TMI Blog2023 (7) TMI 981X X X X Extracts X X X X X X X X Extracts X X X X ..... As respectfully following the observations in the case of Eureka Medical Pvt. Ltd. [ 2018 (8) TMI 267 - ITAT NAGPUR] we are of the considered view that the assessee is eligible to claim deduction u/s. 80IB(11C) of the Act in respect of inhouse pharmacy maintained by the assessee within the premises of hospital. We are in agreement with the documents taken by the counsel for the assessee that in case of multi-speciality hospital having over 100 beds, it is not feasible to efficiently run the hospital, without having an inhouse pharmacy to cater to the needs of inhouse patients. Disallowance u/s. 14A - CIT(A) allowed the appeal of the assessee on the ground that during the year under consideration, the assessee had not earned exempt income during the year under consideration - HELD THAT:- We are of the considered view that there is no infirmity in the order of CIT(A) as during the year under consideration no exempt income was earned by the assessee. In a recent ruling passed in the case of Era Infrastructure India Ltd. [ 2022 (7) TMI 1093 - DELHI HIGH COURT] it has been held that the amendment brought in by the Finance Act, 2022, to section 14A by inserting a non-obstante cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 assessment, the Assessing Officer observed that these profits included profits of Rs. 2,47,82,051/- from trading in medicines surgical equipments from in house medical store. Thus, the Assessing Officer observed that the assessee had suffered losses to the tune of Rs. 2,19,54,667/- (Rs. 28,27,384/- - Rs. 2,47,82,051/-) from the business of ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nct 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 hospitals deduction cannot be granted. During the appellate proceedings the Ld. AR argued that profits from trading in medicines etc cannot be seen as distinct business to disallow the claim of the appellant. It was also stated that pharmacy is very much required to run multi specialty hospital. The Ld. AR relied on the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese 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 and 2010-11 assessee had no gross income as a result of which no deduction was claimed u/s D) Assessee has claimed deduction u/s 80IB(11C) for the first time in Asstt. Year 2011-12. Requisite conditions for grant of deduction u/s 80IB(11C) were examined and on being satisfied. A.O. had allowed deduction u/s 80I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt 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. has carried out Inspection of business. premises in order to examine and verify the claim of assessee and allowed the deduction u/s 80IB(11C). J) A.O. In the present assessment year after due verification of evidence on record and after inspection of hospital premises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 convenience has engaged the service of Shri Rajkumar Agrawal to operate and maintain Medical and Pharmaceutical Stores, at the premises of assessee. Assessee is receiving revenue in the shape of referral charges in respect to various supplies made by him to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TAT, 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 can be excluded for the purpose of deduction u/s 80IB(11C) after considering the share of indirect expenses. U) Activity of training of nurses is not an independent activity. Activity of training nurses is undertaken to meet the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : 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 reasoning that accepting the statement filed by the assessee in the absence of any supporting material and without making any enquiry, the order is erroneous. This proposition has been found by the Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Hence, it has been claimed that running Pharmacy is not an Independent activity and the same is statutorily required and inextricably linked to the operation and maintenance of hospital. The assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is inhouse pharmacy to cater to the needs of inhouse patients. Further, the counsel for the assessee also placed reliance on the case of Eurka Medical Pvt. Ltd. in ITA No. 90 and 153/Nagpur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 fact whether or not exempt income has accrued or arisen or has not been received during the year and expenditure has been incurred in relation to such income not forming part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ividual 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 year. The Ahmedabad ITAT in the case of Edelweiss Financial Advisors Ltd. [2021] 124 taxmann.com 361 (Ahmedabad - Trib.) held that disallowance of expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 held that once it is established that there is nexus between expenditure and purpose of business revenue cannot justifiably claim ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
