DCIT, New Delhi V. M/s. Max Medical Services Ltd., New Delhi

ITA 4050/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4751 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 22-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 17-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PRIYA JUNEJA
• Keywords: Reasonable cause; Tangible material; Commercial expediency; Revised return

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E , NEW DELHI BEFORE SH. N. K. SAINI, AM AND SH. SUDHANSHU SRIVASTAVA , JM ITA NO. 4050 /DEL/201 4 : ASSTT. YEAR : 2010 - 11 ITA NO. 4051/DEL/2014 : ASSTT. YEAR : 201 1 - 12 DCIT, CIRCLE - 6(1), NEW DELHI VS M/S MAX MEDICAL SERVICES LTD., 1, MAX HOUSE, DR. JHA MARG, OKHLA INDUSTRIAL AREA, PHASE - III, NEW DELHI - 110020 (APPELLANT) (RESPONDENT) PAN NO. A A DCM3619D ASSESSEE BY : SH. AKHILESH GUPTA, CA & MS. PRIYA JUNEJA, CA REVENUE BY : MS. SHAIFALI SWAROOP, CIT DR SH. PRADEEP KUMAR MEEL , SR. DR DATE OF HEARING : 06 .09 .201 7 DATE OF PRONOUNCEMENT : 13 . 0 9 .201 7 ORDER PER N. K. SAINI, AM : THESE TWO APPEAL S BY THE DEPARTMENT ARE DIRECTED AGAINST THE SEPARATE ORDER S DATED 16.04.2014 AND 22.04.2014 OF LD. CIT(A) - IX , NEW DELHI FOR THE ASSESSMENT YEARS 2010 - 11 AND 2011 - 12 RESPECTIVELY . 2. SINCE THE ISSUE INVOLVED IS COMMON AND THE APPEALS WERE HEARD TOGETHER SO THESE ARE BEING DISPOSED OFF BY THIS CONSOLIDATED OR DER FOR THE SAKE OF CONVENIENCE AND BREVITY. ITA NO S. 4050 & 4051 /DEL /201 4 MAX MEDICAL SERVICES LTD. 2 3. AT THE FIRST INSTANCE WE WILL DEAL WITH THE APPEAL IN ITA NO. 4050/DEL/2014 FOR THE ASSESSMENT YEAR 2010 - 11. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF T HE CASE & IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF EXPENDITURE EQUAL IN PERCENTAGE OF REDUCTION IN THE REVENUE RECOGNIZED BY IGNORING THE FACTS DISCUSSED BY THE AO IN HIS ORDER. 2. THAT THE ORDER OF THE LD. CIT(A) IS ERRONEOUS AND IS N OT TENABLE ON FACTS AND IN LAW. 3. THAT THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR FOREGO ANY GROUNDS OF THE APPEAL RAISED ABOVE AT THE TIME OF HEARING. 4. FROM THE ABOVE GROUN DS, IT WOULD BE CLEAR THAT ONLY GRIEVANCE OF THE DEPARTMENT RELATES TO THE DELETION OF DISALLOWANCE MADE BY THE AO OUT OF THE EXPENDITURE EQUAL IN PERCENTAGE OF REDUCTION IN THE REVENUE RECOGNIZED. 5. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE FIL ED THE RETURN OF INCOME DECLARING A LOSS OF RS.12,02,84,626/ - ON 13.10.2010 AND THEREAFTER, REVISED THE RETURN OF INCOME ON 30.03.2012 DECLARING A LOSS OF RS.10,34,39,778/ - . THE REASON FOR FILING REVISED RETURN WAS THAT IN THE REVISED RETURN, THE ASSESSEE SUO MOTO DISALLOWED INTEREST AMOUNTING TO ITA NO S. 4050 & 4051 /DEL /201 4 MAX MEDICAL SERVICES LTD. 3 RS.1,68,44,848/ - U/S 36(1)(III) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). THE SAID RETURN WAS PROCESSED U/S 143(1) OF THE ACT AND LATER ON THE CASE WAS SELECTED FOR SCRUTINY. THE AO DURING T HE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE FILED A COPY OF SUPPLEMENTARY AGREEMENT DATED 21.02.2009 WITH M/S DEVKI DEVI FOUNDATION AND AS PER THE SAID AGREEMENT, THE ASSESSEE AGREED TO RECEIVE 8% OF THE SHARE OF REVENUE TOWARDS LEASING OF MEDI CAL & OTHER EQUIPMENTS, E ARLIER THIS PERCENTAGE WAS FIXED AT 10% VIDE AGREEMENT DATED 10.12.2011. SIMILARLY, VIDE SEPARATE AGREEMENT DATED 21.02.2009, THE ASSESSEE AGREED TO RECEIVE 5% OF THE SHARE OF REVENUE EARNED BY M/S DEVKI DEVI FOUNDATION FOR MAINTENANCE AND HEALTHCARE FACILITIES PROVIDED BY THE ASSESSEE. EARLIER THIS PERCENTAGE WAS 6% AS PER THE AGREEMENT DATED 10.12.2001. THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE EXPENSES EQUAL TO THE AMOUNT BY WHICH THE INCOME FROM LEASE AND INCOME FROM MAINTENANCE HAD BEEN REDUCED DUE TO DOWNWARD RE - ADJUSTMENT OF PERCENTAGE OF PROFIT AS PER THE AGREEMENT DATED 21.02.2009, BE NOT DISALLOWED. THE ASSESSEE WAS ALSO ASKED TO EXPLAIN AS TO WHY EXPENSES BE NOT DISALLOWED AS SALE OF RS.1.72 CRORES HAD BEEN MADE TO THE RELATED PARTY AT COST PRICE, THUS, YIELDING NO PROFITS. 6. IN RESPONSE, THE ASSESSEE SUBMITTED AS UNDER: IN THIS REGARD, IT IS SUBMITTED THAT THE ASSESSEE COMPANY HAS READJUSTED THE PERCENTAGES OF ABOVE AGREEMENTS DUE TO THE RAPIDLY CHANGIN G BUSINESS ENVIRONMENT AND COMPETITION. ITA NO S. 4050 & 4051 /DEL /201 4 MAX MEDICAL SERVICES LTD. 4 IN REGARDS TO THE ABOVE QUERY IT IS RESPECTFULLY SUBMITTED THAT THE PERCENTAGE OF THE ADJUSTED GROSS ANNUAL TURNOVER WERE REDUCED DUE TO REPEATED REQUESTS FROM THE CUSTOMER AND FOR COMMERCIAL EXPEDIENCY. AS PER CLAU SE C AND D OF THE SUPPLEMENTARY AGREEMENT ENTERED BETWEEN THE ASSESSEE COMPANY AND THE SERVICE PROVIDER, THE EQUIPMENT LEASING AGREEMENT WAS REVISED DUE TO THE FOLLOWING REASONS: 'C PURSUANT TO FINANCIAL DIFFICULTIES, THE USER HAS REQUESTED THE COMPANY FO R CERTAIN CONCESSIONS WITH RESPECT TO THE PAYMENTS REQUIRED TO BE MADE TO THE CONTRACTOR UNDER THE EQUIPMENT LEASING AGREEMENT AND CERTAIN AMENDMENTS TO THE PAYMENTS TERMS SET OUT THERE UNDER. D. THE PARTIES WISH TO ENTER INTO THIS AGREEMENT TO AMEND THE EQUIPMENT LEASING AGREEMENT AS SET OUT HERE UNDER.' FURTHER, AS PER CLAUSE D AND E OF THE SUPPLEMENTARY AGREEMENT ENTERED BETWEEN THE ASSESSEE COMPANY AND THE SERVICE PROVIDER, THE CONSTRUCTION & MAINTENANCE AGREEMENT WAS REVISED DUE TO THE FOLLOWING REAS ONS: 'D. PURSUANT TO FINANCIAL DIFFICULTIES, THE OWNER HAS REQUESTED THE CONTRACTOR FOR CERTAIN CONCESSIONS WITH RESPECT TO THE PAYMENTS REQUIRED TO BE MADE TO CONTRACTOR UNDER THE CONSTRUCTION & MAINTENANCE AGREEMENT AND CERTAIN AMENDMENTS TO THE PAYMENT S TERMS SET OUT THERE UNDER. E. THE PARTIES WISH TO ENTER INTO THIS AGREEMENT TO AMEND THE CONSTRUCTION & MAINTENANCE AGREEMENT AS SET OUT HERE UNDER.' WE HOWEVER WISH TO BRING TO YOUR HONOR'S KIND NOTICE THAT INSPITE OF THE READJUSTMENT OF PERCENTAGES; THERE HAS BEEN AN INCREASE IN REVENUE OF THE ASSESSEE COMPANY. THIS CAN BE SEEN ITA NO S. 4050 & 4051 /DEL /201 4 MAX MEDICAL SERVICES LTD. 5 FROM THE INCREASING TREND IN % OF REVENUE OF FY 2009 - 10 TO FY 2011 - 12, AS DEMONSTRATED IN THE BELOW TABLE: (FIGURES IN LACS) PARTICULAR SHARE OF REVENUE FY 2009 - 10 FY 2009 - 10 FY 2010 - 11 INCREASE FROM FY 200 9 - 10 FY 20 11 - 12 INCREASE FROM FY 2009 - 10 INCOME FROM LEASING 8% 627 959 53% 1,249 99% INCOME FROM DEFERRED CREDITS 2% 317 433 37% 544 71% INCOME FROM MAINTENANCE OF HEALTHCARE FACILITY 5% 392 599 53% 781 99% PLEASE FIND ENCLOSED THE COPY OF THE EXTRACT OF INCOME STATEMENT OF FY 2009 - 10, 2010 - 11 AND 2011 - 12 FOR YOUR REFERENCE ATTACHED HEREWITH AS ANNE XURE - 1, 2 AND 3 TO THIS LETTER. FURTHER, IT IS RESPECTFULLY SUBMITTED THAT THE ASSESSE E - COMPANY AND THE OTHER HEALTHCARE SERVICE PROVIDER ARE NOT RELATED TO EACH OTHER U/S 40A(2) OF THE ACT. FURTHER, NONE OF THE MEMBERS/TRUSTEES OF THE OTHER PROVIDER ARE SHAREHOLDERS OF THE ASSESSEE - COMPANY AND NOR THE SHAREHOLDERS/DIRECTORS OF THE ASSESSEE - COMPANY ARE TRUSTEES/MEMBERS OF THE SERVICE PROVIDER. THE RELATIONSHIP OF THE ASSESSEE - COMPANY AND THE SERVICE PROVIDER IN THE LIGHT OF SECTION 40A(2) OF THE ACT HAS ALREADY BEEN EXPLAINED THROUGH OUR PREVIOU S REPLY DATED DECEMBER 31, 2012. IN VIEW OF TH E ABOVE, BOTH THE AGREEMENTS WERE REVISED DUE TO THE CONCESSIONS ASKED BY THE UNRELATED PARTY AND RE - NEGOTIATION OF RATES FOR THE PAYMENT FOR LEASE RENTAL AND ITA NO S. 4050 & 4051 /DEL /201 4 MAX MEDICAL SERVICES LTD. 6 PAYMENT FOR CONSTRUCTION AND MAINTENANCE. THEREFORE, NO ADVERSE INFERENCE CAN BE DRAWN IN RELATIO N TO ANY NEXUS BETWEEN THE PROPORTIONATE EXPENSES EQUAL TO THE AMOUNTS BY WHICH INCOME FROM LEASE & MAINTENANCE HAS DECREASED DUE TO READJUSTED % OF INCOME AS PER THE AGREEMENTS. II. SALE OF STORES AMOUNTING TO RS.172.45 LACS. DURING THE RELEVANT ASSESSM ENT YEAR, THE ASSESSEE - COMPANY HAD SOLD HAND INSTRUMENTS AND STUNTS TO MA X HEAL THCARE INSTITUTE LIMITED ( MHIL ) ON COST - TO - COST BASIS AMOUNTING TO RS, 172.45 LACS. IN THIS REGARD, IT IS SUBMI TTED THAT THE ASSESSEE COMPANY I S JUST A PASS THROUGH MEDIUM TO TRANSFER THESE INSTRUMENTS TO MHIL ON ACTUAL BASIS. THIS CAN BE DEMONSTRATED THROUGH SAMPLE INVOICES ENCLOSED HEREWITH AS ANNEXURE 4 TO 8 TO THIS LETTER. THIS IS DONE IN ORDER TO GET THE BENEFIT TO BULK PURCHASES AND QUANTITY DISCOUNT. FURTHER, IT IS RESP ECTFULLY SUBMITTED THAT THESE HAND INSTRUMENTS FORMED PART OF SCHEDULE - 6 - 'INVENTORIES' IN THE BOOKS OF THE ASSESSEE - COMPANY. THE SAID INSTRUMENTS ARE LOW COST INSTRUMENTS AND SMALL IN NUMBERS AMOUNTING TO RS. 172.45 LACS ONLY, IN THE BOOKS OF THE ASSESSE E - COMPANY AND WERE ULTIMATELY SOLD TO MHIL AS A COMMERCIAL EXPEDIENCY. IN VIEW OF THE ABOVE AND AS EVIDENT FROM THE SAMPLE INVOICES, THE ASSESSEE - COMPANY PURCHASES THE STUNTS AND INSTRUMENTS FROM SUPPLIERS AND SELLS THE SAME AT THE SAME PURCHASE PRICE TO MHIL ON COST - TO - COST TO MHIL ON COST - TO - COST BASIS. WE TRUST THAT YOUR HONOR WILL FIND THE ABOVE IN ORDER. SHOULD YOUR HONOR REQUIRE FURTHER DETAILS / CL ARIFICATIONS / INFORMATION / DOCUMENTATION IN THE ABOVE REGARD, PLEASE DO LET US KNOW AND WE WILL FU RN ISH THE SAME AT THE EARLIEST. ITA NO S. 4050 & 4051 /DEL /201 4 MAX MEDICAL SERVICES LTD. 7 7 . THE AO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE ASSESSEE ENTERED INTO AN AGREEMENT WITH M /S DEVKI DEVI FOUNDATION AS FAR BACK AS IN THE YEAR 2001 AND THE PERCENTAGE OF SHARE FROM THE REVENUE E ARNED WAS FIXED IN THAT V ERY YEAR AND THAT THE AGREEMENT WAS A LONG TERM AGREEMENT FOR 30 YEARS FROM THE DATE OF EXECUTION. THUS, THE TERMS & CONDITIONS AND THE PERCENTAGE OF PROFITS AGREED BETWEEN THE PARTIES WERE FIXED AFTER CONSIDERING ALL THE PROS & CO NS OF THE BUSINESS AS ALSO THE DURATION OF THE AGREEMENT WITH FUTURE PERSPECTIVES. HE FURTHER OBSERVED THAT WITH THE INCREASE OF COST OF SERVICE BEING PROVIDED BY THE ASSESSEE DUE TO INFLATION AND OTHER FACTOR S, NO PRUDENT BUSINESS ORGANIZATION WOULD AGREE TO ANY DOWNWARD ADJUSTMENT FOR PERCENTAGE OF PROFITS/REVENUE ALREADY FIXED LONG BACK AND STILL TO RUN FOR A LONG TIME AND THAT THE VERSION OF THE ASSESSEE THAT THE USER OF THE SERVICES HAD FINANCIAL DIFFICULTIES DID NOT HOLD GROUND BECAUSE INCOME OF THE U SER AS WELL AS THE ASSESSEE, WAS SHOWING UPWARD TREND. THEREFORE, THERE WAS NO REASON AS TO WHY THE PERCENTAGE OF SHARE OF REVENUE SHOULD BE BROUGHT DOWN. THE AO CONSIDERED IT PROPER IF THE EXPENDITURE EQUAL TO THE REDUCTION IN SHARE OF REVENUE WAS DISALLO WED AND ADDED TO THE INCOME OF THE ASSESSEE. THE SAID AMOUNT WAS WORKED OUT AS UNDER: NATURE OF INCOME AMOUNT PERCENTAGE OF REVENUE AS PER ORIGINAL AGREEMENTS DATED 10.12.2001 PERCENTAGE AS PER SUPPLEMENTARY AGREEMENTS DATED 21.02.2009 REDUCTION OF PROFITS OF THE ASSESSEE ON ACCOUNT OF DECREASE IN PERCENTAGE OF SHARES ITA NO S. 4050 & 4051 /DEL /201 4 MAX MEDICAL SERVICES LTD. 8 INCOME FROM LEASE 626,50(000) 10% 8% 152,62(000) INCOME FROM MAINTENANCE ACTIVITIES 391,57(000) 6% 5% 78,31(000) 230,93(000) THE AO ALSO OBSERVED THAT T HE EXPENDITURE INCURRED BY THE ASSESSEE DURING THE YEAR EQUAL TO THE REDUCTION OF PERCENTAGE IN THE REVENUE I.E. RS.2,30,93,000/ - WAS TO BE DISALLOWED. ACCORDINGLY, THE SAID AMOUNT WAS ADDED TO THE INCOME OF THE ASSESSEE. 8. THE AO FURTHER OBSERVED THAT THE ASSESSEE HAD SOLD GOODS OF RS.1,72,45,488/ - TO ITS RELATED PARTY NAMELY, M/S MAX HEALTHCARE INSTITUTE LTD. AT COST PRICE . T HE REPLY FURNISHED BY THE ASSESSEE THAT IT WAS JUST A PASS THROUGH MEDIUM TO TRANSFER THESE INSTRUMENTS/GOODS TO M/S MAX HEALTHCA RE INSTITUTE LTD. ON ACTUAL BASIS , IT WAS IN ORDER TO GET THE BENEFIT OF BULK PURCHASES AND QUANTITY DISCOUNT , WAS NOT ACCEPTED BY THE AO. ACCORDINGLY, AN AD - HOC DISALLOWANCE @ 5% OF THE GOODS SOLD WAS CONSIDERED AS THE EXPENDITURE ATTRIBUTABLE TO THE GOOD S SO SOLD AT COST PRICE AND THUS, A DISALLOWANCE OF RS.8,62,274/ - (5% OF RS.1,72,45,488/ - ) WAS MADE AND ADDED TO THE INCOME OF THE ASSESSEE . 9 . BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED AS UNDER: DURING THE RELEVANT ASSESSMENT YEAR, THE APPELLANT ENTERED INTO TWO SUPPLEMENTARY AGREEMENTS DATED FEBRUARY 21 ST , 2009 (PLEASE REFER PAGE NO. 52 TO 59 OF THE PAPER BOOK), WHEREIN IT ITA NO S. 4050 & 4051 /DEL /201 4 MAX MEDICAL SERVICES LTD. 9 WAS AGREED BY BOTH THE PARTIES TO REDUCE THE ABOVE CONSIDERATION FROM 10% TO 8% AND 6% TO 5% R ESPECTIVELY, OWING TO THE FINANCIAL DIFFICUL TIES BEING FACED BY DDF. THE RELEVANT EXTRACT OF THE SUPPLEMENTARY AGREEMENTS ARE AS UNDER: AS PER CLAUSE C AND D OF THE SUPPLEMENTARY AGREEMENT DATED FEBRUARY 21, 2009, ENTERED BETWEEN THE APPELLANT AN D THE SERVICE PROVIDER, THE EQUIPMENT LEASING AGREEMENT WAS REVISED DUE TO THE FOLLOWING REASONS: 'C. PURSUANT TO FINANCIAL DIFFICULTIES, THE USER HAS REQUESTED THE COMPANY FOR CERTAIN CONCESSIONS WITH RESPECT TO THE PAYMENTS REQUIRED TO BE MADE TO THE CO NTRACTOR UNDER THE EQUIPMENT LEASING AGREEMENT AND CERTAIN AMENDMENTS TO THE PAYMENTS TERMS SET OUT THERE UNDER. D. THE PARTIES WISH TO ENTER INTO THIS AGREEMENT TO AMEND THE EQUIPMENT LEASING AGREEMENT AS SET OUT HERE UNDER.' FURTHER, AS PER CLAUSE D AN D E OF THE SUPPLEMENTARY AGREEMENT DATED FEBRUARY 21, 2009, ENTERED BETWEEN THE APPELLANT AND THE SERVICE PROVIDER, THE CONSTRUCTION & MAINTENANCE AGREEMENT WAS REVISED DUE TO THE FOLLOWING REASONS: 'D. PURSUANT TO FINANCIAL DIFFICULTIES, THE OWNER HAS RE QUESTED THE CONTRACTOR FOR CERTAIN CONCESSIONS WITH RESPECT TO THE PAYMENTS REQUIRED TO BE MADE TO THE CONTRACTOR UNDER THE CONSTRUCTION & MAINTENANCE AGREEMENT AND CERTAIN AMENDMENTS TO THE PAYMENTS TERMS SET OUT THERE UNDER. E. THE PARTIES WISH TO ENTER INTO THIS AGREEMENT TO AMEND THE CONSTRUCTION & MAINTENANCE AGREEMENT AS SET OUT HERE UNDER.' ITA NO S. 4050 & 4051 /DEL /201 4 MAX MEDICAL SERVICES LTD. 10 THE LD. AO HAS MADE AN ADDITION OF RS. 2,30,93,000 BEING THE DIFFERENCE IN THE PERCENTAGE OF REVENUE UNDER THE SUPPLEMENTARY AGREEMENT AND THE REVENUE TO BE EARN ED BY THE APPELLANT UNDER THE PREVIOUS AGREEMENT ALLEGING THAT THE APPELLANT HAS NOT PROVIDED A REASONABLE CAUSE FOR THE ABOVE DECREASE, WHILE MAKING THE AFORESAID DISALLOWANCE, THE LD. AO HAS QUESTIONED THE DECISION OF THE APPELLANT TO REDUCE THE RATES FO R THE PAYMENT OF LEASE RENTAL AND PAYMENT FOR CONSTRUCTION AND MAINTENANCE ON THE GROUND OF BUSINESS PRUDENCE. THE ABOVE CONTENTIONS OF THE LD. AO ARE MISPLACED ON THE FOLLOWING GROUNDS: SECTION 40A(2) IS NOT APPLICABLE IN THE INSTANT CASE THE PERCENTAGE OF REVENUE WAS REDUCED ON GROUND OF COMMERCIAL EXPEDIENCY 10 . THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: S.A. BUILDERS LTD. VS CIT 289 ITR 26 (SC) ATHERTON VS BRITISH INSULATED & HELSBY CABLES LTD. (1925) 10 TC 155 (HL) EASTERN INVESTMENTS LTD. VS CIT (1951) 20 ITR 1 (SC) CIT VS CHANDULAL KESHAVLAL & CO. (1960) 38 ITR 601 (SC) SHAHZADA NAND & SONS VS CIT (1977) AIR 1182 (SC) CIT, PUNJAB, HARYANA, J & K, VS PANIPAT WOLLEN & GENERAL MILLS (1976) AIR 640 (SC) CIT VS B DALMIA CEMENT LTD. 174 CTR 18 8 (DEL.) 11 . IT WAS FURTHER SUBMITTED AS UNDER: THAT THE LD. AO HAS NOT BROUGHT ANY COGENT MATERIAL ON RECORD IN SUPPORT OF HIS CONTENTION. THE IMPUGNED DISALLOWANCE HAS BEEN MADE MERELY ON THE BASIS OF SURMISES AND CONJECTURES, WHICH IS NOT WARRANTED U NDER THE LAW. ITA NO S. 4050 & 4051 /DEL /201 4 MAX MEDICAL SERVICES LTD. 11 WITHOUT PREJUDICE TO THE ABOVE, WE WISH TO BRING TO YOUR GOODSELF S KIND NOTICE THAT INSPITE OF THE DECREASE IN THE REVENUE FROM DDF, IT IS SUBMITTED THAT THE AGGREGATE INCOME FOR THE YEAR HAS INCREASED VIS - A - VIS EARLIER YEAR. IN THIS REGARD , COPY OF THE COMPUTATION OF INCOME AND FINANCIAL STATEMENTS OF THE APPELLANT FOR THE RELEVANT ASSESSMENT YEAR ARE ENCLOSED HEREWITH FOR YOUR READY REFERENCE (PLEASE REFER PAGE NO. 70 TO 96 OF THE PAPER - BOOK). THE FACT, THAT THE INCOME OF THE APPELLANT HAS INCREASED, WAS DULY SUBSTANTIATED VIDE OUR SUBMISSION DATED JANUARY 29, 2013 (PLEASE REFER PAGE NO. 97 TO 100C OF THE PAPER - BOOK). THIS CAN BE SEEN FROM THE INCREASING TREND IN % OF REVENUE OF FY 2009 - 10 TO FY 20 11 - 12, AS DEMONSTRATED IN THE BELOW TABLE: PARTICULARS SHARE OF REVENUE OF FY 2009 - 10 FY 2009 - 10 FY 2010 - 11 INCREASE FROM FY 2009 - 10 FY 2011 - 12 INCREASE FROM FY 2009 - 10 INCOME FROM LEASING 8% 627 959 53% 1,249 99% INCOME FROM DEFERRED CREDITS 2% 317 433 37% 544 71% INCOME FROM MAINTENANCE OF HEALTHCARE FACILITY 5% 392 599 53% 781 99% THUS, THE ACTION OF THE LD. AO TO DISALLOW THE AFORESAID EXPENDITURE IS UNCALLED FOR AND LIABLE TO BE DELETED, SINCE HE CANNOT EXAMINE THE QUESTION OF THE COMMERCIAL EXPEDIENCY OF THE APPEL LANT TO EARN PROFITS IN A PARTICULAR MANNER. 12 . AS REGARD TO THE AD - HOC DISALLOWANCE MADE BY THE AO, THE ASSESSEE SUBMITTED TO THE LD. CIT(A) THAT THE AO MADE THE ARBITRARY DISALLOWANCE WITHOUT POINTING OUT , ANY DEFECT IN THE BOOKS OF ACCOUNTS MAINTAIN ED OR ANY SPECIFIC VOUCHERS OF DISALLOWABLE NATURE. THE SAID ACTION OF THE AO WAS PURELY BASED ON SUSPICION AND SURMISES WITHOUT BRINGING ANY ITA NO S. 4050 & 4051 /DEL /201 4 MAX MEDICAL SERVICES LTD. 12 EVIDENCE ON RECORD IN SUPPORT OF THE DISALLOWANCE. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: DWARKA PRAS AD AGARWAL VS ITO 52 ITD 239 (CAL) RATTAH MECHANICAL WORK S LTD. VS ITO 87 TAXMAN 288 (CHD. ) SHRIRAM PISTONS AND RINGS LTD. VS IAC 39 TTJ 132 (DEL.) ROGER ENTERPRISES PVT. LTD. VS ITA 52 TTJ 198 (DEL.) RAMJI DAS MODI VS DCIT 110 TAXMAN 107 (JP) ACIT VS BATE LI TEA CO. LTD. (2003) SOT 72 CONTINENTAL SEEDS & CHEMIC ALS LTD. VS ACIT (2003) SOT 393 13 . THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE ASSESSEE HAD ENTERED INTO AN AGREEMENT FOR LEASING OF EQUIPMENT AND CONSTRUCTIO N/MAINTENANCE OF HOSPITAL BUILDING WITH DEVKI DEVI FOUNDATION FOR CONSIDERATION OF 10% AND 6% OF ANNUAL TURNOVER OF THE HOSPITAL RESPECTIVELY. THE SAID AGREEMENTS WERE REVISED DURING THE RELEVANT ASSESSMENT YEAR WHEREBY THE PERCENTAGE OF FEE AGREED WAS REV ISED DOWNWARD FROM 10% TO 8% AND 6% TO 5% RESPECTIVELY, IN ACCORDANCE WITH THE TERMS OF SUPPLEMENTARY AGREEMENT DATED 21.02.2009. HE FURTHER OBSERVED THAT THE NEXUS DRAWN BY THE AO BETWEEN THE EXPENSES INCURRED BY THE ASSESSEE DURING THE YEAR FOR THE PURPO SES OF BUSINESS AND DOWNWARD REVISION IN THE FEE RECEIVABLE FROM M/S DEVKI DEVI FOUNDATION WAS NOT SUPPORTED BY ANY MATERIAL FACT. HE FURTHER OBSERVED THAT THE LEGAL POSITION HAD BEEN EMPHASIZED BY THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS B. DALM IA CEMENT LTD. (SUPRA) WHEREIN IT WAS HELD THAT ONCE IT WAS ESTABLISHED THAT THERE WAS ITA NO S. 4050 & 4051 /DEL /201 4 MAX MEDICAL SERVICES LTD. 13 NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF THE BUSINESS (WHICH NEED NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE ITSELF), THE REVENUE CANNOT JUSTIFIABLY CLAIM T O PUT ITSELF IN THE SHOES OF THE BUSINESSMAN TO DECIDE THE REASONABLENESS OF ANY EXPENDITURE HAVING REGARDS TO THE CIRCUMSTANCES OF THE CASE A ND THAT THE EXPENSES HAD BEEN I NCURRED BY THE ASSESSEE FOR THE PURPOSES OF BUSINESS AND THERE WAS NO IOTA NOR ANY SINGLE VOUCHER/EXPENSE HAD BEEN POINTED OUT, SUGGESTING THAT THE EXPENDITURE HAD NOT BEEN INCURRED FOR THE PURPOSES OF BUSINESS OR WAS EXCESSIVE HAVING REGARD TO THE FAIR MARKET, THEREFORE, IN THE ABSENCE OF ANY SUCH FINDING , THERE WAS NO PROVISION IN LAW WHICH MANDATES AN AO TO DISALLOW PART OF AN EXPENDITURE ON AD - HOC BASIS. THE LD. CIT(A) ALSO DISCUSSED IN PARA 5.3.4 OF THE IMPUGNED ORDER, THE RATIO LAID DOWN BY VARIOUS HON BLE COURTS AND THE ITAT AND FURTHER OBSERVED THAT THERE WAS NO DECLINE IN THE GRO SS REVENUE EARNED BY THE ASSESSEE FROM M/S DEVKI DEVI FOUNDATION WHICH HAD INCREASED IN ABSOLUTE TERMS VIS - - VIS THE PRECEDING YEAR AND THAT IT WAS ONLY THE PERCENTAGE OF FEES AGREED BETWEEN THE PARTIES ORIGINALLY WAS REVISED DOWNWARD, ON GROUNDS OF COMMER CIAL EXPEDIENCY WHICH COULD NOT BE DISPUTED/DICTATED BY THE AO. THE LD. CIT(A) DELETED THE AD - HOC DISALLOWANCE MADE BY THE AO. 14 . AS REGARDS TO THE DISALLOWANCE ON ACCOUNT OF EXPENDITURE ATTRIBUTABLE TO GOODS SOLD ON COST TO COST BASIS. THE LD. CIT(A) O BSERVED THAT IT HAD NOT BEEN ESTABLISHED BY THE AO THAT ANY UNDISCLOSED INCOME WAS EARNED BY THE ASSESSEE NOR ANY TANGIBLE MATERIAL WAS AVAILABLE ON ITA NO S. 4050 & 4051 /DEL /201 4 MAX MEDICAL SERVICES LTD. 14 RECORD FOR THE SAME, CONSEQUENTLY NO ADDITION TO INCOME WAS TO BE MADE IN THE ASSESSMENT ORDER. ACCORDING T O THE LD. CIT(A) IF THE EXPENDITURE WAS FOUND TO HAVE BEEN INCURRED FOR THE PURPOSES OF BUSINESS, NO PART THEREOF CAN BE DISALLOWED ON AD - HOC BASIS. THE LD. CIT(A) WAS HELD THAT THERE WAS NO VALID BASIS TO DISALLOW EXPENSES INCURRED DURING THE RELEVANT YEA R, ADMITTEDLY, FOR THE PURPOSES OF BUSINESS, WITHOUT THERE BEING ANY SINGLE EXPENDITURE/VOUCHER SUGGESTING NO BUSINESS NEXUS. ACCORDINGLY, THE DISALLOWANCE MADE BY THE AO WAS DISALLOWED. 15 . NOW THE DEPARTMENT IS IN APPEAL. THE LD. CIT DR STRONGLY SUPPOR TED THE ORDER PASSED BY THE AO AND REITERATED THE OBSERVATIONS MADE IN THE ASSESSMENT ORDER DATED 06.02.2013. 16 . IN HIS RIVAL SUBMISSIONS THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND STRONGLY SUPPORTED THE IMPUGNED ORDER PASSED BY THE LD. CIT(A). HE FURTHER SUBMITTED THAT THE SHARING OF THE REVENUE WAS REDUCED DUE TO THE COMPUTATION AND THE BUSINESS EXIGENCY, SO THERE WAS NO REASON TO MAKE THE AD - HOC DISALLOWANCE OUT OF THE EXPENSES, PARTICULARLY WHEN N O DEFECT WAS POINTED OUT IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE. 17 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE, IT APPEARS THAT THE AO MADE THE DISALLOWANCE OF THE EXPENSES ONLY ON THIS ITA NO S. 4050 & 4051 /DEL /201 4 MAX MEDICAL SERVICES LTD. 15 BASIS THAT THERE WAS REDUCTION IN THE SHARING OF THE REVENUE IN COMPARISON TO THE EARLIER YEARS, NO OTHER REASONS HAS BEEN GIVEN. IN THE INSTANT CASE, IT IS ALSO NOTICED THAT THERE WAS INCREASE IN THE INCOME EARNED BY THE ASSESSE E IN COMPARISON TO THE EARLIER YEAR I.E. 53% MORE TH A N THE PRECEDING YEAR AS IS EVIDENT FROM THE CHART FURNISHED BY THE ASSESSEE BEFORE THE LD. CIT(A), WHICH SHOWS THAT EVEN AFTER REDUCTION IN THE PERCENTAGE OF SHARE , THE ASSESSEE EARNED MORE REVENUE IN CO MPARISON TO THE EARLIER YEAR. IN THE PRESENT CASE, THE AO DID NOT POINT OUT ANY DEFECT IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE IN THE REGULAR COURSE OF BUSINESS, I T WAS ALSO NOT BROUGHT ON RECORD THAT ANY OF THE EXPENSES WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. THE AO MADE THE DISALLOWANCE ONLY ON THE BASIS OF SURMISES AND CONJECTURE WHICH IS NOT TE NABLE IN THE EYES OF LAW. MOREOVER, THE AO DID NOT BRING ANYTHING ON RECORD TO SUBSTANTIATE THAT BY REDUCING THE PERCE NTAGE OF SHARE OF FEE, THE ASSESSEE WAS LOOSER IN TERMS OF EARNING THE REVENUE AND THAT THE EXTRA EXPENSES WERE INCURRED BY THE ASSESSEE IN THE SAME RATIO IN WHICH THE REVENUE SHARING WAS REDUCED. THE CONTENTION OF THE ASSESSEE TH AT THE REDUCTION IN THE FE ES FROM LEASING OF EQUIPMENTS/MAINTENANCE OF THE OFFICE BUILDING WAS ON ACCOUNT OF BUSINESS EXIGENCY , HA D NOT BEEN REBUTTED AT ANY STAGE . WE, THEREFORE, BY CONSIDERING THE TOTALITY OF THE FACTS OF THE PRESENT CASE, ARE OF THE VIEW THAT NO INTERFERENCE IS C ALLED FOR IN THE WELL REASONED ORDER PASSED BY THE ITA NO S. 4050 & 4051 /DEL /201 4 MAX MEDICAL SERVICES LTD. 16 LD. CIT(A). ACCORDINGLY, WE DO NOT SEE ANY INFIRMITY IN THE IMPUGNED ORDER. 18 . FOR THE ASSESSMENT YEAR 2011 - 12 IN ITA NO. 4051/DEL/2014, THE FACTS ARE IDENTICAL TO THE FACTS WHICH WERE INVOLVED IN ITA NO . 4050/DEL/2014 FOR THE ASSESSMENT YEAR 2010 - 11. THEREFORE, OUR FINDINGS GIVEN IN THE FORMER PART OF THIS ORDER SHALL APPLY MUTATIS MUTANDIS. 1 9 . IN THE RESULT, THE APPEAL S OF THE DEPARTMENT ARE DISMISSED. ( ORDER PRON OUNCED IN THE COURT ON 13 /0 9 /2017 ) SD/ - SD/ - ( SUDHAN SHU SRIVASTAVA ) (N. K. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DAT ED: 13 /09 /2017 *SUBODH* COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(APPEALS) 5 . DR: ITAT ASSISTANT RE GISTRAR