove that the expenditure claimed by the assessee is expended wholly and exclusively for the purpose of business carried on by it.
However, in the instant case, the , assessee has not been able establish the bus/ness expediency for bearing the airfare of two speakers. The sum paid by the assessee is nothing, but donation in nature. In the following cases, it ITA No. 3003 & 3107/Ahd/2011, 49 & 79 /Ahd/2012 (M/s. Siemens healthcare Diagnostics Ltd.) A.Ys. 2006-07 & 2007-08 -5- was held that burden is on the assessee to prove that the expenses were laid out wholly and exclusively for the purpose of business:-
[a]Good/as Nerolac Paints Ltd.[Bom] [137 ITR 58]. [b]Andrew Yule & Co Ltd. [Cat] [49 ITR 57].
[c]Assam Pesticides & Agro Chemicals. [Guj] [227 ITR 846]. [d]Indian Express (Madurai) (p) Ltd. [ITAT Mad] [68 ITD 374].
In view, of above the airfare borne by the assessee is held to be non- business expenditure. The same is, therefore, disallowed and added back to the total income of the assessee. Penalty proceedings u/s 271 (' l)(c ) of the I.T. Act. 1961 are separately initiated."
6.2 During the course of appellate proceedings the appellant's AR de following submissions:
1. "On the facts and circumstances of your appellant's case and in law, the Ld. AO has erred in disallowing payments made to Royal College Pathologists, London towards reimbursement of traveling expenses on erroneous plea that sum paid is nothing but donation in nature and hence not allowable u/s 37(1) of the Act.
2. Your appellant submits that full details were submitted for payment towards reimbursement, of fare of two speakers from Royal College Pathologist, London for the educational meeting scheduled to be held at Apollo Hospital (copy of vouchers and communication in this regard attached). Your appellant further submits that during the course of such payment should not be disallowed since no tax has been deducted there from. However, while making disallowance, the Ld. AO has deviated, therefore and made the disallowance u/s 37(1) of the Act on a wrong notion that it is nothing but donation in nature.
3. Your appellant further submits that it has incurred expenditure by sponsoring 2 speakers which in turn gave us the publicity for business. We are in the business of diagnostics instruments which are used by Hospitals and by sponsoring 2 speakers in the education meet at the Hospital gives advantages to out bus/ness by way of publicity, Your Honour will appreciate that such expenditure is fully and exclusively for the business of the assesses and therefore prays that your Honour be pleased to hold so now and delete impugned disallowance. "
6.3 I have considered the assessment order and the submissions made by the appellant's AR. I agree with the appellant's submission that these expenses have been incurred for publicity purposes. The business of the appellant is closely associated with hospitals. Hence incurring of expenses like this has close connection with its business. Hence this addition is directed to be deleted and this ground of appeal is allowed."
7. Heard both sides. Relevant finding perused. There is hardly any dispute that the assessee company manufactures and trades in diagnostics ITA No. 3003 & 3107/Ahd/2011, 49 & 79 /Ahd/2012 (M/s. Siemens healthcare Diagnostics Ltd.) A.Ys. 2006-07 & 2007-08 -6-
reagent strips and kits along with sale and service of diagnostics instrument. It has incurred the impugned expenditure in the nature of payment made to sponsor air fare of London Delhi London business class of two speakers based in England. The Assessing Officer is fair enough in not rebutting the fact that the said speakers attended an educational meeting at the Apollo Hospital, New Delhi in February 2007. His only case is that the assessee has not proved any business expediency in the said expenditure. The CIT(A) on the other hand agrees with assessee's contention that it had paid the impugned expenditure for publicity purposes. We thus view assessee's expenses as very much connected having direct nexus with its manufacture and sale of diagnostics product wherein it is supposed to garner wider publicity in order to create a niche for itself in the field of diagnostics instruments market. We thus find no reason to interfere in CIT(A)'s order under challenge. Revenue's latter ground accordingly fails. Its appeal ITA No.49/Ahd/2012 is partly accepted for statistical purposes.
8. We now come to assessee's appeal ITA No.3107/Ahd/2011 in assessment year 2006-07 raising sole substantive ground challenging both the lower authorities' action in disallowing an amount of Rs.25,04,514/- on account of receivables written off and claimed as business loss. The Assessing Officer declined the impugned relief by treating the above amount as advances only and not debts. He further rejected its business loss claim by treating it as a loss on capital. The CIT(A) however adopts a different tune in observing that the assessee ought to have established its amount in question with government authorities has become irrecoverable.
9. Heard both sides. There is no quarrel between the parties so far as basic facts pertaining to the instant issue are concern that the assessee has claimed the loss in question on account of short recovery of receivables wherein majority of the sale sums stands recovered leaving behind only a ITA No. 3003 & 3107/Ahd/2011, 49 & 79 /Ahd/2012 (M/s. Siemens healthcare Diagnostics Ltd.) A.Ys. 2006-07 & 2007-08 -7- portion of the amount which stands claimed as business loss because of short fall in recovery. The assessee has already declared the sums recovered as its business income. It is thus clear that the amount not recovered in question does have very much a direct and live nexus with assessee's business so as to be treated as an allowable business loss claim. We accept assessee's argument accordingly to delete the impugned business loss disallowance amount of Rs.25,04,514/-. Its appeal ITA No.3107/Ahd/2011 is accepted.
