Life Sight Surgical Pvt.Ltd.,, Ahmedabad v. The Dy.CIT., Circle-4,, Ahmedabad

ITA 1427/AHD/2007 | 2004-2005
Pronouncement Date: 16-07-2010 | Result: Allowed

Appeal Details

RSA Number 142720514 RSA 2007
Assessee PAN AAACL2703N
Bench Ahmedabad
Appeal Number ITA 1427/AHD/2007
Duration Of Justice 3 year(s) 3 month(s) 6 day(s)
Appellant Life Sight Surgical Pvt.Ltd.,, Ahmedabad
Respondent The Dy.CIT., Circle-4,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 16-07-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted D
Tribunal Order Date 16-07-2010
Date Of Final Hearing 24-06-2010
Next Hearing Date 24-06-2010
Assessment Year 2004-2005
Appeal Filed On 10-04-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI MUKUL KR. SHRAWAT JUDICIAL MEMBER AND SHRI D.C. AGRAWAL ACCOUNTANT MEMBER DATE OF HEARING : 24/06/2010 DRAFTED ON: 12/07/2010 ITA NO.1427/AHD/2007 ASSESSMENT YEAR : 2004-05 LIFE SIGHT SURGICALS PVT.LTD. 304 VIVA COMPLEX 3 RD FLOOR OPP. PARIMAL GARDEN ELLISBRIDGE AHMEDABAD VS. THE DY.CIT CIRCLE-4 AHMEDABAD PAN/GIR NO. : AAACL 2703 N (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI M.J. SHAH RESPONDENT BY: SHRI GAURAV BATHAM D.R. O R D E R PER SHRI MUKUL KR.SHRAWAT JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE WH ICH HAS EMANATED FROM THE ORDER OF THE LEARNED CIT(APPEALS) -VIII AHMEDABAD DATED 04/01/2007. THE RELEVANT SOLITARY GROUND RE ADS AS UNDER:- 1. THE LEARNED CIT(APPEALS) ERRED IN UPHOLDING THE DISALLOWANCE OF RS.2 78 460/- BEING THE BUSINESS PROMOTION AND C ONFERENCE EXPENSES INCURRED IN RELATION TO MARKETING OF THE P RODUCT SOLD BY THE APPELLANT. 2. THE ONLY ISSUE IS IN RESPECT OF CLAIM OF BUSINES S PROMOTION EXPENSES INCURRED ON THE DOCTORS WHICH WERE ADMITTE DLY NEITHER THE EMPLOYEE NOR THE AGENT OF THE ASSESSEE-COMPANY. ITA NO.1427/AHD /2008 LIFE SIGHT SURGICALS PVT.LTD. VS. DY.CIT ASST.YEAR - 2004-05 - 2 - 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDI NG ASSESSMENT ORDER PASSED U/S. 143(3) OF THE I.T. ACT 1961 DATED 24/ 08/2006 WERE THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.6 51 366/- UND ER THE HEAD CONFERENCE AND BUSINESS PROMOTION EXPENSES. OUT OF THE SAID EXPENDITURE THE ASSESSING OFFICER HAS QUESTIONED I N RESPECT OF EXPENDITURE INCURRED ON TWO DOCTORS LISTED AS BELOW :- DATE AMOUNT RS. NAME OF THE PERSON 11.04.2003 42 000/- DR.MAULIK PATWA 31.07.2003 7 500/- DR.MAULIK PATWA 20.01.2004 1 85 800/- DR.VISHNU PATEL 27.01.2004 43 160/- DR.VISHNU PATEL TOTAL 2 78 460/- 2.1. IN COMPLIANCE OF SHOW-CAUSE NOTICE THE ASSESS EE HAS FURNISHED THE REASONS AND THE FACTUAL BACKGROUND OF THE