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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI G.S. PANNU & SHRI SANDEEP SINGH KARHAIL
The present appeal has been filed by the assessee challenging the impugned order dated 01/09/2017, passed under section 250 of the Income Tax Act, 1961 ("the Act") by the learned Commissioner of Income Tax (Appeals)–24, Mumbai, [“learned CIT(A)”], for the assessment year 2014–15.
In its appeal, the assessee has raised the following grounds:–
“(1) On The Facts and circumstances of The Case The Learned Commissioner of Income Tax has erred in Law in confirming the Addition made by The Assessing Officer of 10% of Officer expenditure of 1,16,452/- which is most unjustified & Arbitrary.
M/s. Panexcell Clinical Lab Pvt. Ltd. ITA no.6629/Mum./2017
(2) On The facts and the circumstances of the case the learned Commissioner of Income Tax (Appeals) confirmed the addition of 20% of expenses incurred of Rs.29,67,302.4/- For Drug Analysis expenses, Which is most unjustified and Arbitrary. (3) On the facts of the learned Commissioner of Income Tax has disallowed the grounds of levy of penalty under section 271(1)(c). (4) The appellant craves leave to add, amend, alter, modify, delete and/or change all or any above grounds on or before the date of hearing.”
The brief facts of the case are: The assessee is a private limited company and is engaged in the business of drug analysis, clinical trials, and other research activities. For the year under consideration, the assessee filed its return of income on 29/11/2014 declaring a total income of Rs.56,11,463. The return filed by the assessee was selected for scrutiny and statutory notices under section 143(2) and section 142(1) of the Act were issued. The Assessing Officer (“AO”) vide order dated 23/11/2016 passed under section 143(3) of the Act assessed the total income of the assessee at Rs.1,04,46,340 under normal provisions of the Act. The learned CIT(A) vide impugned order partially allowed the appeal filed by the assessee. Being aggrieved, the assessee is in appeal before us.
The issue arising in ground No. 1, raised in assessee’s appeal, is pertaining to the disallowance of 10% of office expenses.
The brief facts of the case pertaining to this issue are: During the assessment proceedings, on perusal of the details filed by the assessee it was found that the assessee has debited office expenses amounting to Rs.11,64,522. It was further noticed that disallowance at 10% was made out of similar expenses debited to the profit and loss account in the preceding year
M/s. Panexcell Clinical Lab Pvt. Ltd. ITA no.6629/Mum./2017 on account of non-business/personal use. It was further observed that such disallowance was agreed by the assessee during the assessment proceedings and no appeal against the same was filed by the assessee. Finding no material change in facts and circumstances of the case, the AO vide order passed under section 143(3) of the Act disallowed 10% of the aforesaid office expenses and accordingly, made an addition of Rs.1,16,452. The learned CIT(A) vide impugned order dismissed the appeal filed by the assessee on this issue. Being aggrieved, the assessee is in appeal before us.
Having heard the submissions of both sides and perused the material available on record, we find that apart from claiming that the impugned expenditure has been incurred for the purpose of business, no material has been brought on record to substantiate the said claim. Thus, in absence of necessary details, we find no infirmity in the impugned order passed by the learned CIT(A) upholding the disallowance of 10% of the office expenses claimed by the assessee. As a result, ground No. 1 raised in assessee’s appeal is dismissed.
The issue arising in ground No. 2, raised in assessee’s appeal, is pertaining to the addition of 20% of the drug analysis expenses.
The brief facts of the case pertaining to this issue are: During the assessment proceedings, it was observed that the assessee has debited expenses related to drug analysis amounting to Rs.1,48,36,511. From the details filed by the assessee, it was noticed that the expenses claimed are not fully supported by bills and vouchers and all the expenses are incurred in cash
M/s. Panexcell Clinical Lab Pvt. Ltd. ITA no.6629/Mum./2017 and supported by self-made internal vouchers only and hence not verifiable. Accordingly, vide order passed under section 143(3) of the Act, the AO held that in absence of proper bills or any other documentary evidence, the purpose for which the expenses were incurred cannot be verified and ascertained and accordingly, disallowed 25% of the aforesaid expenses incurred on drug analysis and made an addition of Rs.37,09,128. The learned CIT(A) vide impugned order granted partial relief to the assessee and restricted the disallowance to 20% of the expenditure incurred by the assessee on drug analysis. Being aggrieved by the disallowance, the assessee is in appeal before us.
Having considered the submissions of both sides and perused the material available on record, we find that the assessee is in the business of drug analysis, clinical trials, and other research activities and as part of the said business, the assessee does lab study of various drugs before their launch in the market. As per the assessee, for the purpose of such lab study, the assessee conducts the trial on various persons, who acts as a volunteer and as a consideration, the assessee pays such volunteers in cash. During the hearing, reliance was placed upon cash vouchers of drug analysis expenses, forming part of the paper book from pages No. 214 – 245. From the perusal of said vouchers, we find that the said vouchers mention the volunteer centre ID, the amount paid, and the signature of the volunteer on the date of payment. The learned AR submitted that the names of the volunteers are not mentioned to maintain anonymity regarding the identity of the volunteer and instead the ID No. is mentioned in the record. It was also submitted that this manner also M/s. Panexcell Clinical Lab Pvt. Ltd. ITA no.6629/Mum./2017 safeguards the interest of the pharmaceutical company, whose drugs are tested. On a careful perusal of these vouchers, it is evident that the same cannot be called self-made, since these vouchers also contain the signatures of different volunteers acknowledging the receipt of payment in cash on different dates. In absence of any other allegation, we find no basis for confirming the disallowance upheld by the learned CIT(A). Accordingly, we direct the AO to delete the disallowance in respect of drug analysis expenses. As a result, ground No. 2 raised in assessee’s appeal is allowed.
Ground No. 3 is pertaining to the initiation of penalty proceedings, which is premature in nature and therefore is dismissed.
In the result, the appeal by the assessee is partly allowed. Order pronounced in the open Court on 24/01/2023.