Income Tax Appellate Tribunal - Delhi
Jt. Cit vs Sarvodaya Hospital on 16 March, 2004
Equivalent citations: (2004)91TTJ(DELHI)45
ORDER
Jain, A M This appeal by the revenue against the order dated 9.6.2000 of Iearned Commissioner (Appeals)-XX, New Delhi raises the following grounds:- -
On the facts and in circumstances of the case, the learned Commissioner (Appeals) has erred in deleting:
(i) Addition of Rs. 62,430 made by the assessing officer on account of undisclosed cash found during search & seizure, operations.
(ii) Addition of Rs. 30,51,589 on account of undisclosed profit worked out by the assessing officer for the Block Period of assessment.
(iii) Addition of Rs. 32,65,000 made by assessing officer on account of depreciation on assets not belonging to the assessee firm and were held in the names of partners.
(iv) Addition of Rs. 45,31,202 made by the assessing officer on account of undisclosed investment made in construction of Sarvodaya Hospital building and based on'the valuation report of the Valuation Officer."
2. Ground No. 1 of the dispute relates to the addition of Rs. 62,430 on account of cash found and seized during the course of search at the fesidential premises of one of the partners of the assessee firm i.e. Dr. Naresh Pamnani. The said cash was found in the envelopes, of the hospital. Dr. Naresh Pamnani explained that the cash belongs to the assessee hospital. It was a usual practice to bring the cash of the hospital to his residence for the purpose of security. The assessee has further explained that the said cash balance is duly reflected it the books of account maintained in the regular course of business. This explanation of the assessee did not find favour with the assessing officer for the reason that the assessee had maintained two set of books. The assessing officer therefore, treated the sum of Rs. 62,430 as undisclosed income for F.Y. 1996-97 forming part of the bloc's period.
3. We have heard the parties with reference to the material on record. A perusal of the order reveals that the assessee's explanation was duly verified by the assessing officer with reference to the white cards, which is a prime record of receipt and payments maintained by the assessee in respect of daily transactions of its business. The assessing officer rejected the contention of the assessee primarily on account of two set of books of account for which the learned Commissioner (Appeals) has observed that the maintenance thereof has been discussed separately in his order and the assessing officer has made passing reference to the books of account of the assessee written up to 6-3-1997. In any event, the cash was not found from the business premises of the assessee concern. It was found only from the residence of one of the partners and the same was kept in the envelopes of the hospital. Entries thereof were made in the white card and the partner Dr. Naresh Pamnani had carried the cash at this residence for safekeeping and thereafter depositing in the bank account of the assessee. The assessing officer however did not find any shortage of cash in any of the two set of books though one of them is a day book maintained by the cashier for writing the daily transactions of cash made by him for his convenience, while the other cash book was a regular cash book maintained in the regular course of business in which all entries relatable to the business transactions by the assessee were made for determination of income of the year. It is also not the case of the revenue that the receipts taken by the assessee from his business activity are not accounted for in the regular books of accounts. It is also not the case of the assessing officer there is a difference in the' receipts in the two sets of books of accounts. Under such circumstances, the assessee's explanation could not have been rejected that lightly particularly when the cash was available from the business receipts which stood duly recorded in all the records. The conclusion to delete the addition of Rs 62,430 arrived at by the learned Commissioner (Appeals) therefore does not call for any interference. Ground No. 1 of the revenue therefore stands rejected.
4. The next grievance pertains to the deletion of the addition of Rs 30,51,859. The assessing officer noted that the assessee has maintained two sets of books of accounts, which were found from the premises of the assessee M/s. Sarvodaya Hospital during the course of the search operation under section 132 of the Act and the same were seized. While making the inventory, one cash book has been noted as 'original cash book' while the other has been described as 'fair cash book'. The assessee has pleaded before the assessing officer that the original cash book was maintained for the convenience of the accountant while the fair cash book was a regular cash book. This explanation of the assessee stood rejected by the assessing officer for the reason that the original cash book was found written meticulously. Further more entries in Annexure A13' i.e. original cash book were made for the period from 01.04.83 to 07.08.83 by one Accountant while the entries in the other book for the corresponding period were in the handwriting of another Accountant. This raised suspicion in the mind of the assessing officer that the assessee has made adjustments in the fair cash book i.e. regular cash book to manipulate the profit to be disclosed in his Income-tax returns. On comparison of entries in the two sets of books the assessing officer has observed that some of the expenses as debited in the fair cash book as exhibit 'A-16' were found to be more than as entered in exhibit A-13' i.e. original cash book. Such instances have also been noted in the assessment order at page 5 thereof, which inter alia pertains to different heads of expenses. The assessing officer therefore presumed that the original cash book is the actual cash book reflecting actual receipts and expenses in the day to, day running of the business of the assessee and the same was never meant to be produced to the department. The assessing officer therefore in the light of his observations. has re-drawn final accounts and worked out net profit for each of the years forwhich books of accounts were so found. For the F.Y.1993-94, the net profit was worked 'at Rs. 9,11,906 and for F.Y. 1995-96 the profit was worked at Rs. 16,43,309. Loose papers containing final accounts of the assessee were also seized from the premises of the assessee and inventorised as exhibit 'A-56'. These documents contained profit and loss account for the year 1-4-95 to 31-3-96 and disclosed a profit of Rs. 16,43,309. This profit was found to be higher than the net profit as worked out by the Accountant with reference to fresh ledgers as prepared with reference to the original books of accounts. Accordingly, the assessing officer has drawn the profit on the basis of fresh ledger corresponding to the original books for three Financial Years. This profit was compared with the profit disclosed by the assessee in the profit and loss account filed with the Income-tax returns and the difference was treated as undisclosed income for the assessment years 1994-95 to 1996-97 as under:-
Financial Year Profit as per P&L A/c disclosed with the return Profit as per fresh ledger corresponding to two set of books Difference as undisclosed income 1993-94 4,88,148 9,11,906 4,23,757 1994-95 8,72,148 16,48,790 7,76,642 1995-96 5,65,272 24,16,732 18,51,459 Total 30,51,859.
5. Before the assessing officer besides explanation as narrated in the order of the learned Commissioner (Appeals), the important pleas explaining the discrepancy were as under:-
(i) The original cash book was merely a day book i.e. katchi cash book maintained for the convenience of the Accountant while the regular cash book was a fair cash book maintained in the regular course of business on the basis of which final accounts have been drawn. In other words this was a pucca cash book.
(ii) The assessee has maintained a white card which is a basic record of its business activity. In this card, all the receipts and payments are duly recorded by the Accountant. Entries in the books correspond with this prime record.
(iii) All the receipts correspond with each other in both the sets of books of accounts found and seized from the assessee. These receipts are also in conformity with the basic record kept in the shape of white card.
(iv) The expenditure incurred are duly supported by vouchers and profits drawn on the basis of regular books of accounts have duly been disclosed in the regular returns filed before the Income-tax authorities. The assessing officer did not find any discrepancy in the claim of expenses made by the assessee in the regular returns filed by it.
6. The aggregate difference of Rs. 30,51,859 treated as undisclosed income by the assessing officer has been reconciled by the following items:-
(i) Claim of depreciation of Rs. 1 4,02.,015 has not been given.
(ii) Interest paid to financial institutions on the equipments-used in the business of the assessee amounted to Rs. 7,72,390. This also has not been reduced while working out the undisclosed profit.
(iii) There has been an excess computation of undisclosed income by Rs. 7,73,423 as the assessing officer wrongly noted the profit as Rs. 24,16,732 for F.Y. 1995-96 as against his own calculations at internal page 8 of his order at Rs. 16,43, 309.
The aggregate of these three items has been worked out at Rs. 29,46,028 which goes to reconcile the difference of Rs. 30,51,851 to the extent of Rs. 29,46,028. The balance of Rs. 1,05,831 is the amount of expenditure incurred out of imprest account of the partners, the details of which has been furnished to the Accountant at a later date along with vouchers. The explanation for this purpose rendered by the assessee was that these expenses were incurred on the particular dates, which was verifiable from the relevant vouchers but the Accountant had entered the same on the date of vouchers/bill while preparing the regular cash book i.e. pucca cash book.
7. Before the learned Commissioner (Appeals) the explanation about the expenditure incurred by the partners in the appellant firm stands summarized at internal page 13 of the learned CIT(A)'s order as under: -
"The receptionist/cashier used to maintain the white cards on which all entries of receipts, expenditures and imprest a/c were made. No money was either received or given to any one, in any form, without making entry in the white card. After the completion of the day the accountant used to bifurcate these entries into receipt column or expenditure column as the case may be. However, some money, if had been picked up by any partner with the explanation of doing some expenditure for hospital, it was noted as imprest a/c. Now later on whenever the partner used to give the account of this money and the details of expenditure along with vouchers and bills the accountant used to make these entries on that day under the appropriate head of expenditure. However, this was principally agreed upon by all partners that no money, out of these imprest account, will by spent for any other reason whatsoever except the hospital's expenditure and the account of this will be given to accountant at the earliest in any case before expiry of the financial year so that the entries of that particular year are completed in that particular financial year."
8. The assessing officer was also present in the proceedings before the learned Commissioner (Appeals) who took an objection before her that contain claims have been made by the assessee for the first time. Accordingly, a remand report was called for which was submitted by the assessing officer on 25-05-2000. The learned Commissioner (Appeals) handed over the remand report and took rejoinder from the assessee.
9. After considering the remand report, material on record and after examining the assessment order along with seized documents at length in the light of the submissions made by the assessee, the learned Commissioner (Appeals) came to the conclusion that the findings of the assessing officer suffer from pre-conceived notions, definite prejudice against the assessee in as much as she has conveniently ignored the explanation reportedly filed by the assessee during the assessment proceedings and she continued to dismiss the same with utmost contempt without giving any thoudht as to the justification advanced by the assessee on different occasions during the assessment proceedings. He was satisfied with the authenticity of the white cards maintained by the assessee on day to day basis and ever since such a primary record stood accepted by the department during the regular assessment proceedings also. He was also satisfied with the explanation of the assessee maintaining two set of books as one being katchi and other being pucca cashbook., The explanation about the incurring of expenditure from the imprest account was also found acceptable by the learned Commissioner (Appeals). The learned Commissioner (Appeals) therefore came to the conclusion that the assessing officer has altogether ignored the assessee's method of accounting through system of white cards which conclusion was arrived at after having a due reference to the office note at para 10 of the assessment order. This note has been reproduced by the learned Commissioner (Appeals) at internal page 25 of his order as under:-
"Annexure A-57 contains white sheets in which daily billing in respect of patients is made. The same was compared with Annexure A 26, cash book for the F.Yr. 1996-97 7. Page 60 of this Annexure shows that bills from S.No. 19100 to 19110 totalling Rs. 39,575 were issued. The same is reflected at page No. 368 of the Cash book. Similarly bill No. 19061 totalling Rs. 27,094 were issued at page No. 54. The same is entered at page No. 363 of the cash book. Likewise page No. 37 of Annexures A-57 shows that bills from S.No. 19027 were issued for Rs. 34,369. The same is shown at page No. 356 of the cash book."
