TMI Blog2018 (8) TMI 267X X X X Extracts X X X X X X X X Extracts X X X X ..... 2-13, is not the initial year for grant of deduction u/s. 80IB(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. 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. - Decided in favour of assessee. - ITA No. 153/Nag./2017 - - - Dated:- 1-8-2018 - Shri Shamim Yahya, Accountant Member And Shri Ram Lal Negi, Judicial Member Assessee by : Shri K. P. Dewani Revenue by : Shri R. K. Baral ORDER Per Shamim Yahya, A. M. This appeal by the assessee is directed against the order passed under section 263 of the Income Tax Act, 1961 by the Principal Commissioner of Income Tax 2, Nagpur and pertains to assessment year 2012-13. 2. The grounds raised by the assessee are reproduced below: 1. The order passed u/s. 263 of I.T. Income Tax Act, 1961, 1961 is illegal, invalid and bad in law. 2. The order passed u/s. 263 holding that assessment framed by A.O. is without making inquiries and is therefore erroneous is unjustified, unwarranted and bad in law. 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... produced for verification. It was further submitted that summons to the assessee u/s. 131 of the Income Tax Act, 1961 to the assessee was also attended. Hence, it was submitted that the assessment order for assessment year 2012-13 u/s. 143(3) of the Income Tax Act, 1961 was passed after due verification of all facts. The assessee gave further submissions regarding the correlation of all the incomes to the running of the hospital. However, the Commissioner of Income Tax was not satisfied without finding any fault in assessee s elaborate submissions. He reiterated that from the details available on records, it appeared that no verification was carried out. That prima facie the case record show that no verification was carried out with regard to the claim of rental income from medical store, interest income from fixed deposit and income from running of nursing home. The Commissioner of Income Tax concluded as under: 4.7 The failure on part of the Assessing Officer to ascertain whether the interest, rental income, referral income and income from running a Nursing college are permissible deductions under section 80IB(11C) of the Act has rendered the assessment order erroneous insof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m operating and maintaining hospital. Claim in respect to aforesaid income was already accepted by revenue authorities in the assessment framed for Asstt, Year 2011-12 and there was no scope for A.O. to take any different view in the matter during Asstt. Year 2012-13. Assumption of jurisdiction u/s 263 is bad in law. G) Issue in dispute is covered in favour of assessee by decision of Hon'ble ITAT, Nagpur Bench, Nagpur in ITA No.250/Nag/2000 in the case of Dinshaw Frozen Foods, Nagpur vide order dated 16/10/2002 by following decision of Hon'ble Bombay High Court in the case of Paul Bros, reported at 216 ITR 548 (Bom.). Ratio laid down by Hon'ble ITAT squarely applies to the facts in the present case. In view of above order passed u/s 263 is unsustainable. H) Asstt. Year 2012-13 is not initial year for 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. i) Hon'ble Bombay High Court order in ITA No. 27/2010 in the case of Simple Food Products Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue. Order passed by A.O. being not erroneous and prejudicial to the interest of revenue same cannot be a subject matter of exercise of power u/s 263 of IT. Act 1961. Order passed by CIT u/s 263 being not in accordance with law is liable to be cancelled. Reliance on: i) 203 ITR 108 (Bom.) CIT vs. Gabrial India Ltd. ii) 295 ITR 282 (SC) CIT vs. Max India Ltd. M) Assesses has received interest of ₹ 5.99 lacs which is credited in Profit Loss Account. Interest paid debited in Profit Loss is ₹ 40.06 lacs. Interest received would go to reduce the interest paid and there would be no interest income which can be excluded for the purpose of deduction u/s 80IB(11C). Reliance placed on the decision of Hon'ble ITAT in case of M/s Plastic Surge Industries Ltd. in ITA No.79/Nag/2010 vide order dated 19/10/2012. Aforesaid decision of Hon'ble ITAT has been challenged by revenue before Hon'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. N) Hon'ble Bombay High Court in case of Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital. Thus revenue derived is inextricably linked/nexus with the operating and maintaining of hospital and is clearly eligible income from business of operating and maintain of hospital. It is part of source of revenue derived from patients admitted in the hospital for treatment. Revenue is thus revenue from operating and maintenance of hospital. Thus allowance of deduction u/s 80IB(11C) on above undisputed factual position on record cannot be faulted. Reliance on: i) ITAT, Chennai Bench in the case of Franciscan Sisters of St. Joseph Society vs. JCIT reported at 152 ITD 485 (Chennai) dated 06/01/2014. S) Assessee has also received nominal usage charges of ₹ 2,04,000/- from Medical Store towards use of hospital building in the 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 linked to the activity of operating and maintenance of hospital and thus income derived there from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax Act, 1961. In this regard, we note that u/s. 80IB(11C) of the Act, the deduction will be available in case of an undertaking which derives profits from business of operating and maintaining the hospital located anywhere in India. Now it is undisputed that the assessee is in the business of operating and maintaining the hospital. In this regard, we note that in the preceding assessment year, i.e., for assessment year 2011-12, under a scrutiny assessment u/s. 143(3), for all the above mentioned items of income noted, the assessee was granted deduction u/s. 80IB(11C). There is no mention anywhere that there is any change in the facts and circumstances of the case from that prevailing in the previous assessment year. In this regard, we note that the present assessment year 2012-13, is not the initial year for grant of deduction u/s. 80IB(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 Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity provider would keep with himself in the assessment records the details of referral income as to from whom and for what purpose it was received, defies any logical explanation. Referral income in case of medical facility provider is a very common phenomenon. It is undoubtedly linked to the business of running and operating medical facility. Over and above, the co-relation of the income from interest, rent from medical store, referral income and receipt from nursing activity were explained in detail before the Commissioner of Income Tax and it was averred that the same were inextricably linked to the hospital. In fact, the Commissioner of Income Tax has elaborated the submissions of the assessee in his order u/s. 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) and the decision of the Hon'ble Bombay High Court in the case of Shri Jagdishprasad M. Joshi (supra), wherein it was held that interest received would be eli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmissions amply explain that the items of receipt mentioned and questioned by the Commissioner of Income Tax are inextricably linked to the operating and maintaining of the hospitals. Even at the cost of repetition, we may add that these activities were found to be inextricably so linked and the assessee was allowed deduction u/s.80IB(11C) in the immediate preceding year. 13. Hence, in the background of the aforesaid discussion and precedent, we are of the considered opinion that the Commissioner of Income Tax was not at all justified in assuming jurisdiction u/s. 263 of the act. We hold that there was no material on record to warrant assumption of jurisdiction by the Commissioner of Income Tax. In this regard, we place reliance upon the exposition of Hon'ble jurisdictional High Court in the case of CIT vs. Gabrial India Ltd. [1993] 203 ITR 108 (Bom) for the following: The power of suo motu revision under sub-section (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub-section, viz., (i ) the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, viz., that the order is erroneous, is absent. Similarly, if an order is erroneous but not prejudicial to the interests of the revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revison because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. Therefore, in order to exercise power under section 263(1) there must be material before the Commissioner to consider that the order passed by the ITO was erroneous insofar as it is prejudicial to the interests of the revenue and that it must be an order which is not in accordance with the law or which has been passed by the ITO without making any ..... X X X X Extracts X X X X X X X X Extracts X X X X
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