PANEXCELL CLINICAL LAB PRIVATE LIMITED,MUMBAI vs. ASSTT. COMMISSIONER OF INCOME TAX HOLDING CHARGES OF INCOME TAX OFFICER 18(2)(4), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH, MUMBAI SHRI OM PRAKASH KANT, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No. 1215/MUM/2023 (Assessment Year: 2015-16) M/s Panexcell Clinical Lab Private Limited, R-374, TTC Industrial Estate, MIDC, Rabale, Navi Mumbai - 400701 [PAN: AAECD1817B] …………… Appellant Assistant Commissioner of Vs Income Tax, Holding charges of Income Tax Officer 15(2)(4), Mumbai ……………. Respondent Appearance For the Appellant/Assessee : Shri Hari Raheja For the Respondent/Department : Shri H.M. Bhatt Date Conclusion of hearing : 26.10.2023 Pronouncement of order : 24.01.2024

O R D E R Per Rahul Chaudhary, Judicial Member: By way of the present appeal the Assessee has challenged the order, 1. dated 20/03/2023, passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘the CIT(A)’] for the Assessment Year 2015-16, whereby the Ld. CIT(A) partly allowed the appeal of the Assessee against the Assessment Order, dated 18/12/2017, passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).

The Appellant has raised following grounds of appeal: 2.

ITA No. 1215/Mum/2023 (Assessment Year: 2015-16) “ (1) On The Facts and Circumstances of The Case, The Learned Commissioner of Income Tax has erred in Law in confirming the addition made by the Assessing officer without asking for further clarification or documents of Rs.47,47,936/- for disallowance of the Interest paid to NBCF For Non deduction of Tax from Interest Paid to Them, Which is Most unjustified and Arbitrary as Follows

Details of Interest paid to NBFC as follows

Name Of NBFC Interest (Rs.)

PNB Housing Finance Ltd. 35,27,909 Religare Finvest Ltd. 3,38,010 Tata Capital Financial Services Ltd. 3,20,092 Bajaj Finance 2,14,561 Capital First 1,52,870 Edeweiss Finance Ltd. 1,94,494 Total 47,47,936

(2) Disallowance of Office Expenses of Rs. 99,048/-

On The Facts and Circumstances of The Case, The Learned Commissioner of Income Tax has erred in Law in confirming the Addition made by the Assessing Officer by disallowing The 10% of Office Expenses of Rs.99,048/- which is most unjustified and Arbitrary and to be deleted From Total Income.

(3) Disallowance of Drug Analysis Expenses of Rs.33,08,127/-

On The Facts and Circumstances of The Case, The Learned Commissioner of Income Tax has erred in Law in confirming the Addition made by the Assessing officer by disallowing a Sum of Rs.33,08,127/- being 20% of Aggregate Claim which is most unjustified and Arbitrary and to be deleted From Total Income.

(4) Disallowance of Penalty Charges of Rs. 19,718/-

On The Facts and Circumstances of The Case, The Learned Commissioner of Income Tax has erred in confirming the Addition made by Assessing officer by disallowing the Penalty Charges of 19,718/- disallowed under section 37(1) of IT Act, 1961 which is most unjustified and Arbitrary.

ITA No. 1215/Mum/2023 (Assessment Year: 2015-16)

(5) The Learned Commissioner of Income Tax has erred in Law by partly allowing Appeal for Charging Interest under section 234A, 234B, 234C & 234D of Income Tax Act, 1961 Which is most unjustified and Arbitrary. Levy of Penalty under section 271(1)(c).”

The Appellant has raised the following Additional Grounds of appeal 3. vide letter dated 04/07/2023:

“(1) On the facts and in the circumstances of the case and in law the assessment framed u/s 143(3) of the Income Tax Act 1961 is bad in law and void ab-initio on the ground that based on the instructions of CBDT, the jurisdiction to issue the first notice of assessment lies with the Assessing Officer and pot the DCIT thereby rendering the initiation of the assessment proceedings improper and without jurisdiction.

(2) On the facts and circumstances of the case and law the notice u/s 143(2) dated 12th April 2016 issued by the Deputy Commissioner of Income Tax 15(2)(2) Mumbai is invalid and needs to be quashed in view of the instructions on the CBDT no. 1/2011 [FN. 187/12/2011] dated 31st January 2011 based on the fact that the returned income of the appellant is Rs. 14,07,000/- and therefore the jurisdiction over the appellant would be that of the Income-Tax Officer 15(2)(4) and not the DCIT 15 (2)(2) thus rendering the that the assessment made under section 143(3) based on the above notice invalid and requiring it to be quashed."