10. This leaves us with assessee's appeal ITA No.79/Ahd/2012 for assessment year 2007-08. Its former ground therein challenges both the lower authorities' action invoking Section 14A disallowance/addition of Rs.8,78,375/- in the nature of administrative expenses @0.5% by invoking Rule 8D in principle after taking cognizance of the settled law that the said rule is not applicable in the impugned assessment year. The assessee's dividend income is Rs.99,93,277/-. Learned Departmental Representative is fair enough in not disputing the fact that Rule 8D is admittedly not applicable in the impugned assessment year. It is further evident to us that the Assessing Officer has mechanically resorted to the impugned computation without even recording any finding as per Section 14A(2) of the Act as to whether the assessee's books of account not indicating any administrative expenses to have been incurred are correct or not. Ld. Departmental Representative does not pinpoint any specific evidence of assessee to have incurred the impugned administrative expenses. We thus find no reason to sustain the same on this score alone. The impugned of Rs.8,78,375/- is accordingly deleted.
11. We now come to assessee's latter substantive ground seeking to delete disallowance/addition of Rs.5,14,686/- made by both the lower authorities towards expenditure incurred on subscription and purchase of office and general purpose books thereby holding the same to be in the nature of capital ITA No. 3003 & 3107/Ahd/2011, 49 & 79 /Ahd/2012 (M/s. Siemens healthcare Diagnostics Ltd.) A.Ys. 2006-07 & 2007-08 -8- expenditure. We deem it appropriate to reproduce CIT(A)'s finding taking not of Assessing Officer's observation as well assessee's argument as follows:
"8. The fifth ground of appeal is regarding the addition of Rs. 5,14,686/- on account of purchase of books holding that the said expenditure is capital in nature.
8.1 While making this addition the assessing officer has made following observations:
1. "In its profit and loss account, the assessee has debited books and periodicals at Rs. 5,14,686/-. Vide order sheet entry dated 19.11.2010, it was asked to show cause as to why the above said expenditure should not be treated as capital in nature. However, no plausible explanations could be given by the assessee in this regard. The books must have been used for research related matters. Therefore, the same is held to be capital in nature and accordingly disallowance and added back to the total income of the assessee."
8.2 During the course of appellate proceedings the appellant's AR has made following submissions:
1. "On the facts and in the circumstances of the case and in law, the Id. AO was not justified in making addition of Rs.5,14,686/- on account of purchase of books on erroneous plea that the said expenditure is capital in nature. Your appellant submits that full details and explanations were furnished during the course of assessment proceedings which was disregarded by the ld.AO and presumed that such books must have been purchased by your appellant for research related matters. The ld. AO has without giving due regard to the submissions placed on record, presumed that the expenditure incurred on subscription and purchase of office and general purpose books is capital in nature and made arbitrary addition. It is, therefore, prayed that your Honour be pleased to hold so now and delete the impugned addition.
2. Your appellant further submits the ld.AO has incorrectly stated in the order that no plausible explanations was given by your appellant. On the contrary with full details, explanation that why such expenditure be considered as capital in nature was furnished to ld.AO vide point 5 and Annexure-4 of our reply letter dated 26.11.2010 (copy enclosed). In view, thereof your Honour be pleased to hold so now. and direct ld.AO to delete impugned disallowances as arbitrary and unwanted."
8.3 I have considered the assessment order and the submission made by the appellant's AR. Books have been held to be plants eligible for depreciation.
Appendix. I to the Income Tax Rules 1962 also provides for granting depreciation on books. This is evident from the facts that it provides for 109% depreciation in ITA No. 3003 & 3107/Ahd/2011, 49 & 79 /Ahd/2012 (M/s. Siemens healthcare Diagnostics Ltd.) A.Ys. 2006-07 & 2007-08 -9- case of books owned by assessee carrying on a profession and carrying on business in running lending libraries. Hence it is held that AO has rightly treated this expenses as capital expenses. As a result this ground of appeal is dismissed."
12. We have heard both the learned representatives reiterating their respective stands. The assessee first of all refers to the nature of its reading material for being subject matter of the impugned issue. The same appears to be " McEvoy & Farmer" literature regarding research work stated to be throwing light on assessee's business and latest developments in the field. Learned CIT(A) only refers to depreciation schedule including books also to conclude that the above subscribed books amount to capital expenditure. He has nowhere discussed assessee's peculiar line of business manufacturing and selling diagnostics products wherein the books in question update it about latest research developments in the field. We thus find force in assessee's contention seeking to treat the impugned expenditure as revenue in nature. The Assessing Officer is directed to delete the disallowance in question.
13. The Revnue's former appeal ITA No.3003/Ahd/2011 is accepted for statistical purposes. Its latter appeal ITA No.49/Ahd/2012 is partly accepted for statistical purposes. The assessee's cross appeals ITA No.3107/Ahd/2011 and ITA No.79/Ahd/2012 are allowed.
[Pronounced in the open Court on this the 20th day of January, 2017.] Sd/- Sd/-
(PRAMOD KUMAR) (S. S. GODARA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad: Dated 20/01/2017
True Copy
S.K.SINHA
आदे श क त ल
प अ े
षत / Copy of Order Forwarded to:-
1. राज व / Revenue
2. आवेदक / Assessee
3. संबं धत आयकर आय!
ु त / Concerned CIT
ITA No. 3003 & 3107/Ahd/2011, 49 & 79 /Ahd/2012
(M/s. Siemens healthcare Diagnostics Ltd.) A.Ys. 2006-07 & 2007-08 - 10 -
4. आयकर आय!
ु त- अपील / CIT (A)
5. )वभागीय ,-त-न ध, आयकर अपील य अ धकरण, अहमदाबाद /
DR, ITAT, Ahmedabad
6. गाड3 फाइल / Guard file.
By order/आदे श से,
उप/सहायक पंजीकार
आयकर अपील य अ धकरण, अहमदाबाद ।