AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (7) TMI 981
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....allowing the appeal on disallowance u/s 14A of the Income tax Act, 1961, without appreciating the fact that the disallowance is rightly made as per provisions of Rule 8D by the AO vis-a-vis CBDT Circular No.5/2014." 3. "Whether on facts and circumstances of the case and in law, the Ld. CIT(A) is justified in. allowing the appeal on proportionate disallowance of interest, without appreciating the fact that the assessee failed to prove the commercial expediency of interest free loans to its group companies, as against its claim of interest expenses on borrowed funds. 2. The appellant craves leave to add to, amend or alter the above grounds as may be deemed necessary. Relief claimed in appeal It is prayed that the order of the CIT (Appeals) be set aside and that of the Assessing Officer be restored." Ground No. 1 (CIT(A) erred in deleting addition relating to trading in medicines and surgical equipments amounting to Rs. 2,47,82,051/-) 3. The brief facts in relation to this ground of appeal are that the assessee is engaged in the business of running multi-specialist hospital. The assessee claimed deduction of Rs. 28,27,384/- u/s. 80IB(11C) of t....
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....ng but profit earned from business of operating and maintenance of hospitals. While allowing the assessee's appeal on this issue, the ld. CIT(A) made the following observations:- "I have carefully considered the material facts and submissions of the appellant. The AO by going through the financial of the company opined that the sale of products comprising sale on account of medicines and surgical equipments were distinct from the business of hospitals as the appellant separately reported the revenue from sale of medicines etc and sale of service comprising receipt from hospital services. The AO also analyzed the trading results of sale of medicines and surgical equipments and noticed that the profit reported was abnormal. The AD held that trading in medicines and surgical equipments is a separate business and the profits of the same are not eligible to claim deduction u/s 80IB(11C) of the Act. The AO disallowed the claim of the appellant and also brought profits on sale of medicines etc to tax. The AO held that profits attributable to the business are not eligible to claim deduction u/s 80IB(11C) of the Act as the phrase used in that section is derived from and the profits....
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....dered the context of order u/s 263 of the Act. The Hon'ble Tribunal elaborately discussed the issue Including the definition of hospitals and held that as per Clinical Establishment Act 2010, under Level-2, Hospital is mandatorily required to have pharmacy. It was also held that rent received from the medical store and fee received on account of nursing college are also eligible to claim deduction u/s 80IB(11C) of the Act as these activities are inextricably linked to the activity of operating and maintaining of hospital. The relevant part of the order of the Hon'ble Tribunal is reproduced as under for better appreciation of the issue. "6. We have heard both the counsel and perused the records. The ld. Come of the anemone of the assessee has summarized his submissions as under: A) Assessee company has set up 100 bedded hospital at Yavatmal and complied with requisite conditions for grant of deduction u/s 80IB(11C). A.O. after examining the relevant record in detail and after inspection of business premises has allowed the deduction u/s 80IB(11C). B) Assessee has paid tax u/s 11518 @ 20% on book profit. C) Assessee has started its operatio....
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....grant of deduction u/s 80IB(11C). It is settled proposition of law the deduction u/s 80IB(11C) cannot be disturbed if the initial year for grant of deduction u/s 80IB(11C) is not disturbed. Assessee for this proposition places reliance on the following decisions. 1) Hon'ble Bombay High Court order in ITA No. 27/2010 in the case of Simple Food Products Pvt. Ltd. vide order dated 12/07/2017 ii) (1995) 216 ITR 0548 (Dom.) CIT vs. Paul Brothers (a) Hon'ble Bombay High Court order in ITA No. 59/2004 in the case of M/s. Dinshaw Frozen Foods vide order dated 21/11/2007. iv) Hon'ble Bombay High Court order in ITA No. 39/2004 in the case of M/s. Dinshaw Dairy Foods Ltd. vide order dated 21/11/2007. Ratio laid down by aforesaid decisions squarely applies to the facts in the case of assessee. Deduction u/s 80IB(11C) having been accepted in Asstt. Year 2011-12 in respect to referral income, interest, rent and nursing receipts same cannot be withheld in the year under consideration. In view of above, assumption of jurisdiction u/s 263 by CIT is bad in law. Thus liable to be cancelled. 1) In Asstt. Year 2012-13 A.O. has examined the details as well....
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....ed 19/10/2012 Aforesaid decision of Hon'ble ITAT has been challenged by revenue before Mon'ble Bombay High Court, Nagpur. Hon'ble Bombay High Court has not admitted question of law in respect aforesaid issue as is evident from order of Bombay High Court and Memo of Appeal placed in paper book ITA No.153/Nog/2017 M/s Eureka Medicare Private Limited N)Hon'ble Bombay High Court in case of Shri Jagdishprasad M. Joshi reported at 318 ITR 420 (Bom.) has held that the interest received would be eligible for deduction u/s SOLA/8018. Deduction granted by A.O. in respect to interest is in accordance with the decision of Hon'ble Bombay High Court and cannot be termed as erroneous. O) Assessee hospital requires supply of medicine, pharmaceutical and surgical consumables for treatment of patients admitted in the hospital. As per Clinical Establishment Act 2010, 100 bedded hospital falls under Level-2 Hospital. As per Clinical Establishment Act Level-2 Hospital is mandatorily required to have pharmacy. As statutorily required assessee hospital has pharmacy division which caters to supply of medical and surgical consumables required by patients in the hospital. H....
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....course of operating and maintenance of hospital. Amount of usage charges received is much less than the depreciation and maintenance of hospital building which has been given to aforesaid person for which assessee has received usage charges. No positive income in respect to usage charges. Revenue for use of hospital premises is inextricably Bnked to the activity of operating and maintenance of hospital and thus income derived there from is Income from business of operating and maintenance of hospital eligible for deduction u/s 80IB(11C). Reliance on ITAT, Pune Bench A, Pune in the case of Sameer Rajendra Shah vs. JCIT in ITA NO.1061/PN/2013 order dated 29/04/2016. ii) ITAT order in 1.T.(T.P.JA. No.799/Bang/2015 in the case of M/s. Infosys Umited vide order dated 10/11/2017. T) Assessee is operating and maintaining hospital in rural area. Hospital being of 100 bedded rendering 24/7 facilities requires lot of human resources for nursing patients treated in the hospital. Trained nurses are not readily available and therefore Inhouse training of nurses is undertaken in the hospital itself which has been observed by A.O. to be Nursing College. In this....
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....e note that the present assessment year 2012-13, is not the initial year for grant of deduction u/s. B01B(11C). It is the settled proposition of law that this deduction cannot be disturbed if the initial year for scrutiny of said deduction is not disturbed. This proposition duly follows the exposition from the following Hon'ble Bombay High Court decisions; i) Hon'ble Bombay High Court order in ITA No. 27/2010 in the case of Simple Food Products Pvt. Ltd. vide order dated 12/07/2017. ii) (1995) 2016 ITR 0548 (Bom.) CIT vs. Paul Brothers iii) by High Court order in 11A No: 59/2004 in the case of M/s. Dinshaw Frozen Foods vide order dated 21/11/2007 iv) Hon'ble Bombay High Court order in ITA No. 39/2004 in the case of M/s. Dinshaw Dairy Foods Ltd. vide order dated 21/11/2007. 9. In this view of the matter, in our considered opinion, the Commissioner of Income Tax assumes jurisdiction u/s. 263, is not at all sustainable in law. 10. We further note that in forming his opinion that the assessee's claim for deduction needs further enquiry by the Assessing Officer, the Commissioner of Income Tax has given a reasoning tha....
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.... 263 itself. However, there is no whisper from the Commissioner of Income Tax as to why the same were not acceptable. As regards the Inextricably linkage of the interest income, the assessee has quoted various decisions including the decision from the ITAT In the case of M/s Plastic Surge Industries Ltd. (supra) the Bombay High Court in the case of Shin Jagdishplasad M. Joshi Supra wherein it was held that Interest received would be eligible for deduction u/ss. 801A and 80IB. As regards the rental income from medical store, it has been submitted that the hospital requires supply of medicine, pharmaceutical and surgical consumables for treatment of patients, As per Clinical Establishment Act 2010, under Level-2 Hospital is mandatorily required to have pharmacy. It has further been submitted that the assessee considering the administrative convenience has engaged the service of Shri Rajkumar Agrawal to operate and maintain Medical and Pharmaceutical Stores at the premises of assessee. the assessee is receiving revenue in the shape of referral charges in respect to various supplies made by him to the patients administering treatment at hospital premises. Price at which medicines and c....
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....ly linked to each other. In that case rent received from the pharmacy was considered as eligible for deduction u/s 80IB(11C) of the Act. In such circumstance the profit earned by the appellant from the trading of medicines and surgical equipments on its own cannot be denied deduction u/s 80IB(11C) of the Act. In view of this it is held that the appellant is entitled to claim deduction u/s 80IB(11C) of the Act against the profits of the business. However, the interest, non- operating income etc at Rs. 7,76,119/- cannot be treated as the income/profit derived from the business of operating and maintaining hospitals. Hence, the AO is hereby directed to reworkout the deduction and allow the same. This ground of appeal is partly allowed." 5. The Department is in appeal before us against the aforesaid relief granted by ld. CIT(A). The ld. Departmental Representative submitted that the words used in section 80IB(11C) are "derived from" and not "attributable to". Since pharmacy is an integral part of running of hospitals, looking to that instant facts, the Assessing Officer has correctly disallowed the deduction in respect of income earned from trading in medicines. In response, the cou....
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.... material facts and also the submissions of the appellant. It is a fact that the appellant company has not earned exempt income during the year under consideration. This fact is borne out from the financials of the appellant for the year under consideration. The appellant relied on the special bench decision of Hon'ble ITAT, Delhi which is on the issue. This decision is in favour of the appellant. The Hon'ble Supreme Court in the case of Chettinad Logistics (P.) Ltd. (95 taxmann.com 250) approved the decision of Hon'ble High Court wherein it was held that Sec 14A of the Act cannot be invoked where no exempt income was earned by the assessee in the relevant assessment year, by dismissing the SLP filed by the department. Similarly, in the case of Oil Industry Development Board [103 taxmann.com 326] the SLP filed was also dismissed holding the same due. It is settled principle now that there cannot be any disallowance if the appellant not earned exempt income during the year. There are umpteen numbers of decisions holding the same view. Hence, respectfully following the above decisions and also considering the material facts of not earning exempt income during the year und....
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....8] 99 taxmann.com 286 (SC) held that where High Court took a view that amount of disallowance under section 14A could be restricted to amount of exempt income only, SLP filed against said order was to be dismissed. The Hon'ble Supreme Court in the case of Chettinad Logistics (P.) Ltd.[2018] 95 taxmann.com 250 (SC)dismissed SLP against High Court ruling that section 14A cannot be invoked where no exempt income was earned by assessee in relevant assessment year. The Gujarat High Court in the case of Dipesh Lalchand Shah [2022] 143 taxmann.com 419 (Gujarat) held that where in relevant assessment year, assessee-individual earned profits from partnership firm and made investments in shares of a company, since its income from partnership was negative and no exempt income was earned, in such case disallowance under section 14A could not be made. In the case of Corrtech Energy (P.) Ltd. [2014] 45 taxmann.com 116 (Gujarat), the Gujarat High Court held that where assessee did not make any claim for exemption of any income from payment of tax, disallowance under section 14A could not be made. The Delhi High Court in the case of Delhi International Airport (P.) Ltd. [2022] 144 taxmann.com ....
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....ed for running of its business. However, the Assessing Officer rejected this argument on the ground that on perusal of facts it was observed that such loans are being used by the group company for day to day incidental expenses i.e. payments to trust, repair and maintenance, payment of rent etc, secondly the assessee has not given any explanation as to what was the commercial expediency in advancing such loans to group companies and what business objectives was achieved by the assessee in advancing such loan to group companies. Thirdly, the Assessing Officer held that it is a well established principle that any expenditure is allowable only if such expenditure is incurred wholly and exclusively for the purpose of business of the assessee. Accordingly, the Assessing Officer made proportionate disallowance of interest amounting to Rs. 15,56,788/- 13. In appeal, the ld. CIT(A) allowed the appeal of the assessee with the following observations:- "During the appellate proceedings as an abundant precaution the IT returns, books of accounts of the subsidiary companies were called for and examined. It was noticed that as stated by the AO loans given by the appellant were utiliz....