EXPENDITU RE INCURRED ON THE SAID TWO DOCTORS AS PER THE FOLLOWING SUBMISSIONS:- A)DR.MAULIK PATWA RS.7500/-ON COURSE REGISTRATION F EES AND TRAVELING EXPENSES OF RS.42 000/- THE COMPANY HAS INCURRED THE EXPENSES OF RS.7500/- ON REGISTRATION OF ASSOCIATION OF ORTHOPEDIC COURSE (AO COURSE) HELD AT MATHYS GERMANY AND TRAVELLING CHARGES OF RS.42 000/- FOR A TTENDING THE SAID COURSE BY DR.MAULIK PATWA. THE OBJECT OF AO COURS E WAS TO EDUCATE THE DOCTORS ON DIFFERENT ORTHOPEDIC PRODUCTS OF THE PRINCIPAL COMPANY (MATHYS MEDICAL PRIVATE LIMITED NEW DELHI) FOR WHO M THE ASSESSEE IS ITA NO.1427/AHD /2008 LIFE SIGHT SURGICALS PVT.LTD. VS. DY.CIT ASST.YEAR - 2004-05 - 3 - WORKING AS DISTRIBUTOR IN AHMEDABAD. THE COPIES OF TRAVEL VOUCHER WITH THE INVITATION LETTER FOR ATTENDING A.O. FELLO WSHIP PROGRAMME AT GERMANY ATTENDED BY DR.PATWA ARE ATTACHED HEREWITH. MR.PATWA BEING ASSISTANT PROFESSOR WITH THE L.G. HOSPITAL DU RING THE YEAR UNDER ASSESSMENT ASSESSEE COMPANY HAS SPONSORED HIS TRIP TO GERMANY AS BUSINESS PRODUCES AND INCURRED THE EXPENSES ON HIS REGISTRATION AND TRAVELLING. MR.PATWA BEING IN THE L.G. HOSPITAL HAS INFLUENCED THE PATIENTS BY REFERRING TO THE ASSESSEE COMPANY FOR O RTHOPEDIC SURGICAL IMPLANT AND THE TOTAL BUSINESS WHICH COMPANY HAS RECEIVED THRU MR.PATWAS DURING THE YEAR UNDER ASSESSMENT IS RS.7.91 LACS. FURTHER DR. PATWA HAS CONTINUED HIS BUSINESS RELATIONS WITH THE COMPANY BY REFERRING PATIENTS FOR ORTHOPEDIC SURGICAL IMPLANTS EVEN AFTER HIS JOINING WITH APPOLLO HOSPITAL AS ASSISTANT PROFESSOR DURING 2004-05. THE TOTAL BUSINESS WHICH COMPANY HAS RECEIVED IN THE FINANCIAL YEAR FROM APPOLLO HOSPITAL IS RS.8.51 LACS . IT MAY BE NOTED THAT THE COMPANY HAD NO BUSINESS BEFORE JOINING OF MR.PATWA WITH APP OLLO HOSPITAL. (COPY OF ACCOUNT OF RETAIL SALE (L.G.HOSPITAL) AND APPOLLO HOSPITAL ARE ATTACHED HEREWITH.). FURTHER TO ADD THIS THE SALES OF MATHYS (ORTHOPEDIC PRODUCTS) HAVE BEEN INCREASED FROM RS.15 40 910/- TO RS.1 90 63 470/ - DURING THE YEAR UNDER ASSESSMENT. IN VIEW OF THE ABOVE FACTS IT IS AMPLY CLEAR THAT T HE BY PROMOTING THE TRIP COMPANY HAS ESTABLISHED THE GOODS BUSINESS RELATION WITH DR.PATWA WITH WHOM ASSESSEE HAS TO DEAL WITHIN THE COURSE OF THE BUSINESS AND SOUGHT THE BUSINESS IN THE SUBSEQUENT YEAR TOO. T HE MAIN CONSIDERATION ITA NO.1427/AHD /2008 LIFE SIGHT SURGICALS PVT.LTD. VS. DY.CIT ASST.YEAR - 2004-05 - 4 - OF SPONSORING THE TRIP WAS A PART OF THE PROCESS OF PROFIT MAKING AND THEREFORE NO DISALLOWANCE BE MADE AS PROPOSED BY Y OUR HONOUR. DR.VISHNU PATEL (OPTHALMIC SURGEON) DURING THE YEAR UNDER ASSESSMENT THE COMPANY HAS IN CURRED RS.2 28 960/- ON THE FOREIGN TRIP OF DR. VISHNU PAT EL WHO IS ONE OF THE SENIOR AND KNOWN OPHTHALMIC SURGEON OF GUJARAT. AS STATED IN OUR REPLY OF 7 TH JULY 2006 THAT TO PROMOTE THE SALES OF THE COMPAN Y ASSESSEE HAS TO INCUR THE EXPENDITURE ON SPONSORSHI P OF DIFFERENT PROGRAMME AND SEMINAR ON DIFFERENT OCCASIONS AS TH E DOCTORS ARE THE MAJOR ROLE PLAYER IN THE PROFIT EARNING PROCESS OF THE ASSESSEE AND ACCORDINGLY KEEPING IN VIEW THE COMMERCIAL EXPEDIEN CY THE FOREIGN TRIP OF DR.VISHNU PATEL WAS SPONSORED BY THE ASSESSEE 2.2. HOWEVER THE ASSESSING OFFICER WAS NOT CONVINC ED AND IN HIS OPINION THERE WAS NOTHING ON RECORD TO DEMONSTRATE THAT ON INCURRING SUCH EXPENDITURE THE ASSESSEE GOT ANY BUSINESS ADVA NTAGE. HE HAS ALSO MENTIONED THAT SINCE THE DOCTORS WERE NEITHER AN E MPLOYEE NOR AN AGENT OF THE COMPANY THEREFORE THERE WAS NO PURPOSE OF SPONSORING THOSE DOCTORS FOR TRAINING ETC. IN THE RESULT DISALLO WANCE TO THE TUNE OF RS.2 78 460/- WAS MADE. 3. WHEN THE ISSUE WAS CARRIED BEFORE THE FIRST APPE LLATE AUTHORITY THE LEARNED CIT(APPEALS) HAS AFFIRMED THE ORDER OF THE ASSESSING OFFICER ON THE GROUND THAT THERE WAS NO WRITTEN SUBMISSION BE TWEEN THE DOCTORS AND THE ASSESSEE-COMPANY. IN HIS OPINION THERE WAS NO BUSINESS NEXUS VIS--VIS THE CLAIMED EXPENDITURE THEREFORE RIGH TLY DISALLOWED BY THE ITA NO.1427/AHD /2008 LIFE SIGHT SURGICALS PVT.LTD. VS. DY.CIT ASST.YEAR - 2004-05 - 5 - ASSESSING OFFICER. RATHER IN HIS OPINION IT WAS A GRATUITOUS EXPENDITURE AND NOT A BUSINESS NECESSITY SINCE THE ASSESSEE WAS NOT OBLIGED TO INCUR THE SAID EXPENDITURE HENCE HELD THAT DISALLOWANCE WAS RIGHTLY MADE. 4. HAVING HEARD THE LD. REPRESENTATIVES OF BOTH THE SIDES AND CONSIDERING THE RECORDS AS WELL AS THE VARIOUS AUTH ORITIES CITED AT THE BAR WE ARE OF THE CONSCIENTIOUS VIEW THAT THE FACTS OF THE CASE HAVE DEMONSTRATED THAT THERE WAS A DIRECT NEXUS WITH THE BUSINESS ACTIVITY OF THE ASSESSEE AND THE CLAIMED EXPENDITURE. THE APPE LLANT BEING A DISTRIBUTOR OF OPHTHALMIC/ORTHOPEDIC INSTRUMENTS AND ALSO A DISTRIBUTOR OF SURGICAL EQUIPMENTS THEREFORE A BUSINESS DECIS ION WAS TAKEN TO ASK ONE OF THE DOCTOR VIZ. DR.MAULIK PATWA AN ORTHOPAE DIC TO ATTEND AN ORTHOPAEDIC COURSE AT GERMANY. THE PURPOSE WAS TO EDUCATE THE DOCTOR IN RESPECT OF DIFFERENT ORTHOPEADIC PRODUCTS OF THE PRINCIPAL COMPANY. LIKEWISE IN RESPECT OF THE EXPENDITURE INCURRED ON DR.VISHNU PATEL AN OPTHALMIC SURGEON THE ASSESSEE COMPANY HAD MADE HI S SPONSORSHIP TO FOREIGN TRIP TO ATTEND THE SEMINARS. AS FAR AS THE QUESTION OF THE DETAILS OF THE EXPENDITURE SUPPORTING EVIDENCE SUCH AS VOU CHERS/BILLS