Case Law Details

Case Name : Income-tax Officer Vs. Sunflower Pharmacy (ITAT Ahemdabad)
Appeal Number : IT Appeal No. 2495 (AHD.) Of 2016
Date of Judgement/Order : 22/12/2017
Related Assessment Year : 2011-12
Courts : All ITAT (5330) ITAT Ahmedabad (380)

ITO Vs. Sunflower Pharmacy (ITAT Ahemdabad)

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 dis allowance was made by the AO by relying on the CBDT Circular dated 01.08.2012 on wards. 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 2011-2012.

Since ITAT Ahmedabad, ‘SMC’ Bench has deleted the dis allowance of Rs. 41,39,131/- against which the penalty of Rs. 12,78,996/- was levied. Now they are remains no basis at all laving the penalty for concealment, therefore, we cancel the penalty.

FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-

This is an appeal by the assessee against the order of the Commissioner of Income Tax(Appeals)-3, Ahmedabad [CIT(A) in short] vide Appeal No.CIT(A)-3/ITO/3(3)(5)/517/14-15 dated 12/06/2015 in the matter of assessment order under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) relevant to the Assessment Year (AY) 2011-12.

1. The CIT(A) has erred in law and on facts in deleting the penalty levied u/s. 271(1)(c) of the Act of Rs. 12,78,996/-.

1.1 The CIT(A) has erred in law and on facts in not appreciating that the commission was paid to the doctors in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulation, 2002.

2. On the facts and circumstances of the case, the Ld. Commissioner of Income tax (A) ought to have upheld the order of the Assessing Officer.

3. It is, therefore, prayed that the order of the Ld. Commissioner of Income tax (A) may be set-aside and that of the Assessing Officer be restored.

2. The brief facts of the case are that in this case, return of income for A.Y. 2011-12 was filed on 29.09.2011 declaring total income of Rs.1,78,930/-. Assessment was made u/s.143(3) on 26/02/2014 determining total income of Rs.43,20,960/- after making the following dis allowance:-

1. Dis allowance of commission Rs.41,39,131/-
2. Dis allowance of penalty Rs. 2,900/-

During the course of assessment proceedings, penalty proceedings u/s.271(1)(c) of the Act were initiated for furnishing inaccurate particulars of income. Notice u/s.274 r.w.s 271(l)(c) was issued on 26.02.2014.

2.1 The assessee filed appeal against the order passed by the A.O. before the Honorable CIT(A)-3, Ahmedabad vide appeal No. ClT(A)-3/ITO/3(3)(5)/517/14-15. Honorable CIT(A) vide his order dated 12/06/2015, dismissed the appeal filed by the assessee, confirming addition of Rs. 41,39,131/- made by the A.O. on account of dis allowance of commission paid to the doctors, observing that the appellant has failed to give any kind of evidence to show that the two doctors to whom commission has been paid, have rendered any sercies to it. Honorable CIT(A) confirmed the dis allowance of Rs. 41,39,131/- u/s.37(1) of the Act. On these addition, Penalty proceedings were separately initiated and the notice u/s.271(l)(c) of the Act, was issued and served upon the assessee along with order passed u/s.143(3) of the Act. As there was a change in the incumbent a fresh opportunity was given to the assessee vide notice u/s.274 r.w.s 271(l)(c) of the Act which was issued on 06/08/2015 with a request to appear before the undersigned within 7 days of receipt of this letter or submit written explanation along with the necessary evidence/documents and to show cause, why the penalty proceedings initiated as above should not be finalized by levy of penalty u/s.271(l)(c) of the I.T. Act, 1961.

2.2 During the course of assessment proceedings, on verification of the profit and loss account for the year under consideration it was noticed that the assessee had debited and amount of Rs.41,39,131/- on account of commission, The details furnished and obtained u/s.133(6) of the Act clearly shows that the said commission was paid to the following Doctors.

(i) Dr. Ramanbhai S. Patel Rs. 17,52,130/-
(ii) Dr. Ratilal G. Patel Rs. 23,87,001/-
Total Rs. 41,39,131/-

The AO observed that in view of the Circular issued by the Central Board of Direct Taxes being Circular No.5/2012 (F. No. 225/142/2012-ITA.II) dated 01/08/2012, the commission paid by the assessee is not an allowable expenses. For ready reference the contents of the said Circular is reproduced here under:-

“CIR. NO.5/2012[F.NO.225/142/2012-ITA.II], DATED 1-8-2012

It has been brought to the notice of the Board that some pharmaceutical and allied health sector Industries are providing freebees (freebies) to medical practitioners and their professional associations in violation of the regulations issued by Medical Council of India (the ‘Council’) which is a regulatory body constituted under the Medical Council Act, 1956.

2. The council in exercise of its statutory powers amended the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 (the regulations) on 10-12-2009 imposing a prohibition on the medical practitioner and their professional associations from taking any Gift, Travel facility, Hospitality, Cash or monetary grant from the pharmaceutical and allied health sector Industries.

3. Section 37(1) of Income Tax Act provides for deduction of any revenue expenditure (other than those failing under sections 30 to 36) from the business Income if such expense is laid out/expended wholly or exclusively for the purpose of business or profession. However, the explanation appended to this sub-section denies claim of any such expense, if the same has been incurred for a purpose which is either an offence or prohibited by law.

Thus, the claim of any expense incurred in providing above mentioned or similar freebees in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 shall be inadmissible under section 37(1) of the Income Tax Act being an expense prohibited by the law. This dis allowance shall be made in the hands of such pharmaceutical or allied health sector Industries or other assessee which has provided aforesaid freebees and claimed it as a deductable expense in its accounts against income.

4. It is also clarified that the sum equivalent to value of freebees enjoyed by the aforesaid medical practitioner or professional associations is also taxable as business income or income from other sources as the case may be depending on the facts of each case. The Assessing Officers of such medical practitioner or professional associations should examine the same and take an appropriate action.

This may be brought to the notice of all the officers of the charge for necessary action.”

Section 37(1) of IT Act, 1961 provides for deduction of any revenue expenditure (other than those failing under sections 30 to 36) from the business Income if such expense is laid out/expended wholly or exclusively for the purpose of business or profession. However, the explanation appended to this sub-section denies claim of any such expense, if the same has been incurred for a purpose which is either an offence or prohibited by law. The claim of the assessee for commission payment to the Doctors as narrated herein above is in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 therefore, the same shall be inadmissible u/s.37(1) of the Act being an expense prohibited by the law as clearly indicated in the Circular.

2.3 After considering the explanation/submission made by the assessee, in response to the show-cause notice issued and rebutting the arguments put for the by the assessee as in detail discussed in body of the assessment order, the AO come to the conclusion that the same is not acceptable so far as the allow ability of commission expenses debited to profit and loss account of the assessee. Vide submission dated 28/01/2014, the assessee submitted its justification for allow ability of commission expense which the assessee has reiterated in its reply dated 14/02/2014. The Circular issued by the Central Board of Direct Taxes being Circular No. 5 of 2012 dated 01/08/2012 clarifies in clear term that Section 37(1) of Income Tax Act provides for deduction of any revenue expenditure (other than those failing under sections 30 to 36) from the business Income if such expense is laid out/expended wholly or exclusively for the purpose of business or profession. However, the explanation appended to this sub-section denies claim of any such expense, if the same has been incurred for a purpose which is either an offence or prohibited by law. In view of the said Circular of the Board, any expense incurred in providing gift, travel facility, hospitality, cash or monetary grant from pharmaceutical and allied health sector industry or similar freebees in violation of the provision of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulation, 2002 is not admissible u/s.37(1) of Income Tax Act, 1961 being an expense prohibited by law.

2.4 The assessee itself had quoted regulations framed by the Medical Council of India namely Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulation, 2002 and the amendment/modification thereto by notifications from time to time. As per the said regulations, the code of conduct for doctors and professional association of doctors in their relationship with pharmaceutical and allied health care industry and clearly gives the stipulations in respect of (i) Gift, (ii) Travel facilities, (iii) Hospitality, (iv) Cash or monetary grants, (v) Medical Research, (vi) Maintaining Professional autonomy, (vii) Affiliation, (viii) Endorsement, etc.

2.5 As per the said stipulations, it is very clear that a medical practitioner shall not receive any cash or monetary grants from any pharmaceutical and allied healthcare industry for individual purpose in individual capacity under any pretext. Funding for medical research, study etc can only be received through approved institutions by modalities laid down by law/rules/guidelines adopted by such approved institutions, in a transparent manner. It shall always be fully disclosed. Thus, it is clear that the medical practitioners shall not receive any cash or monetary grant under any pretext from any pharmaceutical and allied healthcare industry but the same may be for some medical research, study, etc. through approved institutions by adopting the modalities laid down by law/rules/guidelines adopted by such approved institutions in a transparent manner. In the case of assessee the commission paid is not for such activities and as per the modalities laid down.

2.6 As per the stipulations, a medical practitioner may carry out, participate in, work in research project funded by pharmaceutical and allied healthcare industries but, he is obliged to know the fulfillment of the following items:-

(i) Ensure that the particular research proposal has the due permission from the competent concerned authorities.

(ii) Ensure that such a research projects has the clearance of national/state/institutional ethics committees/bodies.

(iii) Ensure that it fulfills all the legal requirements prescribed for medical research.

(iv) Ensure that the source and amount of funding is publicly disclosed at the beginning itself.

(v) Ensure that proper care and facilities are provided to human volunteers, if they are necessary for the research project.

(vi) Ensure that undue animal experimentations are not done and when these are necessary they are done in a scientific and a humane way.

(vii) Ensure that while accepting such an assignment a medical practitioner shall have the freedom to publish the results of the research in the greater interest of the society by inserting such a clause in the MOU or any other document/agreement for any such assignment.

In the case of the assessee the fulfillment of the above items is not at all coming on the way as the commission is paid not for such an activity entitling the assessee for claim of such expenses.

2.7 The argument of the assessee that the Circular of the Board speaks about freebies and the same is not applicable to the case of assessee as the commission expenditure cannot be termed as freebies to doctors from pharmaceutical retail stores. The said argument of the assessee cannot be accepted as the same is covered stipulated item being cash or monetary grant but, not for any research, study, etc. through approved institutions by the modalities laid down. The further argument of the assessee that the said Circular is not applicable to the case of assessee as the same is applicable to pharmaceutical industry and the assessee is not an industry is also not acceptable as it applies to allied health sector, the assessee being one of them as supplier of medicines which takes care of health of people.

2.8 In view of the above discussion and in view of Board’s Circular, issued in this regards, the A.O. disallowed the payment of commission made by the assessee to the above said two doctors namely (i) Dr. Ramanbhai S. Patel Rs. 17,52,130/- and (ii) Dr. Ratilal G. Patel Rs. 23,87,001/- totaling to Rs. 41,39,131/- and added to the total income u/s. 37(1) of the Act.

2.9 Honorable CIT(A) after detailed discussion in para 3 of the appellate order dismissed the assessee’s appeal stating that the appellant has failed to give any kind of evidence to show that the two doctors to whom commission has been paid have rendered any services to it & appellant has not been able to justify the payment of Rs.41,39,131/- made to the doctors & confirmed the addition made by the A.O.

2.10 Fresh penalty show cause u/s.271(l)(c) of the Act dated 28/01/2016 was issued by the AO. In response to the said notice, the assessee has submitted written submission/explanation, vide submission dated 04/02/2016 and submission dated 06/02/2016, same are reproduce hereunder:

“2.10.1 Our above client has been in receipt of notice dated 28/01/2016 u/s.274 r.w.s 271(1)(c) of the I.T. Act. It has handed over the same notice to us with instructions to submit as under:

(1) The penalty proceedings have been initiated against the following addition made in the assessment order dated 26/02/2014 u/s.143(3) of the income tax Act, 1961.

Particulars Rs.
Dis allowance of Commission Expense 41,39,131/-
Dis allowance of Penalty 2,900/-
Total 41,42,031/-

(2) The dis allowance of commission expenses is being contested in appeal before Income Tax Appellate Tribunal, Ahmedabad. The said appeal has been filled on 1st September, 2015. Therefore, the assessment order in which penalty proceedings is initiated, is subject matter of appeal and the quantum of income and tax is in dispute and not final. Copy of Appeal memo is enclosed herewith.

(3) The similar addition has been deleted by Honorable Commissioner (Appeal)-3, Ahmedabad in assessee’s own case in respect of assessment year 2012-13 vide appellate order dated 21/12/2015.

