SHALBY LTD.,AHMEDABAD V. THE PCIT, AHMEDABAD-3, AHMEDABAD

ITA 1064/AHD/2024

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Shalby Ltd., a company running multispecialty hospitals, appealed against the revision order passed by the Principal Commissioner of Income Tax, Ahmedabad-3, which arose from an initial assessment order under section 143(3) of the Income Tax Act, 1961 for the Assessment Year 2018-19. The initial assessment included disallowances for expenses and adjustments for late payment of PF, leading to a revised total income assessment. The PCIT later issued a notice under section 263, claiming the initial assessment was erroneous and prejudicial to the interests of the revenue, particularly concerning the disallowances related to exempt income and the valuation of shares purchased from directors. The Tribunal's decision addressed these issues, partly upholding the PCIT's revision regarding disallowances under section 14A but rejecting the revision related to share valuation due to lack of demonstrated loss to the revenue.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 789206 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: misc
• Appeal Filed On: 20-05-2024
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Valuation report; Earning of tax free income; Rule 8D; Revision of order
• Section: 143(3); 263; 14A

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “B” BENCH Before: DR. BRR Kumar, Vice President And Shri T. R. Senthil Kumar, Judicial Member Shalby Ltd. Shalby Hospitals, Opp. Karnavati Club, Sarkhej, Gandhinagar Highway, Ahmedabad Gujarat-380015 PAN: AAICS5593B (Appellant) Vs The Principal Commissioner of Income Tax-3, Ahmedabad (Respondent) Assessee Represented: Shri Aseem Thakkar, A.R. Revenue Represented: Shri R P Rastogi, CIT-DR Date of hearing : 04-11-2025 Date of pronouncement : 24-11-2025 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- This appeal is filed by the Assessee as against the Revision order dated 21.03.2024 passed by the Principal Commissioner of Income Tax, Ahmedabad-3 arising out of the assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2018-19. ITA No. 1064/Ahd/2024 Assessment Year 2018-19 Printed from counselvise.com I.T.A No. 1064/Ahd/2024 A.Y. 2018-19 Page No Shalby Ltd. vs. PCIT 2 2. Brief facts of the case is that the assessee is a Company engaged in running Multispecialty Hospitals. For the Asst. Year 2018-19, assessee filed its Return of Income on 31-10-2018 declaring total income of Rs.1,81,40,490/-. The return was taken for scrutiny assessment after calling for various details, assessment was completed by making disallowance of expenses u/s. 40(a)(ia), depreciation and late payment of PF, thereby determining the total income at Rs. 3,17,56,002/- and demanded tax thereon. 2.1. Perusal of the above assessment order by PCIT-3, the assessee has earned dividend income of Rs. 64,83,802/- from investment made in Firms/LLP. Further the profit and loss account revealed incurring various expenses including financial cost of Rs.1213.4 lakhs and other expenses of Rs. 3195.7 lakhs during the year. The assessee company while filing the Return of Income as made voluntary disallowance u/s. 14A read with Rule 8D of Rs 3,37,731/- as against the actual disallowance of Rs. 10,17,700/-. Thus there is a lesser disallowance of Rs. 6,79,969/-. Further the assessee had made payment of Rs.4.68 crores to two directors of Vrundavan Shalby Hospital against 45% equity shares purchased by the assessee, for which valuation under Rule 11UA was not done which has resulted in under assessment of income. Thus the assessment order passed by the assessing officer is erroneous and prejudicial to the interest of revenue. Therefore a notice u/s. 263 dated 22-02-2024 was issued as to why not to revise the assessment order. Printed from counselvise.com I.T.A No. 1064/Ahd/2024 A.Y. 2018-19 Page No Shalby Ltd. vs. PCIT 3 3. In response, the assessee submitted that during the assessment proceedings, assessing officer enquired every details, the interest free funds available to the assessee company is Rs 775.27 crores which is far in excess of the alleged investment in LLP Rs. 1.4 crores which is capable of generating exempt income. Therefore the question of disallowance of interest on presumption that loan amounts have been utilized for making investment in LLP does not arise and relied upon few case laws. Therefore the suo moto disallowance u/s. 14A made by the assessee of Rs. 3,37,731/- does not require any interference. Thirdly, the issue to be examined is whether loss has been occasioned and claimed by the assessee company in the year under consideration which has caused prejudice to the revenue. Infact, there is no loss occasioned by the assessee company and therefore in any case no prejudice has been caused to the Revenue. The above reply was considered by the Ld. PCIT and set-aside the assessment order passed by the assessing officer with a direction to redo the assessment by giving proper opportunity of hearing to the assessee. 4. Aggrieved against the same, assessee is in appeal before us raising the following Grounds of Appeal: 1. The Learned Pr. Commissioner of Income Tax, Ahmedabad-3 has erred in passing an order u/s.263 of the I.T. Act, 1961 setting aside the Assessment Order passed u/s. 143(3) r.w.s. 144B of the I.T. Act, 1961 dtd 29.092021 which is neither erroneous nor prejudicial to the interest of the Revenue. 2. The Learned Pr. Commissioner of Income Tax, Ahmedabad-3 has erred in passing an order u/s 263 of the I.T. Act, 1961 since the issues sought to be revised have been examined in the assessment proceedings hence the same being illegal and bad in law requires to be quashed. Printed from counselvise.com I.T.A No. 1064/Ahd/2024 A.Y. 2018-19 Page No Shalby Ltd. vs. PCIT 4 3. The Learned Pr. Commissioner of Income Tax Ahmedabad-3 has erred in not appreciating the fact that all information and related material and evidences had been furnished at the assessment stage relating to the issues raised in the revision proceedings. The A.O. after examining the evidences and other material considering the same after due application of mind has passed the assessment order. 4. The Learned Pr. Commissioner of Income Tax, Ahmedabad-3 has erred in invoking revisionary powers u/s 263 of the Act with reference to payments made for purchase of shares on the grounds that valuation u/r.11UA was not done leading to possibility of under assessment of income and therefore drawing presumption of losses claimed. 5. The Learned Pr. Commissioner of Income Tax. Ahmedabad-3 has erred in invoking revisionary powers u/s 263 of the Act with regards disallowance made u/s 14A r.w.r.8D of the I.T. Rules 1962 without pointing out any defect in the voluntary disallowance made by the appellant while filing the Return of Income, 6. The appellant craves leave to add, alter, amend or modify any of the grounds of appeal on or before the date of hearing of appeal. 5. We have heard the rival submissions and perused the materials available on record. Ld. PCIT held that the assessee has failed to demonstrate that the A.O. has applied his mind while passing the assessment order on the specific details regarding the disallowance u/s 14A read with Rule 8D. The assessee has earned exempt income of Rs.64,83,802/- and made suo moto disallowance of Rs.3,37,731/- u/s. 14A read with Rule 8D. Ld. PCIT held that Rule 8D provides for disallowance u/s 14A of the Act at 1% of annual average of the monthly averages of the opening and closing balances of the value of investments made by the assessee. However this was not verified by the assessing officer while calculating the disallowance u/s 14A read with Rule 8D. Any investment of this magnitude for the management would require internet connection, phone, administrative charges along with Printed from counselvise.com I.T.A No. 1064/Ahd/2024 A.Y. 2018-19 Page No Shalby Ltd. vs. PCIT 5 involvement of employees and director and also for the reason that amended provisions of Rule 8D applicable in the present Asst. Year 2018-19 which does not provide any bifurcation between interest expenditure and administrative expenditure as available in ole Rule 8D till Asst. Year 2016-17. This itself proves that the assessee has not made disallowance as per the new provisions of the Rule 8D. Further the assessing officer has accepted the assessee’s version of disallowance without any discussion in the assessment order which clearly is prejudicial to the interest of revenue on the lesser disallowance of Rs.6,79,969/- as well as erroneous order which does require interference u/s 263 of the Act. Thus the Revision order directing to make disallowance u/s 14A read with Rule 8D is well within the provisions of law and the same is upheld. 6. Second issue namely purchase equity shares of M/s. Vrundavan Shalby Ltd. without valuation report as per Rule 11UA(1). Ld. Counsel submitted before us copy of the settlement of dispute between the Directors and the assessee company before National Company Law Tribunal, Mumbai Bench in Company Petition No. 18/2015 dated 14-07-2017 wherein the cost of the 45% of shares were determined as Rs.4.86 crores which was also placed before the assessing officer. Therefore the question of reference Rule 11UA(1) does not arise and also produced copy of the settlement reached between the parties with relevant materials. Perusal of the same makes it clear that the shares in M/s. Vrundavan Shalby Ltd. were valued at Rs. 4,68,00,000/-. Based on the above settlement, the Company Petition filed before National Company Law Tribunal stands disposed of in term of the above agreement. Ld. PCIT Printed from counselvise.com I.T.A No. 1064/Ahd/2024 A.Y. 2018-19 Page No Shalby Ltd. vs. PCIT 6 without considering the above settlement of dispute between the parties and Ld. PCIT has not pointed out any implication of loss to the Revenue. The reasons made out by Ld. PCIT is a hypothetical situation of loss and not the loss actually occurred. Hence on this count, the Revision proceedings initiated by the Ld. PCIT is not maintainable in law. Thus the Ground Nos. 3 & 4 raised by the Assessee are allowed. 7. In the result, the appeal filed by the Assessee is partly allowed. Order pronounced in the open court on 24-11-2025 Sd/- Sd/- (DR. BRR KUMAR) (T.R. SENTHIL KUMAR) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad : Dated 24/11/2025 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद Printed from counselvise.com "