2023 (10) TMI 371 - AT - Income Tax

Tribunal allows appeal, overturns disallowances under section 35AD & sale of assets loss.

Ambuja Neotia Healthcare Venture Ltd. Versus Deputy Commissioner of Income-tax, Circle-11 (1), Kolkata.

Ambuja Neotia Healthcare Venture Ltd. Versus Deputy Commissioner of Income-tax, Circle-11 (1), Kolkata. - TMI Issues Involved:1. Disallowance of Rs. 10,33,21,064/- under section 35AD for capital expenditure incurred for the purpose of specified business.2. Disallowance of Rs. 48,36,016/- on account of loss on sale of assets not part of block of assets.Summary of Judgment:Issue 1: Disallowance under Section 35ADAssessee, engaged in the hospital and pharmaceuticals business, claimed a deduction of Rs. 10,33,21,064/- under section 35AD for capital expenditure incurred in constructing and operating a hospital with more than 100 beds. The Ld. AO disallowed this claim, holding that the deduction could only be claimed during the year of running the specified business for which the expenses were crystallized. The Ld. CIT(A) upheld this disallowance.Before the Tribunal, the Ld. Counsel argued that the assessee is entitled to the deduction under section 35AD, citing the provision that allows deduction for capital expenditure incurred wholly and exclusively for the specified business during the year it is incurred. The Counsel also referred to the explanatory circular for the Finance Act, 2009, which supports the claim. Additionally, the Counsel cited decisions from the Coordinate Bench of ITAT, Kolkata, and ITAT, Chandigarh, which supported similar claims for the assessee in previous years.The Tribunal, following the precedent set by the Coordinate Bench in the assessee's own case and the decision in Haryana Warehousing Corporation Vs. ACIT, allowed the claim of Rs. 10,33,21,064/- under section 35AD. Thus, ground no. 1 taken by the assessee was allowed.Issue 2: Disallowance of Loss on Sale of AssetsThe assessee planned to set up a clinic but abandoned the project as it was not economically viable. The assets related to this project were sold, resulting in a loss of Rs. 48,36,016/-. The Ld. AO disallowed this claim, treating it as a capital loss. The Ld. CIT(A) upheld this disallowance.Before the Tribunal, the Ld. Counsel argued that the expenditure was accounted as capital work-in-progress and not added to the block of assets for depreciation. Since the clinic project was abandoned, the assets were sold, and the loss should be allowed as business expenditure. The Counsel cited the decision of the Hon'ble Calcutta High Court in Binani Cement Ltd. Vs. CIT, which held that expenditure on an abandoned project is allowable as it was incurred wholly and exclusively for business purposes.The Tribunal, considering the decision of the Calcutta High Court and the facts of the case, held that the claim of the assessee was justifiable and allowed the loss of Rs. 48,36,016/-. Thus, ground no. 2 taken by the assessee was allowed.Conclusion:In the result, the appeal of the assessee was allowed, and both disallowances made by the Ld. AO and sustained by the Ld. CIT(A) were overturned.