×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
These are the latest case laws decided by various Income Tax Appellate Tribunals (ITAT) of India on Income Tax which have been published recently. The case laws are open for discussion and we invite expert comments from our members on its applicability and effect on relevant issues.
The captioned cross appeals have been filed by the assessee as well as by Revenue against the order of the Commissioner of Income Tax (Appeals)-1,Vadodara (‘CIT(A)’ in short), dated 12.06.2017 emanating from the assessment order dated 30.03.2016 passed by the Assessing Officer (AO) under s. 143(3) of the Income Tax Act, 1961 (the Act) concerning assessment year 2013-14.
2. The grievances raised being common, both the cases were heard together and disposed of by the common order.
3. We shall first take up assessee’s appeal in ITA No. 1989/Ahd/2017 concerning AY 2013-14. ITA No. 1989/Ahd/2017-AY-2013-14 (Assessee’s appeal)
4. The grounds of appeal raised by the assessee read as under:-
“1. The order passed by the Learned Commissioner of Income-tax (Appeals) [hereinafter referred to as 'the Ld. CIT(A)'] is bad in law and on facts.
2. Re: Disallowance of discount offered to doctors - Rs. 17,43,519/-
2.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has grossly erred in confirming the disallowance of Rs. 17,43,519/- made by the Assessing Officer by merely relying on the order of its predecessor for AY 2012-13 without appreciating that the discounts were offered to medicalprofessionals for promoting the Appellant's business and that the expenses were wholly and exclusively incurred for the purposes of its business.
2.2 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in not appreciating that the said discounts have been given to medical professionals, in terms of the Appellant's universal discount policy, for dispensing medicines and acting as pharmacists in the course of their medical practice and therefore cannot be painted as illicit gratitude payments.
2.3 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, are not applicable to the pharmaceutical companies and therefore, any expenditure incurred on providing discounts to doctors ought to be allowed as business expenditure u/s 37(1).
2.4 The Ld. CIT(A) grossly erred in relying on the CBDT Circular No, 05/2012 dated 1" August, 2012 while disallowing the amount of expenditure without appreciating that the CBDT Circulars are not binding on the Appellant.
3. Re: Disallowance u/s. 14A read with tule 8D of Rs. 7.24.182/-
3.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the Assessing Officer in disallowing administrative expenses u/s 14A by invoking Rule 8D without first recording satisfaction with regard to correctness of claim of the Appellant and as to how the disallowance carried out by the Appellant amounting to Rs. 50,000/- was not reasonable.
3.2 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have appreciated mat once it is undisputed that the Appellant had sufficient interest free funds to make the investments and that the Appellant had not incurred any expense to earn exempt income, disallowance u/s 14A read with rule 8D cannot be invoked
3.3 Without prejudice to the above, the Ld. CIT(A) grossly erred in not rectifying the errors in calculating amount of disallowance u/s 14A read with rule 8D.
4. Re: Levy of interest u/s. 234D:
4.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in not directing the Assessing Officer to rectifying the error in computational interest u/s.234D.”
5. Ground No.1 is general in nature.
6. Ground No.2 concerns disallowance of discount offered to Doctors amounting to Rs.17,43,519/-.
6.1 Identical issue has come up in assessee’s own case in3049/Ahd/2014, 2511, 3415, 2512 & 2513/Ahd/2015 & Ors. order dated 29.03.2019concerning AYs. 2008-09 to 2011-12. The relevant operative para concerning AY 2009-10 dealing with issue reads as under:
“11.9 We have carefully considered the rival submissions on the issue. The maintainability of discount on sales is in question. It is the case of the Revenue that the assessee is supplying medicines to its C&F agents for its ultimate sale in the market for consumption. The discounts were given by the assessee company to the distributors, retailers, dealers, Doctors associated to C&F agent and who were not directly dealing with assessee and therefore expenses incurred towards discount payment by the assessee has no nexus with the sales made by it to the C&F agents. The AO accordingly is of the view that such indirect discounts to the customers of its agents are not allowable expenditure.
11.10 We do not see any iota of merit in such plea. The discounts given to the customers/ultimate consumer has direct bearing on the potential turnover of the company. It is well settled that the test of the commercial expediency cannot be reduced to the shape of a ritualistic formula nor can it be put in a water tight compartment. It is trite that the Revenue authorities have to place themselves in the position of a business and find out whether expenses incurred can be said to have been laid out for the purposes of businessman. The commercial expediency and prudence are inseparable. If the expenditure is incurred to facilitate carrying on of business of the assessee and is supported by the commercial expediency, it does not matter that the payment is in voluntarily or not necessary or that it also enures to the benefit of a third party. If the object is business promotion, the expenditure can be said to be wholly and exclusively for the purposes of the assessee’s business. The assessee in the instant case demonstrated on facts that payment of such discounts are integrally connected to the sales/turn over achieved or has potential to achieve. The discount expenses have thus been incurred with the object of furthering the trade or business interest of the assessee. Therefore, such expense falls within the expression ‘wholly and exclusively’ referred to in Section 37 of the Act. Therefore we have no hesitation to concur with the conclusion drawn by the CIT(A) for allowability of discounts given to stockiests/distributors etc. However, we are unable to understand the reasoning of the CIT(A) for discarding the claim of discount expenditure paid to the Doctors. When the test of commercial expediency applied in its natural perspective, there is no reason to exclude Doctors purchasing medicines from C&F agents for the purpose of eligibility of discount payments. We thus set aside the action of the CIT(A) to this extent and direct the AO to allow the trade discount paid to all parties including Doctors as ordinary business expenditure. Thus, Ground No.2 of the Revenue’s appeal is dismissed. As a corollary, Ground No.1 of the assessee’s appeal in ITA No. 2511/Ahd/2015 stands allowed.”
6.2. In the light of the view taken in the earlier assessment years, the disallowance of discount offered to Doctors is uncalled for.