SONI HOSPITALS PVT. LTD.,JAIPUR vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-5, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES ‘A’ JAIPUR Jh lanhi xkslkbZ] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 756/JP/2019 fu/kZkj.k o"kZ@Assessment Year :2014-15 cuke M/s Soni Hospitals Pvt. Ltd., ACIT, Vs. 38, Soni Hospital Kanota Bag, JLN Marg, Circle-05, Jaipur Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. AAGCS9508N vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : None (written submission) jktLo dh vksj ls@ Revenue by : Smt. Monisha Choudhary (Jt. CIT) lquokbZ dh rkjh[k@ Date of Hearing : 31/03/2021 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 08/04/2021 vkns'k@ ORDER

PER: VIKRAM SINGH YADAV, A.M.

This is an appeal filed by the assessee against the order of ld. CIT(A)-2, Jaipur dated 22.03.2019 relevant for A.Y 2014-15 wherein the assessee has raised the following grounds of appeal. “1. The ld. CIT(A)-II has erred in law and on facts in sustaining the addition u/s 36(1)(va) of Rs. 1,60,983 being amount of delayed deposits of Employee’s Contribution towards ESI & PF. 2. The ld. CIT(A)-II has erred in law and on facts in sustaining the addition of Rs. 1,50,279 being amount of expenses related to earlier years but settled during the year under consideration. 4. The ld. CIT(A)-II has erred in law and on facts in sustaining the addition of Rs. 2,50,000 out of lumpsum disallowance Rs.

2 ITA No. 756/JP/2019 Soni Hospitals Pvt. Ltd., Jaipur Vs. ACIT, Jaipur 4,50,000 made out of Travelling & Conveyance Expenses and Business Promotion Expenses.”

“Ground No.1- Addition of Rs.1,60,983/= for delayed deposit of employees share of ESI & PF contribution

Facts and Submissions – (i) All dues were deposited well before due date of filing of Return of Income as is evident from the perusal of the table reproduced on page 2 of the appellate order.

(ii) There was no addition in the assessments on the issue in earlier assessment years except for AY 2007-08 and 2008-09 which were subsequently deleted by the learned CIT (Appeals) in orders dated 30.04.2014 and 06.03.2013.

(iii) No disallowance / addition is attracted in view of several decisions including that of the ITAT-JPR, the jurisdictional Rajasthan High Court as well as the Supreme Court. Few of such decisions are cited below-

(a) DCIT vs. Rajasthan Renewable Energy Corporation Ltd. [ITA No. 772/JP/2018 & 817/JP/2018]

3 ITA No. 756/JP/2019 Soni Hospitals Pvt. Ltd., Jaipur Vs. ACIT, Jaipur (b) DCIT, CC-II Vs. J K International (Appeal No. 716 to 718/JP/ 2018. Order dated 30.09.2019) [2019] 10 TMI 396 ITAT (JP) (c) Principal CIT Vs M/s Rajasthan State Beverages Corporation Ltd. [2017] 250 Taxman 0016 (SC): The HC allowed the claim against which SLP was filed by the Dept. Held - We do not find any merit in this petition. The special leave petition is, accordingly, dismissed. (d) CIT Vs. M/s Alom Extrusions Limited [2009] 319 ITR 306 (SC) (e) CIT Vs Vinay Cement Ltd. [2009] 313 ITR (St.) 1 (SC) (f) CIT Vs. Jaipur Vidyut Vitran Nigam Ltd 363 ITR 307 (Raj) (g) CIT vs. Udaipur Dugdh Utpadak Sahkari Sangh Ltd. 366 ITR 163 (Raj.) (h) CIT vs. State Bank of Bikaner & Jaipur 363 ITR 70 (Raj.)

In view of above, your honours are therefore humbly requested to please delete the addition.

Ground No. 2- Disallowance of Rs.150279/- sustained being expenses relating to earlier years.

Facts and Submissions – (i) There remains some bills of expenses under dispute at the year-end resulting in accrual of liability in the year of settlement and thus under mercantile method of accounting, entry is passed in subsequent year then the year in which service or supply was received. And this accounting practice is being consistently followed. For a large business concern having different operational Units, such instances are bound to exist for obvious reasons.

4 ITA No. 756/JP/2019 Soni Hospitals Pvt. Ltd., Jaipur Vs. ACIT, Jaipur (ii) Perusal of following table reveals that there remains few instances of settlement of liability in subsequent years:-

Assessment Year Amount of previous year expenses 2011-12 Rs.20,28,549/= 2012-13 Rs.3,83,039/= 2013-14 Rs.2,61,712/= 2014-15 Rs.1,58,775/=

(iii) It is worthy to note here that in the years, prior to current year, no disallowance for prior period expenses was made in assessment proceedings u/s 143(3) even though the amount was much higher.

(iv) In C.K. Gangadharan v. CIT [2008] 304 ITR 61/172 Taxman 87 (SC) and many other judicial forums have held that view taken by the Department in earlier years should not be disturbed unless there is change in factual and legal position.

(v) Reliance is also placed on decision rendered on of the Hon’ble ITAT, Jaipur in the case of DCIT Vs. the Rajasthan Renewable Energy Corporation Ltd. rendered in Appeal No. ITA No 772 & 817/JP/2018 (copy enclosed)

In view of above, your honours are therefore humbly requested to please delete the disallowance.

Ground No. 3- Lump Sum Disallowance of Rs.250000/- sustained being expenses alleging that expenses were not verifiable in absence of proper bills/ paid on self-made vouchers.

5 ITA No. 756/JP/2019 Soni Hospitals Pvt. Ltd., Jaipur Vs. ACIT, Jaipur Facts and Submissions – (i) Being a large organisation there is strict internal control system in operation and each expense is subject to verification by superior authority before payment/recording in books of accounts.

(ii) Being a large organisation in health services and operating various Units – Multi Super Speciality Hospital, Nursing School-College, CT & MRI centre under PPP mode at SMS Hospital, payment of expenses by way of reimbursement of cash to staff members on self-made vouchers cannot be avoided.

(iii) Perusal of table reproduced on page 8 and 9 of the appellate order reveals that all the payments were made to known persons. Out of aggregate expenses of Rs.44,79,018.61 (33,69,566.97 + 11,09,451.64) a sum of Rs.12,89,080.58 (7,13,656.59 + 5,75,423.99) was reimbursement to staff members and rest amount paid/credited to outside parties against their bills.

(iv) All the expenses fulfilled the allowability criteria prescribed in section 37(1) of the Income Tax Act, 1961.

(v) Reliance is placed on decision rendered on 19.12.2019 by the Hon’ble ITAT, Jaipur in the case of M/S Maghalaya Constructions & Supply Co. Vs. ACIT in Appeal No. ITA No 694/JP/2019 (copy enclosed).

The Hon’ble ITAT held that “if certain claim of expenditure is not found to be incurred wholly and exclusively for the business purpose, then the same is liable to be disallowed. However, if the expenditure incurred is

6 ITA No. 756/JP/2019 Soni Hospitals Pvt. Ltd., Jaipur Vs. ACIT, Jaipur found for the business purpose then due to certain irregularity in maintaining supporting evidence, an ad hoc disallowed is not called for. Accordingly, without specifying the instance of the expenditure, which is either excessive or found not incurred for the business of the assessee, the action of the AO in making ad hoc disallowance and confirmed by the ld. CIT (Appeals) is not justified. Hence, ad hoc disallowance is deleted”.

(vi) Further reliance is placed on the following few decisions on similar issues- • J J Enterprises Vs. CIT 254 ITR 216 (SC) • Dwarka Prasad Agarwal Vs. ITO 52 ITD 239 • ACIT Vs. Amtek Auto Ltd. 112 TTJ 455

In view of above, your honours are therefore humbly requested to please delete the disallowance.” 3. Per contra, the ld. DR relied on the order of the lower authorities and our reference was drawn to the findings of the ld. CIT(A) which reads as under:- “2.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. The Ld. Authorized Representative argued that assessee deposited ESI and PF contribution after the due date but before due date of filing of return of income. I find that in a recent case of M/s Rajasthan Renewable Energy Corporation Limited, Jaipur for Assessment Years 2012-13, 2010-11 and 2011-12 in D.B.I.T. Appeal Nos. 10/2018, 11/2018 and 12/2018 dated 13.03.2018 the Hon'ble Rajasthan High Court has decided the following questions of law

"II Whether in the facts and circumstances of the case and in law the ITAT was justified in deleting the addition of Rs. 3,95,066/- made for

7 ITA No. 756/JP/2019 Soni Hospitals Pvt. Ltd., Jaipur Vs. ACIT, Jaipur deposition the employee's contribution to PF and ESI beyond the prescribed time limit provided in the respective Acts.

III Whether in the facts and circumstances of the case and in law the ITAT was justified in holding that employee's contribution to PF and ESI governed by the provision of section 43B and not by section 36(1)(va) r.w.s. 2(24)(x) of the I.T. Act.? "

The Hon'ble jurisdictional Court has decided as follows:

"6. With regard to issue No. 2 and 3 the controversy is pending before the Supreme Court in C.I.T, Jaipur Vs. M/s State Bank of Bikaner and Jaipur in SLP© No. 16249/2014, therefore, subject to decision of SLP, for the present, these issues are decided in favour of the department and against the assessee. It will be open for the department to recover the amount if the decision is in their favour."

In view of the same the disallowance made by the Assessing Officer is confirmed. This ground of appeal is dismissed.”

“3.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. The Assessing Officer made the disallowance by holding that the assessee is following mercantile system of accounting and therefore prior paid expenses are not allowable. Ld. Authorized Representative filed the details of the expenses and claimed that the same were settled during the year.

On perusal of overall facts, I find that out of the total expenses, only the expenses relating to the salary to staff amounting to Rs. 8,496/- is settled during the year. Therefore, the disallowance of Rs. 8,496/- is deleted.

8 ITA No. 756/JP/2019 Soni Hospitals Pvt. Ltd., Jaipur Vs. ACIT, Jaipur

The balance disallowance is confirmed. This ground of appeal is partly allowed.”

“4.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. The Assessing Officer made lumpsum disallowance out of Rs. 4,50,000/- of various expenses claimed by assessee viz travelling, conveyance and business promotion, totaling to Rs.44,79,017/- which is roughly 10% of the expenses claimed. This disallowance was made due to not being fully supported by bills/evidences. Though the disallowance made is in order due to the reasons given but since the disallowance seems to be bit excessive, I restrict it to Rs.2,50,000/-. Assessee gets part relief. This ground of appeal is partly allowed.”

9 ITA No. 756/JP/2019 Soni Hospitals Pvt. Ltd., Jaipur Vs. ACIT, Jaipur “3. We have heard the ld. AR as well as ld. DR and considered the relevant material on record. At the outset, we note that this issue is covered in favour of the assessee by the various decisions of the Hon’ble jurisdictional High Court including the decision in case of CIT vs. State Bank of Bikaner & Jaipur 99 DTR 131 as well as decision in case of CIT vs. Jaipur Vidyut Vitran Nigam Ltd. 363 ITR 307 and in case of CIT vs. Udaipur Dugdh Utpadak Sahakari Sangh Ltd. 366 ITR 163. We further note that the ld. CIT(A) though has not disputed the various decisions of Hon’ble High Court however, disallowance made by the AO are sustained as he misunderstood the decision of Hon’ble Jurisdictional High Court in case of PCIT vs. M/s Rajasthan Renewable Energy Corporation Limited in DB ITA No. 10,11 & 12/2018 dated 13.03.2018. In the case of PCIT vs. M/s Rajasthan Renewable Energy Corporation Limited (supra) the Hon’ble High Court has considered this issue in para 4 to 6 as under:- “4. So far as question No. 1 is concerned, the same is now covered by the decisions of this Court in Principal Commissioner of Income-Tax V/s Rajasthan state seed Corporation Ltd. [2016] 386 ITR 267 (Raj) wherein it has been held as under:-

“In so far as the expenditure incurred on State Renewal Fund is concerned, the said expenditure also goes to show that the renewal fund was set up by the State Government and was created with the object of providing a safety net for the workers likely to be effected by restricting in the State Public Enterprise and that a finding of fact has been recorded that the contribution made to the State Renewal fund is solely for

10 ITA No. 756/JP/2019 Soni Hospitals Pvt. Ltd., Jaipur Vs. ACIT, Jaipur the purposes of the welfare and benefit of the employees. In our view, it is for the assessee to decide whether any expenditure should be incurred in the course of business and expenditure of this nature being for business expediency is certainly allowable deduction under section 37(1) of the Act. In our view any normal expenditure for the welfare and benefit of the employees is allowable expenditure under section 37(1), the Tribunal has come to a finding of fact that it was a legal obligation of the respondent-assessee towards contribution of the said amount to the State Renewal Fund and there being a legal obligation as well in our view the Tribunal has come to a correct conclusion.”

In view of the above, question No. 1 is answered in favour of the assessee and against the department. 6. With regard to issue No. 2 and 3 the controversy is pending before the Supreme Court in C.I.T., Jaipur Vs/ Ms State Bank of Bikaner and Jaipur in SLP© No. 16249/2014, therefore, subject to decision of SLP, for the present, these issues are decided on in favour of the department and against the assessee. It will be open for the department to recover the amount if the decision is in their favour.”

Thus, it is clear that the Hon’ble jurisdictional High Court has followed the earlier decisions in case of PCIT vs. Rajasthan State Seed Corporation Limited 386 ITR 267 as well as decision in case of CIT vs. State Bank of Bikaner & Jaipur (supra). All these decisions which were allowed by the Hon’ble jurisdictional High Court are in favour of the assessee however, in the conclusion in para 6 there is

11 ITA No. 756/JP/2019 Soni Hospitals Pvt. Ltd., Jaipur Vs. ACIT, Jaipur a typographical mistake wherein it is stated “these issues decided in favour of the Department and against the assessee”. The whole decision of the Hon’ble High Court has to be considered in the context of the decision followed and the subsequent line which says “it will be opened for the Department to recover the amount if the decision in their favour” which means that in case of further appeal before Hon’ble Supreme Court if decision is delivered in favour of the department it can recover the amount. Therefore, even the decision which is relied upon the ld. CIT(A) the same is in favour of the assessee though due to typographical mistake it was misunderstood by the ld. CIT(A) as in favour of the Revenue. Accordingly, in view of a series of decisions of the Hon’ble Jurisdictional High Court in favour of the assessee and further Hon’ble Supreme Court in case of PCIT vs. Rajasthan State Beverages Corporation Ltd. 250 taxmann 16 has dismissed the SLP filed by the Department this issue is decided in favour of the assessee and against the Revenue. Hence, disallowances/additions made by the AO on account of employees contribution to PF & ESI are deleted.” We accordingly set-aside the order of the ld CIT(A) and the disallowance made by the AO towards employees contribution to ESI and PF is hereby deleted. In the result, the ground no. 1 of the assessee’s appeal is allowed.

12 ITA No. 756/JP/2019 Soni Hospitals Pvt. Ltd., Jaipur Vs. ACIT, Jaipur corresponding expenses are accounted for in the respective years. At the same time, there are business exigencies where at times, there are disputes regarding the availment/rendering of services or the quantification of amount payable and the same are settled in subsequent financial year. To take care of such exigencies, what is relevant to determine is the crystallization of liability or in other words, when the amount has actually become due and payable. Secondly, from the Revenue’s perspective, what is equally relevant is that there no changes in the maximum marginal rates of taxation and there is no loss of revenue where the expenses are booked in subsequent financial year. In the instant case, the ld CIT(A) has accepted the fact that the salary pertaining to earlier years and payable to certain staff members have been settled during the year and hence, the same has been allowed. In respect of other expenses as well, we find that there are advertisement, printing and stationery expense which pertain to earlier years and which have again been finally settled during the year. Similarly, there are legal and professional expense which have been settled during the year and liability towards service tax which has been paid during the year. We therefore find that these expenses are duly allowable in the hands of the assessee as settled during the year and in any case, there are no changes in the tax rates and thus, no prejudice is caused to the Revenue and as held by the Courts, such an exercise of disallowing otherwise allowable expenses treating as mere prior period expenses will only result in an academic discussion without any tangible results. Similar view has been taken by the Coordinate Bench in case of DCIT vs Rajasthan Renewable Energy Corporation Ltd (supra) where it was held as under:

“5. We have heard the rival contentions and perused the material available on record. The incurrence of expenditure for the purposes

13 ITA No. 756/JP/2019 Soni Hospitals Pvt. Ltd., Jaipur Vs. ACIT, Jaipur of business is not been disputed by the Revenue. Further, the ld AR has explained that the expenditure has been booked after seeking the approval from the competent authority during the year and the same is consistent with the accounting practice of booking the expenses in earlier years. We accordingly donot see any basis for disallowance of the expenditure so claimed by the assessee. In view of the same, the AO is directed to allow the same and the ground no. 3 of assessee’s appeal is allowed.

In light of aforesaid discussion, the disallowance of Rs 150,279 is hereby directed to be deleted and ground no. 2 of assessee’s appeal is allowed.

14 ITA No. 756/JP/2019 Soni Hospitals Pvt. Ltd., Jaipur Vs. ACIT, Jaipur the Coordinate Bench in case of Meghalaya Construction and Supply Company vs ACIT (supra) where it was held as under:

“5. We have heard the rival contentions and perused the material available on record. The Assessing Officer has recorded a finding that on examination of bills and vouchers of expenses, it was noticed that the assessee did not maintain proper and complete vouchers of these expenses and some of the payments were made in cash. Further, it was noticed by the Assessing officer that some of the vouchers of these expenses are self made and without supporting bills and not verifiable fully, therefore, he has made a lumpsum disallowance of Rs. 2,00,000/-. In our view, in the absence of any specific findings that the claim of the expenditure are either bogus or not been incurred wholly and exclusively for the purposes of business, there is no basis for making any adhoc disallowance of expenses and the same cannot be sustained in the eyes of law. We find that similar issue has been examined by the Coordinate Bench in case of M/s Kumar & Brothers vs. ITO (supra) wherein the Coordinate Bench has held as under:-

“5. I have considered the rival submissions as well as relevant material on record. The A.O. has given reasons for making ad hoc disallowance of Rs. 1.50 lacs that too as a lump sum trading addition as the freight expenses were not fully supported by proper bills and vouchers. Though the term used by the A.O. in the assessment order being the trading addition is not justified when there is no rejection of books of account U/s 145(3) of the Act. However, in substance, the A.O. has made this addition on account of claim of expenses

15 ITA No. 756/JP/2019 Soni Hospitals Pvt. Ltd., Jaipur Vs. ACIT, Jaipur

not verifiable. The A.O. has not given the finding that the claim of expenditure is either excessive or bogus having regard to the facts of turnover during the year under consideration and nature of business of the assessee. There is no dispute that in the business of the assessee, the freight expenses are inevitable and therefore, if the claim is not found to be excessive or bogus then merely because of the some of the expenses are not supported by proper vouchers, no ad hoc disallowance is called for. The ld. CIT(A) has confirmed the disallowance in para 5.4 and 5.5 of the impugned order as under:

“5.4 I have considered the above mentioned facts of the case. Any expenditure of the nature mentioned above is claimed under section 37 of the Act. In order to get the deduction under section 37 of the Act, primary onus lies on the assessee to prove that such expenditure are incurred wholly and exclusively for the purpose of business or profession.

5.5 In the instant case, the assessee has failed to provide supporting documents to prove that such expenditures are incurred wholly and exclusively for the purpose of business or profession. Therefore, in my considered view a disallowance of Rs. 1,50,000/- out of the expenses claimed on the above mentioned expenditure is reasonable to cover the discrepancies mentioned by the A.O. in the assessment order. Accordingly, the ground of appeal on this issue is dismissed.”

16 ITA No. 756/JP/2019 Soni Hospitals Pvt. Ltd., Jaipur Vs. ACIT, Jaipur If certain claim of expenditure is not found to be incurred wholly and exclusively for the business purpose of the assessee then the same is liable to be disallowed. However, if the expenditure incurred by the assessee is found for the business purpose of the assessee then due to certain irregularity in maintaining the supporting evidence an ad hoc disallowance is not called for. Accordingly, without specifying the instance of the expenditure, which is either excessive or found not incurred for the business of the assessee, the action of the A.O. in making ad hoc disallowance and confirmed by the ld. CIT(A) is not justified. Hence, ad hoc disallowance of Rs. 1.50 lacs is deleted.”

In light of above discussions, the adhoc disallowance of expenses so made by the Assessing Officer is hereby directed to be deleted.”

In light of aforesaid discussion, the disallowance of Rs 250,000/- is hereby directed to be deleted and ground no. 3 of assessee’s appeal is allowed.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open Court on 08/04/2021.

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17 ITA No. 756/JP/2019 Soni Hospitals Pvt. Ltd., Jaipur Vs. ACIT, Jaipur आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Soni Hospitals Pvt. Ltd., Jaipur 2. izR;FkhZ@ The Respondent- ACIT, Circle-05, Jaipur 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File {ITA No. 756/JP/2019}

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