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2019 (3) TMI 1134
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....assessment proceedings, the Assessing Officer observed that the assessee company had appointed Dr. Naresh Trehan as its Managing Director w.e.f. 1.6.2007 but no remuneration was paid to him/provided in the financial statements in the earlier assessment years whereas in the year under consideration an amount of Rs. 9,33,33,333/- was shown as salary for the period 1.6.2007 to 31.3.2010. On being asked to explain, the assessee submitted that the company's Board of Directors had passed a resolution in September, 2009, whereby an amount of Rs. 6 crore was approved as salary to Dr. Naresh Trehan for the period 1.6.2007 to 31.10.2009. It was submitted before the Assessing Officer that the liability towards payment of salary had crystallized only upon the passing of the relevant resolution approving the payment of salary by the Board of Directors and was, therefore, allowable in the year under consideration. It was also submitted that, although, the Medanta Hospital had started functioning from 1.11.2009 only, the assessee company had already been providing health care services w.e.f. 1.6.2007 by entering into arrangements with various hospitals including Apollo Hospital where all the card....
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....o engineering equipment amounting to Rs. 218,87,15,906/- towards addition/s to plant and machinery and a further amount of Rs. 8,44,63,990/- towards addition/s to computers. Apart from this, the Assessing Officer observed, that the assessee had also claimed repairs and maintenance expenses towards engineering equipment and repairs and maintenance of IT related equipment. The assessee was asked to explain as to why the repairs and maintenance expenses aggregating to Rs. 81,89,214/- may not be capitalized being pre-operative in nature. The assessee submitted before the Assessing Officer that out of this amount, an amount of Rs. 23,76,046/- was towards payment of Annual Maintenance Contract (AMC) for maintaining the IT facility and regarding the balance amount of Rs. 58,13,168/-, it was submitted that the same was in respect of the period starting from 1.11.2009 and, therefore, the same was not pre-operative in nature. However, the Assessing Officer, on examining the relevant invoices, observed that part of the AMC expenditure was related to the period prior to November, 2009. The Assessing Officer also treated the entire repair expenses for IT engineering equipment as being pre....
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....g the details of Recruitment expenses amounting to Rs. 1,93,55,261/-, the Assessing Officer observed that the same included an amount of Rs. 96,91,023/- in respect of various invoices issued on 31.3.2010 but pertaining to FY 2010-11. The Assessing Officer held that an amount of Rs. 18,94,197/- was preoperative in nature while an amount of Rs. 21,32,683/- was revenue in nature. Accordingly, after allowing benefit depreciation at the applicable rate, an addition of Rs. 1,14,90,580/- was made to the total income after treating the expenses of Rs. 96,91,093/- as pertaining to assessment year 2011-12. 2.7 The Assessing Officer further held that the interest on term loan amounting to Rs. 1,28,00,000/- had also an element of pre-operative expenses and, accordingly, an addition of Rs. 1,21,60,000/- was made on this account. Further, the Assessing Officer observed that the assessee had paid bank charges towards importing certain plant and machinery which, in the opinion of the Assessing Officer, should have been capitalized to the cost of fixed assets. An addition of Rs. 3,28,57,503/- was made to the total income on this account. 2.8 Aggrieved, the assessee preferred an appeal before ....
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.... not successfully made out by the assessee and he, therefore, proceeded to confirm the disallowance of Rs. 1,39,980/-. v) With respect to capitalization done by the Assessing Officer with respect to miscellaneous expenditure, the Ld. CIT (Appeals) held that out of Rs. 14,29,613/- spent towards nursing hostel expenses, Rs. 5,10,761/- were allowable. With respect to the second component of miscellaneous expenditure amounting to Rs. 33,00,281/- , the Ld. CIT (Appeals) held that expenses amounting to Rs. 19,21,341/- were preoperative in nature and the disallowance to this extent was sustained. Further, with respect to amount of Rs. 14,59,122/- spent on community outreach programme, the Ld. CIT (Appeals) held that capitalization only to the extent of Rs. 2,48,939/- was to be sustained as only this amount had been spent prior to 31.10.2009. vi) With respect to the disallowance of Rs. 1,04,58,266/- being salaries paid under research and development expenditure, the Ld. CIT (Appeals) held that since no specific details had been filed either before the Assessing Officer or before him, the capitalization was in order. Accordingly, this ground was dismissed. vii) Wi....
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....T (A) erred in fact and in law in treating part salary of Dr. Naresh Trehan amounting to Rs. 1.20 crore as capital expenditure which is not only incorrect but also against the facts and circumstances of the case. (b) The learned CIT(A) erred in fact and in law in giving direction to DCIT To allow the salary amounting to Rs. 3.33 crore in subsequent year ( A.Y 2011-12) in spite of the fact that this was not the subject matter of appeal. (c) That Direction of CIT(A) as per ground l.(b) is not only illegal but void ab initio because no notice u/s 251 (2) was issued. 2. The learned CIT(A) erred in fact and in law in treating a sum of Rs. 19,21,341 under the head misc expenditure as pre operative expenditure which is not only incorrect but also against the facts and circumstances of the case. 3. The learned CIT(A) erred in fact and in law in treating a sum of Rs. 2,48,939 under the head out reach programe as pre operative expenditure which is not only incorrect but also against the facts and circumstances of the case. 4. The learned CIT(A) erred in fact and in law in treating a sum of Rs. 11,81,500 out of Rs. 1,04,58,266 under the head resear....
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....s claim that these pertain to the assessment year under consideration and also the fact that these have been raised during the next F.Y.: 2010- 11 6. The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of the hearing." 3.0 With respect to the assessee's appeal bearing caption ITA No. 3622/Del/2015, the Ld. AR made ground wise submissions as under: 3.1.1 With respect to ground no. 1 (a) that the learned CIT (A) had erred in fact and in law in treating part salary of Dr. Trehan amounting to Rs. 1.20 crore as capital expenditure which is not only incorrect but also against the facts and circumstances of the case, the Ld. AR submitted that out of Rs. 6,00,00,000/- the Ld. CIT(A) has allowed Rs. 4,80,00,000/- as revenue expenditure and has capitalized 20% of the salary on an ad hoc basis (being Rs. 1,20,00,000/-) towards the cost of the hospital project and also held it as being eligible for depreciation . It was submitted that this ground relates to ground no. 1 of the Revenue's appeal also. it was submitted that this ad hoc disallowance was made without bringing on record any fact to support the reasoning behind capitalizatio....
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.... not only incorrect but was also against the facts and circumstances of the case. It was submitted that the Ld. CIT (A) had confirmed the disallowance of Rs. 93,35,841/- on the ground that no details were filed in this regard. It was submitted that this expenditure pertained to expenditure relating to specialist doctors who were employed by the assessee company and who not only performed their medical related functions including surgery etc. but also carried out research work which was a part and parcel of the medical activity. It was submitted that the assessee company had not employed separate Doctors for doing research related activities and a portion of their remuneration is transferred from Salary account to Research and Development account on a pro rata basis. It was further submitted that this methodology was followed in A.Y. 2008-09 and 2009-10 also where in the AO, while passing the orders, had accepted the claim and no disallowance was made. Our attention was drawn to page 169 of the paper book to demonstrate Rs. 65,04,461/- was claimed in A.Y 2009-10 and Rs. 40,79,384/- was claimed in A.Y 2008-09. 3.5 Ground No. 5 states that the Ld. Commissioner of Income Tax (A) ....
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....the salary of Dr. Naresh Trehan to be capitalized @ 20%, ignoring the fact that Dr. Naresh Trehan was not only paid for services rendered in the capacity of a doctor profession but remuneration was also paid for giving a direction to the overall business activities, it was submitted that this ad hoc disallowance was made without bringing on record any fact to support the reasoning behind capitalization @ 20%. It was further submitted that the last remuneration drawn by Dr. Naresh Trehan from Escorts Heart Institute was Rs. 8.40 crores per annum as against Rs. 6.00 crores in Global Health Pvt. Ltd. although he was not involved in the day to day management while he was in the Escorts Heart Institute. The Ld. AR also placed reliance on numerous judicial precedents to support his contention that ad hoc capitalization @ 20% without any sound reasoning and factual accuracy was not sustainable and in fact the entire disallowance by capitalization was to be deleted. It was further submitted that this ground was connected with ground no.1 of the assessee's appeal also and detailed arguments had already been made on the issue while arguing the assessee's appeal. 4.2 With regard to the sec....
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....80/- ignoring the fact that the assessee had failed to substantiate its claim that these pertained to the assessment year under consideration and also the fact that these have been raised during the next financial year i.e. 2010-11, it was submitted by the Ld. AR that out of the total disallowance of Rs. 1,14,90,580/- pertaining to Recruitment expenses, the Ld. CIT (A) had allowed Rs. 96,91,023/- only as revenue expenditure after duly verifying the agreement with the service provider M/s IFAN Global India Pvt. Ltd. and, therefore, in view of the categorical finding recorded after due verification by the Ld. CIT (A), no interference was called for. 4.6 It was prayed that the departmental appeal deserved to be dismissed. 5.0 In response to the arguments of the Ld. AR, the Ld. Sr. DR with respect to the assessee's appeal placed extensive reliance on the concurrent findings of both the Ld. First Appellate Authority as well as the Assessing Officer and vehemently argued that the additions/disallowances had been rightly upheld/made. It was submitted that the additions were based entirely on pure findings of fact and, therefore, they deserved to be upheld. 6.0 With respect to ....
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....T (A) has not given any cogent reason for holding that 20% of the salary expenses were to be capitalized. The Ld. CIT (A) has also noted that the assessee company was engaged in the business of providing health care services right from the inception by entering into agreement with other hospitals on 2.6.2007 and for which purpose, the company had made huge salary payments to more than 165 doctors even prior to the commencement of operation of the Medanta Hospital on 31.10.2009. The Ld. CIT (A) has also noted that it could not be held that the assessee company had started its business only w.e.f. 1.11.2009 i.e. when the super-specialty hospital 'Medanta' started its operation. The Ld. CIT (A) has also given a categorical finding that the assessee company was already engaged in the business of providing health care services through agreements with other hospitals and Dr. Naresh Trehan being a leading cardio vascular surgeon was paid on account of services rendered to the assessee company which had resulted in significant income from health care services for the assessee in Financial Years 2007-08, 2008-09 and 2009-10 i.e. even prior to the commencement of operation of Medanta hospita....
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.... accepts the finding of the Ld. CIT (A) and has only prayed that the AO may be directed to give effect to this direction. The Department is not in appeal against this direction. Accordingly, we direct the AO to give effect to the direction of the Ld. CIT (A) that the balance amount of Rs. 3.33 crores be allowed as deduction in AY 2011- 12. Thus, ground no. 1(b) stands dismissed but subject to our directions. 7.1.3 Coming to ground no. 1(c) of the assessee's appeal, since the Ld. AR has stated that this ground is not being pressed, the same is dismissed as not being pressed. 7.2 With respect to Ground no. 2 of the assessee's appeal, since the Ld. AR has stated that this ground is not being pressed, the same is also dismissed as not pressed. 7.3 Coming to ground no. 3 of the assessee's appeal wherein the assessee has challenged the action of the Ld. CIT(A) in treating an amount of Rs. 2,48,939/- spent on outreach programme as preoperative expenditure on the ground that this amount was spent before 31.10.2009, we are of the considered opinion that since the Ld. CIT(A) has himself accepted, while dealing with the assessee's ground relating to remuneration to Dr. Naresh Treh....
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....e methodology for apportionment was applied by the assessee in assessment years 2008-09 and 2009-10 which had been allowed by the Assessing Officer. It is ordered accordingly. 7.4.2 The second limb of ground no. 4 is challenging the action of the Ld. CIT (A) in treating an amount of Rs. 11,81,500/- as preoperative expenses out of research and development expenses. As the Ld. CIT (A) has already noted that the business operations had started prior to 31.10.2009, which remains uncontroverted, we find that the Ld. CIT (A) had no basis for treating this expenditure as preoperative expenditure. Accordingly, we delete the disallowance of Rs. 11,81,500/- which has been confirmed by the Ld. CIT (A) as being preoperative in nature. 7.5 Ground no. 5 challenges the action of the Ld. CIT (A) in treating an amount of Rs. 18,94,197/- under the head recruitment expenses as preoperative expenditure. It is seen that this disallowance has been upheld by the Ld. CIT (A) on the ground that since this amount was spent before 31.10.2009, therefore, the same was preoperative in nature. However, in view of the Ld. CIT (A)'s categorical finding while adjudicating the assessee's ground on remunerat....
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.... No. 4587/Del/2015 This is the department's appeal and ground no. 1 challenges the action of the Ld. CIT(A) in estimating the ad hoc disallowance of salary @ 20% being expenses in the nature of capital expenditure. Since this ground is identical to ground no. 1 of the assessee's appeal which we have already decided in favour of the assessee by holding that the Ld. CIT (A) had erred in sustaining an estimated disallowance out of salary expenses of Rs. 6 crore to the tune of 20% on account of being capital expenditure in nature, on the same reasoning, we dismiss ground no. 1 of the department's appeal. 9.2 Ground no. 2 of the department's appeal challenges the action of the Ld. CIT (A) in allowing depreciation on value of fixed assets. The Ld. AR in this regard has fairly accepted that this ground may be allowed in favour of the department. Accordingly, in view of the assessee conceding this ground, we allow the department's ground and set aside the order of the Ld. CIT (A) and restore the order of the AO on this issue. Accordingly, ground no. 2 stands allowed. 9.3.1 In Ground no. 3, the department has challenged the action of the Ld. CIT (A) in deleting the additions ....