Income Tax Appellate Tribunal - Mumbai
Kantilal Purushottam Deshmukh, Thane vs Department Of Income Tax on 2 August, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL,
"A" BENCH, MUMBAI.
Before Shri Pramod Kumar, Accountant Member
and Shri Vijay Pal Rao, Judicial Member
I.T.A No.1357/ Mum/2008: Assessment year: 2003-04
I.T.A No.1363/ Mum/2008: Assessment year: 2004-05
I.T.A No.1364/ Mum/2008: Assessment year: 2005-06
Asst. Commissioner of Income Tax, Cent. Circle 2 ..... Appellant
Thane Power Industrial Estate, Edulji Road,
Charai, Thane-400601
Vs
Shri Kantilal Puroshottam Deshmukh, ..... Respondent
231, Wani Alley, Bhiwandi, dist: Thane
PA NO.ADFPD 4316 A
Appearances:
Usha Nair, for the appellant
Subodh L Ratnaparkhi, for the respondent
Date of Hearing : 2.8.2011
Date of pronouncement : 25 -10-2011
ORDER
Per Pramod Kumar:
1. By way of these appeals, the Assessing Officer has called into question correctness of CIT(A)'s order dated 27th November, 2007, in the matter of assessment under section 143(3) of the Income tax Act, 1961, for the assessment years 2003-04, 2004-05 and 2005-06.2 I.T.A No.1357,1363 & 1364/ Mum/2008:
Assessment years: 2003-04, 2004-05 and 2005-06
2. Let us first take up the assessment year 2003-04. So far as assessment year 2003-04 is concerned, the Assessing Officer has raised the following grievances :
1. The learned CIT(A) erred in deleting the addition of Rs 52,00,000 made on account of undisclosed income from de addiction business.
2. The learned CIT(A) erred in accepting that the assessee family has income of Rs 52 lakhs on account of agricultural income merely on the basis of certificate of tehsildar, without appreciating the context in which it is written and without asking the assessee to substantiate the same.
3. To adjudicate on this appeal, only a few material facts need to be taken note of. The assessee is engaged in the business of Mandap Contractors and de-addiction of alcohol. A search and seizure operation was carried out on assessee's premises on 27.1.2005, and it was found that the assessee was engaged in the business of de addiction but the assessee has not shown any income from this business. On the basis of material seized and explanations obtained from the assessee, the Assessing Officer determined income of Rs 78,01,170 for the assessment year 2004-05 and Rs.1,34,00,000 for the assessment year 2005-06. However, so far as the present assessment year is concerned, the AO noticed that the seized records show an income certificate, issued by Tehsildar, Wada, showing agricultural income of Rs.52 lakhs. The Assessing officer noted that in the preceding assessment years, only a meager agricultural income was shown and there cannot be such a quantum jump of earnings in this year. It was also noted that assessee's explanation is that "this certificate is obtained for loan purpose and does not reflect actual agricultural income". In this background the Assessing Officer concluded as follows:
"The above indirect evidences clearly indicate that the assessee was having income from de-addition of alcohol, which the assessee intended to show as agricultural income. it may also be pointed here that the assessee and other family members have not offered the agricultural income as is shown in the certificate issued by Tahasildar, Wada at Rs.52 lakhs in their regular returns filed prior to the date of search. It is therefore obvious that the agricultural income, which was shown in the certificate was, in fact, the income of the assessee from the business of de-addition of alcohol.3 I.T.A No.1357,1363 & 1364/ Mum/2008:
Assessment years: 2003-04, 2004-05 and 2005-06 In view of the above facts, assessee's net income from the business of de- addiction of alcohol is brought to tax at Rs.52,00,000, after allowing all eligible deductions. Penalty proceedings u/s.271(1)(c) are initiated.
4. Aggrieved, assessee carried the matter in appeal before the CIT(A). Learned CIT(A) deleted the impugned addition of Rs.52,00,000 and, while doing so, observed as follows:
"I have gone through the assessment order, written submissions of the appellant, remand report of the AO and the comments of the appellant on the remand report. All relevant facts of the case have been duly considered. The appellant has taken 15 grounds of appeal, which are essentially against the addition of Rs.52,00,000 as concealed income of the appellant from his business of de-addiction of alcohol. The appellant has only changed his wordings and has given various arguments in all the grounds of appeal against the addition of Rs.52 lakhs. Thus, the grounds of appeal No.3 & 4 against the addition of Rs.52 lakhs are being considered and the other grounds of appeal are not being discussed separately.
It is an accepted fact that during the course of search & seizure in the premises of the appellant, no documentary evidences were found and seized which indicated that the appellant was carrying on the business of de-addiction of alcohol even before March'04. The statement of a person was recorded who had admitted that his friend had got the treatment from the appellant some 6 years ago and had paid Rs.3,000 to the appellant for his treatment. The AO has not cross checked the veracity of the statement from the concerned patient. Such hearsay evidence cannot be relied upon for estimating business income of the appellant.
The AO has assessed the income of the appellant from business of de-addiction of alcohol in the A.Y. 03-04 at Rs.52,00,000 only on the basis of a certificate issued by the Tehsildar in the name of the appellant's father and his family members. In the certificate, the Tehsildar had indicated that Shri Puroshuttam Nasik Deshmukh and his family members were having agricultural income to the tune of Rs.52,00,000 for the A.Y. 03-04 on the basis of an affidavit submitted by Shri Purushottam Nasik Deshmukh (appellant's father). The AO has presumed that this certificate was obtained by the appellant in order to show his income from the business of de-addiction of alcohol as his agricultural income in order to avoid payment of tax. The AO has not spelt out any reasons or basis for his inference. When the certificate was obtained by the appellant's father in his name and in the names of other family members, there was no scope for drawing any inference that the certificate was obtained to cover up the appellant's business income from de-addiction of alcohol. The certificate was issued by the Tehsildar on the basis of proper verification of land records of the 4 I.T.A No.1357,1363 & 1364/ Mum/2008: Assessment years: 2003-04, 2004-05 and 2005-06 appellant's father and his family members. The Tehsildar had specifically mentioned on the certificate that it was issued for loan purposes. The AO has not contradicted the land holding of the appellant's father and his family members. Further, it is seen that the appellant had already filed his return of income for the A.y. 2003-04 in the income Tax Department before the date of search and had not disclosed agricultural income on the basis of that certificate in his return of income. In fact, the appellant did not own any agricultural land in his name. He has not disclosed any agricultural income in his returns of income for any assessment year. Thus, the presumption of the AO appears to be fallacious. Further, the AO has not pointed out any evidence which indicated that the appellant was having the business of de-addiction of alcohol during F.Y. relevant for the A.Y. 03-04. In a recent judgment, the Hon'ble Bombay High Court in the case of CIT vs. Dr MKE Memon, 248 ITR 310Bom), has held that that while assessing the total income. the AO cannot estimate the undisclosed income on an arbitrary basis. The AO has not established any co-relation between the certificate of Tehsildar issued especially for loan purposes with the earning of the appellant from his business of de-addiction of alcohol. The AO has not brought any evidence on record to establish that the appellant carried on his business of de-addiction of alcohol during the FY relevant for AY 03-04 and had charged fees from the patients. His estimation of the concealed income of the appellant from the business of de-addition of alcohol is based purely on estimation and surmises. I find it difficult to sustain the addition of Rs.52 lakhs made to the total income of the appellant by the AO without bringing any material evidence on record. The addition of Rs.52,00,000 made to the total income of the appellant for A.Y. 03-04 is, therefore, deleted. With this, all the grounds of appeal are accordingly disposed of."
5. The Assessing Officer is aggrieved of the relief so given by the CIT(A) and is in appeal before us.
6. We have heard the rival contentions, perused the material on record and duly considered the factual matrix of the case as also the applicable legal position.
7. We find that the entire foundation of the impugned addition rest on a certificate issued by Tehsildar and the AO's inference that income set out in the certificate so issued in fact consist of income earned by the assessee from de addiction business. We, however, find that no legally sustainable basis in the above conclusions arrived at by the CIT(A). Just because a certificate is found in the premises of the assessee certifying the agricultural income of Rs.52 lakhs, it cannot be inferred that the assessee actually earned Rs.52 lakhs from agricultural operation 5 I.T.A No.1357,1363 & 1364/ Mum/2008: Assessment years: 2003-04, 2004-05 and 2005-06 or for that purpose from any other activity. The AO has not actually proceeded to treat the certificate as conclusive evidence of assessee having actually earned that income but also inferred that the income so earned represents assessee's income from de-addiction business. The action of the Assessing Officer thus was clearly on the basis of surmises and conjectures and learned CIT(A) was quite justified in reversing the same. As a matter of fact, as rightly noted by the CIT(A), the AO has not even brought on record any material to indicate that the assessee was carrying on de-addiction business in the relevant period. The addition so made by the AO representing estimated income from de-addiction business is thus devoid of any legally sustainable merits at all. In view of these discussions, we approve and confirm the well reasoned findings of the CIT(A) and decline to interfere in the matter
8. In the result, appeal for the assessment year 2003-04 is dismissed.
9. Let us now proceed to take up appeals for the remaining two assessment years (i.e. assessment year 2004-05 and 2005-06) together, as these appeals have some common issues. Grievances raised by the Assessing Officer in respect of these two years are as follows:
Assessment year 2004-05 "1. The ld CIT(A) erred in deleting the addition of Rs.73,50,000 out of total addition of Rs.75,00,000 made on account of undisclosed income from de-
addiction business.
2. The ld CIT(A) erred in accepting that the assessee family has income of Rs.52 lakhs on account of agricultural income merely on the basis of certificate of Tehsildar without appreciating the context in which it is written and without asking the assessee to substantiate the agricultural income."
3. The ld CIT (A) erred in allowing total deduction @ 50% of the gross receipts on account of administrative and other expenses including treatment of free patients.
Assessment year 2005-06
1. The ld CIT(A) erred in restricting the addition of Rs.1,33,90,000 to Rs.77,60,000 made on account of undisclosed income from de-addiction business.
6 I.T.A No.1357,1363 & 1364/ Mum/2008:Assessment years: 2003-04, 2004-05 and 2005-06
2. The ld CIT(A) erred in accepting that the assessee family has income of Rs.52 lakhs on account of agricultural income merely on the basis of certificate of Tehsildar without appreciating the context in which it is written and without asking the assessee to substantiate the agricultural income."
3. The ld CIT (A) erred in allowing total deduction @ 50% of the gross receipts on account of administrative and other expenses including treatment of free patients.
10. As far as second ground of appeal in both of these appeals is concerned, this grievance does not arise out of the order of the CIT(A) for these assessment years. This addition was made in the course of assessment year 2003-04 and as we have held, dealing with the said assessment year earlier in this order, the CIT(A) was quite justified in deleting the same. However, as this issue does not arise in these two years, and, in response to our specific question put to the learned Departmental Representative, he could not demonstrate as to how does this issue appeal in these two years, we decline to address ourselves to this grievance. The other two grievances raised in the appeals are somewhat interconnected, arise out of the same facts, and we will, therefore, take them up together.
11. As we have noted earlier in this order, while dealing with the assessment year 2003-04, the assessee is engaged in the business of Mandap Contractors and de-addiction of alcohol. A search and seizure operation was carried out on assessee's premises on 27.1.2005, and it was found that the assessee was engaged in the business of de addiction from alcohol. As far as assessment year 2004-05 is concerned, the Assessing Officer noted that in the income tax return filed by the assessee subsequent to the search, the assessee has disclosed only Rs 2,00,000 from de-addiction business, and interest on fixed deposits at Rs 1,13,174. For the assessment year 2005-06, the assessee had declared income of from deaddiction at Rs 10,51,000 and fixed deposit interest at Rs 1,18,241. The Assessing Officer then referred to the statements recorded by various persons during the search and that these statements indicate that the assessee was charging Rs 5,000 per session of de addiction, that each patient had to attend at least two session, that the assessee was conducting these treatment sessions twice each week, and that 40-50 persons, as per statement of the tea venor opposite assessee's place of work, used to attend the 7 I.T.A No.1357,1363 & 1364/ Mum/2008: Assessment years: 2003-04, 2004-05 and 2005-06 treatment sessions on each day of work. The Assessing Officer also referred to the registers found for the period of March 2004 to January 2005. On the basis of material seized and explanations obtained from the assessee, the Assessing Officer determined income of Rs 78,01,170 for the assessment year 2004-05 and Rs.1,33,90,000 for the assessment year 2005-06. In coming to this estimate, the method adopted by the Assessing Officer was this. He proceeded on the basis that 50 patients came on every working day, each patient paid Rs 5,000 per session, and that the business grew up by 15% each year (and thus estimated patients were computed in the preceding years). His computations were as follows:
1. From 01-04-2004 to 27-01-2005(10 Months) Rs. 2,50,000/- X 2 Days a week X 40 weeks Rs. 2,00,00,000
2. From 01-04-2003 to 31-03-2004 (12 Months) Rs. 2,50,000!- X 2 Days a week X 52 weeks Rs. 2,60,00,000 Less 15% Rs. 39,00,000 Rs.2,21,00,000
3. From 01-04-2002 to 31-03-2003 (12 Month&) Rs. 2,21,00,000 Less 15% Rs. 33,15,000 Rs. 1,87,83,000
4. From 01-04-2001 to 31-03-2002 (12 Month&) Rs.1,87,85,000 Less 15% Rs. 28,17,750 Rs. 1,59,67,250
5. From 01-04-2000 to 31-03-2001 (12 Months ) Rs. 1,59,67,250 Less 15% Rs.. 23,95,087 Rs. 1,35,72,163
6. From 01-04-1999 to 31-03-2000 (12 Months) Rs. 1,35,72,163 Less 15% Rs. 20,35,824 Rs. 1,15,36,339
7. From 01-04-1998 to 31-03-1999 (12 Months) Rs. 1,15,36,339 Less 15% Rs. 17,30,450 Rs. 98,05,889 8 I.T.A No.1357,1363 & 1364/ Mum/2008: Assessment years: 2003-04, 2004-05 and 2005-06
12. It was broadly on this basis that the income from de addition business was computed at Rs 75,00,000 for the assessment year 2004-05 and at Rs 1,33,90,000 for the assessment year 2005-06. Aggrieved, assessee carried the matter in appeal before the CIT(A) who restricted the additions on the basis of entries actually found in the seized material and by providing estimated deduction @ 50% for free patients and other expenditure incurred by the asseessee. In coming to this conclusion, the CIT(A) observed that it is a realistic assumption that not all the persons would have paid him the amount of Rs 5,000 and some persons may have paid lesser amounts also. Therefore, while the basic calculation of fees was done on the basis of number of persons entered into the seized register by taking the fees @ Rs 5,000 per person, the adjustments for possible lower realization was made by granting deduction of 50% from fees received ; out of this 50%, as noted by the CIT(A), 25% deduction was in respect of expenses incurred by the assessee on staff, publicity, medicines, telephone, printing and stationery and other expenses, while the remaining 25% was in respect of lower realization of fees. As far as 2004-05 was concerned, the seized material indicates patients only a small period of last month. These figures were taken at actuals and the Assessing Officer' s action of estimating the patients in period not covered by seized material was reversed by the CIT(A). The Assessing Officer is not satisfied with the relief so given by the CIT(A) and is in appeal before us.
13. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position.
14. We find that so far as estimation of patients in the period, in respect of which no records were found and seized, is concerned, the CIT(A) was fully justified in deleting the estimated income on the same. Admittedly, there is no material on record to come to the conclusion that these patients ever visited the assessee, and the Assessing Officer only proceeded on the assumption that some patients must have come during this period as well. We have noted assessee's contention that he was not in the business of deaddiction treatment at point of time and no material is 9 I.T.A No.1357,1363 & 1364/ Mum/2008: Assessment years: 2003-04, 2004-05 and 2005-06 brought on record to controvert the said claim. Obviously, the assessee cannot be expected to prove a negative and that is that the assessee did not treat any patients in a particular period. In this view of the matter, restricting the addition in respect of patients on the basis of seized material is quite justified and we approve the same. The only other issue left for adjudication is whether the CIT(A) was justified in granting adhock deduction @ 50%, on estimate basis, in respect of fees concession and expenses incurred to earn this income. Learned Departmental Representative also does not dispute that lower realization of fees is a ground reality of any business or profession and that some expenses must have been incurred to run this de addiction business, but he only disputes the quantum of such deduction. Having carefully considered the reasoning adopted by the CIT (A) in quantifying the deduction, and in the absence of a more convincing quantification of such deduction by the Assessing Officer or the learned Departmental Representative, we are not really inclined to interfere on this issue either. The estimation of lower realization and fees concession at 25% and estimation of 25% expenses to earn this income, in our humble understanding, is fair and reasonable. We approve the same.
15. In view of the above discussions, and bearing in mind entirety of the case, we uphold the orders of the CIT(A) for the assessment year 2004-05 and 2005-06 as well.
16. In the result, all the three appeals filed by the revenue are dismissed. Pronounced in the open court today on 25th day of October, 2011.
Sd/- Sd/-
(Vijay Pal Rao) (Pramod Kumar)
Judicial Member Accountant Member
Mumbai, Dated 25th October, 2011
Parida
10 I.T.A No.1357,1363 & 1364/ Mum/2008:
Assessment years: 2003-04, 2004-05 and 2005-06
Copy to:
1. The appellant
2. The respondent
3. Commissioner of Income Tax (Appeals),, Mumbai
4. Commissioner of Income Tax, , Mumbai
5. Departmental Representative, Bench 'A' Mumbai
//TRUE COPY// BY ORDER
ASSTT. REGISTRAR, ITAT, MUMBAI