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Income Tax Appellate Tribunal, “A” BENCH, KOLKATA
Before: SHRI SANJAY GARG, HON’BLE & DR. MANISH BORAD, HON’BLE
PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
The present appeal is directed at the instance of the assessee against the order of the learned Commissioner of Income Tax (Appeals) – 20, Kolkata, [hereinafter the “ld. CIT(A)”] dt. 13/12/2022, passed u/s 250 of the Income Tax Act, 1961 (“the Act”) for the Assessment Year 2013-14. 2. The assessee has raised the following grounds of appeal:- “1. Whether on the facts and circumstances of the case, Ld. CIT(A) is justified in deleting the addition u/s. 2(22)(e) of Rs.2,51,10,067/- ignoring fact that the assessee is the beneficial share holder as Dr. Jitendra Sharma is a Director in both the companies, M/s. EKO Diagnostic Pvt. Ltd. and Calcutta Medical Imaging Institute Ltd. and holding more than 33% of shares in each of the two companies.
Whether on the facts and circumstances of the case, Ld. CIT(A) is justified in deleting the addition u/s. 2(22)(e) of Rs.2,51,10,067/- ignoring fact that A.O. has made the addition by holding that section 2(22)(e) of the I.T. Act, 1961 intended to tax the beneficial share holder and not necessarily the registered shareholder of the company from which loan or advance is received. Assessment Year: 2013-14 Eko Diagnostic Pvt. Ltd. 2
Whether on the facts and circumstances of the case, Ld. CIT(A) is justified in deleting the addition holding that the transactions loans/advance made by the assessee with M/s. Calcutta Medical Imaging Institute Ltd. are in the nature of current account transactions/normal business transactions whereas money lending is not substantial part of business of the assessee.
Whether on the facts and circumstances of the case, the order of Ld. CIT(A) erred on allowing the assessee's appeal relying on the decision of the ITAT in assessee's own case on the same issue for A.Y. 2006-07 as it had not taken cognizance of the fact that Hon'ble Juri ictional High Court passed order for A.Y. 2006-07 by setting aside said order to ITAT for fresh adjudication.
Whether on the facts and circumstances of the case, the Ld. CIT(A) erred by deleting the addition made on account of commission paid to other doctors of Rs.48,56,909/- not employed by the appellant which was in the nature of commission payments which was not allowable u/s. 37(1) of the ' I.T. Act, 1961 as held by the Apex Court in the case of Apex Laboratories Pvt. Ltd. Vrs. DCIT Civil No. 23207 of 2019. 6. Whether on the facts and circumstances of the case as well as the bad in law, the Ld. CIT(A) allowed assessee's appeal in regard to addition made on account of commission paid to doctors of Rs.48,56,909/- in violation of Rule 46A of the Income Tax Rule, 1962 merely on the basis of submissions made by the assessee during appeal without providing any opportunity to the A.O. to examine such expenses ignoring the facts that A.O'. has made the addition holding the fact that assessee could not submit any cogent reason for such commission payment.
That the department craves leave to add, alter or modify, any or all of the grounds of appeal either before or during course of Appellate Proceedings.”
The Registry has pointed out that there is a delay of 14 days in filing the present appeal by the assessee. Petition for condonation of delay is placed on record by the assessee explaining the reasons for late filing of appeal. On perusing the same, we are convinced that the assessee was prevented by sufficient cause from filing this appeal in time. Accordingly, we condone the delay and proceed to admit the appeal for hearing. Assessment Year: 2013-14 Eko Diagnostic Pvt. Ltd. 3
Facts in brief are that the assessee is a private limited company running a diagnostic centre. Income of Rs.2,55,37,237/- declared in e- return for Assessment Year 2013-14 filed on 29/09/2013. Case selected for scrutiny through CASS followed by issuance of notice u/s 143(2) and 142(1) of the Act. Various details as called for by the Assessing Officer was furnished. The ld. Assessing Officer noticed that during the year under consideration, assessee received amount of Rs.2,51,10,067/- as loan from M/s. Calcutta Medical Imaging Institute Ltd.. Shri Jeetendra Sharma is a common shareholder in both the assessee company as well as M/s. Calcutta Medical Imaging Institute Ltd., having shareholding of 33.11% and 33.01% respectively. Accumulated profits available for distribution in the books of M/s. Calcutta Medical Imaging Institute Ltd. amounted to Rs.3,20,17,845/-. The assessee was asked to explain as to why not the provisions of deemed dividend u/s 2(22)(e) of the Act be invoked. The assessee made a detailed submission stating that addition for deemed dividend can be made only in the hands of beneficial shareholder and since the assessee company is not a shareholder in M/s. Calcutta Medical Imaging Institute Ltd., no addition can be made u/s 2(22)(e) of the Act. However, the ld. Assessing Officer was not satisfied and observed that the only condition is required to be fulfilled is that the registered shareholder of the company advancing loan should also be a beneficiary shareholder of the concern as well and accordingly made an addition of Rs.2,51,10,067/- u/s 2(22)(e) of the Act for the loan Assessment Year: 2013-14 Eko Diagnostic Pvt. Ltd. 4
received from M/s. Calcutta Medical Imaging Institute Ltd.. Further, the ld. Assessing Officer also noticed that the assessee has claimed expenses on account of consultancy fees and service charges amounting to Rs.2,07,75,408/-. While furnishing the details, it was submitted that Rs.48,56,909/- was paid to other doctors. Though it was submitted by the assessee that it is running a diagnostic centre and apart from the in-house doctors, it also needs to take services from other doctors for getting the reports for various tests. However, for lack of necessary details, the ld. AO held it to be a commission paid to doctors for referring patients to diagnostic centres and disallowed the said claim. Along with other minor disallowance towards delay in payment of PF & ESI, total income of the assessee assessed at Rs.5,56,36,833/-.
Aggrieved the assessee preferred appeal before the ld. CIT(A) and partly succeeded.
Aggrieved, the revenue is now in appeal before this Tribunal.
The ld. D/R vehemently argued supporting the order of the ld. AO. The ld. Counsel for the assessee on the other hand, took us through the detailed paper book running into 143 pages and also referred to the copy filed to the Settlement Commission u/s 245D(4) of the Act and stated that the instant year under appeal i.e., AY 2013-14 is already covered by the decision of Hon’ble Interim Board –V, Mumbai, for settlement, vide order dt. 05/07/2023 and the income of Assessment Year: 2013-14 Eko Diagnostic Pvt. Ltd. 5
the assessee has been determined/settled after considering all the issues covered in the petitions as well as all the issues raised by the Department in the Rule-9 report. He also submitted that the issue regarding deemed dividend u/s 2(22)(e) of the Act stands squarely covered in favour of the assessee by the decision of this Tribunal in the assessee’s own case for AY 2004-05 and 2006-07 wherein also, loan was received from M/s. Calcutta Medical Imaging Institute Ltd., and Hon’ble Tribunal has dismissed the appeal of the revenue.
We have heard rival contention and perused the record placed before us. The revenue is in appeal against the finding of the ld. CIT(A) deleting the addition made for deemed dividend u/s 2(22)(e) of the Act at Rs.2,51,10,067/- and also deletion of disallowance of commission paid to doctors at Rs.48,56,909/-.
So far as the first issue regarding deemed dividend u/s 2(22)(e) of the Act is concerned, we observe that the alleged sum of Rs.2,51,10,067/- was received by the assessee as loan from M/s. Calcutta Medical Imaging Institute Ltd. One of the directors and shareholder of 33.11% of the assessee company, Shri Jeetendra Sharma is also a 33.01% shareholder in M/s. Calcutta Medical Imaging Institute Ltd.. The ld. AO alleged that since there is a common shareholder, Section 2(22)(e) of the Act has to be invoked. However, the ld. CIT(A) decided in favour of the assessee following the decision of this Tribunal in the assessee’s own case for AY 2006-07, observing as follows:- Assessment Year: 2013-14 Eko Diagnostic Pvt. Ltd. 6
“3.3 I have carefully considered the facts of the case and submission of the appellant. Money has been /deceived from; a company in which assessee is not a shareholder. Appellant has cited several decisions which have held that provision of section 2(22)(e) cannot be invoked against a person who is not a shareholder in the company from which loans/advances have, been received. Assessee has also pointed out that its transactions with CMIL are in the nature of current account transactions as multiple receipts and payments have been made, depending on the needs of the assessee company. Appellant has also cited several case laws which have held that provision .of section 2(22)(e) are not attracted in respect of normal business transactions between two parties which have the character of current account transactions. Besides, this issue is already covered by the decision of Hon'ble ITAT in assessee's favour in its own case for AY: 2006-07. In view of the facts narrated and discussed above, addition made u/s.2(22)(e) are not sustainable in appellant's case. Hence, AO is directed to delete the addition of Rs.2,51,10,067/-.”
On going through the above finding of the ld. CIT(A) and also the facts narrated before us, it remains an undisputed fact that the assessee company is not a beneficial shareholder in the equity of M/s. Calcutta Medical Imaging Institute Ltd. We find that similar type of transactions took place in the case of the assessee during AY 2004-05 and 2006-07 wherein, the loan was received from M/s. Calcutta Medical Imaging Institute Ltd., and the assessee succeeded before the ld. CIT(A) and, therefore, the revenue preferred appeal before this Tribunal and failed to succeed as this Tribunal confirmed the finding of the ld. CIT(A) observing as follows:- “4. 2. In respect of A.Yr. 2006-07 the sole issues relates to deletion of addition of Rs.55,20,433/- on the basis of definition of the ‘deemed dividend’. The relevant observations made by the ld. CIT(A) are as under:- "
I have gone through the submission made by the assessee as well as the arguments supporting the addition forwarded by the AO in his order. From the facts of the case, it transpires that the assessee was maintaining two' Assessment Year: 2013-14 Eko Diagnostic Pvt. Ltd. 7
Current A/cs in the name of Calcutta Medical Imaging Institution Ltd. One current account was regarding its investment in the assessee company for allotment of shares. The other Current A/c is covering day to day business transactions between the two parties. I have gone through the details in the said Current A/cs which the AO termed as a 'colorable device'. Maintenance of two current A/cs appeared to him as an arrangement "to avoid the mis-chief of Sec. 2(22)(e) of the I. Tax Act." Under the said circumstances, he clubbed the Current A/cs considering the transactions between the two parties as device to avoid taxing u/s 2(22)(e) as evident from his arguing the matter as quoted above. I don't find any reason why the two current A/cs maintained by the assessee in its books should be clubbed together and a decision to be arrived on the basis of such clubbing. Even if, it is agreed that what the AO did was correct, even then, in view of the fact that an addition of Rs.55,02,433/- has been made out of the accumulated reserve in the hands of the company which has given the advances to the assessee company, the said accumulated reserve had already been absorbed in the opening balance of Rs.2,4'3,'51,583/- standing receivable by the Calcutta Medical Imaging Institution Ltd. Hence, there is no occasion as to have any further reserve in the current-year in the hands of the company which had advanced money to the assessee. In the circumstances no addition u/s 2(22)(e ) can be made in the year under consideration. Again, it may be the case that the shareholders of both the; companies are same, it has to be kept in mind that the assessee company, is not a shareholder. The provisions of Sec.2(22)(e) requires that the assessee in whose hands deemed dividend has to be added must be a shareholder in the company which makes the advances to the assessee (shareholder) or "to any concern in which such shareholder is a member or a partner and in which he has a substantial interest". In any case, the addition has to be done in the hands of the 'shareholder' otherwise the provisions of Sub-clause (iii) of Sec.2(22)(e) becomes inoperative. Hence, additions in the hands of n non-shareholder cannot be sustained.'" 4..
Keeping in view of the fact that the Id. DR for the Revenue could not contradict the observations made by ld. CIT(A) on all the above issues we find no infirmity in the orders of ld. CIT(A) to be interfered with. We confirm the same in respect of all the issues for both the assessment years and dismiss the appeals of the revenue.”
Similar view was also taken by the Hon’ble Bombay High Court in the case of CIT Vs Narmina Trade Investments Pvt. Ltd [2017] 81 Assessment Year: 2013-14 Eko Diagnostic Pvt. Ltd. 8
Tacmxnn.com 129, wherein Hon’ble Court held that where an assessee was not a shareholder of company advancing loan to it, amount of loan could not be treated as deemed dividend in its hands. We also draw support from the judgment of Hon’ble Punjab & Haryana High Court in the case of CIT v. Sharman Woolen Mills Ltd. [2011] 16 taxmann.com 171 (P&H), wherein also, the Hon’ble Court confirmed the view taken by this Tribunal holding that deemed dividend u/s 2(22)(e) of the Act is assessable only in the hands of the shareholder of the lending company and since assessee was not a shareholder of the lending company, amount of loan could not be assessed in the hands of the assessee in terms of Section 2(22)(e) of the Act.
Since the facts of the case remains the same, we, therefore, respectfully following the decisions of this Tribunal in the assessee’s own case are inclined to hold that since the assessee company is not a beneficial shareholder in the equity shareholding of M/s. Calcutta Medical Imaging Institute Ltd., the loan received from M/s. Calcutta Medical Imaging Institute Ltd. is a commercial transactions and provision of Section 2(22)(e) of the Act cannot be invoked in such cases. Thus, no interference is called for in the finding of the ld. CIT(A) and Ground Nos. 1, 2, 3 & 4 raised by the revenue are dismissed.
The second issue for our consideration is regarding deletion of disallowance of commission paid to other doctors at Rs.48,56,909/-. We observe that assessee runs a diagnostic centre wherein various tests are being undertaken, namely, MRI, C T Scan, Gastroenterology, Assessment Year: 2013-14 Eko Diagnostic Pvt. Ltd. 9
eco-cardiograph, etc. As claimed by the assessee that it has in-house doctors but they are not sufficient to given the expert reports on certain type of tests for which opinions is taken from outside doctors who are specialists in their fields. The alleged sum has been paid to such outside doctors and tax at source has duly been deducted u/s 194J of the Act. The ld. AO, however, treated it as a commission paid for referring to patients to diagnostic centre. We, however, notice that the ld. CIT(A) taking note of the details filed by the assessee, deleted the said disallowance observing as follows:- “4.1 Grounds of Appeal No(s), 2 : AO has mentioned that assessee had claimed expenses of Rs.2,07,75,408/- on account of consultancy fees and service charges. Out of this amount, Rs.1,59,18,499/- was paid to in-house doctors and Rs.48,56,909/- was' paid to other doctors. AO further mentions that assessee is a diagnostic centre and has in-house doctors. It could not give any cogent reasons for payment made to other outside doctors. Hence, AO has treated the payment of Rs.48,56,909/- as commission paid to doctors for referring patients to its diagnosis centre. AO has quoted the Indian Medical Council (Professional Conduct, Etiquette & Ethics) Regulations, 2022 which provides that no physician shall give, solicit, receive, or offer to give, solicit or receive, any gift, gratuity, commission or bonus in consideration of a return for referring any patients for medical treatment. Hence, AQ has held that commission paid to private doctors for referring patients for diagnosis could not be allowed as business expenditure. In support, AO has cited the decision of the Hon'ble High Court of Punjab & Haryana in the case of CIT Vs. KAP Scan & Diagnostic Centre Pvt. Ltd. (2012) 344 ITR 476 (P&H). Hence, AO has made an addition of Rs.48,56,909/-.
2 In the appellate proceedings, appellant has submitted that Rs.48,56,909/- have been paid to doctors called for specific consultancy for preparation of diagnostic reports or guidance to in-house doctors. Without any evidence on record, AO has whimsically alleged that the payment of Rs.48,56,909/- to other doctors is nothing but commission paid to these doctors for referring patients to its diagnostic centre, Appellant further submits that it is a diagnostic centre where various services like MRI, Citi Scan, Gastroenterology, eco-cardiography, etc., are provided. Appellant further submits that in certain cases, expert doctors specialized medical field are called upon to analyze the test report and provide the expert advise for preparation of diagnostic report. Such doctors are specialized doctors who are Assessment Year: 2013-14 Eko Diagnostic Pvt. Ltd. 10
not in the pay roll of the diagnostic centre and.;-are only called upon $s and when needed for their expert advice for preparation of test reports and for Consultancy with the in-house doctors, Fees paid to outside doctors are in the nature of professional fees for the services rendered by them u/s194J has also, been deducted on such payments. Appellant further submits that AO has not verified facts and only on the basis of suspicion he has formed an opinion that the fees paid to outside doctors are commission and disallowed the same. Appellant "further submits that an assessment made on surmises and conjectures is not sustainable in the eye of law in view of the following judicial pronouncements:
ITO Vs. Shyamal Dey (ITA No.41Q/Kol/2012) (Kolkata IT AT)
BrijBhushan Lai Parduman Kum&Vs. CIT (1978) 115 ITR 524 (SC)
Banshidhar Onkarmall Vs. CIT (1953) 23 ITR 353 (Orisssa)
CIT Vs. Kameshwar Singh (1933) 1 1TR 94 (PC)
Dhirajlal Giridharilal Vs. CIT (1954) 26 ITR 775 (SC)
Pioneer Himudyog Pvt. Ltd. Vs. ACIT (ITA No.338/Kol/2017 order dated 23.08.2017)
Lalchand Bhagat Ambica Ram Vs. CIT (1959) 37 ITR 288 (SC) Appellant further submits that it had also incurred similar expenditure in some of the other years, AO has accepted the genuineness of such payments for AY: 2012-13 and AY: 2014-15. Assessee has been regularly paying consultancy charges to outside doctors who are specialized in different medical fields. However, no such disallowance has been made in other years. Hence, following the rule of consistency, where AO has consistently allowed the claim of assessee in other years, in absence of any change in facts of the case, disallowance cannot be> randomly made by AO in one particular year. In support of his contentions, assessee has cited the following judgements:
PCIT Vs. Maruti Suzuki India Ltd. (2019) 107 taxmann.com 375 (SC) 2.PCIT Vs. Quest Investment Advisors Pvt. Ltd. (2018) 96 taxmann.com 157 (Bombay)
CIT Vs.Neo Poly Pack Pvt. Ltd. (2000) 245 ITR 492 (Delhi)
ACIT Vs. Royal India Western Turf Club (2017) 88 taxmann.com 567 (Mumbai)
Sports Club of Gujarat Ltd. Vs. PCIT (2022) 139 taxmann.com 288 (Ahmedabad) Assessment Year: 2013-14 Eko Diagnostic Pvt. Ltd. 11
Radhasaomi Satsang Vs, CIT (1992) 193 ITR 321 (SC)
3 I have carefully considered the facts of the case and submission of the appellant. AO has held the payments made to outside doctors as commission in nature but AO has not brought any evidence on record to support his opinion, Assessee has been regularly; incurring such expenses and tax is deducted at source while making such payments. AO has not examined any such payments to find out about genuineness, of such payments. He has simply presumed that payments made to outside doctors are in-the nature of commission;' On the other hand, appellant has submitted that the outside doctors were engaged on/certain occasions for their expert opinion and to guide the in-house doctors in complicated cases. This explanation of the assessee appears to be genuine and it is a very common practice in medical field. Even the best of hospitals, at times, invite experts from outside to have their opinion in complicated matters. Thus, sharing of knowledge between two entities in the medical field is very common. Appellant has maintained all the records about the payments made to outside doctors and it has also complied with the provisions of TDS while making payments, Besides, these payments have been allowed in other years and no discrepancy has been ever noticed, Even in the current year, as well AO has not brought any evidence to support his suspicions. Under the circumstances, disallowance of consultancy charges paid to outside doctors are not justified.
In view of the above discussion, addition of Rs.48,56,909/- is deleted.”
Though the ld. D/R failed to controvert the finding of the ld. CIT(A) by placing any contrary material or evidence, we also take not that the search and seizure and survey operation was conducted at the assessee premises on 20/11/2018 and thereafter, the assessee and other group concerns approached the Settlement Commission and offered the undisclosed income under various heads for taxation. Such undisclosed/additional income also included some disallowance made for consultancy charges paid to outside doctors. Assessment Year 2011-12 to Assessment Year 2018-19 have been included by the assessee in the application made before the Settlement Commission and the same has been accepted and order u/s 254D(4) of the Act dt. Assessment Year: 2013-14 Eko Diagnostic Pvt. Ltd. 12
05/07/2023 has been passed by the Interim Board –V, Mumbai, of Settlement Commission, and additional income computed by the Interim Board has been offered to tax by the assessee. Considering this fact that the issue of commission paid to outside doctors for AY 2013- 14 has attained finality by the order of the Interim Board –V, Mumbai, of Settlement Commission, this ground of the revenue becomes infructuous. Accordingly, Ground Nos. 5 & 6 raised by the revenue are dismissed.
Ground No. 7 is general in nature.
In the result, appeal of the revenue is dismissed. Order pronounced in the Court on 17th January, 2024 at Kolkata (SANJAY GARG) ACCOUNTANT MEMBER Kolkata, Dated 17/01/2024 *SC SrPs Assessment Year: 2013-14 Eko Diagnostic Pvt. Ltd. 13
आदेश क" "ितिलिप अ"ेिषत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant
""यथ" / The Respondent 3. संबंिधत आयकर आयु" / Concerned Pr. CIT 4. आयकर आयु" अपील ( ) / The CIT(A)- 5. िवभागीय "ितिनिध ,आयकर अपीलीय अिधकरण, कोलकाता/DR,ITAT, Kolkata, 6. गाड" फाई/ Guard file.
आदेशानुसार/ BY ORDER,