TaxTMI 
TaxTMI 
2019 (12) TMI 968
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....sed for the sake of convenience and brevity. 3. First we take assessee's appeal in ITA No. 737/Kol/2018, for A.Y. 2009-10. The Grounds of appeal raised by the assessee are as follows: 1. That on different grounds both the Ld.A.O. and the Ld.CIT(A) erred in rejecting the assessee's rectification petition claiming that in computing its Adjusted Book Profit for Asstt. Year 2009-10 in terms of Sec.115JB of the I.T.Act, its brought forward unabsorbed business losses relating to Asstt. Years 1996- 97,1997-98 and 1998-99 totaling Rs. 2,95,24,689/- should have been set off with its Net Profit as per its Profit & Loss Account for the said Assessment Year in terms of Explanation (iii) below Sec. 115JB of the I.T.Act. 2. That the Ld. A.O. erred in rejecting the assessee's above-mentioned claim on the ground that since the unabsorbed business losses relating to Asstt. Years 1996-97,1997-98 and 1998-99 arose more than 8 years back, the said losses could not be set off with the Net Profit relating to Asstt. Year 2009-10. 2.(a) That while rejecting the assessee's claim of set off of Brought forward unabsorbed business losses, the Ld. A.O. failed to take into a....
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....assessee filed its return of income on 23-09-2009 showing a total income of Rs. Nil. The return of income was processed u/s 143(1) of the Act. Later, the case of the assessee was selected for scrutiny, and Ld AO framed assessment under section 143(3) of the Act wherein he disallowed a sum of Rs. 1,25,83,682/- u/s 40(a)(ia) of the Act on account of non-deduction of TDS on payments made to National Neuroscience Centre. 5. Aggrieved by the order of the assessing officer the assessee carried the matter in appeal before the learned CIT(A). The learned CIT(A) vide his order dated 04-03-2014 enhanced the disallowance to Rs. 1,70,28,307/-, thus an additional sum of Rs. 44,44,625/- (Rs. 1,70,28,307- Rs. 1,25,83,682), was disallowed by him. 6. Thereafter, in pursuance of the learned CIT(A) order dated 04-03-2014, the learned AO passed the order u/s 251/143(3) of the Act dated 12-08-2014 wherein the benefit of deduction of Rs. 2,95,24,689/- on account of brought forward losses in the computation of Book Profits as per item No.(iii) of Explanation 1 to section 115JB of the Act was not allowed. Since this was a mistake apparent from records, therefore, the assessee filed a rectification p....
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.... so called unabsorbed losses. Though the Assessing Officer has not allowed the same on different reasoning." 9. Aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us. 10. Before us, Ld. Counsel Shri. S.K. Tulsiyan submitted that, the B/F business losses of Rs. 2,95,24,869/- relating to Asstt. Years 1996-97,1997-98 and 1998- 99,were eligible for deduction in computing the adjusted Book Profit of the Assessee for Asstt. Year 2009-10.The brought forward(b/f) business losses cannot be adjusted after 8 years in view of the provisions of Section 72 of the Income Tax Act, is applicable for computation of income Tax under normal provisions of the Act. Section 115JB does not contain the provisions of brought forward(b/f) business losses and there set off. Section 115JB(1) of the Act starts with the word "notwithstanding anything contained in any other provision of this Act". Therefore, the b/f business losses cannot be carried forward for more than 8 years is not applicable in computing the Book Profit u/s 115JB of the Act. The Ld Counsel also submitted that only for the purpose of presentation and disclosure, the assessee company has been showing capital....
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....that the aforesaid business losses arose more than 8 years back and hence the assessee could not be brought forward and set off in Assessment Year 2009-10. We note that the period of 8 years, which is mentioned in section 72 of the Act, in respect of b/f business losses, is applicable to compute the normal tax under the Income Tax Act and it does not apply to section 115 JB of the Act. Section 115JB of the Act is a code itself. Section 115-JB(1) starts with the word "notwithstanding anything contained in any other provision of this Act". If so, section 72 in terms of which the b/f business losses cannot be carried forward for more than 8 years is not applicable in computing the Book Profit u/s 115-JB, in as much as there is no similar provision in Sec. 115JB itself. Section 115-JB of the Act is a stand-alone provision which does not contain any provision about carry forward of B/F business losses, while computing the Book Profit u/s 115-JB of the Act. Therefore, it is abundantly clear by reading the provisions of section 115JB of the Act that while computing book profit the assessee company is entitled, to deduct the B/F business losses relating to Asstt. Years 1996-97,1997-98 and ....
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....lance of General Reserves as on 31-03-2008 was Rs. 5,78,30,647/- after making the adjustment for Debit Balance in the Profit and Loss A/c for that year. Again, in the immediately next year (FY 2008-09 relating to AY 2009-10)on 01-04- 2008, the amount of Rs. 18,69,57,957/- (and not the amount of Rs. 5,78,30,647/-) was brought forward and shown under the head 'General Reserve - Balance as per Last Account'. This clearly transpires that the assessee had not adjusted the brought forward loss/debit balance of Profit and Loss account with the General Reserve in the financial year 2007-08 relating to AY 2008- 09. The ld Counsel for the assessee submitted before us that even in FY 2017-18, the amount of Rs. 18,69,57,957/- was brought forward and shown under the head 'General Reserve - Balance as per Last Account'. A sum of Rs. 30,00,00,000/- was transferred to General Reserves from Retained Earnings and the closing balance as on 31-03-2018 was Rs. 21,69,57,957/-. In FY 2018-19, the opening balance of General Reserves was Rs. 21,69,57,957/- and after transferring a sum of Rs. 1,30,42,043/- to General Reserves from Retained Earnings, the balance as on 31-03-2019 was Rs. 23,00,00,000/-.The....
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....taken but it is an item of exceptional and non-recurring nature. A capital surplus on account of waiver of loan in no way can be recorded as operational profit or profit which is to be included in the profit & loss account. For that we rely on the judgment of the Coordinate Bench of ITAT, Mumbai in the case of JSW Steel Ltd vs ACIT reported in [2017] 82 taxmann.com 210 (Mumbai - Trib.) wherein it was held as follows: "Clause (3)(xii)(b) of Part II of schedule also shows that what is to be included in the profit & loss account is in respect of transactions of an account, not usually undertaken by the company or undertaken in circumstances of an exceptional or non-recurring nature, if material in amount. This clearly indicates that only those items can be regarded as part of the profit & loss account which is in respect of similar type of transaction and not which are exceptional in nature. Waiver of a loan certainly cannot be reckoned as transaction of a kind usually taken but it is an item of exceptional and non-recurring nature. A capital surplus on account of waiver of loan in no way can be recorded as operational profit or profit which is to be included in the profit & ....
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....on about carry forward of B/F losses, while computing the Book Profit u/s 115-JB of the Act. Audited accounts of the company clearly suggests that the assessee had never adjusted the brought forward losses/debit balance of Profit and Loss account with the General Reserve. In view of the above, it is clear that the sum of Rs. 18,69,57,957/- credited in the General Reserve account was a Capital Receipt hence, it should not to be considered in computation of book profit u/s 115JB of the Act.The Ld. A.O. failed to take into account that the restriction, contained in Sec.72 of the I.T. Act on carrying forward the unabsorbed business losses for more than 8 years, does not apply in computing the Adjusted Book Profit u/s 115JB of the Act.Therefore, we direct the AO to allow the claim of the assessee for adjusting the unabsorbed losses of Rs. 2,95,24,689/- with the book profits under section 115-JB of the Act, for the year. 16. In the result, appeal of the assessee (in ITA No.737) is allowed. 17. Now we take assessee's appeal in I.T. A. No. 738/Kol/2018 for A.Y. 2013-14 wherein the grounds of appeal raised by the assessee are as follows: 1. That, on the facts and in the circu....
