Dr. P.Sasikumar, Palakkad V. DCIt, Trichur

ITA 251/COCH/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61546 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 26-04-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 18-04-2011
• Court: TRIBUNAL
• Department Lawyers: S R SENAPATI
• Assessee Lawyers: T M SREEDHARAN
• Keywords: Unexplained investment; Gift; Search and seizure; Document seized; Onus to prove; Documents seized; Reassessment proceedings
• Section: 143(3); 80HHC; 153A; 147; 68; 132; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NOS. 251 TO 257/COCH/2011 ASSESSMENT YEARS : 2002-03 TO 2008-09 DR. P. SASIKUMAR, POOJASREE, VALIYAPADAM, P.O. CHOKKANATHAPURAM, PALAKKAD-678 005. [PAN: AJFPS 0498E] VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, THRISSUR. (ASSESSEE-APPELLANT) (REVENUE- RESPONDENT) I.T.A. NOS. 268 TO 274/COCH/2011 ASSESSMENT YEARS : 2002-03 TO 2008-09 THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, THRISSUR. VS. DR. P. SASIKUMAR, POOJASREE, VALIYAPADAM, P.O. CHOKKANATHAPURAM, PALAKKAD-678 005. [PAN: AJFPS 0498E] (REVENUE-APPELLANT) (ASSESSEE - RESPONDENT) ASSESSEE BY SHRI T.M. SREEDHARAN, SR. ADV. REVENUE BY SHRI S.R. SENAPATI, SR. DR DATE OF HEARING 27/04/2012 DATE OF PRONOUNCEMENT 29/06/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE SEPARA TE ORDERS PASSED BY LD CIT(A)-I, KOCHI AND THEY RELATE TO THE ASSESSMENT Y EARS 2002-03 TO 2008-09. SINCE MOST OF THE ISSUES URGED IN THESE APPEALS ARE IDENT ICAL IN NATURE AND FURTHER SINCE THEY I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 2 ARISE OUT OF COMMON SET OF FACTS, THESE APPEALS WER E HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF C ONVENIENCE. 2. THE APPEALS FILED BY THE ASSESSEE BEFORE LD CIT(A) CHALLENGING THE ASSESSMENT ORDERS PASSED BY THE ASSESSING OFFICER FOR THE YEAR S UNDER CONSIDERATION WERE PARTLY ALLOWED. THE LD CIT(A) REDUCED THE INCOME ESTIMATE D BY THE AO AND ALSO ALLOWED TELESCOPING OF THE INCOME AGAINST THE INVESTMENTS A ND EXPENDITURE. THE REVENUE IS ASSAILING 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 ADDIT IONS MADE BY THE AO. 3. THE FACTS RELATING TO THE CASE ARE SET OUT I N BRIEF. THE ASSESSEE IS AN OPHTHALMIC SURGEON PRACTICING IN PALAKKAD. HE EXAMINES OUTPAT IENTS 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 WE RE 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 A PPEALS. 