2022 (11) TMI 1259 - AT - Income Tax

Addition under the head commission paid to others - commission expenses incurred by the Assessee, being a Medical Doctor by profession - claim of the Assessee that the Assessing Officer had made addition by completely misunderstanding and misinterpreting the facts of the case is frivolous and totally unwarranted - HELD THAT - We are unable to accept the contradictory stand of the Assessee taken before the L. Commissioner because the contradictory stand of the Assessee clearly seems to be concocted story, twisting facts, erratic, vague and superfluous and thus liable to be depreciated. Even otherwise as per the judgements referred to above, the payment of commission by the Assessee for referring patients to it by any stretch of imagination, cannot be accepted as legal or as per public policy of India, hence such commission is not an allowable expense. Consequently the Assessee in any case is not entitled for any relief on merit, we are thus inclined not to interfere in sustaining the addition. Jurisdiction of the Assessing Officer to extend the assessment proceedings beyond the points of limited scrutiny - As the case of the Assessee was selected for limited scrutiny and the addition in hand does not emanate from the grounds on which the case of the Assessee was picked up for limited scrutiny. Though the Ld. Commissioner, in the impugned order incorporated the legal contention of the Assessee objecting to the jurisdiction of the Assessing Officer to extend the assessment proceedings beyond the points of limited scrutiny, but the ld. Commissioner has not adverted to decide this contention of Assessee in the impugned order. As it is settled law that the Revenue Authorities are not allowed to travel beyond the issues involved in limited scrutiny cases, except in exceptional circumstances and by completing the relevant formalities before proceeding to other issues, which in the instant case does not appears to have adhered to. Hence, we deem it appropriate to delete the addition in hand. Consequently, the appeal of the Assessee is liable to be allowed.

Summary

Issues Involved:

1. Disallowance of commission expenses claimed by the Assessee.
2. Jurisdiction of the Assessing Officer in extending the assessment beyond the scope of limited scrutiny.

Detailed Analysis:

1. Disallowance of Commission Expenses:

The Assessee, a medical doctor, declared a total income of Rs. 86,65,830/- for the assessment year 2015-16. During the assessment proceedings, the Assessee was questioned about Rs. 4,80,000/- debited as "commission to others" in the profit and loss account. The Assessee justified the expenses by stating they were necessary to generate new cases in a competitive market and had deducted proper tax at source. However, the Assessing Officer disallowed these expenses, citing that the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, prohibit medical practitioners from giving or receiving any commission. The Assessing Officer, therefore, added the disallowed amount to the Assessee's income.

On appeal, the Assessee claimed the expenses were paid to a marketing agency for business improvement, not as a referral fee to other medical entities. The Assessee argued that the Assessing Officer misunderstood the nature of the payments. However, the Commissioner noted contradictions in the Assessee's statements and upheld the disallowance, stating that the Assessee had initially claimed the expenses as commissions to others.

The Tribunal observed the contradictions in the Assessee's claims before the Assessing Officer and the Commissioner. It reiterated that paying commissions by medical practitioners is against public policy, as highlighted by the Supreme Court in various judgments. The Tribunal emphasized the importance of coming to court with clean hands and full disclosure of facts. It concluded that the Assessee's contradictory statements and the nature of the expenses disqualified them as allowable business expenses, thus upholding the disallowance on merit.

2. Jurisdiction of the Assessing Officer:

The Assessee argued that the Assessing Officer exceeded her jurisdiction by making inquiries beyond the scope of the limited scrutiny, which was initially based on specific grounds related to Section 40A(2)(b) and discrepancies in receipts under Sections 194C and 194J. The Assessee contended that the Assessing Officer did not follow the necessary procedures to extend the scope of scrutiny and did not provide an opportunity for the Assessee to contest this expansion.

The Tribunal agreed with the Assessee, noting that the Revenue Authorities are restricted from traveling beyond the issues involved in limited scrutiny cases unless exceptional circumstances and formalities are adhered to. Since the addition of Rs. 4,80,000/- did not emanate from the original grounds of limited scrutiny, the Tribunal deemed it appropriate to delete the addition on legal grounds. Consequently, the appeal was allowed in favor of the Assessee.

Conclusion:

The Tribunal upheld the disallowance of the commission expenses on merit due to the Assessee's contradictory statements and the nature of the expenses being against public policy. However, it allowed the appeal on legal grounds, stating that the Assessing Officer exceeded her jurisdiction by extending the assessment beyond the scope of limited scrutiny without following the required procedures.

Order pronounced in the open court on 28/11/2022.