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....etailed notes on "Referral fees paid to doctors". The assessee vide its written submission dated 07.09.2015, stated that:"This type of expenses generally incurred by Hospital for encashment of in-patient and outdoor collection through those doctors who are often refer the name of this Hospital to their patient for available of better treatment."A list showing name of such doctors and payments made to them was also submitted. From perusal of explanation and details furnished by the assessee in respect of "Fees paid to referral doctors", it was observed by AO that the payments made to those doctors for professional services rendered by them. Accordingly, a show cause notice was issued to assessee stating that why such payments to doctors may not be disallowed u/s 37(1) of the I T Act, 1961 being expenses prohibited by law. In response to the show cause notice, the assessee company furnished a written submission stating as follows: "At the outset, it is submitted that the entire sum of Rs. 55,65,464/- was not paid to the Doctors. Kindly find enclosed two lists as List-1 & List-2. As per List-1, a total amount of Rs. 39,38,184/- was paid to the Doctors and as per List-2 a t....
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....m both the Patients and Hospitals. The persons who are not in medical profession are not covered by Indian Medical Council Regulation or explanation below Sec 37(1) of the I. T. Act. The payments to such agencies/individuals by the assessee are for commercial expediency. Consequently, such expenses should be allowed as business promotion expenses. The assessee admits that a total amount of Rs. 39,38,184/- was paid to the Doctors engaged in medical profession who had recommended their own patients to the hospital for better treatment, such payments are not covered by Explanation below section 37(1) of the I T Act and consequently the same should not be disallowed. 21. On the other hand, the ld. DR has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity. 22. We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials available on the record. The ld Counsel submitt....
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....e of furtherance of their business. Nowhere in the said regulation it has been mentioned that such regulation or code of conduct will cover pharmaceutical or healthcare sector or other allied industry in any manner. Hence, the aforesaid regulations of Medical Council apply only in case of medical practitioners and not in case of hospitals/pharmaceutical company. The ld Counsel submitted that MCI itself has admitted before the Hon'ble Delhi HighCourt the case of Max Hospital us. MCI [IT Appeal Nos. 6429 & 6428 (Mumbai) of 2012], that the MCI Regulations. 2002 has jurisdiction to take action only against medical practitioners and not to health sector industry. The relevant extract of the judgment is quoted below: "The Petitioner's grievance is twofold. Firstly, that since the Medical Council of India (Professional Conduct, Etiquette and Ethics) Regulations, 2002 (the Regulations) have been framed in exercise of the power conferred under Section 20-A read with Section 33 (m) of the Indian Medical Council Act,1956, these regulations do not govern or have any concern with the facilities, infrastructure or running of the Hospitals and secondly, that the Ethics Committee of t....
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....on 1, then it is only meant for medical practitioners and not for pharmaceutical companies or other allied health care industries for claiming the expenditure. Accordingly, insofar as the assessee company is concerned the impugned expenditure on payment of referral fees to the doctors cannot be said to be 'in violation' to the aforesaid regulations of the Indian Medical Council. The said expenditure has been incurred wholly and exclusively for the purpose of carrying on its business. At the cost of repetition, we state that in the instant case, the learned AO has disallowed the said payments on the alleged notion that the said expense is a clear violation of prohibition mandated by the Indian Medical Council. We note that at this juncture it would be befitting to discuss section 37(1) of the Act. Section 37 of the Income tax Act, 1961 is a residuary section for allowability of business expenditure and the same is given below: "37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes o....
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....Clauses Act, 1897, defines "offence" to mean "any act or omission made punishable by law for the time being in force". The Calcutta High Court in the case of Susanta Mukherjee v. Union of India [1975] 94 CWN 412 after referring to section 3(38) of the General Clauses Act read with articles 13(3), 366(10) and 372(1) of the Constitution of India and the decision of the Supreme Court in the case of Edward Mills Co. Ltd. v. State of Ajmer, AIR 1955 SC 25, observed in paragraph 13 of the judgment: "13. It is abundantly clear from the foregoing references to various provisions of the Constitution that a person cannot be convicted of an offence except for violation of law in force at the time of commission of the act charged as an offence. Therefore, in my opinion, the word 'any law for the time being in force' as occurring in section 3(38) of the General Clauses Act, 1897, must be construed as 'any law for the time being in force' in India. Obviously, it has no reference to any law of other countries of the world. 14. According to her, similarly, the expression "prohibited by taw" can only mean prohibited by law in force in India. The expression "prohibi....
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.... as the same would be an expense prohibited by the law. However, the censure/action as had been suggested on the violation of the code of conduct is only for the medical practitioners and not for the pharmaceutical companies or allied health sector industries. Thus, it is viewed that the regulations issued by MCI are qua the doctors/medical practitioners registered with MCI, and the same shall in no way impinge upon the conduct of the pharmaceutical companies. As a logical corollary to it, if there is any violation or prohibition as per MCI regulation in terms of Explanation to section 37(1), then the same would debar the doctors or the registered medical practitioners and not the pharmaceutical companies and the allied healthcare sector for claiming the same as an expenditure. The CBDT as per its Circular No. 5/2012, dated 1-8-2012 had enlarged the scope and applicability of Indian Medical Council Regulation, 2002, by making the same applicable even to the pharmaceutical companies or allied healthcare sector industries. It is viewed that such an enlargement of the scope of MCI regulation to the pharmaceutical companies by the CBDT is without any enabling provision either ....
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....011-12, it is viewed that there is no error in the findings recorded by the Commissioner (Appeals) insofar as deletion of addition made by the Assessing Officer towards sales promotion expenses and hence, the findings of the Commissioner (Appeals) are upheld and the appeal filed by the revenue is dismissed. [Para 10] As regards appeal filed by the assessee, since the Tribunal had already considered the issue and deleted total addition made by the Assessing Officer, by following the order of the Tribunal for assessment year 2011-12, the Assessing Officer is directed to delete the addition sustained by the Commissioner (Appeals). [Para 11] In the result, appeal filed by the assessee is allowed and appeal filed by the revenue is dismissed. [Para 12]" 25. Similarly, the Coordinate Bench of ITAT Mumbai in the case of DCIT vs PHL Pharma (P.) Ltd. reported in [2017] 78 taxmann.com 36 (Mumbai - Trib.) held that referral fees paid to doctors is an allowable expense u/s 37 of the Act. Relevant extract of the judgment is quoted below: "Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of (Illegal expenses) - Assessment year 2010-1....
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....n expenditure. In view of the above judicial precedents, the expenditure incurred on account of Referral Fees paid to Doctors is allowable as deduction u/s 37(1) of the Act. Hence, we direct the Assessing Officer to delete the addition of Rs. 39,38,184/- paid to the Doctors as referral fees. 26. In the result, both appeals of the assessee( in ITA No. 737 & 738/Kol/2018) are allowed. Order pronounced in the Court on 11.12.2019 ============= Document 1 SCHEDULE-II RESERVES AND SURPLUS General Reserve Balance as per Last Account Add: Addition on account of waiver of Secured Loan pursuant to Scheme of Anagement (Note 5 of Schedule XX) 18,69,57,957 Less: Debit Balance of Profit and Loss Account (As per Annexed Account) (13,23,50,897) 5,46,07,060 Revaluation Reserve Balance as per Last Account Less: Adjustment for Disposal/ Write off of fixed assets Less: Transfer to Profit and Loss Account (Note 1 of Schedule IV) 14,46,56,461 1,44,486 14,45,11,975 14,79,27,264 30,83,522 32,70,803 14,14,28,453 19,60,35,514 14,46,56,461 14,46,56,461 15,12,49,361 33,22,097 Position of General Reserve as on ....