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2022 (6) TMI 739 - AT - Income TaxAllowability of Professional promotion charges - Expenses incurred by Hospitals towards patients referred to hospital by doctors/villagers/RMP s etc. - Addition in view of the provisions of the Section 37 - The expenses are incurred by the assesee are in nature of referral cases, investigation charges or reimbursement of the cost incurred to the persons for bringing the patients to the hospital - HELD THAT - We are of the opinion that AO has not doubted the genuineness of the expenditure incurred by the assessee as referral charges but the disallowance was made by the AO only on the ground that the said expenditure is hit by the explanation to Section 37(1) being prohibited. When the genuineness of the expenditure is not doubted then the claim of the assessee cannot be disallowed. We are of the view that the AO has wrongly interpreted the CBDT circular. No 05/2012 dated 01/08/2012. The Ld. AR for assessee submitted that the circular is not applicable for the present case, it is applicable for expenditure incurred in providing freebies to medical practitioner by pharmaceuticals and allied sector health industry. We are of the considered view that the CIT(A) has rightly upheld the order by relying on the identical issue decided in Hon ble Rajasthan High Court 2017 (12) TMI 931 - RAJASTHAN HIGH COURT . The Commissioner of Income Tax (Appeals) after considering the relevant facts has rightly held that the expenses claimed by the assessee is allowable u/s.37(1) of the Income Tax Act, 1961. Thus, we do not find any merit in the case of the Revenue.
Issues Involved:
1. Justification of CIT(A) in deleting the addition of Rs. 5,37,270/- under Section 37 of the IT Act. Issue-wise Detailed Analysis: 1. Justification of CIT(A) in deleting the addition of Rs. 5,37,270/- under Section 37 of the IT Act: The core issue revolves around whether the CIT(A) was justified in deleting the addition of Rs. 5,37,270/- made by the AO under Section 37 of the Income Tax Act, 1961, which pertains to business promotion expenses. Background: The assessee, running a hospital under the proprietorship concern M/s Deep Hospital & Research Centre, filed a return declaring an income of Rs. 62,25,700/- for the assessment year 2013-14. The AO assessed the total income at Rs. 79,96,390/-, disallowing Rs. 5,37,270/- under Section 37 based on CBDT Circular No. 05/2012 dated 01.08.2012, which prohibits certain business promotion expenses. CIT(A) Findings: The CIT(A) allowed the appeal, referencing a similar issue decided by the ITAT, Jaipur, and the Rajasthan High Court in favor of the assessee. The CIT(A) noted that the expenses were incurred for professional promotion, such as referral charges for bringing patients to the hospital, which were genuine and not freebies as prohibited by the CBDT Circular. Revenue's Appeal: The Revenue contested the CIT(A)'s decision, arguing that the expenses were hit by the CBDT Circular and should be disallowed under Section 37. They contended that the AO had appropriately disallowed the expenses after due consideration. Assessee's Argument: The assessee argued that the expenses were legitimate business promotion expenses and not freebies. They cited previous rulings where similar expenses were allowed, emphasizing that the CBDT Circular applied to pharmaceutical companies providing freebies to medical practitioners, not to hospitals paying referral charges. Tribunal's Analysis: The Tribunal reviewed the submissions and material on record. They noted that the AO had not doubted the genuineness of the expenses but disallowed them based on the CBDT Circular. The Tribunal found that the circular did not apply to the assessee's case as the expenses were not freebies but legitimate business expenses. They referenced the Rajasthan High Court's decision, which held that such expenses are allowable and cannot be disallowed under the guise of medical ethics, which is the purview of the Medical Council of India, not the Income Tax authorities. Conclusion: The Tribunal upheld the CIT(A)'s decision, affirming that the expenses were allowable under Section 37(1) as they were genuine business expenses and not prohibited by the CBDT Circular. The appeal by the Revenue was dismissed. Order: The appeal filed by the Revenue is dismissed, confirming the CIT(A)'s order allowing the expenses claimed by the assessee. The decision was pronounced in the open court on 13/06/2022.
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