FORTIS HOSPITALS LIMITED,DELHI vs. PRINCIPAL COMMISSIONER OF INCOME TAX, DELHI-1, DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH, ‘E’: NEW DELHI BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT AND SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER

ITA No.3380/DEL/2025 [Assessment Year: 2021-22] Fortis Hospitals Ltd. The Principal Commissioner of C/o, Escorts Heart Institute and Income Tax, Delhi-1, C.R. Building, Research Centre, Okhla Road, Vs ITO, I.P. Estate, New Delhi-110002 New Delhi-110025 PAN-AABCF3718N Appellant Respondent/Assessee Assessee by Shri Rohit Jain, Adv. Shree Depesh Jain, Adv. and Shri Jitender Bhati, CA Revenue by Shri Pravin Rawal, CIT-DR Date of Hearing 18.02.2026 Date of Pronouncement 15.05.2026

ORDER PER AMITABH SHUKLA, AM,

This appeal by the assessee is directed against the order of Ld. Pr. Commissioner of Income Tax, Delhi-1, New Delhi [hereinafter referred to as ‘ld. PCIT] dated 30.03.2025.2025 arising out of assessment order dated 08.03.2023 passed under section 143(3) of the Income Tax Act, 1961, for the Assessment Year 2021-22. The word ‘Act’ herein this order would mean Income Tax Act, 1961.

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“1. That on the facts and circumstances of the case and in law, the order dated 30.03.2025. passed by the Principal Commissioner of Income Tax, Delhi - 1 [PCIT], under section 263 of the Income Tax Act, 1961 (the Act), is without jurisdiction, illegal, bad in law, void ab initio and liable to be quashed. 2. That the PCIT erred in invoking revisionary jurisdiction under section 263 of the Act qua assessment completed by National Faceless Assessment Centre (NFAC/assessing officer') under section 143(3) read with sections 144C(3) and 144B of the Act, which is a complete code in itself. 3. That on the facts and circumstances of the case, the impugned order having been passe v the PCIT in undue haste without: (a) considering the submissions tiled, and (b) first disposing off the legal objections by passing a separate speaking order, and (c) without providing reasonable opportunity of being heard, is illegal, bad in law and liable to be quashed set aside. 4. That the PCIT erred on facts and in law in exercising revisionary powers under section 263 of the Act on various issues in the impugned order, Without satisfying the twin jurisdictional conditions of the assessment order being: (a) erroneous; and (b) prejudicial to the interests of the Revenue and consequently, the impugned order is illegal, bad in law and liable to be quashed. 5. That the order passed by the PCIT setting aside the assessment order under section 263 and directing the assessing officer to make de-novo assessment qua certain issues [referred to in paras 5 to 15] and also other issues on which show-cause notice was issued (ground no. ... infra), after making fresh enquiries is, in the absence of any finding on merits demonstrating how and why the assessment order was erroneous, invalid and bad in law. 6. That the PCT failed to appreciate that revisionary proceedings under section 263 of the Act could not be initiated merely to: (a) conduct vague/ roving enquiries; or (b) authorize the assessing officer to again conduct roving/ fishing enquiries, by merely setting aside the assessment. Page 2 of 17

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10.1. Without prejudice, the PCIT erred in issuing vague/ open ended directions to the assessing officer to examine the aforesaid liabilities [refer ground No.10 supra]. 10.2. That the PCIT erred in not appreciating that the (i) addition was made in earlier year only on the ground that there was increase in trade payables whereas in the relevant year, trade payables has only decreased; and (ii) advances from customers was nothing but advance received from patients at the time of admission which was to be adjusted against the final bills raised by the assessee. Qua claim of deduction of administrative expenses 11. That on the facts and circumstances of the case and in law, the exercise of revisionary jurisdiction by the PCIT under section 263 on the issue of administrative expenses, is without jurisdiction and bad in law. 11.1. Without prejudice, the PCIT failed to appreciate that claim of administrative expenses included under the head other expenses', was duly examined and accepted in the original assessment order after due application of mind and after undertaking adequate inquiries/ investigation, wherever and to the extent deemed fit and appropriate by the assessing officer. Qua depreciation on additions made to intangible assets during the year 12. That on the facts and circumstances of the case and in law. the exercise of revisionary jurisdiction by the PCIT under section 263 on the issue of nature of additions made to intangible assets during the year and verify the depreciation claimed thereon, is without jurisdiction and bad in law. 12.1. Without prejudice, the PCIT erred in issuing vague/ open ended directions to the assessing officer to examine the addition to intangible assets and depreciation claimed thereon. 12.2. That the PCIT failed to appreciate that the details of additions made to intangible assets were duly certified in Tax Audit Report and valuation methodology (accepted in earlier years) was also disclosed in books of accounts, thereby not warranting exercise of jurisdiction under section 263 of the Act. Qua claim of expenses under various heads Page 4 of 17

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(iv) ICDS Adjustments mandated by section 145(2) without appreciating that same resulted in upward adjustment to the taxable income and full disclosure was made in the ITR, computation of income, Tax Audit Report duly considered by AO; (v) Claim of depreciation on tangible and intangibles assets stood disclosed in the ITR. computation of income, Tax Audit Report and was duly considered by AO: C. Items in Balance Sheet and Profit and loss account (vi) Contingent liability created on account of claim on brands and liability post supreme Court judgment without appreciating that same does not have any impact on taxable income: (vii) Related party transactions & applicability of section 40A(2) of the Act without appreciating that transaction were on account of loans given to related parties which as not claimed as deduction, thus, provisions of section 40A(2) per se do not apply. Further loans were impaired and interest income to the extent received was recognized. (viii) Stocks not verified without appreciating that same stood verified by Cost Auditor and Tax Auditor and reports were furnished during assessment proceedings; (ix) Decrease in Assets without appreciating the same was on account of claim of depreciation apparent from audited financials and complete details of additions. deletions, depreciation disclosed and certified in the Tax Audit Report furnished during assessment proceedings: (x) Investment/Loans without appreciating that reduction in value of investment on account of creation of impairment loss was suo motu disallowed by the appellant. (xi) Increase in Equity without appreciating that receipt of share capital is capital receipt and not income. Further, shares were issued to the holding company and complete details were duly disclosed in financials furnished during assessment proceedings, thus, genuineness cannot be doubted. (xii) Liability without appreciating that same was duly examined during assessment proceedings and lease liability being notional in nature, has no impact on the taxable income.

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(xiii) Trade Payable without appreciating that same was duly examined during assessment proceedings. (xiv) No interest charged on Trade receivables without appreciating that no income was actually received by the appellant and thus, no error in assessment order as notional income cannot be brought to tax. (xv) Interest accrued and not due without appreciating that same liability continues to exist in the books and interest is in fact being paid by the assessee. (xvi) Corporate Guarantee on behalf on AEs without appreciating that no income actually received qua corporate guarantee given to banks, notional guarantee commission income recognized as per Ind AS disallowed and no error in assessment order as notional income cannot be brought to tax. (xvii) Provision against Loan Recovery without appreciating that no new provision was made against loan payable during the relevant year and provision against loan receivable made in earlier years stood disallowed in those years. Issue examined during assessment proceedings and no disallowance made after due application of mind. (xviii) Fair Value Adjustments without appreciating that there is no impact on taxability as fair value is the same as the carrying value, as apparent from the audited financial statements (xix) Exceptional item without appreciating that issue was examined during assessment proceedings and no disallowance was made after due application of mind. Further, majority of exceptional items stood suo motu disallowed by the appellant. (xx) Net loss not investigated by the AO without appreciating that issue stood examined in original assessment proceedings and no disallowance was made after due application of mind. (xxi) Decrease in sales/gross receipts without appreciating that the same is justified on account of adverse impact on account of Covid 19 pandemic and financial performance has improved in subsequent years. 14.1. Without prejudice, the PCIT erred in issuing vague/ open ended directions to the assessing officer to examine the adjustments in total income and items in the Profit and loss account/Balance Page 7 of 17

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Sheet' [referred in ground no. supra] and make addition(s)/ disallowance(s) if the same found to have any bearing on computation of income of the appellant. 14.2. That the PCIT erred in setting aside the assessment order on aforesaid issues, without even recording any prima facie findings on merits much less considering the detailed submission furnished by appellant, thereby, not demonstrating how and why the final assessment order was erroneous and prejudicial to the interests of the Revenue, qua such issues.

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“..15.15. AO is directed to conduct comprehensive enquiries on the various heads of expenses spelt out in para 15.1 and 15.12 above. These expenses must be investigated, as the case may be, from the perspective of their genuineness, whether all these expenses were wholly incurred for the purposes of business or profession carried on by the assessee, whether any expenses were incurred in relation to persons specified in s.40A(2)(b) of the Act, and whether the TDS provisions, wherever applicable, were duly complied with or not. Besides, wherever the assessee claims that the due TDS has been deducted on any of the expenses, the AO is directed to verify the said claim by calling the quarterly e-TDS returns in Form 26Q filed by the assessee and carry out the verification of the claims of the assessee. If there are any such expenses/payment detected by AO, where provisions of TDS were applicable but the due TDS has not been deducted, but otherwise such expenses are genuine and not unreasonable or excessive ie. Page 9 of 17

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entered into at arm’s length, in that case the necessary disallowances u/s 40a(ia) are required to be made (on account of non deduction of TDS or short deduction of TDS) and added to the total income of the assessee. 16. In the SCN u/s 263 issued to the assessee, the contents of which have been reproduced in para 6.1 of this order above, there are several other issues, apart from those which have been highlighted in para 5 to 15 above. On most of these issues, the AO has either not conducted absolutely any enquiries or at best AO has conducted inadequate enquiries. This observation has been made after carefully going through all the written submissions filed before AO from time to time, by the assessee during the course of assessment proceedings, as available on online ITBA portal. AO should examine all these remaining issues also on merit, and wherever AO finds that any addition to total income is warranted, such additions should appropriately be made to the total income of the assessee. 17. In view of above discussion, it is found that the assessment order passed by the A.O. u/s 143(3) read with section 144B of the Income tax Act dated 28.12.2022, for A.Y. 2021-22, is erroneous and prejudicial to the interest of the revenue on the issues highlighted in PARA 5 to PARA 15 of the order above. In light of the provisions of Section 263 of the I T Act, the said assessment order is set aside and the Assessing Officer is directed to pass a fresh assessment order de novo, after making all necessary enquiries as directed above in concluding paragraphs of PARA 5 to PARA 15 of the order above. The assessee will be at liberty to adduce the relevant evidence/material before the Assessing Officer at the time of de novo assessment in consequence to this order and the Assessing Officer shall allow the assessee adequate opportunity of being heard and to make relevant submissions….” 5. The ld. Counsel argued that all the issues raised by ld. PCIT in paras 15.1 to 15.12 of his order were fully enquired and investigated by the ld. AO. The ld. Counsel invited extensive reference to its paper books running in 100s of pages to strengthen his arguments. The appellant assessee has placed on records copies of every show-cause notice issued by the assessee by the ld. AO and Page 10 of 17

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replies given by the assessee. A tabular representation of information solicited

by the AO on issues, allegedly investigated by the ld. PCIT and replies

submitted by the assessee qua references in the voluminous paper book, is as

under:-

Issue PCIT’s directions / observation in Disclosure by assessee and enquiries made by AO impugned order passed u/s 263 during original assessment

