Sudhir Chadha vs ACIT Circle 61(1), New Delhi: Commission Disallowed Due to Contradiction in Claims – ITA 6118/DEL/2019

Sudhir Chadha vs ACIT Circle 61(1), New Delhi: Commission Disallowed Due to Contradiction in Claims

Case Number: ITA 6118/DEL/2019

Appellant: Sudhir Chadha, New Delhi

Respondent: ACIT Circle 61(1), New Delhi

Assessment Year: 2015-16

Order Type: Final Tribunal Order

Date of Order: 28th November 2022

Case Filed On: 18th July 2019

Pronounced On: 28th November 2022

Background of the Case

In this appeal, Sudhir Chadha, a medical doctor based in New Delhi, challenged the addition of Rs. 4,80,000/- made by the Assessing Officer (AO) under the head ‘commission to others.’ The AO had disallowed this expense on the grounds that it violated the Medical Council’s regulations prohibiting the payment of commissions by medical professionals.

The appellant initially filed his return of income for the assessment year 2015-16 on 12th September 2015, declaring a total income of Rs. 86,65,830/-. The case was selected for limited scrutiny, and during the assessment proceedings, the AO questioned the commission expenses claimed by the appellant.

Grounds for Filing the Appeal

The appellant filed the appeal against the assessment order passed by the AO, arguing that the commission expenses were legitimate business expenses incurred to generate new cases and improve the efficiency of his medical practice. The appellant also argued that the AO had misunderstood the nature of these expenses and had incorrectly disallowed them.

During the appeal proceedings, the appellant further contended that the AO exceeded her jurisdiction by making additions on issues that were not part of the limited scrutiny. This argument formed the basis of the legal contention raised by the appellant before the Commissioner of Income Tax (Appeals) [CIT(A)] and the Income Tax Appellate Tribunal (ITAT).

Tribunal Proceedings

The case was heard before the Delhi Bench ‘G’ of the Income Tax Appellate Tribunal (ITAT), with Judicial Member Shri N.K. Choudhry and Accountant Member Shri Pradip Kumar Kedia presiding. The appellant was represented by Shri Atul Puri, Ld. Advocate, while the respondent was represented by Shri Pradeep Gautam, Ld. Senior Departmental Representative (DR).

During the assessment proceedings, the appellant initially claimed that the commission was paid to generate new cases in a competitive market. However, during the appeal proceedings, the appellant altered his stance, asserting that the payments were made to a marketing agency for services such as patient management, surgery coordination, and patient counseling.

The ITAT observed this contradiction and noted that the appellant’s claims before the AO and the CIT(A) were inconsistent, which cast doubt on the genuineness of the expenses claimed. The Tribunal emphasized that the payment of commissions by medical professionals is prohibited under the Indian Medical Council (Professional Conduct, Etiquette, and Ethics) Regulations, 2002. The Tribunal further noted that the appellant had failed to provide evidence that the payments were made for legitimate business purposes.

Final Tribunal Order

The ITAT ultimately disallowed the commission expenses claimed by the appellant, citing the contradiction in the appellant’s statements and the illegality of such payments under the Medical Council’s regulations. The Tribunal emphasized that the payment of commissions by medical professionals is against public policy and cannot be allowed as a business expense.

However, the Tribunal allowed the appeal on legal grounds, noting that the AO had exceeded her jurisdiction by making additions that were not related to the issues for which the case was selected for limited scrutiny. The Tribunal ruled that the revenue authorities cannot expand the scope of a limited scrutiny case without proper authorization and justification.

Conclusion

In conclusion, while the ITAT disallowed the commission expenses claimed by Sudhir Chadha, the appeal was ultimately allowed on the basis of a jurisdictional issue. The Tribunal’s decision highlights the importance of consistency in a taxpayer’s claims and adherence to legal and ethical standards, particularly in the medical profession. The case also underscores the need for revenue authorities to adhere strictly to the scope of limited scrutiny cases, ensuring that any expansion of the scrutiny is justified and authorized.

Sd/-
(PRADIP KUMAR KEDIA)
ACCOUNTANT MEMBER

Sd/-
(N.K. CHOUDHRY)
JUDICIAL MEMBER

Assistant Registrar

Sudhir Chadha vs ACIT Circle 61(1), New Delhi: Commission Disallowed Due to Contradiction in Claims – ITA 6118/DEL/2019