ROYAL NURSING HOME, MUMBAI V. ITO 11(3)(2), MUMBAI

ITA 1519/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7709 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 19-09-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 25-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SWA
• Assessee Lawyers: SANJAY B VORA
• Keywords: Rejection of books of accounts; Question of law; Cost of acquisition
• Section: 133A; 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 1519/MUM/2013 ASSESSMENT YEAR: 2005-06 M/S. ROYAL NURSING HOME VS. ITO 11(3)(2) DR. SAJID ALI KHAN, HOUSE NO. C-39 AAYAKAR BHAVAN , 4 TH FLOOR KALINA VILLAGE, KALINA, SANTACRUZ (E) MUMBAI - 400 020 MUMBAI 400029 PAN NO. AAFFR9760B (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SANJAY B. VORA, AR REVENUE BY: SHRI SWAPAN KUMAR BEPARI, DR DATE OF HEARING : 18/0 1/2017 DATE OF PRONOUNCEMENT: 29/03/2017 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2005-06. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER (APPEALS) 7, MUMBAI AND ARISES OUT O F THE ORDER U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 (THE ACT). 2. THE GROUND OF APPEAL FILED BY THE ASSESSEE READS AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN TH E LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL) ERRED IN CONFIRM ING THE PENALTY OF RS. 9,06,459/- LEVIED BY THE INCOME TAX OFFICER U/S 271 (1)(C) OF THE INCOME TAX ACT, ON THE ESTIMATED ADDITIONS MADE DURING THE ASSESS MENT. 3 IN A NUTSHELL, THE FACTS ARE THAT THE ASSESSEE FIRM FILE ITS RETURN OF INCOME FOR THE A.Y. 2005-06 ON 06.01.2006 DECLAR ING NIL INCOME. IN THE ASSESSMENT MADE U/S 143(3), THE ASSESSING OFFIC ER (AO) REJECTED ITA NO. 1519/MUM/2013 2 THE BOOKS OF ACCOUNTS U/S 145(2) OF THE ACT AND MAD E ADDITIONS / DISALLOWANCES OF (I) ESTIMATION OF RECEIPTS ON SALE OF MEDICINES & ESTIMATION OF RECEIPTS ON X-RAY, PATHOLOGY, SONOGRA PHY, OPD OF RS. 15, 37,447/- (II) EXPENSES DISALLOWED U/S 40(A)(IA) OF RS. 5,23,672/- AND (III) ESTIMATION ON NON-POSTED ITEMS AND MATERNITY CASES OF RS. 2,97,822/-: 3.1 THE ASSESSEE PREFERRED AN APPEAL AGAINST THE AB OVE ADDITIONS MADE BY THE AO BEFORE THE LEARNED CIT(A). THE LEARN ED CIT(A) UPHELD THE SAID ADDITIONS MADE BY THE AO. THEN THE AO IMPO SED A MINIMUM PENALTY OF RS. 9,06,459/- U/S 271(1)(C) OF THE ACT. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LEARNED CIT(A) AGAIN ST THE SAID PENALTY ORDER. THE LEARNED CIT(A) OBSERVED THAT THE INCOME COULD BE ASSESSED TO TAX AS A RESULT OF SURVEY U/S 133A OF T HE ACT. ALSO TAKING INTO ACCOUNT THE FACT THAT THE ADDITIONS MADE BY TH E AO IN A QUANTUM PROCEEDINGS HAVING BEEN CONFIRMED BY THE CIT(A) AND ITAT, THE LEARNED CIT(A) DISMISSED THE APPEAL FILED BY THE AS SESSEE. 4. BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE S UBMITS THAT THE ITAT D BENCH, MUMBAI HAVE PASSED AN ORDER IN THE CASE OF THE ASSESSEE FOR THE A.Y. 2005-06 (ITA NO. 5128/MUM/200 8). AFTER THE APPEAL EFFECT, THE NET ADDITION COMES TO RS. 7,95,2 66/-. IT IS STATED THAT PENALTY CANNOT BE LEVIED ON ESTIMATED INCOME. FURTH ER IT IS STATED THAT THE HON'BLE BOMBAY HIGH COURT IN ITA NO. 1310 OF 2011 HAVE ADMITTED THE SUBSTANTIAL QUESTION OF LAW OF THE ASS ESSEE. THUS IT IS SUBMITTED THAT THE PENALTY IMPOSED BY THE AO U/S 27 1(1)(C) BE DELETED. 5. ON THE OTHER HAND, THE LEARNED DR SUPPORTS THE O RDER PASSED BY THE LEARNED CIT(A) CONFIRMING THE PENALTY IMPOSED B Y THE AO. IT IS ITA NO. 1519/MUM/2013 3 STATED BY HIM THAT THE INCOME COULD BE ESTIMATED BE CAUSE OF ACTION U/S 133A OF THE ACT. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE TRIBUNAL IN TH E CASE OF THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR HAVE HELD AS UNDER: ON MERITS 10. GR.NO.I THIS IS REGARDING ADDITION PERTAINING TO SALE OF MEDICINE ESTIMATED BY THE ASSESSING OFFICER. AS WE HAV E DISCUSSED EARLIER, THE ASSESSEE HAS NOT SHOWN THE SALE OF MEDICINE IN THE B ILLS AND THE PLEA OF THE ASSESSEE IS THAT, THE ASSESSEE IN THE INITIA L YEAR OF THE BUSINESS HAD NOT CHARGED THE MEDICINE COST FROM THE PATIENT. WH ILE DECIDING THE ISSUE OF REJECTION OF BOOKS OF ACCOUNTS WE FOUND THAT THE PLE A OF THE ASSESSEE, THAT THE ASSESSEE DID NOT CHARGE THE COST OF MEDICINE FOR INITIAL YEAR, DOES NOT INSPIRE CONFIDENCE BECAUSE WHEN THE ASSESSEE H AS NOT GIVEN ANY DISCOUNT ON THE OTHER SERVICES THEN THE CLAIMED TO HAVE NOT C HARGED THE COST OF THE MEDICINE WHICH WERE PURCHASED FROM OUTSIDE IS N OT ACCEPTABLE. HOWEVER, THE ASSESSING OFFICER HAS MADE ADDITION BY ESTI MATING THE PROFIT RATIO OF 40% ON THE PURCHASE COST OF THE MEDICINE. WE DO NOT FOUND ANY BASIS FOR ESTIMATION OF PROFIT OF 40% IN THE COST OF MEDICINE . ACCORDINGLY, WE ARE OF THE VIEW THAT THE ADDITION ON ACCOUNT OF NOT SHO WING THE COST OF MEDICINE SHALL BEAT RS.16,63,326/- BEING COST ONLY INSTEAD OF RS.23,28,656/- ADDED BY THE ASSESSING OFFICER ON ESTIMATE BASIS. 11. GR.NO.II. REGARDING RECEIPT FROM X-RAY, SONO GRAPHY, PATHOLOGY AND OPD ESTIMATED BY THE ASSESSING OFFICER, WE FOUND T HAT AS PER THE IMPOUNDED RECORD THE COLLECTION OF 3 MONTHS I.E. JANUAR Y, FEBRUARY AND MARCH, 2004 WAS FOUND AT RS. RS.1,35,000/-, RS.1,39,421/- AND RS.1,41,349/-. THE MONTHLY AVERAGE OF COLLECTION ON THIS ACCOUNT WAS COMPUTED AT RS.1,35,000/-. ACCORDINGLY, THE ASSESSING OFFICE R HAS ESTIMATED THAT THE RECEIPT ON ACCOUNT OF THESE SERVICES AT RS.1 6,20,000/- BY TAKING INTO ACCOUNT THE AVERAGE COLLECTION OF MONTH OF JA NUARY, FEBRUARY AND MARCH, 2004. THE ONLY CONTENTION OF THE ASSESSEE IS THAT T HE 3 MONTHS COLLECTION CANNOT BE BASIS FOR AN ASSESSMENT OF ENTIRE YEAR. WE DO NOT AGREE WITH THE CONTENTION OF AR BECAUSE THE ASSESSING O FFICER HAS TAKEN THE AMOUNT OF 3 CONSECUTIVE MONTHS AND THESE 3 MONTHS A RE NOT CONSIDERED AS DISEASES PRONE SEASON IN INDIA. THEREFORE, THE ASSESSING OFFICER MADE THE ESTIMATION ON REASONABLE BASIS BY