ACIT, Ludhiana V. M/s IAA Hospital (P) Ltd., Ludhiana

ITA 545/CHANDI/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 9705 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 28-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHANDRA KANTA
• Assessee Lawyers: SARABJEET GARG
• Keywords: Depreciation; Corroborative evidences
• Section: 115JB; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCHA, CHANDIGARH BEFORE SHRI. SANJAY GARG, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NO.545/CHD/2017 ASSESSMENT YEAR: 2010-11 THE ACIT VS. IAA HOSPITAL (P) LTD. CIRCLE-7 C/O DR. B.S. SEKHON, 1881-B/22 LUDHIANA ST. NO. 05, MAHARAJ NAGAR LUDHIANA PAN NO. AABCI2421F (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI. SARABJEET GARG REVENUE BY : SMT. CHANDRAKANTA DATE OF HEARING : 14/08/2018 DATE OF PRONOUNCEMENT : 26/09/2018 ORDER PER DR. B.R.R. KUMAR, A.M: THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AG AINST THE ORDER OF THE LD. CIT(A)-4 LUDHIANA DT. 09/04/2013. 2. IN THE PRESENT APPEAL REVENUE HAS RAISED THE FOL LOWING GROUNDS: (I) WHETHER ON THE FACRTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) WAS RIGHT IN LAW IN DELETING THE ADDITION OF RS. 1,30,18,816/ - AND THEREBY ACCEPTING THAT THE NET PROFIT RATIO @ 1.04% DECLARED BY THE ASSESSEE I S CORRECT BY NOT TAKING INTO CONSIDERATION THE FACT THAT THE ASSESSEE HAS NOT PR ODUCED BOOKS OF ACCOUNTS. (II) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS RIGHT IN LAW IN RESTRICTING DISALLOWANCE OF INTEREST EXPE NSES @ 10%(RS. 31,61,606/-) AGAINST THE 20% (RS. 63,23,213/-) MADE BY THE ASSES SING OFFICER OUT OF THE TOTAL INTEREST EXPENSES CLAIMED AT RS. 3,16,16,064/- BY C ONCEIVING THE NOTION THAT BANKING AUTHORITIES HAVE FULL CONTROL OVER THE UTIL IZATION OF BORROWED FUNDS AND WITHOUT TAKING INTO CONSIDERATION THE FACT THAT THE ASSESSEE HAS NOT PRODUCED BOOKS OF ACCOUNT FROM WHERE THE CORRECTNESS OF THE CLAIM OF INTEREST EXPENDITURE COULD BE EXAMINED. 3. THE BRIEF FACTS OF THE CASE AS TAKEN BY THE ORD ER OF THE LD. CIT(A) ARE THAT THE ASSESSEE COMPANY WHICH IS RUNNING A HOSPITAL UN DER THE NAME AND STYLE OF M/S IAA HOSPITAL HAS FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 14.10.2010 DECLARING THEREIN IN AN INCOME OF RS. NIL AFTER CLAIMING SET OFF OF 2 BROUGHT FORWARD UNABSORBED BUSINESS LOSS TO THE EXT ENT OF RS. 17,73,054/-. THE RETURN WAS STATED TO BE PROCESSED UNDER SECTION 143 (1) OF THE ACT AT RETURNED INCOME. AS THE TAX PAYABLE UNDER NORMAL PROVISIONS OF THE ACT WAS NIL, THE ASSESSEE COMPANY PAID TAXES UNDER SECTION 115JB OF THE ACT ON BOOK PROFITS OF RS. 17,73,054/-. AS THE ASSESSEE COMPANY FAILED TO PRODUCE BOOKS OF ACCOUNT AND SUPPORTING EVIDENCES IN RESPECT OF VARIOUS CLAI MS FOR VERIFICATION OF THE ASSESSING OFFICER, THE ASSESSMENT IN THE CASE OF TH E ASSESSEE COMPANY WAS COMPLETED BY THE ASSESSING OFFICER VIDE ORDER UNDER SECTION 144 OF THE ACT DATED 08.03.2013 AT AN ASSESSED INCOME OF RS. NIL A FTER SETTING OFF OF BUSINESS LOSS OF EARLIER YEARS TO THE EXTENT OF RS.2,57,74,470/- AGAINST CURRENT YEAR'S INCOME. WHILE COMPLETING THE ASSESSMENT, THE ASSESSING OFFI CER HAS MADE THE FOLLOWING ADDITIONS TO THE RETURNED INCOME OF THE ASSESSEE CO MPANY:- (I). NET PROFIT ADDITION AFTER REJECTING BOOK R ESULTS AS THE ASSESSEE FAILED TO PRODUCE BOOKS OF ACCOUNT RS. 1,30,18,8161- (II). ADDITION ON ACCOUNT OF DISALLOWANCE OUT OF BANK INTEREST EXPENSES AS THE ASSESSEE COMPANY FAILED TO PRODUCE BOOKS OF ACCOUNT AND THE RELEVANT BILLS WITH REGARD TO THE UTILIZATION OF FUNDS RS.63,23 ,213/- 4. THE ASSESSEE COMPANY HAD CHALLENGED BASICALLY TH E ACTION OF THE ASSESSING OFFICER IN FRAMING ASSESSMENT IN THE CASE OF THE ASSESSEE WITHOUT CONFRONTING THE BUSINESS RESULTS OF COMPARABLE BUSI NESSES TO THE ASSESSEE COMPANY AND THEREAFTER MAKING NET PROFIT ADDITION O F RS. 1,30,18,816/- AND ADDITION OF RS.63,23,213/- ON ACCOUNT OF DISALLOWAN CE OUT OF BANK INTEREST EXPENSES AS THE ASSESSEE COMPANY FAILED TO PRODUCE BOOKS OF ACCOUNT AND THE RELEVANT BILLS WITH REGARD TO THE UTILIZATION OF FU NDS. THE MAIN REASON FOR MAKING THE IMPUGNED ADDITIONS WAS THAT THE ASSESSEE COMPAN Y FAILED TO PRODUCE ITS BOOKS OF ACCOUNT MAINTAINED BY IT DURING THE NORMAL COURSE OF BUSINESS AND ALSO FAILED TO PRODUCE THE RELEVANT BILLS/VOUCHERS FOR VERIFICATION OF THE ASSESSING OFFICER. 5 BEFORE THE LD. CIT(A) THE ASSESSEE SUBMITTED THAT THEY WERE RUNNING, A HOSPITAL ON FEROZEPUR ROAD, LUDHIANA DURING THE YEA R UNDER APPEAL. THE ASSESSEE HAD TAKEN HUGE LOANS FROM BANKS TO MEET TH E COST OF ITS SETTING UP AND TO MEET ITS WORKING CAPITAL REQUIREMENTS. AS THE HO SPITAL WAS NEWLY SET UP, TO EARN GOODWILL IN THE MARKET, APPELLANT OFFERED VARI OUS SERVICES AT MOST 3 COMPETITIVE RATES. HENCE, ITS PROFIT MARGINS WERE L OW. FURTHER, ASSESSEE HAD HIRED THE SERVICES OF BEST DOCTORS, FOR ITS VARIOUS ACTIV ITIES. DUE TO ALL THIS, IT COULD NOT MEET THE HIGH COSTS OF INTEREST, DEPRECIATION AND P ROFESSIONAL CHARGES AND STARTED RUNNING INTO LOSSES. THEREFORE, IT WAS NOT IN A POSITION TO PAY THE INSTALLMENTS OF ITS TERM