ESCORTS HEART INSTITUTE AND RESEARCH CENTRE LTD.,NEW DELHI vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 2(1), CHANDIGARH

आयकर अपीलीय अिधकरण च�ीगढ च�ीगढ़ �ायपीठ , , IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, ‘A’ CHANDIGARH PHYSICAL HEARING BEFORE SHRI LALIET KUMAR, JUDICIAL MEMBER AND SHRI KRINWANT SAHAY, ACCOUNTANT MEMBER आयकर अपील सं/. ITA No. 810/CHD/2025 िनधा�रण वष� / Assessment Year : 2009-10 Escorts Heart Institute and Vs The ACIT, Research Centre Ltd. Circle 2(1), Okhla Road, New Delhi. Chandigarh. �ायी लेखा सं/.PAN NO: AAACE8731F अपीलाथ�/Appellant ��थ�/Respondent & आयकर अपील सं/. ITA No. 1607/CHD/2025 िनधा�रण वष� / Assessment Year : 2009-10 The ACIT, Vs Escorts Heart Institute and Circle 7(1), Research Centre Ltd. Chandigarh. SCO 56-58, OPD City Centre, Sector 9, Chandigarh. �ायी लेखा सं/.PAN NO: AAACE8731F अपीलाथ�/Appellant ��थ�/Respondent Assessee by : Shri Simran Mehta, Shri R.M.Mehta, Advocates Shri N.L.Gandhi, G.M. Finance Revenue by : Shri Manav Bansal, CIT DR Date of Hearing : 12.05.2026 Date of Pronouncement : 19.05.2026 ORDER PER LALIET KUMAR, JM These cross appeals are directed against the order passed by the learned Commissioner of Income Tax (Appeals)-15, Delhi for Assessment Year 2009-10 arising out of the assessment order passed under section 143(3) of the Income Tax Act, 1961 in the

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 2 case of the assessee company namely M/s Escorts Heart Institute and Research Centre Ltd. Since common facts and interconnected issues are involved, both the appeals were heard together and are being disposed of by way of this consolidated order.

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 3 5. Ground Nos. 1 and 2 raised by the assessee relate to the denial of short-term capital loss amounting to Rs. 5,92,80,158/- arising on the slump sale of the Jaipur undertaking.

5.1. The facts borne out from the assessment order reveal that during the course of assessment proceedings, the Assessing Officer noticed that the assessee had claimed short-term capital loss of Rs.5,92,80,158/- on account of transfer of its Jaipur undertaking to its subsidiary company, namely M/s Escorts Heart & Super Speciality Hospital Ltd., Jaipur, for a consideration of Rs.60 crores. The Assessing Officer observed that, as per the report of the Accountant furnished under section 50B(3) of the Act, the net worth of the undertaking had been worked out at Rs. 65,92,80,158/-, and therefore the assessee claimed the differential amount as short-term capital loss.

5.2. The Assessing Officer required the assessee to justify the basis of sale consideration and the commercial rationale behind transfer of the undertaking to its own subsidiary company at a value lower than the net worth determined by the Accountant vide response dated 26.12.2011, the assessee submitted that the transaction constituted a genuine slump sale governed by section 50B of the Act and the consideration had been mutually agreed upon between the parties on commercial considerations. The assessee also submitted that the net worth had been computed strictly in accordance with the statutory mechanism prescribed

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 4 under section 50B, read with Rule 6H, and supported by the Accountant’s report in Form No. 3CEA.

5.3 The Assessing Officer, however, was not satisfied with the explanation furnished by the assessee. According to the Assessing Officer, the assessee could neither explain the basis for arriving at the value of Rs.60 crores nor justify the transfer of the undertaking to its subsidiary company at a loss. The Assessing Officer held that the transaction was artificially structured only with the intention to create capital loss for reducing taxable income. In response to the notice issued by the AO, the assessee had submitted the following reply :

"During the previous year the assesse company has sold off its business undertaking at Jaipur to M/s Escorts Heart & Super Speciality Hospital Ltd., In this connection please find attached the business purchase Agreement between the assessee and M/s Escorts Heart & Super Speciality Hospital Ltd., vide Annexure 181-197 to this letter. Further, please find enclosed the report of Accountant under sub-section (3) of Section 50B of the Income Tax Act, 1961 relating to Computation of Capital Gain in case of slump sale vide Annexure 198 to this letter. Respectfully submitted that the sale of the undertaking has been done based on commercially agreed price and no specific consideration has been allocated by (he assessee company on each individual assets."

5.4 The submission of the assessee was that a genuine slump sale governed by Section 50B of the Act had happened, and the consideration had been mutually agreed between the parties on commercial consideration, and no specific consideration had been allocated by the assessee company on each individual asset. The AO has noted that assessee has not given the basis of

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 5 arriving at the evaluation of Rs.60 Cr as against the Accounting Report for Rs.65.92 Cr of the Unit and therefore, has disallowed the short term capital loss claimed by the assessee.

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 6 Assessing Officer nor the learned CIT(A) pointed out any defect in the computation of net worth furnished by the Accountant.

7.1 The learned AR further submitted that there exists no provision under the Act authorising substitution of actual sale consideration by fair market value in a slump sale transaction. It was argued that unless the transaction itself is shown to be sham or fictitious, the claim arising therefrom cannot be disregarded merely because it results in tax advantage to the assessee.

7.2 The assessee had also filed the written submission on 12.05.2026 and in the written submission, it was submitted as under :

D) Submissions before the Hon'ble ITAT 1. The AO has erred by exceeding his jurisdiction under Section 50B of the Act, by substituting the agreed consideration of the Jaipur unit, with the "net worth" thereof, as worked out by the accountant under Section 50B(3). 2. The AO has become the repository of such powers only with effect from 01.04.2021, by the introduction of Section 50B(2)(ii) r/w Rule 11UAE. This amendment is not applicable to transfers prior to 01.04.2021 as held by a co- ordinate Bench of this Hon'ble Tribunal in ACIT v. Vijayshree Fats & Oil Products Pvt. Ltd. MANU/RD/0053/2023 [pr. 9]. 3. Without prejudice to the aforesaid it is submitted that, let alone under the law as it stood in AY 2009-2010, even under the amended regime, the AO is not clothed with the jurisdiction to substitute the agreed, documented consideration with the "net worth" as determined by the accountant under Section 50B (3) of Act, but only with the FMV as worked out under Rule 11UAE. The approach adopted by the AO in the present case for AY 2009- 2010 is without the sanction of law. 4. It is trite law that "when a procedure is laid down statutorily and there is no challenge to the said statutory procedure the Court should not, in the name of interpretation, lay down a procedure which is contrary to the express statutory provision. It is a time-honoured principle as early as from the decision in Taylor v. Taylor that where a statute provides for something to be

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 7 done in a particular manner it can be done in that manner alone and all other modes of performance are necessarily forbidden. This principle has been followed by the Judicial Committee of the Privy Council in Nazir Ahmad v. Emperor and also by this Court in Deep Chand v. State of Rajasthan and also in State of U.P. v. Singhara Singh. Chief Information Commr. v. State of Manipur, (2011) 15 SCC l[pr. 40 at pg. 13]. 5. A more iteration of this principle can be found in OPTO Circuits (India) Ltd. v. Axis Bank, (2021) 6 SCC 707 at page 716, wherein the apex Court has held thus: "14. This Court has time and again emphasised that if a statute provides for a thing to he done in a. particular manner, then it has to be done in that manner alone and in no other manner. Among others, in a matter relating to the presentation of an election petition, as per the procedure prescribed under the Patna High Court Rules, this Court had an occasion to consider the Rules to find out as to what would be a valid presentation of an election petition in Chandra Kishore Jha v. Mahavir Prasad and in the course of consideration observed as hereunder : (SCC p. 273, para 17) "17. ... It is a well-settled salutary principle that if a statute provides for a thing to be done in a particular manner, then it has to be done in that manner and in no other manner." Therefore, i f the salutary principle is kept in perspective, in the instant case, though the authorised officer is vested with sufficient power; such power is circumscribed by a procedure laid down under the statute. As such the power is to be exercised in that manner alone, failing which it would fall foul o f the requirement o f complying with due process under law.

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 8 In the present case, the AO had no recourse to this provision also, given its deletion with effect from 01.04.1988. 7. Notably, under Section 50C of the Act, as it stood then, did empower the AO to substitute the "consideration received or accruing as a result of the transfer" with the "value adopted or assessed" by a "stamp valuation authority", a prescription consciously absent in Section 50B of the Act. In fact, Section 50C as it stands now also enables the substitution of the "consideration received or accruing as a result of the transfer" with the "value adopted or assessed" by a "stamp valuation authority", subject to the caveat that the "value adopted or assessed" by a "stamp valuation authority" exceeds the "consideration received or accruing as a result of the transfer" by 10%. 8. This distinction between Sections 50B and 50C of the Act has been duly noticed b}' a Special Bench of this HonT^le Tribunal in the case of DCIT v. Summit Securities Ltd. while dealing with a case of AY 2006-2007[i.e. prior to the 01.04.2021 amendment] in para 16.1 of the order reported in [2012] 19 taxmann.com 102(Mum.) (SB). 9. It is thus clear both Sections 52(2) and 50C leave place for some interplaj' in the joints and only seek to target a sale consideration which grossly deficient. In the present, even if such a legislative mandate were to be applied, the sale consideration of Rs. 60 Crores falls well within the 10% limit when compared to the 65.92 Crores adopted by the A.O. 10. The alleged causa proxima, adduced by the AO that "The assessee has thus used colourable device to book fake capital loss" is also wholly misconceived and fallacious. In the year in question, the assessee had no capital gains whatsoever, Instead, in addition to the Rs. 5.92 Crores claimed as capital loss on account of sale of the Jaipur Unit, the Assessee had capital loss of Rs. 15,55,44,364/- which has duly accepted by the AO. In these circumstances, the invocation of the concept of colourabledevice to evade taxes is wholly misdirected and contrary to lawand everythingcannot beviewed throughthe prismMcDowell. 12. It is significant at the outset to emphasize that neither the AO and nor the Ld. CIT(A) have brought on record a single fact, justifying reference to a "colourable device" in a casual and mechanical manner, more so when the short term loss on the slump sale has not resulted in any tax saving as would be apparent from the computation of income appended at pages 1& 2 of the Paper Book. 13. The AO in fact had made detailed enquiries regarding the claims made on account of capital losses including there adjustment against other income, as would be apparent from the two letters dated 26.12.2011 filed by the appellant (appended as Ann. 2-5 & 6-12 cumulatively) but nothing adverse to the appellant emerged therefrom. 14. Without prejudice to the submissions made in (1), (2) & (3) above, even McDowell bats for "tax planning" within the framework of law, as reiterated in the subsequent judgements in Union of India vs Azadi Bachao Andolan

