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Facts
The Revenue filed appeals against the orders of the CIT(A) for AY 2016-17 and 2020-21. For AY 2016-17, the Assessing Officer made significant additions, which were partly deleted by the CIT(A). For AY 2020-21, the Assessing Officer made several additions, most of which were deleted by the CIT(A).
Held
The Tribunal held that for AY 2016-17, the CIT(A) failed to adjudicate the core issue regarding the method of goodwill computation, and thus the matter was restored to the CIT(A) for fresh adjudication. For AY 2020-21, the Tribunal found that the CIT(A) had violated Rule 46A by admitting additional evidence without a remand report in most cases, restoring them for re-adjudication. However, one ground concerning ESOP provision was dismissed.
Key Issues
Whether the CIT(A) correctly deleted additions without proper adjudication or by violating Rule 46A procedures regarding additional evidence.
Sections Cited
143(3), 147, 148, 144B, 56(2)(vii)(b), 69A, 32, 11UA, 143(2), 46A
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Income Tax Appellate Tribunal, Hyderabad ‘ DB-A ‘ Bench, Hyderabad
Before: Shri Ravish SoodShri Madhusudan Sawdia
आयकर अपील�य अ�धकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ DB-A ‘ Bench, Hyderabad �ी रिवश सूद,�ाियक सद� एवं �ी मधुसूदन साविड़या लेखा सद� सम� | Before Shri Ravish Sood, Judicial Member A N D Shri Madhusudan Sawdia, Accountant Member आ.अपी.सं /ITA No.1406 & 1511/Hyd/2025 (िनधा�रण वष�/Assessment Year: 2016-17 & 2020-21) Dy. CIT Vs. Sarvejana Healthcare Circle 3(1) Private Limited, Hyderabad Hyderabad PAN: AAMCS6700Q राज� व �ारा/Revenue by: Smt.U.Mini Chandran,CIT(DR) िनधा��रती �ारा/Assessee by: C.A. Satya Dinakar सुनवाई की तारीख/Date of hearing: 24/03/2026 घोषणा की तारीख/Pronouncement: 08/04/2026 आदेश/ORDER Per Madhusudan Sawdia, A.M.:
These appeals are filed by the Revenue feeling aggrieved by the separate orders passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”) dated 25.06.2025 and 14.07.2025 for the A.Ys.2016-17 and 2020-21 respectively.
The brief facts of the case are that the assessee is a multi-specialty hospital engaged in the business of providing healthcare services. The assessee filed its return of income for Assessment Year 2016–17 on 16.10.2017, declaring total income of Rs.15,32,50,530/-. The assessee subsequently revised its return of income on 31.03.2017, revising the total income to Rs.18,17,25,530/-. The case of the assessee was selected for scrutiny and the assessment was completed under section 143(3) of the Income Tax Act, 1961 (“the Act”) on 25.12.2018, wherein addition of Rs.58,69,570/- was made. The assessee did not prefer any appeal against the said order. Subsequently, the case of the assessee was reopened under section 147 of the Act and accordingly, notice under section 148 of the Act dated 30.03.2021 was issued by the Learned Assessing Officer (“Ld. AO”). The assessee did not file any return of income in response to the said notice. During the reassessment proceedings, the assessee responded only on one occasion by filing submissions dated 13.10.2021. Considering the submissions of the assessee, the Ld. AO made addition of Rs.3,56,19,580/- on account of disallowance of depreciation on goodwill, Rs.50,38,59,200/- as income from other sources under section 56(2)(vii)(b) of the Act and Rs.65 lakhs under section 69A of the Act. Accordingly, the reassessment was completed by the Ld. AO under section 147 r.w.s. 144B of the Act on 31.03.2022, assessing the total income of the assessee at Rs.73,35,73,880/-.
Aggrieved by the reassessment order, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT (A) confirmed the addition of Rs.65 lakhs under section 69A of the Act and deleted the additions of Rs.50,38,59,200/- and Rs.3,56,19,580/-. Thus, the appeal of the assessee was partly allowed by the Ld. CIT (A).
5. Aggrieved by the relief granted by the Ld. CIT(A), the Revenue is in appeal before this Tribunal. At the outset, the Learned Departmental Representative (“Ld. DR”) submitted that the present appeal of the Revenue involves two issues, namely, (i) deletion of addition of Rs.3,56,19,580/- made by the Ld. AO on account of disallowance of depreciation on goodwill and (ii) deletion of addition of Rs.50,38,59,200/- made by the Ld. AO under section 56(2)(vii)(b) of the Act. With regards to the first issue relating to Disallowance of Depreciation on Goodwill, the Ld. DR invited our attention to para nos. 3, 5 and 6 of the order of the Ld. AO and submitted that during the year under consideration, the assessee had acquired the Secunderabad unit of M/s Sahrudaya Healthcare Pvt. Ltd. w.e.f. 06.06.2015 for a total consideration of Rs.24,30,00,000/-, whereas the net assets of the said unit as per audited financial statements were Rs.10,35,28,475/-. It was submitted that after adding Rs. 36,68,443/- on account of Business Transfer Adjustment, the assessee computed goodwill at Rs.14,31,39,968/- based on the book value of net assets. The Ld. DR submitted that the Ld. AO has not disputed the eligibility of depreciation on goodwill per se, but has denied the claim on the ground that the method adopted by the assessee for computation of goodwill is incorrect. According to the Ld. AO, goodwill should be computed as the excess of purchase consideration over the fair market value of net assets acquired, and not over the book value. Inviting our attention to para nos. 2.4 to 2.6 of the order of the Ld. CIT(A), it was further submitted that the Ld. CIT(A), while allowing the claim of depreciation, has not adjudicated upon this core issue raised by the Ld. AO and instead has decided the issue on a different aspect relating to the allowability of depreciation on goodwill by relying on judicial precedents. Accordingly, it was prayed that the matter be restored to the file of the Ld. CIT(A) for adjudication of the core issue.
6. Per contra, the Learned Authorized Representative (“Ld. AR”) submitted that there is a factual error in the findings of the Ld. AO in para no. 6 of his order, wherein the value of Rs.32.84 crores has been considered as the value of land and building, whereas the same represents the value of all tangible assets. The Ld. AR further invited our attention to para no. 8 of the order of the Ld. AO and submitted that the Ld. AO has relied upon an inapplicable judicial precedent. He also submitted that the goodwill has been correctly computed by the assessee as excess of purchase consideration over the book value of net assets, which is in accordance with Rule 11UA of the Income-tax Rules, 1962 (“the Rules”). It was thus contended that there is no error in the computation of goodwill and the order of the Ld. CIT(A) deserves to be upheld.
We have considered the rival submissions and perused the material available on record. We have gone through para nos. 3, 5 and 6 of the order of the Ld. AO, which is to the following effect:
“3. The assessee company during the year under consideration has entered into Business Transfer Agreement (BTA) with M/s Sahrudaya Healthcare Private Limited, in respect of Secunderabad unit, which is effective from 06.06.2015. The net assets of the unit as per Audited Financials are shown at Rs.10,35,28,475/- and consideration received by the assessee company is shown as Rs.24,30,00,000/-.
It has been verified from the information available that the assessee company considered the sale consideration received over and above the book value of assets as ‘Goodwill’. The total Goodwill is computed at Rs.14,31,39,968/- after adding Business Transfer Adjustment of Rs.36,68,443/-..
The book value of the assets cannot be taken for computing the goodwill. The assets have to be valued as per market value and the excess amount paid over the market value of the assets may only be considered as Goodwill. The assesse company owns land and buildings and other tangible assets amounting to Rs.32.84Crs. These are taken at book value for computing Goodwill and for claiming depreciation on the Goodwill. Business purchase agreement doesn’t indicate purchase of any Goodwill or the market value of the assets.”
On perusal of the above, we find that the main contention of the Ld. AO while denying depreciation on goodwill is with regard to the method of computation of goodwill. The Ld. AO has categorically observed that goodwill is required to be computed based on the fair market value of the net assets acquired and not on the basis of their book value. We have also gone through para nos. 2.4 to 2.6 of the order of the Ld. CIT(A), which is to the following effect:
On perusal of the above, we find that the Ld. CIT(A) has not adjudicated upon the core issue raised by the Ld. AO. Instead, the Ld. CIT(A) has proceeded to decide an altogether different issue relating to the eligibility of depreciation on goodwill, which was not the dispute raised by the Ld. AO in the assessment order. Further, as regards the contention of the Ld. AR that the Ld. AO has wrongly considered Rs.32.84 crores as the value of land and building alone, we find that the Ld. AO has clearly mentioned that the said value pertains to land and building and also other intangible assets. Therefore, the contention of the Ld. AR in this regard is not borne out from the record. Similarly, the contention of the Ld. AR that the goodwill has been computed in accordance with Rule 11UA of the Rules is also not acceptable, as Rule 11UA of the Rules is applicable for determination of fair market value for the purposes of section 56 of the Act and not for computation of goodwill in the context of depreciation under section 32 of the Act. In view of the present facts of the case, we are of the considered opinion that the Ld. CIT(A) has failed to adjudicate the core issue arising from the assessment order, namely, the correctness of the method adopted for computation of goodwill. Accordingly, we set aside this issue to the file of the Ld. CIT(A) with a direction to adjudicate the issue afresh on merits, after considering the contentions of both parties and after providing adequate opportunity of being heard to the assessee. Thus, the ground raised by the Revenue on the first issue is allowed for statistical purposes.
With regard to the second issue, the Ld. DR submitted that the assessee had filed a valuation report for the first time before the Ld. CIT(A), which constitutes additional evidence within the meaning of Rule 46A of the Rules. It was contended that the Ld. CIT(A), without calling for a remand report from the Ld. AO, has deleted the addition made under section 56(2)(vii)(b) of the Act. It was thus submitted that the Ld. CIT(A) has violated the procedure prescribed under Rule 46A of the Rules and principles of natural justice. Accordingly, the Ld. DR prayed that the order of the Ld. CIT(A) be set aside and the matter be restored to his file with a direction to call for a remand report from the Ld. AO and thereafter decide the issue afresh in accordance with law.
Per contra, the Ld. AR fairly admitted that the valuation report was not submitted before the Ld. AO during the assessment proceedings and the same was filed for the first time before the Ld. CIT(A). However, it was submitted that the Ld. CIT(A), after considering the valuation report, has rightly deleted the addition made by the Ld. AO.
We have considered the rival submissions and perused the material available on record. It is an admitted fact that the additional evidence in the form of valuation report was submitted by the assessee for the first time before the Ld. CIT(A). As per Rule 46A of the Rules, where any additional evidence is admitted by the appellate authority, the same cannot be considered without affording an opportunity to the Ld. AO to examine the evidence and to furnish a remand report. In the present case, we find that the Ld. CIT(A) has admitted the additional evidence but has not called for any remand report from the Ld. AO. Thus, the Ld. CIT(A) has failed to follow the mandatory procedure prescribed under Rule 46A of the Rules, resulting in violation of principles of natural justice. In view of the present facts of the case, we set aside the impugned order of the Ld. CIT(A) on this issue and restore the matter to his file with a direction to call for a remand report from the Ld. AO and thereafter decide the issue afresh in accordance with law, after considering the remand report and providing adequate opportunity of being heard to the assessee. Accordingly, the ground raised
by the Revenue with regards to the second issue is allowed for statistical purposes.
14. The Revenue has raised the following grounds of appeal:
15. The brief facts of the case are that the assessee filed its return of income for Assessment Year 2020-21 on 24.02.2021, declaring total income of Rs.16,30,24,810/-. The case of the assessee was selected for scrutiny under CASS and accordingly notice under section 143(2) of the Act was issued by the Ld. AO. During the course of assessment proceedings, the Ld. AO made disallowances of Rs.5,67,61,002/- on account of reversal of excess provision of rent straight lining, Rs.1,23,38,700/- on account of disallowance of depreciation on goodwill, Rs.32,08,439/- on account of gratuity, Rs.6,19,251/- on account of ESOP provision and Rs.3,26,536/- on account of leave encashment. Accordingly, the Ld. AO passed the assessment order under section 143(3) r.w.s. 144B of the Act on 23.09.2022, making total additions of Rs.7,32,53,928/- and assessing the total income of the assessee at Rs.23,62,78,735/-.
16. Aggrieved by the order of the Ld. AO, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT (A) deleted all the additions made by the Ld. AO except the addition of Rs.3,26,536/- on account of provision for leave encashment.
17. Aggrieved by the relief granted by the Ld. CIT(A), the Revenue is in appeal before this Tribunal. At the outset, we find that Ground Nos. 2, 3 and 4 of the Revenue relate to deletion of addition of Rs.1,23,38,700/- on account of disallowance of depreciation on goodwill. We find that the issue involved in these grounds is similar to the issue considered by us in Revenue’s appeal in Assessment Year 2016–17. Therefore, our observations and findings in for Assessment Year 2016–17 shall mutatis mutandis apply to this appeal also. Accordingly, following our observations and findings in the said appeal, we set aside the issue involved in Ground Nos. 2, 3 and 4 to the file of the Ld. CIT(A) for re-adjudication in accordance with law and in line with the directions given by us in Assessment Year 2016–17.
