9911796707
TMI Blog2013 (1) TMI 206X X X X Extracts X X X X X X X X Extracts X X X X ..... ssailing the decision of Ld CIT(A) in reducing the income estimated by the AO and also his decision in allowing telescoping referred above. The assessee is challenging his decision in partially or fully confirming the additions made by the AO. 3. The facts relating to the case are set out in brief. The assessee is an ophthalmic surgeon practicing in Palakkad. He examines outpatients in a clinic called Vijayam Clinic and performs surgeries in a hospital named M/s Sai Nursing Home. The department carried search and seizure operations in the hands of the assessee on 05-12-2007. Consequent thereto the assessments for the years were re-opened and completed u/s 153A of the Act. While completing the assessment, the AO made additions under various heads, which are being contested in these appeals. We shall proceed to address various additions issue wise. 4. During the course of hearing, ld counsel for the assessee raised a legal issue with regard to the scope of assessment to be made u/s 153A of the Act. Though the Ld D.R objected to its consideration on the ground that this issue is being raised for the first time before the Tribunal, yet we are of the view that this legal issue needs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s issue in detail by taking into account the views expressed by various co-ordinate benches of the Tribunal on the very same issue. We feel it convenient to extract below the relevant discussions made by the Mumbai bench in the above cited case. "19. On the second limb of his argument, that when no incriminating material is found, the AO does not get jurisdiction to re-open assessments which do not abate, the learned counsel placed reliance on the judgment in the case of Meghmani Organics Ltd. vs. DCIT, 36 DTR 187, wherein the Ahmedabad Bench of the Tribunal, held as follows:- "The AO assumes jurisdiction for framing assessment under s. 153C where the AO is satisfied that any money, bullion, jewellery or other valuable articles or things or books of account or documents seized or requisitioned belongs or belongs to a person other than the person in whose case search is conducted under section 132(1). Therefore, for initiating action u/s. 153C for framing assessment u/s. 153A, the prerequisite is the satisfaction of the AO that the money etc. and documents etc. belongs to a person other than the person searched u/s. 132. The AO in the assessment order has categorically held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eopening the assessment still applies to the cases reopened u/s. 153A. The intention of the legislature could not have been otherwise lest it should lead to unnecessary harassment upon the assessee's. Though the completed assessments can be reopened under section 153, the issues which have already been concluded in the earlier assessments should not be subject matter of reassessment unless some incriminating material concerning those issues were found during the course of search. Otherwise, in the concluded assessments which have been reopened u/s. 153A, the assessing officer should restrict himself with the additions arising out of the incriminating materials found during the course of search". Reliance was also placed on the decision of Kolkata Bench of the Tribunal in the case of LMJ International Ltd. vs. DCIT 119 TTJ 214 wherein the Tribunal held as under: "Where nothing incriminating is found in the course of search relating to any assessment years, the assessment for such years cannot be disturbed; items of regular assessment cannot be added back in the proceedings u/s. 153C when no indiscriminating documents were found in respect of the disallowed amounts in the search p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filing return Date on which Notice u/s. 143(2) should be issued. Date on which assessment become time barred 2003-04 31-10-2003 31-10-2004 31-03-2006 2004-05 31-10-2004 31-10-2005 31-12-2006 2005-6 28-09-2005 31-10-2006 31-12-2007 For all the three years notice u/s. 143(2) have not been issued. In the case of Anilkumar Bhatia (supra) the case was decided in favour of the assessee. Nevertheless in the case of Shivnath Rai Harnarain (India) Ltd. vs. CIT 304 ITR (AT) 271 (Del.), the Delhi Bench of the Tribunal held as follows:- "Held, dismissing the appeals, (i) that there is no requirement for an assessment made u/s. 153A of the Act to be based on any material seized in the course of search. Further, since under the second proviso to section 153A pending assessment or reassessment proceedings in relation to any assessment year falling within the period of six assessment year referred to in s. 153A(b) of the Act shall come to an end, the Assessing Officer gets jurisdiction for six assessment years referred to in section 153A(b) of the Act for making an assessment or reassessment. Further, no income which was already subjected to assessment u/s. 143(3) or u/s. 143(3)/147 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th Rai Harnarain (India) Ltd. (supra) and at para 4.2 and 4.3 held as follows:- "4.2 We have perused the records and considered the rival contentions carefully. The legal dispute raised in this ground is whether issues considered and decided in the regular assessment can re-considered in an assessment proceedings initiated u/s. 153A. In case of search, the AO u/s. 153A is empowered to issue notices to the searched person requiring him to furnish the return of income in respect of each assessment year falling within the six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made. Further the second proviso to section 153A also provides that assessment or re-assessment relating to any assessment year falling within the period of six assessment years referred to above pending on the date of initiation of search u/s. 132 or making of requisition u/s. 132A as the case may be shall abate. Normally, the assessments which are pending in appeal or in revision cannot be said to be complete and therefore assessment/re-assessment pending in appeal/revision could also to be considered as pending on the date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cepted by respectfully following the order of the Coordinate Bench". Thus, we notice that various co-ordinate benches have taken the view that the completed assessments shall not abate and only the assessments or reassessments relating to any of the six assessment years, which are pending on the date of initiation of search, shall abate. Further it has been held that the completed assessments, though automatically reopened as per the provisions of sec. 153A, yet they can be disturbed only in respect of those issues for which some incriminating materials requiring such disturbance is unearthed during the course of search proceeding. Since majority benches have taken the above said view in a consistent manner, we are also inclined to take the same view discussed above. However, we feel it pertinent to express the view that if the AO finds out any defect on any issue in respect of the pending assessments which got abated and such kind of issues are also available in other assessments, which have already been completed and did not abate, then in our view, the AO is entitled to examine those issues in those years also in order to find out whether similar defects exist in those years or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Asst. year 2006-07 - 3 months. For Asst. year 2007-08 - 12 months. For Asst. year 2008-09 - 9 months. The department also seized three more diaries numbered as MMA-7, MMA-8 and MMA- 9, where in the number of patients were found recorded at a very low figure. The AO presumed that the records numbered as MMA-1 and MMA-2 only contain correct patient details and the other three diaries viz., MMA-7, MMA-8 and MMA-9 might represent the diaries prepared for income tax purposes in order to show lower collection. However, it is pertinent to note that the AO did not use the information found in the seized records referred supra for the purpose of computing the suppressed consultation fee. The methodology adopted by the AO in this regard is explained in the succeeding paragraph. 9. The AO worked out the average collection per day from the return of income filed for the assessment years 2002-03 to 2008-09. Then he calculated the percentage of variation in per day collection reported by the assessee for the assessment years 2006- 07 and 2007-08. The assessee had reported the average per day collection for these two years at Rs.1796/- and Rs.1933/- respectively. The increase in the average ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d record was available for first nine months of the financial year and the average number of patients per month visited in these nine months worked out to 1035. Accordingly, the number of patients visited for whole year was projected to 12,428. Though the AO did not consider this information for arriving at the suppressed fee, the Ld CIT(A) has used the same for computation purposes. In our view, the methodology adopted by the Ld CIT(A) also does not appear to be a correct one. The total number of patients who visited the doctor during April 2007 to December 2007 as per the seized record was 9321. The tax authorities could have compared this figure with the regular books maintained by the assessee and arrived at the difference, if any. We are unable to understand, why the tax authorities preferred to make estimation instead of comparing these actual figures with the reported figures. Another fact, which escaped the attention of Ld CIT(A) is about the visit of review patients from whom no fee is charged. The AO has recorded that the average number of patients visited the doctor daily was around 60, out of which the review patients are estimated to be 5. The AO has also recorded th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be Rs.2000/-. The seized record showed that the PMMA lens were supplied by a concern named M/s J N Surgicure. According to the assessee, the supplier of lens viz., M/s J.N Surgicure, directly raises bill on the patients and collects money from them. It was further submitted that the lens are brought personally by M/s J.N. Surgicure or sent by courier. During the course of search, the department seized blank bill books pertaining to M/s J.N Surgicuare from the premises of the assessee. The department also seized a bill raised by M/s J.N. Surgicuare, which was sent along with the courier parcel and in that bill, the sale price of PMMA lens was shown at Rs.208/-. Based on this information, the AO questioned the assessee about the huge price difference. Though the assessee maintained his stand that the lens are supplied by M/s J.N. Surgicure directly to the patients, yet he confessed that there may be some profit in those transactions and also agreed to offer the same. However, in the return of income filed after the search, the assessee did not offer any additional income on account of PMMA lens. 15. The AO summoned Shri O.M.Ouseph, the proprietor of M/s J.N. surgicure and recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eries over a period of 7 years. Accordingly, he proceeded to compute the annual collection for other years by reducing 5% every year from the amount computed for the assessment year 2008-09. The difference between the gross receipts estimated by him and that reported by the assessee was treated as the suppressed surgery receipts. 17. The ld CIT(A) was not convinced with the methodology adopted by the AO, as he noticed many deficiencies in the computations made the AO. For the sake of convenience, we extract below the observations made by Ld CIT(A):- "I, however find that observations of the Assessing officer in para 20 of the assessment order that the appellant was charging Rs.8400/- for an acrylic lens with a cost of only Rs.600/- are factually incorrect. This is duly explained by the appellant in his submissions of 28th January, 2011. It is found that the cost of Rs.600/- on page 17 of MMA-24 was also the cost of PMMA Lens. The cost of acrylic lens was Rs.7400/-. It was an imported lens and was being supplied to the appellant by a different dealer in Ernakulam. There was no evidence on record that the appellant was making any profit with reference to acrylic lens. These observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he reason that in A.Y 2008-09, the appellant has included sale of lenses in the gross receipts where as in earlier years the sale of lens is not included in the gross receipts. The sum total of all evidences gathered during the course of search and investigations conducted thereafter was that the appellant was suppressing profit margin on sale of PMMA lenses." 18. The Ld CIT(A) took the view that profit on sale of PMMA lens should be taken at Rs.1800/- in the year relevant to the assessment year 2008-09 and for other years, the profit should be reduced by Rs.50/- per year. He rejected the plea of the assessee that M/s J.N. Surgicure has started business only in the year relevant to the assessment year 2007-08. The observations made by Ld CIT(A) in this regard is extracted below:- "It is a factual position that the arrangement with M/s J.N Surgicure came into existence only in F.Y 2006-07 onwards when this concern started the business. However, the pattern of earning profit margin on supply of lens to the patient did exist even in earlier years. The profit margin might however vary over the years depending on various types of lenses, the existence of convenient supplier and the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has made many assumptions while working out the suppressed receipts and such assumptions did not have any basis. Accordingly, we agree with the Ld CIT(A) that the methodology adopted by the AO cannot be considered as correct method of working out the suppressed surgery receipts. However, we notice that the Ld CIT(A) has also made certain assumptions without any basis. The department has noticed the price difference in sale of PMMA lens only in respect of the lens supplied by M/s J.N Surgi cure. The Ld CIT(A) also accepts the fact that the said concern came into existence only in the financial year relevant to the assessment year 2007-08. Having observed so, the Ld CIT(A) went on further to observe that "the pattern of earning profit margin on supply of lens to the patient did exist even in earlier years". This observation of Ld CIT(A) did not have support of any material. Thus we find that the first appellate authority has also proceeded to compute the suppressed surgery receipts on surmises and conjectures. 