TaxTMI 
TaxTMI 
2018 (1) TMI 1623
X X X X Extracts X X X X
X X X X Extracts X X X X
....- "1. That the order of the authorities below, in so far as it is against the appellant is against the law, facts, circumstances, natural justice, equity, without jurisdiction, bad in law and all other known principles of law. 2. That the total income computed and the total tax computed is hereby disputed. 3. The initiation of search and subsequent proceedings are bad in law, without jurisdiction and invalid. 4. The notice u/s 153A of the Act and subsequent proceedings are without jurisdiction and bad in law. 5. The AO / CIT (A) erred in changing opinion on the issues involved in the appeal in the absence of any new information which was not already considered in the earlier assessments done. 6. The order u/s 153A r.w.s. 143(3) of the Act is bad in law and infructuous as the order does not refer to any material which can be said to give rise to undisclosed income or incriminating in nature, hence requires to be cancelled. 7. That the AO / CIT (A) erred in not providing sufficient and adequate opportunity to the appellant as required under law, thereby violating the principles of natural justice, hence the order requires....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hereto, return was filed on 17.02.2014. Assessment was completed u/s. 143(3) r.w.s. 153A on 31.12.2014. The ld. Counsel for the assessee further contended that when the assessment was completed on 31.03.2011 u/s. 143(3) r.w.s. 153A of the Act examining all the details, the same details cannot be re-examined while completing the assessment on account of second search. It was further contended that during the course of second search, no incriminating material was found by the search party on the basis of which the completed assessment can be reopened and assessed further. 5. With regard to AY 2011-12 in ITA No.1925/Bang/2016, the return was filed on 23.09.2011 and the last date for issuance of notice u/s. 143(2) was 30.09.2012. After the expiry of the period for issuing notice u/s. 143(2), the search was conducted on 07.12.2012. In this search no incriminating material was found against the assessee on the basis of which assessment can be framed. In support of the above contentions, the ld. Counsel for the assessee further placed reliance upon the following judgments:- (1) CIT v. Lancy Constructions, ITA Nos.528 to 531/2014 dated 15.12.2015 Karnataka High Court [Paperbook....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in the concluded assessment. Similar is the position for AY 2011-12 in which the return was filed on 23.09.2011 and the last date for issuance of notice u/s. 143(2) was 30.09.2012. After the expiry of issuance of notice u/s. 143(2), a search was conducted on 07.12.2012 and notice u/s. 153A was issued on 09.10.2013 to frame the assessment. In this case also, no incriminating material was found during the course of search on the basis of which assessment can be framed. The issue whether in the absence of incriminating material, concluded assessment can be reopened or assessed further in the light of search conducted upon the assessee was examined by the Tribunal in the case of DCIT v. P.M.A. Razak & Ors. (supra) in detail in the light of various judicial pronouncements and the Tribunal has finally concluded that in the absence of any incriminating material, proceedings u/s. 153A cannot be initiated and concluded assessment cannot be reopened. The relevant observations of the Tribunal are extracted hereunder for the sake of reference:- "14. Having carefully examined the orders of lower authorities in the light of rival submissions and the judgment referred to by the parties, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nitiating proceedings under section 263 is any order passed under the Act by the AO is erroneous in so far as prejudicial to the interest of the Revenue. When once the order passed by the AO gets reopened, there is no order which can be said to be erroneous in so far as it is prejudicial to the interest of the Revenue. The relevant observation of the jurisdictional High Court in the case of Canara Housing Development Company is extracted hereunder for the sake of reference: "10. Section 133A of the Act starts with a non obstante clause. The fetters imposed upon the Assessing Officer by the strict procedure to assume jurisdiction to reopen the assessment under Sections 147 and 148, have been removed by the non obstante clause with which sub section (1) of Section 153A opens. The time-limit within which the notice under Section 148 can be issued, as provided in Section 149 has also been made inapplicable by the non obstante clause. Section 151 which requires sanction to be obtained by the Assessing Officer by issue of notice to reopen the assessment under Section 148 has also been excluded in a case covered by Section 153A. The time-limit prescribed for completion of an asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d and the undisclosed income would be brought to tax. When once the proceedings are initiated under Section 153A of the Act, the legal effect is even in case where the assessment order is passed it stands reopened. In the eye of law there is no order of assessment. Re-opened means to deal with or begin with again. It means the Assessing Officer shall assess or reassess the total income of six assessment years. Once the assessment is reopened, the assessing authority can take note of the income disclosed in the earlier return, any undisclosed income found during search or and also any other income which is not disclosed in the earlier return or which is not unearthed during the search, in order to find out what is the "total income" of each year and then pass the assessment order. Therefore, the Commissioner by virtue of the power conferred under Section 263 of the Act gets no jurisdiction to initiate proceedings under the said provision because the condition precedent for initiating proceedings under Section 263 is any order passed under the Act by the Assessing officer is erroneous insofar as it is prejudicial to the interest of the Revenue. Once the order passed by the Assessing ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the special bench of Bangalore in the case of All Cargo Logistics Vs. DCIT (supra). 17. While adjudicating the issue, the Hon'ble High Court categorically held that in the absence of incriminating material found during the course of search, proceedings under section 153A cannot be initiated in the light of the fact that regular assessment was completed. If it is to be allowed, then it would amount to second opportunity to the Revenue to reopen the concluded assessment. The relevant observation of the Hon'ble High Court is extracted herein for the sake of reference: "6. In our view, if assessment is allowed to be reopened on the basis of search, in which no incriminating material had been found, and merely on the basis of further investigating the books of account which had been already submitted by the assessee and accepted by the Assessing Officer at the time of regular assessment, the same would amount to the Revenue getting a second opportunity to reopen the concluded assessment, which is not permissible under the law. Merely because a search is conducted in the premises of the assessee, would not entitle the Revenue to initiate the process of reassessment, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssment has to be made under this Section only on the basis of seized material." v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153A is relatable to abated proceedings (i.e., those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment." 19. Gujarat High Court has also examined this ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er." 10. Since nothing has been brought on record by the revenue in support of its contention that during the course of search some incriminating material was found which requires adjudication in the assessment proceedings u/s. 143(3) r.w.s. 153A of the Act, we have no option but to conclude that in the absence of incriminating material found during the course of search, assessment concluded cannot be reopened and reframed u/s. 143(3) r.w.s. 153A of the Act. In the light of these facts, we have no hesitation in holding that issuance of notice u/s. 153A for completing the assessment is not valid and we accordingly quash the assessment framed consequent thereto. Since we have quashed the assessment, we find no justification to deal with the issues on merit. ITA Nos. 1926 & 1927/Bang/2016 11. In these appeals, the assessee has assailed the order of CIT(Appeals) inter alia on the common grounds, except difference in quantum. We, however, extract the grounds raised in ITA No.1927/Bang/2016 in which the CIT(Appeals) has passed the lead order and the same was followed in other assessment years on merit:- "1. That the order of the authorities below, in so far as it is aga....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her grounds and reasons which may be submitted during the course of hearing of this appeal, the assessee requests that the appeal be allowed as prayed and justice be rendered." 12. Though the ld. Counsel for the assessee has argued the validity of issuance of notice u/s. 153A of the Act through ground Nos. 2 to 9, but under the given facts we do not find much force therein. We have, however, examined the orders of the lower authorities and we find that for AY 2012-13 return was filed on 27.09.2012 and for AY 2013-14 on 20.09.2013. Before concluding the assessment proceedings, the assessee was searched on 07.12.2012. As per provisions of section 153A of the Act, wherever assessment u/s. 153A is required to be framed consequent to the search, pending assessment shall abate and assessment is to be framed u/s 153A r.w.s. 143(3) of the Act. Under these circumstances, we find no infirmity in issuance of notice u/s. 153A of the Act. We therefore reject this ground of assessee raised in this regard. 13. Now coming to the merits, the ld. Counsel for the assessee has assailed the order of the CIT(Appeals) with regard to the additions made after making disallowances of business promotio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....actitioner shall not accept any travel facility inside or outside the country as delegate. In the case in hand, the Doctors have attended Seminars & Conference not as delegates, but as faculty members, therefore no disallowance can be made having invoked the Notification of MCI and Explanation to 37(1) of the Act. In support of his contentions, the ld. Counsel for the assessee has placed reliance upon the order of Tribunal in the case of DCIT v. PHL Pharma Pvt. Ltd., 146 DTR 0149, Simcon Formulation (India) Pvt. Ltd. v. DCIT of Mumbai Tribunal and Hon'ble Delhi High Court judgment in the case of Max Hospital v. MCI in W.P.C. No.1334/Del/2013 dated 10.01.2014. 16. The ld. DR, on the other hand, has placed reliance upon the order of the CIT(Appeals). Besides it was also contended by the ld. DR that no details are available on record as to whether the Doctors have attended the Conferences & Seminars as faculty members or as delegates. The onus is upon the assessee to establish these facts. In the absence of any evidence in this regard, the revenue has rightly disallowed the claim. 17. Having carefully examined the orders of authorities below in the light of rival submissions, we....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... prohibits pharmaceutical company to incur any development or sales promotion expenses, the Tribunal allowed the expenditure. The relevant observations of the Tribunal are extracted hereunder for the sake of reference:- "5. We have considered the rival contentions made by ld. CIT DR as well as ld. Sr. Counsel, Mr J.D. Mistry, perused the relevant finding given in the impugned orders and material referred to before us. The entire controversy revolves around, whether the expenditures in question incurred by the assessee (a pharmaceutical company) is hit by Explanation 1 below section 37(1) in view of CBDT Circular dated 01.08.2012, interpreting the amendment dated 10.12.2009 brought in Indian Medical Council Regulation 2002 or not. The break-up of sales promotion expenses, which has been disallowed by the AO, are as under: Sr.No Particulars of expenses Amount (in Rs.) 1 Customer Relationship Management expenses (CRM) 7,61,96,260 2 Key Account Management expenses(KAM) 2,56,68,509 3 Gift Articles 9,20,22,518 4 Cost of samples 3,60,85,320 Total 22,99,72,607 The nature of aforesaid expenses h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rofessional 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." From the perusal of the aforesaid Board Circular, it can be seen that heavy reliance has been placed by the CBDT on the Circulars issued by the Medical Council of India, which is the regulatory body constituted under the 'Medical Council Act, 1956'. One such regulation has been issued is "Indian Medical Council Professional Conduct, Etiquette and Ethics) Regulations, 2002". The said regulation deals with the professional conduct, etiquette and ethics for registered medical practitioners only. Chapter 6 of the said regulation/notification deals with unethical acts, whereby a physician or medical practitioners shall not aid or abet or commit any of the acts illustrated in clause 6.1 to 6.7 of the said regulation which shall be construed as unethical. Clause 6.8 has been added (by way of amendment dated 10.12.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bed 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(s). (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. f) Maintaining Professional Autonomy: In dealing with pharmaceutical and allied healthcare industry a medical practitioner shall always ensure that there shall never be any compromise either with his / her own professional autonomy and / or with the autonomy and freedom of the medical institution. g) Affiliation: A medical practitioner may work for pharmaceutical and allied healthcare industries in advisory capacities, as consultants, as researchers, as treating doctors or in any....
X X X X Extracts X X X X
X X X X Extracts X X X X
....regulations do not govern or have any concern with the facilities, infrastructure or running of the Hospitals and secondly, that the Ethics Committee of the MCI acting under the Regulations had no jurisdiction to pass any direction or judgment on the infrastructure of any hospital which power rests solely with the concerned State Govt. The case of the Petitioner is that the Petitioner hospital is governed by the Delhi Nursing Homes Registration Act, 1953. It is urged that in fact, an inspection was also carried out on 22.07.2011 by Dr. R.N. Dass, Medical Superintendent (Nursing Home) under the Directorate of Health Services, Govt. of NCT of Delhi and the necessary equipments and facilities were found to be in order which negates the observations dated 27.10.2012 of the Ethics Committee of the MCI. It is also the plea of the Petitioner hospital that the Petitioner was not provided an opportunity of being heard and thus the principles of natural justice were violated. 7. In the counter affidavit filed by the Respondents, it is not disputed that the MCI under the 2002 Regulations has jurisdiction limited to taking action only against the registered medical practitioners. Its ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure." The aforesaid provision applies to an assessee who is claiming deduction of expenditure while computing his business income. The Explanation provides an embargo upon allowing any expenditure incurred by the assessee for any purpose which is an offence or which is prohibited by law. This means that there should be an offence by an assessee who is claiming the expenditure or there is any kind of prohibition by law which is applicable to the assessee. Here in this case, no such offence of law has been brought on record, which prohibits the pharmaceutical company not to incur any development or sales promotion expenses. A law which is applicable to different class of persons or particular category of assessee, same cannot be made applicable to all. The regulation of 2002 issued by the Medical Council of India (supra), provides limitation/curb/ prohibition for medical practitioners only and not for p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....me cannot be treated as sales returns and such shortfall, if any, is passed out for discount for which credit note is raised from the customers. Therefore, the realized of the realizable price is only considered for profit or loss. It was further contended before the CIT(A) that the fundamental reason for this practice is only to tax the real income as held through various judicial pronouncements. The explanations and evidences furnished by the assessee were confronted to the AO and a remand report was called from him. 21. The CIT(A) re-examined the claim of the assessee but was not convinced with it. 22. Now the assessee is before us. During the course of hearing, the learned counsel for the assessee invited our attention to certain facts with the submission that AO disallowed the discount given by credit notes on the assumption that the gross sales shown in the financial statements was of Rs. 156,77,20,000/- after allowing discount and discount was already allowed in the sale invoice and such discount was duly considered in VAT return. After filing the sales tax return, the assessee company has claimed further discount allowed by way of credit notes of Rs. 23,55,30,000/- in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....om the discount was given. During the course of assessment proceedings, the receipt of discount was accepted by certain recipients and it was also explained by few hospitals. The discrepancies in amount of payment and the discount were also explained by certain hospitals. Through letter it was explained by Pragma Hospital that there are 2 types of patients being served cashless by the hospitals because these payments are made to the hospital by some insurance companies. For the first type of patient who make cash payment whenever any stunt deployed in the patient, the vascular concept of the company/assessee directly sells and bills of these stunts to the patients and patients directly make the payment to the company. Company's representatives come every fortnight and monthly and collect the payment as the representatives of the company come and collect the payment of discount regularly, they do not maintain that record. It was further clarified that payment from hospital was received separately and also they give the receipt separately while stunt payment receipt is given by the company. For the second type of patients who are served cashless hospitals purchase the stunts from the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the fact that AO has made the disallowance of bad debt having observed that assessee has not established that amount has gone bad inspite of all efforts taken by him. In this regard, the learned counsel for the assessee has contended that after the amendment, the bad debt is required to be written off in the books of account and the assessee is not required to establish that bad debt has become bad. The learned counsel for the assessee further contended that assessee has taken the same amount into P & L account. Therefore, the condition required under section 36(2) is fulfilled. Therefore, the disallowance of bad debt made by the AO is incorrect and the same should be allowed. It was further contended that the CIT(A) did not examine these aspects and confirmed the disallowance. 27. The learned DR placed the reliance upon the order of the CIT(A). 28. Having carefully examined the orders of authorities below in the light of rival submissions, we find force in the contentions of the assessee that after the amendment and as per the Circular No.12/2016 dated 30.05.2016 it is not necessary for the assessee to establish that debt has become irrecoverable. It is enough that bad debt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on the statement of Shri. Pradeep Kumar recorded under section 131(1A) of the Act on 16.01.2012 that cash of Rs. 30 lakhs was received on 06.12.2012 from PGMIR (Rs. 20 lakhs) and PRAGMA (Rs. 10 lakhs) both belongs to Punjab territory and Mr. Krishna Kumar who is employee of assessee brought Rs. 30 lakhs on 06.12.2012. The AO has not accepted this explanation on this ground that no corresponding entry was found in the petty cash book on 06.12.2012 maintained at the branch office or the head office at Bangalore. The AO has also noted from the cash book that cash was deposited in the different banks by debiting various parties' names and credited in the cash deposit. The AO further noted that there was no corresponding entry of cash received from PGIMER and PRAGMA. On the contrary, one entry of Rs. 10 lakhs was found in the name of M/s. Pragma Hospital dated 30.11.2012. Thereafter, AO wrote a letter to the PGIMER and PRAGMA hospitals to furnish details of the ledger accounts of the assessee company in their books of accounts, date of cash payment, reflection of cash payment in the cash book, name of the person to whom the cash was paid. Thereafter, the AO has also confronted these evi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d from the order of the lower authorities that during the course of assessment proceedings, AO noted cash of Rs. 10 lakh was deposited in the bank account but no corresponding entry was found in the cash book. The Managing Director of the company also could not clarify on the same and asked for some time. Though the assessee tried to explain the source of deposits but it was not accepted by the AO and he made the addition of Rs. 10 lakhs on account of unexplained deposit in the bank. Assessee preferred an appeal before the CIT(A) but did not find any favour. 33. Now the assessee preferred an appeal before the Tribunal with the submission that assessee has deposited Rs. 10 lakh on 02.08.2011 in the bank of SBM, Kalkaji Branch but inadvertently its Accountant made an entry in the books of account on 29.08.2011. Those explanations were furnished before the AO but it was not accepted. It was further contended that there was no cash deposit on 29.08.2011. But the sufficient cash was available on 02.08.2011. On account of mistake by the Accountant of the assessee, the deposit of cash was wrongly entered in the books of account on 29.08.2011. Therefore, it requires proper verification ....