Dr. Anil Gupta v. Addl. Commissioner Of Income Tax, Circle-7, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 485 / 2008 Dr. Anil Gupta S/o Late Shri D.K. Gupta aged about 48 years,Khatipura Mode, Jhotwara, Jaipur ----Appellant Versus Addl. Commissioner Of Income Tax, Circle-7, Jaipur ----Respondent Connected With D.B. Cross Objection Civil No. 48 / 2016 Dr. Anil Gupta S/o Late Shri D.K. Gupta aged about 48 years, Khatipura Mode, Jhotwara, Jaipur ----Petitioner Versus Addl. Commissioner Of Income Tax, Circle-7, Jaipur ----Respondent _____________________________________________________ For Appellant(s) : Mr. Sanjay Jhanwar with Ms. ArchanaFor Respondent(s) : Mr. Sameer Jain with Mr. Daksh Pareek _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Judgment 18/07/2017 1.There is gross delay of 1623 days in filing the cross objection48/2016 and after the matter was first argued before this Courtwhen the matter has taken up by one of us somewhere in October,2016 cross objection was filed in first week of November. 2.In that view of the matter, in our considered opinion, thedelay is not required to be condoned therefore, delay condonation application and cross objection are rejected. 3.Counsel for the appellant contended that the assessee isproprietor firm running his hospital namely Deep Hospital,Khatipura Road, Jhotwara, Jaipur wherein while considering thecase of the assessee, the assessing officer has observed asunder:- “The assessee has failed to furnish the completeaddresses of the persons or doctors to whom sucha huge payment of Rs. 7,42,524/- has been madeby him under the cover of profession promotion, soas to ascertain the genuineness of payment andalso to verify whether they were declaring thereceipt in their income tax return if any filed bythem. The supply of the name in the shape ofinternal vouchers prepared by the assessee withoutany complete address of the persons to whom suchpayment have been made does not discharge theonus of the assessee to prove the genuineness ofthe transaction. Thus, after considering the factsthat he is able to identify a few persons to whomsuch payment has been made but at the same timehe failed to furnish the complete identification andaddresses of the remaining persons so as to enableme to verify and ascertain the genuineness of theabove payment and whether these persons werepaying any taxes on the income received by themfrom the assessee. I therefore, disallow a sum ofRs. 5 Lacs (Rs. Five Lacs) out of claim of theassessee for an expenditure of Rs. 7,42,524/-under this head and add back it to his income.” 4.Since the assessing officer has not allowed the expenses,they preferred an appeal and the CIT(A) has observed as under:- “I have considered the facts of the case, I havegone through the details of the commission paidto the various persons. I found that it is a generalpractice that the doctor is required to make thepayment of commission to the persons who refersthe clients to him. The payment of suchcommission is made due to business expediency.In assessment proceeding, the AO examined sixpersons to whom the payment of the commissionis made. All these persons accepted the fact of 4.Since the assessing officer has not allowed the expenses,they preferred an appeal and the CIT(A) has observed as under:- “I have considered the facts of the case, I havegone through the details of the commission paidto the various persons. I found that it is a generalpractice that the doctor is required to make thepayment of commission to the persons who refersthe clients to him. The payment of suchcommission is made due to business expediency.In assessment proceeding, the AO examined sixpersons to whom the payment of the commissionis made. All these persons accepted the fact of receipt of the commission and referring of theclient to the assessee. In the vouchers not onlythe signature of the recipients are available butalso the full details, which were necessary toestablish the genuineness of the payment of thecommission, were recorded. Those details wouldserve as a proper voucher in support of thepayment of the brokerage and commission. Theassessee has therefore proved beyond doubt thenecessity of the payment of the brokerage andcommission, factom of service, the mode andmethod of commission and the vouchers inrespect of the payments. The acceptance of thepart amount of commission by the AO itselfproves the genuineness of the expenses claimed.Therefore looking to the overall facts andcircumstances of the case, the disallowance madeby the AO out of the business promotion expensesis deleted. The appellant gets relief ofRs.5,00,000/-.” 5.The Tribunal while considering the case of the appellant hasobserved as under:- “8. We may submit that expenses arevouched, comparable from earlier year,incurred wholly and exclusively for thepurpose of business. On test check basis fewperson were produced and examined by AO.Section 37(1) provides that:- (i) any expenditure, (ii) not being in the nature of capitalexpenditure or (iii) personal expenses of the assessee (iv) expended wholly and exclusively for thepurpose of the business or profession shallbe allowed in computing the incomechargeable under the head “Profits and Gainsof Business or Profession”. 6.Counsel for the appellant contended that in view of the decision of the Delhi High Court in case of Max Hospital, Pitampuravs. Medical Council of India; ILR (2014) 1 Delhi 620 whereexpenses are required to be allowed to the hospital as business expenses and wherein the Delhi High Court has observed as under:- In the counter affidavit filed by the Respondents, itis not disputed that the MCI under the 2002Regulations has jurisdiction limited to taking actiononly against the registered medical practitioners.It's plea however, is that it has not passed anyorder against the Petitioner hospital therefore; thePetitioner cannot have any grievance against theimpugned order. At the same time, it is stated thatonly simple observations were made by the EthicsCommittee of the MCI about the state of affairs inthe Petitioner hospital and the same did not harmany legal right or interest of the Petitioner. It will beapposite to extract the relevant paragraphs of thecounter affidavit filed by the MCI as under:- 4. Preliminary Objections: (i) That the instant writ petition is not maintainableunder Article 226 of the Constitution of India asthere is no cause of action for filing of this instantpetition. The MCI has not passed any order againstthe petitioner in the impugned minutes of meetingdated 27.10.2012, therefore, there is no cause ofaction for filing the instant writ petition. (ii) That the MCI has not passed any order againstthe petitioner and nor does the impugned minutesof meeting dated 27.10.2012 affect any legal rightor interest of the petitioner which the petitionerseeks to enforce by filing this writ petition and thusthe same is not maintainable. 4. Preliminary Objections: (i) That the instant writ petition is not maintainableunder Article 226 of the Constitution of India asthere is no cause of action for filing of this instantpetition. The MCI has not passed any order againstthe petitioner in the impugned minutes of meetingdated 27.10.2012, therefore, there is no cause ofaction for filing the instant writ petition. (ii) That the MCI has not passed any order againstthe petitioner and nor does the impugned minutesof meeting dated 27.10.2012 affect any legal rightor interest of the petitioner which the petitionerseeks to enforce by filing this writ petition and thusthe same is not maintainable. (iii) That the jurisdiction of MCI is limited only totake action against the registered medicalprofessionals under the Indian Medical Council(Professional Conduct, Etiquette and Ethics)Regulations, 2002 (hereinafter the 'EthicsRegulations') and has no jurisdiction to pass anyorder affecting rights/interests of any Hospital,therefore the MCI could not have passed and hasnot passed, any order against the petitioner whichcan be assailed before this Hon'ble Court in writjurisdiction. (iv) That a simple observation made by the EthicsCommittee of MCI about the state of affairs in thepetitioner Hospital has harmed no legalright/interest of the petitioner for which a writ canbe issued by this Hon'ble Court against theanswering respondent. (v) That the petitioner contends that an adverseorder has been passed by the MCI and that toowithout hearing the petitioner. Both thesecontentions of the petitioner are incorrect andfrivolous as firstly, there is no adverse order madeby the MCI against the petitioner as MCI does nothave any such jurisdiction; secondly, the petitionerwas throughout represented before the EthicsCommittee of MCI during the proceedings initiatedon complaint of one Mr. Sunil Manchanda againstsome of the doctors working in the petitionerhospital. The petitioner was heard through itsadvocates on several occasions and had submittedseveral documents also in support of their stand. 7. It is clearly admitted by the Respondent that ithas no jurisdiction to pass any order against thePetitioner hospital under the 2002 Regulations. Infact, it is stated that it has not passed any orderagainst the Petitioner hospital. Thus, I need not gointo the question whether the adequateinfrastructure facilities for appropriate post-operative care were infact in existence or not in thePetitioner hospital and whether the principles ofnatural justice had been followed or not whilepassing the impugned order. Suffice it to say thatthe observations dated 27.10.2012 made by theEthics Committee do reflect upon the infrastructurefacilities available in the Petitioner hospital andsince it had no jurisdiction to go into the same, theobservations were uncalled for and cannot besustained.” 7.He has also relied upon the decision in case of Dr. T.A.Quereshi vs. Commissioner of Income Tax reported in (2006) 287ITR 0547 where the expenses were allowed for business loss as aresult of seizure amount of heroine. 8.However, counsel for the respondent Mr. Jain contended thataction of the respondent unethical and in view of the decision ofPunjab and Haryana High Court in case of Commissioner ofIncome Tax vs. Kap Scan and Diagnostic Centre P. Ltd. reported in(2012) 344 ITR 476 and also the decision of Supreme Court incase of M/s Maddi Venkataraman and Co. (P) Ltd. vs.Commissioner of Income Tax reported in (1998) 229 ITR 534wherein para 24 & 25 it has been held as under:- 7.He has also relied upon the decision in case of Dr. T.A.Quereshi vs. Commissioner of Income Tax reported in (2006) 287ITR 0547 where the expenses were allowed for business loss as aresult of seizure amount of heroine. 8.However, counsel for the respondent Mr. Jain contended thataction of the respondent unethical and in view of the decision ofPunjab and Haryana High Court in case of Commissioner ofIncome Tax vs. Kap Scan and Diagnostic Centre P. Ltd. reported in(2012) 344 ITR 476 and also the decision of Supreme Court incase of M/s Maddi Venkataraman and Co. (P) Ltd. vs.Commissioner of Income Tax reported in (1998) 229 ITR 534wherein para 24 & 25 it has been held as under:- “24. In the instant case the assessee had indulgedin transactions in violation of the provisions ofForeign Exchange (Regulation) Act. The assessee'splea is that unless it entered into such atransaction, it would have been unable to disposeof the unsold stock of inferior quality of tobacco.In other words, the assessee would have incurreda loss. Spur of loss cannot be a justification forcontravention of law. The assessee was engaged intobacco business, the assessee was expected tocarry on the business in accordance with law. Ifthe assessee contravenes the provisions of FERAto cut down its losses or to make larger profitswhile carrying on the business, it was only to beexpected that proceedings will be taken againstthe assessee for violation of the Act. Theexpenditure incurred for evading the provisions ofthe Act and also the penalty levied for suchevasion cannot be allowed as deduction. As waslaid down by Lord Sterndale in the case ofAlexander Von Glehn (supra) that it was notenough that the disbursement was made in thecourse of trade. It must be for the purpose of thetrade. The purpose must be a lawful purpose. 25. Moreover, it will be against public policy toallow the benefit of deduction under one statute,of any expenditure incurred in violation of theprovisions of another statute or any penaltyimposed under another statute. In the instantcase, if the deductions claimed are allowed thepenal provisions of FERA will become meaningless.It has also to be borne in mind that evasion of lawcannot be a trade pursuit. The expenditure in thiscase cannot, in any way, be allowed as wholly and exclusively laid out for the purpose of assessee'sbusiness.” 9.We have heard counsel for both the sides. 10Section 37 of the Income Tax Act reads as under:- “37. (1)Any expenditure (not being expenditure ofthe nature described in sections 30to 36and notbeing in the nature of capital expenditure orpersonal expenses of the assessee, laid out orexpended wholly and exclusively for the purposesof the business or profession shall be allowed incomputing the income chargeable under the head“Profits and gains of business or profession”. [Explanation.—For the removal of doubts, it ishereby declared that any expenditure incurred byan assessee for any purpose which is an offenceor which is prohibited by law shall not be deemedto have been incurred for the purpose of businessor profession and no deduction or allowance shallbe made in respect of such expenditure.]” 11.Counsel for the respondent has strongly relied upon explanation but in view of the observations made by the AO wherehe has allowed the part expenses of the hospital, in that view ofthe matter, we are of the opinion that the CIT(A) observationswhich are made by the CIT are required to be accepted. Theexplanation cannot come into play on appeal which was filed atthis stage. Even otherwise in income tax proceedings the medicalethics will not be taken into consideration. At the most even if it isa professional misconduct it is to be dealt with by Medical Councilof India. The income tax authority cannot decide the medicalethics when the original authority has partly allowed theexpenses. 11.Counsel for the respondent has strongly relied upon explanation but in view of the observations made by the AO wherehe has allowed the part expenses of the hospital, in that view ofthe matter, we are of the opinion that the CIT(A) observationswhich are made by the CIT are required to be accepted. Theexplanation cannot come into play on appeal which was filed atthis stage. Even otherwise in income tax proceedings the medicalethics will not be taken into consideration. At the most even if it isa professional misconduct it is to be dealt with by Medical Councilof India. The income tax authority cannot decide the medicalethics when the original authority has partly allowed theexpenses. 12.In view of the above, the order of the Tribunal is quashedand set aside. The matter is remitted back to the Tribunal todecide the same afresh. 13.The issue is answered in favour of the assessee against thedepartment. 14.The appeal stands allowed. (INDERJEET SINGH),J. (K.S. JHAVERI),J. A.Sharma/7-8