SONONE SURGICAL AND OPHTHALMIC HOSPITAL,PUNE V. ITO WARD 14(5), PUNE

ITA 896/PUN/2025

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The case involves Sonone Surgical and Ophthalmic Hospital, a partnership firm, appealing against the order of the National Faceless Appeal Centre (NFAC) which confirmed the disallowance of Rs. 55,05,000 in business expenses by the Income Tax Officer (ITO). The disallowances included Rs. 18.00 lakh for remuneration to partners, Rs. 35.88 lakh for salaries to staff, and Rs. 1.70 lakh for rent. The Tribunal examined the legality of these disallowances under the Income-tax Act, 1961, particularly focusing on sections 40A(3) and 40A(b)(v), and the procedural adherence to faceless assessment as per section 151A and the e-Assessment Scheme, 2022.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 774735 (ITAT-PUNE)
• Duration Of Justice: 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-09-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2019-2020
• Appeal Filed On: 02-04-2025
• Other Referred Cases: ADIT (INT TAXN) 2 HYD & ANR. v. Deepanjan Roy (SLP Civil Diary No(s) 33956/2025, dated 16-07-2025)
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AKHILESH SRIVASTVA
• Assessee Lawyers: PARAS MUNOT
• Keywords: Set aside; Business expenditure
• Section: 148

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES “B”, PUNE BEFORE DR.MANISH BORAD, ACCOUNTANT MEMBER AND SHRI VINAY BHAMORE, JUDICIAL MEMBER आयकर अपील सं. / ITA No.896/PUN/2025 Assessment Year : 2019-20 Sonone Surgical and Ophthalmic Hospital, Veer Savarkar Nagar, Daund College Road, Pune - 413801 PAN: ABDFS0248N Vs. ITO, Ward 14(5), Pune Appellant Respondent आदेश / ORDER PER DR. MANISH BORAD, ACCOUNTANT MEMBER : The captioned appeal at the instance of assessee pertaining to A.Y. 2019-20 is directed against the order dated 27.02.2025 of National Faceless Appeal Centre (NFAC), Delhi passed u/s.250 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) arising out of Assessment Order dated 11.03.2024 passed u/s.147 r.w.s144B of the Act. 2. Assessee has raised following grounds/additional grounds of appeal : “1. The Ld. Assessing Officer erred in law and in fact in making addition and Ld. CIT(A)-NFAC also erred in law and in fact in confirming addition of Rs. 55,05,000/-in respect of disallowance of business expenses and other transfers without considering factual position of the same. Appellant by : Shri Paras Munot Respondent by : Shri Akhilesh Srivastva Date of hearing : 29.07.2025 Date of pronouncement : 03.09.2025 Printed from counselvise.com ITA No.896/PUN/2025 Sonone Surgical and Ophthalmic Hospital 2 Additional Grounds of Appeal “The appellant contends that the notice issued under section 148 by the Jurisdictional Assessing Officer (JAO) is invalid, void ab initio and without Jurisdiction, as it contravenes the mandatory faceless and automated procedure outlined in Section 151A and the e-Assessment of Income Escaping Assessment Scheme, 2022 (Faceless Scheme). This contention is supported by the Supreme Court's recent ruling in ADIT (INT TAXN) 2 HYD & ANR. v. Deepanjan Roy (SLP Civil Diary No(s) 33956/2025, dated 16-07- 2025, which emphasized that such notices must be issued through automated and faceless processes under Section 144B.” 3. At the outset, Ld. Counsel for the assessee requested for not pressing the legal issue raised in additional ground. The same is therefore dismissed as ‘not pressed’. 4. Now the only effective issue that remains for our consideration is regarding the addition of Rs.55,05,000/- made by the Assessing Officer disallowing business expenses. 5. Brief facts of the case are that the assessee is partnership firm running a Hospital. No regular return for A.Y. 2019-20 was furnished. Based on the information about huge transactions carried out during the year under consideration, notice u/s.148 of the Act was issued and in compliance thereto return of income was filed on 10.03.2023 declaring income of Rs.34,93,220/-. During the course of re- assessment proceedings carried out after validly serving statutory notices, ld. Assessing Officer observed that the books of account of the assessee have been audited u/s.44AB of the Act and the Audit Report was also e-filed on 30.10.2019. However, due to oversight by the Tax Consultant, return could not be furnished. Ld. Assessing Officer thereafter examined the audited financial statement and without doubting the gross revenue received during the year disallowed expenses of Rs.55,05,000/- which comprises Printed from counselvise.com ITA No.896/PUN/2025 Sonone Surgical and Ophthalmic Hospital 3 of three items; firstly disallowance of remuneration paid to the partners at Rs.18.00 lakh paid in cash, disallowance of salary expenditure of Rs.35.88 lakh which has been paid in cash; and thirdly disallowance of rent paid at Rs.1,70 lakh. Income assessed at Rs.89,98,220/-. 6. Aggrieved assessee preferred appeal before ld.CIT(A) but failed to succeed. 7. Now the assessee is in appeal before this Tribunal. 8. Ld. Counsel for the assessee submitted that the remuneration has been paid to the partners in cash and is well within the four corners of law. As regards the salary paid to the staff, he submitted that individual payment to each of the staff at a particular date is not exceeding the limit prescribed u/s.40A(3) of the Act and genuine expenses have been incurred and the same deserves to be allowed. Reference was made to the detailed paper book running into 167 pages. 8.1 So far as the disallowance of rent paid at Rs.1.70 lakh is concerned, he fairly admitted that he is not pressing this disallowance. 9. On the other hand, ld. Departmental Representative supported the orders of the lower authorities. 10. We have heard the rival contentions and perused the record placed before us. Disallowance of business expenses of Rs.55,05,000/- is in challenge before us. The said disallowance consist of Rs.1.70 lakh being disallowed for rent payment in cash. Assessing Officer has made the disallowance of Rs.55,05,000/-. While calculating the Printed from counselvise.com ITA No.896/PUN/2025 Sonone Surgical and Ophthalmic Hospital 4 addition in the body of the assessment order, Ld. Assessing Officer has referred to the rental expenses disallowed at Rs.1.70 lakh but while making the computation of assessed income he has inadvertently mentioned figure of Rs.1.17 lakh. Since ld. Counsel for the assessee requested for not pressing this disallowance, the same is sustained. 11. The other element of the alleged disallowance is the remuneration of Rs.18.00 lakh paid to the partners. Assessee being a partnership firm can make the payment of remuneration to the partners in cash and there is no legal bar to make such disallowance. Ledger account of the partners is attached. Remuneration has been given to the partners within the limit prescribed u/s.40A(b)(v) of the Act and there is no dispute to this extent. Therefore, since the remuneration to partners have been given as per the partnership deed and within the limit prescribed under the income-tax Act, the genuineness of the said payment is not in doubt and further assessee being a partnership firm can make payment of remuneration to partners in cash, therefore the alleged disallowance of Rs.18.00 lakh is hereby deleted. 12. The third limb of the disallowance is ‘salary paid to the employees amounting to Rs.35.88 lakh. Ld. Assessing Officer has himself mentioned the details of the employed at page 9 of the assessment order. Assessee has filed copy of payroll register at pages 142 to 153 of the paper book. Assessee firm is running a hospital and all details of employees are duly maintained. Ld. Assessing Officer has also not given any specific finding that any payment to an employee at a particular date exceeded the limit u/s.40A(3) of the Act. Disallowance has been made merely because the payments Printed from counselvise.com ITA No.896/PUN/2025 Sonone Surgical and Ophthalmic Hospital 5 during the year has been made in cash but then when the assessee has made the payment in cash within the limits of cash payment provided under the Act, ld. Assessing Officer should not have made the disallowance merely for making the payment in cash. Ld. Assessing Officer ought to have observed that the assessee is running a hospital and employees are required for running it. Further, as against the gross receipts of Rs.1,26,16,492/-, the assessee has shown the net profit including remuneration given to partners amounts to Rs.54,84,691/- which means that the assessee has declared the net profit before the appropriation of remuneration to partners at 43.53% for carrying out the business activity. Details have been duly maintained. Revenue/Gross Receipts are not in dispute. Books of account have not been rejected. Considering all these facts, we fail to find any justification in the disallowance made by the Assessing Officer and sustained by ld.CIT(A). Finding of ld.CIT(A) is set aside and the impugned disallowance of salary expenses at Rs.35.88 lakh is hereby deleted. 13. In the result, appeal of the assessee is partly allowed as per the terms indicated above. Order pronounced on this 03rd day of September, 2025. Sd/- Sd/- (VINAY BHAMORE) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; \u0001दनांक / Dated : 03rd September, 2025. Satish Printed from counselvise.com ITA No.896/PUN/2025 Sonone Surgical and Ophthalmic Hospital 6 आदेश क\u0002 \u0003ितिलिप अ ेिषत / Copy of the Order forwarded to : 1. अपीलाथ / The Appellant. 2. \u000eयथ / The Respondent. 3. The Pr. CIT concerned. 4. िवभागीय ितिनिध, आयकर अपीलीय अिधकरण, “B” ब\u0014च, पुणे / DR, ITAT, “B” Bench, Pune. 5. गाड\u0004 फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune. Printed from counselvise.com "