10. As revealed by the office note appended below the assessment order, the learned Commissioner (Appeals) found that the claim of expenses was duly verified by the assessing officer and the revenue receipts of the appellant are not disputed at any stage and also as the assessing officer has failed to point out any discrepancy between the receipts and for in respect of expenses as vital discrepancies stands reconciled. The learned Commissioner (Appeals) came to the conclusion that the entire addition of Rs. 30,51,589 as made by the assessing officer on account of suppressed profit for the three financial years cannot be treated as undisclosed income as' the same was duly disclosed by the assessee in their regular Income tax returns. On these basis, he deleted the addition so made by the assessing officer
11. We have heard the parties with reference to the material on record. Admittedly, the assessee has maintained two sets of books. The assessee has also maintained a white card of the receipts and payments on day to day basis in the regular, course of business. The original cash book was corresponding to the white card. This was kept for the convenience of the cashier and was a katchi cash book. From this white card and katchi cash book certain payments as imprest account etc. had also gone to the Partners for meeting out the expenses of the business. After the expenses had been incurred, the vouchers were received and entered in the regular cash book i.e. pucca cash book on the day on which such expenditure was actually incurred. On the basis of this pucca cash book, the assessee claims that the final accounts have been drawn. These final accounts have been submitted with the regular returns of income. Before us, the revenue has not been able to point out any discrepancy in the receipt in all the three records i.e. white card, katchi cash book and pucca cash book. The learned Commissioner (Appeals) has also recorded a finding of fact after examination of the assessment record along with seized material that all the entries about the receipts are corresponding with each other. The difference in expenses has also been reconciled by the assessee as attributable to certain reasons as narrated herein before in the submissions before the learned Commissioner (Appeals). In any event, it is the case of the assessee that no expenditure has been found incurred outside the books of accounts maintained in the regular course of business. The expenditure claimed in the profit and loss account filed with the returns of income is fully supported with vouchers. It is not the case of the revenue that the expenditure claimed was non-genuine or that was not for the business of the assessee. Even otherwise, all the expenses claimed by the assessee were a subject matter of regular assessment only. The consideration thereof again in block assessment was outside the scope of undisclosed income within the meaning of section 158B(b) of the Income Tax Act, 1961. Block assessment under Chapter XIV-B of the Income Tax Act, 1961 is not intended to be a substitute for a regular assessment. Its scope and ambit is limited in that sense to the material unearthed during the search. It is in addition to the regular assessment already done or to be done. In the Respondent's case before us, the, assessing officer could proceed only within the scope of exercising his jurisdiction under Chapter XIV-B of the Act in respect of assessment of search cases for which a special procedure has been prescribed for determination of undisclosed income. In case the. Assessing Officer entertained the view that certain expenses are inflated, for such an opinion the remedy did not lie in treating the same as undisclosed income but the remedy was available under section 148 or any other enabling provisions of the Act for escapement of income from assessment. Such a view finds support from the decision of the jurisdictional High Court in CIT v. Ravi Kant Jain (250) ITR 141 (Delhi). A perusal of the assessment order reveals that the assessing officer has proceeded by treating the original cash book as genuine cash book and no attempt has been made by her to verify the genuineness of the expenses claimed in the regular cash book maintained by the assessee and on the basis of which profit and loss account has been drawn and filed with the regular returns with the I.T. department. Though the maintenance of original cash book/katchi cash book could raise certain suspicions in the minds of the assessing officer yet she was duty bound to verify the correctness of the entries made in the regular books of accounts of the assessee before burdening the assessee with additional tax liability assessee's undisclosed income. For the failures and lapses on the part of the assessing officer, the assessee cannot be made to suffer and called upon to pay more than the legitimate tax which stood paid by him through filing of regular returns of income on the basis of same documents which were found as a result of search from her. The learned Commissioner (Appeals) therefore did not commit any error in coming to the conclusion that the profit/loss in these financial years, which are disclosed in the regular proceedings cannot be called as undisclosed income within the meaning of section 158B(b) of the Act. We, therefore, do not find any merit in the ground raised by revenue. The same stands rejected.
12. Grounds No. 3 relates to the deletion of addition of Rs. 32,65,096 made by the assessing officer on account of depreciation of assets not belonging to the assessee firm, which were held in the name of the partners and the assessing officer has withdrawn depreciation allowed to the assessee in the earlier years. This depreciation was treated as undisclosed income for the block period but the learned Commissioner (Appeals) deleted the same vide para 3.4.2 of his order at internal page No. 32.
