DAYANATH MISHRA,KOLKATA vs. DCIT, CIRCLE - 55, KOLKATA, KOLKATA

1. The appeal filed by the assessee is against the order of Ld. CIT(A)-6, Kolkata dated 21.12.2015 for AY 2008-09.

The main grievance of the assessee is against the action of the Ld. CIT (A) in confirming the disallowance of Rs.10,34,885/- claimed by the assessee as discount allowed to M/s D M Hospitals Pvt. Ltd. and the action of the Ld. CIT (A) in enhancing an additional income of Rs.3,34,881/- claimed by the assessee as discount given to M/s Gariahat Kidney Care Centre.

Briefly stated facts are that the assessee is a Doctor who is a Nephrologist and practices in (i) D.M. Hospitals Pvt. Ltd., (ii) Dr. D. M. Medicare & Research Pvt. Ltd. and (iii) Ruby General Hospital. The AO noticed that the assessee was carrying on medical shop business under the name and style of M/s. D. M. Pharma from where he derived profit of Rs.67,999/-. While giving the details of the profit from M/s. D. M. Pharma it was revealed that he had passed on a discount of Rs.10,34,885/- to M/s. D. M. Hospitals Pvt. Ltd. On being asked as to why such discount is given to M/s. D. M. Hospitals Pvt. Ltd the assessee filed an agreement dated 04.01.2007 between the DM Pharma & M/s. D. M. Hospital Pvt. Ltd to justify the discount. However, the AO noted that the assessee had not made any TDS on the payment of the said commission of Rs.14,18,981/- out of which the discount claimed at have been given to M/s. D. M. Hospital Pvt Ltd. of Rs.10,34,885/- was disallowed and added to the professional income of the assessee. Aggrieved, assessee preferred an appeal before the Ld. CIT (A), who was pleased to confirm the addition of Rs.10,34,885/-. The Ld. CIT(A) also noted that the assessee has claimed expenses of Rs.3,34,481/- as discount given to Gariahat Kidney Care Centre (GKCC) which was the sister concern of M/s. D. M. Hospitals Pvt. Ltd. Since the facts are similar, the Ld. CIT (A) enhanced disallowance of the said amount also. Aggrieved, the assessee is before us.

We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee is a Nephrologist Doctor and was working with M/s. D.M. Hospitals Pvt. Ltd. Since there was a necessity for an in-house pharmacy in the hospital and since the revenue from sale of medicines can off-set the cost of running the hospital, they decided to run a pharmacy in the hospital. However, since drug license could not be obtained for the hospital, they used the license of Dr. Dayanand Mishra, (the assessee) who had a license to run a pharmacy in the name of D.M. Pharmacy. So, the said D. M. Pharmacy was set up in the premises of the D. M. Hospitals Pvt. Ltd. with the principal objective of D. M. Pharmacy to provide medicines at short notice to D. M. Hospital Pvt. Ltd. which was supplied and administered to the patients. For this business arrangement, an agreement was entered between the assessee and D. M. Hospitals Pvt. Ltd. on 04.01.2007 by which agreement, the D. M. Hospitals Pvt. Ltd. and Dr. D. M. Medicare & Research Pvt. Ltd. will place orders to D. M. Pharmacy for medicines which they are required as per the demand from patients and consequently the D. M. Pharmacy would supply the medicines to the D. M. Hospitals Pvt. Ltd. As per this arrangement, the D. M. Pharmacy would bill for the medicines on D. M. Hospitals Pvt. Ltd. and in turn the D M. Hospitals Pvt. Ltd. will bill the patients for the medicines. However, because of the aforesaid billing arrangement the work load as well as cost increased. Therefore, in order to reduce the cost, it was decided to do away with the procedure of D M Pharmacy first billing on D. M.

We note that the assessee has claimed profit from its pharmacy at Rs.67,999/- when the AO asked for the details, the AO noted that assessee had claimed to have given discount of Rs.10,34,885/- to M/s. D. M. Hospitals Pvt. Ltd. which was disallowed by AO. On appeal, the Ld. CIT (A) has confirmed this disallowance and also disallowed Rs.3,34,841/- which assessee claimed to have given as discount to GKCC. Aggrieved the assessee is before us. The facts noted above are not disputed, so it is not repeated for the sake of brevity. The main contention of the Ld. AR is that the discount given by the assessee to M/s D. M. Hospitals Pvt. Ltd. and Dr. D. M. Medicare & Research Pvt. Ltd. have been duly accounted for as income in their respective books of account. In such a scenario, if the payees to whom the discount has been given i.e. M/s. D. M. Hospital Pvt. Ltd. and Dr. D. M. Medicines & Research Pvt. Ltd. has shown the said amount as their income and it has been duly reflected in their return of income, then no disallowance is warranted. Therefore, we set aside the order of the Ld. CIT (A) and remand the matter back to the file of AO to verify as to whether the M/s D. M. Hospitals & Pvt. Ltd. and Dr. D. M. Medicare & Research Pvt. Ltd. has shown the amount of Rs.10,34,885/- and Rs.3,34,881/- as their respective income. If they have shown the discount given by the assessee as their income, then no disallowance is warranted. With the aforesaid observation, the matter is remitted back to the file of the AO. Needless to say opportunity shall be granted to the assessee. Appeal of assessee is allowed for statistical purposes.

In the result, appeal of assessee is allowed for statistical purposes.