CIMS HOSPITAL PVT. LTD.,,AHMEDABAD vs. THE DY. CIT, CENTRAL CIRCLE-1(1)(2),, AHMEDABAD

These two cross appeals (filed by the assessee and the revenue) are directed against the order dated 23.09.2016 passed by the Commissioner of Income Tax (Appeals)-1, Ahmedabad under section 143(3) of the Income Tax Act, 1961 (hereinafter referred as to “the Act”) arising out of the order dated 04.03.2015 passed by the DCIT, Circle-1(1)(2), Ahmedabad for the Assessment Year 2012-13. & 3299/Ahd/2016 CIMS Hospital Pvt. Ltd. Asst.Year –2012-13 - 2 - Since both the appeals relate to the same assessee, hence the same are heard analogously and are being disposed of by a common order.

2. A.Y. 2012-13 : Assessee has filed following grounds of appeal: (1) “The Learned Commissioner (Appeal) failed to understand the facts and circumstances of the ease and the provisions of law. (2) The Learned Commissioner (Appeal) erred in fact and in law in confirming disallowance of Rs.2,65.40,195/- u/s 40A(2)(b) of the Income 'fax Act. 1961 considering it as diversion of income by the appellant to CCCPL and from CCCPL to ('('('PL's directors. (3) The Learned Commissioner (Appeal) erred in fact and in law in confirming the disallowance of Rs.35,825/- being 0.5% of average investments as administrative expenditure u/s 14A of Income Tax Act by applying rule 8D though assessee has not incurred such expenditure. (4) The Learned Commissioner (Appeal) erred in fact and in law in confirming the disallowance of Rs.134863/- being late payment of employee’s contribution to PF/ESIC u/s 2(24)(x) of Income Tax Act though there is no substantial delay. (5) The Learned Commissioner (Appeal) erred in fact and in law in not adjudicating the additional ground of appeal raised vide letter dated 26/10/2015: "The Learned Assessing Officer erred in fact and in law in adding back Rs.35,825/- as disallowance u/s 14A of the Income Tax Act, 1961 while calculating Book Profit for the purpose of MAT u/s 115JB of Income Tax Act, 1961 even though Scope section 14A is limited it to the Chapter VI i.e. Section 15 to 59 of the Income Tax Act, 1961.” (6) Your Appellant preys for appropriate relief on above grounds of appeal. (7) Your appellant craves leave to add. alter, amend, substitute or withdraw any of the grounds of appeal stated hereinabove.”

3. Ground No.1, 6 & 7 These grounds of appeal are general in nature, hence, no order need to be passed. & 3299/Ahd/2016 CIMS Hospital Pvt. Ltd. Asst.Year –2012-13 - 3 -

4. Ground No.2 The assessee has challenged the order passed by the Learned CIT(A) in confirming disallowance u/s 40A(2)(b) of the Act of Rs.2,65,40,195/- considering it as diversion of income to CCCPL and from CCCPL to CCCPL’s director.

5. During the course of assessment proceeding, it was found that the assessee has claimed payment of Rs.2,65,10,492/- to CCCPL as research fees in support of which the assessee provided a copy of Memorandum of Understanding (MOU) entered into by and between the two corporate companies i.e. the assessee and the CCCPL. It further appears from the said MOU that CCCPL would render and conduct all their Health care and Clinical research services and engagements at CIMS. Upon verification of balance sheet and Profit and Loss account of CCCPL for A.Y. 2012-13 it was found that CCCPL has no asset for research work, neither has debited any research expenditure. The assessee, however, sought to justify such payment as reasonable only on the basis of the MOU. When the assessee was directed to clarify as to how the research work for which payment has been claimed to have been made by the assessee and that too for its business activity, following explanation was rendered by and under a letter dated 21.02.2015 by the assessee: "It is to be noted that assessee has paid Rs.26510492/- to Clinical Care Consultant Pvt. Ltd. for service received from CCCPL regarding research expense. Research expense is paid as per service mentioned in MOU rendered by Clinical Care Consultant Pvt. Ltd. Copy of MOU is enclosed as per Annexure-2. The above payment is included in the payment of professional fees Rs. 175097905/- reported in audit report u/s. 44B. The breakup of professional fees is as under:

Professional fees to Consultant (CCCPL)

Clinical Care Doctor's Payment 148587413 & 3299/Ahd/2016 CIMS Hospital Pvt. Ltd. Asst.Year –2012-13 - 4 - Clinical Care Doctor's Research 26510492 Payment, 175097905 The summarization rendered by the assessee was not found acceptable and therefore entire expenditure to the tune of Rs. 2,65,40,195/- was disallowed by the Learned AO which was in turn confirmed by the Learned CIT(A). Hence, the instant appeal before us.

