Claim Of Advertisement Expenditure By Hospital Violative Of Indian Medical Council Act 1956: ITAT

The Visakhapatnam Bench of Income Tax Appellate Tribunal (ITAT) has held that the claim of advertisement expenditure by hospitals is violative of the Indian Medical Council Act 1956 professional conduct, Etiquette and Ethics Regulations, 2002.

The bench of Duvvuru Rl Reddy (Judicial Member) and S Balakrishnan (Accountant Member) has observed that Chapter 6 of the Indian Medical Council Act, 1956, professional conduct, etiquette, and ethics Regulations, 2002, prohibits even institutions and organizations from soliciting patients either directly or indirectly. The assessee has violated the provisions of the Indian Medical Council Act 1956, professional conduct, and the and the Etiquette and Ethics Regulations, 2002.

The appellant/assessee is a hospital that filed its return of income, admitting a total income for the year 2018–19. The return was summarily processed under Section 143(1) of the Income Act after enhancing the total income to Rs. 4,94,23,415/- with respect to disallowances on delayed payments of employee contributions to PF and ESI payments. Subsequently, the case was selected for complete scrutiny.

The statutory notices under sections 142(1) and 143(2) of the Income Tax Act were issued and served on the assessee, calling for details in connection with the scrutiny proceedings. The assessee failed to comply with the various notices from the assessing officer. The assessee, on perusal of the profit and loss account, noticed that the assessee had claimed advertisement expenditure to the extent of Rs. 36,52,061/- and requested that the that the assessee explain the nature of the expense and also justify the claim with respect to the restrictions imposed and categorization of such expenses under “unethical acts” under the professional conduct, Etiquette and Ethics Regulations, 2002 of the Indian Medical Council.

The assessee failed to respond to the notices, and in the absence of any explanation from the assessee, the assessing officer was disallowed under Section 37(1) of the Income Tax Act.

The assessee filed an appeal before the CIT (A). Before, the First Appellate Authority assessed and filed documentary evidence with respect to the nature of expenses incurred and supporting bills and vouchers. The CIT(A) forwarded the additional documentary evidence submitted by the assessee to the Assessing Officer calling for a Remand Report. The assessing officer furnished the remand report. The Remand Report of the Assessing Officer was forwarded to the assessee for rejoinder, which was submitted by the assessee. Considering the Remand Report, the Rejoinder, and other explanations and information provided by the assessee, the CIT(A) partly allowed the appeal of the assessee by restricting the disallowances to 50% of the expenses claimed by the assessee.

The assessee contended that the assessing officer has observed that the assessee has not produced ledger extracts, bills, or vouchers and has not deducted TDS on the advertisement expenditure as per the provisions of the Act. The Assessing Officer, in his Remand Report, has not discussed the allowability of such expenditures, which are not permissible under the Guidelines of the Indian Medical Council Act, 1956. Therefore, he pleaded that these expenses are genuinely incurred in the nature of carrying out the business of the assessee and are therefore entitled to be allowed under Section 37(1) of the Act. He therefore pleaded that the balance of 50% be allowed to the assessee.

The department contended that the assessee has not substantiated the exact nature of expenditure and has not submitted any counter regarding the stand taken by the Assessing Officer on the violation of Indian Medical Council Act Regulations. The CIT(A) erred in restricting the disallowances to 50% without any verification and providing reasons for such an estimation of partial relief. Therefore, the order of the assessing officer is liable to be upheld.

The tribunal noted that the assessee has made public only the services offered by the assessee, which constitutes advertisement.

The tribunal, while dismissing the assessee's appeal, held that the CIT(A) has erred in estimating the disallowances and restricting them to 50% of the expenditure claimed by the assessee without providing any valid reasoning, and hence the order of the CIT(A) is set aside and the order of the AO restored.

Counsel For Petitioner: G.V.N. Hari

Counsel For Respondent: Aparna Villuri

Case Title: Chalasani Hospitals (P.) Ltd. Versus ACIT

Case No.: I.T.A.No.315/VIZ/2023

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