Dr K.Vanjana, Hyderabad v. ACIT, Hyderabad

ITA 695/HYD/2008 | 2005-2006
Pronouncement Date: 18-02-2010 | Result: Partly Allowed

Appeal Details

RSA Number 69522514 RSA 2008
Assessee PAN ACTPK1377M
Bench Hyderabad
Appeal Number ITA 695/HYD/2008
Duration Of Justice 1 year(s) 10 month(s)
Appellant Dr K.Vanjana, Hyderabad
Respondent ACIT, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 18-02-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 18-02-2010
Date Of Final Hearing 16-02-2010
Next Hearing Date 16-02-2010
Assessment Year 2005-2006
Appeal Filed On 17-04-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A HYDERABAD BEFORE SHRI N.R.S. GANESAN JUDICIAL MEMBER AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER ITA NO.694/HYD/2008 ASSESSMENT. YEAR: 2004-05 ITA NO.695/HYD/2008 2005-06 ITA NO.925/HYD/2008 2003-04 DR.K. VANAJA HANAMKONDA WARANGAL (ACTPK 1377 M) VS THE ACIT CENTRAL CIRCLE HYDERABAD (APPELLANT) (RESPONDENT) ITA NO.696/HYD/2008 ASSESSMENT. YEAR 2004-05 ITA NO.697/HYD/2008 2005-06 ITA NO.1098/HYD/2009 2003-04 DR. MUNI M. PRASAD HANAMKONDA WARANGAL (ABMPM 7178 F) VS THE ACIT CENTRAL CIRCLE HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K. VASANT KUMAR RESPONDENT BY : SHRI K.K. TRIPATHI O R D E R PER: CHANDRA POOJARI ACCOUNTANT MEMBER THESE SIX APPEALS PREFERRED BY THE ASSESSEE ARE DIRECT ED AGAINST DIFFERENT ORDERS PASSED BY THE CIT(A)-I HYDERAB AD FOR THE ABOVE ASSESSMENT YEARS WHEREIN CERTAIN ISSUES INVOLVED IN ARE COMM ON IN NATURE AND HENCE THEY ARE CLUBBED TOGETHER HEARD TOG ETHER AND DISPOSED OF BY THIS COMMON FOR THE SAKE OF CONVENIENCE. 2. THE FIRST FOUR COMMON GROUNDS IN ALL THESE APPEAL S ARE AS FOLLOWS: 2 2 1. THE ASSESSING OFFICER ERRED IN LAW AND IN FACTS OF THE CASE WHILE COMPLETING THE ASSESSMENT FOR THE ASY 2004-05. 2. THE ASSESSING OFFICER ERRED IN ESTIMATING THE IN COME BASED ON SUPPRESSION AT A CERTAIN PERCENTAGE TO THE RECEIPT AND UNIFORMALLY CALCULATING THE SUPPRESSION AND THEREBY ARRIVING A T THE UNDISCLOSED INCOME. 3. THE ASSESSEE SUBMITS THAT THE RETURN OF INCOME F ILED BY THE ASSESSEE IS BASED ON ASSETS METHOD AND BASED ON CASH FLOW ST ATEMENTS. PREPARED AND THE ASSESSING OFFICER HAS NOT PINPOINT ED ANY DEFICIENCIES IN THE PREPARATION OF INCOME BY THE ABOVE METHOD. 4. THE ASSESSING OFFICER HAS NOT APPRECIATED THE F ACT THAT INCOME WILL NOT BE UNIFORMALLY SPREAD AS WELL AS SUPPRESSION OF INCOME BASED ON THE FEW INSTANCES OF SUPPRESSION OF RECEIPTS. 3. IN THESE GROUNDS THE ASSESSEES GRIEVANCE IS THAT ESTIMATING INCOME BY ADOPTING THE GROSS PROFIT RATES AT 57% WITHOUT ALLOWING ANY EXPENDITURE AND EXPLORATION OF GROSS PRO FIT RATE TO ALL THE YEARS. THE TWO DOCTORS VIZ. DR. MUNI PRASAD PRACTICING IN THE FIELD OF UROLOGY AND HIS WIFE DR.K. VANAJA IS A DOCTOR BY PRO FESSION SPECIALIZING IN THE FIELD OF GYNECOLOGY. DURING THE COURSE OF SEAR CH AND SEIZURE OPERATION ON 3.11.2004 U/S 132 OF THE IT ACT CERTAIN LOOSE SHEETS DOCUMENTS AND BOOKS OF ACCOUNT WERE FOUND AND SEIZED WHICH CONTAINED THE ACTUAL DAILY RECEIPTS INCLUDING LAB CHARGES SCANNING C HARGES X-RAY CHARGES SURGERY CHARGES ETC. RELATING TO THE FINANCIAL Y EAR 2002-03 TO TILL THE DATE OF SEARCH. ON THE BASIS OF LOOSE SHEETS FOUN D THE UNDISCLOSED INCOME HAS BEEN CALCULATED FOR THE FINANCIAL YEAR 2002-03 TO 2004-05 AND TILL THE DATE OF SEARCH BASED ON THE PE RIODS FOR WHICH THE ACTUAL DAILY RECEIPTS HAVE BEEN FOUND. ON PERUSAL OF T HE LOOSE SHEETS DOCUMENTS AND BOOKS OF ACCOUNT FOUND AND SEIZED IT IS FO UND THAT THERE ARE SUPPRESSION OF PROFESSIONAL RECEIPTS OF VARIOUS DATES. ACCORDING TO THE ASSESSING OFFICER AT AN AVERAGE 57% OF THE RECEIPTS W ERE FOUND TO BE SUPPRESSED. IN THE COURSE OF SEARCH INVESTIGATION DR.M . MUNI PRASAD WAS THEREFORE ASKED TO EXPLAIN AS TO WHY THE INCOME CAN NOT BE COMPUTED BASING ON 57% SUPPRESSION OF RECEIPTS FOR THE FIN ANCIAL YEARS 2002-03 TO TILL THE DATE OF SEARCH DR.M. MUNI PRASAD V IDE HIS STATEMENT 3 3 DATED 22.12.2004 HAS ACCEPTED THIS RATE OF SUPPRESSION OF RECEIPTS. THE RELEVANT EXTRACT OF THE STATEMENT OF DR. M. MUNI PRASA D IS REPRODUCED AS FOLLOWS: Q.13. DURING THE COURSE OF SEARCH AND SEIZURE OPE RATION CERTAIN LOOSE SHEETS DOCUMENTS AND BOOKS OF ACCOUNT EVIDENCING S UPPRESSION OF RECEIPTS IN RESPECT OF LAB CHARGES X-RAY SCAN AND IN PATIENT (SURGERY) HAVE BEEN FOUND AND SEIZED. ON PERUSAL OF THE SAME IT WAS FOUND T HAT NEARLY 57% OF TOTAL RECEIPTS HAVE BEEN SUPPRESSED SYSTEMATICALLY. PLEA SE EXPLAIN WHY YOUR INCOME CANNOT BE COMPUTED BY EXTRAPOLATING AT THE R ATE 57% OF THE ACTUAL RECEIPTS DISCLOSED IN YOUR INCOME TAX RETURNS AND R EGULAR BOOKS OF ACCOUNTS? ANSWER: THE HOSPITAL HAS COMMENCED ON 15.8.2002. I ADMIT THERE IS SOME PERCENTAGE OF SUPPRESSION OF RECEIPTS FROM LAB CHAR GES SCAN X-RAY AND IN PATIENT. YOU MAY ADOPT THE ABOVE STATED PERCENTAGE FOR ARRIVING INCOME FROM HOSPITAL FROM THE PERIOD 15.8.2002 TO TILL THE DATE OF SEARCH. 