2017 (12) TMI 931 - HC - Income Tax

Disallowance of the business promotion expenses - allowable business expenses - state of affairs in the Petitioner hospital - Ethics Committee of MCI during the proceedings initiated on complaint of one Mr. Sunil Manchanda against some of the doctors working in the petitioner hospital - Held that - In view of the observations made by the AO where he has allowed the part expenses of the hospital, in that view of the matter, we are of the opinion that the CIT(A) observations which are made by the CIT are required to be accepted. The explanation cannot come into play on appeal which was filed at this stage. Even otherwise in income tax proceedings the medical ethics will not be taken into consideration. At the most even if it is a professional misconduct it is to be dealt with by Medical Council of India. The income tax authority cannot decide the medical ethics when the original authority has partly allowed the expenses. In view of the above, the order of the Tribunal is quashed and set aside. The matter is remitted back to the Tribunal to decide the same afresh.

Summary

Issues:
Delay in filing cross objection, Disallowance of business expenses by assessing officer, CIT(A) decision on business expenses, Tribunal's observations on business expenses, Comparison with Delhi High Court decision on business expenses, Comparison with Punjab and Haryana High Court and Supreme Court decisions on business expenses.

Analysis:
1. The High Court noted a gross delay of 1623 days in filing the cross objection. The delay was not condoned, and the cross objection was rejected.
2. The assessing officer disallowed a significant expense claimed by the appellant related to payments made under the cover of profession promotion. The officer raised concerns about the genuineness of the payments due to incomplete addresses provided by the appellant.
3. The CIT(A) overturned the assessing officer's decision, allowing the expense claim. The CIT(A) found that the appellant had provided necessary details and vouchers to establish the genuineness of the payments.
4. The Tribunal also supported the appellant's case, emphasizing that the expenses were vouched, comparable from previous years, and incurred for the business's purpose.
5. The appellant cited a Delhi High Court decision related to business expenses claimed by a hospital, arguing for the allowance of expenses based on business needs.
6. The respondent relied on decisions by the Punjab and Haryana High Court and the Supreme Court to argue against allowing the expenses, citing violations of law and public policy.
7. The High Court analyzed Section 37 of the Income Tax Act, emphasizing that expenses laid out wholly and exclusively for business purposes should be allowed. The court noted that the assessing officer had partly allowed the expenses, and the CIT(A) decision should be upheld.
8. The High Court concluded that the income tax authority cannot decide on medical ethics issues, which should be addressed by the Medical Council of India. The order of the Tribunal was quashed, and the matter was remitted back for fresh consideration.
9. Ultimately, the High Court ruled in favor of the appellant against the department, allowing the appeal and setting aside the Tribunal's order.