THE COMMISSIONER OF INCOME TAX,CALICUT vs. MOIDU'S MEDICARE P.LTD., CALICUT.

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ITA/654/2009HC KeralaKLHC01025415200909 September 2016Bench: HONOURABLE MR.JUSTICE ANTONY DOMINIC6 pages
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What did the High Court hold?

The High Court held that the assessee had miserably failed to substantiate its claim for commission payments by not producing vouchers or any other supporting documents, and by not disclosing the names of the recipients. The Court found that in such circumstances, even if similar claims were allowed in previous years, the First Appellate Authority and the Tribunal ought not to have interfered with the assessment order. The High Court reasoned that the practice followed in the business, as cited by the Tribunal, was not a sufficient ground to allow unsubstantiated claims. Consequently, the orders of the First Appellate Authority and the Tribunal were set aside, and the assessment order was restored. The questions of law were answered in favour of the Revenue. No issue was expressly left undecided.

What were the facts?

The assessee, Moidu's Medicare P. Ltd., claimed deductions for payments made to doctors as commissions for MRI, CT Scan, USG, and Pathology collections for assessment years 2001-2002 and 2002-2003. The Assessing Officer disallowed these claims for lack of vouchers and the assessee's inability to disclose payee names, citing the practice of not keeping vouchers and payees' reluctance to be identified. The First Appellate Authority allowed 10% of the claimed commissions, referencing previous years' orders. The Income Tax Appellate Tribunal (ITAT) upheld this, citing consistent business practice and no opposition to public policy. The Revenue appealed these ITAT orders.

What were the issues?

1. Whether, on the facts and circumstances, and given that both payments and receipts were unaccounted, the Tribunal was correct in law in allowing a percentage of total collections as expenditure, and if the ITAT's conclusion was perverse and illegal? (Question of law and fact, concerning Section 37 of the Income Tax Act, 1961). 2. Whether, on the facts and circumstances, the Tribunal's order encouraged an illegal economy and was against public policy? (Question of law, concerning public policy and the Income Tax Act). Assessee's contentions: The assessee argued that it was a consistent business practice to pay commissions and that payees were against disclosing their names. They also contended that there was no practice of keeping vouchers for such payments. Revenue's contentions: The Revenue argued that the assessee failed to substantiate the payments by not producing vouchers or disclosing payee names. They contended that allowing a percentage of unaccounted collections as expenditure was illegal and perverse, and that the Tribunal's order encouraged an illegal economy and was against public policy.

Which sections of the Income-tax Act were involved?

Section 37

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU FRIDAY, THE 9TH DAY OF SEPTEMBER 2016/18TH BHADRA, 1938 ITA.No. 654 of 2009 -------------------- AGAINST THE ORDER IN ITA 120/2008 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 19.12.2008 APPELLANT/APPELLANT: -------------------- THE COMMISSIONER OF INCOME TAX, CALICUT

BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT: ----------- MOIDU'S MEDICARE P. LTD., CALICUT.

R1 BY ADV. SMT.MEERA V.MENON R1 BY ADV. SRI.MAHESH V.MENON THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 09-09-2016 ALONG WITH ITA 673/09, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

I.T.A.NO.654/09 APPENDIX PETITIONER'S ANNEXURES: ANNEXURE A: COPY OF ASSESSMENT ORDER. ANNEXURE B: COPY OF CIT(A)'S ORDER. ANNEXURE C: COPY OF THE ITAT'S ORDER. // TRUE COPY // P.A. TO JUDGE

ANTONY DOMINIC & DAMA SESHADRI NAIDU, JJ. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - I.T.A. Nos.654 & 673 of 2009 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 9th day of September, 2016 JUDGMENT Antony Dominic, J. These appeals are filed challenging the orders passed by the Income Tax Appellate Tribunal, Cochin Bench, in ITA Nos.120/08 and 119/08 pertaining to the assessment years 2002-2003 and 2001-2002. For the assessment years in question, the assessee had made deduction of payments said to have been made to doctors towards MRI Commission, CT Scan and USG Commission, Pathology Collection Commission and CT Commission (National Hospital). However, the Assessing Officer disallowed the said claims on the ground that the assessee had not produced the vouchers. Assessing Officer had also taken note of the contention of the assessee that there is no practice of keeping the vouchers. It was also the case of the assessee that the payees of the assessees are against disclosing their names.

I.T.A. Nos.654 & 673 of 2009 : 2 : 2. However, the First Appellate Authority in Annexure B order, referred to the orders passed by the Assessing Officer in certain previous years and allowed 10% of the commissions paid. Revenue challenged the order of the First Appellate Authority before the Tribunal and Tribunal dismissed the appeals by Annexure C order holding that it was the practice followed in the business and that the assessee had been following the same consistently. The Tribunal also held that in its opinion the payments made were not opposed to public policy. It is in these circumstances that the Revenue has filed these appeals and the common question of law framed for the consideration of this court are the following: “1. Whether, on the facts and in the circumstances of the case and also in view of the fact that both payments and receipts were unaccounted the Tribunal is right in law allowing a percentage of the total collections as an expenditure? And is not the conclusion of the ITAT perverse and illegal?

I.T.A. Nos.654 & 673 of 2009 : 3 : 2. Whether, on the facts and in the circumstances of the case is not order of the Tribunal encouraging illegal economy and against public policy?” 3. We heard the Senior Counsel for the Revenue and the learned counsel for the assessee. 4. Admittedly, on facts, it is clear that though the assessee had claimed deduction of amounts allegedly paid to doctors towards commissions, the assessee did not produce the vouchers or any other supporting documents to substantiate the claim. The assessee did not even disclose the names of the recipients. In other words, these are cases where the assessee had miserably failed to substantiate the claim of having made the payments. 5. In such circumstances, even if it is true that in the previous years similar claims were allowed by the Assessing Officer, in so far as the assessment year in question is concerned since the assessee has miserably failed to substantiate the claim, we feel that the First Appellate Authority ought not have interfered with the assessment

I.T.A. Nos.654 & 673 of 2009 : 4 : order. For the same reason, we are also inclined to think that the Tribunal ought not have upheld the order of the First Appellate Authority holding that it was the practice followed in the business. Therefore, the orders passed by the First Appellate Authority and the Tribunal are set aside. Appeals are disposed of restoring the assessment order and answering the question of law in favour of the Revenue. Sd/- ANTONY DOMINIC JUDGE Sd/- DAMA SESHADRI NAIDU

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