WITHOUT PREJUDICE to the above

(3) On the facts and in the circumstances of the case and in law the Assessing Officer was not justified in extending the scope of the scrutiny assessment originally under CASS to issues not covered under the CASS without obtaining the permission of the higher authorities as required by the Circular dated 23/05/2007, read with Circular dated 08/09/2010, Instruction dated 02/09/2014, 26/09/2014, and 14/07/2016, issued by the CBDT in respect of cases selected under CASS and for Limited scrutiny.

(4) On the facts and in the circumstances of the case and in law the Assessing Officer was not justified in making an assessment u/s 143(3) of the Income Tax Act without providing the appellant reasons

ITA No. 1215/Mum/2023 (Assessment Year: 2015-16) of CASS for which the assessment had been picked up for scrutiny.” The relevant facts in brief are that the Appellant filed return of 4. income on 30/09/2015 declaring income of INR 14,07,000/-. The case of the Appellant was selected for scrutiny and assessment under Section 143(3) of the Act was framed on the Appellant vide order, dated 18/12/2017 after making, inter alia, following additions/disallowances: (a) Disallowance of INR 14,24,381/-, under Section 40(a)(ia) of the Act in respect of interest of INR 47,47,936/- paid to NBFCs without withholding tax under Section 194A of the Act. (b) Disallowance of office expenses of INR 99,048/- computed @10% of aggregate office expenses of INR 9,90,483/- incurred in cash (c) Disallowance of Drugs Analysis Expenses of INR 33,08,127/- computed @ 30% of aggregate drugs analysis expenses of INR 1,65,41,083 incurred in cash (d) Disallowance of deduction for penalty charges of INR 19,718/- In appeal preferred by the Assessee, the CIT(A) confirmed all the 5. above disallowances vide order, dated 20/03/2023.

Being aggrieved, the Appellant has carried the issues in appeal before 6. us.

Ground No. 1 Ground No. 1 raised by the Appellant is directed against the 7. disallowance of INR 14,24,381/-, made by the Assessing Officer under Section 40(a)(ia) of the Act.

7.1. During the assessment proceedings, the Assessing Officer noted that the Assessee had debited to the Profit and Loss Account interest expenses on loans obtained from various Non-Banking Finance Companies (NBFCs), the details of which are as under:

ITA No. 1215/Mum/2023 (Assessment Year: 2015-16)

Name Of NBFC Interest (INR) PNB Housing Finance Ltd. 35,27,909 Religare Finvest Ltd. 3,38,010 Tata Capital Financial Services Ltd. 3,20,092 Bajaj Finance 2,14,561 Capital First 1,52,870 Edeweiss Finance Ltd. 1,94,494 Total 47,47,936

7.2. The Assessing Officer noted that the Appellant had failed to bring on record any material to evidence that tax was deducted at source from the aforesaid interest payments aggregating to INR 47,47,936/- in terms of Section 194A of the Act,; and that the Appellant had also failed to bring on record any material to establish that the aforesaid interest amount has been offered to tax as income by the lending NBFCs in their respective return of income. Therefore, the Assessing Officer made a disallowance of INR 14,24,381/-, computed at the rate of 30% of the aforesaid aggregate interest amount of INR 47,47,936/-, in terms of Section 40(a)(ia) of the Act.

7.3. In appeal preferred by against the Assessment Order on the above issues, the CIT(A) also confirmed the disallowance of INR 14,24,381/- under Section 40(a)(ia) of the Act observing that even during the appellate proceedings before the CIT(A), the Appellant has failed to produce copies of return of income showing that the relevant interest income was offered to tax by the lending NBFCs.

7.4. The Appellant is now in appeal before us on this issue and has been moved on an application for admission of additional evidence. The Ld. Authorised Representative for the Appellant, seeking admission of the additional evidence, submitted that the Appellant was prevented from filing the additional evidence before the Assessing

ITA No. 1215/Mum/2023 (Assessment Year: 2015-16) Officer and the CIT(A) as the concerned parties/NBFCs from whom the additional evidence has been obtained were not co-operating. After a lot of efforts and with the great difficulty the Appellant has been able to gather Form No. 26A along with Annexure ‘A’ issued in terms of First Proviso to Section 201(1) of the Act certifying furnishing of return of income, payment of taxes etc. by the payee- NBFCs. Ld. Authorised Representative for the Appellant submitted that in view of the aforesaid explanation the additional evidence now furnished by the Appellant be admitted. Per contra, the Ld. Departmental Representative submitted that the Appellant had been granted sufficient opportunity to file supporting documents/details before the Assessing Officer and CIT(A) and therefore, additional evidence should not be admitted. The Ld. Departmental Representative further submitted that the additional evidence produced by the Appellant for the first time needs verification by the Assessing Officer and therefore, the Revenue should be granted opportunity to enquire into the same.

7.5. We have considered the rival submissions and perused the material on record. We note that the CIT(A) as well as the Assessing Officer had taken note of the fact that similar disallowance under Section 40(a)(ia) of the Act made by the Assessing Officer while framing assessment for the Assessment Year 2014-15. The Commissioner of Income Tax (Appeals)-24, Mumbai, vide order, dated 01/09/2017 allowed the appeal of the Appellant/Assessee on this issue on the ground that lending NBFCs had filed return of income offering interest income to tax. However, both the Assessing Officer and the CIT(A) rejected the contention of the Appellant for the reason that the Appellant had failed to place any material on record to establish that the interest has been offered to tax by the lending NBFCs. The Appellant has now furnished additional evidence in the Form No. 26A 6

ITA No. 1215/Mum/2023 (Assessment Year: 2015-16) along with Annexure ‘A’ in support of its contentions. In view of the explanation furnished by the Appellant, we hold that the Appellant was prevented by reasonable cause in filing the aforesaid additional evidence before the Assessing Officer/CIT(A). Accordingly, we admit the additional evidence furnished by the Appellant. However, in view of the submissions advanced by the Ld. Departmental Representative, we remand this issue back to the file of the Assessing Officer with the directions to decide the same afresh after taking into account the additional evidence furnished by the Appellant and the order, dated 01/09/2017, passed by the Commissioner of Income Tax (Appeals)-24, Mumbai for the Assessment Year 2014-15 in appeal preferred by the Appellant. In terms of the aforesaid, Ground No. 1 raised by the Appellant is allowed for statistical purposes.

Ground No. 2 Ground No. 2 raised by the Appellant is directed against the 8. disallowance of INR 99,048/- made by the Assessing Officer in respect of Office Expenses.

ITA No. 1215/Mum/2023 (Assessment Year: 2015-16) Appellant. Further, in respect of similar disallowance made by the Assessing Officer for the Assessment Year 2014-15, the appeal preferred by the Appellant on this issue had been dismissed by the Commissioner of Income Tax (Appeals)-24, Mumbai, vide order, dated 01/09/2017. Therefore, the Assessing Officer made a disallowance of INR 99,048/- computed at the rate of 10% of the office expenses of INR 9,94,483/- incurred in cash and debited to the Profit & Loss Account during the relevant previous year.

Being aggrieved, the appellant carried the issue in appeal before 10. CIT(A). However, the CIT(A) confirmed the disallowance by following the order, dated 01/09/2017, passed by Commissioner of Income Tax (Appeals)-24, Mumbai, in appeal preferred by the Appellant for the Assessment Year 2014-15.

The Appellant is now in appeal before us on this issue. 11.

We have heard the rival submissions and perused the material on 12. record. We note that vide order, dated 24/01/2023, passed in ITA No. 6629/Mum/2017 preferred by the Appellant for the Assessment Year 2014-15, the Mumbai Bench of the Tribunal has confirmed the identical disallowance holding as under:

“6. Having heard the submissions of both sides and perused the material available on record, we find that apart from claiming that the impugned expenditure has been incurred for the purpose of business, no material has been brought on record to substantiate the said claim. Thus, in absence of necessary details, we find no infirmity in the impugned order passed by the learned CIT(A) upholding the disallowance of 10% of the office expenses claimed by the assessee. As a result, ground No. 1 raised in assessee’s appeal is dismissed.”

Since there is no change in facts and circumstances during the 13. assessment year before us, respectfully following the above decision

ITA No. 1215/Mum/2023 (Assessment Year: 2015-16) of the Tribunal, we decline to interfere with the order passed by the CIT(A) on this issue and uphold the disallowance of INR 99,048/- made by the Assessing Officer. Accordingly, Ground No. 2 raised by the Appellant is dismissed.

Ground No. 3 14. Ground No. 3 raised by the Appellant is directed against the disallowance of INR 33,08,217/- made by the Assessing Officer in respect of Drug Analysis Expenses.

During the assessment proceedings, the Assessing Officer noted that 15. Drug Analysis Expenses amounting to INR 1,65,41,083/- had been debited to the Profit & Loss Account. On verification of the details along with supporting bills/vouchers furnished by the Appellant, the Assessing Officer noted that all the above expenses were incurred in cash and were supported by the self made internal vouchers and therefore, it could not be verified whether all the expenses were incurred wholly and exclusively for the purpose of business. The Assessing Officer noted that disallowance at the rate of 25% of similar Drug Analysis Expenses paid in cash was made by the Assessing Officer for the Assessment Year 2014-15 which was reduced to 20% by the Commissioner of Income Tax (Appeals)-24, Mumbai in appeal preferred by the Appellant vide order dated, 01/09/2017. Following the aforesaid decision, the Assessing Officer made a disallowance of INR 33,08,217/- being 20% of the aggregate Drug Analysis Expenses of INR 1,65,41,083/-.

Being aggrieved, the appellant carried the issue in appeal before 16. CIT(A). However, the CIT(A) confirmed the disallowance by following the order dated 01/09/2017, passed by Commissioner of Income Tax (Appeals)-24, Mumbai, in appeal preferred by the Appellant for the

ITA No. 1215/Mum/2023 (Assessment Year: 2015-16) immediately preceding assessment year (i.e. Assessment Year 2014- 15.)

The Appellant is now in appeal before us on this issue. 17.

We have heard the rival submissions and perused the material on 18. record.

We note that vide order, dated 24/01/2023, passed in ITA No. 19. 6629/Mum/2017 preferred by the Appellant for the Assessment Year 2014-15, the Mumbai Bench of the Tribunal has deleted the identical disallowance holding as under:

“7. The issue arising in ground No. 2, raised in assessee’s appeal, is pertaining to the addition of 20% of the drug analysis expenses.

ITA No. 1215/Mum/2023 (Assessment Year: 2015-16) 9. Having considered the submissions of both sides and perused the material available on record, we find that the assessee is in the business of drug analysis, clinical trials, and other research activities and as part of the said business, the assessee does lab study of various drugs before their launch in the market. As per the assessee, for the purpose of such lab study, the assessee conducts the trial on various persons, who acts as a volunteer and as a consideration, the assessee pays such volunteers in cash. During the hearing, reliance was placed upon cash vouchers of drug analysis expenses, forming part of the paper book from pages No. 214 – 245. From the perusal of said vouchers, we find that the said vouchers mention the volunteer centre ID, the amount paid, and the signature of the volunteer on the date of payment. The learned AR submitted that the names of the volunteers are not mentioned to maintain anonymity regarding the identity of the volunteer and instead the ID No. is mentioned in the record. It was also submitted that this manner also safeguards the interest of the pharmaceutical company, whose drugs are tested. On a careful perusal of these vouchers, it is evident that the same cannot be called self-made, since these vouchers also contain the signatures of different volunteers acknowledging the receipt of payment in cash on different dates. In absence of any other allegation, we find no basis for confirming the disallowance upheld by the learned CIT(A). Accordingly, we direct the AO to delete the disallowance in respect of drug analysis expenses. As a result, ground No. 2 raised in assessee’s appeal is allowed.”

Since there is no change in the facts and circumstances during the 20. assessment year before us. During the assessment proceedings, the Appellant had furnished ledger account of Drug Analysis Expenses and compensation details showing amount of payment date of receipt. For the Assessment Year 2015-16, the Appellant had supported the claim for deduction by submitting details and documents identical to those submitted for the Assessment Year 11

ITA No. 1215/Mum/2023 (Assessment Year: 2015-16) 2014-15 which included cash vouchers with signatures of volunteers acknowledging receipt of payment in cash. We note that the Assessing Officer has neither made independent inquiry nor has the Assessing Officer specified expenses which could not have been verified. Further, the Assessing Officer has also not identified any expenses which were not incurred for the purpose of business. Disallowance was made by following the order passed by the CIT(A) in the case of the Appellant for the Assessment Year 2014-15 which has since been overturned by the Tribunal, vide order, dated 24/01/2023, passed in ITA No. 6629/Mum/2017. Therefore, respectfully following the aforesaid decision of the Tribunal in the case of the Appellant/Assessee, we delete the disallowance of INR 33,08,217/- made by the Assessing Officer. Accordingly, Ground No. 3 raised by the Appellant is dismissed.

Ground No. 4 Ground No. 4 raised by the Appellant is directed against the 21. disallowance of penalty charges of INR 19,718/- made by the Assessing Officer under Section 37(1) of the Act.

Ground No. 5 Ground No. 5 raised by the Appellant pertains to levy of charging 23. interest under Section 234A/234B/234C & 234D of the Act and the same is disposed off as being consequential in nature.

ITA No. 1215/Mum/2023 (Assessment Year: 2015-16) Additional Ground The Appellant had, vide letter dated 12/06/2023, raised an additional 24. grounds. In view of the statement made by the Ld. Authorised Representative for the Appellant, under instructions, the aforesaid additional grounds are disposed off as being not pressed.

In result, the present appeal preferred by the Assessee is partly 25. allowed.

Order pronounced on 24.01.2024.

Sd/- Sd/- (Om Prakash Kant) (Rahul Chaudhary) Accountant Member Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 24.01.2024 Alindra, PS

ITA No. 1215/Mum/2023 (Assessment Year: 2015-16) आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : अपील र्थी / The Appellant 1. 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त/ The CIT 4. प्रध न आयकर आय क्त / Pr.CIT 5. दिभ गीय प्रदिदनदध, आयकर अपीलीय अदधकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file.

आिेश न स र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदधकरण, म ुंबई / ITAT, Mumbai