DCIT, New Delhi V. M/s Global Health Pvt. Ltd., New Delhi

ITA 4587/DEL/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 1203 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 13-07-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G JOHNSON
• Keywords: Depreciation; Business expenditure; Revenue expenditure; Capital expenditure; Set aside

Judgement Text

ITA NO. 3622/DEL/2015 4587/DEL/2015 ASSESSMENT YEAR 2010-11 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO.3622/DEL/2015 ASSESSMENT YEAR: 2010-11 GLOBAL HEALTH PVT. LTD., E-18, DEFENCE COLONY, NEW DELHI. (PAN: AACCG2681C) VS DCIT, CIRCLE-10(1), NEW DELHI. APPELLANT RESPONDENT ITA NO.4587/DEL/2015 ASSESSMENT YEAR: 2010-11 DCIT, CIRCLE-10(1), NEW DELHI. VS. GLOBAL HEALTH PVT. LTD., E-18, DEFENCE COLONY, NEW DELHI. (PAN: AACCG2681C) APPELLANT RESPONDENT ASSESSEE BY : SHRI RAHUL KHARE, AD V. SHRI H.N. MEHROTRA DEPARTMENT BY: SHRI G. JOHNSON, SR. DR DATE OF HEARING : 15.03.2019 DATE OF PRONOUNCEMENT : 18.03.2019 O R D E R PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER: ITA NO. 3622/DEL/2015 IS PREFERRED BY THE ASSESSE E AGAINST THE ORDER DATED 30.4.2015 PASSED BY THE LD. CIT (APPEALS) -4, NEW DELHI {CIT (A)} FOR ASSESSMENT YE AR 2010-11 ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 2 WHEREAS ITA NO. 4587/DEL/2015 IS THE DEPARTMENTS C ROSS APPEAL. 2.0 BRIEF FACTS OF THE CASE ARE THAT THE ASSE SSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING HEA LTH CARE FACILITY THROUGH SUPER-SPECIALTY HOSPITAL NAMELY M EDANTA AT GURGAON. THE HOSPITAL STARTED ITS OPERATION W.E.F. 1.11.2009. THE RETURN OF INCOME WAS FILED FOR THE YEAR UNDER C ONSIDERATION DECLARING A LOSS OF RS.95,27,63,398/-. THE CASE OF THE ASSESSEE COMPANY WAS SELECTED FOR SCRUTINY UNDER CASS NORMS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE COMPANY HAD APPOINTED DR . NARESH TREHAN AS ITS MANAGING DIRECTOR W.E.F. 1.6.2007 BUT NO REMUNERATION WAS PAID TO HIM/PROVIDED IN THE FINANC IAL STATEMENTS IN THE EARLIER ASSESSMENT YEARS WHEREAS IN THE YEAR UNDER CONSIDERATION AN AMOUNT OF RS. 9,33,33,333/- WAS SHOWN AS SALARY FOR THE PERIOD 1.6.2007 TO 31.3.2010. ON BEING ASKED TO EXPLAIN, THE ASSESSEE SUBMITTED THAT THE COMPANY S BOARD OF DIRECTORS HAD PASSED A RESOLUTION IN SEPTEMBER, 200 9, WHEREBY AN AMOUNT OF RS. 6 CRORE WAS APPROVED AS SALARY TO DR. NARESH TREHAN FOR THE PERIOD 1.6.2007 TO 31.10.2009. IT W AS SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE LIABILITY TOW ARDS PAYMENT OF ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 3 SALARY HAD CRYSTALLIZED ONLY UPON THE PASSING OF TH E RELEVANT RESOLUTION APPROVING THE PAYMENT OF SALARY BY THE B OARD OF DIRECTORS AND WAS, THEREFORE, ALLOWABLE IN THE YEAR UNDER CONSIDERATION. IT WAS ALSO SUBMITTED THAT, ALTHOUG H, THE MEDANTA HOSPITAL HAD STARTED FUNCTIONING FROM 1.11.2009 ONL Y, THE ASSESSEE COMPANY HAD ALREADY BEEN PROVIDING HEALTH CARE SERVICES W.E.F. 1.6.2007 BY ENTERING INTO ARRANGEME NTS WITH VARIOUS HOSPITALS INCLUDING APOLLO HOSPITAL WHERE A LL THE CARDIAC OPERATIONS WERE PERFORMED BY A TEAM LED BY DR. NARE SH TREHAN. IT WAS ALSO SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE SALARIES FOR OTHER DOCTORS HAD BEEN FIXED AND PAID W.E.F. 1.6.2007 WHICH HAD BEEN ALLOWED BY THE ASSESSING OFFICER ALS O IN HIS ORDER FOR ASSESSMENT YEAR 2008-09 BUT SINCE THE SALARY OF DR.NARESH TREHAN COULD NOT BE PAID UNTIL THE BOARD OF DIRECTO RS APPROVED IT, THE SAME WAS CLAIMED AS AN EXPENDITURE IN THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER, HOWEVER, WAS OF THE OPINION THAT THE SALARY OF DR. NARESH TREHAN, HE BE ING THE CHAIRMAN AND THE MANAGING DIRECTOR, WAS PAID FOR GI VING OVERALL BUSINESS DIRECTIONS/FRAMING BUSINESS POLICY WHICH W AS IN THE DEVELOPMENT STAGE BEFORE NOVEMBER 2009 AND, THEREFO RE, THE SALARY FOR THE PERIOD PRIOR TO NOVEMBER 2009 SHOULD HAVE BEEN ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 4 CAPITALIZED. ACCORDINGLY, THE ENTIRE SALARY PAID T O DR. NARESH TREHAN FOR THE PERIOD PRIOR TO 1.11.2009 WAS CAPITA LIZED BY THE ASSESSING OFFICER WHICH RESULTED IN AN AMOUNT OF RS . 8,23,52,900/- BEING TREATED AS PRE-OPERATIVE EXPEND ITURE WHICH WAS AMORTIZED @10% AND, ACCORDINGLY, A NET ADDITION OF RS. 7,82,35,255/- WAS MADE. 2.1 FURTHER, THE ASSESSING OFFICER ALSO OBSERVED THAT THE ASSESSEE HAD CLAIMED THE ADDITIONS TO FIXED ASSETS UNDER THE INDIAN COMPANIES ACT, 1956 AT RS. 520,31,51,563/- W HEREAS THE ADDITIONS TO FIXED ASSETS AS PER THE TAX AUDIT REPO RT, FOR THE PURPOSES OF THE INCOME TAX ACT, 1961 (HEREINAFTER R EFERRED TO AS 'THE ACT'), WERE SHOWN AT RS. 521,10,97,834/- THERE BY GIVING RISE TO A DIFFERENCE OF RS. 79,46,271/-. THE ASSESSEE F ILED A RECONCILIATION CHART BEFORE THE ASSESSING OFFICER I NFORMING THAT SOME ITEMS WHICH HAD BEEN TREATED AS INVENTORY IN T HE BOOKS HAD BEEN CONSIDERED AS FIXED ASSETS WHILE CLAIMING DEPR ECIATION UNDER THE INCOME TAX ACT AND ALSO SOME ASSETS WHICH HAD BEEN TAKEN ON LEASE, WHICH HAD BEEN TREATED AS FIXED ASS ETS IN THE BOOKS OF ACCOUNTS, WERE NOT TREATED AS FIXED ASSETS UNDER THE ACT. IT WAS ALSO SUBMITTED THAT THE UPFRONT FEE ALSO WAS NOT CONSIDERED AS PART OF THE FIXED ASSETS FOR THE PURP OSES OF ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 5 CALCULATING THE DEPRECIATION. HOWEVER, THE ASSESSI NG OFFICER DID NOT ACCEPT THE RECONCILIATION AS SUBMITTED BY THE A SSESSEE AND ADDED BACK EXCESS DEPRECIATION @15% RESULTING IN AN ADDITION OF RS. 5,95,970/-. 2.2 THE ASSESSING OFFICER FURTHER OBSERVED THAT T HE ASSESSEE HAD CAPITALIZED REPAIRS AND MAINTENANCE EX PENSES RELATING TO ENGINEERING EQUIPMENT AMOUNTING TO RS. 218,87,15,906/- TOWARDS ADDITION/S TO PLANT AND MAC HINERY AND A FURTHER AMOUNT OF RS. 8,44,63,990/- TOWARDS ADDIT ION/S TO COMPUTERS. APART FROM THIS, THE ASSESSING OFFICER OBSERVED, THAT THE ASSESSEE HAD ALSO CLAIMED REPAIRS AND MAINTENAN CE EXPENSES TOWARDS ENGINEERING EQUIPMENT AND REPAIRS AND MAINT ENANCE OF IT RELATED EQUIPMENT. THE ASSESSEE WAS ASKED TO EX PLAIN AS TO WHY THE REPAIRS AND MAINTENANCE EXPENSES AGGREGATIN G TO RS. 81,89,214/- MAY NOT BE CAPITALIZED BEING PRE-OPERAT IVE IN NATURE. THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT OUT OF THIS AMOUNT, AN AMOUNT OF RS. 23,76,046/- WAS TOWAR DS PAYMENT OF ANNUAL MAINTENANCE CONTRACT (AMC) FOR MA INTAINING THE IT FACILITY AND REGARDING THE BALANCE AMOUNT OF RS. 58,13,168/-, IT WAS SUBMITTED THAT THE SAME WAS IN RESPECT OF THE PERIOD STARTING FROM 1.11.2009 AND, THEREFORE, THE SAME WAS ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 6 NOT PRE-OPERATIVE IN NATURE. HOWEVER, THE ASSESSIN G OFFICER, ON EXAMINING THE RELEVANT INVOICES, OBSERVED THAT PART OF THE AMC EXPENDITURE WAS RELATED TO THE PERIOD PRIOR TO NOVE MBER, 2009. THE ASSESSING OFFICER ALSO TREATED THE ENTIRE REPAI R EXPENSES FOR IT ENGINEERING EQUIPMENT AS BEING PRE-OPERATIVE IN NATURE. ALSO WITH REGARD TO REPAIRS AND MAINTENANCE OF ENGINEERI NG EQUIPMENT, THE ASSESSING OFFICER HELD THAT THESE EX PENSES WERE IN THE NATURE OF START-UP EXPENDITURE AND WERE, ACC ORDINGLY, TO BE CAPITALIZED ON WHICH DEPRECIATION WAS TO BE ALLOWED AT THE APPLICABLE RATE. A NET ADDITION OF RS. 40,40,103/- WAS MADE ON THIS ACCOUNT. 2.3 THE ASSESSING OFFICER FURTHER OBSERVED THAT T HE ASSESSEE HAD MADE CERTAIN PAYMENTS DURING THE YEAR TOWARDS TESTING FEES PAID TO ARTERMIS HOSPITAL IN EXCESS OF RS. 20,000/- IN CASH. THE ASSESSEE WAS REQUIRED TO EXPLAIN AS TO W HY A DISALLOWANCE U/S 40A (III) OF THE ACT MAY NOT BE MA DE. IN THIS REGARD, THE ASSESSEES EXPLANATION WAS THAT THESE P AYMENTS HAD BEEN MADE FOR THE PURPOSE OF CARRYING OUT CERTAIN B ASIC MEDICAL/BLOOD TESTS AND THE PAYMENT HAD TO BE MADE IN CASH AS AT THAT POINT OF TIME, THERE WAS NO WRITTEN AGREEME NT BETWEEN THE ASSESSEE AND ARTERMIS HOSPITAL AND ALSO DUE TO BUSI NESS ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 7 EXPEDIENCY. HOWEVER, THE ASSESSING OFFICER PROCEEDE D TO MAKE A DISALLOWANCE OF RS. 1,39,980/- U/S 40A(III) OF THE ACT. 2.4 THE ASSESSING OFFICER ALSO OBSERVED THAT THE ASSESSEE HAD CLAIMED AN AMOUNT OF RS. 1,05,92,174/- TOWARDS MISCELLANEOUS EXPENDITURE OUT OF WHICH DETAILS OF O NLY RS. 45,47,763/- HAD BEEN PROVIDED TO THE ASSESSING OFFI CER. IT WAS FURTHER OBSERVED BY THE ASSESSING OFFICER THAT OUT OF THIS AMOUNT, AN AMOUNT OF RS. 14,59,122/- HAD BEEN SPENT TOWARDS COMMUNITY OUTREACH PROGRAMME WHILE AN AMOUNT OF RS. 14,29,613/- HAD BEEN SHOWN AS PAID TOWARDS NURSING HOSTEL EXPENSES IN ADDITION TO AN AMOUNT OF RS. 39,62,381/ - WHICH HAD ALREADY BEEN TRANSFERRED FROM PRE-OPERATIVE EXPENSE S TO THE PROFIT & LOSS ACCOUNT. THE ASSESSING OFFICER WAS OF THE O PINION THAT THESE EXPENSES WERE INCURRED PRIOR TO NOVEMBER 2009 AND HE, ACCORDINGLY, CAPITALIZED THE AFORESAID EXPENSES AGG REGATING TO RS. 68,51,116/-. 2.5 ON PERUSAL OF THE DETAILS RELATING TO RESEARC H AND DEVELOPMENT EXPENDITURE AMOUNTING TO RS. 1,08,33,34 1/-, THE ASSESSING OFFICER OBSERVED THAT SUCH EXPENSES WERE ALSO INCURRED PRIOR TO 1.11.2009. THE ASSESSING OFFICER, IN ABSE NCE OF THE PARTICULARS OF THE EMPLOYEES WHO WERE ENGAGED IN TH E RESEARCH ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 8 AND DEVELOPMENT ACTIVITIES, PROCEEDED TO TREAT AN A MOUNT OF RS. 93,35,841/- AS BEING CAPITAL IN NATURE AND, THEREAF TER, AFTER ALLOWING DEPRECIATION THEREON, A TOTAL DISALLOWANCE OF RS. 1,04,58,266/- WAS MADE. 2.6 WHILE EXAMINING THE DETAILS OF RECRUITMENT EX PENSES AMOUNTING TO RS. 1,93,55,261/-, THE ASSESSING OFFIC ER OBSERVED THAT THE SAME INCLUDED AN AMOUNT OF RS. 96,91,023/- IN RESPECT OF VARIOUS INVOICES ISSUED ON 31.3.2010 BUT PERTAIN ING TO FY 2010-11. THE ASSESSING OFFICER HELD THAT AN AMOUNT OF RS. 18,94,197/- WAS PREOPERATIVE IN NATURE WHILE AN AMO UNT OF RS. 21,32,683/- WAS REVENUE IN NATURE. ACCORDINGLY, AF TER ALLOWING BENEFIT DEPRECIATION AT THE APPLICABLE RATE, AN ADD ITION OF RS. 1,14,90,580/- WAS MADE TO THE TOTAL INCOME AFTER TR EATING THE EXPENSES OF RS. 96,91,093/- AS PERTAINING TO ASSESS MENT YEAR 2011-12. 2.7 THE ASSESSING OFFICER FURTHER HELD THAT THE I NTEREST ON TERM LOAN AMOUNTING TO RS. 1,28,00,000/- HAD ALSO A N ELEMENT OF PRE-OPERATIVE EXPENSES AND, ACCORDINGLY, AN ADDITIO N OF RS. 1,21,60,000/- WAS MADE ON THIS ACCOUNT. FURTHER, T HE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD PAID BANK CH ARGES TOWARDS IMPORTING CERTAIN PLANT AND MACHINERY WHICH , IN THE ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 9 OPINION OF THE ASSESSING OFFICER, SHOULD HAVE BEEN CAPITALIZED TO THE COST OF FIXED ASSETS. AN ADDITION OF RS. 3,28, 57,503/- WAS MADE TO THE TOTAL INCOME ON THIS ACCOUNT. 2.8 AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL B EFORE THE LD. CIT (APPEALS) WHO PARTLY ALLOWED THE ASSESSEES APPEAL BY ADJUDICATING THE ISSUES BEFORE HIM AS UNDER:- I) WITH RESPECT TO THE ISSUE OF DISALLOWANCE OF SALAR Y OF OF RS. 6.00 CRORES PERTAINING TO THE PERIOD 1.6.200 7 TO 31.10.2009 OF DR. NARESH TREHAN, THE LD. CIT (APPEALS) HELD THAT 20% OF SALARY RECEIVED BY DR. NARESH TREHAN FOR THE PERIOD 1.6.2007 TO 31.10.2009 WAS TO BE CAPITALIZED WHICH WAS ELIGIBLE FOR DEPRECIATION. THE BALANCE SALARY OF RS. 4.80 CRORE WAS HELD TO BE REVENUE IN NATURE. THE LD. CIT (APPEALS ) ALSO HELD THAT FOR THE REMAINING AMOUNT OF RS. 3.33 CRORE FOR THE PERIOD 1.11.2009 TO 31.3.2010 WAS TO BE ALLOWED IN ASSESSMENT YEAR 2011-12 BECAUSE THE BOARD RESOLUTION TO PAY THE AMOUNT OF RS. 3.33 CROR E WAS TAKEN ON 28.9.2010. THE ASSESSING OFFICER WAS ALSO DIRECTED TO ALLOW THE SALARY OF RS. 3.33 CRORE IN ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 10 ASSESSMENT YEAR 2011-12. THUS, THE DISALLOWANCE WA S CONFIRMED TO THE EXTENT OF RS. 4.53 CRORE. II) WITH RESPECT TO DEPRECIATION DISALLOWANCE AMOUNTING TO RS. 5,95,970/-, THE LD. CIT (APPEALS) HELD THAT THE ASSESSING OFFICER HAD NO REASONABLE BASIS FOR MAKIN G THE DISALLOWANCE OF DEPRECIATION KEEPING IN MIND TH E RECONCILIATION CHART FILED BY THE ASSESSEE IN THIS REGARD. ACCORDINGLY, THE ASSESSEES GROUND WAS ALLOWED AND THE DISALLOWANCE WAS DELETED. III) ON ASSESSEES CHALLENGE TO THE CAPITALIZATION OF RE PAIR AND MAINTENANCE EXPENSES OF IT AND ENGINEERING EQUIPMENT, WITH RESPECT TO THE ANNUAL MAINTENANCE CHARGES (AMC), THE LD. CIT (APPEALS) HELD THAT ONLY A PROPORTIONATE AMOUNT FOR A PERIOD OF 15 DAYS WAS PREOPERATIVE IN NATURE, THEREBY RESULTING IN CAPITALIZATION OF RS. 2,16,004/- ONLY. THE ASSESSE E WAS GRANTED RELIEF IN RESPECT OF THE BALANCE AMOUNT OF AMC. WITH RESPECT TO THE OTHER COMPONENT OF RS. 58,13,168/- IN RESPECT OF REPAIR AND MAINTENANCE OF ENGINEERING EQUIPMENT, THE LD. CIT (APPEALS) HELD T HAT THE ASSESSING OFFICER HAD CAPITALIZED THE SAME WITH OUT ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 11 SUPPORT OF ANY EVIDENCE WHICH WOULD SUGGEST THAT AN Y SPECIFIC ENGINEERING EQUIPMENT HAD COME INTO EXISTENCE. THE LD. CIT (APPEALS) PROCEEDED TO DELE TE THE REMAINING ADDITION OF RS. 58,13,168/- ON THIS ACCOUNT. IV) WITH RESPECT TO THE DISALLOWANCE MADE U/S 40A(III) OF THE ACT PERTAINING TO CASH PAYMENTS MADE TO ARTERMI S HOSPITAL TOWARDS SPECIAL MEDICAL TESTS ETC., THE LD . CIT (APPEALS) WAS OF THE VIEW THAT THE CASE OF BUSINESS EXPEDIENCY WAS NOT SUCCESSFULLY MADE OUT BY THE ASSESSEE AND HE, THEREFORE, PROCEEDED TO CONFIRM TH E DISALLOWANCE OF RS. 1,39,980/-. V) WITH RESPECT TO CAPITALIZATION DONE BY THE ASSESSIN G OFFICER WITH RESPECT