Medical institution's advertisement expenses fully disallowed under section 37(1) for violating professional conduct regulations

ITAT Visakhapatnam dismissed the assessee's appeal regarding advertisement expenses disallowed under section 37(1). The assessee, a medical institution, claimed advertisement expenditure but failed to respond to assessment notices or substantiate claims with bank statements and TDS details. The AO disallowed the entire expenditure as it violated Indian Medical Council professional conduct regulations prohibiting patient solicitation. CIT(A) erroneously restricted disallowance to 50% without proper verification or reasoning. ITAT held the expenditure violated medical ethics regulations and restored the AO's order completely disallowing the advertisement expenses.

---

---

Issues:
1. Disallowance of advertisement expenses under section 37(1) of the Income Tax Act, 1961.
2. Adjudication of the allowability of expenditure as per Indian Medical Council Guidelines, 2002.

Analysis:
1. The appeal and cross objection were filed against the order of the Learned Commissioner of Income Tax (Appeals) regarding the disallowance of advertisement expenses. The assessee failed to respond to notices during assessment proceedings, leading to disallowance of a sum under section 37(1) of the Act. The Assessing Officer requested justification for the claimed expenses under Indian Medical Council regulations. The First Appellate Authority partially allowed the appeal by restricting the disallowances to 50% of the expenses claimed.

2. The appellant challenged the order, arguing that the expenses were genuinely incurred for business purposes and should be allowed under section 37(1) of the Act. The Departmental Representative contended that the Assessing Officer's observations were valid and objected to the Ld. CIT(A) restricting the disallowances without proper verification. The Tribunal examined the case, noting the failure of the assessee to substantiate the nature of expenses in compliance with Indian Medical Council regulations.

3. The Tribunal observed that the appellant did not discharge the onus to prove the expenses were solely for business purposes under section 37 of the Act. The Ld. CIT(A) was criticized for not providing categorical findings and arbitrarily restricting the disallowances to 50%. The Tribunal found that the appellant violated the Indian Medical Council Act regulations by engaging in advertisement activities prohibited by the guidelines. Consequently, the order of the Ld. CIT(A) was set aside, and the appeal of the assessee was dismissed.

4. The Tribunal also addressed the cross objection filed by the revenue, which was allowed due to the dismissal of the assessee's appeal. The final judgment was pronounced on 12th August, 2024, dismissing the appeal of the assessee and allowing the cross objection of the revenue.

---