6. At the time of hearing of the instant appeal, the Learned Senior Counsel appearing for the assessee reiterated the submissions of the assessee before us. In terms of the service mentioned in the MOU entered into by the two Corporate Companies the payment for research expenses has been paid by the assessee. On this aspect he further relied upon the judgments passed by the Jurisdictional High Court in the matter of Hemato Oncology Clinic (Ahmedabad) (P.) Ltd. reported in 93 taxmann.com 272 (Ahd). On the other hand, Learned DR submitted before us that the MOU does not have any legal sanctity since the same has been documented on a plain paper not even notarized. He further relied upon the order passed by the authorities below.

4(a) CCCPL will fie providing Clinical research, services-,to CIMS and would be performing technical testing or analysis of newly developed drugs, devices, including vaccines as would be required on the walk-in patients of CIMS as well as on the patients who are referred to CIMS by professional Working under CCCPL or by any other physician haying no association to CCCPL or CIMS

The following would be the duties of CIMs under the agreement; a) CIMS would provide various facilities without restriction of use to CCCPL and its affiliated persons; a. Operation Theatre Complex/Cathlab rooms b. Patient Rooms c. Intensive Care Units d. Critical Care Units e. Outpatient consulting room f. The pathology department g. The radiology department h. The Ambulance and Transport Services i. The Pharmacy j. Various other services that are installed in the premise of CIMS.”

Before the Learned CIT(A) the assessee submitted as follows: “4.2. The submission of the appellant before the CIT(A) is as under: 1. Vide 3(b) on page no 8 to 10 of the assessment order, the learned assessing officer has disallowed the Research payment of Rs. 2,65,10,492/- made to Clinical Care Consultants Pvt. Ltd in pursuant to the Memorandum of Understanding dated 02/08/2010. During the year under consideration the assessee has earned research income of Rs.4,17,26,830/- from the various pharmaceutical companies on various research projects given by them. The clinical trials are given to the qualified doctors. The assessee being a hospital possesses necessary infrastructure facilities for carry out the research activities. CCCPL have manpower in the form of professional doctors having a research projects in their names. The gross receipts from research projects are received by the assessee. The assessee has entered into MOU with the CCCPL for providing professional doctors for research work. In consideration the assessee has given 65% of the fees income for research work to CCCPL after deducting tax at source.

2. The findings of the learned assessing officer for disallowing research fees paid to CCCPL are as under: (i) From the MOU, it can be seen that the CCCPL will render and conduct all their health care and clinical research services and engagement at CIMS. (ii) On verification of the balance sheet and profit & loss account of CCCPL for assessment year 2012-13, it is seen that CCCPL neither has any assets/facilities for research work nor has debited any research expenditure. (iii) The MOU is prepared only on plain paper which can not be considered as having any legal binding on both the parties. (iv) The MOU does not clarify the type of research work it would undertake. & 3299/Ahd/2016 CIMS Hospital Pvt. Ltd. Asst.Year –2012-13 - 7 - (v) From the duties assigned to CCCPL it can be seen that there is no research work involved therein. (vi) How the CCCPL can analyze and develop new drugs without holding a valid license? (vii) The assessee failed to provide any documentary proof to prove that CCCPL is competent to carry out research work as provided in MOU. (ix) The assessee failed to provide that the CCCPL has any manpower to carry out any such research work. (i) The details of infrastructure provided by the assessee to CCCPL under so-called agreement do not include any machinery or equipment through which it can carry out any research work. (ii) It is crystal clear that so-called agreement entered into is only device to divert the income of one entity to another.

5. The learned assessing officer has taxed the entire research income, though the assessee has provided only infrastructure for research work. The assessee being an in-natural person, not able to carry out the research work without the professional doctors. For research work, the assessee is supposed to pay for professional services. As stated above the doctors have provided the professional services under the banner of CCCPL. ..Therefore, the payment of research work to CCCPL is justified. In immediate preceding year similar payment has been made by the assessee to CCCPL has been accepted by the department and no addition has been made in this regard in the assessment order passed u/s 143(3) of the Income Tax Act, 1961 .

