OLIVE HOSPITALS PRIVATE LIMITED, HYD,HYDERABAD vs. ACIT, CIRCLE-16(3), HYD, HYDERABAD

Brief facts of the case are that the assessee is a company engaged in the business of Speciality Hospitals. It filed its return of income for the assessment year 2012-13on 28.09.2012 admitting a loss of Rs. 6,27,55,359/-. The return of income was initially processed u/s 143(1) of the Act. Thereafter, the case was selected for scrutiny u/s CASS and accordingly the assessment u/s 143(3) of the Act was completed vide order dated 30.03.2015. During the assessment proceedings, the A.O. observed that there was a survey u/s 133A on 21.01.2014 in the business premises of the assessee. The Assessing Officer called for the books of account of the assessee-company along with the supporting bills / vouchers for the expenditure debited to P & L Account etc. The assessee submitted the information called for and on verification of the same, the A.O. observed that the main observation of the survey team was that the assessee-company has made certain payments to Doctors who have referred patients to the hospital which are debited to P & L Account under the head ‘referral payments’. A.O. observed subsequent to survey operations, vide letter dated 04.02.2014 the assessee agreed for the disallowance of a portion of payments to the Doctors to avoid further litigation and accordingly, the A.O disallowed a sum of Rs. 11,30,073/- and brought it to tax.

The Learned Counsel for the Assessee, while reiterating the submissions made before the CIT, submitted that the CIT has initiated the 263 proceedings only on the basis of audit objection and has not applied his mind to come to the conclusion that the assessment order is erroneous and prejudicial to the interest of revenue. He further submitted that the A.O. has called for the relevant material relating to the deduction u/s 35AD of the Act during the assessment proceedings u/s 143(3) and that the assessee-company had produced such information before the A.O. and therefore, it cannot be said that the A.O. has not applied his mind to the claim of the assessee making the assessment order erroneous. He has drawn our attention to the submissions of the assessee before the A.O. dated 10/11/2014 and assessee’s reply dated 04/11/2015, 12/09/2015 to the notice issued u/s 142(1) of the Act, wherein at point no.6 the assessee submitted as under:

Thus, according to the Learned Counsel for the Assessee, relevant material has been submitted before the A.O. and after being satisfied with the allowability of the assessee’s claim only, the A.O. has allowed the deduction u/s 35AD of the Act. Further, he also submitted that the CIT has not brought out as to how the assessment order has caused prejudice to the interest of Revenue and therefore, the twin conditions of section 263 of the Act are not satisfied and the revision order needs to be set-aside. He relied upon the following decisions in support of the above contention: 1. MOIL Ltd vs. CIT [2017] 396 ITR 244 (Bom.) 2. CIT vs. Reliance Communication Ltd [2017] 396 ITR 217 (Bom.) 3. CIT vs. Nirav Modi [2016] 390 ITR 292 (Bom.) 4. Lanco Kondapalli Power Ltd vs. JCIT [2014] 152 ITD 132 5. CIT and Another Vs. Gokuldas Esports, Paprika, Weal Monumertal Memorials [2011] 333 ITR 214 6. CIT vs. G.K. Kabra [1995] 251 ITR 707 (Cal.) 7. Unipro Techno Infrastructure (P) Ltd vs. PCIT (2017) 185 TTJ 205 8. Jeewanlal Ltd vs. ACIT [1977] 108 ITR 407 (Cal)

Learned Departmental Representative, on the other hand, supported the orders of the authorities below.

Having regard to the rival contentions and the material on record, we find that the assessee has started the hospital on 14th May, 2010 and in proof thereof, the news paper cuttings are filed in the paper book. The assessee has received a certificate of Temporary Registration of A.P. Allopathic Private Medical Care establishments on 16.06.2010. The assessee has made an application for exemption u/s 17(2)(ii)(b) to the Income Tax Department on 18.08.2011 and the approval was granted vide letter dated 17.10.2012. Therefore, it is concluded that the hospital had been setup and the assessee has started its operations from the date of inauguration of the hospital. The Ground on which the CIT has

The Hon’ble Madras High Court in the case of CIT vs. G.R. Tangamaligai [2003] 259 ITR 129 has held that in the absence of any finding that there is loss of revenue, interference u/s 263 is not justified. Similar view was taken by the coordinate Bench of the Tribunal at Chandigarh in the case of Punjab Wool Syndicate vs. ITO [2012] 17 ITR (T) 439 (Chandigarh). Further, the Hon’ble Delhi High Court in the case of CIT vs. Ashish Rajpal [2010] 320 ITR 674 (Delhi) and also in the case of CIT vs. Vikas Polymers [2012] 341 ITR 0537 (Del.) has held that where the Assessing Officer during the scrutiny assessment proceedings has raised a query which was answered by the assessee to the satisfaction of the Assessing Officer but the same was not reflected in the assessment order, the conclusion cannot be drawn by the Commissioner that no proper enquiry with respect to the issue was made by the Assessing Officer which enabled him to assume jurisdiction u/s 263 of the Act. The Hon’ble Delhi High Court in the case of ITO vs. D.G. Housing Projects Ltd [2012] 343 ITR 329 (Delhi)

We find that in the case before us also, the Commissioner has not examined and decided as to how the order is prejudicial to the interest of revenue but has directed the Assessing Officer to decide the aspect, which is not permissible.

Therefore, respectfully following the above decisions on the issue, we hold that the revision order passed u/s 263 of the Act dated 22.03.2017 is not sustainable in law. The assessee’s appeal is accordingly allowed.

In the result, appeal filed by the assessee is allowed. Pronounced in the open Court on 30th January, 2019.