Tribunal allows deduction for hospital trading profits, disallows Section 14A claim. Interest issue remanded.

The Tribunal upheld the assessee's claim for deduction under Section 80IB(11C) of the Income Tax Act for profits from trading in medicines and surgical equipment as integral to hospital operations. The appeal on disallowance under Section 14A was allowed as no exempt income was earned during the relevant assessment year, citing Supreme Court precedents. The issue of proportionate disallowance of interest was remanded to the AO for factual verification. The Department's appeal was partly allowed for statistical purposes.

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Issues Involved:
1. Deletion of addition relating to trading in medicines and surgical equipment.
2. Allowance of appeal on disallowance under Section 14A of the Income Tax Act, 1961.
3. Allowance of appeal on proportionate disallowance of interest.

Summary:

Issue 1: Deletion of addition relating to trading in medicines and surgical equipment
The assessee, engaged in running a multi-specialist hospital, claimed a deduction under Section 80IB(11C) of the Income Tax Act for profits from operating and maintaining the hospital. The Assessing Officer (AO) disallowed the deduction for profits amounting to Rs. 2,47,82,051 from trading in medicines and surgical equipment, arguing that such profits were not derived from the business of operating and maintaining the hospital. The AO relied on the Supreme Court's decision in Cambay Electronic Supply Industrial vs. CIT, which distinguished between profits "derived from" and "attributable to" a business. On appeal, the CIT(A) allowed the deduction, stating that the pharmacy is integral to the hospital's operations and citing the ITAT Nagpur's decision in Eureka Medicare (P) Ltd. The Tribunal upheld the CIT(A)'s decision, agreeing that in-house pharmacy profits are essential for hospital operations and thus eligible for deduction under Section 80IB(11C).

Issue 2: Allowance of appeal on disallowance under Section 14A of the Income Tax Act, 1961
The AO disallowed Rs. 19,25,400 under Section 14A, arguing that the assessee had invested in equities without disallowing related expenses. The CIT(A) allowed the appeal, noting that the assessee did not earn exempt income during the year. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's rulings in Chettinad Logistics (P.) Ltd. and other cases, which established that Section 14A cannot be invoked if no exempt income was earned during the relevant assessment year. The Tribunal also noted that the amendment to Section 14A by the Finance Act, 2022, is prospective and not applicable to the assessment year in question.

Issue 3: Allowance of appeal on proportionate disallowance of interest
The AO disallowed Rs. 15,56,788 of interest, arguing that the assessee advanced interest-free loans to group companies without proving commercial expediency. The CIT(A) allowed the appeal, stating that the loans were used for the day-to-day operations of the group companies and were commercially expedient. The Tribunal restored the issue to the AO to verify whether the loans were given out of the assessee's own funds or interest-bearing funds, emphasizing the need for a factual determination.

Conclusion:
The Tribunal dismissed the Department's appeal on the first two issues and restored the third issue to the AO for further verification. The appeal of the Department was partly allowed for statistical purposes.

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