SBL PVT. LTD.,NEW DELHI vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - HARIDWAR, HARIDWAR, UTTARAKHAND

ITA No.114/DDN/2025 SBL PRIVATE LIMITED IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “DB” NEW DELHI BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER AND SHRI SANJAY AWASTHI, ACCOUNTANT MEMBER ITA No.114/DDN/2025 Assessment Year: 2014-15 SBL PVT. LIMITED, Vs. DEPUTY COMMISSIONER OF 2-SBL House, Shrestha Vihar, INCOME TAX, Commercial Complex, Yozana Vihar, Circle-Haridwar, D-29 & 30, Anand Vihar, S.O. East Delhi, Industrial Area, Haridwar, INDIA 110092. Uttarakhand – 249401. PAN No. AAACS0417L Appellant Respondent Assessee by Shri Rohit Jain, Adv, Shri Deepesh Jain, Adv. Srhi Shaurya Jain, CA Revenue by Shri Mohan Lal Joshi, Sr. DR Date of hearing: 22.06.2026 Pronouncement on 29.06.2026 O R D E R PER SANJAY AWASTHI, ACCOUNTANT MEMBER: 1. This appeal arises from order dated 15.04.2025, passed by Ld. CIT(A)-26, New Delhi, u/s 250 of the Income Tax Act, 1961 (hereafter as “the Act”).

1.1 For the sake of background it may be mentioned that the assessee is a pharmaceutical company engaged in the business of manufacturing homeopathic medicines and herbal/cosmetic products. The assessee has four manufacturing unit at Sahibabad, Jaipur and at Haridwar. The two units at Haridwar are also, admittedly, eligible for deduction u/s 80IC of the Act. During the course of assessment proceedings, the Ld. AO 1

ITA No.114/DDN/2025 SBL PRIVATE LIMITED primarily added expenses on account of foreign travel for medical purposes by the Director and his spouse and also the medical expenses borne on behalf of the said Director; disallowance of claim u/s 80IC of the Act pertaining to one eligible unit of the assessee; and an addition on account of estimating net profit against the Sahibabad Unit (SBD) after rejecting the books of account pertaining to that unit. Before the Ld. CIT(A) the assessee could succeed with respect to the issue pertaining to section 80IC of the Act and could also partially succeed with respect to the quantum of addition made against the book results of SBD.

1.2 Briefly, regarding the disallowance of medical expenses the Ld. AO found that such expenses were incurred exclusively for the foreign treatment of Shri B.K. Shrestha, Chairman of the Company. The Ld. AO has given a finding that such expenses had no connection with the business of the assessee and was therefore disallowable. The second issue that survives for adjudication is regarding the rejection of book results pertaining to SBD, whereby the starting point of the investigation by the Ld. AO is supposed to be the fact that this was the only loss- making unit of the assessee. As mentioned earlier, the Ld. CIT(A) has affirmed the action of Ld. AO in terms of the issue of medical expenses but has given partial relief on account of estimation of net profit of SBD.

1.3 The aggrieved assessee has approached the ITAT with the following grounds of appeal: -

ITA No.114/DDN/2025 SBL PRIVATE LIMITED “Medical reimbursement of directors 1. That the CIT(A) erred on facts and in law in upholding disallowance amounting to Rs.88,34,935 relating to reimbursement of medical (Rs.65,89,468) and incidental travel (Rs.22,45,467) expenses to the managing director of the appellant alleging the same to be personal in nature, without appreciating that the same were incurred wholly and exclusively for purpose of business and thus allowable under section 37 of the Act. Rejection of books of accounts of Sahibabad (SBD) Unit 2. That the CIT(A) erred of facts and in law in upholding addition/ upward adjustment to the extent of Rs.4,26,54,562 (applying estimated net profit @24% to the turnover) made by the assessing officer (AO) by rejecting books of accounts of the Sahibabad (SBD) unit. 2.1 That the CIT(A) erred on facts and in law in confirming the action of the assessing officer in arbitrarily rejecting books of account of the appellant, without pointing out any discrepancy in the correctness/completeness of the accounts or method of accounting followed by the appellant, in clear violation of the provisions of section 145(3) of the Act and the principles of natural justice. 2.2 That the CIT(A) erred on facts and in law in holding that the appellant has not substantiated its position qua correctness of the books of accounts of SBD unit, in complete disregard of the contemporaneous evidences placed on record to establish completeness/correctness of books and to rebut the allegations of the AO. 2.3 That the CIT(A)/AO erred of facts and in law in not appreciating that books of SBD unit prepared on similar basis has always been accepted in preceding and subsequent years after detailed scrutiny assessment. 2.4 Without prejudice, the CIT(A)/ AO erred on facts and in law in - (i) not allowing depreciation out of estimated profit calculated for SBD unit; (ii) disallowing entire medical and incidental travel expenses (supra) separately without appreciating that the portion of the same relates to SBD unit which has already been disallowed separately.” 2. Before us the Ld. AR argued with the help of detailed paper books and written submissions. Regarding the issue of medical expenses, it was averred that Mr. Shreshtha is the driving force behind the company and it is under his leadership that the company has carved out a commanding position in the market for the products manufactured by it. The Ld. AR presented a copy of a board resolution dated 21.04.2011 which fixed the

ITA No.114/DDN/2025 SBL PRIVATE LIMITED remuneration and other entitlements of the Chairman. It was pointed out from this document that Mr. Shreshtha was entitled for reimbursement of medical expenses on actuals. It was averred that the reimbursement of expenses to the tune of Rs.88,34,935/- (cost of medical treatment and travel expenses) was booked by the company as a business expense on the basis the board resolution dated 21.04.2011. It was the submission that the assessee felt that it was commercially expedient to incur such expense and therefore it did so. For this proposition the Ld. AR relied on the case of SA Builders reported in 288 ITR 1 (SC) and also the case of Dhun Apartment Pvt. Limited reported in 2 taxmann.com 7 (Del).

2.1 Regarding the rejection of books of account of SBD, the Ld. AR assailed the action of Ld. AO and also of the Ld. CIT(A) in terms of even considering that there was a defect in the books on the basis of a suspicion that artificially low results have been shown for SBD as compared to the remaining three units. The Ld. AR also mentioned that the basis for such belief was the fact that two units of the assessee were eligible for deduction u/ 80IC of the Act and such units were profitable, as compared to the SBD which was reportedly loss making. The Ld. AR stated that considerable number of documents were supplied before the authorities below (the same were also presented in the shape of paper book before us) and considerable reasoning, backed with facts, was also supplied but the authorities below persisted in the assumption that the SBD Unit was showing artificial losses. The Ld.AR demonstrated that 4

ITA No.114/DDN/2025 SBL PRIVATE LIMITED against a loss of Rs.1.84 crores at SBD the overall profit of the company was Rs.49.92 crores. It was the submission that the Jaipur Unit and SBD were always treated as a combined unit by the assessee and towards this end considerable vouchers etc. were presented to show that quite often the profit would be booked at Jaipur whereas the expenses would be booked at SBD. The Ld. AR read out from a chart prepared of the financial summary of the four units and pointed out that the combined profit of SBD and Jaipur Unit amounted to Rs.2.24 crores. It was also the submission that the SBD was practically treated as the head office of the assessee, whereby its direct expenses such as marketing, loading/unloading, transportation etc. were borne by SBD without showing such expenses as recoverable from the Jaipur Unit. It was the further submission that the books of accounts have been maintained as per the relevant accounting standards and there is absolutely no change either from previous years or the method used to maintain accounts of the four units. It was mentioned that in the past years the method of accounting has always been accepted by the Department. It was pointed out that between FYs 2010-11 to 2013-14 the cases were dealt with under scrutiny assessment and the losses of the SBD Unit had always been accepted. The Ld. AR placed on record the assessment orders for these years. The Ld. AR dealt at some length about the higher cost of labour, electricity, etc. and also the higher cost incurred on account of old plant and machinery at SBD. It was the submission that the Haridwar Units

ITA No.114/DDN/2025 SBL PRIVATE LIMITED were new and were thus, operating on much higher levels of efficiency and profits. It was also averred that neither of the authorities below have specifically pointed out any item of expense which could be inferred as inflated or any receipt which could be treated as suppressed. In any case the accounts are duly audited and as an additional detail it was pointed out that the Ld. CIT(A) has mentioned that there was a search action on the assessee, when no such event occurred. Thereafter, the Ld. AR argued at length about the point-wise rebutted of the Ld. AO’s allegations in this regard and also relied on number of case laws to canvass the point that if the book results have to be rejected then very specific defects have to be pointed out and since this was not done in this case then there was no reason to reject the book profits.

ITA No.114/DDN/2025 SBL PRIVATE LIMITED of expenses could not be presented before the AO due to insufficient opportunity.

3.1. Regarding the rejection of book results for SBD Unit it was stated that there is considerable fact finding to show that all the reasons given by the assessee for showing a loss were not founded on facts since neither the claim of the plant and machinery being old nor the claim of higher wage bill for the SBD Unit could be shown as critical factors in lower profits/losses.

ITA No.114/DDN/2025 SBL PRIVATE LIMITED deserves to be held that the expenses incurred for the treatment of Shri Shreshtha deserve to be allowed u/s 37(1) of the Act.

4.1 Regarding the issue of rejection of books of account pertaining to the SBD Unit it needs to be mentioned that the starting point of the investigation itself is fallacious in as much as the Ld. AO has simply picked up the figure of loss in this unit and has thereafter proceeded ahead to disbelieve all manner of explanations and documents furnished by the assessee in justification of his book results. We find that the Ld. AO has not similarly examined the books of accounts of the other three units to enable a reasonable assumption that some expenses were inflated and others shown at lessor values to obtain exaggerated profits for relief u/s 80IC of the Act. From a purely accounts point of view the exercise undertaken by the authorities below does not appear to be justified also on the ground that in the face of a claim by the assessee that the Jaipur and SBD Units are virtually taken as combined and some expenses are booked in the SBD against receipts which primarily belong to the Jaipur Unit, the authorities below have not considered the documentation filed by the assessee to show that such activities have been done under the assumption that the profits/losses of Jaipur Unit and SBD Unit are combined and would not alter with exact booking of receipts and expenses in both of them separately. To this extent, there is considerable strength in the argument that both these units on a combined basis have shown a profit of Rs.2.24 crores. To summarize our 8

ITA No.114/DDN/2025 SBL PRIVATE LIMITED view in this regard it would be sufficient to say that neither is the starting premise of the Ld. AO justified (on the basis of a disclosed loss at SBD) and neither is the conclusion that the loss is not justified in spite of explanations and documentations provided before the lower authorities. Also, we find that no specific defect or under reporting of any item has been pointed out by either of the authorities below to enable us to be persuaded that the losses have been deliberately booked at SBD Unit. Accordingly, it deserves to be held that neither is the rejection of book results justified and nor is the enhancement of income on that basis.

Order pronounced in the open court on 29.06.2026

Sd/- Sd/- (ANUBHAV SHARMA) (SANJAY AWASTHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 29.06.2026 *Kavita Arora, Sr. P.S. Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI