TMI Blog1999 (2) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... one at Ameerpet. He was also running a hospital, Sai Ram Hospital, till 31-12-1993, thereafter which was leased to his nephew. Dr. Ravinder Reddy. Substantial expansion of the V.D.C.s has taken place in August, 1994 when advanced medical imaging system like CT Scan was procured with heavy loan finances availed from financial institutions and Banks. 4. With reference to this appeal in hand, we are narrating only the very essential facts, but comprehensive enough to read to the adjudication. All the supporting and peripheral facts and details are well narrated in the assessment order and the appeal papers, and therefore, they are not reproduced again in this order. 5. A search and seizure operation under section 132 was carried out in the residential and business premises of the appellant which was initiated on 20-9-1995 and finally concluded on 14-11-1995. Documents in the form of account books, daily collection sheets, note-books, etc. and cash worth Rs. 4.5 lakhs were seized. Title documents of properties have also been found. The cash was later found properly accounted. It was adjusted against the tax liability of the appellant's undisclosed income at this request. Properties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has admitted that, collections have been concealed for the purpose of giving money to the doctors who refer patients to his diagnostic centres. He admitted concealment, but only to the extent worked out on the basis of collection sheets seized at the time of search and nothing more. He also stated that concealment has been resorted to at V.D.C., Ameerpet only and there was no suppression in the case of V.D.C. at Himayatnagar. He has stated that he has installed the C.T. Scan in August, 1994 by resorting to loan finance. This has resulted in heavy incidence of interest and other charges. In order to support this increased overheads, he has to generate more business. There is stiff competition in the field. Therefore, he has to incur business promotional expenses including payments to referring doctors for bringing more business. It is only for this purpose, that he was resorting to suppression of collection, that too only from 1994. He also stated that the suppression would be around Rs. 30,000 to Rs. 40,000 per month and that too confined to Ameerpet Centre only. 8. It is on the basis of the above statements and admissions the appellant had agreed to offer an undisclosed income o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 94-95 and 1995-96 is Rs. 11,25,067. Out of this what has been accounted is Rs. 4,23,280 and what has been suppressed is Rs. 7,01,787. On the above basis, the Assessing Officer worked out the ratio of suppressed turnover to the disclosed turnover at 16596. The Assessing Officer has also found that the appellant has already accounted all the business expenses in his books except the payments made to doctors. Therefore, what is to be additionally allowed is only the business promotion expenses by way of payments to doctors. He also found that the expenses at Ameerpet were only negligible as compared to Himayatnagar. Therefore, he allowed a deduction of 5% of the total collection (both accounted and suppressed) as business promotion expenses. On the basis of the above parameters, the Assessing Officer computed the suppressed turnover for Ameerpet for the period from 1-4-1994 to 20-9-1995 as follows :--- "Admitted receipts for Financial Year 1994-95 Rs. 12.33 lakhs Admitted receipts for Financial Year 1995-96 Rs. 7.50 lakhs -------------------------------- Total admitted receipts Rs. 19.83 lakhs -------------------------------- Add: Suppression estimated at 165% of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... V.D.C. Ameerpet Rs. 30.09 lakhs V.D.C. Himayatnagar Rs. 18.68 lakhs -------------------------------- Total undisclosed income Rs. 48.77 lakhs -------------------------------- This total amount worked out by the Assessing Officer has been allocated as follows --- Undisclosed Income for asstt. year 1995-96 Rs. 29.26 lakhs Undisclosed Income for asstt. year 1996-97 Rs. 19.51 lakhs -------------------------------- Total undisclosed income considered in the block assessment Rs. 48.77 lakhs -------------------------------- (Para 10.J to 10.0 of asstt. Order) 14. In the course of the assessment proceedings, the Assessing Officer has gone into another aspect also. That is in relation to the construction of residential house by the appellant at Dilsukhnagar. The construction cost as per the accounts of the appellant is Rs. 24.36 lakhs, whereas the Departmental Valuation is for Rs. 31.37 lakhs. The Assessing Officer attributed the difference of Rs. 7.01 lakhs towards unaccounted investment in the construction of building. The appellant contended that the difference is only a question of valuation which has not properly considered many of the objections of the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 158B(b) of the Income-tax Act. 9. The Assessing Officer erred in estimating the undisclosed income of Ameerpet Centre at 165% of the total admitted receipts and at 20% of the total admitted receipts of the Himayatnagar Centre. 10. The Assessing Officer erred in limiting the deduction towards referal fees at 596 at Ameerpet Centre and at 10% at Himayatnagar Centre particularly when seized material show such fees to be about 25% of the fees, 11. The Assessing Officer erred in arriving at the suppression in the income for the block period at Rs. 48,77,000 as against the admitted amount of Rs. 7,70,639 particularly when the Income tax authorities did not fixed assets in possession of the assessee entries leading to discovery of concealment to that extent. 12. The Assessing Officer erred in observing that the cost of construction of Dilsukhnagar building is Rs. 31.37 lakhs as against the admitted cost of construction of Rs. 24.36 lakhs. Any other ground that may be urged at the time of hearing." 16. The first ground is general contention. The appellant did not press for ground Nos. 2 and 3. The Ground No. 12 need not be considered as that was not a live issue before us, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion cited by the counsel for the appellant is not applicable to the present case, submitted the learned Departmental Representative. In the Bombay case, the entire estimate was on the basis of presumptions. In the present case, actual suppression has been found out. The frequency of the collection sheets, the regularity in suppression, etc. have made out a case of pattern of suppression. The attempt of Ms. Lalitha, the receptionist at V.D.C., to destroy the collection sheets on seeing the income-tax people, actual destruction of a part of such sheets, her statement, etc. make out a case that the appellant has been practising suppressing regularly. Therefore, an estimate is justified for the period for which collection sheets could not be seized. The learned Departmental Representative relied on the decision of the Hon'ble Supreme Court in the case of CST v. H.M. Esufali H.M. Abdulali [1973] 90 ITR 271 to establish that estimation is warranted as part of assessment in appropriate cases. In respect of the Supreme Court decision and Ahmedabad Bench of Tribunal decisions cited by the appellant, the learned Departmental Representative argued that in this case also, the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs regarding such payments. Therefore, there is no factual basis for this contention raised by the appellant. 22. The second such contention is made in ground No. 6, which reads as follows--- "The Assessing Officer erred in holding that the suppression of gross receipts is a routine daily affair which has been taking place unfailingly. The comments of the Assessing Officer are without any basis from the seized material." The seized collection sheets contain the details of actual collections, accounted collections and balance concealments date-wise for quite a long period. In respect of V.D.C. Ameerpet, such details are available for 135 days for the financial year 1994-95. For the financial year 1995-96, details are available for 16 days. In the case of Himayatnagar (V.D.C.) also, details for two days are available for the financial year 1995-96. All the details are in regular pattern. The appellant has stated that he has resorted to such suppression to accommodate the kick-backs paid to doctors from 1994 onwards. Collections have been accounted daily. At the same time, the appellant has not accounted anything in his books of account towards the payment of kick-backs to docto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, the lawful presumption is that there is suppression for whole of the assessment year, but subject to adjustment of special factors. When there is such a lawful presumption, the Assessing Officer has to work out the suppression for whole of the year. The materials and direct evidence in respect of the suppression are available only for a portion of the year. In such a case, the suppression for that period for which materials and direct evidences are not available, shall be worked out on the basis of estimate. This is an accepted principle of assessment this principle is applicable to block assessment also. In regular assessment as well as in block assessment, what is assessed is 'income' construed in the Income-tax Act. The only difference is that in block assessment, the income is the one undisclosed by the assessee. Therefore, the Assessing Officer in this case is justified to estimate the suppression and thereby the undisclosed income. The other aspects like method of estimate, period and quantum of estimate are issues which would be considered later. In the circumstances, the argument of the appellant regarding the legality of making an estimate of suppression is rejected. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will not be fair to apply the same ratio to estimate the suppression for the whole year. This maximum ratio does not take care of the ups and downs in the rates of suppression throughout The year. For the financial year 1994-95, collection sheets were seized for five months only. Suppression for the remaining seven months has to be estimated. These aspects are not easily quantifiable. They are quantifiable only after great pain and efforts. But these aspects are relevant for making a fare and conservative estimate rather than aggressive and arbitrary estimates. in the financial year 1994-95, six collection sheets considered for VDC at Ameerpet seems to be related to Sai Ram Hospital - (Marked as SRH/A). The total of these sheets comes to Rs. 30,775. The Assessing Officer has not made out any case to implicate these sheets into the account of VDC at Ameerpet. At the same time, he has not excluded this amount, even though the appellant has repeatedly brought this matter to his attention. This has to be considered in favour of the appellant. Likewise, the last eleven collections sheets noted for the financial year 1994-95, do not bear any date. It is not safe, therefore, to say that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore, in fairness, for the financial year 1995-96, we revise the ratio of suppression to 70% of the disclosed turnover. 29. The deduction towards promotional expenses has been allowed by the Assessing Officer at 5% for both the years, for the VDC at Ameerpet. The same has been allowed at 1096 for VDC at Himayatnagar. There is no reason to hold that the VDC at Ameerpet is paying less amount as referal commission to doctors than at Himayatnagar. The rate of alleged suppression of turnover at Ameerpet is much higher than the one at Himayatnagar. The main purpose of suppression, allegedly, is to cover payment of commission made to doctors. Therefore, when the suppression rate is higher, the corresponding commission payment would also be higher. The details provided by the Assessing Officer in para-7D of the assessment order, show that the commission payments would go upto 15% to 20% in certain cases. Therefore, it would be only just and fair to modify the rate of deduction for promotional expenses to 1096 for both the years for VDC, Ameerpet, as allowed by the Assessing Officer in the case of VDC at Himayatnagar. This deduction should be allowed on both admitted and suppres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e with the provisions of Chapter IV on the basis of evidence found as a result of search. Even though undisclosed income assessed is for the block period, that undisclosed income shall be the aggregate of total income of the previous years falling within the block period; of course, subject to the adjustments of income or loss already returned or assessed. Even though aggregate of incomes is taken, income has to be computed for each previous year separately, and that income has to be computed on the basis of evidence found out as a result of search. The law stated in this provision is that undisclosed income has to be computed for the previous years separately on the basis of evidence found as a result of search. In order to compute the income separately for each previous year, under these provisions, there has to be evidence found out as a result of search for each previous year falling within the block separately. In order to determine the undisclosed income of a previous year falling within the block period, there should be a corresponding and matching materials available for that previous year. This matching principle is very important. 32. Further, for the purposes of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eets in support of suppression are available only for two days, i.e., 17-7-1995 and 18-7-1995 (para-10 of the assessment order). This sample may not be fully representative for the whole previous year period. The general reasons stated in the case of V.D.C. Ameerpet apply here also. For these specific and sufficient reasons, it is not just and proper to adopt the ratio of suppression at 20% as such. Instead, we notify the ratio to 15% for the financial year 1995-96 in the case of V.D.C. at Himayatnagar. 35. As already noted above, the Assessing Officer has allowed a 10% deduction towards promotional expenses. We find that the rate of deduction granted is reasonable. Therefore, for the financial year 1995-96, the Assessing Officer may grant a deduction of 10% of the admitted and suppressed turnovers, towards business promotional expenses. As we have not estimated any undisclosed income for the financial year 1994-95, there is no warrant for any deduction from out of such income towards business promotional expenses. 36. In the circumstances, the rate of suppression in the case of V.D.C. at Ameerpet is modified to I 00% of the total collections for the financial year 1994-95, and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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