The Ahmedabad Bench of the Income Tax Appellate Tribunal ( ITAT ) deleted the addition of Rs. 2 croes made due to the disallowance of professional fees paid to doctors under Section 37(1) of the Income Tax Act.
The triubunal found that the professional fee records, training manuals,research papers..etc submitted by the assessee were sufficient, leading to the removal of the addition made by the income tax assessing officer.
Assessee, LA Renon Healthcare Pvt. Ltd., filed its income tax return for the assessment year 2016-17 declaring a total income of Rs.47,17,20,900 which was selected for scrutiny. The assessing officer (AO) observed that the company claimed professional fees to the doctors amounting to Rs.5,43,98,834. The AO sent a show-cause notice to the assessee asking for relevant information and the assessee replied to the notice.
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The assessee explained that the amount is divided into Rs.2,07,28,000/- towards payment to scientific consultants and Rs.3,36,70,833/- towards payment to consultants, advisors, and professional service providers. The assessee contended that the expenditure was incurred wholly and exclusively for business and the reference to Circular No. 5 of 2012 issued by CBDT and guidelines issued by MCI do not have any application to the assessee’s case as they have a separate code of conduct for pharmaceutical companies.
The assessing officer relied on the CBDT Circular and MCI guidelines disallowed Rs.2,07,28,000 under section 37(1) of the Income Tax Act. Aggrieved by this decision, the assessee appealed the AO order before the Commissioner of Income Tax (Appeals) CIT(A).
The CIT(A) deleted the addition of Rs.207,28,000 relying on the order of ITAT in the assessee’s own case for the A.Y. 2011-12 to A.Y. 2014-15. Aggrieved by the CIT(A) order, the AO appealed before the ITAT, Ahmedabad.
The AO appealed on the ground that CIT(A) erred in making the decision and failed to properly check the facts of the case and material brought on record. The AO’s counsel represented by Ashok Kumar Suthar argued that the assessing order dealt with the issues in detail in his assessment order.
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On the other side, the assessee’s counsel represented by Vartik Chokshi relied on the decision of the assessee’s own case for the A.Y. 2011-12 to A.Y. 2014-15.
The tribunal observed both side’s arguments and noted the points made in the assessee’s previous case. It supported the principle that genuine business expenses paid through proper channels should be allowed and also highlighted that expenses paid through banking channels with TDS deducted are not bogus. The tribunal observed that the records submitted by the assessee are sufficient and the CIT(A)’s decision to delete the addition was correct.
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The two-member bench comprising Siddhartha Nautiyal and Marakand V. Mahedeokar observed that the AO did not question the authenticity of the payments made. It was noted that the assessee had already submitted comprehensive documentation, including logbooks, agreements with various doctors, summaries of professional fees paid, copies of scientific brochures, training manuals, and research papers which is sufficient.
It was noted that CIT(A) recognized that the facts were identical to a previous case and upheld the tribunal’s decision, leading to the deletion of the disallowance. The bench found no fault in the CIT(A)’s order, and thus, the Revenue’s appeal was dismissed.
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