 Notice dated 21.12.2022 (@ pages 502-504 of Bad The PCIT, in paras 10 to 10.10 PB), specifically calling upon the appellant to Debts (pages 75–84), has directed the furnish details and explanations in respect of written assessing officer (‘AO’) to examine “provision for doubtful debts / doubtful off the correctness of claim of bad debt receivables written off” as reflected in the amountin of Rs.20,45,97,000. While directing computation of income. g to enquiry, the Pr. CIT has made  Notice dated 22.12.2022 (@ pages 1005-1007 Rs.20,45, following observations/ allegations: of PB), the AO further sought clarification 97,000.  While replies dated 21.12.2022 regarding the applicability of section 36(1)(vii) and 22.12.2022 were filed by the read with section 36(2) of the Act. appellant, the AO has allowed  The appellant, vide replies dated 21.12.2022 deduction without appellant and 22.12.2022, (@ pages 505-1004 and 1008- establishing mandatory condition 1165 of PB), submitted that the bad debts under section 36(1)(vii) r.w.s. written off represents amounts irrecoverable 36(2) of the Act; from the patients/ insurance companies,  During assessment, relevant corresponding income from which were offered ledger accounts, details of billing to tax in earlier year. The appellant also from each patient and how furnished exhaustive details running into amount was not recovered were approximately 500 pages, including: not filed by the appellant;  ledger extracts and transaction-wise break-  Reply filed in response to notice up of doubtful receivables written off; and under section 263 is devoid of  year-wise details evidencing that the merits; and corresponding revenues had already been  Assessee claim of bad debts was offered to tax in earlier assessment years. disallowed in completed assessment for AY 2019-20. Doubtful The PCIT, in paras 11.1 to 11.5  Notice dated 21.12.2022 (Pages 502-504@ page 504 of PB), raised a specific query calling receivable (pages 84-86), has observed that the upon the appellant to furnish details in respect /advances appellant has, in the computation of of provision for doubtful debts / doubtful written income, written off receivables written off. off Rs.115,52,98,000 under the head  Notice dated 22.12.2022 (Pages 1005-1007 @ against “doubtful receivables / advances page 1007 of PB), sought year-wise break-up of provisions written off against provision” and income in respect of which the doubtful that the assessing officer accepted receivables had arisen. the said reduction without  The appellant, vide replies dated 21.12.2022 examining the allowability thereof. Page 11 of 17

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Issue PCIT’s directions / observation in Disclosure by assessee and enquiries made by AO impugned order passed u/s 263 during original assessment While directing the enquiry, the Pr. and 22.12.2022, (Pages 505-1004 and 1008- 1165 of the paperbook respectively), CIT has made following submitted that the bad debts written off observations/ allegations represents amounts irrecoverable from the  The assessment order does not patients/ insurance companies, corresponding record any verification by the AO income from which were offered to tax in qua satisfaction of conditions earlier year. The appellant also furnished prescribed u/s 36(1)(vii) and exhaustive details running into approximately 36(2); 500 pages, including:  It is a case of “NO ENQUIRY”  ledger extracts and transaction-wise break- holding that AO has not raised a up of doubtful receivables written off; and single query to assessee.  year-wise details evidencing that the  No submissions on the said issue corresponding revenues had already been have been filed by the appellant offered to tax in earlier assessment in response to notice under years. section 263 of the Act.  Explanation 2 to section 263 of the Act has been invoked to justify assumption of revisionary jurisdiction.  Vide notice dated 06.12.2022 [refer query 7 to Liabilities The PCIT, in paras 12 to 12.10 9] (Pages 155-159 @ 157 of PB), AO raised not (pages 87–91), has directed the AO specific query regarding loans & advances, loan verified to examine the genuineness of the term borrowing and other long-term liabilities. by AO high standing liabilities including  Vide reply dated 12.12.2022 [refer point 5 to trade payable (MSME Vendor) and [Trade 7] (Pages 161-163 of PB), the appellant liability towards various customers payable furnished the details in the aforesaid liabilities. in form of advance. While directing (MSME  Vide notice 13.12.2022 (Pages 165-167 @ 167 enquiry, the Pr. CIT has made Vendor) of PB), the AO sought specific detail along with following observations/ allegations: and evidence of the following: liability  Addition of liabilities was made o Current liabilities in AY 2019–20, and similar towards  Lease liabilities Rs.18,343.31 lacs liabilities are present in the year various under consideration. Advance  Other financial liabilities Rs.27,408.48  That the assessing officer did not lacs from raise even a single query on this customers  Vide reply dated 15.12.2022 [refer point 4 & issue after receiving details of ] 7] (Pages 169-171 & 173 of PB), assessee financial liabilities from the submitted complete explanation of lease assessee during assessment and liabilities amounting to Rs.184,343.31 lacs alleged the present issue to be a along with details of “other financial liabilities” case of “NO ENQUIRY” by the of Rs. 27,408.48 lacs. assessing officer.  No submissions have been filed by the appellant in response to notice under section 263 on the said issue.  Explanation 2 to section 263 of Page 12 of 17

