Income Tax Appellate Tribunal - Allahabad
Dr. R. M. L. Mehrotra vs Assistant Commissioner Of Income Tax. ... on 29 May, 1998
Equivalent citations: [1999]68ITD288(ALL)
ORDER
BY THE BENCH :
1. By this common order, we propose to dispose of two appeals by two different assessees of the same group against the orders dt. 22nd September, 1997, of the Asstt. CIT, Circle II (1), Lucknow, (hereinafter referred to as "the AO") under s. 158BC of the IT Act, 1961 (hereinafter referred to as "the Act" for brief) for the block period 1st April, 1986, to 25th September, 19961 as they involve similar facts and common questions of law and were argued by the same set of counsel from both sides.
2. Dr. R. M. L. Mehrotra, assisted by his son, Dr. Sanjay Mehrotra, the other appellant, his wife, Dr. Bandana Mehrotra and certain other doctors, is running a pathology clinic in the capital city of Lucknow. The aforesaid trio of doctors together with other connected doctors, all members of a bigger family, were subjected to search on 25th September, 1996, when certain assets, account books and other documents, etc. were found and seized. The assessments of the present appellants were completed by the learned Asstt. CIT, Circle II(I), Lucknow vide separate orders, both dt. 22nd September, 1997, with the previous approval of the CIT, Lucknow. Both sides agreed before us that the issues involved in the case of Dr. Sanjay Mehrotra are exactly the same as in the case of his father, Dr. R. M. L. Mehrotra, the other appellant before us, excepting that there is an additional ground in the case of the senior Mehrotra relating to an addition of Rs. 25,000, and as such the submissions made by them in the case of Dr. R. M. L. Mehrotra shall mutatis mutandis apply to the other case, without the requirement of any additional arguments. The appeal of Dr. R. M. L. Mehrotra, viz., ITA No. 1327(All.)/1997 is, therefore, being taken by us first.
3. The ground at Sl. No. 1.1 challenging the validity of authorisation of search under s. 132 of the IT Act was not pressed for hearing.
4. The grounds at Sl. Nos. 1.2 and 1.3 challenging the validity of the notice issued by the AO under s. 158BC(a) run as under :
"1.2 Because in any case on valid notice as envisaged in sub-s. (a) of s. 158BC was issued to the appellant and the assessment order dt. 22nd September, 1997, flowing from such notice is wholly without jurisdiction.
1.3 Because the notice dt. 29th November, 1996, as has been referred to in para 2 of the impugned order is liable to be treated as "no notice" in the eyes of law as it was not only vague in its tenor and import but also wholly illegal."
5. Shri S. K. Garg, learned C.A. representing the appellant contended that the notice as mandated by sub-s. (a) of s. 158BC of the Act was no doubt issued to the assessee but it was not in order, inter alia, being vague, incapable of being complied with and, therefore, bad in law. Assailing the notice, the learned counsel submitted that as was evident from the contents of the notice, being reproduced by us hereinafter, the assessee was required to prepare a true and correct return of his total income including the undisclosed one in respect of which he, as "individual/HUF/firm/company/AOP/BOI/local authority" was assessable for the block period in question. This vagueness in the notice made it absolutely untenable in law, rendering the entire assessment, which was acompleted only as a sequel to this, liable to be quashed. According to Shri Garg, such a defective notice, which even did not clarify as to in which capacity the person to whom the notice was issued, was required to file a return giving details of his income, including the undisclosed one, would not in law confer valid jurisdiction on an AO to even initiate assessment proceedings. In support of his contention, Shri Garg referred to certain authorities.
5.1. Opposing, Shri, Bharatji Agarwal, learned senior standing counsel submitted that issuance of a notice under s. 158BC(a) was mere procedural and not jurisdictional, the provision being a part of Chapter XIV-B prescribing "Special procedure for assessment of search cases." Further, according to the learned senior standing counsel, it was not a notice akin to the one required to be issued under s. 148 of the Act, but was of the same character as a notice under s. 142(1) of the Act. Controverting the submissions made by Shri Garg, Shri Agarwal submitted that it was not correct to say that the notice was not capable of being understood and complied with inasmuch as, inter alia, it clearly gave the name of the person to whom it was issued, enjoining upon him to prepare a true and correct return of his total income including the undisclosed income and thus making its intent and purpose very clear. Further, in this case, the assessee was evidently and undisputably an "individual" and as such it had to be inferred that the notice was meant for him in his individual capacity. According to Shri Agrawal, the maximum defect that could possibly be seen in this notice is that the various strokes from 'HUF' to 'local authority' were not struck off. He submitted that even if this were to be taken as a defect, such a defect being purely of form and not of substance would not invalidate the notice must less the assessment, taking into consideration the express provisions of s. 292B of the Act. He relied on the decision of the Punjab & Haryana High Court in Swaran Kanta vs. CIT (1989) 176 ITR 291 (P&H).
