DCIT CIRCLE-4(1)(1), AHMEDABAD, AHMEDABAD vs. SAL CARE PRIVATE LIMITED, AHMEDABAD

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ITA 520/AHD/2026Status: DisposedITAT Ahmedabad29 June 2026AY 2017-187 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s deletion of the disallowance under Section 40A(2)(b) by following its own precedents. It also upheld the restriction of disallowance under Section 14A to the extent of exempt income.

What were the facts?

The assessee paid management fees to a related entity, which the AO disallowed under Section 40A(2)(b). The AO also made an addition under Section 14A for expenses related to exempt income. The CIT(A) partly allowed the assessee's appeal.

What were the issues?

Whether management fees paid to a related entity were deductible and whether disallowance under Section 14A should exceed exempt income.

Which sections of the Income-tax Act were involved?

Section 40A(2)(b),Section 14A,Section 115JB

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD

Before: MS SUCHITRA KAMBLE & SHRI NARENDRA PRASAD SINHA

For Appellant: Shri Bandish Soparkar, AR
For Respondent: Shri Rajeev Garg, SR-DR
Hearing: 21.05.2026Pronounced: 29.06.2026

Heard together (2 matters)

ITA No. 520/AHD/2026
CO No. 20/Ahd/2026

Read from the judgment's own cause title. This page is filed under one of them.

PER NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER:

This appeal filed by the Revenue and the Cross Objection of the assessee is directed against the order dated 30.12.2025 passed by the Commissioner of Income Tax, Addl/JCIT-(Appeals) – 4, Mumbai [hereinafter referred to as “Addl. CIT(A)”], for the Assessment Year (A.Y.) 2017-18 in the proceeding u/s. 143(3) of the Income Tax Act [hereinafter referred to as “The Act”].

2.

The brief facts of the case are that the assessee had filed its return of income for A.Y. 2017-18 on 07.11.2017 declaring total income of Rs.4,05,45,190/-. The case was selected for completed scrutiny under

ITA No. 520/AHD/2026 & CO No. 20/Ahd/2026 DCIT Vs. Sal Care Private limited, AY- 2017-18 2

CASS. The assessee carries on business of providing medical healthcare facilities under the name and style SAL Hospital and Medical Institute under MoU with Adarsh Foundation Trust, (the owner of the hospital). The assessee had paid management fee charges of Rs. 2.60 crores as per MoU to M/s Adarsh Foundation. In the course of assessment, the AO had disallowed the claim for deduction u/s. 40A(2)(b) of the Act. Further, an addition of Rs.12,22,965/- was also made u/s. 14A of the Act. The assessment was completed u/s. 143(3) on 19.11.2019 at total income of Rs. 6,77,68,155/- and book profit of Rs. 5,72,55,980/-.

3.

Aggrieved with the order of the AO, the assessee had filed an appeal before the first appellate authority, which was decided by the Ld. Addl. CIT(A), vide the impugned order and the appeal of the assesses was partly allowed.

4.

Now the Revenue is in appeal before us. The following grounds have been taken in this appeal:

(a) On facts and in law, the Ld. CIT(A) has erred in deleting the disallowance u/s 40A(2)(b) by merely following the decisions of the Hon'ble ITAT in the assessee's own case for earlier years, without independently examining the facts of the year under consideration and the detailed reasoning recorded by the Assessing Officer. (b) The Ld. CIT(A) has erred in law in not appreciating that once the conditions of section 14A(2) are satisfied, the disallowance is mandatorily required to be computed in accordance with Rule 8D of the Income-tax Rules, 1962. (c) The Ld. CIT(A) has erred on facts and in law in deleting the addition of 312,22,965/- made to the book profit u/s 115JB of the Act on account of disallowance u/s 14A, ignoring the provisions of clause (1) of Explanation 1 to section 115JB(1) of the Act.

ITA No. 520/AHD/2026 & CO No. 20/Ahd/2026 DCIT Vs. Sal Care Private limited, AY- 2017-18 3 (d) The appellant craves leave to add, alter, amend or modify any of the above grounds of appeal at or before the time of hearing.

