SUNFLOWER PHARMACY,AHMEDABAD vs. THE INCOME TAX OFFICER, WARD-6(2), AHMEDABAD

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ITA 2546/AHD/2015Status: DisposedITAT Ahmedabad10 November 2017AY 2011-125 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the disallowance was not justified as the relevant CBDT circular was introduced after the assessment year in question. Therefore, the substantive claim of the assessee was allowed.

What were the facts?

The assessee, Sunflower Pharmacy, challenged the disallowance of Rs. 41,39,131/- towards commission expenses paid to doctors. The Assessing Officer disallowed this amount relying on CBDT Circular No. 5/2012.

What were the issues?

Whether commission expenses paid to doctors are disallowable based on a CBDT circular that was not applicable to the assessment year.

Which sections of the Income-tax Act were involved?

Section 37(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “ SMC ” BENCH, AHMEDABAD

Before: SHRI S.S. GODARA & SHRI PRADIP KUMAR KEDIA

आदेश / O R D E R PER PRADIP KUMAR KEDIA - AM: The captioned appeal filed at the instance of the assessee is against the order of the Commissioner of Income Tax(Appeals)-3, Ahmedabad [CIT(A) in short] dated 12/06/2015 in the matter of assessment order under s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") dated 26/02/2014 relevant to Assessment Year (AY) 2011-12.

ITA No. 2546/Ahd/2015 Sunflower Pharmacy vs. ITO Asst.Year – 2011-12 - 2 - 2. The assessee has challenged the disallowance of Rs.41,39,131/- towards commission expenses in the captioned appeal.

3.

The assessee has also moved an application for admission of additional ground of appeal whereby it seeks to challenge the order of the revenue authorities on the purported legal ground that the recipient of the commission income have paid taxes in their hands at maximum marginal rates and therefore there is no loss to revenue. At this stage itself, we do not find merit in the additional grounds of appeal so raised. The adjudication of aforesaid additional ground depends upon the facts in the form of return of income of the beneficiaries of return of income. The respective returns of income of the recipient were not placed on record before the lower authorities. Therefore, the aforesaid additional ground does not emanate from the facts on record. The additional ground of appeal is therefore dismissed.

4.

The assessee has also moved application for admission of additional evidence. The additional evidence sought to be placed on record are return of income of the recipient of the commission income. We do not find any reasons in the petition for admission of additional evidence in terms of Rule 29 of the I.T.A.T. Rules, 1963. Rule 29 of the ITAT Rules provides for stringent stipulations for admission of additional evidence. The assessee has not given any cogent reason for

ITA No. 2546/Ahd/2015 Sunflower Pharmacy vs. ITO Asst.Year – 2011-12 - 3 - failing to adduce the additional evidence sought to be admitted at this belated stage. Therefore, we decline to entertain the additional evidence.

5.

We shall now turn to the substantive appeal of the assessee. From the perusal of the record, we find that the AO has disallowed commission paid aggregating to Rs.41,39,131/- to doctors. For this purpose, the Assessing Officer (AO) has relied upon the CBDT Circular No.5/2012 dated 01/08/2012 issued by BDT and observed that the payment made to the doctors contravenes section 37(1) of the Act in view of the Explanation appended to this sub-section. We find that the issue is no longer res integra and has been examined by the Coordinate Bench of Tribunal in Syncom Formulations (I) Ltd. vs. DCIT in ITA Nos.6429 & 6428/Mum/2012 order dated 23/12/2015. The relevant operative para of the order of the Coordinate Bench is reproduced hereunder:-

“5. We have considered rival contentions and found that receiving of gifts by doctors was prohibited by MCI guidelines, giving of the same by manufacturer is not prohibited under any law for the time being in force. Giving small gifts bearing company logo to doctors does not tantamount to giving gifts to doctors but it is regarded as advertising expenses. As regards sponsoring doctors for conferences and extending hospitality, pharmaceuticals companies have been sponsoring practicing doctors to attend prestigious conferences so that they gather contemporary knowledge about management of certain illness/disease and learn about newer therapies. We found that the disallowance was made by the AO by relying on the CBDT Circular dated 01.08.2012

ITA No. 2546/Ahd/2015 Sunflower Pharmacy vs. ITO Asst.Year – 2011-12 - 4 - onwards. However, the Circular was not applicable because it was introduced w.e.f.01.08.2012. i.e. assessment year 2013-2014, whereas the relevant assessment year under consideration is 2010-2011 and 2011-2012. Accordingly, we do not find any merit in the disallowance so made by the AO in both the assessment years under consideration.”

6.

In parity with the reasoning given by the Coordinate Bench, we find that the disallowance made by the AO is not justified. Accordingly, the substantive claim of the assessee is allowed.

7.

In the result, appeal of the assessee is partly allowed. This Order pronounced in Open Court on 10 / 11 /2017

Sd/- Sd/- (एस.एस.गोदारा) (�द�प कुमार के�डया) �या�यक सद�य लेखा सद�य ( S.S. GODARA ) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 10/ 11 /2017 ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS

ITA No. 2546/Ahd/2015 Sunflower Pharmacy vs. ITO Asst.Year – 2011-12 - 5 -

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-3, Ahmedabad �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//

उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation .. 7.11.17 (dictation-pad 7-pages attached at the end of this appeal-file) 2. Date on which the typed draft is placed before the Dictating Member …7.11.17 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S…………….. 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S…….10.11.17 7. Date on which the file goes to the Bench Clerk…………………10.11.17 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order………………

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