TAKING THE AVERAGE OF COLLECTION OF 3 CONSECUTIVE MONTHS. NEEDLESS TO SAY THAT, THE DISEASES PRONE SEASON IN INDIA IS MONSOON PERIOD AND AFTER MONSOON PERIO D. ACCORDINGLY, WE DO NOT FIND ANY IRREGULARITY OR ILLEGALITY IN TH E BASIS OF THE ESTIMATION MADE BY THE ASSESSING OFFICER. ITA NO. 1519/MUM/2013 4 12. GR.NO.III REGARDING INDOOR RECEIPTS AND MATERN ITY COLLECTION NOT POSTED IN THE BOOKS OF ACCOUNTS. THE ASSESSING OFFI CER ON THE BASIS OF IMPOUNDED BILL BOOK CONTAINING BEARING SR.NO.1 TO 1,452 MADE ADDITION OF RS.60,708/- TOWARDS THE INDOOR PATIENTS RECEIPT NOT POSTED IN THE CASH BOOK. SIMILARLY THE ASSESSING OFFICER HAS MADE THE ADDITION ON ACCOUN TS OF NOT POSTING OF THE MATERNITY CASES IN THE CASH BOOK WHICH WERE FOUND IN BMC LIST. WE HAVE HEARD THE LEARNED DR AS WELL AS LEARNED AR A ND CONSIDERED THE RELEVANT RECORD, WE FOUND THAT THE ASSESSING OFFICER HAS NOT DI SCUSSED ANYTHING ABOUT NON RECORDING OF THE BOOKS OF ACCOUNTS, AND ONLY REF ERRED TO SR. NO. OF THE BILLS AND THE NAME AS PER THE BMC LIST WITH OUT INVITING THE OBJECTION OR THE COMMENTS FROM THE ASSESSEE. THEREFORE, FOR THESE ADDITIONS THE ASSESSING OFFICER HAS NOT GIVEN THE SUFFICIEN T OPPORTUNITY TO THE ASSESSEE. ACCORDINGLY, IN THE INTEREST OF JUSTICE WE SE T ASIDE THESE ISSUE TO THE RECORD OF THE ASSESSING OFFICER FOR RE-EXAMINATION AND RE -VERIFICATION OF THE RELEVANT RECORD AS WELL AS THE CONTENTION AND SUBMISSIONS OF THE ASSESSEE AND THEREAFTER, DECIDING THE SAME AS PER THE L AW. NEEDLESS TO SAY THE ASSESSEE TO BE GIVEN AN OPPORTUNITY BEFORE PA SSING THE ORDER. 6.1 REGARDING THE DISALLOWANCE OF RS. 5,23,673/- M ADE BY THE A.O. U/S 40(A)(IA), THE TRIBUNAL HELD AS UNDER: WE HAVE CONSIDERED THE RIVAL CONTENTION AND RELEVANT RECORD, WE NOTE THAT THE ASSESSING OFFICER HAS NOT DISCUSSED THIS ISSUE WHILE MAKING THE ADDITION BY APPLYING THE PROVISION U/S.40(A)(IA) . THE CIT(APPEAL) HAS ALSO NOT DISCUSSED THE CONTENTION AND CLAIM OF THE ASSESS EE REGARDING THE PAYMENT MADE FOR THE PURCHASE OF MATERIAL. IN THE FACTS AND CIRC UMSTANCES OF THE CASE WE ARE OF THE OPINION THAT THIS ISSUE IS REQUIRED AT PROPER VER IFICATION AND EXAMINATION AT THE LEVEL OF THE ASSESSING OFFICER. ACCORDINGLY, WE SET ASIDE THIS ISSUE TO THE ASSESSING OFFICER TO VERIFY AND EXAMINE THE RELEVANT RECORD AND THEN DECIDE THE ISSUE AFTER CONSIDERING THE CLAIM OF THE ASSESSEE. 6.2 TO SUM UP, THE ITAT REDUCED THE ESTIMATED ADDIT ION ON ACCOUNT OF MEDICINE MADE BY THE AO FROM RS. 23,28,656/- TO RS. 16,63,326/- BEING COST ONLY. THE ESTIMATION OF RECEIPTS FROM X- RAY, PATHOLOGY, SONOGRAPHY, OPD AT RS. 14,40,000/- HAS BEEN UPHELD BY THE ITAT. ON THE BALANCE ADDITIONS, THE ITAT HAVE SET ASIDE THE ISSUES TO THE RECORD OF THE AO FOR RE-EXAMINATION. 