18. Further, with regard to Ground Nos. 1, 5 and 6, the Ld. DR submitted that the assessee had filed additional evidence before the Ld. CIT(A) under Rule 46A of the Rules and the Ld. CIT(A) has failed to call for a remand report from the Ld. AO, thereby violating the mandatory procedure prescribed under Rule 46A of the Rules. Accordingly, it was prayed that these issues be set aside to the file of the Ld. CIT(A) for fresh adjudication after obtaining remand report from the Ld. AO.
19. Per contra, the Ld. AR submitted that no additional evidence was filed before the Ld. CIT(A) and the issues were decided by the Ld. CIT (A) on the basis of material already available on record. It was contended that the Ld. CIT(A) has rightly adjudicated the issues and therefore no interference is warranted.
20. We have considered the rival submissions and perused the material available on record. As regards Ground No. 1 of the Revenue relating to deletion of Rs.5,67,61,002/- on account of reversal of excess provision of rent straight lining, we have gone through para-No.12 of Form No. 35 placed at page no.31 and 32 of the appeal set, which is to the following effect:
21. On perusal of the above, we find that the assessee has filed additional evidence in the form of audited financial statements for the years 2015–16 to 2018–19 along with calculation of rent equalization for those years. Therefore, when the assessee itself has stated in Form No.35 that additional evidence under Rule 46A of the Rules has been filed, the contention of the assessee that no additional evidence was filed cannot be accepted. We further find that the Ld. CIT(A) has not called for any remand report from the Ld. AO in accordance with Rule 46A of the Rules, thereby violating the mandatory statutory procedure. Accordingly, this issue is set aside to the file of the Ld. CIT(A) for re-adjudication after calling for remand report from the Ld. AO. Accordingly, ground no. 1 of the Revenue is allowed for statistical purposes.
22. As regards Ground No. 5 of the Revenue relating to deletion of Rs.32,08,439/- on account of gratuity, we have gone through para No. 5.3.2 of the order of the Ld. CIT(A), which is to the following effect:
23. On perusal of the above, we find that the Ld. CIT (A) has categorically recorded that the assessee has submitted list of employees to whom gratuity was paid during the year along with bank statement evidencing payments of gratuity. Therefore, it is evident that additional evidence to this extent was submitted by the assessee before the Ld. CIT(A). However, the Ld. CIT(A) has not called for any remand report from the Ld. AO in accordance with Rule 46A of the Rules, thereby violating the mandatory statutory procedure. Therefore, this issue is also set aside to the file of the Ld. CIT(A) for adjudication afresh after calling for remand report from the Ld. AO. Accordingly, ground no. 5 of the Revenue is allowed for statistical purposes.
24. As regards Ground No. 6 of the Revenue relating to deletion of Rs.6,19,251/- on account of ESOP provision, we have gone through para No. 5.4.3 of the order of the Ld. CIT(A), which is to the following effect:
25. On perusal of the same, we find that the Ld. CIT(A) has allowed the claim of the assessee based on facts already available in the tax audit report, which was also there before the Ld. AO. Therefore, in our considered view, no additional evidence has been filed in respect of this issue. Accordingly, we do not find any infirmity in the order of the Ld. CIT(A). Accordingly, Ground No. 6 of the Revenue is dismissed.
26. Ground No. 7 of the Revenue is general in nature and does not require any separate adjudication. Accordingly, the same is dismissed.
In the result, the appeal of the Revenue in is partly allowed for statistical purposes.
To sum up, the appeals of the Revenue in is partly allowed for statistical purposes. Order pronounced in the Open Court on 8th April, 2026. Sd/- Sd/- (RAVISH SOOD) (MADHUSUDAN SAWDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, dated 8th April, 2026. Vinodan/sps Copy to: S.No Addresses 1 Dy. CIT, Circle 3(1) 7th Floor, Signature Towers, Hyderabad 500084 2 Sarvejana Healthcare (P) Ltd, 1-7-186-189 & 1-7-201-205 Paradise Centre, Prendergast Road, Hyderabad 500003 3 Pr. CIT - Hyderabad 4 DR, ITAT Hyderabad Benches 5 Guard File By Order
TIRUPATI Digitally signed by TIRUPATI YAMINI NAGA YAMINI NAGA MALLESWARI Date: 2026.04.08 MALLESWARI 16:46:41 +05'30'