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2018 (5) TMI 1929 - AT - Income TaxDisallowance with regard to honorarium to doctors, travel and stay facilities of doctors in connection with conferences/seminars, distribution of books, expenses on participating in exhibitions/sponsorships for conferences and provision of expenses included in advertisement and promotional expenses u/s 37(1) - HELD THAT - In response to a query raised by the AO during the course of assessment proceedings, the assessee submitted a detail explanation indicating that the expense located by the AO were incurred wholly and exclusively for the purpose of business of the company and outside the purview of the said CBDT Circular. AO has extracted it at para 3.12 of his assessment order dated 08.03.2014. However, instead of examining the issue from accounts and verifying the same, the AO has resorted to psychological and legal aspects, which are in the realm of general propositions. We are reminded of the cardinal principle of law that general propositions do not decide a concrete case. There was no lack of compliance by the assessee to the queries asked and details called for by the AO. AO has failed to verify the same. Resultantly, the amended IMC Regulations relied on by the DR is not applicable to the instant case. Also it is settled law that the Circular issued by CBDT is prospective in nature. Thus the CBDT Circular No. 05/2012 dated 01.08.2012 is not applicable to the impugned assessment year. It has been rightly held in the decisions mentioned at para 5 hereinbefore.
Issues:
Appeal against disallowance of expenses under section 37(1) of the Income Tax Act, 1961 related to honorarium to doctors, travel and stay facilities, distribution of books, exhibition/sponsorship expenses, and other promotional expenses. Interpretation of Indian Medical Council Regulations and CBDT Circular No. 05/2012. Applicability and prospective nature of CBDT Circular for the assessment year 2011-12. Analysis: The appeal involved challenging the disallowance of expenses under section 37(1) of the Income Tax Act, 1961 related to various activities benefiting doctors, including honorarium, travel, distribution of books, exhibition/sponsorship, and promotional expenses. The Assessing Officer (AO) based the disallowance on the Indian Medical Council Regulations, specifically clause 6.8 inserted in 2009, prohibiting doctors from receiving freebies. The AO also referred to CBDT Circular No. 05/2012, highlighting the inadmissibility of expenses providing freebies to medical practitioners. The total disallowed amount was ?1,33,92,060. The appellant contended that the expenses were incurred for business purposes and not as freebies to doctors. The appellant argued that the CBDT Circular did not apply to these expenses. However, the AO upheld the disallowance. The Commissioner of Income Tax (Appeals) confirmed a partial addition, leading to an appeal before the ITAT Mumbai. During the hearing, the appellant cited precedents to support the prospective nature of CBDT Circular No. 05/2012, emphasizing its inapplicability to the assessment year 2011-12. The appellant's counsel relied on various tribunal decisions to strengthen this argument. On the contrary, the Departmental Representative (DR) argued that the amended Indian Medical Council Regulations, effective from 2009, were applicable to the assessment year in question. The DR supported the CIT(A)'s decision to sustain the disallowance. The ITAT Mumbai analyzed the submissions and evidence on record. The tribunal noted that the AO failed to verify the business purpose of the expenses and instead relied on general propositions, not specific facts. The tribunal emphasized that compliance was met, and the amended IMC Regulations were not applicable in this case. Additionally, the tribunal reiterated that CBDT Circulars are prospective and held in line with previous decisions. Ultimately, the ITAT Mumbai set aside the CIT(A)'s order and allowed the appeal filed by the assessee, emphasizing the non-applicability of the CBDT Circular to the assessment year 2011-12. The judgment was pronounced on 30/05/2018.
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