Prospective application of CBDT circular on doctor commission bars retrospective disallowance under section 37(1).

Commission paid to doctors was disallowed under section 37(1) by reference to CBDT Circular No. 5/2012, but the Tribunal held the circular operated prospectively from 01.08.2012 and could not be used retrospectively for the assessment year in question. On that basis, the disallowance was not justified on the facts considered and was deleted in favour of the assessee.

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Issues: Whether the disallowance of commission expenses paid to doctors was sustainable under section 37(1) of the Income-tax Act, 1961 in view of CBDT Circular No. 5/2012 dated 01.08.2012.

Analysis: The commission expenditure was disallowed by invoking the Explanation to section 37(1) and relying on CBDT Circular No. 5/2012. The Tribunal followed the coordinate bench view that the circular could not govern the assessment year in question as it was effective from 01.08.2012 and therefore applied prospectively. On that reasoning, the expenditure disallowance was not justified on the facts considered.

Conclusion: The disallowance of commission expenses was deleted and the issue was decided in favour of the assessee.

Ratio Decidendi: A CBDT circular introducing a disallowance cannot be applied retrospectively to an assessment year to sustain disallowance under section 37(1) where the expenditure is otherwise not shown to be impermissible for that year.

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