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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI LALIET KUMAR & SHRI GAGAN GOYAL
O R D E R Per: Gagan Goyal (AM): This appeal has been filed by the assessee against the order dated 27/06/2017 passed by the Commissioner of Income-tax (Appeals)-17, Mumbai for the assessment year 2012-13.
The following grounds are raised by the assessee:-
2 ITA 1028/Mum/2021 “1. The Learned CIT(Appeals)-17 erred in confirming the addition on account of disallowance of depreciation of Rs.6,53,933/- on plant and machinery belonging to the appellant company and installed at customer’s premises for the business of the assessee.
2. The Learned CIT(Appeals)-17 erred in confirming the addition of Rs.1,88,922/- on account of the difference between the income credited to the Profit and Loss account and the income reflected in Form 26AS.”
The brief facts are, the assessee company is engaged in the business of trading in diagonostic kits and instrumentation used for medical purposes. It also does marketing of related medical instrumentation on commission basis. The assessing officer, on finding that the assessee claimed depreciation of Rs.22,06,050/- on plant and machinery. Further he observed, the assessee claimed depreciation on machines which were given on rent. Since, on identical facts, claim of depreciation on machinery which were given on rent was disallowed in earlier years, the assessing officer made a disallowance of Rs.6,53,933/- in this year also. Further, the assessing officer also noticed mismatch of amounts in form 26AS and that shown by the assessee, in respect of the following: Sr. Name of the party Amount as per Amount as per Difference No. 26AS P&L A/c 1 Benziger Hospital 22,000 21,560 440 2 Shri R.B. Kothari 1,21,330 52,162 69,168 Charitable Trust 3 Park Medical Research 50,000 49,000 1,000 and Welfare Society 4 Sridevi Hospital 19,865 0 19,865 Foundation (P) Ltd 5 ESIC Hospital & ODC (Ex) 46,878 43,900 2,978
3 ITA 1028/Mum/2021
Joka 6 Bikachand Saklecha 60,698 0 60,698 7 Prakash Pathology and 49,500 29,202 20,298 Radiology Pvt Ltd 8 Clinitech Laboratory 49,475 35,000 14,475 TOTAL 1,88,922 The aggregate difference of Rs.1,88,922/- was added by the assessing officer as unaccounted receipts as the assessee did not file any documentary evidence.
On appeal, the Ld.CIT(A) confirmed the addition on both the counts.
Further aggrieved, the assessee is in appeal before the Tribunal.
We have considered the rival submissions and perused the materials available on record. In this case, the customers of the assessee are either the stand alone pathology laboratories or the hospitals with such in-house laboratories, which carry out the diagnosis of a medical disease by subjecting the patients sample with the use of reagents in the diagnostic machines/instruments. The modus operand! adopted by the assessee for running its business of trading in diagnostic machines and reagents, which is commonly followed in the trade line of diagnostic industry, can briefly be culled out as under:- (i). Outright sale of diagnostic machine by the assessee to the customer who thereafter being the absolute owner of the same uses it with the liberty to purchase reagents from any party of his choice.
(ii). Installation of the diagnostic machine owned by the assessee at the premises of the customer, though for zero rental and zero deposit, but subject to a conditional agreement that reagents to be used for running of the said diagnostic machine by the customer will be purchased exclusively from the assessee. In such a situation,though the ownership of the diagnostic machine and the responsibility for maintaining the same continues to remain vested
4 ITA 1028/Mum/2021 with the assessee, however the customer remains under an obligation to purchase the reagents used in running of the diagnostic machine only from the assessee, i.e to the exclusion of any third party supplier.
We find that for the assessment years 2007-08 to 2010-11, the Tribunal considered identical issue in to 6182/Mum/2013 vide order dated 23/11/2016. The Tribunal, while deciding the issue in favour of the assessee, has held, as under:- “The Id. A.R in order to fortify his contention that the agreements executed with the customers at whose site the diagnostic machines owned by the assessee were installed at zero rental, subject to the condition that the exclusive purchase of the reagents used in running of the said machines were to be carried out by the said customers only from the assessee, coupled with the fact that such customers had not claimed any depreciation on such machines, had therein drawn our attention to the relevant pages of the 'APB', which we find are undisputedly the documents forming part of the records of the lower authorities. 7. We are of the considered view that in light of the nature of the business of the assessee as stands gathered from a perusal of the relevant pages of the 'APB', the conditional deployment of the diagnostic machines owned by the assessee, at the customers site, on the basis of agreements contemplating a strict stipulation that the customers shall remain under an obligation to exclusively purchase the reagents used in running of the said diagnostic machines from the assessee, is a purposive, conscious and intentional modus operandi adopted by the assessee to boost the sales of the reagents, which can safely be characterized as a strategic approach of the assessee prompted by business prudence in the very interest of its business.The Ld. A.R in order to fortify her contention that the diagnostic machines in the normal course of the business of the assessee, with the intent to boost the sale of reagents were strategically deployed at the customers site on zero rental and zero deposit basis, in lieu whereof the customer remained under an obligation not only to carry out exclusive purchase of the reagents from the assessee, but also remained committed to a minimum guaranteed purchases from the assessee during the period of the agreement, therein drew our attention to Page 73 of the 'APB', which is an annexure forming part of one of the agreement executed by 5 ITA 1028/Mum/2021
the assessee with a customer during the year under consideration. It was submitted by the Ld. A.R that in the backdrop of such a strategical arrangement carried out in the course of and in very interest of its business, the test of user for business purposes of such diagnostic machines so installed at the customers site, thus stood satisfied beyond any scope of doubt. We have given a thoughtful consideration to the facts of the case and perused the material placed before us, and are persuaded to be in agreement with the contention of the Ld. A.R that the installation of the diagnostic machines owned by the assessee at the customers site, subject to the condition that the purchase of the reagents shall be carried out exclusively from the assessee, can safely and inescapably be held to be the business of the assessee, and the observations to the contrary so drawn by the lower authorities on the said issueare misconceived and had rightly been dispelled by the Ld. A.R before us.