3.1 BY ADOPTING THE RATE OF 57% SUPPRESSION OF RECEIP TS AS ALSO AGREED BY THE ASSESSEE THE SUPPRESSION OF INCOME YEAR WISE FOR THE PERIOD FROM FINANCIAL YEAR 2002-03 TO TILL DATE OF SE ARCH HAS BEEN WORKED OUT. 3.2 ON THE BASIS OF THE ABOVE STATEMENT THE ASSESSING O FFICER EXTRAPOLATE SALES AND CONSIDERED THE DIFFERENCE BETWEEN THE TOTAL RECEIPTS AND DISCLOSED RECEIPTS I.E. UNDISCLOSED RECEIPTS AS UNDISCLOSED INCOME OF THE ASSESSEE. FURTHER IN THE ITA NOS.696 697 1098 THE ASSESSING OFFICER ALSO ESTIMATED THE INCOME FROM M/S SEVEN HILLS PHARMACY BY CONSIDERING GROSS PROFIT RATE AT 35.16% ON T HE SALES TURNOVER AND GIVEN DEDUCTION AT RS.50 000 P.M. TOWAR DS EXPENSES AND THEREBY ARRIVED A NET INCOME OF THE PHARMACY AS UNDISCLO SED INCOME. ON APPEAL CIT(A) GIVEN DEDUCTION AT 5% OF GROSS RECE IPTS AS EXPENDITURE TO EARN INCOME FROM MEDICAL PROFESSION . HO WEVER HE CONFIRMED THE ESTIMATION OF UNDISCLOSED INCOME FROM PHARM ACY. AGAINST THIS THE ASSESSEE IS IN APPEAL BEFORE US. 4 4 4. THE AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ESTIMATION OF SUPPRESSED SALES BY EXTRAPOLATING AT 57% AND CONSIDERIN G THE DIFFERENCE BETWEEN THE ESTIMATED SALES AND DISCLOSED SALES A S UNDISCLOSED INCOME OF THE ASSESSEE IS WRONG. FURTHER HE SUBMITTED THAT THE CIT(A) GIVING THE MEAGER DEDUCTION OF 5% OF GROSS RECEIPTS TOWARDS EXPENDITURE IS NOT CORRECT. 5. THE DR SUBMITTED THAT THE ESTIMATION OF INCOME H AS BEEN MADE ON THE BASIS OF THE ADMISSION MADE BY THE ASSESSEE A ND NO FURTHER DEDUCTION IS REQUIRED TO BE GIVEN. REGARDIN G THE ESTIMATION OF THE INCOME FROM THE PHARMACY BUSINESS THE AR SUBMITTED T HAT IN CASE IF THE TURNOVER IS BELOW 40 LAKHS THE PROVISION OF S EC.44AB IS APPLICABLE I.E. ESTIMATION OF INCOME AT 8% AT GROSS RECEI PTS. HE SUBMITTED THAT IN THE PRESENT CASE THE TURNOVER IS HIGH ER THAN 40 LAKHS THE PERCENTAGE OF PROFIT IS LESS THAN 8% AND HEN CE REASONABLE ESTIMATION TO BE MADE TOWARDS INCOME OF THE ASSESSEE. THE LEARNED AR RELIED ON THE ORDER OF THE TRIBUNAL DATED 28 TH AUGUST 2009 IN THE CASE OF M/S HEALING TOUCH HOSPITALS (P) LTD. IN ITA NO.1000/HYD/2 006. THE DR SUBMITTED THAT THE ASSESSEES HAVE NOT LEAD ANY EVIDENCE FO R INCURRING ANY EXPENDITURE OVER AND ABOVE THE EXPENDITURE DISCL OSED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT IT MEANS THAT ALL THE EXPE NDITURE INCURRED BY THE ASSESSEE HAS ALREADY CLAIMED BY THE ASSESSE E. THERE IS NOTHING TO CLAIM FURTHER IN THE ABSENCE OF DETAILS OF FURTHER EXPENDITURE NO DEDUCTION TO BE GIVEN. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. IN THIS CASE THE ASSESSING OFFICER HAS ESTIMATED G ROSS SALES ON THE ASSUMPTION THAT THE ASSESSEE IS RECORDING ONLY 43% OF T HE GROSS RECEIPTS AND NOT RECORDING THE 57% OF THE RECEIPTS. THU S HE EXTRAPOLATED THE SALES AT 57% OF DISCLOSED SALES. THEREA FTER HE CONSIDERED THE ENTIRE SUPPRESSED SALES AS INCOME OF THE ASSESSEE . IN 5 5 OUR OPINION THIS IS NOT PROPER. THE CIT(A) HAS CONSID ERED 5% OF SALES AS EXPENDITURE THIS IS ALSO NOT PROPER. THE MAIN REA SON FOR ADDITION IS THAT ADMISSION BY DR. MUNI M. PRASAD. IT IS WELL SETTLE D PROPOSITION OF LAW THAT ADMISSION OF PARTY IS SUBSTANTIVE PIECE OF EVID ENCE IF SUCH ADMISSION IS CLEARLY UNEQUIVOCALLY MADE IS THE BEST EVIDENCE AGAINST THE PARTY MAKING IT THOUGH THE SAME IS NOT CONCLUSIV E. THE ONUS SHIFTS ON THE MAKER OF THE PRINCIPLES THAT WHAT A PARTY HIMSE LF ADMITS TO BE TRUE MAY REASONABLY BE PRESUMED TO BE SO AND ONLY THE PRESUMPTION IS REBUTTED THE FACT ADMITTED MUST BE TAKEN TO BE ESTAB LISHED. IT IS ALSO TO BE NOTED THAT IT WILL BE OPEN TO THE ASSESSEE WHO MA DE THE ADMISSION TO SHOW THAT IT IS INCORRECT AND THE ASSESSEE SHOULD BE GIV EN PROPER OPPORTUNITY TO SHOW THE BOOKS OF ACCOUNTS DISCLOSES CORRECT STATE OF FACTS. IF SUCH PROPOSITION OF LAW IS APPLIED TO THE FACT OF THE PRESENT CASE THEN IT IS OBLIGATORY ON THE PART OF THE REVENU E AUTHORITY TO GIVE AN OPPORTUNITY TO THE ASSESSEE THOUGH IT WAS AT LIBERTY TO SHOW THAT THE ADMISSION MADE BY THE ASSESSEE DURING THE COURSE OF SEARCH WAS IN ANY WAY INCORRECT AND FOR THAT IT CAN TAKE HELP FROM THE BOOKS OF ACCOUNT/SEIZED MATERIAL ETC. THE PLEA OF THE ASSESSEE WAS R EJECTED BY THE CIT(A) OF INCURRING OVER AND ABOVE THE EXPENDITU RE THAN RECORDED IN THE BOOKS OF ACCOUNT EXCEPT 5% OF THE GROSS RECEIPTS. IT WAS REJECTED ON THE REASON THAT DETAILS OF EXPENSES WERE NOT THERE AND THE ASSESSEE NOT MADE CLAIM AT THE TIME OF ASSESSMENT. THE LEARNED CO UNSEL FOR THE ASSESSEE TAKEN A PLEA BEFORE US THAT THE ASSESSEES ARE BEING DOCTORS THEY HAVE NO IDEA WHAT DENOTE GROSS PROFIT OR NET PRO FIT . THEY DO NOT NO THE DIFFERENCE BETWEEN GROSS PROFIT AND NET PROFIT . THEY ART NOT WELL CONVERSED WITH THE ACCOUNTING LANGUAGE AND THEY ARE GIV EN ANSWER IN A GENERAL MANNER. THE ASSESSING OFFICER IN THIS CASE ESTIMAT ED THE SALES AND THEREBY ESTIMATED THE INCOME AND HE HAS NOT TAKEN ANY EFFORT TO QUANTIFY THE EXPENDITURE INCURRED TO EARN THAT INCOME . ONCE THE DOCUMENTS ARE SEIZED IN THE SEARCH ACTION AND ON THE BASIS OF SEIZED MATERIAL THE ASSESSING OFFICER WORKED OUT THE AMOUNT OF UN ACCOUNTED 6 6 SALES THEN IT IS NOT PERMISSIBLE FOR THE ASSESSING OFFICER TO IGNORE THE EXPENSES INCURRED TO EARN THAT INCOME SINCE BOTH INCOME AN D EXPENSES ARE NOT RECORDED IN THE SEIZED MATERIAL. WHEN THE A SSESSING OFFICER ESTIMATED THE INCOME ON THE SAME LOGIC HE HAS TO ESTIMAT E THE EXPENSES TO EARN THAT INCOME. THE GROUND ON WHICH THE ASSESSING OFFICER DO NOT FIND FAVOUR WITH THE CLAIM OF THE ASSESSEE ARE NOT TENABLE AND HE DOES NOT TRANSFER THAT THERE WAS AN EXPENDITURE INCURRED BY ASSESSEE OUT OF BOOKS ALSO. SOME IMPORTANCE TO BE GIVEN T O ESTIMATE THE EXPENSES AS HE ESTIMATED THE INCOME. THE ASSESSEE IS AT LIBERTY TO PROVE FROM BOOKS OF ACCOUNT ABOUT THE FALSITY OF STATEM ENT RECORDED BY AUTHORITIES AND IN THE CASE IN HAND THE FALSITY OF THE STATEMENT TO THAT EXTENT PROVED TO BE FALSE FROM THE HELP OF SEIZED MAT ERIAL ONLY THEN SUITABLE DEDUCTION TOWARDS UNACCOUNTED EXPENSES TO BE GIV EN THOUGH THE ASSESSEE HAVING NO EXTERNAL EVIDENCE TO SUPPORT HIS CL AIM. NOW THE QUESTION WHETHER NET PROFIT DECLARED BY THE ASSESSEE IN T HE REGULAR BOOKS OF ACCOUNT CAN BE CONSIDERED NET PROFIT FOR THE P URPOSE OF DETERMINING THE UNDISCLOSED INCOME. IN OUR OPINION TH E NET PROFIT RATE REFLECTED IN THE REGULAR ACCOUNTS CANNOT ITSELF BE CONS IDERED AS RATE OF NET PROFIT FOR DETERMINING THE UNDISCLOSED INCOME. SOME ADJUSTMENT IS REQUIRED TO BE MADE TO ARRIVE AT CORRECT NET PROFIT FOR DETERMINING THE UNDISCLOSED INCOME. THE ASSESSEE HAD ALREADY CLAIMED REGU LAR EXPENSES WHICH ARE FIXED IN NATURE LIKE SALARY STA TIONERY POSTAGE TELEPHONE TELEGRAM BANK INTEREST AND COMMISSION TRA VELLING EXPENSES ELECTRICITY EXPENSES INSURANCE CHARGES RENT GR ATUITY ADVERTISEMENT LABOUR & WELFARE EXPENSES WORKERS EX-G RATIA INTEREST AUDIT FEES ENTERTAINMENT LEGAL CHARGES DEPRECIATION E TC. HOWEVER THERE ARE CERTAIN VARIABLE EXPENSES WHICH IS RELATING TO THE SUPPRESSED SALES. TOWARDS THIS VARIABLE EXPENSES WHICH ACTUALLY INCU RRED BY THE ASSESSEE FOR WHICH THE ASSESSEE IS REQUIRED TO SUBSTANTIATE ITS CLAIM. IN THE PRESENT CASE THE ASSESSEE HAS NOT BEEN ABLE TO LEAD AN Y EVIDENCE REGARDING ANY EXPENDITURE INCURRED BY THE ASSESSEE OVER AND ABOVE THE 7 7 EXPENDITURE ALREADY CLAIMED BY THE ASSESSEE IN ITS REGULA R BOOKS OF ACCOUNT. HENCE REASONABLE ESTIMATE TO BE MADE. SINCE THE AMOUNTS OF THE FIXED EXPENDITURE HAVE ALREADY BEEN TAKEN CARE IN BY THE REGULAR BUSINESS SO THERE IS NO QUESTION OF ALLOWING ANY FIXED EX PENDITURE. HOWEVER THE ASSESSING OFFICER DIRECTED TO ALLOW VARIABLE EXPENDITURE IN THE PROPORTION AS INCURRED BY THE ASSESSEE FOR DISCLOSED SAL ES. THUS THE ASSESSING OFFICER REQUIRED TO BIFURCATE THE EXPENDIT URE AS FIXED AND VARIABLE EXPENSES AND THEREAFTER GIVE DEDUCTION TO VAR IABLE EXPENSES INCURRED TOWARDS SUPPRESSED SALES. 7. WITH REGARD TO INCOME EARNED FROM PHARMACY BUSINE SS THE ASSESSING OFFICER ESTIMATED THE INCOME AT 37.16%. IN OUR OPINION THIS IS VERY HIGHER SIDE. WE DIRECT THE ASSESSING OFFICER TO CONS IDER THE AVERAGE GROSS PROFIT RATE DECLARED BY THE ASSESSEE IN THESE FINANCI AL YEARS AS UNDISCLOSED INCOME OF THE ASSESSEE FROM PHARMACY BUSINESS. S INCE THE GROSS PROFIT DECLARED BY THE ASSESSEE IS A BETTER YARDSTICK T O DETERMINE THE INCOME OF THE ASSESSEE. 8. THE ASSESSEE ALSO CHALLENGED THE COMPUTATION OF THE INCOME ON THE BASIS OF INCOME METHOD BASIS SINCE EARLIER YEARS AS SETS METHOD WAS FOLLOWED FOR COMPUTING THE TOTAL INCOME. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE THE ASSESSING OFFICER CANNOT PICK AN D CHOOSE METHOD OF COMPUTATION OF INCOME FOR HIS CONVENIENCE. HE SUBMITTED THAT SINCE THERE IS NO UNDISCLOSED ASSET IN CERTAIN YEARS THE ASSESSING OFFICER GIVE UP THE ASSET METHOD OF COMPUTING OF INCOME AND ADOPTED THE INCOME METHOD OF COMPUTATION OF INCOME. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED MATE RIAL ON RECORD. IN OUR OPINION ESTIMATION OF INCOME FOR THE ASSE SSMENT YEARS 2003-04 TO 2005-06 ON THE BASIS OF INCOME METHOD CANNOT BE FOUND FAULT WITH SINCE ALL INCOME EARNED BY THE ASSESSEE I S NEED NOT TO 8 8 BE CONVERTED INTO ASSET IT MAY BE EXPENDED BY ANY FOR M BY THE ASSESSEE. THE ASSESSEE CANNOT FORCE THE ASSESSING OFFICER TO FOL LOW UNIFORM METHOD OF COMPUTATION OF INCOME. THE ASSESSEES P LEA CANNOT BE ACCEPTED SINCE THE ASSESSEES HAVE ADMITTED THAT INCOME CAN BE ESTIMATED ON THE BASIS OF SALES NOW IT CANNOT BE ASKED TO REVISE THE SAME. THIS GROUND TAKEN BY THE ASSESSEE IS REJECTED. 10. NEXT COMMON GROUNDS IN ALL THE APPEALS ARE RELA TING TO LEVY OF INTEREST U/S 234B. REGARDING CHARGE OF INTEREST U /S 234B WHICH IS CONSEQUENTIAL AND MANDATORY IN NATURE IS TO BE RECOMP UTED WHILE DETERMINING THE INCOME WHILE PASSING THE FRESH ORDER B Y ASSESSING OFFICER . 11. IN THE RESULT THE APPEALS OF THE ASSESSEE IN ITA NOS.694/695/925/696/697/HYD/2008 AND 1098/HYD/2009 ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT : 18.2.2010 SD/- SD/- N.R.S. GANESAN CHANDRA POOJARI JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 18 TH FEBRUARY 2010. COPY FORWARDED TO: 1. SHRI B. NARSING RAO & CO. CHARTERED ACCOUNTANTS NO .610 6 TH FLOOR BABUKHAN ESTATE BASHEERBAGH HYDERABAD-500 001 . 2. ACIT CENTRAL CIRCLE 4-HYDERABAD. 3. CIT(A)- I HYDERABAD. 4. CIT HYDERABAD 5. THE D.R. ITAT HYDERABAD. NP