SHRI VASANT VASHRAMBHAI SAPOVADIA,,RAJKOT-GUJARAT vs. THE ASSISTANT COMMR. INCOME TAX,CIR-3,, RAJKOT-GUJARAT

PER WASEEM AHMED, ACCOUNTANT MEMBER:

The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals)–2, Rajkot [CIT(A) in short] vide appeal no.CIT(A)-2/0008/13-14 dated 30/11/2015 arising in the assessment order passed under s.143(3) of the Income Tax Act, 1961(hereinafter referred to as "the Act") dated 28/03/2013 relevant to Assessment Year (AY) 2010-11.

- 2 - ITA No.32/Rjt/2016 Vasant Vashrambhai Sapovadia vs. ACIT Asst.Year – 2010-11

The assessee has raised the following grounds of appeal:

- 3 - ITA No.32/Rjt/2016 Vasant Vashrambhai Sapovadia vs. ACIT Asst.Year – 2010-11 Rs. 7,50,000/- on foreign tours as unexplained expenditure under section 69C of the Act.

The assessee during the assessment proceedings claimed that the expenses on the visit to the aforesaid countries have been sponsored by Ajanta Pharma for Thailand tour and Netradeep Eye Hospital Pvt Ltd. for the USA tour.

The assessee also claimed to have purchased the foreign currency of Thailand and USA for Rs. 50,000/- and Rs. 2 lakhs in connection with the foreign tours.

The assessee also filed the sponsorship letter issued by Netradeep Eye Hospital Pvt. Ltd. for the foreign Tour to USA.

However, the AO was of the view that the expenses incurred by the assessee are unexplained expenditure for the reasons as detailed below:

i. The medical Council of India vide notification No. 211(1)/2009 (Ethics)/ 55667 dated 10 December 2009 has prohibited the medical practitioner/ their representatives and family members from accepting any travel facility inside or outside the country from any pharmaceutical/allied healthcare industry for a vacation or for attending conference, seminars, workshops etc as delegate.

- 4 - ITA No.32/Rjt/2016 Vasant Vashrambhai Sapovadia vs. ACIT Asst.Year – 2010-11 ii. The CBDT in its circular No. 5/2012(F.No. 225/142/2012-ITA.III) dated 1 August 2012 has directed to treat the benefit/freebies enjoyed by the medical practitioner to be treated as income from other sources in the hands of such medical practitioner. iii. Tour to Thailand

There was no documentary evidence furnished suggesting that the tour to Thailand was sponsored by the company as claimed by him. Accordingly the AO has estimated the total expenses and reduced the expenses incurred by the assessee. Accordingly the AO made the addition of Rs. 50,000 in the manner as computed under:

“To and fro Air fare (20,000x2) : Rs. 40,000/- Boarding and Lodging expenses (for 2 days, Rs.30,000/- per day) : Rs. 60,000/- -------------------------------------------------- Total Expenditure : Rs.1,00,000/- Less: Expense incurred by assessee as per bank statement : Rs. 50,000/- ------------------------------------------------- Total unexplained expenditure added to total income as income from other sources : Rs. 50,000”

iv. Tour to USA

The assessee has been sponsored the tour to the USA by the company Netradeep Eye Hospital Pvt Ltd. But there was no expense debited in the books of accounts of such company in connection with the impugned foreign tour. Accordingly, the AO estimated the total expenses and reduced the expenses incurred by the assessee. Accordingly the AO made the addition of Rs. 7 lacs in the manner as computed under:

“To and fro Air fare (75,000x2) : Rs.1,50,000/- Boarding and Lodging expenses (for 25 days, Rs.30,000/- per day) : Rs.7,50,000/- -------------------------------------------------- Total Expenditure: Rs.9,00,000/- Less: Expense incurred by assessee as per bank statement : Rs.2,00,000/- ---------------------------------------------------- Total unexplained expenditure u/s.69C added to

- 5 - ITA No.32/Rjt/2016 Vasant Vashrambhai Sapovadia vs. ACIT Asst.Year – 2010-11 total income : Rs.7,00,000/- Penalty u/s.271(1)(c) initiated for Furnishing inaccurate particulars of income.

In view of the above, the AO treated the sum of Rs. 7,50,000/- as unexplained expenditure under section 69C of the Act and added to the total income of the assessee.

Aggrieved assessee preferred an appeal to the learned CIT (A).

The assessee before learned CIT(A) submitted that, his Thailand tour was sponsored by the Ajanta Pharma Mumbai for 2 nights only. However as per available quotation of Thailand tour for 5 night and 6 days will cost to Rs. 35,000/- only. Accordingly cost for 2 nights comes to Rs. 14,000/- only. Therefore addition of Rs. 50000.00 based on estimation is unfounded and needs to be deleted.

Further, with respect to USA tour of 25 days, assessee submitted that it was a professional tour sponsored by Netradeep Eye Hospital Pvt. Ltd. for attending the seminar called ‘INNOVATIVE CATARCYT SURGURY’. The tour was sponsored to him being MD of company and an eye expert. The assessee further claimed that during the period of USA stay of 25 days he stayed at his relative and friend home at Florida and Newjersy. Therefore the addition of Rs. 7,00,000/- is based on presumption & surmise of the AO and thus the same is liable to be deleted. However, the learned CIT(A) disregarded the contention of the assessee and confirmed the order of the AO by observing as under:

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“5.2 I have carefully considered the submission of the appellant and perused facts of the case in the assessment order. The A.O. has disallowed unexplained expenditure on foreign trip to Thailand was being sponsored by a pharma company in view of the guidelines of Clause 6.8.1 (b) of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulation,2002 and CBDT Circular No. 5/20 122 (F.No.225/ 142/2012-ITA.III) dated 1/8/2012. In this regard, the appellant has submitted a quotation for Thailand trip of five nights and three days costing Rs.35,000/- averaging cost at Rs.14,000/-questioning the arguments of the A.O. as unreasonable without any documentary evidences. Considering the fact that the appellant was not only a doctor but also Managing Director of Netradeep Eye Hospital, Rajkot, the expenditure estimated by the A.O. on five days trip to Thailand are very much reasonable at Rs.60,000/- only (Rs. 12000 per day) comprising lodging and boarding expenses and after deducting the withdrawal from the bank account, the balance amount is rightly treated as unexplained expenditure in absence of any documentary evidences to support the said expenditure by the appellant. 5.3 Likewise, the appellant has been on a foreign tour to USA from 26/3/2010 to 19/4/2013, i.e. for 25 days, including tour sponsored by Netradeep Eye Hospital, Rajkot for conference scheduled to be held from 10/4/2010 to 14/4/2010 (five days) in Boston (USA). However, on perusal of audit report of Netradeep Eye Hospital, it was noticed by the A.O. that no such expenditure on sponsorship to USA was reflected in the P&L A/c. Appellant also failed to produce any other documentary evidences, like bank statement of hospital, hotel bill etc. in support of sponsorship, except sponsorship letter of Netradeep Eye Hospital P. Ltd. Supporting evidences should also include any expenditure on sponsorship to USA tour included in the audited P&L A/c. of Netradeep Eye Hospital. The appellant himself is the Managing Director of the Netradeep Eye Hospital. He is competent to issue sponsorship letter in his name or in name of any person at any point of time which in no case constitute any legal documentary evidence without supporting evidences such as bank statement of Netradeep Eye Hospital incurring sponsorship expenditure on the foreign trip, including hotel bills which the appellant failed to produce. The appellant has contended that during the period of stay at USA at different stations, he has stayed with his relatives and friends hence no expenditure was incurred on hotel expenditure. It is further contended by the appellant that the tour sponsored by Netradeep Eye Hospital for attending seminar on 'Innovative Cataract Services'. The appellant stayed in Florida from 29/03/2010 to 04/04/2010 at home of his friend Shri Rajesh Kalaria, stayed in Newjersy from 5/04/2010 to 6/04/2010 at home of his relative Shri Devendra Sapoadia, From Dt.07/04/2010 to 14/04/2010 attended professional seminar and returned to Newjersy on 14/04/2010, from 14/04/2010 to 17/04/2010 he stayed at home of his relative Shri Devendra Sapovadia. The appellant has shown withdrawal of Rs.2 lakhs only for professional tour of USA from his savings bank account. 5.4 Fact emerges out of the discussion on professional tour to USA is that the appellant has been on professional tour of USA for 25 days, including five days of professional seminar in the capacity of Managing Director, as claimed by the appellant The expenditure for rest of the period of 21 days remained unexplained. The appellant has also failed to produce the persons claimed as his friends or kind of relationship he has with the friends whether family friend or friend in blood relation. The appellant also failed to furnish any documentary evidences to prove friendly relationship with the persons with whom he stayed with them in USA during period to crystallize the expenditure for the period of 21 days which should have been substantiated with relevant evidences. The appellant's submission has no force and substance to prove the relationship with the persons claimed as friends with whom the appellant claimed deemed stay in USA to substantiate the foreign tour expenditure of 21 days. Under the circumstances, estimation of the

