ACIT, JAIPUR vs. SHARMA EAST INDIA HOSPITALS AND MEDICAL RESEARCH LTD., JAIPUR

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ITA 167/JPR/2017Status: DisposedITAT Jaipur10 April 2017AY 2012-137 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the deletion of interest disallowance, finding that the assessee had sufficient interest-free funds. For bogus purchases, the Tribunal affirmed the CIT(A)'s decision to restrict the disallowance, following a previous consistent ruling.

What were the facts?

Following a search operation, the Assessing Officer made additions for bogus purchases and disallowed interest expenses. The CIT(A) deleted both additions, leading to an appeal by the Revenue. The assessee argued that sufficient interest-free funds were available to cover the advances and investments.

What were the issues?

Whether the disallowance of interest expenditure was justified when sufficient interest-free funds were available, and whether the addition for bogus purchases was correctly restricted.

Which sections of the Income-tax Act were involved?

Section 132,Section 143,Section 153B,Section 36(1)(iii)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, JAIPUR BENCHES, JAIPUR

Before: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 167/JP/2017

PER SHRI KUL BHARAT, JM.

This appeal by the revenue directed against the order of ld. CIT (A)-4, Jaipur

dated 22.12.2016 pertaining to assessment year 2012-13. The revenue has raised

the following grounds of appeal :-

“1. Whether on the facts and in the circumstances of the case the CIT(A) was justified in deleting the addition of Rs. 35,90,595/- on account of disallowance of interest.

2.

Whether on the facts and in the circumstances of the case the CIT(A) was justified in deleting the addition of Rs. 4,72,778/- on account of bogus purchases.

The appellant craves, leave or reserves the right to amend, alter, add, or forego any ground(s) of appeal at any time before or during the hearing of this appeal”

2 ITA No.167/JP/2017 M/s Sharma East India Hospitals and Medical Research Ltd.

2.

Briefly stated the facts are that the search & seizure operation u/s 132(1) of

the Income Tax Act, 1961 was carried out on 08/06/2011, at the different premises

of the Jaipur Hospital Group. Subsequently, in order u/s 143(3) and 153B(b) of the

Act, was framed vide order dated 21/03/2014. While framing the assessment, the

Assessing Officer made addition on account of bogus purchase of Rs. 5,56,210/- and

disallowance the interest of Rs. 35,90,595/-. Aggrieved by this order, the assessee

preferred an appeal before ld. CIT(A) who after considering the submissions deleted

both the additions. Aggrieved by this, the Revenue is in appeal before this Hon’ble

Tribunal.

3.

Ground no. 1 is against deletion of disallowance of interest expenditure. Ld.

Departmental Representatives submitted that the CIT(A) was not justified in deleting

the disallowance. He supported the order of the Assessing Officer.

3.1 On the contrary, ld. Counsel for the assessee reiterated the submissions a

made in the written submissions. The relevant contents of the

written submissions are reproduced as under:-

“Here the ld. AO had disallowed interest paid by the assessee on the borrowed funds, b6y alleging that there were certain interest free advances and non-business investment made by the assessee out of the funds so borrowed and accordingly he made the disallowance by applying interest rate of 13% on such advances, though after reducing the value of funds already available with the assessee in the shape of Share Capita, Reserves & Surpluses; but without properly appreciating the real nature of investment/ advance made and further ignoring the fact that, the assessee was having at its disposal sample amount of other interest free funds (duly appearing in the financial statements of assessee). Most importantly, it is submitted that, the ld. AO had miserably failed to prove any sort of nexus between borrowed funds and the alleged interest free advance and investments made by the assessee, especially when the assessee was having at its disposal sufficient amount of fund to meet out all the concerned advances/investments.

3 ITA No.167/JP/2017 M/s Sharma East India Hospitals and Medical Research Ltd.

Attention of the Hon’ble bench is invited to the fact that, similar disallowances by making identical allegations under exactly similar circumstances were also made in immediately preceding assessment years (i.e. in AY 2010-11 and AY 2011-12) where such disallowances were fully deleted by the ld. CIT(A) and such orders were upheld by this Hon’ble Bench vide orders dated 05/06/2015 in ITA Nos. 718 & 719/JP/2014 (Assessee’s Appeals) and 803 & 804/JP/2014 (departmental appeal) (copy enclosed), wherein it has been observed a under: (page 20 para 3.10)

“3.10 Apropos revenue appeals about relief in respect of claim of interest u/s 36(1) (iii); from the financial statements and assessee’s submission following facts clearly emerge from the record:-

(i) The assessee had at its disposal sufficient available funds in the form of share capital, reserves and other interest free funds etc. which are more than alleged advances investments.

(ii) The nature of such advances/investments as explained and considered by Ld. CIT(A) leave no room for any doubt that the alleged advanced/investments were for the purposes of assessee’s hospital and medical professions.

In view of the above findings and observations, no disallowance of interest u/s 36(1)(iii) is justified.”

In the year under appeal, ld. CIT(A) has deleted the disallowance by following the orders of his predecessor which orders were further upheld by the Hon’ble Bench, thus in the circumstances the order passed by the ld. CIT(A) deleting the disallowance deserves to be upheld.

Further it is submitted that while making the disallowance, the ld. AO has committed a gross error in considering only the amount of Rs. 531.38 lacs as interest free funds available with assessee for making concerned advances/investment and leaving out/ skipping other interest free funds available with the assessee to meet out these advances/ investments which are grouped under the head “Current Liabilities” totaling to Rs. 428.55 lacs. Details of which is as under:

Particulars Amount (lacs) Sundry Creditors for goods and 18.58 expenses Advances from patients 18.70 Other payables 86.71

4 ITA No.167/JP/2017 M/s Sharma East India Hospitals and Medical Research Ltd.

Outstanding Liabilities Expenses 302.63 Long term advances from patients 1.93 Total 428.55

From above it is amply evident that the assessee had sufficient, interest free funds available with it, and if the same is added to Share Capital and Reserve& Surplus, already considered by the ld. AO, the total interest free funds available with the assessee comes to Rs. 959.93 lacs which is more than the total alleged non-business advances/assets/investments of R. 723.19 lacs (wrongly appearing as 797.35 lacs in the assessment order). Thus there is no question of application of interest bearing funds in non-business advances/assets/investments.”

3.2 We have heard the rival contentions, perused the material available on

record. We find that the ld. CIT(A) has given a finding on fact by observing as

under:-

“The assessee, own fund, which non-interest bearing as on 31/03/2012 is as under: � Share capital issued and subscribed Rs. 415.75 Lakhs � Reserve and surplus Rs. 115.63 Lakhs

Rs. 531.38 Lakhs

Further, total advances made by the assessee during the year are as under:

Loans and Advances Amount Investment in lands 1,55,45,014.00 Advances to Ganpati Plastifab Ltd. 15,00,000.00 Shrama Memorial Hosp. & Research Institute (Land) 4,46,041,00 Sharma Memorial Hosp. & Research Institute 3,17,44,419.00 (Advance) * Shrey Associates 20,00,000.00 BLS Projects (P)ltd 11,90,000.00 Silvering Roadways 6,50,000.00 Sharma Nursing Home & Bone Hosp.(P) ltd 2,77,290.00 Sharma Hospital (P) ltd 1,36,431.00 Non-current investments in shares of various 31,46,000

5 ITA No.167/JP/2017 M/s Sharma East India Hospitals and Medical Research Ltd.

companies Non-current investments in immovable (land at 1,56,84,000.00 Kalwar road) Total 7,23,19,195.00

It is pertinent to mention here that advances made to M/s Sharma Memorial Hosp. & Research Institute (Advance) amounting to Rs. 3,17,44,419/= is covered by aforementioned decision of Hon’ble ITAT Jaipur in assessee’s own case(supra). Therefore, the balance amount of Rs. 4,05,74,776/= (7,23,19,195 – 3,17,44,419) is fully covered by interest free fund available with in form of share capital & reserve and surplus of Rs. 531.38 Lakhs as on 31.03.2012 (Reference balance sheet & assessment order pg 12)

In view of these facts and circumstances of the case as discussed above, addition made of Rs. 35,90,595/= is hereby deleted. Assessee’s appeal in Gr No 1 to 1.1 stands allowed.”

The above finding of fact is not controverted by the Revenue. Therefore, this

ground of the Revenue’s appeal is rejected.

4.

Ground no. 2 is against deletion of addition of Rs. 4,72,778/- made on

account of bogus purchases.

4.1 The ld. Departmental Representatives supported the order of the ld.

Assessing Officer. The ld. Counsel for the assessee submitted that the issue is

covered by the decision of the Tribunal.

4.2 We have heard the rival contentions, perused the material available on

record. We find that ld. CIT(A) has decided this issue by observing as under”-

“Therefore in view of facts & circumstances of the case and respectfully following aforementioned decision f Hon’ble Jaipur ITAT, AO is directly to restrict the disallowance to 15% of unverifiable purchases, Rs. 5,56,210/- in AY 2012-13. This will translate into addition of Rs. 83,432/- in AY 2012-13. Assessee’s appeal in Gr. No. 2 to 2.5 in AY 2012-13 are partly allowed.”

6 ITA No.167/JP/2017 M/s Sharma East India Hospitals and Medical Research Ltd.

The ld. CIT(A) has followed the decision of the Tribunal in ITA No. 718 &

719/JP/2014. This fact is not controverted by the Revenue. Therefore, taking a

consistent view, we do not see any reason to interfere into the order of the ld.

CIT(A), same is hereby affirmed. This ground of the Revenue’s appeal is dismissed.

5.

In the result, appeal of the Revenue in ITA No. 167/JP/2017 is dismissed.

Order pronounced in the open court on Monday, the 10th day of April 2017.

Sd/- Sd/- ( dqy Hkkjr) ¼foØe flag ;kno½ (VIKRAM SINGH YADAV) ( KUL BHARAT ) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Jaipur Dated:- 10/04/2017. Pooja/

आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू

1.

The Appellant- The ACIT, Central Circle-1, Jaipur. 2. The Respondent- M/s. Sharma East India Hospitals and Medical Research ltd., Jaipur. 3. The CIT(A). 4. The CIT, 5. The DR, ITAT, Jaipur 6. Guard File (ITA No. 167/JP/2017)

vkns'kkuqlkj@ By order,

सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत

7 ITA No.167/JP/2017 M/s Sharma East India Hospitals and Medical Research Ltd.

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