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Issue PCIT’s directions / observation in Disclosure by assessee and enquiries made by AO impugned order passed u/s 263 during original assessment the Act has been invoked to justify assumption of revisionary jurisdiction

 Vide, Query no. 6 of the notice dated Claim of The PCIT, in paras 13 to 13.5 06.12.2022 (@ page 157 of PB), AO raised a deduction (pages 91–94) has directed specific query qua the claim of other expenses of verification of genuineness of of Rs 569.54 crores and asked the appellant to administr administrative expense as well as furnish details of the expenses along with ative its reasonableness; AO is required relevant evidences and reasons for increase as expenses to be examine from perspective of compared to the earlier year further; the applicability of TDS and assessing officer also directed the appellant to reasonableness u/s 40A(2)(b). The furnish the ledgers copies of various expenses including the ones included in “other expenses” Pr. CIT has made following (query no 11). observations/ allegations:  Vide reply dated 12.12.2022 (refer point no.  In scrutiny assessment for AY 4) @ Page 161 of PB, appellant furnished 2018-19, the assessing officer had details/ nature of the other expenses and made disallowance on account of clarified that there was per se no increase in the increase in administrative said expenses; the increase is only on account of expenses. depreciation on/ amortization of Right to Use  No expenses have not been Asset, which was a notional entry made on shown under the head account of Ind AS [Refer, Note 5(xxviii) of ‘administrative expenses’ in the audited accounts on depreciation and ITR Form but is clubbed with amortization expenses @ Page 53 of PB, which other expenses. was, in any case, suo motu disallowed by the appellant and offered to tax in the return of  During assessment proceedings income filed for the relevant assessment year. the assessing officer did not raise any specific query to examine the  Vide reply dated 15.12.2022 (refer point 5 @ claim of administrative expenses, page 171 of PB), the appellant had submitted thus, the case is alleged to be a nature and details of various expenses. case of “NO ENQUIRY”.  On 19.12.2022, ledger accounts of various  Explanation 2 to section 263 of expenses were submitted. the Act has been invoked to justify assumption of revisionary jurisdiction. Depreciati  The PCIT, in paras 14 to 14.4  There was complete disclosure in the books of (pages 96–99), has directed the account regarding the valuation and accounting on on AO to make enquiries on value of treatment of intangible assets, as evident from Intangible addition made to intangible the audited financial statements: Assets assets, how such assets were  Note No. 2(e)(ii) of the audited financial created and whether such assets statement (Page 26 of PB) clearly deals are eligible for depreciation. with the method of valuation of intangible  The PCIT has observed that the assets. assessing officer did not  Note No. 5(ii) of the audited financial investigate how goodwill and statement (Page 39 of PB) deals with the intangible assets were created and method of valuation of goodwill acquired Page 13 of 17

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Issue PCIT’s directions / observation in Disclosure by assessee and enquiries made by AO impugned order passed u/s 263 during original assessment valued, and on that basis has from business combinations. treated the issue as a case of “NO  Note no. 5 (iii) of the audited financial ENQUIRY” by the assessing statements (Page 40 of PB) disclosed how officer. the other intangible assets were valued in books of accounts.

Issues The PCIT, in paras 15 to 15.15  Disclosure of all items of expenditure forms part of audited financial statements and the ITR pertaining (pages 99–124), directed the AO to on records. to various conduct enquiries on various heads expenses of expenses debited to P&L A/c  Vide notice dated 06.12.2022 (Pages 155-159 @ 157 of PB), sought details of ‘other debited to from perspective of genuineness, expenses’. [Query no. 6], professional fee, P&L A/c business purpose, 40A(2)(b) and interest paid [Query No. 11] TDS applicability. While directing  Vide reply dated 12.12.2022 (refer point no. the enquiry, the Pr. CIT has made 4) (Page 161 of PB), the appellant furnished the following observations/ allegations: details/ nature of the other expenses.  The assessing officer failed to  Vide reply dated 15.12.2022 [refer point no. make enquiries to ascertain the 5] (Page 171 of PB), the appellant had genuineness of various heads of furnished details of professional expense and expenses debited to the Profit & interest paid. Loss Account, as well as the reasonableness of such expenses  Vide reply dated 20.12.2022 (Pages 497-501 under section 40A(2) of the Act of PB), the appellant had furnished complete and the applicability and details of finance cost of Rs. 390.60 crores, compliance of TDS provisions. including (i) interest of Rs. 43.29 crores paid on term loan/bank loan and (ii) interest of  Expenses such as medical Rs.116.45 crores paid on loans borrowed from consumable and drugs, subsidiary/ holding company viz., Fortis depreciation and amortization, Healthcare, Fortis Hospital and SRL Limited. It Interest paid to Fortis Healthcare, was also clarified that notional interest which require verification amounting to Rs.211.62 lacs on lease liability regarding their genuineness were created in accordance with Ind AS – 116 not at all examined by assessing (Leases) was suo moto disallowed while officer. computing taxable income for the assessment  Based on aforesaid year under consideration. allegation/observation, the PCIT has held the case to be of “NO ENQUIRY” by the assessing officer.  Explanation 2 to section 263 of the Act has been invoked to justify assumption of revisionary jurisdiction.  From the records of before the assessing officer General The PCIT, in paras 16 and 17.1 including audited financial statements, tax audit directions (page 124), blanketly directed the report, queries raised and replies filed, it is of enquiry assessing officer to examine evident that the AO has conducted detailed Page 14 of 17

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Issue PCIT’s directions / observation in Disclosure by assessee and enquiries made by AO impugned order passed u/s 263 during original assessment on remaining issues forming part of verification and examination during original scrutiny assessment. residuary SCN dated 30.11.2023 issued by issues the PCIT u/s 263 of the Act. raised in SCN

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On all the issues highlighted by him, the ld. AO had indeed asked the assessee for his submissions and post consideration and exercise of due diligence the Ld. AO proceeded to accept the Returned Income. It is not a case where no enquiries were not done by the ld. AO. We have further noted that there is no merit whatsoever in the conclusions drawn by the ld. PCIT in para-16 of his impugned order, where, he without pointing out any specific issues as a sweeping statement stated that there are several other issues upon which the AO has not conducted any enquiries. Such irresponsible conclusions ought not to have been drawn by an senior officer like PCIT, Delhi-1. Law has given an authority to the Revenue Officers, but the same has to be exercised with due care, sincerity and responsibility. The judicial precedents relied upon by the ld. PCIT do not come to his rescue as the case of the Revenue primarily fails on the factual matrix itself. Accordingly, we are of the considered view that no case of exercise any valid revisionary authority is made out in this case. The order under section 263 dated 30.03.2025 of Ld. PCIT, Delhi-1 is therefore set-aside and quashed and the appeal of the assessee is allowed.

Order pronounced in the open court on 15th May, 2026.

Sd/- Sd/- [MAHAVIR SINGH] [AMITABH SHUKLA] VICE PRESIDENT ACCOUNTANT MEMBER Dated: 15.05.2026 Shekhar Page 16 of 17

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