TaxTMI 
TaxTMI 
TaxTMI 
2023 (7) TMI 981
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....ax 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 the Act being profits from operating and maintaining hospital. During the course of assessme....
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....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 from trading in medicines etc being not derived from the business of operating and maintaining hosp....
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....luding 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 operation in the month of May Assessee is thus eligible for deduction u/s 80IB(110) from Asstt. Year 2009-10 onwards. In Asstt. Year 2009-10 an....
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....is 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 as eligibility of claim of deduction u/s 80IB(LIC). A.O. in fact had issued summon u/s 131 for examining the eligibility condition for grant of deduction u/s 80IB(11C) on 18/12/2014 during the course of assessment proceedings. A.O. ....
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.... 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. Hospital is not defined under the provisions of Income Tax Act 1961. The meaning provided under Clinical Establishment Act would be relevant for giving meaning for the purpose of 80IB(11C)of.T.Act1961. sec 80IB(11C) of I.T. Act, 1961. P) Assesses considering the administrative co....
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....ses 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 process assessee company as received Rs. 11.46 lacs for training provided to nursing stair. Assessee Company has incurred direct expenses for training nurses at Rs. 8.68 lacs. Assessee company has also incurred Indirect expenses for providing training to nurses which are part of administrative and other expenses. There is no positive income which c....
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.... 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 that the Assessing Officer has not made necessary enquiry. In this regard, we note that it is the claim of the assessee that due scrutiny was done by the Assessing Officer. The Assessing Officer had issued necessary questionnaires. He also issued summons u/s. 131 of the Act. All these requirements by the Assessing Officer were duly complied with. In this regard, the Commissioner of Income Tax has given a very strange rea....
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....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 consumables are to be sold in hospital is as per directives of assessee company. It has been submitted that activities of Shri Rajkumar Agrawal are restricted to make supplies of Medical, Pharmaceutical and Surgical Consumables within the hospital itself. It has further been submitted that in the project report submitted by the hospital to bank for obtaining term loan income from pharmacy was considered an integral part. Henc....
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....siness. 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 counsel for the assessee placed reliance on the observations by ld. CIT(A) in the appellate order. The counsel for the assessee submitted that the assessee is a multi-specialist hospital having over 100 beds. In such cases, running of inhouse pharmacy is essential for running of hospitals since substantial medicines are required on day to day basis in treating the patients. A hospital of such large operations cannot run unless and until there ....
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.... 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 under consideration by the appellant, the disallowance made by the AO is hereby deleted and this ground of appeal is allowed." 9. Before us, the Department is in appeal before us against the aforesaid relief provided by the ld. CIT(A) on this issue. Before us, the ld. counsel for the assessee drew our attention to recently introduced explanation to section 14A of the Act, which has clarified that provisions of section 14A shall apply irrespective of the fac....
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....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 80 (Delhi) held that section 14A would not be applicable if no exempt income was received or receivable during relevant previous year. The Delhi High Court in the case of Amadeus India (P.) Ltd.[2022] 145 taxmann.com 311 (Delhi), held that section 14A envisages that there should be an actual receipt of income which is not includible in total income; hence, section 14A will not apply where no exempt income is received or receivable during relevant previous yea....
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....ieved 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 utilized by those two companies for their day to day operations only. There is no evidence for siphoning of the funds by any of the Directors for their personal benefits. In view of these, there is no gain saying on the part of the AO that the appellant failed to establish the commercial expediency. The decision rendered by the Hon'ble Apex Court in the case of Hero Cycles (P) Ltd (63 taxmann.com 308) also support the view point of the appellant. The Hon'ble Apex Court he....