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A.O. of Rs.9 lakhs @ Rs.30,000/- per day is quite reasonable estimate for the foreign tour taken up to USA by the appellant during the year under appeal. Hence, I am of the opinion that the foreign tour to USA is question of facts, which is not proved and substantiated with necessary documentary evidences by the appellant. Therefore, it is held to be a personal nature and not as a sponsorship by the Netradeep Eye Hospital in absence of required necessary legal documentary evidences. No interference is called for in the order of the A.O. 6.0 Ground No.7, 8 & 9 are general in nature and do not require to be adjudicated separately. 7.0 In the result, the appeal is dismissed.”

Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us.

- 8 - ITA No.32/Rjt/2016 Vasant Vashrambhai Sapovadia vs. ACIT Asst.Year – 2010-11 that total air fair for Bombay to New jersey by the assessee is incurred is Rs. 59,309/- (enclose page 3) as against estimation of Rs. l,50,000/- by theLd. A.O. 7. As regard lodging and boarding charges estimated at Rs. 30.000/- per day for 25 days, i.e. Rs. 7,50,000/- for entire tour is also not supported by any cogent evidence. A copy of registration to be made for ASCRS ASOA SYMPOSISM AND CONGREES held at Bostan, from 9-4-10 to 14-4- 10 shows that even for 49 days program as mention at the top of the letter for 49 days shows total cost of $ Rs. 35,567 A copy of flamingo transward (enclosed page 4 & 5) shows for 22 nights and 23 days for USA tours cost Rs. 160000 + 3990$ only. Thus Ld. A.O's estimation is baseless. 8. Thus as against making baseless addition of Rs. 7,00,000/- considering the paper furnished, taking into consideration Rs. 2,00,000 incurred by the assessee ought to have been accepted the addition made of Rs. 7,00,000/- by the Ld. A.O. needs deletion made simply on presumption and surmises as is evidence from above that Ld. A.O. has consider lodging and boarding expenses of Rs. 30,000/- for Thailand as well as U.S.A. treating both the country are at par which require deletion accepting admission made by the Ld. A.O. of Rs. 50,000/- for Thailand and Rs. 2,00,000/- for U.S.A.

Regarding the tour to Thailand, we note that the assessee failed to furnish the basic document suggesting that the tour was sponsored by the Ajanta Pharma. Thus the assessee failed to discharge the primary onus cast upon him.

There is no dispute that the gifts, freebies and any other benefit to the doctors are prohibited as per explanation to section 37 of the Act. Similarly, such gifts and freebies to the doctors shall be treated as their income as per the circular bearing

- 9 - ITA No.32/Rjt/2016 Vasant Vashrambhai Sapovadia vs. ACIT Asst.Year – 2010-11 number 5/2012 (F.No.225/142/2012-ITA.II) dated 1st August 2012 issued by the CBDT which prohibits such gifts of the doctors. According to the circular, the deduction to the pharmaceutical company in respect of such expenses will not be available. The Hon’ble Himachal Pradesh High Court also upheld the validity of the circular in the case of confederation of India pharmaceuticals Industry (SSI) Vs. CBDT reported in 353 ITR 388 wherein it was held as under:

“Shri Vishal Mohan, Advocate, on behalf of the petitioner contends that the circular goes beyond the section itself. We are not in agreement with this submission. The explanation to Section 37(1) makes it clear that any expenditure incurred by an assessee for any purpose which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession. The sum and substance of the circulars also the same. In case the assessing authorities are not properly understanding the circular then the remedy lies for each individual assessee to file appeals under the Income-tax Act but the circular which is totally in line with Section 37(1) cannot be said to be illegal. In fact paragraph 4 of the circular quoted hereinabove itself clarifies that the value of the freebies enjoyed by the medical practitioner is also taxable as business income or income from other sources depending on the facts of each case. Therefore, if the assessee satisfies the assessing authority that the expenditure is not in violation of the regulations framed by the medical council then it may legitimately claim a deduction, but it is for the assessee to satisfy the assessing officer that the expense is not in violation of the Medical Council Regulations referred to above.”

However, we note that the impugned circular was issued by the CBDT dated 1 August 2012 and therefore the same is applicable effective from 1 April 2013 as held by this tribunal in the case of Cadila Pharmaceuticals Ltd. Vs. DCIT reported in 85 taxmann.com 354. The relevant extract of the order is reproduced as under: “We have heard both the parties. Mr. Soparkar is very fair in pointing out at the outset that this tribunal's decision in Asstt. CIT v. Liva Healthcare Ltd. [2016] 161 ITD 63/73taxmann.com 171 (Mum. - Trib.) upholding such a disallowance in case of pharmaceutical companies offering free samples to doctor post introduction of the relevant product in market after establishing end use; is hit by Section 37(1) explanation. He however refers to another co-ordinate bench decision in Macleods Pharmaceuticals Ltd. v. Addl. CIT [2016] 161 ITD 291/74taxmann.com 250 (Mum. - Trib.) holding that the above Board's circular dated 01.08.2012 would not have any retrospective effect since not operating in assessment years 2010-11. He further quotes another co-ordinate bench decision in Dy. CIT v. PHL Pharma (P.) Ltd. [2017] 163 ITD 10/78taxmann.com 36 (Mum. - Trib.) distinguishing the above case law in Revenue's favour whilst deleting an identical disallowance on the ground that such business promotion expenses are allowable as business expenditure not hit u/s. 37(1) explanation. We afforded ample rebuttal opportunity to the Revenue. Learned Departmental Representative fails to indicate any distinguishing features therein. We find that the above latter co-ordinate bench has elaborately discussed all case laws,

- 10 - ITA No.32/Rjt/2016 Vasant Vashrambhai Sapovadia vs. ACIT Asst.Year – 2010-11 IMC regulations as well as Board's circular in deciding the issue. We therefore adopt the very reasoning herein as well to delete the impugned disallowance. The assessee succeeds in its instant substantive ground.”

From the above, it is clear that the provisions as specified in the CBDT circular cannot be applied to the case on hand. Therefore such freebies cannot be treated as income in the hands of the assessee for the year under consideration.

However, before parting we reiterate the fact that the assessee has not produced any documentary evidence suggesting that the expenses on the tour to Thailand was sponsored by the Ajanta Pharma. As such the assessee was under the obligation to furnish the details of the expenses such as travelling expenses, accommodation expenses, food expenses and other expenses if any to justify his stand. In our considered view, simply furnishing the quotation from the travel agent will not absolve the assessee from furnishing the necessary documents in support of the expenses incurred by him. We are also conscious to the fact that in the instant case the AO has estimated the total expenses incurred on the visit to Thailand but the AO had to resort to such estimation as the assessee has not filed the necessary details. Thus in the absence of sufficient documentary evidences, we do not find any infirmity in the order of the learned CIT (A).

Regarding the tour to USA, the assessee claimed that the expenses have been sponsored by Netradeep eye hospital of which the assessee was the director. However, the AO observed that there was no claim made by the company namely Netradeep eye hospital in its books of accounts for such expenses. Thus, it is inferred that the impugned expenses were incurred by the assessee from the income of undisclosed sources.

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Similarly, there was onus on the assessee to furnish the details of the friends and relatives such as their ID and residence proof where he stayed with them during the visit in the USA. But he failed to do so. Thus in the absence of necessary evidences, we do not find any infirmity in the order of the learned CIT (A). Hence, the ground of appeal of the assessee is dismissed.

This Order pronounced in Open Court on 22/ 10 /2019

Sd/- Sd/- ( RAJPAL YADAV ) ( WASEEM AHMED ) JUDICIAL MEMBER ACCOUNTANT MEMBER

Ahmedabad; Dated 22/ 10 /2019

ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-2, Rajkot 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण,राजोकट/DR,ITAT, Rajkot 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, राजोकट / ITAT, Rajkot