6. In reply, Shri Garg submitted that simply because Chapter XIV is captioned as "Procedure for assessment" and Chapter XIV-B as "Special procedure for assessment of search cases", the entire provisions of these Chapters do not become procedural. He contended that many of the provisions of these two chapters are jurisdictional and their non-compliance in letter and spirit would render the proceeding invalid in law. He further submitted that there was no legal similarity in the provisions of s. 142(1) and 158BC(a) of the Act. In this connection, he referred to the fact that while in s. 142(1), the word used for the issue of notice is "may", in s. 158BC(a), it is "shall". Shri Garg reiterated that issue of notice under s. 158BC(a) was a jurisdictional matter and any infirmity in it cannot be cured by the reliance on s. 292B of the Act. In this connection, he placed further reliance on the decision of P. N. Sashi Kumar & Ors. vs. CIT (1988) 170 ITR 80 (Ker).
7. We have considered the matter carefully. In the first instance, with a view to appreciating the controversy, we would refer to the provisions of s. 158BC(a) of the Act, as they stood at the relevant point of time :
"Sec. 158BC. Where any search has been conducted under s. 132 or books of account, other documents or assets are requisitioned under s. 132A, in the case of any person, then, -
(a) the AO shall serve a notice to such person requiring him to furnish, within such time, not being less than fifteen days, as may be specified in the notice, a return in the prescribed form and verified in the same manner as a return under cl. (i) of sub-s. (1) of s. 142, setting forth his total income including the undisclosed income for the block period :
Provided that no notice under s. 148 is required to be issued for the purposes of proceeding under this Chapter;"
8. We would now reproduce the notice issued to the assessee NOTICE UNDER S. 158BC OF THE IT ACT, 1961.
PAN/GIR 1st April, 1986 to 31st March, 1996 and 1st April, 1986 to 26th September, 1996 Block Period 1st April, 1986 to 31st March, 1996 & 1st April, 1996 to 26th September, 1996 Income-tax Office, Asstt. CIT, Inv. Cir., Lucknow.
dt. : 29th November, 1996.
To
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In pursuance of the provisions of s. 158BC of the IT Act, 196j, you are requested to prepare a true and correct return of your total income including the undisclosed income in respect of which you as individual/HUF/firm/company/AOP/BOI/local authority are assessable for the block period mentioned in s. 158B(a) of the IT Act, 1961.
The return should be in the prescribed From No. 2B and be delivered in this office within 16 days of service of this notice, - duly verified and signed in accordance with the provisions of s.'140 of the IT Act, 1961.
Sd. AO Asstt. CIT, Inv. Cir., Lucknow. (in Hindi) Name -------------------------
Designation ------------------
9. Critically examining the contents of the notice, we are inclined to take the view that one cannot say that he was prevented or misled to understand the real purport and directive contained in the notice about the filing of the return as envisaged therein. In taking this view, we are impressed at least by two important factors. One, that the search under s. 132 was conducted in the case of assessee in his individual capacity, which fact is not in challenge in any manner. That being so, "such person" within the meaning of sub-s. (1) of s. 158BC, who could be called upon to file the return would be the assessee, only in his individual capacity : Secondly, "the proof of pudding being in its eating", the assessee having filed a return in the prescribed form in his capacity as "individual", cannot be permitted to say that he did not understand the implications of the notice or that the notice in question was incapable of conveying what it had actually meant. A fortiori, as admitted by Shri Garg during the course of arguments, the assessee attended about three dozen hearings before the AO thereby fully and extensively participating in the assessment proceedings.
10. We would now deal with the case law cited on both sides. On behalf of the assessees, Shri S. K. Garg, learned C.A. placed reliance on following case law :
(1) CIT vs. Thayaballi Mulla Jeevali Kapasi (1967) 66 ITR 147 (SC);
(2) CIT vs. Kurban Hussain Ibrahimji Mithiborwale (1971) 82 ITR 821 (SC);
(3) CIT vs. Ishwar Singh & Sons (1981) 131 ITR 480 (All);
(4) Madan Lal Agarwal vs. CIT (1983) 144 ITR 745 (All);
(5) P. N. Sashi Kumar & Ors. vs. CIT (supra).
11. Going through these citations, it may be seen that they relate to the assumption of jurisdiction for a reassessment either under the 1922 Act of the IT Act, 1961. The apex Court and the jurisdictional High Court have in the aforesaid cases laid down an important proposition of law that issue of a valid notice under s. 148, in proper status, rather than a vague and defective one, is a condition precedent for the validity of reassessment proceedings. The Kerala High Court in the case in (1988) 170 ITR 80 (Ker)(supra), besides reiterating the above proposition, has held that the defect in specifying the status in a notice under s. 148 was not a mere irregularity which could be cured by reliance on s. 292B of the Act. However, it would suffice to say that in these cases and in the case before us there is a vital difference, namely, that for a block assessment, for which a special procedure by inserting Chapter XIV-B was prescribed, the condition precedent for assuming jurisdiction is a search conducted under s. 132 of the Act rather than anything else. However, in the present case, the factum of search on the individual has not been challenged before us in any manner. In such situation, as is mentioned by us in the preceding paragraph, the use of the word "such" prefixed to "person" to whom a notice is to be issued under s. 158BC(a), has made a material difference. We have, therefore, no hesitation in saying even at the cost of repetition, that but for the non-striking off of the words 'HUF/ ............ local authority', there is no other lacuna or confusion in the language of the notice, which was not only well understood by the assessee, but also duly complied with. In our considered opinion, in such circumstances, the defect, if any, in the notice under s. 158BC(a) was curable under s. 192B, as is submitted by the learned senior standing counsel on the strength of Punjab & Haryana High Court decision in the case of Swaran Kanta vs. CIT (supra). It is also worthwhile to mention that neither the Act nor the IT Rules have prescribed any particular format for the notice under s. 158BC(a) of the Act.
12. In the result, we are unable to fall in agreerrient with any of the contentions advanced by Shri Garg on this particular point and proceed to take up other grounds.
13. The next challenge covered by the following three grounds relates to approval granted by the learned CIT under s. 158BG of the Act :
"2. Because on a due consideration of overall facts and circumstance of the case, the learned CIT could not have said to have given his 'approval' as envisaged under s. 158BG of the IT Act, 1961 and consequently the impugned order is liable to be declared as a nullity.
3. Because in any case and without prejudice to the contention raised in the foregoing ground No. 2, the issue relating to computation of disclosed income stood already finalised from the side of the Department) in terms of the note dt. 11th June, 1997 prepared by the then CIT and the judicial property demanded that the successor CIT, before making any deviation should have given the appellant a due and effective opportunity of being heard.
4. Because the so-called approval given by the learned CIT, to the AO, without giving the appellant any opportunity of being heard is wholly illegal and also unjustified on the facts of the case."
14. At the outset, Shri Garg invited our attention to an affidavit of the assessee (Dr. R. M. L. Mehrotra) enclosing therewith copy of a note dt. 11th June, 1997, recorded by Shri R. B. Shukla, the then CIT, Lucknow. Shri Garg submitted and as is also contained in the assessee's affidavit that the learned CIT "gave me an opportunity of being heard (before giving approval) on various dates." Two-fold submissions were advanced before us in this respect. Firstly, that the assessment order finally rendered is at variance with the note referred to above and, secondly, once, the CIT had granted the assessee an opportunity of being heard, the successor CIT (Shri V. B. Srivastava), who granted approval for the assessment, should have also necessarily granted the assessee an opportunity of being heard. Shri Garg fairly brought to our notice two views of the different Benches of the Tribunal taken on the question of grant of opportunity by the CIT before granting approval under s. 158BG of the Act. The one is that of Madras Bench in the case of Kddal Kabdas & Co. & Ors. vs. Dy. CIT in ITA No. 93(Mad)/1997 etc. dt. 17th October, 1997 [reported at (1999) 64 TTJ (Mad) 771 a copy of the judgment available at pp. 178 to 241 of the assessee's paper-book. According to this view, the grant of hearing to the person to be adversely effected by the approval was a must. In this case, it is held by our learned brothers, in para 47 of their order that the assessments impugned before them for the block period were nullity and could not be upheld. As against this, the other view of the Bangalore Bench in the case of Kirloskar Investments & Finance Ltd. vs. Asstt. CIT, in ITA No. (SS) A. No. 88 (Bang.)/1997, dt. 4th March, 1998 (copy placed before us) is to the effect that since the provisions of s. 158BG of the Act nowhere speak about the grant of any opportunity to an assessee, the implementers of the Act cannot assume such power by any means. While expressing this view, the Bangalore Bench has taken into account the beneficial view of the Chenai (Madras) Bench,. Shri Garg submitted that the controversy in the matter apart, since in the present case, there existed a note of the predecessor CIT, in the interest of equity and justice, it was incumbent upon the successor CIT to grant the assessee an opportunity of being heard before according approval to the assessment which was at variance with his predecessor's note. This fact according to the learned counsel for the assessee also showed non-application of mind by the CIT, who granted the approval under s. 158BG of the Act.
15. The learned senior standing counsel, vehemently opposing, submitted that the note dt. 11th June, 1997 recorded by Shri R. B. Shukla, predecessor CIT, Lucknow was not an approval and at best formed guidelines issued by him to the AO. He also submitted that it was wholly incorrect to say that any hearing was granted by Shri Shukla to the assessee as has been claimed by him in his affidavit, referred to supra. In this connection, reliance was mainly placed by Shri Agrawal on two factors. Firstly, the note did not say even a word to support the stand of the assessee that any hearing was granted to him and, secondly till 11th June, 1997, i.e. the day the predecessor CIT recorded a note, even the draft assessment order had not been prepared by the AO. That being so, there was no legal occasion or condition present whereby the necessity of the grant of any approval arose. Without prejudice to these submissions, Shri Agrawal submitted that even on merits there was no violation or infraction of the directions of the predecessor CIT, which very much existed on record of the case.
15.1. About the right of the assessee to be heard before the grant of approval, the learned senior standing counsel submitted that neither the language of the relevant provisions expressly spoke about any such right nor could it be inferred impliedly. According to him, wherever such a right was intended to be granted by the legislature, it was specifically so provided. Illustrating, he referred to the provisions of s. 144B (since omitted) and 274(2) of the Act. He also placed reliance on a decision of the High Court of Lahore in the case of Lachhman Das Mehar Chand vs. ITAT (1944) 12 ITR 432 (Lah) and a decision of the Allahabad High Court in the case of Sardar Harminder Singh vs. ITAT & Ors. (1996) 219 ITR 257 (All).
15.2. On the issue of non-application of mind, Shri Agarwal referred to the papers placed in the Department's paper-book and submitted that they demonstrated that the CIT had applied his mind before granting approval.
16. In reply Shri Garg submitted that the tenor of AO's notice to the assessee dt. 8th August, 1997 (copy placed at pp. 28 and 29 of the Department's paper-book) is altogether different from the directions contained in CIT's note dt. 11th June, 1997. Reiterating his plea about non-application of mind by the CIT granting approval., the learned counsel referred to the office note in the file of the CIT and the language used in the approval letter (copies placed at pp. 5 and 6 of the aforesaid paper-book).
17. We have considered the matter carefully. We would firstly like to dwell upon the note dt. 11th June, 1997, recorded by the predecessor CIT. Before dealing with the merits, we would like to point out that it does not appear to be indicated by any material or evidence on record that any opportunity of hearing was granted by the CIT to the assessee. We say so mainly on the premise that the note in question is totally silent on this aspect of the matter and the assessee could not demonstrate it before us in any manner that The predecessor CIT had granted any hearing to him. The note in question, after we have gone through it, could only be said to have been recorded for issuing guidelines to the AO in the completion of the assessment. Considering the second aspect of the matter as to whether there has been any violation of the directions contained in this note, it may be stated that it does not appear to be necessary to go into this aspect of the matter for the most important singular reason that while this note was recorded on 11th June, 1997, the draft assessment was placed before the successor CIT only on 17th September, 1997 and approved by him on 22nd September, 1997. An assessment, like the present one, before it is completed has to pass through various stages. In between the 11th June, 1997 and 17th/22nd September, 1997, much water had flown beneath our holy rivers and unless a view is taken that the hearing of the assessee before the completion of an assessment was an imperative requirement of law, what is required to be seen is as to whether or not mind was properly applied by the concerned CIT whosoever he may be, at the time of granting actual approval. This aspect of the matter, we would examine a little later. We would now pass on to the other aspect of the matter by observing that we also find ourselves unable to read in the language of s. 158BG of the Act that before granting an approval, the CIT must hear an assessee. It is a different matter, with which we are unable to disagree, that once the predecessor CIT had issued certain guidelines it was expected of both the AO as well as the successor CIT to refer to those guidelines to see that they were taken due note of in the formation of assessment. Unfortunately the records placed by the Department did not throw any such hint. We say so by going through the copies of the order sheets of the CIT's file from pp. 1 to 7. However, we feel that our hands are tight because of the view, which we are taking while agreeing with the reasoning adopted by the Bangalore Bench of the Tribunal, that in the absence of any specific mandate to this effect in the provision in question, the implementers of the Act cannot assume any power of granting the assessee an opportunity of being heard.
17.1. We would now deal with the aspect about the "non-application of mind by the CIT" raised on behalf of the assessee. In this connection, we would refer to p. 5 of the order sheet of the learned CIT's file as per which the draft assessments were put up before him for approval and directions by some officer of his charge. Interestingly, the note of the officer reads as under :
"I have gone through the draft assessment orders received on 17th September, 1997. I found that the AO has dealt with the seized material in a proper manner and as per the directions given by yourself from time to time. If approved, the draft orders may be approved. Put up for your approval and directions please." It is, inter alia, on the basis of the above note that Shri Garg has submitted that the approval by the learned CIT was wholly routine and without any application of mind, rendering the assessment unacceptable and untenable in law. Shri Agarwal, opposing, submitted that the communication sent by the CIT, Lucknow on 22nd September, 1997 suggested that there was an application of mind on his behalf. In the alternative, Shri Agrawal also frankly submitted that in case the Tribunal took the view that this was a case of non-apphcation of mind by the learned CIT, in view of the law laid down by the jurisdictional High Court in the case of Sardar Harinder Singh (supra), the matter could be remanded back to him for reconsideration.
17.2. Proceeding from the point we left in the foregoing paragraph, after the officer in the office of the CIT, Lucknow submitted his note on 22nd September, 1997, the learned CIT conveyed approval by his letter of the same day, copy available at page 6 of the Departmental paper-book. Relevant portion of this letter reads as under
"2. I have seen the assessment orders. I believe that all the facts and material as found during the course of search at the business/residential/lockers/ premises of the above assessees have been duly considered while completing these assessments."
3. The above assessment orders are approved ................."
17.3. Shri Garg has vehemently contended that the words "seen" and "believe" in the aforesaid communication would convince anybody that the approval granted was a sheer routine one. According to him, "seen" is not equivalent to gone through" or "examined". Further, the use of the word "believe" only conveyed the fond hope of the concerned officer that a particular thing existed. It was, however, far from the finding that the particular situation actually existed.
18. On a careful consideration of the matter and also taking into consideration the frank submission made by the learned senior standing counsel about the quality of approval, we would only say that the Tribunal would have appreciated if the approval order was suggestive of the fact that the draft assessment orders have been actually gone through by the learned CIT and found to be in order. While there is no doubt that this legal requirement does not appear to exist with exactitude in the present case, we are equally unable to take the view that it is a case of "non-application of mind" by the learned CIT in view of this, we would stop here as far as this aspect of the matter is concerned and will proceed to the merits of the matter.
19. The grounds at Sl. Nos. 5 to 11, which impinge on the main merits of the matter, in substance challenge an addition of Rs. 6,16,604 made in the hands of the appellant by way of undisclosed income for the asst. yr. 1996-97.
20. On facts, during the course of search a note book marked as "B-1/23" was found and seized. It was found to record details of receipts from the patients for the period 11th May, 1995, to 30th June, 1995. Since on security, all such payments were not found entered in the account books maintained by the doctor trio, the assessee was asked to show cause why an adverse inference should not be drawn, in respect to which, the assessee's stand was that the information in question was complied by them in order to verify the conduct of some of their employees, who were doubted by the assessees to have embezzled part of their receipts and that it did not in any manner, convey, much less, prove any suppression or omission on the part of the assessee in showing the receipts. The assessee further explained the entries by classifying them into three groups, detailed working of which has been placed before us in the form of pp. 120-139 of the paper-book.
21. Before we advert to the details of these three groups, it would be relevant to refer very briefly the working of the assessee-doctors in the matter of receipts by them, as explained before us. According to Shri Garg, after a patient went to clinic for some pathological test, either he would be making the whole payment and collecting his reports after they were ready or he would be making part-payment at the time of the examination and balance paid at the time of collection of the reports. There was yet a third category of persons who, though made certain part-payment at the time of examination, but never turned up to collect the reports and in such cases, the question of balance payment never arose.
22. Proceeding to refer to the quantification of the three types of receipts made by the assessee, group I, where both advance and balance payments were received and receipts issued, aggregated an amount of Rs. 63,490, details available at pp. 120-122 of the paper-book. In the second list, details of which are found at pp. 123-124, there is a dispute of a sum of Rs. 6,670 out of the amount of Rs. 23,160, which amount according to the assessee was also received but did not reach them, as it was embezzled by their employees.
22.1. The last group contained the list running, into 15 pages from 125 to 139 of the paper-book. Where part payments aggregating Rs. 85,820 were received while balance payments aggregating Rs. 72,915 were never received as the patients did not turn up to collect the reports. In respect of the amount of Rs. 85,820 also, it was submitted that it never reached the pocket of the assessees as it was embezzled by their employees.
22.2. Thus, the position in nutshell stands as under :
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In dispute No dispute Total
Rs. Rs. Rs.
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(i) Group I 63,490 63,490
(ii) Group II 6,670 16,490* 23,160
(iii) Group III 85,820
72,915 - 1,58,735
1,65,405 79,980 2,45,385
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*The AO has taken the figure at Rs. 16,660 22.3. The AO took out the percentage of suppression of receipts which the amount of Rs. 1,65,035 stated above bore to the total accounted receipts of Rs. 8,66,995 by the doctor trio, at 19 per cent. In doing so, he discarded the assessee's stand about embezzlement (Rs. 6,670 + Rs. 85,820) and ignored the explanation about non-receipt of an amount of Rs. 72,915 representing the unpaid receipts from various patients, who never collected the reports.
Proceeding further, the AO worked out the suppression of receipts and in result the suppressed income for the entire year at Rs. 6,16,004 being 19 per cent of the receipts of Rs. 32,42,129 shown by Dr. R. M. L. Mehrotra, by observing as under :
"The exercise book B-1/23 covers only a period of 50 days of financial year 1995-196 relevant for financial year 1996-97. However, as mentioned above, it cannot be said that the suppression of receipts would have been limited to this period only. The way the assessee has refrained from issuing receipts to so many patients gives a clear indication of the fact that similar suppression has been carried out at least throughout the financial year 1995-96, if not in the preceding or succeeding years. I, therefore, hold that the assessee has suppressed the receipts by about 19 per cent of the disclosed receipt during the financial year 1995-96. The suppression of receipt and in result, of income, thus, comes to Rs. 6,16,004 being 19 per cent of gross turnover of Rs. 32,42,129 shown by the assessee."
23. Vehemently assailing the addition in question, Shri S. K. Garg, learned C.A. submitted that there was no factual and/or legal justification for making it. According to him, the document 'B-1/23' did not in any manner, represent a diary or "recording of the daily transactions as such" by the assessee. It was only a compilation made by the assessees with a view to note the extent of embezzlement made by their employees, which stand has been taken by them right from the very beginning, as was evident from their reply dt. 20th August, 1997 to the AO, copy available at pp. 103 to 113 of the paper book 'In this connection, reliance was also placed by Shri Garg on the affidavit and statement of Shri Shiv Sagar Dixit, an old employee of the assessee, copies of which are available at pp. 118-119 and 114-115 respectively. Shri Garg further, submitted that insofar as receipts of Rs. 6,670 and Rs. 85,820 are concerned, although these amounts were collected from the patients by the pathological centre run by the doctors, they never reached them because of the intervening embezzlement by their employees. In his submission, these amounts could never be treated as the receipts of the assessees. About non-taking of any action in respect of the fudging of these sums by the employees the learned counsel stated that while there is no dispute that no action was taken by the assessees, non-action did not depict any lapse, of lack of will on their part, but showed their compulsion as, firstly, the assessees employing several persons could not find with exactitude as to which one of the employee or employees had actually embezzled the sum and, secondly, the assessees could not displease the entire lot of their employees by taking unconfirmed action against all or some of them. About the amount of Rs. 72,915, the submission of the learned counsel was that in the statement in respect of group HI receipts, it was categorically mentioned that this amount was not received from the patients but the AO totally ignored this fact. He submitted that non-receipt of this amount is established from the evidence in the possession of the assessee.
23.1. Without prejudice to this main plea, Shri Garg also contended that an addition, more particularly, in a block assessment could be made only on the strength of certain actual entries unearthed during search. In this connection, reliance was firstly placed on the definition of the term "undisclosed income" as found in Chapter XIV-B vide s. 158B(b), according to which such income including the specified item of assets, must be based "on any entry in the books of account or other documents or transactions" to be able to represent wholly or partly income or property, which has not been or would not have been disclosed for the purposes of the Act. He thereafter placed reliance on a decision of the Tribunal, Munibai Bench 'B' in the case of Sunder Agencies vs. Dy. CIT (1997) 59 TTJ (Mum) 610 : (1997) 63 ITD 245 (Mum) wherein it was held that the scheme of Chapter XIV-B did not give power to the Revenue to draw a presumption with regard to the undisclosed income. It was vehemently argued that the AO was, therefore, not at all justified in proceeding to calculate the undisclosed income of the assessee for the whole year on the strength of the 19 per cent formula adopted by him as set out above.
24. Opposing, the learned senior standing counsel submitted that insofar as the two amounts of Rs. 6,670 and Rs. 85,820 are concerned, the moment the amounts were received by the assessee, although through their employees on their behalf to which there was no dispute, applying any principles it cannot be said that they were not their receipts. According to him, these amounts were firstly to be treated as the assessees' receipts and it was only thereafter that if they succeeded on facts and in law prove its embezzlement, that the same could be reduced from their income. Admittedly, there being not an iota of evidence or material to prove the so-called embezzlement, except the bald statement of the assessees, Shri Agrawal submitted that no benefit could go to them on this count. In support, he placed reliance on a decision Hali Lal Mohd. Biri Works vs. CIT (1982) 134 ITR 718 (All). Supporting the multiplication of the undisclosed income on the strength of 19 per cent formula, Shri Agrawal submitted that there was nothing illogical in it. In this connection, he placed reliance on a decision of the apex Court in the case of CST vs. H. M. Eusufalz H. M. Abdulah (1973) 90 ITR 271 (SC).
25. We have considered the matter carefully. Taking up the treatment of the two amounts of Rs. 6,670 and Rs. 85,820, the admitted position is that the amounts in question were collected by the employees of the doctor trio from the patients. This being so, it cannot be gainsaid that these amounts would not partake the character of receipts in their hands. Both on the principles of accounting as well as law, the amounts in question became the receipt of the assessees. About their embezzlement, as claimed by the assessees, again it would suffice to say that whatever be the compulsion of the assessees in not taking action against their employees, a bald statement on their part that the amounts in question were embezzled by their employees is neither here not there, in law. If such submissions are accepted, there would be no end to such claims. We are, therefore, of the considered view that the two amounts in question are the receipts of the assessee.
25.1. Taking up the assessees plea about non-receipt of the amount of 72,915, we are of the opinion that the amount in question actually does not appear to have been received by the assessees. Firstly, because the stand specifically taken by the assessees in this behalf, as per letter dt. 20th August, 1997 filed before the AO is to the effect that the concerned patients did not come to collect their reports and that the uncollected reports which were duly shown to the predecessor AO and perused by the then CIT, were available with them and that the detailed classification lists made available to the AO were not controverted by the AO in any manner. Secondly, and more importantly we ourselves devoted some time in a random check to the reports in respect of the patients who did not, as per assessee's version, turned up to collect them by tendering the remaining payment and found that they were actually lying with them. In our opinion, this would lead to the irresistible conclusion that the patients in question, whatever reasons there might have been, did not turn up at assessees' place to collect the reports. If that were so, there was no question at all about the receipt of the remaining payments from such patients.
Therefore, any addition on the strength of this figure of Rs. 72,915 cannot be made/worked out. In view of the foregoing, an inference against the assessees can be drawn for not showing receipts to the tune of Rs. 92,490 only as against the amount taken by the AO at Rs. 1,65,035.
26. Now passing on to the multiplication formula adopted by the AO, we find ourselves unable to accord our nod to it. In the first place, one should not forget that it is a search case in which a search party is supposed and expected to find out all the incriminating documents, material as also undisclosed assets. A search assessment, much less a block assessment, therefore, stands on a footing different than a normal assessment much less an assessment based on the best judgment of an AO. It is for this reason that the ratio of the apex Court decision in the case of H. M. Eusufali H. M. Abdulali (supra) would not come to the rescue of the Department, as there it was a sales-tax matter and a best judgment assessment was required to be made. The material that the STO was possessed of was the figure of 19 days sale by the assessee not entered in their books of account. The summit Court held that in such situation it was not possible for the officer to find out precisely the turnover suppressed and he could only embark on estimating the suppressed turnover on the basis of the material before him, in which some amount of guesswork was inevitable. In contradistinction to these facts, in the present case, the assessee was searched. During this search, firstly, no other diary or other record comparable to the note-book marked as "B-1/23" were found by the search party for the remaining period, which normally would have been, were it being maintained and kept. We are conscious that such a record could have been destroyed also from time to time. But in such a situation also, if the assessees had actually made a fortune of similar receipts in respect of the remaining part of the year, they must be reflected by certain assets movable or immovable ought to have been found during the course of search. No such assets, despite the extreme step of search which amounts to a serious invasion on the rights of subjects and which is perhaps the last weapon in the arsenal of the Department, were found, which could be attributed to any such patently hypothetical receipts. In view of this we are unable to concur with the Department to the multiplication formula adopted by the learned AO.
27. In the result, what finally emerges out is that only additions of 'Rs. 6,670 and Rs. 85,820, aggregating Rs. 92,490, could be made in the case of doctor trio. The AO would work out the proportionate addition in the case of the appellant in the same ratio, which his individual receipts bore to the total receipts of the trio.
28. We would now take up the last ground, which challenges an addition of Rs. 25,000 representing cash found during search operations.
29. The facts are that after accepting the explanation that out of cash of Rs. 2,89,145 found at the time of search, amount to the tune of Rs. 2,45,366 was available as per the cash books of the doctor trio, the AO wanted the assessee's explanation in respect of the balance sum of Rs. 43,778. A general explanation was offered that the amount in question represented the savings of the assessees out of past withdrawals, some of which were specifically referred to. The AO did not rule out the possibility of some past savings and accepted the explanation with regard to an amount of Rs. 18,778. Addition for the entire remainder of Rs. 25,000 was made in the case of the assessee.
30. The assessee's contention is that the explanation should have been accepted. With regard to the whole of the amount, while Department supports the view taken by the AO.
31. On a careful consideration of the matter, we would only say that the doctor trio as per the assessment, is pathologist of repute, running a pathology clinic in the capital town of Uttar Pradesh. This being so, availability of cash of Rs. 43,778 with the family of three doctors running a flourishing professional concern, cannot be viewed either as unusual or abnormal. We see no reason to disbelieve the assessee on this count and delete the addition of Rs. 25,000.
ITAT No. 1325 (All) of 1997
32. All the facts, questions of law, submissions of both sides and findings recorded by the Tribunal (excepting on the addition of Rs. 25,000) applying mutatis mutandis to the present case, we direct that the addition in the hands of the present appellant be also worked out to a part of the total addition of Rs. 92,490 being sustained by us in the same manner as in the case of his father, Dr. R. M. L. Mehrotra, in the other appeal being disposed of by us by this combined order.
33. Before we part with this order, we would like to record our appreciation for the valuable assistance rendered by Shri S. K. Garg, F.C.A. and Shri Bharatji Agrawal, senior standing counsel, enabling us to address ourselves to the various intricate issues involved in these appeals.
34. In the result, both the appeals are partly allowed.