KASTURI MEDICAL CENTRE PRIVATE LIMITED,JOKA, THAKURPUKUR vs. ADDITIONAL/JOINT/DEPUTY/ASSISSTANT COMMISSIONER OF INCOME TAX/INCOME-TAX OFFICER, DELHI

The learned CIT(A) dismissed the appeal and sustained the addition, concurring with the Assessing Officer that the expenditure appeared inflated. The contractual limits were exceeded, Estimation of income at 17% was reasonable considering earlier years’ net profit ratios.

Aggrieved by the above order, assessee preferred an appeal before this tribunal challenging the order of the Ld. CIT(A). At the time of the hearing, Ld. AR submitted that the entire expenditure was genuine, audited, and supported by work orders and bills. The apparent excess over contractual limits was solely due to GST component, which was wrongly ignored by the Assessing Officer. On reconciliation, the payments exactly matched the contractual terms inclusive of GST. No defect was pointed out in vouchers, books, or audit reports. There was substantial increase in turnover from approximately ₹13.17 crores to ₹14.39 crores. The Assessing Officer substituted his own commercial judgment, which is impermissible in law. Once business expediency and genuineness are established, the Department cannot question the wisdom of the expenditure. The AR relied on settled principles that commercial expediency is to be judged from the assessee’s perspective, and estimation without rejection of specific defects is invalid. 4.1 The ld. AR submitted that all expenses are audited with no suppression or bogus claim and expenditure is read and incurred for Kasturi Medical Centre Pvt. Ltd business purposes and commercial exigency and no defect or ingenuity has proved by the Department. It is a settled law that once expenditure is shown to be genuine and incurred wholly for business, the Income Tax Department cannot substitute its own commercial judgment or make the business decision an issue, unless there is proof of lack of nexus between the expenditure and the assessee's business, which has held by Hon’ble Suprmee Court in the case of Sattoon J. David & Co. Pvt. Lad x CIT, 118 ITR 261 (SC)). The ld. AR also submitted that contractual ceilings of ₹6,92,000 (ward staff) and 232,100 (supervisors) were never breached and the so-called "excess" of ₹7,07,957 and 32,936 arose purely due to payment of GST of ₹1,07,994 and 5,024 respectively and no ingenuity or sham expenditure has been established and Assessing Officer passed the assessment order on conjecture and surmises without properly verifying the evidences submitted by the assessee. The Hon'ble Supreme Court in CIT Walchand & Co. (P) Ltd (1967) 65 ITR 381 (SC), J.K. Woollen Manufacturers CIT (1969) 72 ITR 612 (SC) and CIT v Panipat Woollen & General Mills Co. Lal (1976) 103 ITR 66 (SC) held that so long as the expenditure is real and incurred for business purposes, the Department cannot substitute its own wisdom to determine what is "reasonable." This doctrine has been reaffirmed in SA. Builders Laid. v. CIT (Appeals) (2007) 288 ITR 1 (SC) and Hero Cycles (P) Lal x CIT (2015) 379 ITR 347 (SC), where it was emphasised that once nexus with business purpose is shown, no disallowance is permissible merely because the Revenue perceives the quantum as excessive. Most recently, the Supreme Court in Shiv Raj Gupta v. CIT (2020) 425 ITR 420 (SC) reiterated that the perception of the Assessing Officer cannot override the commercial realities as assessed by the assessee, and that the Revenue cannot second-guess or re-characterise a bona fide transaction negotiated at arm's length. Accordingly, any attempt by the Assessing Kasturi Medical Centre Pvt. Ltd Officer to question the necessity or magnitude of a bona fide outlay amounts to an impermissible substitution of business judgment, squarely barred by these binding precedents. Therefore, the action of the AO in treating the entire bank credits as business receipts and consequently rejecting the books under section 145(3) is unsustainable and the addition of ₹85,40,911 made by the Assessing Officer may be deleted.

On the other hand Ld. DR supported the order of the authority below.

We after considering rival submissions and examining the material on record, we find that no specific defect in books of account has been pointed out by the Assessing Officer. The entire housekeeping expenditure is supported by Work orders, Ledger accounts, Bills, Audit reports. The so-called excess payment is explained by GST inclusion, which was not properly appreciated by the lower authorities. Merely because expenditure increased substantially does not justify rejection of books unless inflation or non-genuineness is proved, which is absent here. The assessee’s decision to outsource housekeeping services to meet accreditation standards is a commercial decision, beyond the scope of the Assessing Officer’s interference. The primary reason for the increase was to win the competition from local hospitals and for maintenance of volume of business in the highly competitive private health care sector. It was a prudent business strategy decided by the management as the OPD consulting doctors are the drivers of business of all unbranded private healthcare service providers i.e. hospitals and nursing homes. It was doctors who brought or introduced the patients for treatment in the hospital of the assessee company -, and this is true for almost all units operating in private healthcare sector throughout India. The revenue Kasturi Medical Centre Pvt. Ltd from operations earned by the assessee company was Rs. 14.39 crores, as compared to Rs. 13.79 crores in the immediately preceding previous year. Apparently there had been an increase by Rs. 0.60 crores (60 lakhs). This scenario would not have been possible had the fees paid to consulting doctors were not hiked or increased to a material extent. So, it was a prudent business strategy ensuring survival, growth and liquidity (could be evidenced from the cash flow statement submitted already). Estimation of income after rejection of books, without valid grounds under section 145(3), is unsustainable in law. It is a settled position that the Income-tax Department cannot step into the shoes of the businessman and decide how business should be conducted. In view of the above facts and legal position, we hold that rejection of books of account under section 145(3) was unjustified, estimation of income at 17% was arbitrary, The addition of ₹85,40,911 is unsustainable. Accordingly, the addition is deleted, and the appeal of the assessee is allowed.

In the result the appeal of the assessee is allowed. Kolkata, the 12th December, 2025.