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2019 (9) TMI 1034 - AT - Income TaxBusiness expenditure u/s 37(1) - processional fees paid to the Doctors as Medical Advisors/ Sr. Consultant/ Scientific Consultant - HELD THAT - Professional fees paid to the doctors is not in violation of either MCI Guidelines or CBDT Circular as discussed above and hence the same is allowable business expenditure u/s 37(1) of the Act which has been taken into consideration in its proper prospective by the Learned CIT(A). Thus this Court does not find any infirmity in the order passed by the Learned CIT(A), so as to warrant interference. The question is accordingly answered in the affirmative, i.e. in favour of the assessee and against the Revenue.
Issues Involved:
1. Whether professional fees paid to doctors as Medical Advisors/Sr. Consultants/Scientific Consultants can be allowed as business expenditure under section 37(1) of the Income Tax Act, 1961. 2. Applicability of CBDT Circular No. 5/2012 and Medical Council of India (MCI) Guidelines on such payments. Issue-wise Detailed Analysis: 1. Allowability of Professional Fees as Business Expenditure: The primary issue was whether the professional fees paid to doctors by the assessee, a pharmaceutical company, could be classified as business expenditure under section 37(1) of the Income Tax Act, 1961. The assessee had claimed these expenses for services provided by doctors, including training staff, conducting clinical studies, and participating in disease awareness programs. The Assessing Officer (AO) disallowed these expenses, citing a lack of detailed evidence for the services rendered, such as training session details and clinical study reports. The AO also argued that some activities, like disease awareness programs, could be considered Corporate Social Responsibility (CSR) activities rather than business expenses. However, the Commissioner of Income Tax (Appeals) [CIT(A)] overturned the AO’s decision, accepting the assessee's submission that the expenses were genuine business expenditures. The CIT(A) noted that the assessee had provided sufficient documentation, including agreements with doctors, service confirmations, and evidence of payments through banking channels with TDS deductions. The CIT(A) emphasized that the AO had not disputed the appointment of doctors or the services as per the agreements but had merely questioned the sufficiency of documentary evidence. 2. Applicability of CBDT Circular No. 5/2012 and MCI Guidelines: The AO referenced CBDT Circular No. 5/2012 and MCI Guidelines, which prohibit medical practitioners from accepting gifts, travel facilities, hospitality, or monetary grants from pharmaceutical companies. The AO argued that the payments to doctors violated these guidelines and should be disallowed under section 37(1). The assessee contended that the MCI Guidelines apply to doctors, not to the company, and that the payments were for professional services, not gifts or hospitality. The CIT(A) agreed with the assessee, stating that the payments were made for genuine business purposes and were not in violation of the MCI Guidelines or CBDT Circular No. 5/2012. The CIT(A) relied on various judicial precedents, including decisions from the Delhi High Court and the Gujarat High Court, which supported the view that payments made through banking channels with TDS deductions and for genuine services could not be treated as bogus expenses. Conclusion: The Tribunal upheld the CIT(A)'s decision, confirming that the professional fees paid to doctors were allowable business expenditures under section 37(1) of the Income Tax Act, 1961. The Tribunal found no violation of MCI Guidelines or CBDT Circular No. 5/2012, as the payments were made for professional services and not as gifts or hospitality. The Tribunal dismissed the revenue’s appeals, affirming that the expenses were genuinely incurred for business purposes and were properly documented and substantiated. Judgment: The Tribunal concluded that the professional fees paid to doctors were allowable business expenditures under section 37(1) of the Act. The appeals filed by the revenue were dismissed, and the CIT(A)'s order was upheld, favoring the assessee.
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