(4) The assessee has paid commission to the two doctors namely Dr. Ratilal G. Patel and Dr. Ramanlal S. Patel for consulting them for the purchases of medicines from time to time. The said expenditure has been disclosed in profit and loss account and the necessary details/explanations in this regard called for by the assessing officer were submitted during the course of assessment proceedings. The assessing officer has disallowed the commission expenses by invoking explanation to section 37(1) of the Income tax Act, 1961 and CBDT Circular no 5/2012. The assessee contended that the commission paid is not covered by CBDT Circular no.5/2012 as the assessee is not a pharmaceutical industry and the commission payment to doctors is not freebies. The Honorable Commissioner(Appeal) has not given any findings on this issue and

(5) confirmed the addition on the ground that the assessee has not received any services from concerned doctors. This issue is being contested before Honorable ITAT, Ahmedabad. In the assessment order there is no findings that the assessee has made concealment of income and there is no such evidence on record. The addition has been mode on interpretation of the applicability or otherwise of CBDT Circular in case of the assessee. In assessment year 2012-13 the Honorable Commissioner(Appeal) has held that CBDT Circular 5/2012 is not applicable to the assessee. Thus the basis on which the disallowance has been made has been removed by the appellate authority in assessee’s own case on the same facts of the case.

(6)  Thus in case of the assessee there is rejection of the claim of expenditure only. Mere rejection of the claim of the expenditure does not amount to concealment of Income or furnishing of inaccurate particulars of income. The assessee relies on the Honorable Supreme Court’s decision in case of CIT vs. Reliance Petro Products (P) Ltd. [Civil Appeal No 2463 of 2010 dated 17/03/2010.

In view of above circumstances you are kindly requested to drop the penalty proceeding Section 271(1)(c) of the I.T. Act, 1961 and oblige.

2.10.2 Further assessee filed a letter dated 06/02/2016, received by this office on 09/02/2016. Assessee in his letter stated that In continuation of our letter dated 04/02/2016 we have further to state asunder:-

(1) The assessee has paid commission to the two doctor namely Dr. Ratilal S Patel and Dr. Romanlal S. Patel for consulting them for the purchases of medicines from time to time. The said expenditure has been disclosed in profit and loss account and the necessary details/explanations in this regard called for by the assessing officer were submitted during the course of assessment proceedings. The assessing officer has disallowed the commission expenses by invoking explanation to section 37(1) of the income tax act, 1961 and CBDT Circular no 5/2012.

(2) Recently vide appellate order dated 23/12/2015, in the case of Syncon Formulations (I) Ltd, the Honorable Income tax Appellate Tribunal, Mumbai, has held that the CBDT Circular No. 5/2012 dated 01/08/2012 was not applicable in assessment year 2010-11 and 2011-12 because it was introduced w.e.f. 01/08/2012 i.e. Assessment year 2013-14. Therefore, it is submitted that the basis on which the dis allowance have been made in the assessment order is not applicable. The copy of ITAT Order is enclosed herewith for your ready reference. The assessee contends that the payment made by the assessee is not covered by the CBDT Circular and assuming but not admitting that the payments made by the assessee is covered under the said circular, the said circular is not applicable in assessment year 2011-12.

(3) The commission paid is not covered by CBDT Circular no. 5/2012 as the assessee is not a pharmaceutical industry and the commission payments to doctors are not freebies. The Honorable Commissioner (Appeal) has not given any findings on this issue and confirmed the addition on the ground that the assessee has not received any services from concerned doctors. This issue is being contested before Honorable ITAT, Ahmedabad. In the assessment order there is no findings that the assessee has made concealment of income and there is no such evidence on record. The addition has been mode on interpretation of the applicability or otherwise of CBDT Circular in case of the assessee. In assessment year 2012-13 the Honorable Commissioner (Appeal) has held that CBDT Circular 5/2012 is not applicable to the assessee. Thus the basis on which the dis allowance has been made has been removed by the appellate authority in assessee’s own case on the same facts of the case.

(4) Thus in case of the assessee there is rejection of the claim of expenditure only. Mere rejection of the claim of the expenditure does not amount to concealment of Income or furnishing of inaccurate particulars of income. The assessee relies on the Honorable Supreme Court’s decision in case of CIT vs. Reliance Petroproducts (P) Ltd. [Civil Appeal No 2463 of 2010 dated 17/03/2010.”

2.11 The AO has not accepted the explanation of the assessee and levied penalty by observing as under:

“8. I have gone through both the submissions dated 04/02/2016 and 06/02/2016 (received on 09/02/2016) made by the assessee, same are not acceptable.

Addition of Rs. 41,42,031/- made by the A.O. is confirmed by the CIT(A) and penalty proceedings have been initiated by the A.O. while passing the assessment order. Filing of appeal before Honorable ITAT has no relevancy with the penal proceedings, quantum of addition may be in dispute in 2nd appeal, same is confirmed in 1st appeal, penalty can be levied. As regards, deletion of addition of similar issue by CIT(A) in respect of A.Y. 2012-13, decision has not been accepted by the department and further appeal is recommended.