6.3 WE MAY SAY THAT FINDINGS GIVEN IN ASSESSMENT PR OCEEDINGS ARE CERTAINLY RELEVANT AND HAVE PROBATIVE VALUE, BUT SU CH FINDINGS ARE MATERIAL ALONE AND MAY NOT JUSTIFY THE IMPOSITION O F PENALTY IN A GIVEN CASE, BECAUSE THE CONSIDERATION THAT ARISE IN PENAL TY PROCEEDINGS ARE ITA NO. 1519/MUM/2013 5 DIFFERENT FROM THOSE THAT ARISE IN ASSESSMENT PROCE EDINGS . WE RELY ON THE DECISION IN BANARAS TEXTORIUM VS CIT , (1988) 169 ITR 782, 790, 791 (ALL); CIT VS GOVINDANKUTTY MENON , (1989) 178 ITR 509, 515 (KER); HOTEL & ALLIED TRADES (P) LTD. VS CIT , (1996) 221 ITR 619, 646 (KER). 6.4 WE FIND THAT THE FOLLOWING SUBSTANTIAL QUESTION OF LAW OF THE ASSESSEE HAS BEEN ADMITTED BY THE HON'BLE BOMBAY HI GH COURT (ITA NO. 1202 OF 2011): WHETHER THE ORDER OF THE APPELLATE TRIBUNAL IS PER VERSE AS IT HAS DIRECTED THE RESPONDENT NO. 1 TO ADOPT THE PURCHASE COST OF THE M EDICINES AS THE INCOME OF THE APPELLANT OVERLOOKING THE FINDINGS OF THE LEARN ED CIT(A)? 6.5 ONCE THE HON'BLE HIGH COURT ADMITS SUBSTANTIAL QUESTION OF LAW ON AN ADDITION, IT BECOMES APPARENT THAT THE SA ME IS CERTAINLY DEBATABLE. IN SUCH CIRCUMSTANCES PENALTY CANNOT BE LEVIED U/S 271(1)(C) AS HAS BEEN HELD IN SEVERAL CASES INCLUDI NG RUPAM MERCANTILE VS. DCIT [(2004) 91 ITD 237 (AHD)(TM)] AND SMT. RAMILA RATILAL SHAH VS. ACIT [(1998) 60 TTJ (AHD) 171]. 6.6 TO SUM UP, THE HON'BLE BOMBAY HIGH COURT HAVE A DMITTED THE SUBSTANTIAL QUESTION OF LAW OF THE ASSESSEE IN RESP ECT OF THE ORDER OF THE TRIBUNAL REDUCING THE COST OF MEDICINE FROM RS. 23,28,656/- ESTIMATED BY THE AO TO RS. 16,63,326/- BEING COST O NLY. THUS IT BECOMES A DEBATABLE ISSUE AND PENALTY IS NOT LEVIAB LE. THE NEXT ESTIMATED RECEIPT FROM X-RAY, PATHOLOGY, SONOGRAPHY , OPD MADE BY THE AO OF RS. 14,40,000/- HAS BEEN CONFIRMED BY THE CIT(A) AS WELL AS THE TRIBUNAL. THE ASSESSEE HAS SHOWN RECEIPTS FROM X-RAY, PATHOLOGY, SONOGRAPHY. IN CIT VS METAL PRODUCTS OF INDIA [(1984) 150 ITR 714 (PUNJ)], IT HAS BEEN HELD THAT MERELY BECAUSE THE A DDITION HAS BEEN MADE ON ESTIMATE UNDER THE FIRST PROVISO TO SECTION 145(1) CANNOT AUTOMATICALLY LEAD TO THE CONCLUSION THAT THERE WAS FAILURE TO RETURN ITA NO. 1519/MUM/2013 6 THE CORRECT INCOME BY MEANS OF FRAUD OR GROSS OR WI LFUL NEGLECT. IN VIEW OF THE RATIO LAID DOWN BY THE HON'BLE PUNJAB H IGH COURT IN METAL PRODUCTS OF INDIA (SUPRA) PENALTY IS NOT LEVIABLE ON SUCH ESTIMATED INCOME. WE FIND THAT IN RESPECT OF THE REMAINING AD DITIONS / DISALLOWANCES MADE BY THE AO AND THEN CONFIRMED BY THE CIT(A), THE TRIBUNAL HAVE SET ASIDE THE ISSUES TO THE RECORD OF THE AO FOR PROPER VERIFICATION OF THE RELEVANT RECORD AS WELL AS THE CONTENTION AND SUBMISSION OF THE ASSESSEE AND THEREAFTER DECIDE TH E SAME AS PER LAW. NEEDLESS TO SAY, PENALTY IS NOT LEVIABLE ON SUCH SE T ASIDE ISSUES. 6.7 IN VIEW OF THE ABOVE, THE PENALTY OF RS. 9,06,4 59/- IMPOSED BY THE A.O. IS DELETED. 7. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29/03/2017 SD/- SD/- (SAKTIJIT DEY) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBE R MUMBAI; DATED: 29/03/2017 BISWAJIT, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI