2018 (12) TMI 1876 - AT - Income Tax

Revision u/s 263 - CIT observed that A.O.has not applied his mind and has allowed the claim of expenses viz. Medical Conference Expenses which were prohibited by Medical Council of India (MCI) - Assessee submitted that the A.O. in these cases has examined the issues and has duly applied his mind. He submitted that as a result of this application of mind the A.O. has disallowed the sales promotion articles which were found to be covered under freebies to doctors prohibited under MCI guidelines and CBDT Circular - HELD THAT - CIT s observation that the A.O. has not followed these MCA Guideline and CBDT Circular is totally misplaced. As regards the examination of conference expense is concerned the ld. CIT has held that the same were not examined by the A.O. by holding that the concerned ledger accounts were not available in assessment record. This in our considered opinion is not at all sustainable in view. There is no rule that the A.O. is supposed to obtain and keep in the assessment records the copy of all the ledger account which he has examined. Furthermore the ld. CIT is fully aware of the case law cited by the assessee before him wherein similar expenses were allowed by the ITAT. He has not followed the same holding that it has been appealed against in High Court. Just because the ITAT order has been appealed before High Court it will not cease to have binding effect on the ld. CIT. It will always be considered to be a permissible view. Hence if the A.O. adopts a legally permissible view the same cannot be the subject to revision u/s. 263 of the Act. While concluding the ld. CIT has observed that the A.O. shall take into account the binding judicial precedence which may become available on the subject. In this connection we note that in assessee s own case the ITAT 2018 (7) TMI 1883 - ITAT MUMBAI has allowed the assessee s appeals and dismissed the Revenues appeals. The issue involved was the allowability of similar expenses. In this view of the matter we find that admittedly the decision of tribunal is binding upon the A.O. Hence the order u/s. 263 of the Act by the ld. CIT will be of no consequence. A.O. has already made the necessary enquiries in this regard. Here it is a case that the A.O. has made some enquiry and the ld. CIT is not satisfied and he wants another enquiry to be done. This direction u/s. 263 is not sustainable legally. This proposition draws support from the decision of the Hon ble jurisdictional High Court in the case of CIT vs. Gabriel India Ltd. 1993 (4) TMI 55 - BOMBAY HIGH COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the disallowance of Medical Conference Expenses under Section 37 of the Income Tax Act, 1961.
2. Jurisdiction and applicability of Medical Council of India (MCI) regulations to the assessee.
3. Examination and verification of the expenses by the Assessing Officer (AO).
4. Applicability of the CBDT Circular No. 5/2012.
5. The power of the Commissioner of Income Tax (CIT) under Section 263 of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of the Disallowance of Medical Conference Expenses under Section 37 of the Income Tax Act, 1961:
The CIT observed that the AO wrongly allowed Medical Conference Expenses claimed by the assessee, which were prohibited by the MCI notification dated December 10, 2009. The CIT noted that these expenses fall under the classification of medical freebies and are not allowable under Explanation 1 to Section 37 of the Income Tax Act. The CIT emphasized that the AO's failure to disallow these expenses rendered the assessment order erroneous and prejudicial to the interest of revenue.

2. Jurisdiction and Applicability of Medical Council of India (MCI) Regulations to the Assessee:
The assessee argued that the MCI is not a regulatory authority over it and that its jurisdiction is limited to medical professionals. The CIT rejected this argument, stating that even if the MCI regulates only medical professionals, the assessee should not indulge in prohibited expenses. The CIT highlighted that the MCI notification, approved by the Central Government, has the force of law and thus falls under the purview of Explanation 1 to Section 37 of the Income Tax Act.

3. Examination and Verification of the Expenses by the Assessing Officer (AO):
The CIT noted that the AO did not properly examine or verify the Medical Conference Expenses. The CIT pointed out that the assessment records did not contain the ledger accounts or details of these expenses, and the order sheet did not show any production or examination of such expenses. The lack of proper inquiry and verification by the AO was deemed to render the assessment order erroneous and prejudicial to the interest of revenue.

4. Applicability of the CBDT Circular No. 5/2012:
The CIT referred to CBDT Circular No. 5/2012, which clarifies that expenses incurred in providing freebies in violation of MCI regulations are inadmissible under Section 37(1) of the Income Tax Act. The CIT emphasized that the AO should have disallowed the Medical Conference Expenses in accordance with this circular, which is binding on the AO.

5. The Power of the Commissioner of Income Tax (CIT) under Section 263 of the Income Tax Act, 1961:
The CIT exercised the power conferred under Section 263 of the Income Tax Act to set aside the assessment order due to the AO's failure to make necessary inquiries and verification. The CIT directed the AO to reframe the assessment after proper examination and verification of the expenses, considering the CBDT Circular and providing the assessee with an opportunity to be heard.

Conclusion:
The Income Tax Appellate Tribunal (ITAT) Mumbai found that the AO had duly applied his mind and made necessary inquiries regarding the Medical Conference Expenses. The ITAT noted that the AO had disallowed sales promotion expenses in adherence to the MCI guidelines and CBDT Circular. The ITAT held that the CIT's observation that the AO did not apply his mind was not sustainable. The ITAT emphasized that if the AO adopts a legally permissible view, it cannot be subject to revision under Section 263. The ITAT quashed the order passed by the CIT under Section 263, thereby allowing the appeals filed by the assessee.