LOANS AND INTEREST THEREON AND ON WORKING CAPITAL LIMITS. DUE TO DEFAULT IN REPAYMENT OF DUES BY THE APPELLAN T, THE BANK TOOK OVER THE HOSPITAL UNDER SARFAESI ACT TO REALIZE ITS DUES IN APRIL 2012 AND TOOK OVER ALL THE RECORDS AT THE BACK OF ITS PROMOTER DIRECTOR DR. B. S. SEKHON AND NOTHING IS AVAILABLE WITH THE COMPANY OR ITS PROMOTER DIRECTOR . RATHER HE HAS STARTED DOING JOB AT SOLAN IN HIMACHAL PRADESH. HOWEVER, TH E ASSESSEE TRIED ITS BEST TO PROVIDE REQUIRED INFORMATION DURING THE COURSE OF A SSESSMENT PROCEEDINGS. HOWEVER, IT COULD NOT PRODUCE BOOKS OF ACCOUNT AND VOUCHERS, AS IT DID NOT KNOW AND STILL DOES NOT KNOW THEIR WHEREABOUTS. THI S RESULTED IN FRAMING OF ASSESSMENT U/S 144 OF THE INCOME TAX ACT, HENCE THI S APPEAL. 6. LD.CIT(A) DELETED THE ADDITION ON THE GROUNDS TH AT THE ADDITION MADE BY THE ASSESSING OFFICER AFTER COMPARING THE NET PROFI T SHOWN BY THE ASSESSEE WITH OTHER COMPARABLE BUSINESS DOES NOT APPEAR TO BE JUS TIFIED. 7. BEFORE US, THE REVENUE REITERATED THE ARGUMENTS TAKEN BY THE ASSESSING OFFICER AND THE LD. AR SUPPORTED THE ORDER OF THE L D. CIT(A). 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES. THE COMPARATIVE PROFITABILITY STATEMENT IS AS UNDER: IAA HOSPITAL PVT. LTD. APPEAL FOR ASSESSMENT YEAR 2010-2011 COMPARATIVE PROFITABILITY STATEMENT (RS. IN LAK HS) S.NO. PARTICULARS IAA HOSPITAL DEEP NURSING HOME NARESH BASSI DR. BRAJESH BADHAN 1 PREVIOUS YEAR ENDING 31.03.2010 31.03.2010 31.03 .2010 31.03.2011 2 PROFESSIONAL RECEIPTS 1492.86 932.21 138.02 41.01 3 SALE 204.98 0.00 0.00 0.00 4 TOTAL RECEIPTS FROM BUSINESS (BR) 1697.84 932.21 138.02 41.01 5 NET PROFIT 17.73 134.69 32.18 15.57 6 LESS: NON OPERATING INCOME RENT/INTEREST INCOME 0.00 29.16 0.11 0.00 7. NET PROFIT FROM OPERATIONS 17.73 105.53 32.07 15.57 8. NP RATIO FROM OPERATIONS % 1.04 11.32 23.24 37.97 9. ADD: DEPRECIATION 321.16 45.85 13.59 2.80 10. ADD: INTEREST 316.16 2.85 0 0.41 11. OPERATING PROFIT BEFORE DEP & INTEREST 655.51 154.23 45.66 18.78 4 12 OPERATING PROFIT BDIT TO BR RATIO 38.61 16.54 33.08 45.79 9. IT IS A FACT THAT THE ASSESSEE COULD NOT PRODUCE ITS BOOKS OF ACCOUNT FOR VERIFICATION AS THE BOOKS ARE LYING WITH OTHER COMP ANY WHICH HAS ACQUIRED THE ASSESSEE COMPANY. THE ADDITION MADE BY THE ASSESSIN G OFFICER AGAINST THE NET PROFIT DECLARED BY THE COMPANY OF 1.04% FOUND TO BE LESS BY THE ASSESSING OFFICER BY MARKET AVERAGES AND MADE ADDITION OF RS. 1.3 CRORES. THE COMPARABLE PROFITS TAKEN BY THE ASSESSING OFFICER H AVE NOT BEEN FOUND TO HAVE ANY BASIS KEEPING IN VIEW THE PARAMETERS LIKE TURNO VER, NATURE OF OPERATION AND THE CAPITALIZATION. WE FIND ONLY THE TURNOVER OF DE EP NURSING HOME OF RS. 932 LACS IS CLOSER TO THE TURNOVER OF THE ASSESSEE WHIC H IS RS. 1492 LACS. THE TURNOVER OF THE REMAINING TWO ENTITIES WERE OF RS. 41 LACS AND RS. 138 LACS, HENCE CANNOT BE COMPARED. BY ADDING INTEREST AND DEPRECIA TION TO THE NET PROFITS DECLARED BY THE ASSESSEE WITH THAT OF DEEP NURSING HOME THEN THE PERCENTAGE OF PROFIT VARIES FROM 38.62 TO 16.54. THUS THE NET PROFIT SHOWN BY THE ASSESSEE IS MORE THAN THE COMPARABLE OF DEEP NURSING HOME, HENC E THE ADDITION BASED ON THE COMPARATIVE PROFITS OF THE SIMILAR LINE OF B USINESS CANNOT BE UPHELD. WE DECLINE TO INTERFERE IN THE ORDER OF THE LD. CIT(A) . 10. REGARDING THE GROUND NO. 2 THE ASSESSING OFFICE R HELD THAT IT IS IMPORTANT TO MENTION THAT AS THE ASSESSEE HAS NOT PRODUCED BO OKS OF ACCOUNTS, THE DEPRECIATION AND INTEREST CLAIMED AS EXPENSES REMAI N UNVERIFIABLE. IT CANNOT BE ASCERTAINED WHETHER THE LOANS RAISED BY THE BANKS H AVE BEEN USED FOR THE BUSINESS PURPOSE OR NOT. FURTHER THE ASSESSEE HAS N OT PRODUCED THE BILLS OF ASSETS PURCHASED APPEARING IN THE DEPRECIATION CHART AS PR OVIDED BY THE ASSESSEE AND HENCE THE DEPRECIATION CLAIMED ON THESE ASSETS AGAIN REMAINS UNVERIFIABLE FACT. HOLDING THUS THE ASSESSING OFFICER HAS DISALL OWED THE 20% OF THE INTEREST CLAIMED BY THE ASSESSEE. 11. THE LD. CIT(A) RESTRICTED THE ADDITION TO 10% O N A REASONABLE BASIS. 12. BEFORE US, LD. DR ARGUED THAT NO PROOF OF PURCH ASE OF MACHINERY HAS BEEN GIVEN BY THE ASSESSEE AND HENCE IT CANNOT BE S AID THAT THE BANK LOAN HAS BEEN UTILIZED FOR PURCHASE OF MACHINERY. LD. AR ARGUED THAT SINCE THE BOOKS OF ACCOUNTS ARE IN THE POSITION OF ANOTHER PARTY NA MELY LUDHIANA MEDIWAYS AS ARGUED EARLIER THE BOOKS OF ACCOUNT COULD NOT BE PR ODUCED. IT WAS ARGUED THAT THE ADDITION WAS MADE BY ESTIMATE BASIS AND THE LD . ASSESSING OFFICER DID NOT 5 BRING ANYTHING ON RECORD TO JUSTIFY THIS ADDITION A ND HENCE HE RELIED ON THE ORDER OF THE LD. CIT(A). 13. ON GOING THROUGH THE FACTS ON RECORD AND ARGUME NTS TAKEN BY THE LD. DR AND THE RELIANCE OF THE LD. AR ON THE ORDER OF THE LD. CIT(A) CONFIRMING THE INTEREST OF RS. 31,61,606/-(10%) WE HEREBY DECLINE TO INTERFERE IN THE ORDER OF THE LD. CIT(A). 14. AS A RESULT, THE APPEAL OF THE REVENUE IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (SANJAY GARG) (DR. B.R.R. KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 26/09/2018 AG COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR