BREACH CANDY HOSPITAL TRUST, MUMBAI V. CIT (EXEMPTIONS), MUMBAI

ITA 807/MUM/2021

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 9449 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 17-05-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Charitable institution; Capital expenditure; Set aside
• Section: 263; 11; 143(3); 142(1); 80G; 12A; 143(2); 13; 10(23C); 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI S RIFAUR RAHMAN, ACCOUNTANT MEMBER & SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA No. 807/Mum/2021 (A.Y: 2015-16) Breach Candy Hospital Trust, 60, Bhulabhai Desai Road, Mumbai – 400026. Vs. CIT (Exemptions) Room, Mp/ 617, 6 th Floor, Piramal Chambers, Lalbaug, Parel, Mumbai – 400012 ./ज आइआर ./PAN/GIR No. : AAATB0214D Appellant .. Respondent Appellant by : Shri.Ketan Ved. AR Respondent by : Shri. Mahesh Akhade. DR Date of Hearing 18.01.2022 Date of Pronouncement 31.01.2022 आद श / O R D E R PER PAVAN KUMAR GADALE JM: The assessee has filed an appeal against the order of the Commissioner of Income Tax (Exemptions), Mumbai passed u/s 263 of the Act dated 19.03.2021.The assessee has raised the following grounds of appeal: 1. Validit y of order under section 263: 1.1. The learned CIT has erred in holding that the assessment order dated 20 December 2017 passed by the ITA No. 807/Mum/2021 Breach Candy Hospital Trush, Mumbai. - 2 - Assessing Officer under section 143(3) is erroneous in so far as the same is prejudicial to the interests of revenue. 1.2. The learned CIT failed to appreciate that the conditions specified under Explanation 2 to section 263 are not satisfied in the appellant's case. Accordingly, the appellant prays that the impugned order passed by the learned CIT is ultra vires, invalid and ought to be struck down. 1.3. The learned CIT failed to appreciate that there is due application of mind by the learned Assessing Officer during assessment proceedings and setting aside of the impugned order is erroneous, in excess of jurisdiction and bad in law. 1.4. The learned CIT has erred in passing an order under section 263 of the Act based on surmises and conjectures without appreciating the facts and judicial precedents in the matter. Hence, such order is bad in law and ought to be quashed. 2. Addition of Rs. 98,95,131 (difference out of indi g ent patient fund) to the a pp ellant's taxable income 2.1 In the facts and circumstances of the case, the learned CIT erred in initiating revision proceedings under section 263 of the Act consequent to the objection raised by the Revenue Audit. The learned CIT ought to have appreciated that provisions of section 263 cannot be invoked by the CIT based on the view of the Revenue Audit. 2.2 In respect of the impugned amount of Rs. 98,95,131, the learned CIT erred in referring said issue without giving finding in his order as to how the assessment order dated 20 December 2017 passed by the Assessing Officer under section 143(3) has resulted into loss of revenue and therefore the assessment order is erroneous in so far as the same is prejudicial to the interests of revenue. 2.3 The learned CIT ought to have appreciated that in the assessment order the Assessing Officer has added entire provision of Indigent patient Fund of Rs.3,73,77,803 and ITA No. 807/Mum/2021 Breach Candy Hospital Trush, Mumbai. - 3 - hence to that extent the order cannot be considered prejudicial to the interest of the revenue. 2.4 The learned CIT erred in directing the Assessing Officer to call for books of accounts and undertake cross verification in spite of the fact that from the annual accounts and assessment order itself, it can be observed that the Assessing Officer has already disallowed the entire provision of Indigent patient Fund of Rs.3,73,77,803 in the assessment order. 2.5 Without prejudice, the learned CIT erred in not appreciating the fact that the appellant has only claimed actual amount Rs. 2,74,82,672 spent from indigent patient fund as an application of income in the computation of income and the appellant has not claimed deduction for the differential amount of Rs.98,95,131 (i.e. Rs. 3,73,77,803 - Rs. 2,74,82,672) as an application of income. 3. Addition on account of referral fee paid by the appellant to Doctors 3.1 The learned CIT erred in holding that the appellant has paid referral fee based on paras 6.1 and 6.3 of the assessment order and subjecting the same to the revision proceedings under section 263. 3.2 The learned CIT ought to have appreciated the appellant's submission that no referral fee is paid to the doctors or even the Assessing Officer has not alleged that referral fee being paid by the appellant. The appellant submits that the revision proceedings under section 263 is initiated without bringing any evidence on record to demonstrate that the appellant has paid any referral fee to Doctors. 3.3 The learned CIT ought to have considered the Audited Financial Accounts of the appellant for the year under consideration where neither alleged referral fee is debited nor there is mention of any alleged referral fee under the head 'expenditure'. 3.4 The learned CIT erred in holding that the issue of ITA No. 807/Mum/2021 Breach Candy Hospital Trush, Mumbai. - 4 - whether the referral fee receipt can be considered as receipts of the hospital includible under section 11(a)(a) of the Act has not been examined properly and requisite verification/inquiry has not been made by the Assessing Officer in the assessment order. 3.5 The learned CIT erred in initiating proceedings under section 263 on the reasoning not applicable to the appellant being a charitable institution. 3.6 Without prejudice, the reason based on which show cause notice for initiating proceedings under section 263 was issued and the reason based on which order under section 263 is passed are diametrically opposite. 4. General 4.1 Each one of the above grounds of appeal is without prejudice to one another. 4.2 The Appellant craves leave to add, alter, amend, substitute and/or modify in any manner whatsoever modify all or any of the foregoing grounds of appeal at or before the hearing of the appeal. 2. The Brief facts of the case are that, the assessee trust main objects are to maintain and run the hospital for treatment of diseases to persons of all community, including treatment of all forms of surgical and medical cases. The trust was registered as a “The Public Trust” under the Bombay Public Trust Act, 1950 vide registration No. E-793, Bombay. The trust was granted exemption u/s 10(22A) of the Act for the years 1970-71 to 1995-96.Subsequently, the CBDT by its order dated 10.04.2003 has granted approval to the trust u/s 10(23C) of the Act for the ITA No. 807/Mum/2021 Breach Candy Hospital Trush, Mumbai. - 5 - years 1999-2000 to 2001-02. Subsequently, the assessee has not been granted approval u/s 10(23C)(via) and the matter was pending before the Hon’ble Bombay High Court. In the meantime the Hon’ble Bombay High Court has granted ad-interim relief to the assessee,which restrained the department from giving effect to the order of the CCIT, Mumbai rejecting the application for approval u/s 10(23C)(via) of the Act. 3. The assessee has filed the return of income electronically for the A.Y 2015-16 on 29.09.2015 disclosing a total income of Rs.Nil, subsequently the assessee has filed the revised return of income on 21.03.2016 with total income of Rs. Nil. The Assessee is registered as charitable organization with CIT(E), Mumbai u/s 12A and 80G of the Act and the assessee has been claiming the exemption u/s 11 of the Act from earlier years. The case was selected for scrutiny and notice u/s 143(2) and 142(1) of the Act along with questionnaire was issued. Earlier the case was selected for limited scrutiny and was converted to complete scrutiny after obtaining the approval from CIT(E), Mumbai. In compliance the Ld. AR of the ITA No. 807/Mum/2021 Breach Candy Hospital Trush, Mumbai. - 6 - assessee appeared from time to time and furnished the details and the case was discussed. The Assessing Officer (A.O) has verified the income and expenditure account, balance sheet, activities of the trust furnished in the assessment proceedings. The A.O. has dealt elaborately on the total receipts, expenditure and surplus from the trust activities for the F.Y 2011-12, 2012-13 and 2013-14 and observed that the assessee has been claiming exemption as per the provisions of sec 11 of the Act. 4. The A.O dealt on the details and informatio filed by the assessee in response to notice