ETC. ARE CONCERNED IT IS AN ADMITTED FACTUAL POSITION THAT THE ASSESSING OFFICER HAS NOT RAISED ANY DOUBT ABOUT THE ACTUAL INCURRING OF THE EXPENDITURE. THEREFORE IT WAS NOT THE CASE OF THE REVENUE THAT THE EXPENDITURE WAS A BOGUS EXPENDITURE. HENCE THE NEXT QUESTION IS ABO UT BUSINESS NECESSITY FOR INCURRING SUCH AN EXPENDITURE. IN THIS REGARD AS WELL THE ASSESSEE- COMPANY HAS PLACED ON RECORD THAT DUE TO THE TRAINI NG OF THE DOCTORS SUBSTANTIAL BUSINESS WAS RECEIVED THROUGH THEM. CON NECTED FACTS AND FIGURES WERE PLACED BEFORE THE A.O. AS IS EVIDENT F ROM THE ASSESSES ITA NO.1427/AHD /2008 LIFE SIGHT SURGICALS PVT.LTD. VS. DY.CIT ASST.YEAR - 2004-05 - 6 - SUBMISSIONS REPRODUCED SUPRA. THE LEARNED AUTHOR ISED REPRESENTATIVE OF THE ASSESSEE SHRI M.J.SHAH HAS DRAWN OUR ATTENTI ON TOWARDS A COMPILATION CONSISTING 28 PAGES THROUGH WHICH HE HA S DEMONSTRATED THAT ON ACCOUNT OF THE TRAINING OF THESE TWO DOCTORS TH E COMPANY HAS DIRECTLY BEEN BENEFITED BECAUSE THESE DOCTORS THEMSELVES HAV E PURCHASED AND SPONSORED MACHINERIES/EQUIPMENTS RESPECTIVELY. NO T ONLY THAT THEY HAVE PROMOTED THE SALES BY CONVINCING OTHER PROFESS IONALS BUT ALSO MADE THEM AWARE ABOUT THE PRODUCT HENCE IN A WAY CREATED A BETTER MARKET FOR FUTURE.. THROUGH THOSE FIGURES THE LEARNED AUTHO RISED REPRESENTATIVE OF THE ASSESSEE HAS EXPLAINED THAT SINCE THE ASSESS EE IS IN TRADING OF OPTHALMIC AND ORTHOPAEDIC EQUIPMENTS THEREFORE TH E EXPENDITURE INCURRED WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS HENCE ALLOWABLE U/S.37 OF THE I.T. ACT 1961. 5. APART FROM THE ABOVE REASONS IN SUPPORT OF THE J USTIFICATION OF THE EXPENDITURE ONE MORE QUESTION HAS ALSO BEEN RAISED THAT WHETHER SUCH AN EXPENDITURE WAS ADMISSIBLE IN THE EYES OF LAW? IN THIS REGARD THERE WAS A REFERENCE OF EXPLANATION ANNEXED TO SECTION 37(1) OF THE I.T. ACT 1961 THROUGH WHICH THE STATUE HAS PROHIBITED ANY EXPENDI TURE INCURRED BY A BUSINESS CONCERN WHICH WAS OTHERWISE PROHIBITED BY LAW. THE ANSWER TO THIS QUESTION WAS THAT THE TWO DOCTORS WERE NOT GOVERNMENT EMPLOYEES HENCE BEING NOT A GOVERNMENT SERVANT H ENCE THERE WAS NO QUESTION OF AN ILLEGAL GRATIFICATION. BOTH THE DO CTORS WERE INDEPENDENT MEDICAL PROFESSIONALS AND THE EXPENDITURE INCURRED ON THEM HAD DIRECTLY CONNECTED WITH THE BUSINESS OF THE ASSESSEE WHICH H AD SPRANG UP ON INCURRING THE EXPENDITURE HENCE NOTHING BUT INCID ENTAL AND BENEFICIAL TO ITA NO.1427/AHD /2008 LIFE SIGHT SURGICALS PVT.LTD. VS. DY.CIT ASST.YEAR - 2004-05 - 7 - THE BUSINESS ACTIVITY OF THE ASSESSEE. IT IS WORT H TO MENTION AT THIS JUNCTURE THAT ON ACCOUNT OF THIS REASON THE APPELLA NTS CASE CANNOT BE PLACED ON THE SAME PEDESTAL AS IT WAS DECIDED BY TH E HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. PT. VISHWANATH SH ARMA REPORTED AS [200] 316 ITR 419 (ALLA.) WHEREIN IT WAS HELD THAT PAYMENT AS COMMISSION BEING MADE TO THE GOVERNMENT DOCTORS FOR OBTAINING A FAVOUR THEREFROM THEREFORE WITHIN THE CLUTCHES OF THE EXPLANATION TO SECTION 37 OF THE I.T. ACT 1961. 5.1. WHILE DRAWING THE AFORESAID DISTINCTION THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT OTH ERWISE ALSO THE ISSUE IS SQUARELY COVERED BY ONE OF THE DECISIONS OF THIS VE RY BENCH CITED AS SAMIR SURGITECH PRIVATE LIMITED IN ITA NO.4560/AHD/ 2003 FOR ASSESSMENT YEAR 2001-02 DATED 08/06/2007 WHEREIN T HE RESPECTED CO- ORDINATE C BENCH ITAT AHMEDABAD HAS DRAWN A CONCL USION THAT THE SPONSORSHIP OF FOREIGN TRIP OF ONE OF THE DOCTORS B Y THE ASSESSEE WAS A MARKETING STRATEGY AND MARKETING NECESSITY HAVING C LEAR NEXUS WITH THE BUSINESS OF THE ASSESSEE THEREFORE NOTHING BUT AN ALLOWABLE EXPENDITURE. UNDOUBTEDLY THE AFORESAID VIEW OF THE TRIBUNAL AS WELL AS THE CASE OF THE ASSESSEE IS COVERED ON ALL FOURS BY A LANDMARK DEC ISION OF HON'BLE SUPREME COURT IN THE CASE OF SASOON J.DAVID AND CO .P.LTD. VS. CIT REPORTED AS 118 ITR 261 (SC) AS WELL AS AN ANOTHER ANCIENT LANDMARK DECISION OF HON'BLE SUPREME COURT PRONOUNCED IN THE CASE OF CIT VS. WALCHAND AND CO. PRIVATE LTD. REPORTED AS 65 ITR 38 1(SC). THEREFORE TO CONCLUDE OUR DECISION WE CAN SAY THAT THE FACTS OF THE CASE IN HAND ARE WITHIN THE AMBITS OF THE MAIN PROVISIONS OF SECTION 37(1)OF THE ACT AS ITA NO.1427/AHD /2008 LIFE SIGHT SURGICALS PVT.LTD. VS. DY.CIT ASST.YEAR - 2004-05 - 8 - ALSO WITHIN THE GUIDELINES OF THE HON'BLE APEX COUR T SINCE THE ASSESSEE HAS ESTABLISHED THE GENUINENESS OF THE EXPENDITURE PLUS DEMONSTRATED ITS CONNECTIVITY OF THE BUSINESS OF THE ASSESSEE. WE AR E OF THE CONSCIENTIOUS VIEW THAT THE REVENUE HAS WRONGLY APPRECIATED THE F ACTS OF THE CASE THEREFORE THEIR VIEW IS HEREBY REVERSED AND WE ACC ORDINGLY DIRECT TO ALLOW THE CLAIM OF THE EXPENDITURE. WE ORDER ACCO RDINGLY. 6. IN THE RESULT THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER SIGNED DATED AND PRONOUNCED IN THE COURT ON 16/ 07 /2010. SD/- SD/- ( D.C. AGRAWAL) ( MUKUL KR. SHRAWA T) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 16/ 07 /2010 T.C. NAIR SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DEPARTMENT. 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-VIII AHMEDABAD 5. THE DR AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER //TRUE COPY// (DY./ASSTT.REGISTRAR) ITAT AHMEDABAD