ITO 2(1)(1), MUMBAI V. HEALTH INDIA TPA SERVICES P. LTD ( FORMERLY KNOWN AS BAICHAND AMOLUK INSURANCE SERVICES P.LTD), MUMBAI

ITA 4173/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56212 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 08-12-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 21-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Assessee Lawyers: D V LAKHANI
• Keywords: Depreciation; Business expenditure
• Section: 37(1)

Judgement Text

ITA NOS 4173 & 4174 OF 2010 HEALTH INDIA TPA SERVICES PVT LTD MUMBAI PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL 'H' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NOS. 4173 & 4174/MUM/2010 (ASSESSMENT YEARS: 2003-04 & 2004-05) INCOME TAX OFFICER 2(1)(1) M/S.HEALTH INDIA TPA AAYAKAR BHAVAN SERVICES (P)LTD.9,COMMERCIAL ROOM NO.575, 5 TH FLOOR UNION HOUSE, WALLACE STREET MUMBAI 400020 VS. MUMBAI400001 PAN NO:AABCB 4953D APPELLANT RESPONDENT DEPARTMENT BY: SHRI V.V. SHASTRI, SR.DR ASSESSEE BY: SHRI D.V. LAKHANI DATE OF HEARING: 08/12/2011 DATE OF PRONOUNCEMENT: 21/12/2011 O R D E R PER B. RAMAKOTAIAH, A.M. THESE TWO APPEALS ARE REVENUE APPEALS AGAINST THE O RDERS OF THE CIT (A)-4 MUMBAI DATED 26.03.2010 IN RESPECTIVE ASSESSMENT YEARS. THE ISSUE IN THESE APPEALS IS WITH REFERENCE TO THE DISALLOWANCE OF EXPENDITURE ` 20,65,875/- UNDER SECTION 37(1) IN ASSESSMENT YEAR 2003-04 AND ` 38,80,806/- IN ASSESSMENT YEAR 2004-05 (WRONGLY STATED IN THE GROUND AT ` 20,65,875/-). 2. BRIEFLY STATED THE ASSESSEE IS IN THE BUSINESS OF 3 RD PARTY ADMINISTRATOR FOR INSURANCE CLAIMS AND HAS OBTAINED LICENSE W.E.F. 18.11.2002. THE ASSESSEE ALSO HAD INCOMES FROM DIVI DEND AND SALE OF INVESTMENT. THE ASSESSING OFFICER NOTICED THAT T HE ASSESSEE HAS ONLY RECRUITED THE PERSONS AND HAS NOT DONE ANY BUS INESS AND THEREFORE, THE CLAIM OF EXPENDITURE OF SALARIES, RE CRUITMENT EXPENSES; TRAVELLING, TELECOMMUNICATION EXPENSES, P RINTING AND STATIONERY WERE CONSIDERED NOT PERTAINING TO THE AS SESSEES BUSINESS AND ACCORDINGLY DISALLOWED THE SAME UNDER SECTION 3 7(1). HE WAS OF THE OPINION THAT AS ASSESSEE HAS NO RECEIPTS FROM T HE BUSINESS ITA NOS 4173 & 4174 OF 2010 HEALTH INDIA TPA SERVICES PVT LTD MUMBAI PAGE 2 OF 4 ACTIVITY IT CANNOT BE STATED THAT THE ASSESSEE HAS COMMENCED BUSINESS. IT WAS SUBMITTED BEFORE THE CIT (A) THAT THE ASSESSEE HAS COMMENCED ITS BUSINESS ACTIVITY AS TPA FROM THE TIM E IT OBTAINED LICENSE FROM THE INSURANCE REGULATORY DEVELOPMENT A UTHORITY (IRDA) AND BEFORE THAT THE ASSESSEE HAS EMPLOYED VA RIOUS PERSONS SO AS TO INVOLVE ITSELF IN THE BUSINESS OF SERVICE IN THE 3 RD PARTY ADMINISTRATION OF HEALTH INSURANCE BUSINESS FOR VAR IOUS HEALTH INSURERS. SUBMISSIONS MADE BEFORE THE ASSESSING OFF ICER WERE NOT ACCEPTED, BUT THE CIT (A) CONSIDERED THAT THE ASSES SEE HAS SET UP THE BUSINESS OF 3 RD PARTY ADMINISTRATION OF INSURANCE BUSINESS FROM THE DATE ON WHICH IT HAS OBTAINED LICENSE. ACCORDIN GLY, HE DIRECTED THE ASSESSING OFFICER TO ALLOW THE EXPENDITURE IN T HE RESPECTIVE ASSESSMENT YEARS. IT WAS ALSO NOTICED THAT THE ASSE SSEE HAS INCOME AND RECEIVED CHARGES TO AN EXTENT OF ` 88,412/- IN ASSESSMENT YEAR 2004-05. THE REVENUE IS AGGRIEVED AGAINST THE DECIS ION OF THE CIT (A) IN ALLOWING THE EXPENDITURE. 3. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED T HAT THE ASSESSEE HAS NOT COMMENCED BUSINESS. THEREFORE, THE CIT (A) WAS WRONG IN ALLOWING THE EXPENDITURE UNDER SECTION 37( 1) WHEREAS THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSEE HAS INC OME, STARTED RECRUITMENT PROCESS IN JULY, 2002 AND ONLY AFTER TH E BUSINESS WAS SET UP IT APPLIED FOR LICENSE FROM THE IRDA AND OBT AINED ON 18.11.2002. IT WAS FURTHER POINTED OUT THAT AFTER O BTAINING TPA ADMINISTRATOR STATUS, THE ASSESSEE HAS TO EMPLOY QU ALIFIED MEDICAL PRACTITIONERS AND OTHER PERSONS AND REFERRING TO TH E CORRESPONDENCES WITH THE NEW INDIA ASSURANCE CO. LT D PLACED IN THE PAPER BOOK, IT WAS SUBMITTED THAT AFTER OBTAINI NG LICENSE THE ASSESSEE HAS OBTAINED PERMISSION FROM THE NEW INDIA ASSURANCE CO. CORRESPONDENCE OF WHICH WAS STARTED W.E.F. 25.0 7.2002. IT WAS ALSO FURTHER SUBMITTED THAT IN THE ASSESSEES BUSIN ESS BEING SERVICE ORIENTED, THE RECEIPTS WILL INCREASE ONLY IN THE LA TER YEARS CONSEQUENT TO MEDICAL CLAIMS UNDERTAKEN BY THE ASSE SSEE. HE SUBMITTED THAT THE RECEIPTS IN ASSESSMENT YEAR 2004 -05 WAS ITA NOS 4173 & 4174 OF 2010 HEALTH INDIA TPA SERVICES PVT LTD MUMBAI PAGE 3 OF 4 ` 88,412/- WHEREAS IT HAS INCREASED TO ` 1049.92 LAKHS IN ASSESSMENT YEAR 2009-10 TO SUBMIT THAT THE ASSESSEE S BUSINESS HAS INCREASED OVER A PERIOD OF TIME AND THERE IS NO REASON FOR THE ASSESSING OFFICER TO DISALLOW THE GENUINE BUSINESS EXPENDITURE JUST BECAUSE THERE ARE NO RECEIPTS IN THE INITIAL YEARS. HE SUPPORTED THE ORDERS OF THE CIT (A) INCLUDING THE CASE LAW RELIED UPON BY THE CIT (A). 4. WE HAVE CONSIDERED THE ISSUE. AS SEEN FROM THE FACT S ON RECORD, THE ASSESSEE HAS SET UP BUSINESS MUCH BEFOR E IT OBTAINED ITS LICENSE FROM THE IRDA AND THERE WAS CORRESPONDENCE ON RECORD WITH NEW INDIA ASSURANCE CO. LTD AS EARLY AS JULY, 20, 2 002 REGARDING SELECTION OF TPA FOR SERVICE OF MEDICLAIM POLICIES IN INDIA. IT IS ALSO NOTICED THAT WHILE DISALLOWING THE EXPENDITURE THE ASSESSING OFFICER HAD ALLOWED TRAINING EXPENSES WHEREAS HE DISALLOWED SALARIES AND RECRUITMENT EXPENSES. DEPRECIATION ALSO AS CLAIMED BY THE ASSESSEE WAS ALLOWED. IT SEEMS THERE IS NO REASON FOR DISALL OWING THE EXPENDITURE AND IN OUR OPINION DISALLOWANCE OF CERT AIN EXPENSES ARE NOT BASED ON ANY RATIONALE OR REASON. IT IS ALSO NO TICED THAT THE ASSESSEE HAD INDEED RECEIVED AMOUNTS TO AN EXTENT O F ` 88,412/- AS TPA CHARGES IN ASSESSMENT YEAR 2040-05 IN WHICH YEA R ALSO THE ASSESSING OFFICER DISALLOWED EXPENDITURE TO THE EXT ENT OF ` 38,80,806/-. WE FIND THAT THESE EXPENSES ARE REVENU E IN NATURE AND THERE SHOULD NOT BE ANY DISALLOWANCE ON THE REA SON THAT THERE IS NO INCOME IN THE YEARS. ONCE BUSINESS IS SET UP, EXPENSES INCURRED BY THE ASSESSEE ARE REQUIRED TO BE ALLOWED . HON'BLE BOMBAY HIGH COURT IN THE CASE OF WESTERN INDIA VEGE TABLE PRODUCTS VS. CIT (26 ITR 151) HELD THAT WHAT IS REQUIRED IN THE SETTING UP OF THE BUSINESS AND NOT COMMENCEMENT OF THE BUSINESS. THE HON'BLE SUPREME COURT ALSO IN THE CASE OF C.W.T. VS. RAMARA JU SURGICAL COTTON MILLS LTD (63 ITR 478) AFFIRMED THE SAME. IN THE CASE OF CIT VS. FRANCO TOSI INGEGNERIA [2000] 241 ITR 268 (MAD. ), THE HON'BLE MADRAS HIGH COURT HELD THAT OPENING OF SITE OFFICE ITSELF CAN BE CONSIDERED AS COMMENCEMENT OF THE BUSINESS AND ALLO WED THE ITA NOS 4173 & 4174 OF 2010 HEALTH INDIA TPA SERVICES PVT LTD MUMBAI PAGE 4 OF 4 EXPENDITURE UNDER SECTION 37(1). IN THIS CASE THERE IS EVIDENCE ON RECORD THAT THE ASSESSEE HAS NOT ONLY SET UP THE BU SINESS BUT ALSO CONDUCTED BUSINESS ACTIVITIES BY UNDERTAKING VARIOU S APPROVALS AND ALSO INVOLVING HIMSELF IN IDENTIFYING RELEVANT HOSP ITALS FOR ADMINISTRATION OF 3 RD PARTY CLAIMS. THE RECEIPTS IN 2040-05 AND SUBSEQUENT INCREASE IN ITS CHARGES IN LATER YEARS D O INDICATE THAT THE ASSESSEE NOT ONLY SET UP THE BUSINESS BUT ALSO COMMENCED BUSINESS ACTIVITIES FROM ASSESSMENT YEAR 2003-04 IT SELF. BEING SERVICE ORIENTED, THE RECEIPTS MAY NOT BE COMMENSUR ATE WITH THE INITIAL EXPENDITURE BUT AS RIGHTLY POINTED OUT BY T HE CIT (A) THAT SHOULD NOT BE A REASON FOR DISALLOWING GENUINE BUSI NESS EXPENDITURE. FOR THESE REASONS, WE UPHOLD THE ORDER S OF THE CIT (A) AND DISMISS THE REVENUE GROUNDS. 5. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST DECEMBER, 2011. SD/- SD/- (D.MANMOHAN ) (B. RAMAKOTAIAH) VICE-PRESIDENT ACCOUNTANT MEMBER VNODAN/SPS MUMBAI, DATED 21 ST DECEMBER, 2011. COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, H BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI