M/S.VASCULAR CONCEPTS LTD.,,BANGALORE vs. DCIT-CENTRAL CIRCLE-1(4), BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : BANGALORE

BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER

ITA Nos.1921 to 1927/Bang/2016 Assessment years : 2007-08 to 2013-14

M/s. Vascular Concepts Ltd., Vs. The Deputy Commissioner of No.19, S V Complex, Income Tax, Bellary Road, Hebbal, Central Circle 1(4), Bangalore – 560 024. Bangalore. PAN: AAACM 8353R APPELLANT RESPONDENT

Appellant by : Shri K.R. Pradeep, Advocate. Respondent by : Shri Pradeep Kumar, CIT(DR)(ITAT), Bengaluru.

Date of hearing : 30.10.2017 Date of Pronouncement : 29.01.2018 O R D E R Per Bench

These appeals are preferred by the assessee against the respective orders of the CIT(Appeals) inter alia on various grounds. Since these appeals were heard together, they are being disposed of through this consolidated order, but we prefer to adjudicate them one after the other.

ITA Nos.1921 to 1925/Bang/2016

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raised preliminary grounds with regard to the validity of the assessment proceedings framed u/s. 153A of the Act. Since the grounds raised in these appeals are almost similar, except difference in quantum, we prefer to reproduce the grounds raised in ITA No.1921/Bang/2016 hereunder:-

“1. That the order of the authorities below, in so far as it is against the appellant is against the law, facts, circumstances, natural justice, equity, without jurisdiction, bad in law and all other known principles of law. 2. That the total income computed and the total tax computed is hereby disputed. 3. The initiation of search and subsequent proceedings are bad in law, without jurisdiction and invalid. 4. The notice u/s 153A of the Act and subsequent proceedings are without jurisdiction and bad in law. 5. The AO / CIT (A) erred in changing opinion on the issues involved in the appeal in the absence of any new information which was not already considered in the earlier assessments done. 6. The order u/s 153A r.w.s. 143(3) of the Act is bad in law and infructuous as the order does not refer to any material which can be said to give rise to undisclosed income or incriminating in nature, hence requires to be cancelled. 7. That the AO / CIT (A) erred in not providing sufficient and adequate opportunity to the appellant as required under law, thereby violating the principles of natural justice, hence the order requires to be cancelled. 8. The AO / CIT (A) erred in not considering the relevant materials, evidences and data, thus the order passed is without application of mind requires to be cancelled. 9. The AO / CIT (A) erred in relying on material and statements without furnishing the same to the appellant before passing of the orders.

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AYs 2007-08 to 2010-11, the returns were filed on 11.03.2010 and assessment was completed u/s. 143(3) r.w.s. 153A of the Act on

31.03.2011. Thereafter, the second search was conducted upon the

assessee on 07.12.2012 and in response thereto, return was filed on 17.02.2014. Assessment was completed u/s. 143(3) r.w.s. 153A on

31.12.2014. The ld. Counsel for the assessee further contended that when the assessment was completed on 31.03.2011 u/s. 143(3) r.w.s. 153A of

the Act examining all the details, the same details cannot be re-examined

while completing the assessment on account of second search. It was further contended that during the course of second search, no incriminating

material was found by the search party on the basis of which the completed assessment can be reopened and assessed further.

was filed on 23.09.2011 and the last date for issuance of notice u/s. 143(2) was 30.09.2012. After the expiry of the period for issuing notice u/s.

143(2), the search was conducted on 07.12.2012. In this search no incriminating material was found against the assessee on the basis of

which assessment can be framed. In support of the above contentions,

the ld. Counsel for the assessee further placed reliance upon the following judgments:-

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(1) CIT v. Lancy Constructions, ITA Nos.528 to 531/2014 dated 15.12.2015 Karnataka High Court [Paperbook-II, Pages 174 to 179]. (2) DCIT v. Himanshu B. Kanakia, 46 ITR 0756 Trib)(Mum) [Paperbook-II, pages 164 to 173]. (3) CIT v. Singhad Technical Education Society, Civil Appeal No.11080 of 2015 dated 29 August, 2017 [Paperbook-V, pages 790 to 806]. (4) Jagran Prakashan Ltd. v. CIT, 368 ITR 0687 (All) [Paperbook-V, pages 807 to 811]. (5) Kusum Gupta v. DCIT, 35 CCH 0432 (Del) [Paperbook-V, pages 812 to 820]. 6. The ld. Counsel for the assessee has also invited our attention to the Panchanama appearing at page Nos. 124, 129 & 130 of the compilation and from the Panchanama nothing has surfaced on the basis of which the impugned additions can be made in the final assessment order. Therefore, once the assessment is completed and no incriminating material is found by the search party in the course of search, the concluded assessment cannot be reopened and assessed further.

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taxmann.com 98 with the submission that the AO can frame the

assessment even if he does not find incriminating material.

In ITA No.305/Bang/2017, 1150, 1560 to 1562 & 1635 to 1638/Bang/2016, copy of which is placed on record, with the submission that this issue has

been examined in detail by the Tribunal and it has been held that when

final assessment is concluded and during the course of search no incriminating material is found, concluded assessment cannot be reopened.

assessments were completed u/s. 143(3) r.w.s. 153A of the Act vide order

dated 31.03.2011. Thereafter, search was conducted on 07.12.2012 in which no incriminating material was found wherefrom it can be inferred that

the issue relating to incriminating material found was not examined in the concluded assessment. Similar is the position for AY 2011-12 in which the

return was filed on 23.09.2011 and the last date for issuance of notice u/s.

143(2) was 30.09.2012. After the expiry of issuance of notice u/s. 143(2), a search was conducted on 07.12.2012 and notice u/s. 153A was issued on

09.10.2013 to frame the assessment. In this case also, no incriminating material was found during the course of search on the basis of which

assessment can be framed. The issue whether in the absence of

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incriminating material, concluded assessment can be reopened or assessed further in the light of search conducted upon the assessee was examined by the Tribunal in the case of DCIT v. P.M.A. Razak & Ors. (supra) in detail in the light of various judicial pronouncements and the Tribunal has finally concluded that in the absence of any incriminating material, proceedings u/s. 153A cannot be initiated and concluded assessment cannot be reopened. The relevant observations of the Tribunal are extracted hereunder for the sake of reference:-

“14. Having carefully examined the orders of lower authorities in the light of rival submissions and the judgment referred to by the parties, we find that in the case of Canara Housing Development Company, the question of law raised before the Hon’ble High Court was with regard to scope of revision under section 263 of the Act with respect to assessment completed under section 143(3) of the Act in the light of the fact that proceedings under section 153A was initiated. For the sake of reference, we extract the question of law referred to Hon’ble High Court as under: “When once the proceedings under section 153A of the Act is initiated, whether the Commissioner of Income Tax can invoke the power under section 263 of the Act to review the order of assessment passed by the Assessing Authority?” 15. The facts of the case was that assessment under section 143(3) was completed by an order dated 31.12.2010. Subsequently, a search took place in the premises of the assessee under section 132 of the Act on 12.04.2011. In the course of search, incriminating material leading to non-disclosure of income was seized. Accordingly, proceedings under section 153A was initiated and in response to the notice under section 153A, the assessee filed a return of income for 6 years as required under the said provision. When the said return was under consideration, on 14.03.2013, the CIT initiated proceedings under section 263 of the Act on the ground that assessment order dated 31.12.2010 passed under section 143(3) of the Act is erroneous and prejudicial to the interest of the Revenue. The assessee filed objections. But ultimately order under section 263 was passed which was challenged before the Tribunal and

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the Tribunal having relied upon the judgment of the special bench of ITAT in the case of All Cargo Logistics Ltd., 16 ITR 380 (Mum) special bench held that it is open to the Commissioner to invoke his powers under section 263 of the Act if the said assessment is erroneous and prejudicial to the interest of the Revenue. Otherwise the Revenue will be without any remedy. Against this order of Tribunal, matter was brought before the jurisdictional Hon’ble High Court and the High Court re- examined the entire issue in the light of judgments of CIT Vs. Anil Kumar 80 CCH 113 Delhi High Court and came to the conclusion that the Commissioner by virtue of the power conferred under section 263 of the Act, gets no jurisdiction to initiate proceedings under the said provision because the condition precedent for initiating proceedings under section 263 is any order passed under the Act by the AO is erroneous in so far as prejudicial to the interest of the Revenue. When once the order passed by the AO gets reopened, there is no order which can be said to be erroneous in so far as it is prejudicial to the interest of the Revenue. The relevant observation of the jurisdictional High Court in the case of Canara Housing Development Company is extracted hereunder for the sake of reference: “10. Section 133A of the Act starts with a non obstante clause. The fetters imposed upon the Assessing Officer by the strict procedure to assume jurisdiction to reopen the assessment under Sections 147 and 148, have been removed by the non obstante clause with which sub section (1) of Section 153A opens. The time-limit within which the notice under Section 148 can be issued, as provided in Section 149 has also been made inapplicable by the non obstante clause. Section 151 which requires sanction to be obtained by the Assessing Officer by issue of notice to reopen the assessment under Section 148 has also been excluded in a case covered by Section 153A. The time-limit prescribed for completion of an assessment or reassessment by Section 153 has also been done away with in a case covered by Section 153A. With all the stops having been pulled out, the Assessing Officer under Section 153A has been entrusted with the duty of bringing to tax the total income of an assessee whose case is covered by Section 153A, by even making reassessments without any fetters, if need be. Therefore, it is clear even if an assessment order is passed under Section 143(1) or 143(3) of the Act, the Assessing Officer is empowered to reopen those proceedings and reassess the total income taking note of the undisclosed income, if any, unearthed during the search. After

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such reopening of the assessment, the Assessing Officer is empowered to assess or reassess the total income of the aforesaid years. The condition precedent for application of Section 153A is there should be a search under Section 132. Initiation of proceedings under Section 153A is not dependent on any undisclosed income being unearthed during such search. The proviso to the aforesaid section makes it clear the assessing officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years. If any assessment proceedings are pending within the period of six assessment years referred to in the aforesaid sub-section on the date of initiation of the search under Section 132, the said proceeding shall abate. If such proceedings are already concluded by the assessing officer by initiation of proceedings under Section 153A, the legal effect is the assessment gets reopened. The block assessment roped in only the undisclosed income and the regular assessment proceedings were preserved, resulting in multiple assessments. Under Section 153A, however, the Assessing Officer has been given the power to assess or reassess the "total income' of the six assessment years in question in separate assessment orders. The Assessing Officer is empowered to reopen those proceedings and reassess the total income, taking note of the undisclosed income, if any, unearthed during the search. He has been entrusted with the duty of bringing to tax the total income of an assessee whose case is covered by Section 153A, by even making reassessments without any fetters. This means that there can be only one assessment order in respect of each of the six assessment years, in which both the disclosed and the undisclosed income would be brought to tax. When once the proceedings are initiated under Section 153A of the Act, the legal effect is even in case where the assessment order is passed it stands reopened. In the eye of law there is no order of assessment. Re-opened means to deal with or begin with again. It means the Assessing Officer shall assess or reassess the total income of six assessment years. Once the assessment is reopened, the assessing authority can take note of the income disclosed in the earlier return, any undisclosed income found during search or and also any other income which is not disclosed in the earlier return or which is not unearthed during the search, in order to find out what is the "total income" of each year and then pass the assessment order. Therefore, the Commissioner by virtue of the power conferred under Section 263 of the Act gets no jurisdiction

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to initiate proceedings under the said provision because the condition precedent for initiating proceedings under Section 263 is any order passed under the Act by the Assessing officer is erroneous insofar as it is prejudicial to the interest of the Revenue. Once the order passed by the Assessing officer gets reopened, there is no order which can be said to be erroneous insofar as it is prejudicial to the interest of the Revenue which confers Jurisdiction on the Commissioner to exercise the power of the jurisdiction. 11. The Tribunal has proceeded on the assumption by virtue of the judgment of the special bench of the Mumbai, the scope of enquiry under Section 153A is to be confined only to the undisclosed income unearthed during search and if there is any other income which is not the subject matter of search, the same cannot be taken into consideration. Therefore, the revisional authority can exercise the power under Section 263. In the entire scheme of 153A of the Act., there is no prohibition for the assessing authority to take note of such income. On the contrary, it is expressly provided under Section 153A of the Act the Assessing Officer shall assess or reassess the "total income" Of six assessment years which means the said total income includes income which was returned in the earlier return, the income which was unearthed during search and income which is not the subject matter of aforesaid two income. If the commissioner has come across any income that the assessing authority has not taken note of while passing the earlier order, the said material can be furnished to the assessing authority and the assessing authority shall take note of the said income also in determining the total income of the assessee when the earlier proceedings are reopened and that income also shall become the subject matter of said proceedings. In that view of the matter the reasoning given by the Tribunal is not justified. The Commissioner did not have jurisdiction to initiate any proceedings under Section 263 of the Act.” 16. Thus in the case of Canara Housing Development Company, the jurisdictional High Court has not laid down any proposition of law that in the absence of incriminating material found during the course of search, proceeding under section 153A can be initiated and the assessment completed under section 143(3) or 143(1) can be relooked into or reconsidered. Whereas in the case of Lancy Construction, the

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jurisdictional High Court has examined the question of law “whether accounts in Tally copied and seized at the time of search do not come within the purview of material found during the course of search as per ratio of the decision of the special bench of Bangalore in the case of All Cargo Logistics Vs. DCIT (supra). 17. While adjudicating the issue, the Hon’ble High Court categorically held that in the absence of incriminating material found during the course of search, proceedings under section 153A cannot be initiated in the light of the fact that regular assessment was completed. If it is to be allowed, then it would amount to second opportunity to the Revenue to reopen the concluded assessment. The relevant observation of the Hon’ble High Court is extracted herein for the sake of reference: “6. In our view, if assessment is allowed to be reopened on the basis of search, in which no incriminating material had been found, and merely on the basis of further investigating the books of account which had been already submitted by the assessee and accepted by the Assessing Officer at the time of regular assessment, the same would amount to the Revenue getting a second opportunity to reopen the concluded assessment, which is not permissible under the law. Merely because a search is conducted in the premises of the assessee, would not entitle the Revenue to initiate the process of reassessment, for which there is a separate procedure prescribed in the statute. It is only when the conditions prescribed for reassessment are fulfilled that a concluded assessment can be reopened. The very same accounts which were submitted by the assessee, on the basis of which assessment had been concluded, cannot be reappreciated by the Assessing Officer merely because a search had been conducted in the premises of the assessee.” 18. This issue was also examined by different High Courts. In the case of CIT Vs. Kabul Chawla, the Delhi High Court has examined this issue and has categorically held that completed assessments can be interfered with by the AO while making assessment under section 153A only on the basis of some incriminating material unearthed during the course of search which was not produced or not already disclosed or made known in the course of original assessment. In the judgment having examined the various aspects, the Lordship has elaborated the legal position that emerges on conspectus of section 153A(1) of the Act as under:

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“i. Once a search takes place under Section 132 of the Act, notice under Section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes places. The AO has the power to assess and reassess the ‘total income’ of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs ‘in which both the disclosed and the undisclosed income would be brought to tax”. iv. Although Section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment “can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material.” v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word ‘assess’ in Section 153A is relatable to abated proceedings (i.e., those pending on the date of search) and the word ‘reassess’ to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.

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vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.” 19. Gujarat High Court has also examined this issue in the case of Pr. CIT Vs. Saumya Construction Pvt. Ltd., and having relied upon the judgment of the Kabul Chawla, Delhi High Court, the Hon’ble High Court has held that the very purpose of the provisions of section 153A was to make assessment in the case of search or requisition, thereby it goes without saying that the assessment should be connected with something found during the course of search or the requisition i.e., incriminating materials which reveals undisclosed income. In that case, the addition made was not based on incriminating documents found during the course of search. The Hon’ble High Court has held that AO was not justified in making the additions. The Hon’ble Gujarat High Court while adjudicating the issue had taken into account the judgment of jurisdictional High Court in the case of Canara Housing Development Company Vs. DCIT (Supra) and CIT Vs. Kabul Chawla of Delhi High Court. 20. This legal proposition was followed by the Tribunal in a series of cases and some of the cases are listed hereunder: i) Dy.CIT, CC-1, New Delhi Vs.Aggarwal Entertainment (P.) Ltd. (2016) (72 Taxmann.com 340),dated 29.6.2016 (ITA Delhi Bench 'A). 21. Turning to the fact of the case we find that undisputedly no incriminating material was found during the course of search and these averments in this regard were not disputed by the Revenue. It is also a fact that original assessment was completed as return of income was filed on 19.01.2003 and the return was processed under section 143(1) of the Act. Thereafter, notice under section 153A of the Act was issued on 18.06.2014. Since the time for issuing of notice under section 143(2) of the Act against the original return has been expired it is deemed that the assessment was concluded and by issuing notice under section 153A, the Revenue intent to reopen the concluded assessment without having any incriminating material found during the course of search. In the absence of any incriminating material, proceedings under section 153A cannot be

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initiated and the concluded assessment cannot be reopened. Therefore, we have no hesitation in holding that proceeding initiated under section 153A are not valid and we accordingly find ourselves in agreement with the order of the CIT(A) and rightly knock down the assessment completed under section 153A of the Act. We therefore confirm his order.”

ITA Nos. 1926 & 1927/Bang/2016

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quantum. We, however, extract the grounds raised in ITA No.1927/Bang/2016 in which the CIT(Appeals) has passed the lead order and the same was followed in other assessment years on merit:-

“1. That the order of the authorities below, in so far as it is against the appellant is against the law, facts, circumstances, natural justice, equity, without jurisdiction, bad in law and all other known principles of law. 2. That the total income computed and the total tax computed is hereby disputed. 3. That the AO / CIT (A) erred in not providing sufficient and adequate opportunity to the appellant as required under law, thereby violating the principles of natural justice, hence the order requires to be cancelled. 4. The AO / CIT (A) erred in not considering the relevant materials, evidences and data, thus the order passed is without application of mind requires to be cancelled. 5. The AO / CIT (A) erred in relying on material and statements without furnishing the same to the appellant before passing of the orders. 6. The AO / CIT (A) erred in relying on material and statements without providing opportunity to cross examine. 7. The approval granted purportedly u/s 153D of the Act is not as per law as it is mechanical in nature and lacks application of mind. Hence the approval is vitiated. 8. The AO / CIT (A) erred in disallowing Business Promotion Expenses u/s 37 of the Act amounting to Rs. 8,25,00,000/- 9. The AO / CIT (A) erred in disallowing discounts given to customers to the extent of s. 23,55,20,169/-. 10. The AO / CIT (A) erred in disallowing bad debts written off amounting to Rs. 2,37,70,000/-.

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search, pending assessment shall abate and assessment is to be framed

u/s 153A r.w.s. 143(3) of the Act. Under these circumstances, we find no

infirmity in issuance of notice u/s. 153A of the Act. We therefore reject this

ground of assessee raised in this regard.

assailed the order of the CIT(Appeals) with regard to the additions made

after making disallowances of business promotion expenses claimed u/s.

37 of the Act. In this regard, the facts in brief borne out from the record are that

the assessee has debited a sum of Rs.7,68,77,000 as business promotion

expenses for AY 2012-13 and Rs.8,25,00,000 in AY 2013-14, for which the assessee could not furnish the details of Doctorwise expenditure nor could it furnish the confirmation letter from the Doctor. Consequently, the AO has

observed that the details of business promotion expenses incurred by the

assessee on various Doctors is not available. The Notification issued by Medical Council of India (MCI) through which MCI has imposed prohibition on Medical Practitioners and Professional Association from taking any gift, travel

facility, hospitality from pharmaceuticals or allied health sector industries was

also examined by the AO. The AO further took a note of CBDT Circular No.5/12 dated 01.08.2012 wherein it was clarified that u/s. 37 of the Act such type of expenditure which are prohibited by law cannot be allowed. The AO accordingly held that since this expenditure was incurred on Doctors, it is not allowable as deduction under the provisions of section 37(1) of the Act. Accordingly, a show cause notice was issued to the assessee and since the assessee

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could not furnish the details of expenditure Doctorwise and their

confirmation letters, the AO did not allow the claim of expenditure.

reasons given by the AO, only Rs.1,39,80,582 out of Rs.8,25,00,000 can be disallowed under the expenses relating to Doctors and the balance

disallowance must be deleted as it is unrelated to Doctors but incurred for the purpose of business. The ld. Counsel for the assessee further

contended that the CBDT Circular mentioned hereinabove is prospective in nature effective from 01.08.2012, therefore the expenses incurred prior to

that date amounting to Rs.72,24,991 does not come under the scope of the

Circular, hence requires to be allowed. It was further contended that the balance amount was incurred after 01.08.2012 on those Doctors, who have

attended the Conference & Seminar as faculty members and not as delegates. In support of this contention, he invited our attention to

Notification of MCI, according to which medical practitioner shall not accept

any travel facility inside or outside the country as delegate. In the case in hand, the Doctors have attended Seminars & Conference not as delegates,

but as faculty members, therefore no disallowance can be made having invoked the Notification of MCI and Explanation to 37(1) of the Act. In

support of his contentions, the ld. Counsel for the assessee has placed

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reliance upon the order of Tribunal in the case of DCIT v. PHL Pharma Pvt.

Ltd., 146 DTR 0149, Simcon Formulation (India) Pvt. Ltd. v. DCIT of Mumbai Tribunal and Hon’ble Delhi High Court judgment in the case of

Max Hospital v. MCI in W.P.C. No.1334/Del/2013 dated 10.01.2014.

details are available on record as to whether the Doctors have attended the

Conferences & Seminars as faculty members or as delegates. The onus is upon the assessee to establish these facts. In the absence of any

evidence in this regard, the revenue has rightly disallowed the claim.

of rival submissions, we find that the AO has disallowed the business

promotion expenses claimed by the assessee only on the ground that they were incurred on Doctors who attended Seminars & Conferences. The

revenue has placed reliance upon the Notification issued by the MCI whereby the MCI in exercise of its statutory powers amended Indian

Medical Council (Professional Conduct, Etiquette and Ethics) Regulations,

2002 on 10.12.2009 and imposed a prohibition on Medical Practitioners and Professional Associations from taking any gift, travel facility, hospitality,

cash or monetary grant from pharmaceuticals or allied health sector industries. Thereafter, the CBDT has issued a Circular dated 01.08.2012

clarifying that section 37(1) of the I.T. Act provides for deduction of any

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revenue expenditure (other than those falling under sections 30 to 36) from

the business income if such income is laid out/extended wholly or exclusively for the purpose of business or profession. However, the

explanation appended to this sub-section denies claim of any such

expense, if the same has been incurred for a purpose which is either an offence or prohibited by law. Though Explanation 1 to section 37 was

inserted by the Finance Act, 2014 w.e.f. 01.04.2015, but before that CBDT has also issued a clarification vide Circular dated 01.08.2012 not to allow

such expenditure u/s. 37(1) of the Act which are prohibited by law, meaning

thereby, before 01.08.2012 the expenditure incurred upon the Doctors to attend Seminars & Conferences may be the business expenditure of the

assessee, but the same cannot be allowed after 01.08.2012 as it was prohibited by Notification issued by the MCI. Therefore, we find force in the

contention of the assessee that expenditure incurred till 01.08.2012 should be allowed as an expenditure towards business inasmuch as the AO has

simply disallowed the entire expenditure having invoked the Circular issued

by the CBDT. This aspect was examined by the Tribunal in the case of DCIT v. PHL Pharma Pvt. Ltd. reported in146 DTR 0149 in which it was

held that Explanation I below section 37(1) provides an embargo upon allowing expenditure incurred by the assessee for any purpose, which is an

offence or which is prohibited by law. In that case the assessment year

involved was AY 2010-11 and CBDT issued Circular in 2012 and the Tribunal held that since no evidence has been brought on record which

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prohibits pharmaceutical company to incur any development or sales promotion expenses, the Tribunal allowed the expenditure. The relevant observations of the Tribunal are extracted hereunder for the sake of reference:-

“5. We have considered the rival contentions made by ld. CIT DR as well as ld. Sr. Counsel, Mr J.D. Mistry, perused the relevant finding given in the impugned orders and material referred to before us. The entire controversy revolves around, whether the expenditures in question incurred by the assessee (a pharmaceutical company) is hit by Explanation 1 below section 37(1) in view of CBDT Circular dated 01.08.2012, interpreting the amendment dated 10.12.2009 brought in Indian Medical Council Regulation 2002 or not. The break-up of sales promotion expenses, which has been disallowed by the AO, are as under:

Sr.No Particulars of expenses Amount (in Rs.) 1 Customer Relationship Management expenses (CRM) 7,61,96,260 2 Key Account Management expenses(KAM) 2,56,68,509 3 Gift Articles 9,20,22,518 4 Cost of samples 3,60,85,320 Total 22,99,72,607

The nature of aforesaid expenses has already been explained above. Now whether the nature of such expenditure incurred by the assessee is to be disallowed in view of the CBDT Circular dated 01.08.2012. For the sake of ready reference, the said CBDT Circular No.5/2012 is reproduced hereunder: “INADMISSIBILITY OF EXPENSES INCURRED IN PROVIDING FREEBEES TO MEDICAL PRACTITIONER BY PHARMACEUTICAL AND ALLIED HEALTH SECTOR INDUSTRY Circular No. 5/2012 [F. No. 225/142/2012-ITA.II], dated 1-8- 2012

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It has been brought to the notice of the Board that some pharmaceutical and allied health sector Industries are providing freebees (freebies) to medical practitioners and their professional associations in violation of the regulations issued by Medical Council of India (the 'Council') which is a regulatory body constituted under the Medical Council Act, 1956. 2. The council in exercise of its statutory powers amended the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 (the regulations) on 10-12-2009 imposing a prohibition on the medical practitioner and their professional associations from taking any Gift, Travel facility, Hospitality, Cash or monetary grant from the pharmaceutical and allied health sector Industries. 3. Section 37(1) of Income Tax Act provides for deduction of any revenue expenditure (other than those failing under sections 30 to 36) from the business Income if such expense is laid out/expended wholly or exclusively for the purpose of business or profession. However, the explanation appended to this sub- section denies claim of any such expense, if the same has been incurred for a purpose which is either an offence or prohibited by law. Thus, the claim of any expense incurred in providing above mentioned or similar freebees in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 shall be inadmissible under section 37(1) of the Income Tax Act being an expense prohibited by the law. This disallowance shall be made in the hands of such pharmaceutical or allied health sector Industries or other assessee which has provided aforesaid freebees and claimed it as a deductible expense in its accounts against income. 4. It is also clarified that the sum equivalent to value of freebees enjoyed by the aforesaid medical practitioner or professional associations is also taxable as business income or income from other sources as the case may be depending on the facts of each case. The Assessing Officers of such medical practitioner or professional associations should examine the same and take an appropriate action. This may be brought to the notice of all the officers of the charge for necessary action.” From the perusal of the aforesaid Board Circular, it can be seen that heavy reliance has been placed by the CBDT on the Circulars issued by

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the Medical Council of India, which is the regulatory body constituted under the ‘Medical Council Act, 1956’. One such regulation has been issued is “Indian Medical Council Professional Conduct, Etiquette and Ethics) Regulations, 2002”. The said regulation deals with the professional conduct, etiquette and ethics for registered medical practitioners only. Chapter 6 of the said regulation/notification deals with unethical acts, whereby a physician or medical practitioners shall not aid or abet or commit any of the acts illustrated in clause 6.1 to 6.7 of the said regulation which shall be construed as unethical. Clause 6.8 has been added (by way of amendment dated 10.12.2009) in terms of notification published on 14.12.2009 in Gazette of India. The said clause reads as under:- “6.8 Code of conduct for doctors and professional association of doctors in their relationship with pharmaceutical and allied health sector industry. 6.8.1 In dealing with Pharmaceutical and allied health sector industry, a medical practitioner shall follow and adhere to the stipulations given below: a) Gifts: A medical practitioner shall not receive any gift from any pharmaceutical or allied health care industry and their sales people or representatives. b) Travel facilities: A medical practitioner shall not accept a any travel facility inside the country or outside, including rail, air, ship, cruise tickets, paid vacations etc. from any pharmaceutical or allied healthcare industry or their representatives for self and family members for vacation or for attending conferences, seminars, workshops, CME programme etc as a delegate. c) Hospitality: A medical practitioner shall not accept individually any hospitality like hotel accommodation for self and family members under any pretext. d) Cash or monetary grants: A medical practitioner shall not receive any cash or monetary grants from any pharmaceutical and allied healthcare industry for individual purpose in individual capacity under any pretext. Funding for medical research, study etc. can only be received through approved institutions by modalities laid down by law / rules / guidelines adopted by such approved institutions, in a transparent manner. It shall always be fully disclosed.

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e) Medical Research: A medical practitioner may carry out, participate in work, in research projects funded by pharmaceutical and allied healthcare industries. A medical practitioner is obliged to know that the fulfilment of the following items (i) to (vii) will be an imperative for undertaking any research assignment / project funded by industry for being proper and ethical. Thus, in accepting such a position a medical practitioner shall:- (i) Ensure that the particular research proposal(s) has the due permission from the competent concerned authorities. (ii) Ensure that such a research project(s) has the clearance of national/ state / institutional ethics committees / bodies. (iii) Ensure that it fulfils all the legal requirements prescribed for medical research. (iv) Ensure that the source and amount of funding is publicly disclosed at the beginning itself. (v) Ensure that proper care and facilities are provided to human volunteers, if they are necessary for the research project(s). (vi) Ensure that undue animal experimentations are not done and when these are necessary they are done in a scientific and a humane way. (vii) Ensure that while accepting such an assignment a medical practitioner shall have the freedom to publish the results of the research in the greater interest of the society by inserting such a clause in the MoU or any other document / agreement for any such assignment. f) Maintaining Professional Autonomy: In dealing with pharmaceutical and allied healthcare industry a medical practitioner shall always ensure that there shall never be any compromise either with his / her own professional autonomy and / or with the autonomy and freedom of the medical institution. g) Affiliation: A medical practitioner may work for pharmaceutical and allied healthcare industries in advisory capacities, as consultants, as researchers, as treating doctors or in

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any other professional capacity. In doing so, a medical practitioner shall always: (i) Ensure that his professional integrity and freedom are maintained. (ii) Ensure that patients’ interests are not compromised in any way. (iii) Ensure that such affiliations are within the law. (iv) Ensure that such affiliations / employments are fully transparent and disclosed. h) Endorsement: A medical practitioner shall not endorse any drug or product of the industry publically. Any study conducted on the efficacy or otherwise of such products shall be presented to and / or through appropriate scientific bodies or published in appropriate scientific journals in a proper way”. [Emphasis added is ours] 6. On a plain reading of the aforesaid notification, which has been heavily relied upon by the department, it is quite apparent that the code of conduct enshrined therein is meant to be followed and adhered by medical practitioners/doctors alone. It illustrates the various kinds of conduct or activities which a medical practitioner should avoid while dealing with pharmaceutical companies and allied health sector industry. It provides guidelines to the medical practitioners of their ethical codes and moral conduct. Nowhere the regulation or the notification mentions that such a regulation or code of conduct will cover pharmaceutical companies or health care sector in any manner. The department has not brought anything on record to show that the aforesaid regulation issued by Medical Council of India is meant for pharmaceutical companies in any manner. On the contrary, before us the learned senior counsel, Shri Mistry brought to our notice the judgment of Hon’ble Delhi High Court in the case of Max Hospital vs. MCI in WPC 1334/2013 judgment dated 10.01.2014, wherein the Medical Council of India admitted that the Indian Medical Council Regulation of 2002 has jurisdiction to take action only against the medical practitioners and not to health sector industry. Relevant portion of the said judgment reads as under: “6. The Petitioner's grievance is twofold. Firstly, that since the Medical Council of India (Professional Conduct, Etiquette and

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Ethics) Regulations, 2002 (the Regulations) have been framed in exercise of the power conferred under Section 20-A read with Section 33 (m) of the Indian Medical Council Act, 1956, these regulations do not govern or have any concern with the facilities, infrastructure or running of the Hospitals and secondly, that the Ethics Committee of the MCI acting under the Regulations had no jurisdiction to pass any direction or judgment on the infrastructure of any hospital which power rests solely with the concerned State Govt. The case of the Petitioner is that the Petitioner hospital is governed by the Delhi Nursing Homes Registration Act, 1953. It is urged that in fact, an inspection was also carried out on 22.07.2011 by Dr. R.N. Dass, Medical Superintendent (Nursing Home) under the Directorate of Health Services, Govt. of NCT of Delhi and the necessary equipments and facilities were found to be in order which negates the observations dated 27.10.2012 of the Ethics Committee of the MCI. It is also the plea of the Petitioner hospital that the Petitioner was not provided an opportunity of being heard and thus the principles of natural justice were violated. 7. In the counter affidavit filed by the Respondents, it is not disputed that the MCI under the 2002 Regulations has jurisdiction limited to taking action only against the registered medical practitioners. Its plea however, is that it has not passed any order against the Petitioner hospital therefore; the Petitioner cannot have any grievance against the impugned order. ……………………………………………………………… 8. It is clearly admitted by the Respondent that it has no jurisdiction to pass any order against the Petitioner hospital under the 2002 Regulations. In fact, it is stated that it has not passed any order against the Petitioner hospital. Thus, I need not go into the question whether the adequate infrastructure facilities for appropriate post-operative care were in fact in existence or not in the Petitioner hospital and whether the principles of natural justice had been followed or not while passing the impugned order. Suffice it to say that the observations dated 27.10.2012 made by the Ethics Committee do reflect upon the infrastructure facilities available in the Petitioner hospital and since it had no jurisdiction to go into the same, the observations were uncalled for and cannot be sustained. ” [Emphasis added is ours]

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From the aforesaid decision, it is ostensibly clear that the Medical Council of India has no jurisdiction to pass any order or regulation against any hospital or any health care sector under its 2002 regulation. So once the Indian Medical Council Regulation does not have any jurisdiction nor has any authority under law upon the pharmaceutical company or any allied health sector industry, then such a regulation cannot have any prohibitory effect on the pharmaceutical company like the assessee. If Medical Council regulation does not have any jurisdiction upon pharmaceutical companies and it is inapplicable upon Pharma companies like assessee then, where is the violation of any of law/regulation? Under which provision there is any offence or violation in incurring of such kind of expenditure. The relevant provision of section 37(1) reads as under: “(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 out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the heads “profits and gains of business or profession” Explanation 1 – For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall 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 aforesaid provision applies to an assessee who is claiming deduction of expenditure while computing his business income. The Explanation provides an embargo upon allowing any expenditure incurred by the assessee for any purpose which is an offence or which is prohibited by law. This means that there should be an offence by an assessee who is claiming the expenditure or there is any kind of prohibition by law which is applicable to the assessee. Here in this case, no such offence of law has been brought on record, which prohibits the pharmaceutical company not to incur any development or sales promotion expenses. A law which is applicable to different class of persons or particular category of assessee, same cannot be made applicable to all. The regulation of 2002 issued by the Medical Council of India (supra), provides limitation/curb/ prohibition for medical practitioners only and not for pharmaceutical companies. Here the maxim of “Expressio Unius Est Exclusio Alterius”

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is clearly applicable, that is, if a particular expression in the statute is expressly stated for particular class of assessee then by implication what has not been stated or expressed in the statute has to be excluded for other class of assessee. If the Medical Council regulation is applicable to medical practitioners then it cannot be made applicable to Pharma or allied health care companies. If section 37(1) is applicable to an assessee claiming the expense then by implication, any impairment caused by Explanation1 will apply to that assessee only. Any impairment or prohibition by any law/regulation on a different class of person/assessee will not impinge upon the assessee claiming the expenditure under this section.” 18. We therefore following the view taken in the aforesaid order of the Tribunal hold that expenditure incurred on Doctors before 01.08.2012 be allowed as revenue expenditure, but the nature of expenditure incurred thereafter on Doctors is required to be examined by the AO – whether it was incurred on Doctors to attend the seminars as delegates or faculty members. Hence, the order of the CIT(Appeals) is set aside in this regard and the matter is restored to the AO to adjudicate the issue afresh in the terms indicated above.

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produced before him on the basis of certain information revealed during the

course of enquiry.

followed in any business organizations. In many a times, the sale amount recorded in the books are not realized for various reasons. When the sale

ultimately fortifies, the initially recorded price may not be realized and if there is a shortfall in the realization for any compelling business reasons,

the same cannot be treated as sales returns and such shortfall, if any, is

passed out for discount for which credit note is raised from the customers. Therefore, the realized of the realizable price is only considered for profit or

loss. It was further contended before the CIT(A) that the fundamental reason for this practice is only to tax the real income as held through

various judicial pronouncements. The explanations and evidences

furnished by the assessee were confronted to the AO and a remand report was called from him.

learned counsel for the assessee invited our attention to certain facts with the submission that AO disallowed the discount given by credit notes on

the assumption that the gross sales shown in the financial statements was

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of Rs.156,77,20,000/- after allowing discount and discount was already

allowed in the sale invoice and such discount was duly considered in VAT return. After filing the sales tax return, the assessee company has claimed

further discount allowed by way of credit notes of Rs.23,55,30,000/- in the

audited financial statements. The above assumption of the AO is erroneous as the sales shown in the audited financial statement is gross

sales less discount which is evident in the audited financial statement 2013-14 which is available at page 139-159 of the paperbook. He further

invited our attention to page 151 of the compilation wherein gross sales

revenue of Rs.156,77,20,000/- is shown and discount shown is Rs.23,55,13,000/- and the net sale revenue is Rs.1,33,89,107/-. Breakup

of which is available at page 159 of the compilation. The discount reconciliation summary available at page 713-714 in the paperbook was

also furnished before the AO to establish the fact that discount of Rs.23,55,30,000/- include the discount given in invoice of Rs.1,16,91,000/-

and the sales shown is a gross sales and not net of discount. It was further

submitted that the AO was confused with regard to discount allowed in the sales invoice credit notes and sales returns, the method of accounting

followed by the assessee. The AO has disallowed the discount on the ground that assessee has resorted into suppressing its sales by booking

huge discounts with the colour of credit notes. Such discounts allowed vide

credit notes have been disallowed based on few random confirmations received from the customers who have denied of having received and

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accounted all credit notes issued by the assessee as against the total

customer base of 600 plus hospital. In support of his contentions, reliance was placed upon the judgment in the case of CIT Vs. Leader Valves Ltd.,

295 ITR 273 (P&H) and the Hon’ble Supreme Court judgment in the case

of Southern Motors v. State of Karnataka and Ors, in Civil Appeal Nos.10972 – 10978 of 2016 dated 18.01.2017. He also placed reliance

upon the judgment of the Hon’ble Kerala High Court in the case of IFB Industries Ltd., Vs. State of Kerala, copy of which is placed at page No.

878-887 of the compilation.

on its gross sales. Sometimes discount was given at the time of issuing of

invoice. The AO has doubted the discount given by the assessee on its different sales on the basis of the statement of those parties to whom the

discount was given. During the course of assessment proceedings, the receipt of discount was accepted by certain recipients and it was also

explained by few hospitals. The discrepancies in amount of payment and

the discount were also explained by certain hospitals. Through letter it was explained by Pragma Hospital that there are 2 types of patients being

served cashless by the hospitals because these payments are made to the hospital by some insurance companies. For the first type of patient who

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make cash payment whenever any stunt deployed in the patient, the

vascular concept of the company/assessee directly sells and bills of these stunts to the patients and patients directly make the payment to the

company. Company’s representatives come every fortnight and monthly

and collect the payment as the representatives of the company come and collect the payment of discount regularly, they do not maintain that record.

It was further clarified that payment from hospital was received separately and also they give the receipt separately while stunt payment receipt is

given by the company. For the second type of patients who are served

cashless hospitals purchase the stunts from the assessee and make the payment by cheque. All these aspects were required to be examined by

the lower authorities but they have disallowed the entire payment of discount having doubted the genuineness of payment without having

examined the clarification furnished by the assessee.

discounts and genuineness of substantial amount of discount given to the buyers. But we find that assessee has furnished the details of persons to

whom the stunts were sold and the AO has collected the evidences only from few persons. The contention of the assessee that sometime

discounts were given in the invoice itself were also not properly appreciated

or examined by the AO. When certain hospitals have categorically stated that there are two types of patients and one type of patient cashless

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treatment is to be given by the hospital in that case the hospital purchase

the stunts from the assessee company and wherever the cashless treatment is not given, the patient is required to purchase the stunts. The

stunt would be directly sold to the patient and the corresponding entries

with regard to sale of the stunt is not recorded in the books of accounts of the hospital and the hospital representatives collect the discount by the

company agreed upon given by the company. These aspects need to be examined by the AO. In the light of these facts, we are of the considered

view that the issue was not been properly examined by the lower

authorities and they have disallowed the claim of the assessee by making superficial observation. Therefore, in the interest of justice, we set aside

the order of the CIT(A) in this regard and direct the AO to readjudicate the issue after making necessary enquiry and verification. If the assessee

succeeds in establishing that most of the time the discount was given in the invoice itself, the same may be allowed without making a further necessary

enquiry. So far as other aspect with regard to discount given to the hospital

on cashless treatments or on paid treatment, the issue requires proper examination by making necessary enquiry. Accordingly, the issue is

restored back to the AO for fresh adjudication.

this regard, our attention was invited to the fact that AO has made the

disallowance of bad debt having observed that assessee has not established that amount has gone bad inspite of all efforts taken by him. In

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this regard, the learned counsel for the assessee has contended that after

the amendment, the bad debt is required to be written off in the books of account and the assessee is not required to establish that bad debt has

become bad. The learned counsel for the assessee further contended that

assessee has taken the same amount into P & L account. Therefore, the condition required under section 36(2) is fulfilled. Therefore, the

disallowance of bad debt made by the AO is incorrect and the same should be allowed. It was further contended that the CIT(A) did not examine these

aspects and confirmed the disallowance.

of rival submissions, we find force in the contentions of the assessee that after the amendment and as per the Circular No.12/2016 dated 30.05.2016

it is not necessary for the assessee to establish that debt has become

irrecoverable. It is enough that bad debt is irrecoverable in the accounts of the assessee. This position has been clarified by the Apex Court through

its judgment in the case of TRF Vs. CIT 323 ITR 0397. Thereafter the Board has also issued a Circular in the light of the judgment of the Apex

Court and clarified the position that the claim of bad debt in the previous

year shall be admissible under section 36(1)(vii) of the Act if it is written off as irrecoverable in the books of accounts of the assessee for that previous

year if it fulfills the condition stipulated in section 36(2) of the Act. The Board has also advised the authorities concerned that no appeal may

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henceforth be filed on this ground and appeal already filed if any on this

issue before various grounds in the Tribunal may be withdrawn as not pressed upon. The issue was also examined by jurisdictional High Court in

the case of Amco Batteries Vs. ACIT 232 Taxmann 0351 and Their

Lordships have also held that once assessee writes off a claim in its books of account treating it as a bad debt under section 36(1)(vii) r.w.s. 36(2), the

assessee is entitled for deduction of the said amount.

Revenue that condition stipulated under section 36(2) was not fulfilled with

respect to any of the debts which were written off by the assessee during the previous year. Under these circumstances, we are of the view that

disallowance made by the Revenue authorities is incorrect as the assessee is only required to write off the bad debts and is not required to establish

that it has become really bad. Accordingly, we set aside the order of the

CIT(A) and direct the AO to allow the claim of bad debt raised by the assessee.

regard, facts borne out from the record are that during the course of search

conducted on 07.12.2012, the CBI found cash of Rs.29,90,000/- in Delhi office of the appellant company. Shri. Pradeep Kumar, Executive of that

branch was asked to explain the source of cash found during the search, but explanations furnished by him was not found to be satisfactory and

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accordingly the cash was seized. During the course of scrutiny, assessee

company was given an opportunity to explain the cash found and the assessee placed the reliance on the statement of Shri. Pradeep Kumar

recorded under section 131(1A) of the Act on 16.01.2012 that cash of

Rs.30 lakhs was received on 06.12.2012 from PGMIR (Rs.20 lakhs) and PRAGMA (Rs.10 lakhs) both belongs to Punjab territory and Mr. Krishna

Kumar who is employee of assessee brought Rs.30 lakhs on 06.12.2012. The AO has not accepted this explanation on this ground that no

corresponding entry was found in the petty cash book on 06.12.2012

maintained at the branch office or the head office at Bangalore. The AO has also noted from the cash book that cash was deposited in the different

banks by debiting various parties’ names and credited in the cash deposit. The AO further noted that there was no corresponding entry of cash

received from PGIMER and PRAGMA. On the contrary, one entry of Rs.10 lakhs was found in the name of M/s. Pragma Hospital dated 30.11.2012.

Thereafter, AO wrote a letter to the PGIMER and PRAGMA hospitals to

furnish details of the ledger accounts of the assessee company in their books of accounts, date of cash payment, reflection of cash payment in the

cash book, name of the person to whom the cash was paid. Thereafter, the AO has also confronted these evidences to the Managing Director of

the assessee company and in the absence of satisfactory explanations, the

AO made the additions of Rs.30 lakhs. Assessee preferred an appeal before the CIT(A) but did not find favour with him.

ITA Nos.1921 to 1927/Bang/2016 Page 37 of 41

has explained the source of availability of cash but it was not appreciated by the AO. It was specifically told that at the time of search, assessee

employees have stated that cash related to accounts receivable from

PGIMER hospital of Rs.20 lakhs and M/s. PRAGMA hospital of Rs.10 lakhs collected on 06.12.2012. The PRAGMA hospital have admitted in the reply

that there are two types of patients being served by them, one who make the cash payments, second who have served cashless by the hospital and

the patient’s payment is made to hospital by some insurance companies.

For the first type of patient who made cash payments whenever any stunt is deployed in the patient, the assessee company directly sells and places

the stunts to patient and patient directly make the payment to the company. Company representatives comes every fortnight or monthly and collect the

payment. This explanation was never examined or enquired by the AO. It was further contended that the reply given actually confirms that there were

cash collections out of sales and in so far as PGIMER is concerned, it was

contended that money was collected on 06.12.2012. Though the hospital has denied the payment made in November 1012 but the same payment

was made to the assessee. Since the sufficient evidence was placed on record, AO should have examined and enquired into the genuineness of

these statements before making any addition. In the light of specific stand

taken by the assessee, we are of the view that explanation furnished by the assessee should have been examined by the lower authorities before

ITA Nos.1921 to 1927/Bang/2016 Page 38 of 41

making addition of the cash found during the course of search. Since

addition was made without making necessary enquiry, we set aside the order of the CIT(A) and restore the matter to the AO to re-examine the

availability of cash during the course of search after making a necessary

enquiry in the light of the explanations furnished by the assessee.

account of cash deposit of Rs.10 lakh in the bank account. In this regard, it is noticed from the order of the lower authorities that during the course of

assessment proceedings, AO noted cash of Rs.10 lakh was deposited in

the bank account but no corresponding entry was found in the cash book. The Managing Director of the company also could not clarify on the same

and asked for some time. Though the assessee tried to explain the source of deposits but it was not accepted by the AO and he made the addition of

Rs.10 lakhs on account of unexplained deposit in the bank. Assessee

preferred an appeal before the CIT(A) but did not find any favour.

submission that assessee has deposited Rs. 10 lakh on 02.08.2011 in the bank of SBM, Kalkaji Branch but inadvertently its Accountant made an

entry in the books of account on 29.08.2011. Those explanations were

furnished before the AO but it was not accepted. It was further contended that there was no cash deposit on 29.08.2011. But the sufficient cash was

available on 02.08.2011. On account of mistake by the Accountant of the

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assessee, the deposit of cash was wrongly entered in the books of account

on 29.08.2011. Therefore, it requires proper verification by the AO.

that it was on account of inadvertent mistake, the corresponding entry of

deposit of cash was not made on 02.08.2011 in the cash book but it was done on 29.08.2011 though there was no deposit of cash in the bank. But

these explanations of the assessee was not examined by the AO nor by the CIT(A). In the light of these facts, we are of the view that since the issue

was not properly examined by the lower authorities, matter should be sent back to the AO to readjudicate the issue in the light of assessee’s

contentions. Accordingly, we set aside the order of the CIT(A) and restore

the matter to his file to readjudicate the issue afresh after affording opportunity of being heard to the assessee in the light of assessee’s

contentions.

Rs.4,44,252/- as undisclosed cash sales. In this regard, the facts borne out

from the record are that on the basis of email found from Mr. Pradeep Kumar of Delhi Office of the assessee company to Bangalore Office, the

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AO made an addition of Rs.4,44,252/- on account of undisclosed cash

sales.

with which it had been accounted on accrual basis and the subsequent collection from such parties cannot be once again considered as a sale.

CIT(A) was not convinced with the explanations of the assessee and he confirmed the additions.

representatives have collected the cash of Rs.3,11,000/- from Hissar hospital and same was entered in books on 24.03.2011 and as regards the

cash collected from PGIMER of Rs.1,33,252/-, the same was recorded in books on 14.04.2011. It was recorded in the books as communicated by

the representatives, however, the cash remained in his possession at

Delhi. Subsequently, on 02.05.2011, he sent mail to Bangalore Office of handing over the cash to Mukesh Yadav at Delhi. This communication

have been relied on and misinterpreted by the AO and has treated the sum of Rs.4,44,252/- as undisclosed cash sales. Since this explanation of the

assessee was not examined by the lower authorities, the matter should be

sent back to the AO for re-examination. 39. The learned DR placed the reliance upon the order of the CIT(A).

ITA Nos.1921 to 1927/Bang/2016 Page 41 of 41

not examined by the AO by making the necessary enquiry from the concerned parties. Therefore, we are of the view that the matter should be sent back to the AO for readjudication. Accordingly, we set aside the matter to the AO for readjudication of the issue in the light of assessee’s contentions after affording opportunity of being heard to the assessee.

Sd/- Sd/- ( JASON P. BOAZ ) ( SUNIL KUMAR YADAV) Accountant Member Judicial Member

Bangalore, Dated, the 29th January, 2018.

/ Desai Smurthy / Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file By order

Senior Private Secretary ITAT, Bangalore