21. The fact remains that the only evidence found out by the department with regard to sale of PMMA lens was a bill sent through courier. The said bill showed the sale of valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of the view that the estimate, if any, in respect of suppressed surgical fee receipts could be made only in respect of PMMA lens supplied by M/s J.N. Surgi cure and not by any other concern. Since the said concern has started business only in the year relevant to the assessment year 2007-08, in our view, the estimation of profit could be made only for assessment year 2007-08 and 2008-09 only in respect of the PMMA lens supplied by M/s J.N. Surgi cure. For other years, the department did not unearth any incriminating material to suggest that such kind of practice was in vogue in those years also. The AO also did not examine other suppliers, who supplied lens in the years relevant to the assessment years 2002-03 to 2006-07, to find out the practice followed by them. Thus, in the absence of any material or any information suggesting any suppressed profit element in respect of purchases made in other years, in our view, it would not be correct on the part of the tax authorities to estimate the profit from the purchase of PMMA lens/suppression of surgery receipts for assessment years 2002-03 to 2006-07. Accordingly, we set aside the orders of Ld CIT(A) in respect of suppressed surger ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aling Rs.1000/- per surgery is spent for the purpose for which it is received. There are two staff in Vijayam Eye clinic who are paid Rs.5000/- and Rs.2000/-. Sweeper is paid Rs.500, driver is paid Rs.2500 and two cousin brothers who help me (Raveendran and Surendran) in personal and family matters are paid Rs.6000 per month". On the basis of this sworn statement, the AO came to the conclusion that the assessee was incurring a sum of Rs.10,000/- per month as salary (Rs.5000+2000+500+2500) and accordingly restricted the salary payment to Rs.1,20,000/- per annum for assessment years 2008-09 and 2007-08. For other years, he proportionately reduced the allowable salary. The Ld CIT(A) also confirmed these additions. 26. We notice that the tax authorities have entirely relied upon the deposition given by the assessee at the time of hearing for the purpose of arriving at the quantum of allowable salary. It is pertinent to note that the department has taken a statement from the main employee of the assessee named Smt. Radha Mahendran and she stated that she was getting a salary of Rs.5500/- per month, where as the assessee has stated that the salary paid to her was Rs.5000/- per month. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... salary expense is worked out below for the years under consideration. Asst. year Salary amount 2008-09 3,11,750 2007-08 3,11,750 2006-07 2,96,200 2005-06 2,96,200 2004-05 2,81,350 2003-04 2,81,350 2002-03 2,67,300 Asst. year Salary amount 2008-09 3,11,750 2007- We direct the Assessing officer to work out the disallowance on the basis of the salary amount estimated above. The order of Ld CIT(A) stands modified accordingly. 27. The next issue relates to the disallowance of part of expenditure claimed under the head "Consumables and medicines". During the course of assessment proceeding, the assessee could submit only the monthly details of the expenses, but not the daily expenses details. Since the assessee was collecting payments from the surgery patients towards medicines and consumables, the AO took the view that the assessee would be spending only a marginal amount in respect of other patients. Accordingly he disallowed 80% of the amount claimed under the above said head. The Ld CIT(A) also confirmed the said disallowance. 28. There cannot be any dispute that it is the responsibility of the assessee to prove the expenditure claimed by him. We notice that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by an authorized person in the Indian consulate of that country, as per judicial decisions. The Assessing officer placed reliance on the decision of Hon'ble Supreme Court in the case of CIT Vs. C.P.Mohanakala & Others (2007) (291 ITR 278)(SC). The AO further noticed that these donors have failed to furnish a copy of Form No.BCI, which is required to be submitted under the Foreign Exchange Management Act, 1999. In the case of Shri K.V.Balagangadharan, the father-in-law of the assessee, the AO came to the conclusion that he could not have earned so much money to the extent of the gifts made by him. In the case of Smt. Devi Balagangadharan, the AO concluded that the said donor would have spent entire her savings in the purchase of jewellery. The AO disbelieved the receipt of gifts from other two persons, since they have failed to furnish their respective salary certificates along with the notarized copy of documents. The Ld CIT(A) upheld the addition of gift amounts made by the assessing officer. 30. There cannot be any dispute that the primary burden of proof in respect of cash credits is placed upon the assessee. Once the assessee discharges the primary burden placed upon him, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entity of the donors. Further the gifts were received in the form of foreign bank's instruments issued abroad. Further there were evidences to show that the said receipts did not fulfill the basic characteristic of gifts, which is evident from the following observations made by the Hon'ble Supreme Court:- "The AO while appreciating the contents of the letters brought on record came to the conclusion that Sampathkumar had obliged in giving gifts to Srinivasan and his family members. It is further held that in all probabilities Sampathkumar may have received compensatory payments in lieu of gifts made by him. The letters according to the AO suggest that Sampathkumar reserved his right to receive suitable compensation from the respondents assessees.........The Tribunal noticed that the letters exchanged by the person who had sent foreign exchange to the assessees only indicate that there is no love and affection between them and that he is clearly materialistic and his statement of accepting a reciprocation is also an indication of fact that he is not doing anything free but clearly the compensation was a roundabout manner of showing of he having been compensated either in Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round that the donors have failed to produce copies of certain forms required to be filed under the Foreign Exchange Management Act. In our view, the failure on the part of the donors to comply with the procedural formalities, if any, under any other Act cannot be used to take adverse view against the assessee. Since the donors have made deposits by bringing money from abroad and since the impugned gifts have been made from the balance available with their respective NRE bank accounts, in our view, the credit worthiness of the donors also stand proved. 36. Further, all the donors have confirmed the payment of gifts by giving affidavits/letters. The occasion for making gift has also been stated, i.e, the construction of house by the assessee. There is no dispute that all the donors are close relatives of the assessee. There is no material on record to suggest that the assessee has compensated these donors in lieu of receipt of gifts. All these facts go to establish the genuineness of gift. Though the tax authorities have relied upon host of decisions, all those decisions lay down various principles for accepting the cash credits. In our view, the assessee has discharged the primary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly he added the differences/deficiencies noticed by him in various assessment years. The Ld CIT(A) also confirmed the said additions. 40. We have heard the parties on this issue. It is not in dispute that the assessee is maintaining books of account. The funds flow statement, Cash flow statements, Profit Loss account, Balance sheet are different types of financial statements and there is an established procedure for preparing these financial statements. The purpose underlying the preparation of each statement is different. While the fund flow statement/Cash flow statement would depict the details of receipts and details of payments (both capital and revenue) transacted in a particular period, the Balance Sheet would depict the "liabilities" and "assets" outstanding on a particular date, i.e., it is he cumulative result of transactions carried out over a long period. We shall explain this with an example. Let us assume that an assessee had taken loan of Rs.20.00 lakhs from "X" in the immediately preceding year. In the current year, he took further loan of Rs.10.00 lakhs from "X" and repaid Rs.5.00 lakhs. Now the fund flow statement would depict the receipt of loan of Rs.10.00 la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee initially claimed that these items were gifted by his father in law. However, it was noticed that the father in law of the assessee did not declare cost of these items in his cash flow statement. Accordingly, the AO added the above said amount of Rs.15.59,880/- to the income of the assessee. Before Ld CIT(A), the assessee represented that he has shown a sum of Rs.10.00 lakhs towards interior decoration in the fund flow statement filed before the AO and accordingly pleaded that credit should be given for the same. The assessee still maintained his original stand that these items were gifted by his in laws. However, ld CIT(A) was not convinced with the explanations and he found them to be contradictory to each other. Accordingly he confirmed the addition. 43. We have duly considered the rival contentions on this issue. It is the duty of the assessee to substantiate his claim that the imported interior decorated items have actually been gifted by his in laws. From the record, we notice that the assessee has failed to substantiate his claim. Hence, we are also of the view that the theory of gift needs to be rejected. However, we do not find any justification in refusing the cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id not find any material to show that the assessee has actually paid Rs.45.00 lakhs for purchase of Bangalore property. 46. We also notice that the AO did not bring on record any material in this regard except placing heavy reliance on the sworn statement given by the assessee. It is pertinent to note that the assessee had mentioned in the sworn statement that he paid the entire consideration in cash, where as the AO himself has noticed that a sum of Rs.26,02,080/- was paid by way of cheque. This example itself shows that the reply given out of his memory could not be relied upon fully. They have to be corroborated with other material. In the instant case, the assessee has also given explanation with regard to the amount of Rs.45.00 lakhs. However, we notice that the AO has rejected the same without making further examination, i.e., he could have examined Shri Michael or the seller of the property to find out the veracity of the explanation. Thus, in our view, both the tax authorities have taken adverse view on the basis of surmises and conjectures without placing reliance on any tangible material or without examining the matter further. Under these circumstances, we do not find a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -. The AO treated the difference of Rs.59,95,000/- between the two figures cited above as the income of the assessee and assessed the same in three years as detailed below:- Assessment year 2004-05 - 10,79,000 Assessment year 2005-06 - 23,98,000 Assessment year 2006-07 - 25,18,000 It is pertinent to note that the AO had referred the matter of valuation to the DVO during the course of assessment proceeding, but he did not receive the report of the DVO by the time he completed the assessment. 49. Before Ld CIT(A), the assessee made a plea to consider the report of the DVO. Accordingly, the Ld CIT(A) called for the DVO's report and found that the DVO had estimated the cost of construction at Rs.99,94,000/-, i.e. lesser than the cost disclosed by the assessee. The AO filed a written submission before the Ld CIT(A), wherein he requested the Ld CIT(A) to consider only the Registered Architect's report and not the DVO's report. The AO contended so on the ground that the report of the Architect was submitted to the bank and it was also counter signed by the assessee. The AO further submitted that the report of the DVO could be rejected in favour of more reliable evidence, i.e., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst investment of Rs. 1.05 crore shown by the appellant. The argument put forth by the Assessign Officer is that the valuation of DVO was not binding an therefore, should not be relied upon in preference to the seized document wherein higher estimation is done by a registered architect and on the basis of which the addition has been made. The Assessing Officer also pleaded that no addition was made on the basis of report of the DVO and therefore, the same cannot be depended upon to deal with this addition. It is seen that the seized document on which the Assessing Officer relied upon is not the valuation of cost of construction but an estimate prepared by an Architect for the proposed cost of construction of the residence of the appellant. The title of this document itself reads as under:- "Cost estimate for the proposed residence of Dr. Sasi Kumar........" On this document itself, it is further written that as on 17.11.2006, the construction work completed was almost worth Rs. 80 lakhs and further construction with estimated cost of Rs. 90 lakhs was proposed and was to be considered for further loan. On the strength of this document, the appellant was seeking to procure a loan fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan from HDFC Bank procured on 20.11.2006 was used for any further construction. The issue in any case was not relevant in this assessment year and cannot be made basis for making an addition. In view of above, I hold that the addition made by the Assessing Officer on this account was not sustainable. The same is therefore, directed to be withdrawn. This ground of appeal is therefore, allowed".. We have carefully considered the facts and circumstances of the issue and also the decision taken by Ld CIT(A). We notice that the Ld CIT(A) has specifically noticed that the title of the report given by Architect reads as "Cost estimate for the proposed residence of Dr.Sasikumar" Further he has also considered the final observations made by the architect and came to the conclusion that the report of the architect does not relate to the estimate of actual cost of construction. The AO had also given stress to the loan obtained from HDFC bank on the basis of the report of the architect. In this regard, the Ld CIT(A) has given a specific finding that the loan obtained from HDFC bank on 20.11.06 was not used for any further construction. Thus, it is seen that the assessee had obtained loan f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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