7. In the case of the assessee, due to carried forward losses, tax is paid on book profit u/s 115JB of the Income Tax Act, 1961 whereas the CCCPL and the doctors are liable to tax at maximum marginal tax. Therefore, so called diversion of income has not for any evasion of tax liability by the assessee. The payment has been made for services received by the assessee.

8. The Learned CIT(A) in appeal rejected the case of the assessee with the following observations: “4.3. I have gone through the facts and the submission of the appellant carefully. In the assessment order A.O. has observed that the appellant has paid Rs, 2,65,40,195/- to CCCPL (Clinical Care Consultants Pvt. Ltd) as research fees. Further, it is seen that CCCPL will render and conduct all their health care and clinical research services and engagements at CIMS, but after verification of balance sheet & P &L A/c. of CCCPL it is found that neither has any assets/facilities for research work nor has debited an research expenditure. Thereafter, MOD furnished by the appellant on plain paper, which cannot be considered and which does not clarify the type of research work. Further, It pertinent to note that appellant has entered into other MOU with CCCPL on the san date to carry out certain other health care services. Further, the appellant has failed provide any documentary proof and any manpower in respect of that CCCPL .competent to carry out any research work as provided in the MOU. Apart from above, after verified the balance sheet of CCCPL, it is found that CCCPL has not shown any assets research equipment. In view of the above, the appellant claim for expenditure of Rs. 2,65,40,195/- in respect of research expense is disallowed and added to the total income.

On the other hand appellant has argued that the appellant being a hospital possesses necessary infrastructure facilities to carry out the research activities and CCCPL have manpower in the form of professional doctors having a research projects in their names. Further, the appellant has contended that assesses has entered into MOU with & 3299/Ahd/2016 CIMS Hospital Pvt. Ltd. Asst.Year –2012-13 - 10 - the CCCPL for providing professional doctors for research work. The appellant has given 65% of the fees income for research work to CCCPL after deducting tax at source. Further, appellant has submitted that appellant has necessary infrastructure facilities to carry out research work and doctors have formed a company namely CCCPL for the purpose of carrying on medical profession in group. Therefore, the research work received by the individual doctors have been carried out by them at the hospital of the assesses and directed to make payment for the professional services rendered by doctors to CCCPL. In view of above CCCPL does not require any machinery or equipment for research work. Further, the appellant has contended that CCCPL having the team of professional doctors to carry out research work and the said professional doctors have carried out the research work in the hospital of the assesses and for that the payment has been made to CCCPL. Apart from the above, from the P & L A/c. of the CCCPL it is seen that against the payment received from the appellant in respect of research work, the CCCPL has made payment of professional fees to doctors. For the research work the CCCPL has not employed permanent employees. But it has hired the professional doctors to carry out research work at CIMS Hospital Pvt. Limited. The appellant has relied on the decision of Hon'ble Gujarat High Court in case of Commissioner of Income Tax vs. Gujarat Gas Financial Services Limited.

4.4. After going through the facts of the case, it is seen that CIMS has claimed to have paid Rs. 2,65,40,195/- to CCCIPL as research fees. A careful perusal of the so-called MOU, it can be seen that the CCCPL will render and conduct all their health care and clinical research services and engagements at CIMS. However, on verification of Sheet & P&L A/c of CCCPL for the A. Y-2012-13, it is seen that CCCPL neither has any assets/facilities for research work nor has debited any research expenditure. Whereas the appellant has vehemently put up that appellant has submitted that appellant has necessary infrastructure facilities to carry out research work and doctors have formed a company namely CCCPL for the purpose of carrying on medical profession in group. Therefore, the research work received by the individual doctors have been carried out by them at the hospital of the assessee and directed to make payment for the professional services rendered by doctors to CCCPL In view of above CCCPL does not require any machinery or equipment for research work. For the research work the CCCPL has not employed permanent employees. But it has hired the professional doctors to carry out research work at & 3299/Ahd/2016 CIMS Hospital Pvt. Ltd. Asst.Year –2012-13 - 11 - CIMS Hospital Pvt. Limited. I am not convinced with the arguments of the appellant for the reason and find merit in the findings of the A.O. The findings are as under:- i) From the MOU, it can be seen that the CCCPL will render and conduct all their health care and clinical research services and engagement at CIMS. On verification of the balance sheet and profit & loss account of CCCPL for assessment year 2012-13, it is seen that CCCPL neither has any assets/facilities for research work nor has debited any research expenditure. This type of situation is very unique and does not leave any confusion as what is the intention of the appellant company.

(ii) The MOU is prepared only on plain paper which cannot be considered as having any legal binding on both the parties. This is technical aspect and even at the time of appellate proceedings, the appellant did not have any answer.

(iii) The MOU does not clarify the type of research work it would undertake. This is quite vague and leaves much confusion as to what research to be undertaken.

(iv) From the duties assigned to CCCPL it can be seen that there is no research work involved therein. Nothing except the routine readings have been submitted by the appellant. For this work large scale of payment is not required.

(v) How the CCCPL can analyze and develop new drugs without holding a valid license? The CCCPL does not have license to produce the new drugs.

(vi) The assessee failed to provide any documentary proof to prove that CCCPL is competent to carry out research work as provided in MOU.

(vii) The assessee failed to provide that the CCCPL has any manpower to carry out any such research work. It is to be noted that the appellant has submitted that the Doctors from CIMS only have conducted the so-called research work.

(ix) The details of infrastructure provided by the assessee to CCCPL under so-called agreement do not include any machinery or equipment & 3299/Ahd/2016 CIMS Hospital Pvt. Ltd. Asst.Year –2012-13 - 12 - through which it can carry out any research work. This is basic requirement which the company does not have to carry out the research work.

The above findings clearly point to the fact that the appellant has used this as a device to reduce the tax incidence of the appellant company by entering into MOU with CCCPL. The case law cited by the appellant company is on different note and the facts of the appellant case are entirely different from the case of Gujarat Gas Financial Services Limited. However, the CCCPL neither has incurred any expenses related to research work nor has any assets to justify services rendered as research work. As such, the expenses debited by the assessee as a research expenditure paid to CCCPL appears to be only paper entry/bogus without being any actual service rendered by the CCCPL. In view of the above, the appellant claim for expenditure of Rs.2,65,10,195/- in respect of research expense disallowed and added to the total income by the A.O. is confirmed. The ground! of the appellant is dismissed.”

9. It appears from the finding of the Learned CIT(A) that the authorities below has not been provided with any documentary proof that CCCPL is having any manpower to carry out any research work as mentioned in the Memorandum of Understanding. The MOU further does not specify the type of research work it would undertake. Documentary proof that CCCPL is competent to carry out research work as specified by MOU has been failed to be submitted by the assessee. It was further found that no asset has been shown by the CCCPL in their balance sheet for research equipment though the MOU particularly envisaged that CCCPL would render and conduct all their health care and clinical research services and engagement at CIMS. Thus in the absence of necessary infrastructure facilities to carry out research work, the authority below has declined to accept such expenditure towards clinical research work rendered by CCCPL and, therefore, the Learned CIT(A) observed that the appellant has used this mode to reduce tax incidence in the appellant company by entering into MOU of CCCPL unequivocally.

& 3299/Ahd/2016 CIMS Hospital Pvt. Ltd. Asst.Year –2012-13 - 13 - We have also carefully considered the judgment passed by the Jurisdictional High Court in the matter of Hemato Oncology Clinic (Ahmedabad) (P.) Ltd. but we are afraid, we cannot accept the submissions made by the Learned Senior Counsel appearing for the assessee. We find that the fact of the instant case is entirely different from the fact available in the judgment passed by the Jurisdictional High Court. Thus this has no manner of application to the case in hand before us.

Taking into consideration the entire aspect of the matter, we find that in the absence of any expenses shown by CCCPL incurred for research work or any assets to justify services rendered as research work, the order passed by the Learned CIT(A) is just and proper and without any ambiguity in disallowing the impugned expenditure of Rs.2,65,40,195/- debited by the assessee as research expenditure, paid to CCCPL, treating the same as paper entry and/or bogus. Hence, assessee’s this ground of appeal is dismissed.

10. Ground No.3: The assessee has challenged the confirmation of disallowance made u/s 14A of the Act of Rs.35,825/-.

15. Ground No.5 The assessee has challenged the adjudication of the disallowance under section 14A while computing book profit u/s 115JB of the Act by the Revenue. & 3299/Ahd/2016 CIMS Hospital Pvt. Ltd. Asst.Year –2012-13 - 15 - 16. This additional ground has been agitated by the assessee though before the first appellate authority the same has not been adjudicated and hence the same has been raised before us.

17. The disallowance of section 14A while computing book profit u/s 115JB has been challenged by the assessee. In this regard, the assessee also relied upon the judgment passed by the Special Bench of Delhi ITAT.

However, we note that in the recent judgment passed by the Special Bench of Hon'ble Delhi Tribunal in the case of ACIT vs. Vireet Investment Pvt. Ltd. reported in 82 Taxmann.com 415 has held that the disallowances made u/s 14A r.w.r. 8D cannot be the subject matter of disallowances while determining the net profit u/s 115JB of the Act, The relevant portion of the said order is reproduced hereinbelow: "In view of above discussion, the computation under clause (f) of Explanation 1 to section 115JB(2), is to be made "without resorting to the computation as contemplated under section 14A, read with rule 8D of the Income-tax Rules, 1962. " & 3299/Ahd/2016 CIMS Hospital Pvt. Ltd. Asst.Year –2012-13 - 16 - The ratio laid down by the Hon'ble Tribunal is squarely applicable to the facts of the case in hand. Thus it can be concluded that the disallowance made under section 14A r.w.r. 8D cannot be resorted while determining the expenses as mentioned under clause (f) to explanation 1 to section 115JB of the Act. Hence we delete such addition.

The Learned AO was of the opinion that though the CCCPL will render and conduct healthcare, professional, clinical research and clinical services for which the assessee will pay necessary fees as agreed upon. But the MOU relied upon by the assessee is silent on such remunerations payable by CIMS for such services rendered by the professional of CCCPL. Therefore, according to the Learned AO, the memorandum has been prepared as a tool to divert the income from one entity to another to reduce tax incidence. Though this is a joint venture of two corporate entities the aspect of income sharing is lacking in the MOUs. He also made an observation that both the memorandum of understanding were signed by Dr. Milan Chag for and on behalf of CIMS and & 3299/Ahd/2016 CIMS Hospital Pvt. Ltd. Asst.Year –2012-13 - 19 - Dr. Anish Chandarana for and on behalf of CCCPL who are the common directors of both the companies. Further that, the MOU made on a plain paper instead of stamp paper; neither the same was notarized. The Learned AO, therefore, questioned the huge payment of Rs.17.50 crore to CCCPL. It was further observed that though the assessee has debited an amount of Rs.2,65,10,495/- on research expenditure which were again paid to CCCPL, the said CCCPL neither has incurred any expenses related to research work nor has any asset to justify services rendered as research work. Thus such expenditure is nothing but a paper entry without being any actual service rendered by the CCCPL. The said professional fees paid by the assessee to CCCPL was finally ploughed to the doctors who are the common directors to the both the companies who in turn again after claiming various expenses finally offered income for taxation at a lower amount.

It appears from the records that the assessee has shown professional fees payment of Rs.17,50,97,905/- to CCCPL who in turn has shown such fees of Rs.13,52,54,296/- to the common directors, who ultimately after claiming various expenses declared income of Rs.9,25,19,477/- on which tax was paid. The assessee has shown expenses of Rs. 17,50,97,905/- as processional fees paid to CCCPL who in turn shown income of only 17,49,039/- i.e. 10% of receipt claiming 90% as expenditure. He, therefore, came to an observation that there is a leakage of Rs.3,75,36,923/- as avoidance of tax. Upon analyzing the entire record the Learned AO made the following observations:

(iii) The payment of Professional fees to the CCCPL is diversion of income. (iv) In sub 1 on page no. 3 of the Assessment Order it is noted that some payments are being made to doctors directly by the assessee though the bills may have been raised by the doctors in favour of CCCPL. & 3299/Ahd/2016 CIMS Hospital Pvt. Ltd. Asst.Year –2012-13 - 20 - (v) The directors of both the companies i.e. CIMS & CCCPL are the same. (vi) The CCCPL is registered and running its activities from the same address as that of CIMS. That means CCCPL has no site office or working place, it is carrying on its activities in the same premises where the CIMS has already its clinic. (vii) The MOU dated. 02/08/2010 between assessee and the CCCPL is silent on remuneration payable by CIMS for the services rendered by the professionals of CCCPL which clearly shows that the MOU is prepared as a tool to divert the income from one entity to another to reduce the tax incidence. (viii) In the MOU the income sharing condition is lacking. (ix) The MOU has been signed by Dr. Milan Chag for and on behalf of CIMS and Dr. Anish Chandarana for and behalf of CCCPL who are common directors of CIMS & CCCPL (x) The MOU is made in a plain paper and not even on a stamp paper or even not notarized.

On the other hand, Learned DR vehemently argued before us that the entire modus operandi including the preparation of memorandum of understanding is nothing but a tool to divert the income from one entity to another to reduce the tax incidence. It was also pointed out by the Learned DR that the memorandum of agreement which is the basis of payment of professional fees and research fees to the doctors of CCCPL is not even a notarized documents neither it is prepared on the stamp paper. Further that, the CCCPL has mainly debited expenditure towards professional fees paid to doctors who are common doctors of both the companies as also submitted by & 3299/Ahd/2016 CIMS Hospital Pvt. Ltd. Asst.Year –2012-13 - 22 - the departmental representative before us. He, therefore, relied upon the order passed by the Learned AO.

(ii) The assessee has not made any payment directly to the doctors. The assessee company has deducted the discounts given to patients on the instruction of the doctors from the professional fees payable to the CCCPL. The assessee has made such deductions from the professional fees payable to doctors through CCCPL as the discount to patients not borne by the assessee but it is to be deducted from the concerned doctor's payments. It may be noted that such deduction does not mean & 3299/Ahd/2016 CIMS Hospital Pvt. Ltd. Asst.Year –2012-13 - 23 - that the assessee has made direct payment to doctors as understood by the learned assessing officer.

(iii) It is submitted that the CCCPL is the company formed by the group of doctors for the purpose of doing the medical profession as a group. The CCCPL have group of doctors and the assessee have hired the services of the group of doctors from the CCCPL for its Hospital. The doctors have to render the medical services to the patients coming to the Hospital of the assessee. The said doctors are not giving their services to any other hospital. Therefore, they do not require any other place for rendering services.

"The Payment to which CCCPL will be entitled to will be based on the rate that will be mutually decided by both the parties. The rate would be determined based on the collections made by CIMS from patients, type of procedure performed and nature of treatment that is availed by the patients at CIMS.

The payment shall be made after considering the data maintained by CIMS as mentioned in point e) of graph 2 above. The rates as would be decided mutually are subject to revision on a timely basis as would be agreed by both the parties."

On the basis of the same MOU payments had been made in immediate preceding year which has been accepted by then assessing officer while passing assessment order u/s 143(3) of the Income Tax Act, 1961. Therefore, it is not correct that the MOU is prepared as a tool to divert the income from one entity to another to reduce the tax incidence. & 3299/Ahd/2016 CIMS Hospital Pvt. Ltd. Asst.Year –2012-13 - 24 -

6. The disallowance has been made u/s 40A(2)(b) of the Income Tax Act, 1961. As per provisions of said section the assessing officer should have opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the services for which payment is made or the legitimate needs of the business of the assessee or the benefits derived by or accruing to the assessee. Therefore, for determining the excessive or unreasonable expenditure, the learned assessing officer has to consider the following:

(a) Fair market value of the professional services received by the assessee, (b) legitimate needs of the business of the assessee (c) benefits derived by or accruing to the assessee

7. From the assessment order it appears that there are no such findings arrived at by the learned assessing officer. On page no 5 of the assessment order the learned assessing officer has merely listed the payment made by CCPL to the common directors of CIMS & CCCPL and other professionals. It is submitted that the learned assessing officer has compared only the payments made. He has not compared the other factors which affect the quantum of professional fees paid i.e. the qualification of the doctors, nature of services rendered, time given to attend the hospital, numbers of "patients examined or treated, nature of treatment given to patients, revenue received from patients etc. Further, it may be noted that the doctor's service being of a personal nature it differs from person to person. There are no findings that the payment made is excessive considering the legitimate business needs of the assessee and the benefits derived or accruing to the assessee. The assessee submits that the assessee has set up a hospital having more than 100 beds for patients. In the hospital the assessee is providing healthcare services. Only hospital infrastructure is not able to provide the healthcare service to patients. For providing healthcare service by using hospital infrastructure, services of doctors are must. Therefore, the payment to CCCPL for doctor's service is for legitimate need of business of the assessee. By entering into MOU with CCCPL the assessee has got assured medical services without any interruption & hurdle and is able to provide healthcare service to patients. The following chart shows the expenditure incurred on professional fees and the revenue earned there from. & 3299/Ahd/2016 CIMS Hospital Pvt. Ltd. Asst.Year –2012-13 - 25 - Professional fees to CCCPL Expenditure Income % Rs.(A) Rs.(B) (A)/(B)*100 Clinical Care Doctor's 148587413 797960248 18.62 services to patients Clinical care Doctor's 26510492 41726830 63.53 Research Payment 175097905 839687078

“3.3. I have gone through the facts and the submission of the appellant carefully. In the assessment order A. O has observed that a sum of Rs.17,50,97,905/- was paid to Clinical Care Consultant Pvt. Ltd. (CCCPL), a concern covered u/s. 40A(2)(b) of the Act. The appellant has provided the copy of the MOU between CCCPL and the appellant. A careful perusal of the so-called MOUs entered into between CIMS and CCCPL, it is seen by the A.O. that both the documents are signed by Dr. Milan Chag for and on behalf & 3299/Ahd/2016 CIMS Hospital Pvt. Ltd. Asst.Year –2012-13 - 27 - of CIMS and Dr. Anish Chandarana for and on behalf of CCCPL who are common directors of CIMS and CCCPL Further, it is seen that the MOUs are made in a plain paper not even on a stamp paper or even notarized. A.O. has noticed that CIMS has debited Rs.17,50,97,905/- as professional fees paid to CCCPL mainly under two heads (1) Professional Fees of Rs. 14,17,87, 410/- and (2) Research Expenses of Rs. 2,65,1 0.495/-. CCCPL in its return of income filed for the F.Y-2012-13 has debited Rs.16,89,42,973/- as payments to professionals as professional fees which includes Rs.13,52,54,296/-. Further, verification of return of income filed by the individual directors, for the F.Y.- 2012-13 and from the details, it is found that the total income offered by said common directors in their respective return of income is only at Rs.9,25,19,447/- as against total payments shown by CIMS towards professional fees at Rs. 14,1 7,87,410/-. Thus, there is leakage of Rs. 3,75,36,923/- as avoidance of tax. It is also important to mention here that, on perusal of Form No. 3CD, clause 18, filed along with the return of income by the assesses, it is seen that very nominal sum has been paid to other Doctors namely (a) Dr. Sneha Sax/- Rs. 1,28,900/-, (b) Dr. Prawn Chandarana Rs. 13,53,970/- (c) Dr. Manisha Shah- Rs. 15,85,060/-. So even a plain reading can observe that, just to cover the huge payments to Doctors/Directors under professional fees, the assessee has made payments u/s. 40A(2)(b) to CCCPL 3.4. The appellant has submitted that the assessee company is engaged in the specified business i.e. building and operating a new hospital having 100 beds for patients. The hospital commenced in the previous year relevant to assessment year 2011-12. Accordingly, the assessee has filed its return of income declaring loss of Rs. 51,79,33,611/- in respect of specified business for assessment year 2011-12. Therefore, in view of carried forward losses in respect of specified business, the assessee is not liable to tax under the normal provisions of the tax and the assessee is not required to divert the income to evade payment of tax. On the contrary, the CCCPL and the doctors have paid income tax on the professional fees received from the assessee and the CCCPL It is submitted that the assessing officer has compared only the payments made. He has not compared the other factors which affect the quantum of professional fees paid i.e. the qualification of the doctors, nature of services rendered, time given to attend the hospital, numbers of patients examined or treated, nature of treatment given to patients, revenue received from patients etc.

The appellant has submitted that the assessment of the CCCPL has been made u/s 143(3) and the payment to doctors have been accepted as reasonable and no disallowance has been made by invoking provisions of section 40A(2)(b). The copy of assessment order of the CCCPL is enclosed & 3299/Ahd/2016 CIMS Hospital Pvt. Ltd. Asst.Year –2012-13 - 28 - herewith. (Refer Page no 88 to 90 of the paper book.) Further in case of most of doctors, the assessments are made under section 143(3) and the expenditure claimed by them has been accepted by the respective Assessing Officers. In other words the learned Assessing Officer has disallowed the payment of professional fees to the CCCPL to the extent of expenditure which have been accepted/allowed in case of the doctors by their respective Assessing Officer. It is also to be noted that in CCCPL and the assesses both corporate assesses and are paying tax @30% and there is no tax benefit to the assessee to transfer profit to CCCPL Further the assessee has huge carried forward loss u/s 35AD in respect of assessment year 2011-12. Therefore, it is in the interest of the assessee to declare higher income and get set off of the unabsorbed loss u/s 35AD. In other words, had the assessee not paid professional fees to CCCP then it could have set off of the carried forward losses and on the other hand CCPL/doctors could have saved taxes. The assessee relies on the recent decision on Honourable Gujarat High Court in case of CIT vs. Gujarat Gas Financial Services Ltd, reported at 233 Taxman 0532 (2015).

3.5. From the facts of the case, it is seen that the A.O. has made disallowance under Section 40A(2)(b)of the Act for Rs. 3,75,36,923/- in respect of professional fees, verification of return of income filed by the individual directors, for the F.Y.-2012-13 and details as complied above in the assessment order(supra), it is found that the total income offered by said common directors in their respective return of income is only at Rs. 9,25,19,447/- as against total payments shown by CIMS towards professional fees at Rs. 14,17,87,410/-. Thus, there is leakage of Rs. 3,75,36,923/- as avoidance of tax. The appellant has submitted that it has sufficient loss carried forward so there is not required to divert the income to evade payment of tax. It is also to be noted that in CCCPL and the assessee both corporate assessee and are paying tax @30% and there is no tax benefit to the assessee to transfer profit to CCCPL. This substantiates that both Appellant company as well as its Directors and employees were assessed to tax at the highest rate of 30% and hence, this entire issue is revenue neutral. Accordingly, even on the grounds of revenue neutrality, disallowing the income in hands of the Appellant Company when it was already taxed in the hands of directors and employees would tantamount to double taxation. The appellant has also submitted the reconciliation of professional fees paid to the Doctors. But the reconciliation is no complete and does show the correct figure as have been received by the Doctors from the CCCPL as under: & 3299/Ahd/2016 CIMS Hospital Pvt. Ltd. Asst.Year –2012-13 - 29 - From the reconciliation it is seen that the difference pointed out by the AO is due to the various deduction claimed by the Doctors in their respective Returns of Income. All of them have credited the salary of the month of March 2012 in April 2013 which is accounted in the AY 2013-14. The avoidance of tax by the Doctors is not noticed in this case and on this point. It is seen that Hon'ble Gujarat High Court in case of CIT vs. Gujarat Gas Financial Services Ltd, reported at 233 Taxman 0532 (2015) has held that Assessee Company as well as parent company, both is assessed to income tax at the maximum marginal rate and, therefore it cannot be said that the service charge was paid by the assessee company at unreasonable rate to evade income tax. Further, Appellant's case is also covered by judgment of jurisdictional Hon'ble Gujarat High Court in the case PWS Engineers Limited v/s DCIT (Tax Appeal No. 209 of 2015) wherein it was held on grounds of revenue neutrality if once the income is being charged in the hands of the directors in the highest tax bracket, taxing the same in the hands of the company would amount to double taxation. The Appellant has submitted acknowledgment of return of income for AY 2012-13 of the two directors and other Doctors. It is evident from the same that all the employees/directors have paid taxes in the highest tax bracket of 30 percent This substantiates that both Appellant company as well as its Directors and employees were assessed to tax at the highest rate of 30% and hence, this entire issue is revenue neutral. Accordingly, even on the grounds of revenue neutrality, disallowing the income in hands of the Appellant Company when it was already taxed in the hands of directors and employees would tantamount to double taxation. Hence, based on the facts of the case and the various judicial precedents cited by the Appellant, the AO is & 3299/Ahd/2016 CIMS Hospital Pvt. Ltd. Asst.Year –2012-13 - 30 - directed to delete Rs. 3,75,36,923/-. The A.O. is directed to give relief accordingly. The ground of the appeal is allowed.”

Thus the order is in affirmative i.e. in favour of the assessee and against the revenue. Thus Revenue’s appeal is, therefore, dismissed.