u/s 142(1) of the Act and found that the assessee has set aside an amount of Rs. 81,80,442/- as provision for staff gratuity and it was also considered for application of income but the A.O observed that the income cannot be deemed to be applied otherwise than under section 11(1)(ii) and 11(2) of the Act and disallowed the claim. Whereas in respect of claim of 15% deduction of gross receipts, the A.O. find such amount is collected on behalf of Honorary Doctors. The assessee has incurred expenditure on maintaining the objects of the trust and the exemption was claimed. But the ITA No. 807/Mum/2021 Breach Candy Hospital Trush, Mumbai. - 7 - A.O found that the receipts collected and the medical consumables cannot be considered for calculating the exemption U/sec11(1)(a) of the Act. Finally, the A.O. has computed income of the assessee and granted exemption u/sec10(23C)(via) of the Act and assessed the total income of Rs.Nil and passed the order u/s 143(3) of the Act dated 28.12.2017. 5. Subsequently, the CIT(E) on verification of the assessment record observed that the order of the A.O. is erroneous and prejudicial to the interest of the revenue and issued notice. In response to the notice u/s 263 of the Act, the assessee has filed the reply/written submissions on 15-03-2021 referred at page 2 Para 2 of the revision order as under: "A. Addition of Rs98,95,131 (difference out of indigent patient fund) to the assesee's taxable income 1. In the notice issued under section 263 of the Act, your Honour has observed that the assessee has spent only Rs.2,74,82,672 as an expense out of 2% of total billing under Indigent Patient Fund out of mandatory amount of Rs.3, 73,77,803 from the income & expenditure a/c. Accordingly, your Honour has observed that the differential amount of Rs.98,35, 131 should be considered as an income of the assessee. 2. Without agreeing to the basis on which assessing officer has completed the assessment, the assessee submits that the differential amount of Rs.98,95, 131 has already been ITA No. 807/Mum/2021 Breach Candy Hospital Trush, Mumbai. - 8 - considered as business income by the assessing officer in the assessment order. The computation of business income in the assessment order is given below Particulars Amounts Net profit as per income and expenditure account 30,61,34,685 Add: Transferred to Indigent Patient fund 3,73,77,803 Net Profit as per assessment order 34,35,12,488 Add Provisions for Staff Gratuity 81,80,442 Business Income 35,16,92,930 3 . From the same, it may be observed that entire amount of Rs.3,73,77,803 is already added to the net profit of Rs.30,61,34,685 by the assessing officer. In this connection reference is made to para 6.4 of the assessment order. Your honour will observe that the assessing officer has considered net profit at Rs.34,35.12.488 which has been arrived at after adding amount transferred to Indigent Patient Fund of Rs.3.73,77,803. This can be observed from the audited accounts attached herewith. Therefore. entire amount being 2% of total billing transferred to Indigent Patient Fund of Rs.3,73,77,803 is already added to the income by the assessing officer in the assessment order. Hence, the alleged differential amount of Rs.98,95,131 (included in Rs.3,73,77,803) is already disallowed by the assessing officer in the assessment order. Hence, if differential amount of Rs.98,95,131 is again added to the total income, it will lead to double taxation of the same amount and gross injustice to the assessee. 4. In view of the above, the assessee submits that the proposed addition of Rs.98,95,131 to the income on account of Indigent Patient Fund should not be made. B. On merits of addition on account of referral fee paid by the hospital trust to the doctors. 5. Your Honour has observed in the notice that from the assessment order it is discernable that assessing officer has discussed about referral fees paid by the Hospital to the ITA No. 807/Mum/2021 Breach Candy Hospital Trush, Mumbai. - 9 - doctors who referred patients to the hospital. In this connection, reference is made to the assessment order dated 28 December 2017. 6. It may observed from the assessment order that there is no discussion on referral fees paid to doctors. Further, reference is invited to audited Annual Account of the Hospital for the year under consideration. From the said account also, your honour shall observe that hospital has not paid any referral fees to doctors. 7. The assessee submits that Hospital trust recovers certain amount from Doctors as Hospital's share in Doctor's fees and consulting charges towards use of hospital facilities. Therefore, Hospital trust does not pay any referral fees but rather recovers amount from the Doctors for the use of Hospital facilities. 8. The assessee requests your honour to kindly let the assessee knows which paragraph of the assessment order is referred to in the notice giving indication that assessee has paid referral fees to the doctor. 9. In view of the above, no referral fee is paid to the doctors. Hence, the proposed disallowance of referral fee expenses should not arise. 10. In view of the above assessee submits that the alleged issues based on which proceeding is initiated under section 263 do not survive and hence the said proceedings ought to be dropped." 6. Whereas, the CIT(E) having considered these facts has observed that in the assessment order the A.O. in para 6.1 and 6.2 has discussed the issue of referral fee and whether the receipts can be considered as the receipts of hospital for claim of u/s 11(a)(a) of the Act has not been examined. The CIT(E) on the second ITA No. 807/Mum/2021 Breach Candy Hospital Trush, Mumbai. - 10 - disputed issue being the difference in the mandatory expenses and actual utilization of indigent patient fund of Rs.98,95,131/- is of the opinion that the A.O has not undertaken the cross verification/examination of the facts and the CIT(E) relied on the judicial decisions and set aside the assessment order passed on 28.12.2017 and directed the A.O. to undertake de novo assesseement . Aggrieved by the revision order, the assessee has filed an appeal before the Hon’ble Tribunal. 7. At the time of hearing, the Ld.AR submitted that the CIT(E) has erred in set aside the order u/s 143(3) and direct the A.O to do afresh. The Ld. AR submitted that the explanation (2) to sec 263 of the Act ought to be considered only when the AO has not applied his mind, the facts are to be verified and no enquiry is conducted. Whereas, on the merits of the case the books of accounts are audited and in respect of difference in actual indigent patient fund, the assessee has filed the explanations. On the referral fee, the assessee’s audited books of accounts are produced and the A.O. on verification of facts was satisfied and has passed the order. The Revenue has ITA No. 807/Mum/2021 Breach Candy Hospital Trush, Mumbai. - 11 - been accepting the claim in the earlier years undisputedly. The Ld.AR supported the submissions with judicial decisions, paper book and prayed for allowing the assessee’s appeal. Contra, the Ld. DR submitted that the A.O has not conducted enquiry on referral fee and the Ld. DR relied on the order of the CIT(E). 8. We heard the rival submissions and perused the material available on record. The Ld.AR contentions are that the order passed by the A.O. does not satisfy the twin conditions that (i) erroneous and (ii) prejudicial to the interest of the revenue. The Ld. AR further submitted that the CIT(E) only considered the fact that the AO has not conducted enquiry but there are no specific reasons and findings are recorded. The Ld.AR referred to revision notice at page 32 of the paper book in particular to violation of guidelines of the Medical Counsel of India (MCI) with respect to referral fee should not considered the income of the assessee. The Ld. AR referred to page 34 of the paper book where the assessee has filed explanations by letter dated 15.03.2021 on the back ground of the assessee trust and the submissions in respect of ITA No. 807/Mum/2021 Breach Candy Hospital Trush, Mumbai. - 12 - taxability of difference in indigent patient fund. Further, the Ld.AR submitted that the hospital trust recovers an amount from doctors as hospital share in doctors’ fees and consulting charges towards the use of hospital facilities and hospital does not pay any referral fee rather recovers amount from the doctors for use of hospital facilities. 9. The Ld. AR submitted that the CIT(E) has only directed the A.O to make enquiries, whereas the A.O in the notice u/s 142(1) of the Act has called for the information and discussed on the issues. The emphasizes of the Ld. AR that no referral fee is paid and further the amount has been collected from the doctors in respect of the usage of hospital facilities. The Ld. AR also submitted that the CIT(E) has not considered these facts that the A.O has called for the information and the case was discussed and there cannot be any non application of mind by the A.O. We find that the A.O has considered one of the possible views based on the information and it is not necessary that the A.O should put all the discussions/observations in the assessment order, as per explanations (2) to sec 263 of the Act the ITA No. 807/Mum/2021 Breach Candy Hospital Trush, Mumbai. - 13 - authority has to invoke provisions only when there is no verification and enquiry conducted by the A.O. Whereas the A.O has applied his mind and verified the facts. The Ld. AR referred to the submissions, financial statements and explanations filed before the A.O. We find the Hon’ble High Court Bombay in CIT Vs. Gabriel India Ltd.203 ITR 108.(Bom) has observed as under: Section 263 of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interests of revenue - Assessment year 1973-74 - Assessee claimed a sum of Rs. 99,326 described 'as plant relay out expenses' as revenue expenditure and ITO, after making enquiries in regard to nature of said expenditure and considering explanation furnished by assessee in that regard, allowed assessee's claim - Subsequently, Commissioner, exercising powers under section 263, cancelled order of ITO observing that order of ITO did not contain discussion in regard to allow ability of claim for deduction which indicated non-application of mind and that claim of assessee required examination as to whether expenditure in question was a revenue or capital expenditure and directed ITO to make a fresh assessment on lines indicated by him - Whether under section 263 substitution of judgment of Commissioner for that of ITO is permissible - Held, no - Whether ITO's conclusion can be termed as erroneous simply because Commissioner does not agree with his conclusion - Held, no - Whether ITO's order could be held to be 'erroneous' simply because in his order he did not make an elaborate discussion - Held, no - Whether provisions of section 263 were applicable to instant case and Commissioner was justified in setting aside assessment order - Held, no ITA No. 807/Mum/2021 Breach Candy Hospital Trush, Mumbai. - 14 - We Considering the overall facts, circumstances, ratio of the judicial decision and the details submitted in the course of hearing are of the view that the if any query is raised in the assessment proceedings and it was responded by the assessee, mere fact that it is not dealt with by the A.O. in the order cannot implied that there is no application of mind. Hence, the CIT(E) action cannot be acceptable as the order passed by the A.O. does not satisfy the twin conditions of erroneous and prejudicial to the interest of the revenue. Accordingly, we set aside the order of the CIT(E) and allow the grounds of appeal in favour of the assessee. 10. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 31.01.2022. Sd/- Sd/- (S RIFAUR RAHMAN) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated 31.01.2022 KRK, PS /Copy of the Order forwarded to : ITA No. 807/Mum/2021 Breach Candy Hospital Trush, Mumbai. - 15 - 1. / The Appellant 2. / The Respondent. 3. आ र आ / The CIT(A) 4. आ र आ ( ) / Concerned CIT 5. "#$ % & &' , आ र ) र*, हमद द / DR, ITAT, Mumbai 6. % -. / 0 / Guard file. ान ु सार/ BY ORDER, " & //True Copy// 1. ( Asst. Registrar) ITAT, Mumbai ITA No. 807/Mum/2021 Breach Candy Hospital Trush, Mumbai. - 16 - Date Initial 1. Draft dictated on 19.01.2022 PS 2. Draft placed before author 24.01.2022 PS 3. Draft proposed & placed before the second member PS 4. Draft discussed/approved by Second Member. PS 5. Approved Draft comes to the Sr.PS/PS PS 6. Kept for pronouncement on 7. File sent to the Bench Clerk 8. Date on which file goes to the AR 9. Date on which file goes to the Head Clerk. 10. Date of dispatch of Order. 11. Dictation Pad is enclosed 2. Other Member... on