Case Commentary: Golkunda Commercial Pvt. Ltd. vs. ITO, NFAC – ITAT Indore Bench
Introduction
The Income Tax Appellate Tribunal (ITAT), Indore Bench, in its order dated 08.05.2026, delivered a significant ruling in the case of Golkunda Commercial Pvt. Ltd. vs. ITO, NFAC (ITA No. 882/Ind/2025) for Assessment Year (AY) 2020-21. The Tribunal allowed the assessee’s appeal, deleting a disallowance of Rs. 15,24,457/- made by the Assessing Officer (AO) and upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The disallowance pertained to the reimbursement of medical expenses incurred by a key director-employee, Shri Ravi Mohan, for a critical heart surgery. The ITAT held that the expenditure was allowable under Section 37(1) of the Income Tax Act, 1961, as it was incurred wholly and exclusively for business purposes on grounds of commercial expediency. This commentary provides a deep-dive analysis of the facts, legal reasoning, and implications of the order.
Facts of the Case
The assessee, Golkunda Commercial Pvt. Ltd., is a private limited company deriving income from commission on mutual funds, dividends, and other sources. For AY 2020-21, it filed a return declaring total income of Rs. 8,02,460/-. The case was selected for scrutiny on the issue of “Business expenses.” During assessment, the AO noted that under “Employee Benefit Expenses” of Rs. 57,38,357/-, a sum of Rs. 15,57,557/- was claimed as “Medical Expenses Reimbursement.” Further scrutiny revealed that Rs. 15,24,457/- of this amount was a reimbursement to Shri Ravi Mohan, a full-time employee and promoter-director holding 52.30% shares of the company.
Shri Ravi Mohan underwent critical heart surgery at Bombay Hospital, Mumbai (a hospital recognized under Rule 3A(2)(d) of the Income Tax Rules) on 08.11.2019. The total medical expenditure was Rs. 48,38,200/-, of which the company reimbursed Rs. 15,24,457/-, the mediclaim policy settled Rs. 4,72,700/-, and the balance of Rs. 28,41,043/- was borne personally by Shri Ravi Mohan. The Board of Directors passed a resolution on 16.12.2019 approving the reimbursement. The AO disallowed the claim, treating it as personal expenditure, and completed the assessment at Rs. 23,26,915/-. The CIT(A) upheld the disallowance, leading to the appeal before ITAT.
Reasoning and Legal Analysis
The ITAT, led by Accountant Member Shri B.M. Biyani, focused on the sole issue: whether the disallowance of Rs. 15,24,457/- as reimbursement of medical expenses was sustainable. The Tribunal applied the principles of Section 37(1) of the Income Tax Act, which allows deduction for any expenditure laid out wholly and exclusively for the purposes of business, provided it is not capital in nature or personal expenses of the assessee.
Key Arguments by the Assessee:
– Shri Ravi Mohan was the driving force of the company, holding a Bachelor’s in Mechanical Engineering and a Master’s in Industrial Engineering. His expertise in mutual fund dealings enabled the company to secure distributorships from 13 mutual funds.
– The reimbursement was only 30% of the total medical cost, with the balance borne personally by Shri Ravi Mohan, who earned a modest salary of Rs. 1.5 lakh per month.
– The Board resolution dated 16.12.2019 authorized the payment, and the expenditure was debited under “Employee Benefit Expenses” alongside salary, HRA, LTA, etc., which were allowed by the AO.
– Year-wise revenue data showed that after the surgery, the company’s gross receipts and net profit increased substantially (e.g., from Rs. 84,11,031/- in AY 2020-21 to Rs. 3,16,79,814/- in AY 2025-26), demonstrating Shri Ravi Mohan’s continued contribution.
Tribunal’s Reasoning:
The ITAT relied on two landmark judgments:
1. CIT vs. Steel Ingots (P) Ltd. (1996) 220 ITR 552 (MP): The Madhya Pradesh High Court held that reimbursement of medical expenses for a key director, authorized by a Board resolution, is allowable under Section 37(1) on grounds of commercial expediency. The court emphasized that the expenditure was linked to the business, as the director’s services were essential for the company’s operations.
2. Mehboob Productions Pvt. Ltd. vs. CIT (1977) 106 ITR 758 (Bom): The Bombay High Court ruled that medical expenses borne by a company pursuant to a Board resolution should be allowed as a deduction, as the decision was based on commercial expediency and not personal considerations.
The Tribunal noted that the assessee-company, being a juristic person, cannot incur personal expenses. The expenditure was incurred for the welfare of a key employee to ensure his continued service, which directly benefited the business. The post-surgery resolution was not an afterthought, as it was passed soon after the surgery (16.12.2019). The minor excess over the resolution amount (Rs. 15,00,000/- approved vs. Rs. 15,24,457/- paid) was not fatal to the claim. The revenue failed to prove that the expenditure was excessive or unreasonable.
Application of Commercial Expediency:
The Tribunal applied the principle of commercial expediency, which allows a deduction if the expenditure is incurred for the purpose of the business, even if it also benefits an individual. The key factors were:
– Shri Ravi Mohan’s role as a full-time employee and promoter-director.
– The critical nature of his heart surgery and the company’s interest in his recovery.
– The Board’s commercial judgment that the reimbursement was necessary to retain a key employee.
The ITAT concluded that the disallowance was unsustainable and directed the AO to delete it.
Conclusion
The ITAT’s decision in Golkunda Commercial Pvt. Ltd. vs. ITO, NFAC reinforces the principle that reimbursement of medical expenses for a key employee-director, authorized by a Board resolution, is allowable as a business expenditure under Section 37(1). The ruling underscores that commercial expediency, rather than personal benefit, determines deductibility. The Tribunal’s reliance on the Madhya Pradesh and Bombay High Court judgments provides strong precedent for similar cases. This order is a relief for closely-held companies where key personnel incur medical expenses, as long as the expenditure is bona fide and supported by corporate resolutions.