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 9 (2003) 263 ITR 706 (SC) and Vodafone Intl. Holdings BV vs Union of Indi (2012) 341 ITR 1 (SC). 15. Reverting back to section 50B, as already submitted, there was no mechanism to adopt the FMV as the full value of consideration received or accruing as a result of the transfer of a capital asset, until an amendment was brought about by the Finance Act, 2021 w.e.f. 01.04.2021 by adding sub- clause (ii) to sub-section (2) of Section 50B as follows: "(ii) fair market value of the capital assets as on the date of transfer calculated in the prescribed manner shall be deemed to be the full value of consideration received or accruing as a result of the transfer of such capital asset' The term "prescribed manner" refers to Rule 11 UAE added to the Rules in 2021. As the amendment is prospective it cannot be imported into cases prior to 01.04.2021. 16. The question whether Transfer Pricing Regulations applied to domestic transactions arose before the Hon'ble Supreme court in CIT Delhi vs Glaxo Smithkline Asia (P) Ltd. (2010) 236 CTR 113 (SC) when it was noted that there was no provision in the Act sanctioning the same. The court made a suggestion to the term "prescribed manner" refers to Rule 1 1 UAE added to the Rules in 2021. As the amendment is prospective it cannot be imported into cases prior to 01.04.2021. 16. The question whether Transfer Pricing Regulations applied to domestic transactions arose before the Hon Tale Supreme court in CIT Delhi vs Glaxo Smithkline Asia (P) Ltd. (2010) 236 CTR 113 (SC) when it was noted that there was no provision in the Act sanctioning the same. The court made a suggestion to the Ministry of Finance/CBDT to consider an appropriate amendment which came about by the enactment of section 92BA by the Finance Act, 2012 w.e.f. 01.04.2013. As the amendment is prospective it does not apply to the Assessment Year 2009-10, although even on merits, the transaction under consideration is not a "specified domestic transaction" covered by the amendment. 17. At this stage, one needs to refer to section 48 r.w.s 45 of the Act which is the computation section for capital gains. It refers to the term "full value of consideration" received or accruing as a result of the transfer of the capital asset from which will be deducted (i) expenditure incurred in connection with the transfer and (ii) the cost of acquisition of the asset and the cost of improvement thereto. The term "full value of consideration" has been interpreted by the Hon'ble Apex Court as far back as 1967 in CIT vs George Henderson & CO. Ltd.

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 10 (1967) 66 ITR 622 (SC) to mean the price bargained for by the parties to the sale and not any market value (page 4 of the PB of Judgements, para at the bottom and ending on top of page 5). The ratio aforesaid was followed in CIT vs Gillanders Arbuthnot & Co. (1973) 87 ITR 407 (SC). To the same effect are the judgements in CIT vs Shivkami Co. (P) Ltd. (1986) 159 ITR 71 (SC). K.P. Verghese vs ITO (1981) 131 ITR 597 (SC) and CIT vs Godavari Corporation Ltd. (1993) 200 ITR 567 (SC) wherein it has been held that unless there is evidence that more than what was stated, was received, no higher price or value could be taken to be the basis for computation of capital gains (para 4 at page 34 of the PB). The Hon'ble Delhi High Court in the following judgements also examined the question of sale consideration being understated CIT vs Gulshan Kumar (2002) 257 ITR 703 (Delhi) (page 39 para 21 of the PB) and the meaning of the term "full value of consideration" in CIT vs Nilofer I Singh (2009) 309 ITR 233 (Delhi) (paras 4 to 7 at page 43 of the PB) and Arjun Malhotra vs Commissioner of Income-tax (2018) 403 ITR 354 (Delhi). E) To Summarise in conclusion: 1. A perfectly legal transaction has been rejected entirely on surmises and conjectures, without bringing on record any facts or material adverse to the Appellant. 2. The revenue has attempted to sit in the arm chair of the Appellant trying to tell him as to how he should conduct his business contrary to the observations of Hon'ble Supreme Court in the case of S A Builders Ltd. vs Commissioner of Income Tax (2007) 288 ITR 1 (SC). 3. McDowell has been invoked in a casual manner minus facts and evidence which would point to a colorable device. 4. The failure on the part of the revenue to prove any consideration having passed over and above the figure contracted between the parties. 5. There was no mechanism to adopt a figure other than the price contracted between the parties vis-a-vis the law prevailing in There was no mechanism to adopt a figure other than the price the year under Appeal.” 8. Per contra, the learned Departmental Representative strongly relied upon the findings recorded by the Assessing Officer and the learned CIT(A). It was submitted that the assessee failed to establish any commercial rationale for transferring a valuable undertaking to its own subsidiary company at a

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 11 substantial loss and therefore the authorities below rightly held the transaction to be a colourable device.

9.1 Further, the audited financial statements placed on record disclose that pursuant to the slump sale transaction, the assessee booked a loss of Rs. 6,47,02,350/- being the difference between the net value of assets and liabilities transferred and the

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 12 slump sale consideration. The audited accounts quantified the value of the undertaking transferred in the following manner:-

Particulars Amount (Rs.) Total Fixed Assets (A) 75,68,23,843 Total Current Assets (B) 2,65,85,441 Total Current Liabilities & Provisions (C) 8,03,81,356 Secured Loans (D) 3,83,25,578 Net Value of Undertaking (A+B−C−D) 66,47,02,350 Slump Sale Consideration 60,00,00,000 6,47,02,350 Loss on Slump Sale 9.2 Simultaneously, the assessee furnished Form No.3CEA dated 28.09.2009 under section 50B of the Act wherein the accountant certified the computation of net worth of the undertaking in the following manner:-

Particulars as per Form No.3CEA Amount (Rs.) WDV of depreciable assets 69,70,80,704 Book value of other assets 6,32,88,935 Aggregate value of total assets 76,03,69,639 Value of liabilities 10,10,89,481 Net Worth u/s 50B 65,92,80,158

9.3 From the comparison of the audited accounts and Form No.3CEA, it emerges that though the slump sale consideration remains identical at Rs. 60 crores, there exists a variation in the value of total assets, liabilities and consequently in the resultant net worth of the undertaking transferred. The audited financial

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 13 statements reflect the net value of the undertaking at Rs. 66,47,02,350/-, whereas Form No. 3CEA certifies the net worth at Rs. 65,92,80,158/-, resulting in a difference of Rs. 54,22,192/-. Similarly, the total assets and liabilities reflected in the two documents are also not identical. The audited accounts appear to be based upon the book value of assets and liabilities disclosed in the financial statements, whereas Form No.3CEA adopts the written-down value methodology contemplated under section 50B of the Act. However, no proper reconciliation explaining the variation between the two computations was furnished either before the Assessing Officer or before the lower appellate authority.

9.4 The learned Assessing Officer, during the course of assessment proceedings, had specifically called upon the assessee to justify the basis of arriving at the slump sale consideration of Rs. 60 crores. In response thereto, the assessee merely stated that the consideration was commercially negotiated between the parties and no separate value had been assigned to individual assets. However, from the audited financial statements themselves, it becomes abundantly clear that the assessee was fully aware of the individual values of the assets and liabilities transferred under the slump sale arrangement. More importantly, despite the transaction admittedly being between related and controlled entities, no independent valuation report from any

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 14 external valuer, merchant banker or technical expert was produced before the Assessing Officer to demonstrate that the consideration represented the fair market value of the undertaking transferred.

9.5 The background circumstances emerging from the record clearly indicate that the transfer undertaken by the assessee formed part of a larger restructuring arrangement involving Fortis group entities and was not an isolated commercial transaction. The material available on record further shows that the Jaipur hospital constituted an ongoing concern and the transfer was effected pursuant to arrangements and understandings entered into between the parties much prior in point of time. In such circumstances, we are unable to accept the contention advanced by the assessee that the transaction was required to be examined in complete isolation without considering the surrounding commercial realities and inter se relationship between the parties. At the same time, merely because the transaction was entered into between related entities under common management would not, by itself, justify outright rejection of the transaction in the absence of proper factual examination. However, where a substantial capital loss is claimed in a transaction between closely connected concerns, a heavy burden lies upon the assessee to establish, through cogent and reliable evidence, the genuineness of the transaction, correctness

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 15 of the valuation adopted and fairness of the consideration received. In the present case, the assessee has failed to satisfactorily discharge such burden.

9.6 We find that the assessee could not furnish satisfactory material to substantiate the basis on which the slump sale consideration of Rs.60 crores was determined, nor could it properly reconcile the discrepancies arising from the financial statements, valuation particulars and Form No.3CEA placed on record. The valuation methodology adopted by the assessee also remained unsupported by convincing and independent evidence. In these circumstances, the Assessing Officer was justified in doubting the correctness of the assessee’s claim of capital loss arising from the impugned transfer. We are unable to accept the plea of the assessee that the claim stood duly substantiated merely on the basis of book entries and self-serving documents produced during the assessment proceedings. The surrounding facts, relationship between the parties, prior arrangements with Fortis group entities and the nature of restructuring undertaken by the assessee collectively justify a deeper scrutiny of the transaction.

9.7 Accordingly, in the totality of facts and circumstances of the case, we find no infirmity in the action of the Assessing Officer in examining the genuineness and correctness of the claim of capital loss arising from the slump sale transaction. The grounds

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 16 raised by the assessee challenging such examination and disallowance, therefore, do not merit acceptance and are accordingly dismissed

9.8 With respect to the reliance on the decision of the Special Bench in the case of Sumit Security is concerned, in that case the facts were captured by the Tribunal in para 6, which are as under :

16.1 Having noted supra the unique nature of the capital asset being the 'undertaking' as defined u/s 2(42C) read with Explanation 1 to section 2(19AA) as including not only the positive assets but also the liabilities attached to it, we shall now delve on the determination of 'full value of consideration received or accruing' as a result of its transfer, which is the question posted before the special bench. In common parlance this expression means the sale price received or accruing as a result of the transfer of capital asset. Here it is important to mention that the expression "full value of consideration" is succeeded by the words "received or accruing". Thus the full value of consideration representing the sale price is only the amount

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 17 which is actually received or accrues to the assessee as a result of the transfer of capital asset. What is relevant for determining a figure of full value of consideration is the amount 'actually received or accruing' and not what 'ought to have been received' or the 'fair market value of the capital asset'. At this juncture it is important to bear in mind that the expression "full value of consideration received or accruing" in the Act has not been restricted in all cases to the amount actually received or accruing as a result of transfer. It has been specifically given other connotations in some other provisions. For example section 50C provides that where the consideration received or accruing as a result of the transfer of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer. It is worth noting that for thepurposes of section 50C, the ambit of the expression 'full value of consideration' has observed departure from its general meaning of the amount actually received or accruing. In case of transfer of capital assetin the nature of land or building or both, this expression shall mean not the consideration received or accruing but the stamp value, where the former is less than the latter. In such a situation, the amount actually received or accruing to the assessee as a result of the transfer of land or building or both shall lose its significance for the purposes of computing capital gain u/s 48. The stamp value shall be substituted with the actual amount received or accruing to the assessee which shall constitute full value of consideration received or accruing for the purposes of section 48. It is pertinent to note that section 50C is not applicable to all the capital assets but only to a capital asset which is land or building or both. Explanation 2 to section 2(42C) defining 'slump sale' has made it clear that the determination of the value of asset or liability for the purposes of payment of stamp duty etc. shall not be regarded as assignment of values to the individual assets or liabilities. It is, therefore, manifest that even if the assets of the undertaking, which is subject matter of transfer, include land or building or both, the stamp value shall be ignored insofar as the computation of full value of consideration of the undertaking as a whole is concerned. 16.2 It is pertinent to note that the expression 'fair market value' of a capital asset has been used in different provisions under the head 'Capital gains' for denoting in

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 18 certain cases as the 'full value of consideration' and in certain others as the 'cost of acquisition'. For example, section 45(1A) provides that where any person receives at any time during the previous year any money or any other assets under an insurance from an insurer on account of damage to, or destruction of the any capital asset as a result of flood, typhoon or riot etc., then any profit or gain arising from the receipt of such money or other assets shall be chargeable to income-tax under the head 'Capital gains" and shall be deemed to be the income of such person of the previous year in which such money or other asset was received and for the purposes of section 48, value of any money or the 'fair market value' of other assets on the date of such receipt 'shall be deemed to be full value of the consideration received or accruing' as a result of the transfer of such capital asset. Similarly section 45(2) dealing with the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him provides that the capital gain shall be chargeable to income-tax as income of the previous year in which such stock-in-trade is sold or transferred by him and for the purposes of section 48, the 'fair market value' of the asset on the date of such conversion or treatment 'shall be deemed to be the full value of consideration received or accruing' as a result of transfer. In the like manner section 45(4) dealing with the transfer of capital asset by way of distribution of capital assets on the dissolution of a firm etc. provides that the capital gain shall be chargeable to tax as the income of the firm etc. of the previous year in which the said transfer takes place and for the purposes of section 48, the 'fair market value' of the asset on the date of such transfer 'shall be deemed to be the full value of consideration received or accruing' as a result of such transfer. There are certain other provisions as well which deem the 'fair market value' of the asset 'as full value of consideration received or accruing' as a result of transfer of such capital asset. 16.3 On the other hand there are some sections in which 'fair market value' of the asset is deemed as 'cost of acquisition'. Section 49(2AA) provides that where capital gain arises from the transfer of specified security or sweat equity shares referred to in section 17(2)(vi), the 'cost of acquisition' of such security or shares shall be the 'fair market value' which has been taken into account for the purpose of the said sub-clause. Section 55(2) (b) provides in relation to any other capital asset which became the property of the assessee before 01.04.1981, the 'cost of acquisition' shall mean the cost of acquisition of the asset

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 19 or the 'fair market value' of the asset as on 1st April, 1981, at the option of the assessee. Similarly section 55(3) provides that where the cost for which the previous owner acquired the property cannot be ascertained, the 'cost of acquisition' to the previous owner means the 'fair market value' on the date on which the capital asset became the property of the previous owner. 16.4.Thus it can be noticed that the concept of "fair market value" in relation to a capital asset, as defined in section 2(22B), has been used interchangeably in certain sections of this Chapter to represent the 'cost of acquisition' while in others as the 'full value of consideration received or accruing'. The principle which thus follows is that the full value of consideration for the purposes of section 48 has to be considered as only the amount actually received or accruingas a result of the transfer of capital asset except where it has been substituted with fair market value or by any other mode. It is only in such specific cases that the actual amount received or accruing shall be replaced with the fair market value or such other mode as specified. In the absence of any specific provision, the general meaning of the amount actually received or accruing is to be considered as the full value of consideration received or accruing as a result of transfer of capital asset. Coming back to the legal position under consideration, it is noted that nowhere in any provision, either section 50B or section 48 or any other section, it has been provided that the 'fair market value' of the undertaking shall be treated as the full value of consideration received or accruing as a result of its transfer under slump sale. 9.10 From the perusal of the above, it is abundantly clear that the case before the Tribunal was with respect to the computation of capital gain in case there is negative net worth, whereas in the present case, the issue is not of the capital gain, rather it is a case of capital loss, not on account of any negative net worth but on account of the net worth estimated by the auditor in terms of Form 3CA under Rule 6H. As noted hereinabove, the slum sale between two related parties, whereas in the case cited by the assessee, the transaction was between unrelated parties.

