ITAT: Authority Should Not Cross the Limit in Limited Scrutiny Cases

The ITAT Delhi Bench stated that the department does not permit travel apart from the issues engaged in limited scrutiny cases.

The two-member bench of Pradip Kumar Kedia (Accountant Member) and N.K. Choudhary (Judicial Member) has seen the taxpayer was chosen for limited scrutiny along with the sum in hand shall not derive from the basis where the taxpayer’s case was taken for the limited scrutiny.

The taxpayer furnished their income tax return and showed the total income. The case was chosen for limited scrutiny and in answer to the notice that the assessing officer has furnished, the taxpayer has provided the required information, information/documents, along with books of account and vouchers, to the assessing officers which have been investigated on the grounds of test check.

For the assessment proceedings, the assessing officer would see that the taxpayer has debited expenses to its profit and loss account beneath the heading commission to others.

Hence the taxpayer was provided with the show cause notice to elaborate on the commission expenses which the taxpayer has made, and who would be the medical doctor by profession.

Post acknowledging the taxpayer’s reply the assessing officer sees, the taxpayer is a doctor and is secured via medical council regulation via providing or obtaining any commission, gift, gratuity, or bonus paid to any person/entity.

Hence the commission paid to the others does not count as a valid expense for business and therefore issues the order that the same was not permitted and added to the taxpayer’s income.

The taxpayer furnished an appeal to CIT(A). The commissioner upheld the disallowance incurred via the assessing officer on the premise that there was an issue in the statements furnished by the taxpayer to the assessing officer and those which are incurred in the appeal proceedings.

The taxpayer claimed that the expenses beneath the head commission to the others and furnished that he must make different expenses to generate the new cases for competing in the market while in the appeal proceedings he specified that the amount he was furnished to the marketing agency which the taxpayer has appointed to rectify the business, patient management, surgery coordination to improve efficiency, and patient counselling.

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Tribunal, the commission payment via the taxpayer for referring patients to it cannot, through any imagination, be accepted as a statute or according to the public policy in India. Therefore the commission is not treated as a permitted expense. The taxpayer for the same case is not qualified for any relief on merit.

“As it is settled law that the Revenue Authorities are not allowed to travel beyond the issues involved in limited scrutiny cases, except in exceptional circumstances and by completing the relevant formalities before proceeding to other issues, which in the instant case does not appear to have adhered to. Hence, we deem it appropriate to delete the addition in hand. Consequently, the appeal of the assessee is liable to be allowed,”