TO MISCELLANEOUS EXPENDITURE, THE LD. CIT (APPEALS) HELD THAT OUT OF RS. 14,29,613/- SPENT TOWARDS NURSING HOSTEL EXPENSES, RS. 5,10,761 /- WERE ALLOWABLE. WITH RESPECT TO THE SECOND COMPONE NT OF MISCELLANEOUS EXPENDITURE AMOUNTING TO RS. 33,00,281/- , THE LD. CIT (APPEALS) HELD THAT EXPEN SES AMOUNTING TO RS. 19,21,341/- WERE PREOPERATIVE IN NATURE AND THE DISALLOWANCE TO THIS EXTENT WAS ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 12 SUSTAINED. FURTHER, WITH RESPECT TO AMOUNT OF RS. 14,59,122/- SPENT ON COMMUNITY OUTREACH PROGRAMME, THE LD. CIT (APPEALS) HELD THAT CAPITALIZATION ONLY TO THE EXTENT OF RS. 2,48,939/- WAS TO BE SUSTAINED AS ONLY THIS AMOUNT HAD BEEN SPENT PRIOR TO 31.10.2009. VI) WITH RESPECT TO THE DISALLOWANCE OF RS. 1,04,58,266 /- BEING SALARIES PAID UNDER RESEARCH AND DEVELOPMENT EXPENDITURE, THE LD. CIT (APPEALS) HELD THAT SINCE NO SPECIFIC DETAILS HAD BEEN FILED EITHER BEFORE THE ASSESSING OFFICER OR BEFORE HIM, THE CAPITALIZATION WAS IN ORDER. ACCORDINGLY, THIS GROUND WAS DISMISSED. VII) WITH RESPECT TO THE ACTION OF THE ASSESSING OFFICER IN TREATING THE RECRUITMENT EXPENDITURE AMOUNTING TO R S. 1,14,90,580/- AS CAPITAL EXPENDITURE, THE LD. CIT (APPEALS) HELD THAT OUT OF THIS EXPENDITURE, RS. 96,91,023/- HAD BEEN INCURRED BY M/S IFAN GLOBAL INDIA PVT. LTD. AND AS PER THE AGREEMENT WITH THIS COMPANY AND THE RELATED INVOICES, THE PAYMENT HAD BEEN MADE FOR PROVIDING RECRUITMENT SERVICES DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY, AN AMOU NT ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 13 OF RS. 96,91,023/-, DISALLOWED BY THE ASSESSING OFFICER, WAS ALLOWED. WITH RESPECT TO THE BALANCE AMOUNT OF RS. 18,94,197/- THE LD. CIT (APPEALS) HEL D THAT THIS ADDITION WAS TO BE UPHELD AS THE SAME PERTAINED TO A PERIOD PRIOR TO OCTOBER 2009. VIII) WITH RESPECT TO THE CAPITALIZATION OF INTEREST ON B ANK LOAN AND BANK CHARGES AMOUNTING TO RS. 1,28,60,000/- AND RS. 3,28,57,503/- RESPECTIVELY, T HE LD. CIT (APPEALS) HELD THAT AS FAR AS THE INTEREST ON TERM LOAN WAS CONCERNED, THE IMPUGNED AMOUNT PERTAINED TO A PERIOD PRIOR TO OCTOBER 2009 AND SIN CE THE LOAN HAD BEEN TAKEN FOR THE CONSTRUCTION OF MEDANTA HOSPITAL, THE SAME HAD TO BE CAPITALIZED WHICH HAD RIGHTLY BEEN DONE SO BY THE ASSESSING OFFICER. ACCORDINGLY, THIS GROUND WAS DISMISSED BY THE LD. CIT (APPEALS). WITH RESPECT TO THE BANK CHARGES DISALLOWED BY THE ASSESSING OFFICER, THE LD. CIT (APPEALS) HELD THAT BANK CHARGES ON CREDIT CARD RECEIPTS FROM PATIENTS AMOUNTING TO RS. 13,886/- WE RE REVENUE IN NATURE AND WERE TO BE ALLOWED. FURTHER, IT WAS HELD THAT ONE TIME BANK CHARGES FOR ISSUANCE OF ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 14 LETTER OF CREDIT AND LETTER OF CREDIT CONFIRMATION CHARGES, WHICH WERE INCURRED TOWARDS IMPORT OF MEDICAL EQUIPMENT, RELATED TO IMPORT OF FIXED ASSET PRIOR TO INSTALLATION AND, THEREFORE, THE SAME NEED ED TO BE CAPITALIZED BUT DEPRECIATION COULD BE GRANTED AT THE APPLICABLE RATES. WITH RESPECT TO ANNUAL BANK CHAR GES TOWARDS ISSUANCE OF BANK GUARANTEE ETC., THE LD. CI T (APPEALS) HELD THAT THE SAME SHOULD BE BIFURCATED A ND THE CHARGES PAID BY THE ASSESSEE PRIOR TO INSTALLAT ION AND PUT TO USE OF THE ASSETS NEEDED TO BE CAPITALIZ ED WHEREAS THE CHARGES PAID SUBSEQUENT TO THE ASSETS HAVING BEEN PUT TO USE SHOULD BE ALLOWED AS REVENUE EXPENDITURE. 2.9 NOW, BOTH THE DEPARTMENT AS WELL AS THE ASSES SEE HAS APPROACHED THE ITAT AGAINST THE ORDER OF THE LD. CI T (APPEALS). 2.10 THE FOLLOWING GROUNDS HAVE BEEN PREFERRED BY THE ASSESSEE:- 1 (A) THE LEARNED CIT (A) ERRED IN FACT AND IN LAW IN TREATING PART SALARY OF DR. NARESH TREHAN AMOUNTING TO RS 1.20 CRORE AS CAPITAL EXPENDITURE WHICH IS NOT O NLY INCORRECT BUT ALSO AGAINST THE FACTS AND CIRCUMSTAN CES OF THE CASE. (B) THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN GIVING DIRECTION TO DCIT TO ALLOW THE SALARY AMOUNTING TO RS ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 15 3.33 CRORE IN SUBSEQUENT YEAR ( A.Y 2011-12) IN SPI TE OF THE FACT THAT THIS WAS NOT THE SUBJECT MATTER OF AP PEAL. (C) THAT DIRECTION OF CIT(A) AS PER GROUND L.(B) IS NOT ONLY ILLEGAL BUT VOID AB INITIO BECAUSE NO NOTICE U/S 25 1 (2) WAS ISSUED. 2. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN TREATING A SUM OF RS 19,21,341 UNDER THE HEAD MISC EXPENDITURE AS PRE OPERATIVE EXPENDITURE WHICH IS N OT ONLY INCORRECT BUT ALSO AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN TREATING A SUM OF RS 2,48,939 UNDER THE HEAD OUT RE ACH PROGRAME AS PRE OPERATIVE EXPENDITURE WHICH IS NOT ONLY INCORRECT BUT ALSO AGAINST THE FACTS AND CIRCUMSTAN CES OF THE CASE. 4. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN TREATING A SUM OF RS. 11,81,500 OUT OF RS 1,04,58, 266 UNDER THE HEAD RESEARCH AND DEVELOPMENT AS PRE OPERATIVE EXPENDITURE AND CONFIRMED THE DISALLOWANC E OF RS 93,35,841 WHICH IS NOT ONLY INCORRECT BUT ALSO A GAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN TREATING A SUM OF RS. 18,94,197 UNDER THE HEAD RESEARCH AND DEVELOPMENT IN THE NATURE OF RECRUITMENT EXPENSES A S PRE OPERATIVE EXPENDITURE WHICH IS NOT ONLY INCORRE CT BUT ALSO AGAINST THE FACTS AND CIRCUMSTANCES OF THE CAS E. 6. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN TREATING A SUM OF RS 1.28 CRORE UNDER THE HEAD INTEREST AS P RE OPERATIVE EXPENDITURE WHICH IS NOT ONLY INCORRECT B UT ALSO AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. 7. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN TREATING BANK CHARGES ON ISSUANCE OF BANK GUARANTEE FOR EPCG LICENSE AS PRE OPERATIVE EXPENDITURE WHICH IS NOT O NLY INCORRECT BUT ALSO AGAINST THE FACTS AND CIRCUMSTAN CES OF THE CASE. ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 16 2.11 GROUNDS OF APPEAL RAISED BY THE REVENUE ARE A S UNDER:- 1. THE LD, CIT-A HAS ERRED IN ESTIMATING THE SALAR Y OF DR. NARESH TREHAN TOWARDS THE COST OF HOSPITAL AT 2 0%, IGNORING THE FACT THAT DR. NARESH TREHAN WAS NOT ON LY PAID FOR DOCTOR'S PROFESSION BUT REMUNERATION WAS P AID FOR OVERALL BUSINESS DIRECTIVES WHICH ARE FOR PERFO RMING BUSINESS PRACTICES AND POLICIES OF UPCOMING HOSPITA L PROJECT WHICH WAS IN DEVELOPMENT STAGE BEFORE NOVEMBER 2009. 2. THE LD. CIT(A) HAS ERRED IN ALLOWING DEPRECIAT ION ON VALUE OF FIXED ASSETS OF RS. 521,10,97,834/- IGNORI NG THE FACT THAT THE ASSESSEE COMPANY HAS SHOWN THE VALUE OF FIXED ASSETS OF RS. 520,31,51,563/- IN THEIR BALANC E SHEET. 3. THE LD. CIT(A) HAS ERRED IN ALLOWING THE ADDITI ON OF RS.58,13,168/- &RS.21,60,062/- MADE ON ACCOUNT OF REPAIR & MAINTENANCE, INSTALLATION, COMMISSIONING & TOWARDS I.T EQUIPMENT'S IGNORING THE FACT THAT THES E EXPENSES ARE INADMISSIBLE BEING PRIOR PERIOD EXPENS ES. 4. THE LD. CIT(A) HAS ERRED IN ALLOWING EXPENSES AMOUNT OF RS.45,28,499/- OUT OF TOTAL DISALLOWANCES OF RS.65,08,856/- IGNORING THE AO'S FINDING THAT THESE PERTAIN TO PERIOD PRIOR TO NOVEMBER, 2009 AND ARE INADMISSIBLE BEING PRE-COMMENCEMENT OF BUSINESS EXPENDITURE. 5. THE LD. CIT(A) HAS ERRED IN ALLOWING THE EXPEND ITURE OF RS.96,91,093/- OUT OF TOTAL DISALLOWANCES OF RS. 1,14,90,580/- IGNORING THE FACT THAT THE ASSESSEE F AILED TO SUBSTANTIATE ITS CLAIM THAT THESE PERTAIN TO THE ASSESSMENT YEAR UNDER CONSIDERATION AND ALSO THE FA CT THAT THESE HAVE BEEN RAISED DURING THE NEXT F.Y.: 2 010- 11 ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 17 6. THE APPELLANT CRAVES LEAVE, TO ADD, ALTER OR AME ND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF TH E HEARING. 3.0 WITH RESPECT TO THE ASSESSEES APPEAL BEARING CAPTION ITA NO. 3622/DEL/2015, THE LD. AR MADE GROUND WISE SUBMISSIONS AS UNDER: 3.1.1 WITH RESPECT TO GROUND NO. 1 (A) THAT THE LE ARNED CIT (A) HAD ERRED IN FACT AND IN LAW IN TREATING PART S ALARY OF DR. TREHAN AMOUNTING TO RS. 1.20 CRORE AS CAPITAL EXPEN DITURE WHICH IS NOT ONLY INCORRECT BUT ALSO AGAINST THE FACTS AN D CIRCUMSTANCES OF THE CASE, THE LD. AR SUBMITTED THAT OUT OF RS.6, 00,00,000/- THE LD. CIT(A) HAS ALLOWED RS. 4,80,00,000/- AS REVENUE EXPENDITURE AND HAS CAPITALIZED 20% OF THE SALARY ON AN AD HOC BASIS (BEING RS. 1,20,00,000/-) TOWARDS THE COST OF THE HOSPITAL PROJECT AND ALSO HELD IT AS BEING ELIGIBLE FOR DEPRECIATION . I T WAS SUBMITTED THAT THIS GROUND RELATES TO GROUND NO. 1 OF THE REV ENUES APPEAL ALSO. IT WAS SUBMITTED THAT THIS AD HOC DISALLOWANCE WAS MADE WITHOUT BRINGING ON RECORD ANY FACT TO SUPPORT THE REASONING BEHIND CAPITALIZATION @ 20%. IT WAS FURTHER SUBMITT ED THAT THE LAST REMUNERATION DRAWN BY DR. NARESH TREHAN FROM ESCORT S HEART INSTITUTE WAS RS 8.40 CRORES PER ANNUM AS AGAINST R S 6.00 CRORES IN GLOBAL HEALTH PVT. LTD. ALTHOUGH HE WAS NOT INVO LVED IN THE DAY ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 18 TO DAY MANAGEMENT WHILE HE WAS IN THE ESCORTS HEART INSTITUTE. THE LD. AR ALSO PLACED RELIANCE ON NUMEROUS JUDICIA L PRECEDENTS TO SUPPORT HIS CONTENTION THAT AD HOC CAPITALIZATION @ 20% WITHOUT ANY SOUND REASONING AND FACTUAL ACCURACY WA S NOT SUSTAINABLE AND IN FACT THE ENTIRE DISALLOWANCE BY CAPITALIZATION WAS TO BE DELETED. 3.1.2 WITH RESPECT TO GROUND NO. 1(B) THAT THE LEA RNED COMMISSIONER OF INCOME TAX (A) HAD ERRED IN FACT AN D IN LAW IN GIVING DIRECTION TO THE AO TO ALLOW THE SALARY AMOU NTING TO RS. 3.33 CRORE IN SUBSEQUENT YEAR (A.Y. 2011-12) IN SPI TE OF THE FACT THAT THIS WAS NOT THE SUBJECT MATTER OF APPEAL, THE LD. AR SUBMITTED THAT INTEREST OF JUSTICE WOULD BE MET IF THE AO IS DIRECTED TO COMPLY WITH THIS DIRECTION OF THE LD. C IT (A). 3.1.3 GROUND NO. 1(C) WAS NOT PRESSED. 3.2 GROUND NO. 2 WAS NOT PRESSED. 3.3 WITH RESPECT TO GROUND NO. 3 STATING THAT THE LEARNED CIT (A) HAD ERRED IN FACT AND IN LAW IN TREATING A SUM OF RS. 2,48,939/- UNDER THE HEAD OUTREACH PROGRAMME AS PRE -OPERATIVE EXPENDITURE WHICH WAS NOT ONLY INCORRECT BUT WAS AL SO AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. AR SUB MITTED THAT THE BUSINESS ACTIVITY WAS UNDISPUTEDLY STARTED W.E.F. 1 /06/2007 ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 19 WHEREAS THE LD. CIT (A) HAS MADE THIS DISALLOWANCE BASED ON AN INCORRECT ASSUMPTION THAT SINCE THIS AMOUNT WAS SPE NT BEFORE 31/10/2009 WHEREAS THE BUSINESS OF THE ASSESSEE WAS STARTED W.E.F. 1/11/2009. IT WAS SUBMITTED THAT THE LD. CIT (A) TOOK THIS INCORRECT VIEW IN SPITE OF THE FACT THAT THE AO, WH ILE PASSING THE ASSESSMENT ORDERS FOR A Y 2008-09 AND 2009-10, HAD ACCEPTED THAT THE BUSINESS ACTIVITY WAS BEING CARRIED OUT TH ROUGH APOLLO AND OTHER HOSPITALS. THE LD. AR PLACED ON RECORD CO PIES OF ASSESSMENT ORDERS FOR A.Y 2008-09 AND 2009-10 IN SU PPORT OF THIS CONTENTION. 3.4 WITH REFERENCE TO GROUND NO. 4 WHICH STATED TH AT THE LD. COMMISSIONER OF INCOME TAX (A) HAD ERRED IN FAC T AND IN LAW IN TREATING A SUM OF RS. 11,81,500/- OUT OF RS. 1,0 4,58,266/- UNDER THE HEAD RESEARCH AND DEVELOPMENT AS PREOPE RATIVE EXPENDITURE AND CONFIRMED THE DISALLOWANCE OF RS. 9 3,35,841/-, IT WAS SUBMITTED BY THE LD. AR THAT THIS CONFIRMATION WAS NOT ONLY INCORRECT BUT WAS ALSO AGAINST THE FACTS AND CIRCUM STANCES OF THE CASE. IT WAS SUBMITTED THAT THE LD. CIT (A) HAD C ONFIRMED THE DISALLOWANCE OF RS 93,35,841/- ON THE GROUND THAT N O DETAILS WERE FILED IN THIS REGARD. IT WAS SUBMITTED THAT THIS EX PENDITURE PERTAINED TO EXPENDITURE RELATING TO SPECIALIST DOC TORS WHO WERE ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 20 EMPLOYED BY THE ASSESSEE COMPANY AND WHO NOT ONLY P ERFORMED THEIR MEDICAL RELATED FUNCTIONS INCLUDING SURGERY E TC. BUT ALSO CARRIED OUT RESEARCH WORK WHICH WAS A PART AND PARC EL OF THE MEDICAL ACTIVITY. IT WAS SUBMITTED THAT THE ASSESSE E COMPANY HAD NOT EMPLOYED SEPARATE DOCTORS FOR DOING RESEARCH RE LATED ACTIVITIES AND A PORTION OF THEIR REMUNERATION IS TRANSFERRED FROM SALARY ACCOUNT TO RESEARCH AND DEVELOPMENT ACCOUNT ON A PRO RATA BASIS. IT WAS FURTHER SUBMITTED THAT THIS METHODOLO GY WAS FOLLOWED IN A.Y. 2008-09 AND 2009-10 ALSO WHERE IN THE AO, W HILE PASSING THE ORDERS, HAD ACCEPTED THE CLAIM AND NO DISALLOWA NCE WAS MADE. OUR ATTENTION WAS DRAWN TO PAGE 169 OF THE PAPER BO OK TO DEMONSTRATE RS. 65,04,461/- WAS CLAIMED IN A.Y 2009 -10 AND RS. 40,79,384/- WAS CLAIMED IN A.Y 2008-09. 3.5 GROUND NO. 5 STATES THAT THE LD. COMMISSIONE R OF INCOME TAX (A) ERRED IN FACT AND IN LAW IN TREATING A SUM OF RS. 18,94,197/- UNDER THE HEAD RESEARCH AND DEVELOPMENT IN THE NATURE OF RECRUITMENT EXPENSES AS PRE-OPERATIVE EXP ENDITURE WHICH IS NOT ONLY INCORRECT BUT ALSO AGAINST THE FA CTS AND CIRCUMSTANCES OF THE CASE. THE LD. AR SUBMITTED THA T THE LD. CIT (A) HAS UPHELD THE ORDER OF THE AO AND HAS DISALLOW ED THE AMOUNT OF RS.18,94,197/- TREATING THE SAME AS CAPITAL EXPE NDITURE BEING ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 21 IN THE NATURE OF PRE-OPERATIVE EXPENSES. THE LD. AR REITERATED THAT THE BUSINESS ACTIVITY OF THE ASSESSEE COMPANY HAD D ULY STARTED W.E.F. 1/06/2007 BUT THE CIT (A) HAD MADE THIS DISA LLOWANCE BASED ON THE WRONG ASSUMPTION THAT SINCE THIS AMOUN T WAS SPENT BEFORE 31/10/2009, IT WAS PRE-OPERATIVE. IT WAS SUB MITTED THAT THIS WAS DONE WHILE COMPLETELY DISREGARDING THE FAC T THAT THE AO, WHILE PASSING THE ASSESSMENT ORDERS FOR A.Y 2008-09 AND 2009- 10, HAD DULY ACCEPTED THAT THE BUSINESS ACTIVITY OF THE COMPANY WAS BEING CARRIED OUT THROUGH APOLLO AND OTHER HOSP ITALS AND THAT THESE EXPENSES WERE TOWARDS RECRUITMENT OF NURSES T HE PROCESS OF WHICH WAS GOING ON SINCE 01/06/2007 AND IDENTICAL EXPENSES WERE ALLOWED IN A.Y. 2008-09 AND 2009-10. 3.6 WITH RESPECT TO GROUND NO. 6 WHICH STATED THAT THE LD. COMMISSIONER OF INCOME TAX (A) HAD ERRED IN FACT AN D IN LAW IN TREATING A SUM OF RS. 1.28 CRORE UNDER THE HEAD INT EREST AS PRE- OPERATIVE EXPENDITURE WHICH IS NOT ONLY INCORRECT B UT ALSO AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE, IT WAS SUB MITTED THAT THE COMMISSIONER OF INCOME TAX (A) HAS UPHELD THE ORDER OF THE AO ON THE ISSUE AND TREATED INTEREST ON TERM LOAN AMOUNTI NG TO RS. 1,28,00,000/- AS CAPITAL EXPENDITURE. IN THIS REGAR D IT WAS SUBMITTED BY THE LD. AR THAT INTEREST CAN BE CAPITA LISED BUT ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 22 DIRECTION BE GIVEN THAT THE INTEREST PERTAINING TO TERM LOAN ON MACHINERY WHICH WERE MAINLY SURGICAL INSTRUMENTS AN D FELL UNDER THE CATEGORY OF LIFE SAVING DEVICES ATTRACTING HIGH ER RATE OF DEPRECIATION, BE ALLOWED DEPRECIATION AT THE HIGHE R RATE. 3.7 GROUND NO. 7 WAS NOT PRESSED. 3.8 IT WAS PRAYED THAT THE ASSESSEES APPEAL DESER VED TO BE ALLOWED. 4.0 THE LD. AR SUBMITTED THAT WITH RESPECT TO THE DEPARTMENTS APPEAL BEARING ITA NO. 4587/DEL/2015 H E WOULD, LIKEWISE, MAKE GROUND WISE SUBMISSIONS. HIS SUBMISS IONS IN THIS REGARD WERE AS UNDER: 4.1 REGARDING THE FIRST GROUND OF THE DEPARTMENTS APPEAL THAT THE LEARNED CIT (A) HAD ERRED IN ESTIMATING TH E SALARY OF DR. NARESH TREHAN TO BE CAPITALIZED @ 20%, IGNORING THE FACT THAT DR. NARESH TREHAN WAS NOT ONLY PAID FOR SERVICES RENDER ED IN THE CAPACITY OF A DOCTOR PROFESSION BUT REMUNERATION WA S ALSO PAID FOR GIVING A DIRECTION TO THE OVERALL BUSINESS ACTI VITIES, IT WAS SUBMITTED THAT THIS AD HOC DISALLOWANCE WAS MADE WITHOUT BRINGING ON RECORD ANY FACT TO SUPPORT THE REASONIN G BEHIND CAPITALIZATION @ 20%. IT WAS FURTHER SUBMITTED THAT THE LAST REMUNERATION DRAWN BY DR. NARESH TREHAN FROM ESCORT S HEART ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 23 INSTITUTE WAS RS 8.40 CRORES PER ANNUM AS AGAINST R S 6.00 CRORES IN GLOBAL HEALTH PVT. LTD. ALTHOUGH HE WAS NOT INVO LVED IN THE DAY TO DAY MANAGEMENT WHILE HE WAS IN THE ESCORTS H EART INSTITUTE. THE LD. AR ALSO PLACED RELIANCE ON NUMER OUS JUDICIAL PRECEDENTS TO SUPPORT HIS CONTENTION THAT AD HOC CAPITALIZATION @ 20% WITHOUT ANY SOUND REASONING AND FACTUAL ACCURAC Y WAS NOT SUSTAINABLE AND IN FACT THE ENTIRE DISALLOWANCE BY CAPITALIZATION WAS TO BE DELETED. IT WAS FURTHER SUBMITTED THAT TH IS GROUND WAS CONNECTED WITH GROUND NO.1 OF THE ASSESSEES APPEAL ALSO AND DETAILED ARGUMENTS HAD ALREADY BEEN MADE ON THE ISS UE WHILE ARGUING THE ASSESSEES APPEAL. 4.2 WITH REGARD TO THE SECOND ISSUE BEING AGITATED BY THE REVENUE REGARDING ALLOWING OF DEPRECIATION ON VALUE OF FIXED ASSETS OF RS. 521,10,97,834/- IGNORING THE FACT THA T THE ASSESSEE COMPANY HAD SHOWN THE VALUE OF FIXED ASSETS OF RS.520,31,51,563/- IN THEIR BALANCE SHEET, THE LD. AR SUBMITTED THAT IN ALL FAIRNESS HE WAS CONCEDING THIS GROUND. 4.3 WITH REGARD TO THE THIRD GROUND OF THE REVENUE S APPEAL PERTAINING TO THE ACT OF THE LEARNED CIT (A) IN ALLOWING THE ADDITION OF RS. 58,13,168/- AND RS. 21,60,062/- MAD E ON ACCOUNT OF REPAIR & MAINTENANCE, INSTALLATION, COMM ISSIONING ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 24 AND TOWARDS IT EQUIPMENT, THE LD. AR SUBMITTED THAT IN THIS REGARD THE LD. CIT (A) HAS RECORDED A FINDING OF FA CT. IT WAS SUBMITTED THAT OUT OF RS. 23,76,047/- THE LD. CIT ( A) HELD THAT THE PROPORTIONATE AMOUNT FOR THE PERIOD OF 15 DAYS BETWEEN 16.10.2009 TO 31.10.2009 AMOUNTING TO RS. 2,16,004/ - WAS TO BE TREATED AS PRE-OPERATIVE EXPENSES AND THE BALANCE I .E. RS. 21,60,062/- BEING AMOUNT PERTAINING TO THE PERIOD F ROM 1/11/2009 TO 31/3/2010 WAS TREATED AS REVENUE EXPEN DITURE BEING AMC OF VARIOUS MEDICAL EQUIPMENTS. IT WAS SUB MITTED THAT NO INTERFERENCE WAS REQUIRED ON THIS ISSUE AND THE ASSESSEE WAS ALSO NOT AGITATING THIS ISSUE. WITH RESPECT TO THE DISALLOWANCE OF RS. 58,13,168/-, IT WAS SUBMITTED THAT THE LD. CIT (A) HAD AGAIN GIVEN A CATEGORICAL FINDING THAT THESE EXPENSES PER TAINED TO THE PERIOD 1/11/2009 TO 31/3/2010 AND, THEREFORE, NO IN TERFERENCE WAS CALLED FOR ON THIS ISSUE ALSO. 4.4 WITH REGARD TO THE REVENUES GROUND THAT THE LEARNED CIT (A) HAD ERRED IN ALLOWING EXPENDITURE AMOUNT OF RS. 45,28,499/- OUT OF THE TOTAL DISALLOWANCE OF RS.65, 08,856/- IGNORING THE AO'S FINDING THAT THESE PERTAINED TO P ERIOD PRIOR TO NOVEMBER, 2009 AND WERE INADMISSIBLE BEING PRE-COMM ENCEMENT OF BUSINESS EXPENDITURE, IT WAS SUBMITTED BY THE LD . AR THAT EVEN ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 25 ON THIS ISSUE, THE LD. CIT (A) HAD ALLOWED ONLY A P ART RELIEF TO THE ASSESSEE AFTER RECORDING A FACTUAL FINDING IN THIS REGARD AND HAD HELD THAT OUT OF RS 65,08,499/- ONLY RS 21,61,280/- WAS TO BE TREATED AS PRE-OPERATIVE AND THE BALANCE WAS TO BE ALLOWED AS REVENUE EXPENDITURE. IT WAS SUBMITTED THAT NO INTER FERENCE WAS CALLED FOR AS THIS AGAIN WAS A PURE FINDING OF FACT . 4.5 WITH RESPECT TO GROUND NO. 5 RAISED BY THE REV ENUE THAT THE LEARNED CIT (A) HAD ERRED IN ALLOWING THE EXPENDITURE OF RS. 96,91,093/- OUT OF THE TOTAL DISALLOWANCE OF RS .1,14,90,580/- IGNORING THE FACT THAT THE ASSESSEE HAD FAILED TO S UBSTANTIATE ITS CLAIM THAT THESE PERTAINED TO THE ASSESSMENT YEAR U NDER CONSIDERATION AND ALSO THE FACT THAT THESE HAVE BEE N RAISED DURING THE NEXT FINANCIAL YEAR I.E. 2010-11, IT WAS SUBMIT TED BY THE LD. AR THAT OUT OF THE TOTAL DISALLOWANCE OF RS 1,14,90 ,580/- PERTAINING TO RECRUITMENT EXPENSES, THE LD. CIT (A) HAD ALLOWED RS. 96,91,023/- ONLY AS REVENUE EXPENDITURE AFTER D ULY VERIFYING THE AGREEMENT WITH THE SERVICE PROVIDER M/S IFAN GL OBAL INDIA PVT. LTD. AND, THEREFORE, IN VIEW OF THE CATEGORICA L FINDING RECORDED AFTER DUE VERIFICATION BY THE LD. CIT (A), NO INTER FERENCE WAS CALLED FOR. ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 26 4.6 IT WAS PRAYED THAT THE DEPARTMENTAL APPEAL DES ERVED TO BE DISMISSED. 5.0 IN RESPONSE TO THE ARGUMENTS OF THE LD. AR, TH E LD. SR. DR WITH RESPECT TO THE ASSESSEES APPEAL PLACED EXT ENSIVE RELIANCE ON THE CONCURRENT FINDINGS OF BOTH THE LD. FIRST AP PELLATE AUTHORITY AS WELL AS THE ASSESSING OFFICER AND VEHE MENTLY ARGUED THAT THE ADDITIONS/DISALLOWANCES HAD BEEN RIGHTLY U PHELD/MADE. IT WAS SUBMITTED THAT THE ADDITIONS WERE BASED ENTI RELY ON PURE FINDINGS OF FACT AND, THEREFORE, THEY DESERVED TO B E UPHELD. 6.0 WITH RESPECT TO THE DEPARTMENTS APPEAL, THE L D. SR. DR PLACED EXTENSIVE RELIANCE ON THE OBSERVATIONS AND C ONCLUSIONS OF THE ASSESSING OFFICER AND ALSO SUBMITTED THAT THE L D. CIT (A) HAD GIVEN RELIEF TO THE ASSESSEE WITHOUT CONSIDERING AN D WITHOUT GIVING DUE WEIGHTAGE TO THE OBSERVATIONS OF THE ASSESSING OFFICER AND ALSO AFTER IGNORING THE FACT THAT IN MOST OF THE AD DITIONS, THE RELEVANT DETAILS HAD NOT BEEN FILED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER. IT WAS PRAYED THAT THE DEPARTME NTS APPEAL DESERVEED TO SUCCEED AS THE ORDER OF THE LD. CIT (A ) HAD NOT CONSIDERED THE RELEVANT FACTS IN TOTALITY. ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 27 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. NOW WE TAKE UP THE AP PEALS ONE BY ONE. ITA NO. 3622/DEL/2015 7.1.1 IN THIS APPEAL OF THE ASSESSEE, THE FIRST GR OUND IN DISPUTE PERTAINS TO THE ACTION OF THE LD. CIT (A) I N TREATING A PART OF THE SALARY OF DR. NARESH TREHAN AMOUNTING TO RS. 1.20 CRORE AS CAPITAL EXPENDITURE. IT IS SEEN THAT THE ASSESSEE HAD CLAIMED A TOTAL AMOUNT OF RS. 9,33,33,333/- AS SALARY PAID/DU E TO DR. NARESH TREHAN AND THE ASSESSING OFFICER HAD MADE A PROPORTIONATE DISALLOWANCE OUT OF THE SALARY ON THE GROUND THAT THE MEDANTA HOTEL PROJECT WAS IN THE DEVELOPMENT ST AGE BEFORE NOVEMBER 2009 AND, THEREFORE, THE SAME SHOULD BE CA PITALIZED. THIS RESULTED IN THE ASSESSING OFFICER TREATING THE SALARY AMOUNTING TO RS. 7,82,35,255/- AS BEING DISALLOWED AS REVENUE EXPENDITURE. ON APPEAL, THE LD. CIT (A) HELD THAT OUT OF SALARY OF RS. 6 CRORE, PERTAINING TO THE PERIOD 1.6.2007 TO 3 1.10.2009, ONLY 20% OF THE SALARY SHOULD HAVE BEEN CAPITALIZED AND THE REMAINING SALARY WAS DIRECTED TO BE ALLOWED AS DEDU CTION IN ASSESSMENT YEAR 2011-12 AS THIS SALARY PERTAINED TO THE PERIOD 1.11.2009 TO 31.3.2010 BUT GOT ASCERTAINED ONLY ON 28.9.2010 ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 28 WHEN THE BOARD RESOLUTION APPROVING THE SALARY WAS PASSED. THUS, THE ISSUE BEFORE US HAS TWO LIMBS. THE FIRST ISSUE IS WHETHER THE LD. CIT (A) WAS JUSTIFIED IN DIRECTING THAT 20% OF THE SALARY PERTAINING TO PERIOD 1.6.2007 TO 31.3.2010 W AS TO BE CAPITALIZED AS CAPITAL EXPENDITURE AND THE SECOND L IMB IS THE ACTION OF THE LD. CIT (A) IN HOLDING THAT THE SALAR Y OF RS. 3.33 CRORES WAS TO BE ALLOWABLE IN ASSESSMENT YEAR 2011- 12 AS THE BOARD RESOLUTION WAS PASSED IN ASSESSMENT YEAR 2011 -12. AS FAR AS THE FIRST LIMB IS CONCERNED, THE PERUSAL OF THE ORDER OF THE LD. CIT (A) SHOWS THAT THE LD. CIT (A) HAS NOT GIVE N ANY COGENT REASON FOR HOLDING THAT 20% OF THE SALARY EXPENSES WERE TO BE CAPITALIZED. THE LD. CIT (A) HAS ALSO NOTED THAT T HE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF PROVIDING HE ALTH CARE SERVICES RIGHT FROM THE INCEPTION BY ENTERING INTO AGREEMENT WITH OTHER HOSPITALS ON 2.6.2007 AND FOR WHICH PURPOSE, THE COMPANY HAD MADE HUGE SALARY PAYMENTS TO MORE THAN 165 DOCT ORS EVEN PRIOR TO THE COMMENCEMENT OF OPERATION OF THE MEDAN TA HOSPITAL ON 31.10.2009. THE LD. CIT (A) HAS ALSO NOTED THAT IT COULD NOT BE HELD THAT THE ASSESSEE COMPANY HAD STARTED ITS B USINESS ONLY W.E.F. 1.11.2009 I.E. WHEN THE SUPER-SPECIALTY HOSP ITAL MEDANTA STARTED ITS OPERATION. THE LD. CIT (A) HAS ALSO GI VEN A CATEGORICAL ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 29 FINDING THAT THE ASSESSEE COMPANY WAS ALREADY ENGAG ED IN THE BUSINESS OF PROVIDING HEALTH CARE SERVICES THROUGH AGREEMENTS WITH OTHER HOSPITALS AND DR. NARESH TREHAN BEING A LEADING CARDIO VASCULAR SURGEON WAS PAID ON ACCOUNT OF SERV ICES RENDERED TO THE ASSESSEE COMPANY WHICH HAD RESULTED IN SIGNI FICANT INCOME FROM HEALTH CARE SERVICES FOR THE ASSESSEE I N FINANCIAL YEARS 2007-08, 2008-09 AND 2009-10 I.E. EVEN PRIOR TO THE COMMENCEMENT OF OPERATION OF MEDANTA HOSPITAL. HOW EVER, AFTER GIVING SUCH CATEGORICAL FINDING, THE LD. CIT (A) WE NT ON TO HOLD THAT AN ESTIMATED 20% OF SALARY RECEIVED BY DR. NAR ESH TREHAN FOR THE PERIOD 1.6.2007 TO 31.10.2009 NEEDS TO BE C APITALIZED. HOWEVER, THE LD. CIT (A) HAS NOT GIVEN ANY REASONIN G AS TO HOW THIS AD HOC PERCENTAGE OF 20% WAS ARRIVED AT. THUS, THE FINDI NGS OF THE LD. CIT (A) ARE CONTRADICTORY INASMUCH AS ON ONE HAND, THE LD. CIT (A) HAS GIVEN A CATEGORICAL FINDING THAT IT COULD NOT BE SAID THAT THE ASSESSEE COMPANY WAS NOT HAVING ANY K IND OF BUSINESS OPERATION PRIOR TO 31.10.2009 AND ON THE O THER HAND, THE LD. CIT (A) HAS PROCEEDED TO ESTIMATE THE CAPIT AL COST COMPONENT IN THE SALARY AT 20%. IT IS SETTLED LAW THAT AD HOC ADDITIONS/DISALLOWANCES CANNOT BE SUSTAINED WITHOUT THE TAX AUTHORITIES POINTING OUT ANY SPECIFIC DEFECT IN THE BOOKS OF ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 30 ACCOUNTS OF THE ASSESSEE. THEREFORE, WE ARE UNABLE TO ACCEPT THE REASONING OF THE LD. CIT (A) IN DIRECTING THAT ONLY 20% OF THE SALARY SHOULD BE DISALLOWED AS BEING CAPITAL IN NAT URE. ONCE IT IS ACCEPTED THAT THE BUSINESS OPERATIONS OF THE COMPAN Y HAD COMMENCED PRIOR TO 31.10.2009, THERE REMAINS NO BAS IS FOR MAKING A DISALLOWANCE FOR ESTIMATED CAPITAL COMPONE NT WITHOUT BASING THE FINDING ON ANY COGENT FINDING OF FACT AN D/OR EVIDENCE. ACCORDINGLY, IN VIEW OF THE OVERALL CIRCUMSTANCES O F THE CASE AND THE CATEGORICAL OBSERVATION OF THE LD. CIT (A) IN T HIS REGARD, IT IS OUR CONSIDERED OPINION THAT THE LD. CIT (A) WAS INC ORRECT IN HOLDING THAT 20% OF THE SALARY OUT OF RS. 6 CRORE W AS TO BE CAPITALIZED. ACCORDINGLY, WE ALLOW GROUND NO. 1(A) OF THE ASSESSEES APPEAL AND HOLD THAT NO PART OF THE SALA RY OUT OF RS. 6 CRORE REQUIRES ANY CAPITALIZATION IN VIEW OF THE FA CT THAT THE BUSINESS OF THE ASSESSEE COMPANY HAD ALREADY COMMEN CED PRIOR TO 31.10.2009. THIS ALSO TAKES CARE OF REVENUES GR OUND NO. 1 AND WE DISMISS THE SAME BY HOLDING THAT NO PORTION OF THE SALARY OF RS. 6 CRORES NEEDS TO BE CAPITALIZED IN VIEW OF THE SPECIFIC ACCEPTANCE OF THE DEPARTMENT IN EARLIER ASSESSMENT YEARS THAT THE BUSINESS ACTIVITY OF THE ASSESSEE COMPANY HAD S TARTED W.E.F. 01/06/2007. ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 31 7.1.2 COMING TO THE SECOND LIMB OF THE DISALLOWAN CE WHEREIN THE LD. CIT (A) HAS HELD THAT THE REMAINING SALARY OF RS. 3.3 CRORE WAS TO BE ALLOWED IN ASSESSMENT YEAR 2011 -12 AS THE BOARD RESOLUTION WAS PASSED IN ASSESSMENT YEAR 2011 -12, IT HAS BEEN SUBMITTED BY THE LD. AR THAT THE ASSESSEE ACCE PTS THE FINDING OF THE LD. CIT (A) AND HAS ONLY PRAYED THAT THE AO MAY BE DIRECTED TO GIVE EFFECT TO THIS DIRECTION. THE DEPA RTMENT IS NOT IN APPEAL AGAINST THIS DIRECTION. ACCORDINGLY, WE DIRE CT THE AO TO GIVE EFFECT TO THE DIRECTION OF THE LD. CIT (A) THA T THE BALANCE AMOUNT OF RS. 3.33 CRORES BE ALLOWED AS DEDUCTION I N AY 2011- 12. THUS, GROUND NO. 1(B) STANDS DISMISSED BUT SUBJ ECT TO OUR DIRECTIONS. 7.1.3 COMING TO GROUND NO. 1(C) OF THE ASSESSEES APPEAL, SINCE THE LD. AR HAS STATED THAT THIS GROUND IS NOT BEING PRESSED, THE SAME IS DISMISSED AS NOT BEING PRESSED. 7.2 WITH RESPECT TO GROUND NO. 2 OF THE ASSESSEES APPEAL, SINCE THE LD. AR HAS STATED THAT THIS GROUND IS NOT BEING PRESSED, THE SAME IS ALSO DISMISSED AS NOT PRESSED. 7.3 COMING TO GROUND NO. 3 OF THE ASSESSEES APPEA L WHEREIN THE ASSESSEE HAS CHALLENGED THE ACTION OF T HE LD. CIT(A) IN TREATING AN AMOUNT OF RS. 2,48,939/- SPENT ON OU TREACH ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 32 PROGRAMME AS PREOPERATIVE EXPENDITURE ON THE GROUND THAT THIS AMOUNT WAS SPENT BEFORE 31.10.2009, WE ARE OF THE C ONSIDERED OPINION THAT SINCE THE LD. CIT(A) HAS HIMSELF ACCEP TED, WHILE DEALING WITH THE ASSESSEES GROUND RELATING TO REMU NERATION TO DR. NARESH TREHAN, THAT THE ASSESSEES BUSINESS OPE RATIONS HAD COMMENCED PRIOR TO 31.10.2009, THERE REMAINS NO BAS IS FOR MAKING/CONFIRMING ANY DISALLOWANCE ON ACCOUNT OF PR EOPERATIVE EXPENDITURE. WE ALSO NOTE THAT THE ASSESSING OFFIC ER, WHILE PASSING ASSESSMENT ORDERS FOR ASSESSMENT YEAR 2008- 09 AND 2009-10, HAS ALSO ACCEPTED THAT THE BUSINESS ACTIVI TIES OF THE ASSESSEE COMPANY WERE BEING CARRIED OUT THROUGH APO LLO AND OTHER HOSPITALS. THEREFORE, WE ARE UNABLE TO AGREE WITH THE LD. CIT (A) ON THIS ISSUE AND WE, WHILE SETTING ASIDE T HE ORDER OF THE LD. CIT (A) ON THIS ISSUE, DIRECT THE ASSESSING OFF ICER TO ALLOW THE ENTIRE EXPENDITURE. THUS, GROUND NO. 3 STANDS ALLO WED. 7.4.1 COMING TO GROUND NO. 4 WHICH CHALLENGES THE ACTION OF THE LD. CIT (A) IN CONFIRMING DISALLOWANCE OF RS. 9 3,35,841/- UNDER THE HEAD RESEARCH AND DEVELOPMENT EXPENDITURE , WE NOTE THAT BOTH THE LOWER AUTHORITIES IN THIS REGARD HAVE NOTED THAT NO DETAILS WERE FILED BEFORE THEM SO AS TO SUBSTANTIAT E THAT THIS AMOUNT WAS SPENT TOWARDS RESEARCH AND DEVELOPMENT A CTIVITIES. ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 33 THE LD. CIT (A) HAS NOTED THAT THE ASSESSEE COULD N OT PROVIDE DETAILS REGARDING THE PERSONS WHO HAD BEEN EMPLOYED FOR THE PURPOSES OF RESEARCH AND DEVELOPMENT. IT IS THE CO NTENTION OF THE ASSESSEE THAT THE SPECIALIZED DOCTORS WHO WERE EMPL OYED WITH THE ASSESSEE NOT ONLY PERFORMED THEIR REGULAR MEDICAL A CTIVITIES BUT ALSO DID RESEARCH WORK. IT HAS BEEN ACCEPTED BY TH E ASSESSEE THAT NO SEPARATE DOCTORS HAVE BEEN EMPLOYED FOR CON DUCTING THE RESEARCH ACTIVITY AND THE EXPENDITURE HAS BEEN APPO RTIONED BETWEEN THE SALARY AND THE RESEARCH AND DEVELOPMENT EXPENDITURE ON PRO RATA BASIS. IT HAS ALSO BEEN SUBMITTED THAT THE ASSESSING OFFICER HAD ACCEPTED THIS APPORTIONME NT IN ASSESSMENT YEAR 2008-09 AND 2009-10 AND NO ADVERSE INFERENCE HAD BEEN DRAWN. HOWEVER, THE FACT REMAINS THAT THE ASSESSEE HAD NOT BEEN ABLE TO PROVIDE ANY DETAILS IN THE YEA R UNDER CONSIDERATION. HOWEVER, SINCE THE ASSESSING OFFICE R HAS ALLOWED SIMILAR EXPENDITURE IN ASSESSMENT YEARS 2008-09 AND 2009-10, WHICH REMAINS UNDISPUTED, IN OUR CONSIDERED OPINION , INTEREST OF JUSTICE WOULD BE SERVED IF THIS ISSUE IS RESTORED T O THE FILE OF THE ASSESSING OFFICER TO EXAMINE IT AFRESH AND DECIDE T HE ISSUE AFTER DULY EXAMINING AND VERIFYING THE PRO RATA APPORTIONMENT AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE TO PRESENT I TS CASE AND ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 34 ALSO KEEPING IN MIND THE ASSESSEES CLAIM THAT THE SAME METHODOLOGY FOR APPORTIONMENT WAS APPLIED BY THE AS SESSEE IN ASSESSMENT YEARS 2008-09 AND 2009-10 WHICH HAD BEEN ALLOWED BY THE ASSESSING OFFICER. IT IS ORDERED ACCORDINGL Y. 7.4.2 THE SECOND LIMB OF GROUND NO. 4 IS CHALLENGI NG THE ACTION OF THE LD. CIT (A) IN TREATING AN AMOUNT OF RS. 11,81,500/- AS PREOPERATIVE EXPENSES OUT OF RESEARCH AND DEVELO PMENT EXPENSES. AS THE LD. CIT (A) HAS ALREADY NOTED THA T THE BUSINESS OPERATIONS HAD STARTED PRIOR TO 31.10.2009, WHICH R EMAINS UNCONTROVERTED, WE FIND THAT THE LD. CIT (A) HAD NO BASIS FOR TREATING THIS EXPENDITURE AS PREOPERATIVE EXPENDITU RE. ACCORDINGLY, WE DELETE THE DISALLOWANCE OF RS. 11,8 1,500/- WHICH HAS BEEN CONFIRMED BY THE LD. CIT (A) AS BEING PREO PERATIVE IN NATURE. 7.5 GROUND NO. 5 CHALLENGES THE ACTION OF THE LD. CIT (A) IN TREATING AN AMOUNT OF RS. 18,94,197/- UNDER THE HEA D RECRUITMENT EXPENSES AS PREOPERATIVE EXPENDITURE. IT IS SEEN THAT THIS DISALLOWANCE HAS BEEN UPHELD BY THE LD. CIT (A ) ON THE GROUND THAT SINCE THIS AMOUNT WAS SPENT BEFORE 31.1 0.2009, THEREFORE, THE SAME WAS PREOPERATIVE IN NATURE. HO WEVER, IN VIEW OF THE LD. CIT (A)S CATEGORICAL FINDING WHILE ADJU DICATING THE ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 35 ASSESSEES GROUND ON REMUNERATION PAID TO DR. NARES H TREHAN THAT THE BUSINESS OPERATIONS OF THE ASSESSEE COMPAN Y HAD COMMENCED BEFORE 31.10.2009, THERE IS NO REASON FOR HIM TO HAVE UPHELD THIS DISALLOWANCE. A PERUSAL OF THE ASSESSM ENT ORDERS FOR ASSESSMENT YEARS 2008-09 AND 2009-10 ALSO SHOWS THA T THE ASSESSEE COMPANY HAD BEEN CARRYING ON BUSINESS ACTI VITIES THROUGH APOLLO AND OTHER HOSPITALS IN EARLIER YEARS ALSO AND THIS FACT REMAINS UNCONTROVERTED. THEREFORE, WE ARE UNA BLE TO CONCUR WITH THE FINDINGS OF THE LD. CIT (A) ON THIS ISSUE ALSO AND WHILE SETTING ASIDE HIS ORDER, WE DIRECT THE ASSESSING OF FICER TO ALLOW THE IMPUGNED AMOUNT OF RS. 18,94,197/- AS REVENUE EXPENDITURE. 7.6 COMING TO GROUND NO. 6 OF THE ASSESSEES APPEA L, WHICH CHALLENGES THE ACTION OF THE LD. CIT (A) IN TREATIN G THE INTEREST ON TERMS LOAN AMOUNTING TO RS. 1.28 CRORE AS CAPITAL E XPENDITURE, THE LD. AR HAS STATED THAT THE ASSESSEE HAS NO OBJE CTION IN THE TREATMENT OF THE IMPUGNED AMOUNT AS CAPITAL EXPENDI TURE BUT HAS PRAYED THAT DIRECTION MAY BE GIVEN THAT THE INT EREST PERTAINING TO TERM LOAN ON MACHINERY WHICH FALLS UN DER THE CATEGORY OF LIFE SAVING DEVICES ATTRACTING HIGHER R ATE OF DEPRECIATION SHOULD BE ALLOWED HIGHER RATE OF DEPRE CIATION. THE ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 36 LD. SR. DR ALSO HAS NO OBJECTION TO THIS PRAYER OF THE ASSESSEE. ACCORDINGLY, WHILE DISMISSING GROUND NO. 6 OF THE A SSESSEES APPEAL, WE DIRECT THE ASSESSING OFFICER TO ALLOW DE PRECIATION AT THE APPLICABLE RATES ON LIFE SAVING DEVICES IN ACCO RDANCE WITH LAW AFTER AFFORDING DUE OPPORTUNITY TO THE ASSESSEE. 7.7 WITH RESPECT TO GROUND NO. 7 OF THE ASSESSEES APPEAL WHICH CHALLENGES THE ACTION OF THE LD. CIT(A) IN TR EATING THE BANK CHARGES ON ISSUANCE OF BANK GURARANTEE FOR EPCG LIC ENCE AS PREOPERATIVE EXPENSES, IT HAS AGAIN BEEN STATED BY THE LD. AR THAT THIS GROUND IS NOT BEING PRESSED, HOWEVER, WIT H THE PRAYER THAT FOR THE EXPENDITURE WHICH PERTAINS TO TERM LOA N ON MACHINERY FALLING UNDER THE CATEGORY OF LIFE SAVING DEVICE ATTRACTING HIGHER RATE OF DEPRECIATION IT MAY BE DI RECTED THAT HIGHER RATE OF DEPRECIATION BE GIVEN ON SUCH EXPEND ITURE. AS THE LD. SR. DR HAS NO OBJECTION TO THE PRAYER OF THE LD . AR, WHILE DISMISSING GROUND NO. 7, WE DIRECT THE ASSESSING OF FICER TO ALLOW DEPRECIATION AT THE APPLICABLE RATES ON THE LIFE SA VING DEVICES AFTER GIVING PROPER OPPORTUNITY TO THE ASSESSEE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE STAND S PARTLY ALLOWED. ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 37 9. ITA NO. 4587/DEL/2015 THIS IS THE DEPARTMENTS APPEAL AND GROUND NO. 1 CHALLENGES THE ACTION OF THE LD. CIT(A) IN ESTIMATI NG THE AD HOC DISALLOWANCE OF SALARY @ 20% BEING EXPENSES IN THE NATURE OF CAPITAL EXPENDITURE. SINCE THIS GROUND IS IDENTICA L TO GROUND NO. 1 OF THE ASSESSEES APPEAL WHICH WE HAVE ALREADY DE CIDED IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THE LD. CIT (A) HAD ERRED IN SUSTAINING AN ESTIMATED DISALLOWANCE OUT OF SALARY EXPENSES OF RS. 6 CRORE TO THE TUNE OF 20% ON ACCOUNT OF BEING CAPITAL EXPENDITURE IN NATURE, ON THE SAME REASONING, WE DI SMISS GROUND NO. 1 OF THE DEPARTMENTS APPEAL. 9.2 GROUND NO. 2 OF THE DEPARTMENTS APPEAL CHALLE NGES THE ACTION OF THE LD. CIT (A) IN ALLOWING DEPRECIAT ION ON VALUE OF FIXED ASSETS. THE LD. AR IN THIS REGARD HAS FAIRLY ACCEPTED THAT THIS GROUND MAY BE ALLOWED IN FAVOUR OF THE DEPARTM ENT. ACCORDINGLY, IN VIEW OF THE ASSESSEE CONCEDING THIS GROUND, WE ALLOW THE DEPARTMENTS GROUND AND SET ASIDE THE ORD ER OF THE LD. CIT (A) AND RESTORE THE ORDER OF THE AO ON THIS ISS UE. ACCORDINGLY, GROUND NO. 2 STANDS ALLOWED. 9.3.1 IN GROUND NO. 3, THE DEPARTMENT HAS CHALLENG ED THE ACTION OF THE LD. CIT (A) IN DELETING THE ADDITIONS OF RS. ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 38 58,13,168/- AND RS. 21,60,062/- MADE ON ACCOUNT OF REPAIRS AND MAINTENANCE, INSTALLATION, COMMISSIONING OF IT EQUI PMENT. IN THIS REGARD, IT IS SEEN THAT THE LD. CIT (A) HAD DI SCUSSED THE ISSUE AT LENGTH ON PAGES 26 AND 37 OF THE IMPUGNED ORDER. OUT OF THE TOTAL PAYMENT OF RS. 23,76,047/- PAID TOWARDS ANNUA L MAINTENANCE CONTRACT TO M/S HEWLETT PACKARD INDIA S ALES PVT. LTD., THE LD. CIT(A) HAS GIVEN A CATEGORICAL FINDIN G THAT OUT OF THE TOTAL EXPENDITURE, ONLY A PERIOD OF 15 DAYS FELL BE TWEEN 16.10.2009 AND 31.10.2009 AND IT WAS HELD THAT A PR OPORTIONATE AMOUNT OF RS. 2,16,004/- BEING PREOPERATIVE IN NATU RE, NEEDED TO BE CAPITALIZED. THE LD. SR. DR COULD NOT SUBSTANTI ATE WITH ANY EVIDENCE TO THE CONTRARY THAT THIS CATEGORICAL FIND ING OF THE LD. CIT (A) WAS FACTUALLY INCORRECT AND, THEREFORE, WE HAVE NO OTHER OPTION BUT TO DISMISS THE GROUND RAISED BY THE DEPA RTMENT. ACCORDINGLY, WE FIND NO REASON TO INTERFERE WITH TH E FINDINGS OF THE LD. CIT (A) THAT ONLY AN AMOUNT OF RS. 2,16,004 /- WAS TO BE TREATED AS CAPITAL EXPENDITURE AND THE REST WAS ALL OWABLE AS REVENUE EXPENDITURE BEING PAYMENT MADE TOWARDS ANNU AL MAINTENANCE CONTRACT FOR VARIOUS MEDICAL EQUIPMENTS . 9.3.2 THE SECOND LIMB OF GROUND NO. 3 OF THE DEPAR TMENTS APPEAL CHALLENGES THE ACTION OF THE LD. CIT (A) IN DELETING REPAIR ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 39 AND MAINTENANCE RELATED EXPENSES OF ENGINEERING EQU IPMENT TO THE TUNE OF RS. 58,13,168/-. THE LD. CIT (A) HAS G IVEN A SPECIFIC FINDING THAT THE ASSESSING OFFICER HAD NO COGENT AD VERSE EVIDENCE TO HOLD THAT THE IMPUGNED EXPENSES WERE FOR INSTALL ATION OF ENGINEERING EQUIPMENT AND THAT THEY DID NOT PERTAIN TO ENGINEERING EXPENSES. THE DEPARTMENT ALSO COULD NO T POINT OUT ANY FACTUAL INFIRMITY IN THIS FINDING OF THE LD. CI T (A) AND, THEREFORE, THERE IS NO REASON FOR US TO INTERFERE W ITH THE FINDINGS OF THE LD. CIT (A) IN THIS REGARD. ACCORDINGLY, WE DISMISS GROUND NO. 3 OF THE DEPARTMENTS APPEAL. 9.4 GROUND NO. 4 CHALLENGES THE ACTION OF THE LD. CIT (A) IN DELETING THE ADDITION OF RS.45,28,499/- OUT OF THE TOTAL DISALLOWANCE OF RS. 65,08,856/- AS BEING EXPENSES P ERTAINING TO A PERIOD PRIOR TO NOVEMBER 2009. IN THIS REGARD AG AIN, IT IS SEEN THAT THE LD. CIT (A) HAS GIVEN A CATEGORICAL FINDIN G ON PAGE 33 OF THE IMPUGNED ORDER THAT ONLY RS. 21,61,280/- PERTAI NED TO A PERIOD PRIOR TO 31 ST OCTOBER, 2009 AND, THEREFORE, THE BALANCE AMOUNT OF RS. 45,28,499/- WAS ALLOWABLE. THE LD. SR . DR COULD NOT SUBSTANTIATE WITH ANY EVIDENCE TO THE CONTRARY THAT THIS CATEGORICAL FINDING OF THE LD. CIT (A) WAS FACTUALL Y INCORRECT AND, THEREFORE, WE HAVE NO OPTION BUT TO DISMISS THE GRO UND RAISED BY ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 40 THE DEPARTMENT IN THIS REGARD AND, ACCORDINGLY, BAS ED ON THE FINDINGS OF THE LD. CIT (A), WHICH THE DEPARTMENT H AS NOT BEEN ABLE TO CONTROVERT, WE DISMISS GROUND NO. 4 RAISED BY THE DEPARTMENT. 9.5 GROUND NO. 5 PERTAINS TO DEPARTMENTS CHALLENG E TO THE ACTION OF THE LD. CIT (A) IN HOLDING THAT OUT OF TO TAL DISALLOWANCE OF RS. 1,14,90,580/- PERTAINING TO RECRUITMENT EXP ENSES, RS. 96,91,093/- PERTAINED TO THE YEAR UNDER CONSIDERATI ON AND THEREFORE, THE SAME WERE ALLOWABLE IN THIS YEAR UND ER APPEAL. IT IS SEEN THAT THE LD. CIT (A) HAS DISCUSSED AND ADJU DICATED THIS ISSUE ON PAGE 39 OF THE IMPUGNED ORDER WHEREIN HE H AS NOTED THAT HE PERUSED THE AGREEMENT WITH M/S IFAN GLOBAL INDIA PVT. LTD. AS WELL AS THE RELEVANT INVOICES FROM WHICH IT WAS EVIDENT THAT THE SAID PARTY HAD BEEN PROVIDING RECRUITMENT SERVICES FOR THE COMPANY DURING THE YEAR UNDER CONSIDERATION. T HE LD. CIT (A) HAS ALSO NOTED THAT AS PER THE MERCANTILE SYSTE M OF ACCOUNTING, THE INCOME AND EXPENSES ARE TO BE BOOKE D FOR THE PERIOD DURING WHICH THE RELEVANT SERVICES WERE REND ERED. THUS, THE LD. CIT (A) HAS GIVEN A CATEGORICAL FINDING IN THIS REGARD WHICH THE DEPARTMENT HAS NOT BEEN ABLE TO CONTROVER T BY LEADING ANY EVIDENCE TO THE CONTRARY. APPARENTLY, IT IS NO T THE CASE OF THE ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 41 DEPARTMENT THAT THE SERVICES WERE NOT RENDERED IN T ERMS OF THE CONTRACT AND THE ONLY DISPUTE IS REGARDING THE YEAR OF ALLOWABILITY OF EXPENDITURE. SINCE THE LD. CIT (A) HAS GIVEN A CATEGORICAL FINDING IN THIS REGARD AFTER DULY REFERRING TO THE RECRUITMENT SERVICES AGREEMENT, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT (A) ON THIS ISSUE ALSO AND WE DISMIS S GROUND NO. 5 OF THE DEPARTMENTS APPEAL. 10. IN THE RESULT, THE APPEAL OF THE DEPARTMENT ST ANDS PARTLY ALLOWED. 11. IN THE FINAL RESULT, BOTH THE APPEALS I.E. OF THE ASSESSEE AS WELL AS OF THE DEPARTMENT STAND PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18.03. 2019. SD/- SD/- (G.D. AGRAWAL) (SUDHANSHU SRIVASTA VA) VICE PRESIDENT JUDICIAL MEMBER DATED: 18 TH MARCH, 2019 GS COPY FORWARDED TO: - 1) APPELLANT 2) RESPONDENT 3) CIT(A) 4) CIT 5) DR BY ORDER ASSTT. REGISTRAR ITA NO. 1564/DEL/2017 ASSESSMENT YEAR 2011-12 42 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P S/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER