2024 (8) TMI 1016 - AT - Income Tax

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, ... Allowability of advertising expenditure as business expenditure under section 37(1) of the Income Tax Act, 1961 - Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 - prohibition on solicitation and self advertisement by physicians and clinical establishments - Onus on assessee to substantiate expenditure and prove payments - Estimation of disallowance - requirement of reasoned findings for partial allowanceAllowability of advertising expenditure as business expenditure under section 37(1) of the Income Tax Act, 1961 - Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 - prohibition on solicitation and self advertisement by physicians and clinical establishments - Onus on assessee to substantiate expenditure and prove payments - Estimation of disallowance - requirement of reasoned findings for partial allowance - Whether the advertisement expenses claimed by the assessee are allowable under section 37(1) in view of the Indian Medical Council Regulations and the assessee's failure to substantiate the claim, and whether the CIT(A) was justified in restricting the disallowance to 50% - HELD THAT: - The Assessing Officer disallowed the advertisement expenditure on the ground that it was in the nature of solicitation/advertisement prohibited by Chapter 6 of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 and because the assessee did not produce ledger extracts, bank statements or TDS details to substantiate payments. The assessee failed to furnish the necessary information during assessment proceedings and only filed supporting documents before the CIT(A), whereupon a remand report was sought. The Tribunal finds that the assessee did not discharge the onus of proving that the expenses were wholly and exclusively for business or that they fell within permitted announcements under the Regulations. The Regulations prohibit solicitation or self aggrandizement by institutions and practitioners, and the material on record does not rebut the AO's objection that the expenditures amounted to prohibited advertising. Further, the CIT(A)'s reduction of the disallowance to 50% was rendered without categorical findings or adequate reasoning explaining the basis for the estimate; such an arbitrary estimation is unsustainable. In these circumstances the Tribunal is satisfied that the AO's disallowance ought to be restored. [Paras 9, 10, 11, 12]The disallowance of the advertisement expenditure is upheld and the CIT(A)'s order restricting the disallowance to 50% is set aside; the Assessing Officer's disallowance is restored.Final Conclusion: Appeal dismissed; the Tribunal restores the Assessing Officer's disallowance of the advertisement expenses for A.Y. 2018-19 and allows the revenue's cross objection. 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.