2016 (9) TMI 1041 - AT - Income Tax

Disallowance of expenditure considering it as non-business expenditure being gifts given to Doctors - Held that - We observe that assessee has duly accepted to have given the gifts on various items including mobile phone, jewellery, dinner set etc. to various doctors or maintaining cordial business relationship. We further observe that ld. CIT(A) has rightly observed that all these doctors are earning professional income in the course of providing professional services and they have received these gifts. We agree with this view that looking to the materiality of the amount which is ₹ 5,97,314/- it was necessary on the part of the assessee to provide complete details containing names, addresses of the doctors who have accepted these gifts so that it could have facilitated the Revenue to recover the due taxes from them. We find that assessee is unable to provide these details. Therefore, in the given facts and circumstances, we are of the view that ld. CIT(A) has rightly sustained the addition. We uphold the same and dismiss the ground of assessee. TDS u/s 194J - payments made to doctors as allowable without deducting TDS - disallowance u/s 40(a)(ia) - Held that - Respectfully following the judgment of Hon. Delhi High Court in the case of CIT vs. Ansal Landmark Township (P) Ltd. (2015 (9) TMI 79 - DELHI HIGH COURT) and Rajeev Kumar Agarwal vs. Addl. CIT (2014 (6) TMI 79 - ITAT AGRA) wherein it was held that the second proviso to section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 01.04.2005, we restore this issue to the file of Assessing Officer with the direction that assessee shall provide before him all the details with regard to the recipients of the income of having received ₹ 53,41,049/- and taxes paid by them. We further direct the Assessing Officer to carryout necessary verification in respect of the payments and taxes of such income and also filing of income-tax return by the recipients. Needless to mention that adequate opportunity will be provided to the assessee for filing necessary details to show that the said recipients have reflected the receipts in their books of account and offered the same to tax in the period under consideration. In case the Assessing Officer finds that the recipients have duly paid the taxes on the income, the addition made by the Assessing Officer shall stand deleted. This ground of assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Confirmation of disallowance of expenditure of ?5,97,314/- as non-business expenditure (gifts to doctors).
2. Confirmation of disallowance of ?53,41,049/- under Section 40(a)(ia) of the IT Act for non-deduction of TDS on payments to doctors.

Issue-wise Detailed Analysis:

1. Confirmation of disallowance of expenditure of ?5,97,314/- as non-business expenditure (gifts to doctors):

The assessee, a company engaged in running a Heart Institute, Critical Care Centre, and Diagnostic Centre, filed a return of income declaring ?86,48,170/-. After scrutiny, the income was assessed at ?1,55,19,515/- due to certain additions, including the disallowance of ?5,97,314/- for gifts to doctors. The assessee contended that these gifts were for maintaining cordial business relationships with doctors, and thus, should be considered business promotion expenses allowable under Section 37 of the IT Act.

The CIT(A) disallowed the expenditure, noting that the gifts were not verifiable due to the lack of details such as names and addresses of the recipient doctors. It was also observed that these gifts could be considered professional fees, requiring TDS deduction under Section 194J, which was not done. The Tribunal upheld the CIT(A)'s decision, agreeing that the assessee failed to provide necessary details to verify the expenditure and facilitate tax recovery from the recipients. Consequently, the disallowance of ?5,97,314/- was confirmed.

2. Confirmation of disallowance of ?53,41,049/- under Section 40(a)(ia) of the IT Act for non-deduction of TDS on payments to doctors:

During the assessment, the AO noted an expenditure of ?53,41,049/- towards laboratory charges, which was treated as professional fees paid to Dr. Dhiren Shah and others, requiring TDS deduction under Section 194J. The assessee argued that the services were provided directly to patients, making the patients liable for TDS deduction, not the assessee. However, the AO found that the payments were made by the hospital, and thus, TDS should have been deducted. The CIT(A) upheld this view, emphasizing that the laboratory services were integral to the hospital's operations and the hospital collected the charges, making it liable for TDS deduction.

The Tribunal considered the second proviso to Section 40(a)(ia), which states that disallowance cannot be made if the recipient has included the income in their return and paid taxes. Citing the Delhi High Court's decision in Ansal Landmark Township (P) Ltd. and the ITAT Agra Bench's decision in Rajeev Kumar Agarwal, the Tribunal held that the proviso is declaratory and curative, with retrospective effect from 01.04.2005. The issue was restored to the AO to verify if the recipients had included the income in their returns and paid taxes. If verified, the disallowance would be deleted.

Conclusion:
The appeal was partly allowed for statistical purposes, with the Tribunal upholding the disallowance of ?5,97,314/- for gifts to doctors and remanding the issue of ?53,41,049/- disallowance under Section 40(a)(ia) to the AO for further verification.