AO Can’t Treat Turnover of Firm Running Nursing Home as Professional Income if Doctors Declared Fees in Their ITRs | ITAT

Case Details: Kety Medicare Centre vs. ACIT CC-2, Thane - [2025] 171 taxmann.com 728 (Mumbai-Trib.)

Judiciary and Counsel Details

• Anikesh Banerjee, Judicial Member & Amarjit Singh, Accountant member
• Mani Jain, for the Appellant.
• Hemanshu Joshi, SR DR for the Respondent.

Facts of the Case

The assessee is a partnership firm operating a nursing home. A survey was conducted under Section 133A during which it was discovered that the assessee had suppressed its receipts. The statement of one of the partners was recorded, wherein he admitted to an additional income of Rs. 86,25,000 due to the suppression of receipts for the relevant financial year.

Subsequently, the assessee filed its income tax return (ITR), declaring a total turnover of Rs. 1,40,15,090. The profit was reported under Section 44AD of the Act at a rate of 8.9% of the turnover. The assessee also disclosed interest income, and the total income declared in the return was Rs. 15,98,720.Subsequently, the assessee filed its income tax return (ITR), declaring a total turnover of Rs. 1,40,15,090. The profit was reported under Section 44AD of the Act at a rate of 8.9% of the turnover. The assessee also disclosed interest income, and the total income declared in the return was Rs. 15,98,720.

During the assessment proceedings, the AO considered the recorded statement of the partner, particularly paragraph 18, in which the additional income of Rs. 86,25,000 was acknowledged. The AO rejected the assessee’s declared income in the return and added back the undisclosed income of Rs. 86,25,000.

The matter reached the Mumbai Tribunal.

ITAT Held

The Tribunal held that the assessee was a partnership firm and was providing services such as patient room rentals, X-ray facilities, and other ancillary inpatient department (IPD) services. The income generated from doctors’ fees was separately declared by the respective doctors in their individual tax returns. Therefore, the assessee cannot be classified as a ‘person’ engaged in the ‘medical profession’.

A combined reading of Sections 44AD(6) and 44AA(1) clearly establishes that the provisions of Section 44AD do not apply to individuals engaged in the medical profession. However, the assessee was a partnership firm providing such services. Therefore, the turnover of the assessee firm should not be considered as professional income.

In this regard, the Tribunal placed reliance on the decision in S. Khader Khan Son [2008] 300 ITR 157 (Madras), wherein it was held that a statement recorded under section 133A has no evidentiary value, and any admission made during such statement cannot be made the basis of addition. The assessee has consistently maintained a net profit ratio ranging between 6% and 11% on its turnover in preceding and succeeding years, which the revenue authorities have accepted. Accordingly, the addition of Rs. 86,25,000 was quashed.

List of Cases Reviewed

• Dedicated Health Care Service TPA (India) (P.) Ltd. v. ACIT [2009] 324 ITR 345 [Para 10] – distinguished.
• CIT v. Dr. K. K. Shah 135 ITR 146 [Para 15]
• Shalini Hospitals v. ACIT [2007] 108 ITD 534 [Para 15]
• CIT v. S. Khader Khan Son, 300 ITR 157 [Para 15] – followed.

List of Cases Referred to

• CIT v. S. Khader Khan Son 25 taxmann.com 413 (SC) (para 8)
• Dedicated Health Care Services TPA (India) (P.) Ltd. v. Asstt. CIT [2010] 191 Taxman 1/324 ITR 345 (Bombay) (para 10)
• CIT v. Dr. K.K. Shah [1982] 135 ITR 146 (Gujarat) (para 10)
• Shalini Hospitals v. Asstt. CIT [2007] 108 ITD 534/[2006] 10 SOT 662 (Hyderabad) (para 12)
• CIT v. Upasana Hospital [1996] 89 Taxman 525/[1997] 225 ITR 845 (Kerala) (para 13).