TaxTMI 
TaxTMI 
2018 (5) TMI 1684
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....octors - namely Dr. Bhavin Shah, Dr. Chirag Desai, Dr. Sandip Shah and Dr. Shailesh Talati, who are promoter directors of this company, whereas only Rs. 64,09,696/- payments cover the payments to seven other doctors. Even though it was explained to him that these four doctors are highly reputed specialists, the Assessing Officer was of the view that 84% of salaries being paid to four doctors, and 16% salaries being paid to the remaining seven doctors, by itself, shows that the payment to the four doctors, who are promoter directors as well and, as such, covered by the definition of 'specified persons', shows that the payment is excessive and unreasonable. He thus disallowed 15% of payments made to these four doctors, under section 40A(2). The disallowance was thus quantified at Rs. 52,57,032/-. Aggrieved, assessee carried the matter in appeal before the CIT(A) who deleted the aforesaid disallowance by observing as follows:- "3.10. Having considered the facts and submission, it is apparent that it is undisputed fact that the services of professional doctor is not comparable with any other doctor of a similar line because of various factors including the skills, competency, ....
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....a). Judgment of Hon'ble Bombay High Court in the case of Indo Saudi Services (Travel) (P) Ltd. (2009) 310 IT 306 also supports this view. Further, Circular No. 6-P dated 6/7/1968 also supports the appellant's plea for no disallowance under the provisions. It has also been noticed that in the preceding years even the professional fee paid to promoter directors vis-a-vis professional fee to other doctors have been compared and it is found that in A. Y. 2009-10, the total fee paid to promoter directors was 7.21 times of the professional fee to other doctors, while in A. Y. 2010-11 it was 4.10 times, in A. Y. 2011-12 it was 3.35 times and in the year under consideration if was 5.22 times. Thus, it can be seen that even in A. Y. 2009-10, the ratio of professional fee to promoter directors vis-a-vis the other directors was higher as compared to the year under consideration, even though no adverse view has been taken by the AO in that year. Thus from the above, it is obvious that the professional fees payment to promoter doctors in the year under consideration was almost on similar lines and no excess payments to them were made. 3.14. In view of the aforesaid discussion, ....
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.... of the services rendered by the promoter directors and that he has simply proceeded to make an adhoc disallowance @ 15% out of the payments made to these persons. As to the question whether such a disallowance is permissible, we find guidance from the judgment of Hon'ble jurisdictional High Court, in the case of CIT vs. Ashok J. Patel [(2013) 43 taxmann.com 227 (Guj.)], wherein confirming the views articulated by the Tribunal through one of us (i.e. Accountant Member) in the case of ACIT vs. Ashok J Patel (59 SOT 53), Their Lordships have, inter alia, observed as follows:- "The learned CIT(A) also observed that no comparative prices for similar transport services was cited by the AO and therefore, was not justified in making ad-hoc disallowance of 5% under section 40A(2)(b) of the Act and therefore, the CIT(A) as such rightly deleted the disallowances made under section 40A(2)(b) of the Act. Considering the provisions of Section 40A(2)(b) of the Act and the Evidence Act, if the AO was of the opinion that the payment for which disallowance is claimed, is excessive or unreasonable. In that case, it was for the AO to assess fair market price and give comparative instances fo....
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....screpancy in the figures of the tax audit report and the assessee, neither such a situation can be a reason enough to make a disallowance under section 40A(2) nor the onus of explaining such a variation is on the assessee. A tax auditor is an independent professional and any errors in his report cannot be put to assessee's disadvantage. In view of these discussions, as also bearing in mind entirety of the case, we approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter." We are in complete agreement with the view taken by the ITAT and the observations made by the learned ITAT while deleting disallowances made by the AO under section 40A(2) (b) of the Act on motor bus rent. No error has been committed by the learned ITAT which calls for interference of this Court. No question of law much less any substantial question of law arises." 7. The adhoc disallowances under section 40A(2) are thus simply not permissible. For this short reason alone, the impugned relief granted by the CIT(A) must be upheld. 8. Even on merits of the matter, the case of the revenue must fail. There is an inherent fallacy in the approach of the Assessing Officer....