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 20 Further, in the case of Sumit Security, there was a valuation of the assets by the independent auditors, whereas in the present case, there is no such valuation by the independent auditor at the time of entry into the Sale Purchase Agreement. We fail to appreciate how related parties, operating under the same management and having full knowledge of the actual value of the assessee’s hospital, would transfer their own assets to another subsidiary of the assessee at a price substantially lower than the fair market value. Such a proposition defies logic, common sense, commercial prudence, and settled business principles. What is material and requires due appreciation is that the Jaipur hospital of the assessee was an ongoing concern, and its transfer was effected pursuant to the Sale Purchase Agreement entered into between the parties as far back as in the year 2005. In the light of the above discussion the Ground Nos. 1 & 2 of the assesee’s appeal are dismissed. 10. Ground Nos. 3 and 4 raised by the assessee relate to addition of Rs.6,40,09,600/- made on account of compensation received from erstwhile promoters and treated as taxable revenue receipt.

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 21 compensation received pursuant to departure of Dr. Naresh Trehan, who had been associated with Escorts Heart Institute for several years and whose exit adversely affected the reputation and earning capacity of the hospital. It was therefore claimed that the compensation represented capital receipt on account of impairment of source of income.

11.1 The Assessing Officer did not accept the explanation furnished by the assessee and held that the compensation was directly relatable to business losses and diminution in profitability and therefore constituted revenue receipt. The Assessing Officer observed that the hospital business continued even after the exit of Dr. Trehan and there was no destruction of any independent source of income or profit earning apparatus. Accordingly, the amount was brought to tax.

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 22 13. Before us, the learned AR reiterated that Dr. Trehan was synonymous with the identity and goodwill of Escorts Heart Institute and therefore compensation received due to his departure constituted capital receipt.

15.1 The Assessing Officer, while examining the aforesaid claim during the course of assessment proceedings, analysed the

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 23 surrounding facts and circumstances in detail. The Assessing Officer noted that the compensation was received from one of the erstwhile promoters against alleged losses said to have been suffered by the assessee company on account of the departure of Dr. Trehan. The Assessing Officer observed that the amount represented nothing but compensation relatable to decline in business receipts and profitability and therefore could not assume the character of capital receipt. The Assessing Officer further noticed that at the time of transfer of shares and restructuring arrangements between the parties, no material was produced by the assessee to demonstrate that any separate valuation had been carried out specifically attributing diminution in value to the departure of Dr. Trehan. The Assessing Officer also recorded a finding that the compensation amount in substance operated as a reduction in purchase consideration agreed between the parties and therefore constituted business receipt taxable in the hands of the assessee. The Assessing Officer further observed that the hospital business admittedly continued even after the exit of Dr. Trehan and no independent source of income had either come to an end or stood extinguished. On the aforesaid reasoning, the Assessing Officer treated the receipt as taxable income.

15.2 The learned CIT(A), while affirming the addition, examined the issue independently and substantially concurred with the

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 24 reasoning adopted by the Assessing Officer. The learned CIT(A) specifically referred to the submissions of the assessee that Dr. Trehan was synonymous with the identity of Escorts Heart Institute and had over a long period built substantial goodwill and reputation for the institution. However, after considering the material on record, the learned CIT(A) observed that the assessee failed to establish that any source of income or profit-making apparatus had either been destroyed or permanently impaired on account of the departure of Dr. Trehan. The learned CIT(A) further observed that the assessee continued its hospital operations as before and there was no evidence to suggest any structural extinction of the business itself. The learned CIT(A) also found that even if there had been some temporary decline in revenues or adverse business consequences immediately after the exit of Dr. Trehan, such temporary commercial setback would not alter the true character of the receipt from revenue to capital. It was further observed that the compensation received by the assessee remained directly linked with the business operations and anticipated business losses and therefore retained the character of revenue receipt. Accordingly, the addition made by the Assessing Officer was confirmed.

15.3 Upon careful consideration of the entire factual matrix, we find ourselves in agreement with the concurrent findings recorded by the authorities below. The fundamental test for

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 25 determining whether a receipt is capital or revenue in nature is whether the receipt relates to destruction, sterilization or permanent impairment of the profit-earning apparatus itself or whether it merely compensates for loss in trading operations or diminution in future profits. If the source of income continues to exist and the business remains operational, compensation received for adverse impact on business performance ordinarily assumes the character of revenue receipt.

15.4 In the present case, admittedly, the assessee continued to operate the hospital even after the departure of Dr. Trehan. The institutional structure, infrastructure, licences, medical facilities, workforce and overall business organisation of the assessee remained intact. No material has been brought on record to demonstrate that the assessee had lost any independent capital asset or that any source of income had been permanently destroyed. The entire case of the assessee essentially rests upon the proposition that Dr. Trehan’s departure adversely affected the goodwill and profitability of the hospital. However, reduction in business profitability or temporary commercial adversity cannot be equated with destruction of the source of income itself.

15.5 We also find considerable force in the observations made by the Assessing Officer that the compensation was intrinsically connected with business considerations and expected diminution

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 26 in business receipts. The compensation was not received in lieu of surrender of any capital asset, transfer of any enduring right or sterilization of any income-producing apparatus. Rather, it represented compensation for anticipated business losses arising out of exit of a key professional associated with the institution. Such receipts are revenue in character and remain taxable in the hands of the recipient.

15.6 The contention of the assessee that Dr. Trehan himself constituted a separate “source of income” also cannot be accepted in the peculiar facts of the present case. A professional associated with a business enterprise, however eminent or influential, cannot by himself be equated with the entire profit- making apparatus of the assessee when the business entity continues to exist and operate independently. The hospital retained its corporate existence, infrastructure and operational continuity even after the departure of Dr. Trehan. At best, the assessee may have suffered temporary business dislocation or reduction in anticipated revenues, but that by itself would not convert the impugned receipt into a capital receipt.

15.7 The assessee has placed on record a news report dated 31.05.2007, wherein it has been stated that Dr. Naresh Trehan along with his team was welcomed by Apollo Hospital and that he had decided to disengage himself from Escorts Hospital with effect from 01.06.2007. However, merely because Dr. Trehan

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 27 chose to exit the hospital consequent to changes in the business structure and acquisition of the management, the same cannot, by itself, be construed as resulting in any loss of a capital asset of the assessee. It is a settled proposition of law that an employee, consultant, or even a Director does not constitute a “capital asset” of the employer company, and therefore the departure or resignation of such person cannot automatically be treated as giving rise to a capital loss or impairment of the profit- making apparatus of the assessee.

15.8 Further, it is also pertinent to note that no specific performance can be enforced against a medical professional requiring him to continue rendering surgical or professional services in a particular hospital. The professional association of a doctor with a hospital remains contractual and personal in nature and cannot be equated with ownership or transfer of any capital structure of the business.

15.9 The assessee has also failed to bring on record any empirical or cogent material demonstrating that the resignation of Dr. Trehan resulted in destruction or sterilization of the profit- earning apparatus of the assessee company. No comparative financial data showing the volume of business before and after the resignation of Dr. Trehan has been furnished. Likewise, no details of actual revenue allegedly attributable directly or substantially to the services rendered by Dr. Trehan have been

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 28 produced before the lower authorities. In the absence of any concrete evidence establishing a direct nexus between the compensation received and impairment of the capital structure of the assessee’s business, the claim of the assessee that the receipt was capital in nature remains unsupported.

15.10 In our considered opinion, both the Assessing Officer as well as the learned CIT(A) have correctly appreciated the factual and legal position while holding that the amount received by the assessee was revenue in nature. We do not find any infirmity in the impugned order warranting interference. Accordingly, Ground Nos. 3 and 4 raised by the assessee stand dismissed.

“(i) On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs.2,96,53,129/- made by the Assessing Officer on account of disallowance under section 36(1)(iii) of the Income Tax Act, 1961. (ii) On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs.11,35,683/- made by the Assessing Officer on account of disallowance of capital advance.

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 29 (iii) On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs.54,68,660/- made by the Assessing Officer on account of disallowance under section 14A of the Income Tax Act, 1961.”

20.1 The Assessing Officer held that borrowed funds had been diverted towards interest-free advances granted to subsidiaries and group concerns and accordingly made disallowance of Rs.2,96,53,129/- under section 36(1)(iii) of the Act. The Assessing Officer rejected the contention of the assessee that

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 30 such advances had been made out of own funds and held that proportionate interest attributable to such advances was liable to be disallowed.

20.2 The Assessing Officer further disallowed a sum of Rs.11,35,683/- on account of capitalization of interest relatable to capital advances/work-in-progress by observing that the borrowed funds had been utilized for acquisition of assets not put to use during the year and therefore interest attributable thereto was required to be capitalized.

20.3 The Assessing Officer also invoked provisions of section 14A read with Rule 8D and made disallowance of Rs.54,68,660/- on account of expenditure allegedly incurred in relation to exempt income. The Assessing Officer observed that the assessee had made investments in equity shares of subsidiary and fellow subsidiary companies and therefore disallowance under Rule 8D(2)(iii) was warranted.

22.1 The ld. CIT(A) deleted the disallowance of Rs.2,96,53,129/- made under section 36(1)(iii) by observing that identical issue

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 31 had already been decided in favour of the assessee in assessee’s own case for Assessment Years 2008-09, 2010-11 and 2011-12 by predecessor appellate authorities. The ld. CIT(A) further relied upon the judgment of the Hon’ble Delhi High Court in the case of CIT vs. Bharti Televentures Ltd. and held that the issue stood covered in favour of the assessee.

22.2 The ld. CIT(A) also deleted the addition of Rs.11,35,683/- made on account of capitalization of interest relating to capital advances by observing that similar issue had already been decided in favour of the assessee in earlier and subsequent assessment years and that the assessee possessed sufficient self- generated funds.

22.3 The ld. CIT(A) further deleted the disallowance made under section 14A amounting to Rs.54,68,660/- by holding that the assessee had not earned any exempt income during the year under consideration and therefore provisions of section 14A read with Rule 8D were not applicable. Reliance was placed upon the decisions of the Hon’ble Delhi High Court and Hon’ble Supreme Court in the case of Chettinad Logistics Pvt. Ltd.

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 32 had rightly observed that the assessee had advanced huge interest-free funds to related concerns while simultaneously paying substantial interest on borrowed funds. It was contended that the ld. CIT(A) was not justified in deleting the disallowance made under section 36(1)(iii) without properly appreciating the nexus between borrowed funds and advances made by the assessee.

24.1 The ld. DR further submitted that the interest attributable to capital advances/work-in-progress was liable to be capitalized in view of the provisions of the Act and therefore the deletion of addition of Rs.11,35,683/- by the ld. CIT(A) was erroneous.

24.2 With regard to disallowance under section 14A, the ld. DR submitted that once investments capable of yielding exempt income existed in the books of account, the provisions of section 14A read with Rule 8D were clearly attracted and the Assessing Officer had rightly computed the disallowance. It was accordingly prayed that the order of the ld. CIT(A) be set aside and that of the Assessing Officer be restored.

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 33 passed by the Tribunal in assessee’s own case for earlier assessment years as well as subsequent assessment years.

25.1 The ld. AR submitted that the assessee was having sufficient own funds and reserves far in excess of the advances made to subsidiaries and group concerns and therefore no disallowance under section 36(1)(iii) could be made. It was further submitted that identical disallowance had already been deleted by the Tribunal in assessee’s own case and the said orders had attained finality.

25.2 With respect to capitalization of interest, it was submitted that the assessee possessed sufficient internal accruals and self- generated funds and therefore no borrowed funds had been utilized for capital advances/work-in-progress.

25.3 Regarding section 14A disallowance, the ld. AR submitted that admittedly no exempt income had been earned by the assessee during the year under consideration and therefore no disallowance under section 14A could be sustained in view of settled legal position laid down by various judicial forums including the Hon’ble Jurisdictional High Court and Hon’ble Supreme Court. It was accordingly prayed that the order passed by the ld. CIT(A) be upheld.

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 34 26.1 So far as Ground No.1 relating to deletion of disallowance under section 36(1)(iii) amounting to Rs.2,96,53,129/- is concerned, we find that the ld. CIT(A) has deleted the addition by following the orders passed in assessee’s own case for earlier and subsequent assessment years. The Revenue has failed to place any material on record to demonstrate that the aforesaid orders of the Tribunal or appellate authorities have either been reversed or distinguished on facts. We further find that the ld. CIT(A) has recorded categorical finding that the assessee possessed sufficient own funds and therefore presumption would arise that advances had been made out of own non-interest-bearing funds. In our considered opinion, no infirmity can be found in the order passed by the ld. CIT(A). Accordingly, Ground No.1 raised by the Revenue is dismissed.

26.2 As regards Ground No.2 relating to deletion of addition of Rs.11,35,683/- on account of capitalization of interest relating to capital advances/work-in-progress, we find that the ld. CIT(A) has followed the consistent view taken in assessee’s own case for earlier and subsequent years while deleting the addition. The Revenue has not brought any distinguishing feature on record. Since the assessee was having sufficient self-generated funds, the presumption drawn by the Assessing Officer regarding utilization of borrowed funds for capital advances does not survive. Accordingly, we do not find any justification to interfere

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 35 with the order of the ld. CIT(A). Ground No.2 raised by the Revenue is therefore dismissed.

26.3 With regard to Ground No.3 relating to deletion of disallowance under section 14A amounting to Rs.54,68,660/-, we find that the ld. CIT(A) has recorded a categorical finding that no exempt income had been earned by the assessee during the year under consideration. The aforesaid factual finding has not been controverted by the Revenue by placing any contrary material on record. The Hon’ble Delhi High Court in the case of Cheminvest Ltd. vs. CIT reported in 378 ITR 33 (Delhi) has categorically held that section 14A would have no applicability where no exempt income has been earned during the relevant previous year. Similar view has also been taken by the Hon’ble Delhi High Court in the case of CIT vs. Holcim India Pvt. Ltd. reported in 272 CTR 282 (Delhi), wherein it was held that no disallowance under section 14A could be made in absence of exempt income.

26.4 We further find that the Hon’ble Punjab & Haryana High Court in the case of PCIT vs. Empire Package Pvt. Ltd. as well as various other decisions has also consistently held that when no exempt income is earned by the assessee during the year, no disallowance under section 14A read with Rule 8D is permissible. Similar proposition has also been affirmed by the Hon’ble Delhi High Court in the case of PCIT vs. IL & FS Energy Development Company Ltd..

ITA 810 and 1607/CHD/2025 A.Y. 2009-10 36 26.5 Respectfully following the aforesaid binding judicial precedents and considering the admitted factual position that no exempt income was earned by the assessee during the year under consideration, we do not find any infirmity in the order of the ld. CIT(A) deleting the disallowance of Rs.54,68,660/- made under section 14A read with Rule 8D of the Act. Accordingly, Ground No.3 raised by the Revenue stands dismissed. Accordingly, Ground No.3 raised by the Revenue is also dismissed.

Order pronounced on 19th May, 2026.

Sd/- Sd/-

(KRINWANT SAHAY) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER “Poonam” आदेश की �ितिलिपअ�ेिषत/ Copy of the order forwarded to : अपीलाथ�/ The Appellant 1. ��थ�/ The Respondent 2. आयकर आयु�/ CIT 3. िवभागीय �ितिनिध, आयकरअपीलीय आिधकरण, च�ीगढ़/ DR, ITAT, CHANDIGARH 4. गाड� फाईल/ Guard File 5.

Assistant Registrar