2022 (12) TMI 27 - AT - Income Tax

Nature of expenditure - professional development expenditure/gifts given - Personal or business expenses - Expenditure on publicity of the Hospital - expenses incurred by the assessee, a doctor by profession, on organizing musical programme for his professional colleagues, sponsoring garba event organized in the society where he resided and gifts given to fellow doctors on the occasion of marriage or diwali - contention of the assessee that this expenditure was incurred for promoting and publicizing his professional network, that the gifts had been given to doctors who were in the professional circle associated with the assessee - HELD THAT - In the present case, we agree with the authorities below that these expenses are in the nature of personal expenses. They cannot be said to be incurred wholly and exclusively for the profession of the assessee. Organizing musical parties for fellow colleagues or garba event in the society where the assessee resides or for that matter giving gifts on marriages of fellow colleagues is done primarily out of social obligations or practices and predominantly for personal reasons. As rightly pointed out by the AO the Garba event was organized for the benefit of persons limited to those residing in his society. It was a religious programme conducted in the assesses society which he had sponsored as a resident of the society. The sole purpose for incurring the expense was not for the purpose of his profession but also on account of the fact that being a resident of the society he felt obliged to contribute towards the programme. As rightly pointed out by the AO, the immediate beneficiary of the sponsorship was the hospital and not the assessee. Similarly musical program organized for fellow colleagues is nothing but a social event which though helps in promoting the assessee but not only on his professional front but also personal front. This fact cannot be denied. So also the gifts given on marriages and diwali which have been rightly pointed out by the Revenue authorities as being incurred out of social obligations and conventions. All these expenses, cannot be said to have been incurred wholly and exclusively for the profession of the assessee so as to qualify for deduction u/s 37(1) - Decided against assessee. Expenditure incurred on advertisement - HELD THAT - These expenses were incurred for advertising in the members directory of the society where he resided and for sponsoring a musical event in a medical college, the nature of expenditure we find is similar to that dealt with by us with regard to professional development expenses in ground no 2 above in our order. Our decision rendered therein will apply to the impugned advertisement expenses also. Accordingly, we hold that the advertisement expenses incurred by the assessee are personal in nature and not incurred wholly and exclusively for the purpose of profession of the assessee and hence not allowable as per section 37(1). Even otherwise as rightly pointed out by the CIT(A) and the Ld.DR before us, advertising is an unethical act as per guidelines of the controlling body of medical professionals. For this reason also the expenses incurred on carrying out such unethical activities cannot be allowed as deduction. Decided against assessee. Disallowance of expenses pertaining to telephone and vehicle expenditure - assessee himself disallowed these expenses suo moto, being 10% of telephone and 20% of car petrol and repair - HELD THAT - The tax audit auditors in their report furnished as per section 44AB 0f the Act, had certified this fact alongwith stating that no personal expenses were debited by the assessee in its Books. The auditors had also stated that the assessee had one car used for personal purposes which expenses were not claimed by it. AO however went on to disallow 20% of the entire expenses incurred on telephone and car including depreciation claimed thereon, without any basis and without giving any reason as to why he found the assesses explanation of personal expenses included in its claim as not correct. We therefore hold that the disallowance of telephone and car expenses was wholly unjustified and not in accordance with law. - Decided in favour of assessee.

Issues Involved:
1. Disallowance of professional development expenses.
2. Disallowance of advertisement expenses.
3. Disallowance of telephone and vehicle expenses.

Issue-wise Detailed Analysis:

1. Disallowance of Professional Development Expenses:
The assessee, a medical professional, claimed professional development expenses amounting to Rs. 13,90,620/-. The Revenue authorities disallowed Rs. 7,49,560/- on the grounds that these expenses were personal in nature. The disallowed expenses included:
- Musical programme expenditure: Rs. 52,000/-
- Sponsorship of garba at Satyagraha Chavni: Rs. 3,00,000/-
- 50% of the balance professional development expenses: Rs. 3,97,560/-

The assessee argued that these expenses were incurred for professional networking and publicity. However, the authorities found that these expenses were primarily social obligations and personal in nature. The Tribunal upheld the disallowance, stating that the expenses were not incurred "wholly and exclusively" for the profession as required under Section 37(1) of the Income Tax Act. The Tribunal distinguished the case from CIT Vs. Khambhatta Family Trust, where expenses were allowed as they were incurred wholly for business purposes.

2. Disallowance of Advertisement Expenses:
The assessee claimed advertisement expenses of Rs. 61,000/-, which included:
- Payment to Satyagrah Chhavni Co-op Hsg. Society for advertising in the society members' directory: Rs. 51,000/-
- Payment to B.J. Medical College for the event "B.J. Beats, 2012": Rs. 10,000/-

The authorities disallowed these expenses, considering them personal in nature. Additionally, the Tribunal noted that advertising is an unethical act as per the guidelines of the Indian Medical Association (IMA). The Tribunal upheld the disallowance, agreeing that the expenses were not incurred wholly and exclusively for the profession and were also against the ethical guidelines for medical professionals.

3. Disallowance of Telephone and Vehicle Expenses:
The AO disallowed 20% of the telephone, vehicle, petrol, repairs, and depreciation expenses, amounting to Rs. 1,56,178/-, attributing them to personal use. The assessee had already disallowed 10% of these expenses suo moto, amounting to Rs. 36,340/-. The CIT(A) reduced the disallowance to Rs. 20,000/-, but the Tribunal found that the disallowance was unwarranted. The Tribunal noted that the tax audit report certified no personal expenses were debited, and the assessee maintained a separate car for personal use. Consequently, the Tribunal deleted the disallowance of Rs. 1,19,838/- and allowed this ground of appeal.

Conclusion:
The Tribunal upheld the disallowance of professional development and advertisement expenses, considering them personal in nature and not incurred wholly and exclusively for the profession. However, the disallowance of telephone and vehicle expenses was deleted, as the Tribunal found the assessee's self-disallowance and the tax audit report sufficient to negate the AO's additional disallowance. The appeal was partly allowed.

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