As in details discussed in para 3 of the assessment order, it is very clear that a medical practitioner shall not receive any cash or monetary grants from any pharmaceutical and allied healthcare industry for individual purpose in individual capacity under any pretext. The assessee being one of the units of pharmaceutical and allied health care industry, as supplier of medicines which takes care of health of people, payment of commission made to the doctors is not allowable u/s.37(1) of I. T. Act, being an expense prohibited by law as per circular No. 5/2012. The assessee has concealed the particulars of income by violating the provisions of section 37(1) of I. T. Act, it is not mere rejection of claim of the expenditure only. The assessee has concealed the particulars of income the assessee is liable for penal action u/s.271(l)(c) of the Act.

Vide submission dated 06/02/2016, the assessee further submitted copy of the decision No. ITA No.6429 & 6428/Mum/20l2 dated 23/12/2015 of ITAT, “E” bench, Mumbai, wherein it has held that the CBDT Circular No.5/2012 dated 01/08/2012 was not applicable in A.Y.2010-11 and 2011-12, because it was introduced with effect from 01/08/2012. Healing on above the assessee submitted that the basis on which the dis allowance have been made in assessment order is not applicable. The assessee submitted that the payment made by the assessee is not covered by CBDT Circular, the said circular is not applicable in A.Y.2011-12.

The decision put forth by the assessee, is of honorable ITAT, Mumbai, and not of Jurisdiction ITAT, Gujarat, Ahmedabad and as such the decision is not binding to this office.

The circular no.5/2012 dated 01/08/2012 is applicable in the case of the assessee, since the circular is highlighting/clarifying the provision of section 37(1) of the I. T. Act. The instruction is clearifictory only.

In view of the above discussion & facts, I find no merits in submission/explanation put forth by the assessee.

9. As discussed in para 3 of the assessment order, the AO. Find that the Circular of the Board is applicable to the case of assessee as the commission expenditure cannot be termed as freebies to doctors from pharmaceutical retail stores, same is covered stipulated item being cash or monetary grant but no for any research, study, etc through approved institutions by the modalities laid down. The A.O. also finds that the said Circular is applicable in the case of assessee being allied health sector, the assessee being one of them as supplier of medicines which takes care of health of people. Accordingly the A.O, disallowed the payment of commission made by the assessee to the doctors, totaling to Rs.41,39,131/-and added to the total income u/s.37(1) of the Act.

10. The assessee filed appeal against the order passed by the A.O., praying for deletion of addition made. The Appellate Authority, Hon. C.I.T(A)-3, Ahmedabad vide his order No. CIT(A)-3/ITO/3/3/(5)/517/14-15 dated 12/06/2015 the appeal filed, after detailed discussion on appellate order, dismissed the appeal.

11. In view of the above, the amount of additions made to the total income of the assessee for the purpose of Clause (c) of Sub section (1) of Section 271 is deemed to represent the income in respect of which particulars have been concealed. It is clear that the assessee has concealed the particulars of its income as it has failed to substantiate its explanation, which has resulted in dis allowances of expenses and addition of income.

In view of the above, it is clear that the assessee had furnished inaccurate particulars of income to the extent of Rs.41,39,131/-. Therefore, it is a fit case for imposing penalty u/s.271(1)(c) of the I.T. Act.

12. Section 271(l)(c) is attracted where, the Assessing Officer or the first appellate authority is satisfied that (a) any person has furnished inaccurate particulars of his income, or (b) has furnished inaccurate particulars of such income. The expression “has furnished inaccurate particulars” and “has furnished inaccurate particulars” have not been defined in either the section or elsewhere in the Act. However, notwithstanding differences in the circumstances, they lead to the same effect, viz., keeping off a certain portion of income. The former is direct while the latter may be indirect in its execution. The word “furnished inaccurate particulars” is derived from Latin word “concelare” which implies “to hide”. In Webster’s New International Dictionary, the word has been equated “to hide or withdraw from observation; to cover or keep from sight; to prevent discovery of; to withhold knowledge of”. There may be cases where the facts may attract both the offences, and in some cases, there may be overlapping of the two offences.

13. Having regard to the above facts and circumstances of the case, it is clear that the assessee had furnished inaccurate particular his income, within the meaning of section 271(1) (c). The computation of penalty is as under;

WORKING OF PENALTY U/s.271(1)(c)

(A) Assessed Income as per Order u/s.250 Dtd. /02/2016. Rs. 43,20,958/-
(B) Tax on [A] Rs. 13,35,177/-
(C) Concealed Income Rs.41,39,141/-
(D) Assessed Income (-) Concealed Income (A-C) Rs. 1,81,817/-
(E) Tax on D Rs. 56,181/-
(F) (B-E) Rs. 12,78,996/-
(G) Minimum 100% leviable Rs. 12,78,996/-
(H) Maximum 300% leviable Rs. 38,39,988/-

5. In accordance with the provisions of Section 271(l)(c) of the IT Act, the minimum penalty leviable is 100% and maximum is 300% of tax sought to be evaded. Considering the facts and circumstances of the case, minimum penalty @ 100% is imposed which works out to Rs.12,78,996/- as against the maximum penalty of @ 300% of Rs.38,36,988/-.

Issued demand notice and challan.

The penalty order U/s.271(l)(c) of the Act has been passed after prior approval of the Addl. CIT, Range-3(3), Ahmedabad vide letter No. Addl.CIT/Range-3(3)/SFP/Penalty/2015-16 dated 17/02/2016.”

3. Against the said order assessee preferred first statutory appeal before the ld. CIT(A) who given the following observation and dismissed the appeal of the assessee.

“I have gone through the MOU & other submissions made by the appellant in detail. At the outset, it is seen that the MOU has been made on 1-4-2011 i.e. during F.Y. 2011-12 relevant to A.Y. 2012-13. Thus, the payment of commission to the two doctors during the year under consideration i.e. A.Y.2011-12 is not covered by the MOU Notwithstanding this fact, it is also seen that the MOU submitted by the appellant is on a plain sheet of paper and merely contains the signature of the doctors. There is no stamp or seal or any indication to show that the same is an official document or to establish its genuineness. Even more pertinent is the fact that the name of the doctors in the MOU are merely given as ‘Dr Raman Patel’ and ‘Dr. Ratilal Patel’ whereas as per the assessment order, the names of the doctors are Dr. Ramanbhai S Patel & Dr Ratilal G Patel. It is quite strange that an MOU which is an important document, involving such a crucial matter and involving a huge amount of payment would be prepared in such a casual manner without even the names of the doctors spelt out property. It is evident that the same has been prepared in a hurry as an afterthought in response to the queries raised during assessment/appellate proceedings.

Moreover, as discussed above, merely submitting a list of injections purchased during the year does not in any way prove that the same has been purchased on the advice of the doctors. The appellant was asked to submit correspondence made with the doctors in respect of the services rendered by them so as to justify the payment of commission to them. However, the appellant has been unable to provide any correspondence or communication between itself and the doctors in respect of any kind of advice rendered by them. One of the partners of the appellant firm who also attended appellate proceedings on one of the dates of hearing, produced a hand written note book with the names of medicines claiming that the same had been discussed with the doctors over the phone. The same cannot by any stretch of imagination, be accepted as evidence of services rendered.

It is thus seen that the appellant has failed to give any kind of evidence to show that the two doctors to whom commission has been paid, have rendered any services to it. The genuineness of the MOU itself is also not established. Moreover, clause No.3 of the MOD talks of professional fees and not commission, in any case the said MOU does not pertain to the year under consideration. In view of these facts, it is clear that the appellant has not been able to justify the payment of Rs.41,39,131/- to Dr. Ramanbhai S Patel (Rs. 17,52,130/-) and to Dr Ratilal G Patel.(Rs.23,87,001/-)- The dis allowance of Rs. 41,39,131/-u/s. 37(1) of the IT Act is therefore confirmed. Grounds of appeal No. 2 to 4 are dismissed.”

14. We have gone through the relevant record and impugned order. Ld. AR submitted an order of co-ordinate bench in ITA No. 2546/Ahd/2015 for A.Y.2011-12 in quantum proceeding, wherein Honorable Bench held as follows:

“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 here under:-

“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 dis allowance was made by the AO by relying on the CBDT Circular dated 01.08.2012 on wards. 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 dis allowance 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 dis allowance 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.”

15. Since ITAT Ahmedabad, ‘SMC’ Bench has deleted the dis allowance of Rs. 41,39,131/- against which the penalty of Rs. 12,78,996/- was levied. Now they are remains no basis at all laving the penalty for concealment, therefore, we cancel the penalty.

16. In the result, appeal filed by the department is dismissed.

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