5.3 We are further unable to persuade ourselves to be in agreement with the observations of the CIT(A) that the assessee had not placed on record any details as regards the plant and machinery which had been given to the customers on reagents/rental basis, nor had adduced any evidence that the diagnostic machines under consideration did form part and parcel of its 'Block of assets'. We are of the considered view that the CIT(A) on the basis of misconceived facts, had thus erroneously held that diagnostics machines which were installed at the customers site on reagent rental contract basis did form part of the 'Stock in trade' of the tradable diagnostic machines lying with the assessee.That during the course of hearing of the appeal the Ld. A.R dispelling the aforesaid observations of the CIT(A),therein submitted that the diagnostic machines of Rs. 52,85,7217- which were put to such use as on 01.04.2006, were purchased by the assessee during the preceding year and necessary adjustment as regards reduction of the same from the 'Op. Stock' as on 01.04.2006 stood duly reflected in Schedule 10 forming part of the 'P& loss a/c' for the year under consideration, and in order to fortify his contention drew our attention to Page 13 of the 'APB'. The Ld. A.R further taking us to Page 10 of the 'APB', which is a schedule of the 'Fixed assets' forming part of the 'Balance sheet' as on 31.03.2007, marked as 'Schedule 5', therein submitted that diagnostic machines of Rs. 52,85,721/- (supra)formed part of the additions to the 'Fixed assets' reflected at Rs.1,15,79,767/- under the head 'Plant & Machinery' in the said schedule. The Ld. A.R further to support his aforesaid factual contention and remove
6 ITA 1028/Mum/2021 any scope of doubt, took us to Annexure 'B' (Additions to the 'Fixed assets') which therein revealed that the addition of Rs.52,85,721/-(supra) to the 'Plant & Machinery^ as on 01.04.2006, did form part of the total additions of Rs. l,15,79,767/-(supra) reflected in 'Schedule 5' (supra). Thus to be brief and explicit the Ld. A.R well demonstrated before us that the complete details as regards the diagnostic machines of Rs. 52,85,721/-(supra) formed part of the 'Block of assets' of the assessee, and had been installed at the customers sites on reagent sale basis during the year under consideration, were very much available before the lower authorities. It was thus submitted by the Ld. A.R that in the backdrop of the aforesaid factual position, the observations of the CIT(A) that the assessee had failed to furnish details and adduce any evidence in support of his contention that the diagnostic machines installed at the customers site were part of its 'Block of assets', were proved to be blatantly contrary to the material available on record, and the A.O had most whimsicallyconcluded that the same were part of the 'Stock in trade' of the assessee. It was thus submitted by the Ld. A.R that as the observations of the CIT(A) were absolutely perverse and contrary to the material available on record, therefore the same thus could not be sustained as such, and were liable to be set aside. The Ld. D.R was however unable to dislodge the aforesaid contention of the assessee, which we find were well founded and supported by the relevant pages of the 'APB' to which our attention was drawn. We have given a thoughtful consideration to the contention of the parties and are of the considered view that in the backdrop of the aforesaid facts as had emerged from the material available on the record of the lower authorities, the observations of the CIT(A) that the assessee had not furnished any details of the additions to the plant and machinery which were installed at the customers site on reagent rental contract basis, nor adduced any evidence that the diagnostic machines installed at the customers site formed part of the 'Block of assets' of the assessee, being absolutely contrary and in complete disregard of the material available on record, therefore cannot be sustained and are herein set aside. Thus in light of our aforesaid observations, we herein vacate the consequential finding of the CIT(A) which had so emerged on the basis of his aforesaid misconceived and ill founded observationsthat the diagnostic machines installed by the assessee at the customers site under the reagent rental contracts were not from the assesses 'Block of assets', but formed part of the latters 'Stock in trade'. We thus being of the view that the installation of the diagnostic machines owned by the assessee and forming part of its 7 ITA 1028/Mum/2021
'Block of assets' at the customers site, being a part of the business of the assessee, and rather as a matter of fact a modus operand! adopted by the assessee to boost its sales of reagents, therefore the latter being found to have duly satisfied the requisite conditions contemplated u/s 32(1) of the 'Act', is thus entitled to deprecation on the said diagnostic machines. We thus in light of our aforesaid observations set aside the order of the CIT(A) and allow the appeal of the assessee.”
Consistent with the earlier order of the Tribunal, we decide the issue in favour of the assessee. The first ground of appeal is allowed.
9. With regard to the other issue pertaining to difference in Form 26AS and the receipts shown by the assessee, we find that no new facts have been brought to our notice. Therefore, we do not find a reason to come to a different conclusion than the one arrived at by the authorities below. Ground 2 of the assessee is dismissed.
In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on 01st March, 2022.