13. We have heard the parties with reference to the material on record. The assessing officer vide para 7.2 of her order declined to allow claim of depreciation under section 32 to the assessee for the assessment years 1992-93 to 1997-98 forming part of the block period and treating the aggregate amount of depreciation of Rs. 32,65,096 as undisclosed income of the block period for the reason that the assets are in the name of the partners and the Hospital is. therefore not entitled to the claim of depreciation thereon.
14. The learned Commissioner (Appeals) however has recorded. a finding of fact that the depreciation on the business assets were rightly claimed by the assessee in the regular proceedings and also allowed by the concerned assessing officer in as much as the said assets were used by way of capital contribution by the respective partners. The proprietary rights in these assets have also been transferred in favour of the partnership. These assets were exclusively used for the business purpose of the assessee right from the date of its inception. He, therefore, came to the conclusion that the assessing officer had no business to resort to such an addition by. way of disallowance of depreciation already allowed in the regular assessments and thus the entire addition of Rs. 32,65,096 stood deleted.
15. We have heard the parties with reference to the material on record. In case the claim of depreciation was made and allowed in the regular return of income, the same could not have been withdrawn in the block assessment and the amount of such depreciation could not have been treated as undisclosed income of the block period. The use of the assets in the business of the assessee has also not been denied and the learned Commissioner (Appeals) has also recorded a finding of fact in that regard. However, the learned Commissioner (Appeals) has stated that though the assets were not registered in the name of the assessee firm, yet the same were contributed as capital in the partnership by the respective partners. Before the assessing officer also, the assessee's claim was that the equipments had to be purchased in the name of the partners but the same were duly installed in the Hospital and have continuously been used by the assessee hospital since the day of installation. The assessee firm duly paid margin money while obtaining loans and purchasing of the said equipment. All receipts arising therefrom are also included in the total income of the assessee firm on which tax have also been paid in the partnership business. Further more no part of such equipment has ever been used or is being used by the partners individually. The assessing officer is found to have withdrawn the depreciation merely because the assets are in the name of the partners and not in the name of the partnership business. This cannot be a criteria for withdrawal of the depreciation. By now it is a settled issue that the assessee need not be a registered owner in respect of assets belonging to it on which depreciation is claimed. In case the assessee is found to be holding these assets as owner there can be no infirmity in the decision taken by the learned Commissioner (Appeals). We, therefore, restore this issue to the assessing officer for verification of the fact as to whether the assets on which depreciation has been withdrawn and treated as undisclosed income was in fact an asset of the assessee in the accounts filed with the returns of income. In case these assets are found duly reflected as an asset or the depreciation is found given in the earlier years, the same shall not be withdrawn and the same also cannot be treated as undisclosed income of the block period. The assessing officer therefore shall give a reasonable opportunity of being heard to the assessee before carrying out the aforesaid verification as in principle there is no infirmity in the decision arrived at by the learned Commissioner (Appeals).
16. The last ground relates to deletion of an addition on account of undisclosed investment made in the construction of Sarvodaya Hospital building. As noted in the impugned order, the Hospital is constructed on an area of 4000 sq. ft. and it consists of one basement and three fully constructed floors and partly constructed top floor. The value of the said building has been declared by the assessee at Rs. 16,25,590. The assessing officer has made reference to the Valuation officer, who worked out the cost of construction of the said building at Rs. 62,16,786. As noted by the V.O. "the actual area covered and plinth area constructed is 1355.77 sq. mts. The period of construction was from April, 1990 to March, 1992 and the day of completion was March, 1992 itself. The V.O. had adopted land and building method which was "the only appropriate method to determine the cost of construction of the building". Reference has been made to the quality of construction and the material used for the same. It was further observed that the bulk construction was made in the financial year 1990-91 relevant to assessment Year 1991-92 wherein the assessee had declared cost of construction to the extent of Rs. 12,46,000 up to the end of the said financial year 1990-91 and which has been estimated by the V.0. at Rs. 47,65,042. Further, the assessee had declared an additional investment by way of construction up to 3,79,590 during the financial year 1991-92 relevant to Assessment Year 1992-93 and which has been estimated by the V.O. at Rs. 14,51,744. Thus, as against the aggregate cost of construction of Rs. 16,25,590 as declared by the assessee, the V.0. estimated the same at Rs. 62,16,786. The difference of Rs. 45,31,202 has been brought to tax as undisclosed income of the block period by the assessing officer.
17. The learned Commissioner (Appeals) vide para 4.4 of his order has given the following conclusion:-
"The contention of the learned counsel has been once again considered and examined carefully. At the outset, I am in total agreement with the learned counsel that the subject matter i.e. the construction of the hospital building is totally beyond the purview of the special procedure laid down for search cases under Chapter XIV-B of the Income Tax Act, 1962 under section 158B of the Income Tax Act, 1961. The department had not come to any specific evidence during the search proceeding which would indicate in any manner as to the undisclosed investment in construction of the hospital building. At least the assessee has not been confronted with such evidences during the block assessment proceeding at all. Therefore, the assessing officer has no jurisdiction to travel beyond the parameters laid down for the special procedure for assessment or search cases. The assessing officer had therefore no business to make any reference to the valuation officer for estimating the cost of construction of the hospital building which had been duly accepted by the assessing officer in the relevant regular assessment proceeding earlier. In the absence of any incriminating materials/document being found/seized by the department during the searches, the reference to the Valuation Office for estimating the cost of construction was entirely illegal and ultra vires. It. is at all together different thing that 1 refrain from giving any finding as to the factual mistakes which were obviously conceded by the V.0. but ignored by the A .0. for the reasons best known to her despite assessee's petition under section 154 of the Income Tax Act, 1961 having been filed as per her own admission and which is pending at least till the date of the counter comments submitted by her in her letter dated 30.5.2000. For that matter, 1 refrain from giving any findings as to, the various adjustments being claimed by the appellant and not being allowed by the V.0 assessing officer despite the fact that these claims are very reasonable and in consonance with the actual practice on the subject despite the same being conceded by the D.V.0. during the appeal. As the reference for estimating cost of construction was beyond the parameters laid down for block assessment, the entire addition of Rs. 45,31,202 by way of undisclosed investment in Sarvodaya Hospital is hereby entirely deleted."
18. We have heard the parties with reference to the material on record and case laws relied upon by them. As a result of search on the assessee, no evidence was found, which may represent wholly or partly income or the property which has not been or would not have been disclosed for the purpose of Income Tax Act. The assessing officer merely for the reason to suspect that the consideration was understated resorted to an estimation of value by the DVO and taken the same as the basis for working out the undisclosed income of the block period. Chapter XIV-B which contains special procedure foe assessment of search cases is a self-contained code and no addition can be made on the basis of the DVO's report particularity when no evidence has been found during the course of search to establish that the assessee has paid more than the disclosed consideration in purchase or construction or expenditure incurred thereof more than what has been disclosed in the regular books of accounts maintained by him. In catena of cases, the Tribunal has also taken such a v iew and one such case for ready reference reported is that of Vaishali Hotels Pvt. Ltd. v. ACIT - 66 TTJ (Pune) 692. The Hon'ble Madhya Pradesh High Court in the case of CIT v. Kush Lal Chand Nirmal Kumar (263) ITR 77 (MP) has also upheld such a view that the addition cannot be made on the basis of DVO's report when no evidence was found during the course of search to establish that the assessee has spent more than what was recorded in the regular books of accounts. In this view of the matter, we do not find any infirmity in the decision taken by the learned Commissioner (Appeals). The ground of the revenue therefore stands rejected.
19. In the result, the revenue's appeal stands partly allowed.