M/S. CARDIOTECH,NAGPUR vs. ACIT CIR.7, NAGPUR

50 IN THE INCOME TAX APPELLATE TRIBUNAL Nagpur Bench; Nagpur Before Shri P K Bansal; Vice President and Shri Pawan Singh; Judicial Member ITA No.4O/NAG/2015 (Assessment Year: 2010-11) AICT , Circle 7 M{s. Cardiotech Room No, 521 Sth Floor 40, Verma Layout; Wadi 440023 Vs_ Dr. Ambedkar Bhawan Nagpur MECL Bldg _ Seminary Hills Nagpur 44000 1 PAN AAEFC7980K Appellant Respondent Appellant by: Shri RM. Ranade Respondent by: Shri Milind Bhusari Date of Hearing: 20.11.2017 Date ol Pronouncement: 23.11.2017 QRDER Per Pawan Singh, JM under Section 253 of the Income Tax Act by the assessee This appeal the order of the CITIA}-II, Nagpur dated 11.11.2014 for is directed against RPE Y, 2010-11. The assessce has raised the following grounds of appeal: the circumstances of the case; Leamed 4I_ On the facts and in CITIA} erred in confirming the disallowance made by the AQ of Rs.11,32,094/= paid to Doctors in connection with business of the assessee; in the circumstances 0f the case, Leamed 2 On the facts and CITIA) erred in confiring the disallowance made by the AO of commission Qf Rs.12 lacs paid to Mr, Kolhapurkar: the circumstances of the case, Leamed 3 On the facts and in CITIA) erred in confining the disallowance made by the AO of bad debts %f Rs.4,62,554. IXA #o. 4(V Nrg: 2073 #Y/ $ Cardiotecii 3 The brief lActs of the ca5c are that the assessee, a partnership fifin engaged inz trading the distributor of surgical, stunts ard disposables, filed its retur of income for the relevant axgessment vear on 28.09,2010 declaring total income of 824,25,080/_ 'The &ssessment was completed On 19.03,2013 under Section 14303). The 40 while passing the assessment order made disallowance of <1 [,32,094 / paid to Doctors; disallowed {12,00,000/ - paid to Shri Kolhapurkar (one of the partners 0f the assessee} on account of cormission payment and further disallowed 4 bad debts of {4,62,554/ On appeal before the CIT(A) all the disallowances were confirmed, Thus, [urther aggrieved by the order of the CITIA} the assessee has Filed the present appeal before u5 We have heard the learned AR for the asbessce and the learned DR' fOr the Tevenue; Ground No. I relates to disallowance made by the Ae:of Rs.11,32,094/ Paid to Doctors in connection with business of the assessee. The learned A.R. of the asgessee argued that the assessee paid {11,32,094/- to three doctor8; namely, Dr Furvez Grant {2,74,454/-, Dr. Murugesh Hiremath {7,50,000/- and Dr. Ritu Bhatia {1,07,640/- AIL the payments Tvere made trough cheques The as5ess6e deducted TDS Qn all payments made to the doctors- The payments were made in connection with the business 0f the assessee. It wa3 argued that Dr_ Grant is a well-knoin cardiologist in Pune: The payment was made for his consultation charges, his expertige and [or consulting various cardiology related matters, Dr. Hiremath is Director of Cardiac Path Lab, Pune_ The payment was made to Dr; Hiremath for imparting training to various physicians and technicians for fixing pace maker and proctorship. Dr Hiremath has given his conlirmation, Dr. Ritu Dhawan allias Ritu Bhatia is also &n international cardiologist: Dr Ritu Dhawan is & practising Doctor; Dr, Ritu Dhawan has also imparted training about pace maker implantation &nd procedure to junior doctors and employees of the asse8see All the three doctors have shown the receipts in their income tax return. The payments were made fully and ITA No. 4{/ Ncg/ 2015 M/5_ Cemrcioleee l? 52 exclusively for the purpose of business- In support of the submission the learned A,R. relied on the decision ol thc Panji Bench in thc case of ACIT VS Geno Pharmaceuticals Ltd, itA ITA No_ 12/PNJ/2014 dated 30.05.2014 and Mumbai Tribunal in the case of Syncom Formulations (I) Lid, in ITA No. 6429 Bz 6428/Mum/2013 dated 23,12.2016. The learned A.R furthcr submitted lhat the Board circular No_ 5/2012 dated 01,08,2012 relied by the AO is not applicable for A.Y, 2009-10, the circular may be applicable Irom A.Y, 2010-4lonwards. 5_ On the other hand, the learned DR. for Revenue supported the orders of the authorities below. It was argued that the payment wa8 made ELLA} account of gift to the doctors and i8 not an allowable expense_ We have considered the rival submissions of the parties and have g8ne through the orders of the authorities below. The AO disallowed the payments made to the three doctors on the basis of circular No. 5/2012 dated 01.08.2012. The AO further concluded that she has carried out enquirics and including recoded statements of the doctors on commission and came to the conclusion that the said expenditure is not allowable as per provisions of Section 37(1). During thc first appellate stage the learned CIT(A} observed that the said doctors are closely associated with the two Hospitals from which the a8se88ee gets substantial business The doctors; in reply t0 the notice under Section 133(61_ contended that they provided consultancy wcrviceb on various cardip related matters to the aases3ee, The nature of services provided by these doctors Was not specified On issuing bummons by the assessing authorities the statementb pf the doctors were recorded under Section 131. Dr, Hiremath in his statement stated that the payment WaS received for disseminating knowledge about stent_ Dr; Bhatia stated that she taught pace maker implantation technique to junior doctors and employees of the firm- Dr_ Grant als0 stated that he taught pace maker implantation techniques to the junior doctors and employees. The learned CIT(A} further obsetved that no details have been given by the &ssessee a8 to which junior doctors the training was imparted about implantation technique and how the as3essee Was ITA No_ 40/ Nng/ 2015 M/ 5. Cardioleeh benefited. The learned CIT(A) also relied upon the circular No, 5 0 2012 dated] 01.08.2012 and concluded tlat the payments made to the three doctors are directly hit by the provisions Of Section 37(1) a8 no business purposes has been established. We noted that circular No, 5 0f '2012 was issued by CBDT on 01.08.2012 and would be applicable from A.Y. 2012- 13, The case under consideration is relates to A.Y, 2010-11. The AO has not accepted the explanation of the asse88ce on the ground that the claim made by the assessee violates the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics} Regulations 2002_ The AO ha8 referred the relevant regulation in Para 5.4 of the order: The perusal of regulation reveals that the said payments i5 outside the scope of the reatriction provided under Rule 6,8 (a) to h. The case of the a3sess8e throughout the proceedings training to the Junior Doctore Or the para medical staff; i8 that the payment was made to the doctorate for imparting rofessional given specific reasons a8 to why the contentions a5 well a8 CIT(A} made their findings On the basis ol assumptions and 0rR# umptions; Thc AO has mot brought any incriminating material On # # ecord despite issuing summons for examination of all three doctors that the payments were in the nature ol gift Or wa; Paid for promoting its product: All the three doctors have categorically stated that the payments were made for imparting the technique of implantation of stcnt &ld for training Df junior doctors and other supporting staff/ employees, The assessee is engaged in the business of trading/distributing surgical and disposables including treding of stents. The AO has not doubted/disputed thc qualifications of the doctors and their knowledge and ekills_ All the three doctors are cardiologisls. In our view the payment made to the doctors is not hit by Explanation 1 0f section 37(1) of the Act. The payment was made [ully and exclusively for the purpose of buginess Thus, ground No_ 1 o[ the appeal is allowed: 7 Ground No, 2 relates to disallowance of commiasion payment pf 812,00,000/ paid to Shri Kushal Kolhapurkar. The learned A.R. of the asSessee arguecl that a commission of {12,00,000/ was paid to the "7: !o. 40/Nag/2015 M/ 5, Catdiotech 54 partner Shri Kolhapurkar considering the Lough cornpetition from big companies like M/s, Johison & Johnson, M}s. Rosh and M{$. Saint JJudge , who Are manufacturing pace makers_ The partner was specifically deputed to the city of Pune for business promolion. Due to his hard efforts the asses3e6 received busincgg of <7.97 ctores during the financial year 2009-10 The payment of commission made to the partner is reaaonable one_ The payment made to the partner does not Iall within thc scope of section 40A(2I(b) of the Act: It was argued that the payment was made in accordance with clause 14 ol the Partnership Deed, A_ copy of the Partnership Deed is also placed on record 8 On the other hand, the Jearned DR for Reventue supported the orders ol the authorities below, 9_ We have considered the rival submissions of the parties and have Qa mne through the orders of the authorities below, The AO disallowed the Mission holding that no such commission was paid to the partner by 0 for the financial year 2004-05 to 2009-10. His role has not been langed over the years nor there do any change in the sale ol the firm. The AO further concluded that the net profit ratio has been decreased fror 7,329 in F.Y. 2008-09 to 3.04% in F.Y. 2009-I0. The learned CIT(A) observed that no evidences were brought on record to show how the role o[ Shri Kolhapurkar has been changed during the year vis-&-vis the earlier hears to justify the commission payment. The assessee has relied On the self supported statement; therefore the CIT(A) confirmed the action of the AQ. 10_ We have peruged the Partnership Deed which is placed on record vide pages 27 to 31 of the paper book: Clause 14 of the Fartnership Deed i8 extracted below: 814. SALARY} COMMISSION: AlZ the partners will be working partners, Party no. 1 8 3 will draw salary of Rs.5OOOO per month and party no_ 2 will draw salany of Rs,25000 per month Salary will be paid Qs per provision of Income Tax Act; 1961. {TA No. 40/Nog2613 M/ &. (urdiolech Commission or incentive will be paid to the partners aS decided among partners 4 carcful examination pf clausc 14 reveals that partner No_ 3, ie- tie partner to #hOI (omTission Wily paidl is entitled to 1 salary of <50,000/ per month Clause 14 further prescribe that commission Or incentive 1S payable to the partner: which is decided by the partners. The learned A.R, argued that due to the effort of Shri Kolhapurkar the assessee company received order fot {7.79 crores NG documentary evidence i3 Filed to substantiate the contention that the sale was increased by lhe eflorts of Mr, Kolhapurkar, There i8 no evidence on record to prove that Mr. Kolhapurkar stayed in Pune for a substantial period during the relevant financial year for promoting the Bale_ Considering the clause 14 of the partnership the payments made over and above which i9 prescribed herein is bustained. Thus lhe disallowance Fl made on account of mission is restrictcd to %6,00,000/- Ground No 2 i8 partly allowed, Ground No. 3 relates tp disallowance of bad debts ol 84,62,554/-. Fe learned A,R For the asses3e2 arged that the asges882 provided the details ol bad debts of <4,62,554/ The bad debts consist of ?10,000/- in Critical Care System; {l,17,850/- for National Heart Institute, N.M. Wadiz Institute of Cardiology. Poona Hospital and {3,34,704/- of Cypher Purchase, It was argued that the bad debts Terc qualified as per section 36 of the Act: 12 Qn the other hand_ the leamed DR for Revenue 8upported the orders ol the &uthorities below. It Was argued that the asgesgee has not provided any supparting evidence to substantiate its claim. Even during courge of appellate proceedings no such evidences were provided.