5.

The Assessee has taken the following grounds in its Cross- Objection:

1.

CIT (A) (NAFC) has erred in law and in facts in confirming the disallowance u's 14A to the tune of Rs 12,22,962/- 2. The appellant craves leave to add, amend, edit, delete, change or modify all or any of the ground before or at the time of hearing.

6.

The First Ground Taken by the Revenue pertains to addition of Rs.2.60 crores u/s. 40A(2)(b) of the Act, in respect of management fee paid to M/s Adarsh Foundation. Shri Rajeev Garg, the Ld. SR-DR, submitted that the assessee had paid management charge of Rs. 2.60 crores to M/s Adarsh Foundation as per MoU, which was a related entity as the father of the one of the Director of the assessee director company, was the managing trustee of the said Adarsh Foundation. He explained that this payment was made as per MoU signed with Adarsh Foundation as per which 40% of the profit of the assessee company was to be shared with Adarsh Foundation. The Ld. SR-DR submitted that the Adarsh Foundation was a charitable organisation and the payment of Rs.2.60 crores was towards goodwill/payment towards brand name, which was not justified. According to the Ld. SR-DR, sharing of profit with Adarsh Foundation was required to be made out of post-tax profit of the assessee and, therefore, the AO had rightly made the addition.

7.

Per Contra, Shri Bandish Soparkar, the Ld. AR of the assessee submitted that identical addition was made by the Revenue in the earlier years which was decided by the Co-ordinate bench of the Tribunal in

ITA No. 520/AHD/2026 & CO No. 20/Ahd/2026 DCIT Vs. Sal Care Private limited, AY- 2017-18 4

favour of the assessee for the A.Ys. 2009-10, 2011-12, 2012-13, 2013-14 and 2015-16. He submitted that the facts involved in the current year are identical and the Ld. Addl. CIT(A) had allowed relief to the assessee by following the decision of the Tribunal in assessee’s own case. He, therefore, strongly supported the order of Ld. Addl. CIT(A).

8.

We have considered the rival submissions. It is found that identical disallowance was made by the Department in the earlier years and the matter had travelled up to the Tribunal. The Co-ordinate bench of the Tribunal in ITA No. 1518/Abhd/2012 dated 21.07.2015 for A.Y. 2009-10 had given the following finding on this issue:

“4. As a look at the agreement between the assesse and the Adarsh Foundation Trust clearly reveals, the payment of 40% of profits or Rs 1,00,00,000 each year whichever is less, is paid by the assesse for grant of operation and management rights under clause 4.1 of the agreement. This is not for acquiring a brand but for use of a brand. The benefit is clearly in the revenue field since the benefit of this payment is on year to year basis and does not result in any enduring or lasting benefit beyond the relevant assessment year. Learned CIT(A) was thus quite justified in holding that the expenses are revenue expenses in nature as these expenses are incurred to earn profits for the year. Further, in ITA Nos. 2332 to 2334/Ahd/2018 dated 08.04.2021 for the A.Y. 2013-14 to 2015-16, the Co-ordinate bench of the Tribunal had held as under:

“6 "Ld.CIT (A)" allowed this ground of appeal of the assessee holding that similar issue was raised by the "Ld.AO" in the assessee own case in the Assessment Year 2009-10 but was not approved by "Ld.CIT (A)" and thereafter Hon'ble ITAT in ITA No.1518/Ahd/2012 for A.Y. 2009-10 and ITA No.1811/Ahd/2015 for A.Y. 2011-12 werein the ITAT held that provision of section 40(a)(ia) of the Act are not applicable in the

ITA No. 520/AHD/2026 & CO No. 20/Ahd/2026 DCIT Vs. Sal Care Private limited, AY- 2017-18 5 case of the assessee and on the base of the consistency matter was decided in favour of the assessee. 7. Thus, in parity with the ITAT orders in ITA no.1518/Ahd/2012 for A.Y. 2009-10 and ITA No.1811/Ahd/2015 for A.Y. 2011-12, we dismiss the ground of appeal. In the result, this ground of appeal of the revenue is dismissed.

9.

The facts involved in the current year are exactly identical. Respectfully following the decision of the Co-ordinate bench of this Tribunal on this issue in the earlier years as discussed above, the Ld. Addl. CIT(A) had rightly deleted the addition made by the AO. Accordingly, the decision of the Ld. Addl. CIT(A) on this issue is upheld and the ground taken by the Revenue is dismissed.

10.

Ground No. 2 taken by the Revenue and the only Ground taken by the assessee in the Cross objection, pertain to addition of Rs.12,22,965/- u/s. 14A of the Act. The AO had made addition of Rs.12,22,965/- u/s. 14A read with Rule 8D of the IT Rules, being 1% of the annual average of opening and closing balance of the value of investments, income from which did not form part of the total income. The Ld. Addl. CIT(A) had restricted the disallowance u/s. 14A of the Act, to the extent of exempt income only.

11.

We have heard the Ld. SR-DR as well as the Ld. AR on this issue. We do not find anything wrong with the order of the Ld. Addl. CIT(A). The Hon’ble Gujarat High Court has held in the case of Corrtech Energy (P) Ltd. [223 taxamnn.com 130(Guj).], that the disallowance u/s. 14A of the Act, cannot be more than the exempt income. In fact, an identical view was taken by the Co-ordinate bench of the Tribunal on this issue in the

ITA No. 520/AHD/2026 & CO No. 20/Ahd/2026 DCIT Vs. Sal Care Private limited, AY- 2017-18 6 assessee’s own case in the earlier years, following which the Ld. Addl. CIT(A) had allowed part relief to the assessee. We, therefore, do not find anything wrong with the direction of the Ld. Add. CIT(A) to restrict the disallowance u/s. 14A of the Act to the extent of exempt income earned by the assessee during the current year. Accordingly, the ground taken by the Revenue as well as by the assessee, both are dismissed.

12.

Ground No. 3 – The Revenue has challenged the deletion of addition u/s. 14A of the Act, for computing book profit u/s. 115JB of the Act. It is found that the Ld. Addl. CIT(A) did not give any direction to delete the addition u/s. 14A for computing the book profit. Therefore, this ground has been wrongly taken by the Revenue. As per clause (f) of Explanation- 1 to section 115JB of the Act, the book profit is required to be increased by the disallowance made u/s. 14A of the Act. The direction of the Ld. Addl. CIT(A) was only to restrict the amount of disallowance u/s. 14A to the extent of exempt income, which has already been upheld. Therefore, the ground No. 3 taken by the Revenue being infructuous, is dismissed.

13.

In the result, the appeal of the Revenue as well the Cross Objection of the assessee, both are dismissed.

Order pronounced in the Court on 29/06/2026 at Ahmedabad.

Sd/- Sd/- (SUCHITRA KAMBLE) (NARENDRA PRASAD SINHA) Judicial Member Accountant Member Dated – 29th June, 2026 Neelesh, Sr. PS (True Copy)

ITA No. 520/AHD/2026 & CO No. 20/Ahd/2026 DCIT Vs. Sal Care Private limited, AY- 2017-18 7

आदेश क� आदेश क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबंिधत आयकर आयु� / Concerned CIT 4. आयकर आयु�(अपील) / The CIT(A) 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण / DR, ITAT, 6. गाड� फाईल /Guard file. आदेशानुसार/BY ORDER, आदेशानुसार आदेशानुसार आदेशानुसार पंजीकार (Dy./Asstt.Registrar) उप उप/सहायक उप उप सहायक सहायक पंजीकार सहायक पंजीकार पंजीकार आयकर आयकर अपीलीय आयकर आयकर अपीलीय अपीलीय अिधकरण अपीलीय अिधकरण अिधकरण, अहमदाबाद अिधकरण अहमदाबाद अहमदाबाद / ITAT, Ahmedabad अहमदाबाद

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