SHK HOSPITALS PRIVATE LIMITED,HYDERABAD vs. INCOME TAX OFFICER, WARD-3(1), HYDERABAD

Brief facts of the case are that the assessee company, engaged in hospital business, e-filed its return of income for the A.Y 2012-13 on 21.05.2013 admitting a total income of Rs.Nil after set off of the brought forward losses of the earlier years. During the assessment proceedings u/s 143(3) of the Act, the assessee was required to file certain details. However, there was no response from the assessee and therefore, the AO completed the assessment ex-parte u/s 144 of the Act on the basis of the material available on record. He observed that the assessee had gross receipts of Rs.4,46,65,456/- and he sought to estimate the income at 10% of the gross receipts clear of all the expenditure

Aggrieved, the assessee preferred an appeal before the CIT (A) stating that under similar circumstances, the AO for the A.Y 2011-12 had held that there is no merit in estimating the income at 10% of the gross receipts and had accordingly restricted the disallowance to Rs.25.00 lakhs. The assessee relied upon the findings of the CIT (A) and also the decision of the ITAT for the earlier A.Y for restricting the disallowance to Rs.25.00 lakhs. The CIT (A), however, confirmed the order of the AO and the assessee is in second appeal before us again reiterating the submissions made before the AO and the CIT (A) and also by placing reliance on the decision of the ITAT in the case of the assessee for the A.Y 2011-12. The assessee has raised the following grounds of appeal: “1. The Appeal order is bad in law and is contrary to the facts. 2. The Learned Commissioner of Income Tax (Appeal) has not passed the speaking order while affirming the estimation of income @ 10% of the gross receipts, since the assessee company is incurring the perpetual losses from inception and as per Audited Balance sheet of 2017, reserves & Surplus are showing negative balance of Rs. 3.11 Crs. 3. The Learned Commissioner has not considered, the order of his predecessor in assessor's own case for the A.Y. 2011- 12, where is against estimation of income @ 10% only a round sum of Rs. 25 Lacs was disallowed 4. It is prayed that action of Learned Commissioner in confirming income estimation @ 10 % of gross receipts is aribitratory and against equity and natural justice. It is

The learned Counsel for the assessee placed reliance upon the decision of the ITAT and prayed that the disallowance should be restricted to Rs.25.00 lakhs this year also. He submitted that the assessee has never been making any profits and ultimately had closed down its business in the subsequent years. He prayed that the order of the ITAT may be followed.

The learned DR however, supported the orders of the authorities below.

Having regard to the rival contentions and the material on record, I find that the assessee had huge carried y brought forward losses and therefore, the assessee had been admittedly ‘Nil’ income. Further, for the A.Y 2011-12 also, the AO had estimated the income at 10% of the gross receipts and the Tribunal had restricted the same to Rs.25.00 lakhs after observing that the assessee hospital has ultimately been closed down. The relevant para of the ITAT order is reproduced hereunder for ready reference: “8. Even with regard to the estimate of income at Rs. 25 lakhs on roundsum basis, no material was brought on record by the Learned Departmental Representative to contradict the findings of the Ld. CIT(A). It is not in dispute that the assessee has been incurring losses since inception and it was ultimately closed. The observation that the major part of the income are from Arogya Sri Scheme was also not disputed. Under the given circumstances, we are of the view that the estimation made by the Ld. CIT(A) does not call for any interference. Accordingly,

In the said A.Y, the CIT (A) had estimated the disallowance at Rs.25.00 lakhs which was much less than 5% of the gross receipts. By restricting the set off of Rs.25.00 lakhs for the relevant A.Y before us, it could be nearly 5% of the gross receipts. Therefore, respectfully following the decision of the Coordinate Bench and also taking into consideration the assessee’s agreement to estimate the disallowance at Rs.25.00 lakhs, the AO is directed to restrict the disallowance to Rs.25.00 lakhs. Assessee’s appeal is accordingly partly allowed.

In the result, assessee’s appeal is treated as partly allowed. Order pronounced in the Open Court on 3rd April, 2019. Sd/- (P. Madhavi Devi) Judicial Member