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 15 3A OF THE ACT. THOUGH THE LD D.R OBJECTED TO ITS CONSIDERATION ON THE GROUND THAT TH IS ISSUE IS BEING RAISED FOR THE FIRST TIME BEFORE THE TRIBUNAL, YET WE ARE OF THE VIEW TH AT THIS LEGAL ISSUE NEEDS TO BE CONSIDERED AS IT GOES TO THE ROOT OF THE MATTER. W E FIND SUPPORT FOR OUR VIEW FROM THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF NA TIONAL THERMAL POWER CORPORATION LTD CASE REPORTED IN 229 ITR 383. HENCE, BEFORE PROCEEDING TO CONSIDER THE MERITS OF VARIOUS ADDITIONS, WE PREFER TO DEAL WITH THE LEGAL ISSUE CITED ABOVE. THE LD A.R SUBMITTED THAT ACCORDING TO THE PROVISIONS OF SEC. 153A, ONLY THE ASSESSMENTS WHICH ARE PENDING ON THE DATE OF INITIATION OF SEARCH SHA LL ABATE. ACCORDINGLY, THE AO WOULD BE ENTITLED TO EXAMINE ANY ISSUES IN RESPECT OF THE ASSESSMENTS WHICH GOT SO ABATED. I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 3 HOWEVER THE ASSESSMENTS WHICH ARE NOT PENDING ON TH E DATE OF INITIATION OF SEARCH DO NOT GET ABATED, WHICH MEANS THE ISSUES WHICH HAVE A TTAINED FINALITY WILL REMAIN IN TACT. HOWEVER, SINCE THOSE CONCLUDED ASSESSMENTS ARE ALSO GETTING REOPENED U/S 153A, IT WOULD BE REASONABLE TO INTERPRET THAT THE AO COULD DISTURB THOSE ASSESSMENTS ONLY IN RESPECT OF THOSE ISSUES FOR WHICH SOME INCRIMINATIN G MATERIALS WERE FOUND DURING THE COURSE OF ASSESSMENTS. ACCORDING TO THE LD A.R, TH E ASSESSMENTS IN THE HANDS OF THE ASSESSEE FOR THE ASSESSMENT YEARS 2002-03 TO 2006-0 7 HAVE BEEN COMPLETED PRIOR TO THE DATE OF INITIATION OF SEARCH AND HENCE THOSE AS SESSMENTS COULD NOT BE DISTURBED UNLESS SOME INCRIMINATING MATERIALS RELATING TO THO SE YEARS WERE STUMBLED UPON DURING THE COURSE OF SEARCH. IN SUPPORT OF THIS PROPOSITI ON, THE LD A.R RELIED UPON VARIOUS CASE LAWS. 5. ON THE CONTRARY, THE LD D.R SUBMITTED THAT T HE ASSESSMENTS OF THE YEARS UNDER CONSIDERATION HAD TO BE REOPENED, IN VIEW OF THE SP ECIFIC PROVISION CONTAINED IN SEC. 153A OF THE ACT. THE ASSESSMENTS COULD BE SO REOPE NED WITHOUT FOLLOWING THE PROCEDURES AND CONDITIONS SPECIFIED U/S 147 FOR REO PENING THE ASSESSMENTS, SINCE SEC. 153A OVERRIDES THE PROVISIONS OF SEC. 147 OF THE AC T, WHICH MEANS THAT THE RESTRICTIONS PLACED U/S 147 ARE NOT APPLICABLE TO SEC. 153A OF T HE ACT. HENCE THE ASSESSING OFFICER, WHILE COMPLETING THE ASSESSMENTS, WHICH WERE REOPEN ED U/S 153A OF THE ACT AS A CONSEQUENCE OF SEARCH OPERATIONS, COULD EXAMINE ANY ISSUE. 6. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS LEGAL ISSUE. WE HAVE ALSO GONE THROUGH THE CASE LAWS RELIED UPON BY LD A.R. WE FI ND THAT THE MUMBAI G BENCH OF THE TRIBUNAL, IN ITS ORDER DATED 07-01-2011, IN THE CAS E OF GURUPRERNA ENTERPRISES IN ITA NOS. 255, 256 & 257/MUM/2010 HAS EXAMINED THIS ISS UE 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 IN CRIMINATING MATERIAL IS FOUND, THE AO DOES NOT GET JURISDICTION TO RE-OPEN ASSESSMENTS WHICH DO NOT I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 4 ABATE, THE LEARNED COUNSEL PLACED RELIANCE ON THE J UDGMENT IN THE CASE OF MEGHMANI ORGANICS LTD. VS. DCIT, 36 DTR 187, WHEREI N 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 OT HER THAN THE PERSON IN WHOSE CASE SEARCH IS CONDUCTED UNDER SECTION 13 2(1). THEREFORE, FOR INITIATING ACTION U/S. 153C FOR FRAM ING ASSESSMENT U/S. 153A, THE PREREQUISITE IS THE SATISFACTION OF THE A O THAT THE MONEY ETC. AND DOCUMENTS ETC. BELONGS TO A PERSON OTHER T HAN THE PERSON SEARCHED U/S. 132. THE AO IN THE ASSESSMENT ORDER HAS CATEGORICALLY HELD THAT PP. 87 TO 91 OF ANNEX. A-4 SEIZED FROM LK ARE HIS OWN HANDWRITTEN ESTIMATE FOR THE PROPOSED WORK OF THE A SSESSEE. THEREFORE, THOUGH THESE DOCUMENTS MAY REFER TO THE WORK PROPOSED ON BEHALF OF THE ASSESSEE, THE SAME CANNOT BE CONSIDER ED AS DOCUMENTS BELONGING TO THE ASSESSEE. IF A PERSON MAKES SOM E JOTTING/NOTES ETC. FOR HIS OWN PURPOSE AND WHICH HAS NO NEXUS TO HOLD THAT IT BELONGS TO OTHER PERSON AND ALSO DOES NOT CONTAIN A MATERIA L WHICH REVEALS ANY INCOME THEREIN, CANNOT BE USED SO AS TO INITIATE AC TION U/S. 153C. SIMILARLY, PP 84 TO 86 OF ANNEX. A-4 SIEZED FROM TH E RESIDENCE OF LK ARE RECORDS MAINTAINED BY LK FOR HIS OWN PURPOSE. THE SAID DOCUMENTS DO NOT BELONG TO THE ASSESSEE THOUGH IT MAY REFER TO T HE WORK CARRIED ON BEHALF OF THE ASSESSEE. IF THE ASSESSEE HAS ENGAGE D THE SERVICES OF A PROFESSIONAL AND IF THE PROFESSIONAL MAINTAINS HIS OWN RECORD FOR THE PURPOSE OF RENDERING HIS SERVICES, THE DOCUMENTS CA NNOT BE SAID TO BE BELONG TO SUCH OTHER PERSON. LK WAS ENGAGED BY THE ASSESSEE AS HE WAS EXPECTED TO VERIFY THE BILLS RAISED BY DEPENDEN T CONTRACTORS SO AS TO CERTIFY THAT THE BILLS RAISED ARE IN ACCORDANCE WITH THE TERMS OF CONTRACT AND ALSO COJNTAIN DEDUCTIONS FOR MATERIALS SUPPLIED BY THE ASSESSEE. THIS BEING THE DOCUMENTS MAINTAINED BY L K FOR HIS PERSONAL PURPOSE, THOUGH MAY BE REFERABLE TO THE ASSESSEE, C ANNOT BE CONSIDERED AS BELONGING TO THE ASSESSEE. IT IS A LSO ADMITTED BY THE AO THAT THE SEIZED DOCUMENTS DO NOT REVEAL ANY SPEC IFIC INCOME. IT IS ALSO ADMITTED FACT THE NONE OF THE ASSESSMENTS IN T HE PRESENT APPEALS WERE PENDING ON THE DATE OF INITIATION OF ACTION U/ S. 153C I.E., ON 14 TH APRIL, 2006. THOUGH THE APPEALS BEFORE THE CIT(A) OR TRIBUNAL WERE PENDING, THE SAME DO NOT COME WITHIN THE PARAMETER S OF SECOND PROVISO TO S. 153C AS THOSE ASSESSMENTS SHALL NOT A BATE. ONLY THE ASSESSMENTS OR REASSESSMENTS WHICH ARE PENDING BEFO RE THE AO ON THE DATE OF INITIATION OF SEARCH SHALL ABATE. I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 5 RELIANCE WAS ALSO PLACED ON THE DECISION OF THE TRI BUNAL, VISAKHAPATNAM BENCH, IN THE CASE OF KGR EXPORTS VS. JCIT IN I.T.A. NO. 49 4/V/2007, WHEREIN THE TRIBUNAL HELD AS UNDER:- SINCE SECTION 153A OVERRIDES PROVISIONS OF SECTION 147 OF AND 148 CAN IT BE THE INTENTION OF THE LEGISLATURE TO GIVE ENOR MOUS POWERS ON THE ASSESSING OFFICER FOR OPENING A COMPLETED ASSESSMEN T TIME AND AGAIN? IN OUR OPINION, THE LEGAL RESTRICTIONS AND CONDITIO NS PRESCRIBED FOR REOPENING THE ASSESSMENT STILL APPLIES TO THE CASES REOPENED U/S. 153A. THE INTENTION OF THE LEGISLATURE COULD NOT H AVE BEEN OTHERWISE LEST IT SHOULD LEAD TO UNNECESSARY HARASSMENT UPON THE ASSESSEES. THOUGH THE COMPLETED ASSESSMENTS CAN BE REOPENED U NDER SECTION 153, THE ISSUES WHICH HAVE ALREADY BEEN CONCLUDED I N THE EARLIER ASSESSMENTS SHOULD NOT BE SUBJECT MATTER OF REASSES SMENT UNLESS SOME INCRIMINATING MATERIAL CONCERNING THOSE ISSUES WERE FOUND DURING THE COURSE OF SEARCH. OTHERWISE, IN THE CON CLUDED ASSESSMENTS WHICH HAVE BEEN REOPENED U/S. 153A, THE ASSESSING O FFICER 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 YE ARS CANNOT BE DISTURBED; ITEMS OF REGULAR ASSESSMENT CANNOT BE AD DED BACK IN THE PROCEEDINGS U/S. 153C WHEN NO INDISCRIMINATING DOCU MENTS WERE FOUND IN RESPECT OF THE DISALLOWED AMOUNTS IN THE SEARCH PROCEEDINGS. IN THE CASE OF P. SRINIVAS NAIK VS. ACIT 114 TTJ, T HE BANGALORE OF THE ITAT HELD AS UNDER : THE BOOKS OF ACCOUNT OR DOCUMENT DO NOT BELONG TO THE A SSESSEE, AS THESE WERE SEIZED FROM THE PREMISES OF R. IT IS NO WHERE STATED THAT THESE BOOKS OF ACCOUNT OR DOCUMENTS SHOWED THAT ALL THE TRANSACTIONS BELONGING TO THE ASSESSEE. SUCH BOOKS OF ACCOUNT O R DOCUMENTS CONTAINED THE TRANSACTIONS RELATING TO THE GROUP OF CONCERNS OF R. NO VALUABLE BELONGING TO THE ASSESSEE HAS BEEN SEIZED DURING THE COURSE I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 6 OF SEARCH. THE TERMS BELONGING IMPLIED SOMETHING M ORE THAN THE IDEA OF CASUAL ASSOCIATION. IT INVOLVES THE NOTION OF CO NTINUITY AND INDICATES ONE MORE OR LESS INTIMATE CONNECTION WITH THE PERSO N OVER A PERIOD OF TIME. THE BOOKS OF ACCOUNT OR DOCUMENTS SEIZED DURI NG THE COURSE OF SEARCH HAVE A CLOSE ASSOCIATION WITH THE GROUP. IT DOES NOT RECORD THE TRANSACTION CARRIED OUT BY THE ASSESSEE. DOCUMENTS OR BOOKS OF ACCOUNT FOUND DURING THE COURSE OF SEARCH AND SEIZU RE CANNOT BE TERMED, TO BE INDICATING ANY LIMITED INTEREST OF TH E OWNERSHIP OF THE ASSESSEE IN SUCH BOOKS OF ACCOUNT OR DOCUMENTS. THE LANGUAGE USED IN S. 153C IS MATERIALLY DIFFERENT FROM THE LANGUAGE U SED U/S. 158BD. AS PER S. 158BD, IF ANY UNDISCLOSED INCOME RELATED TO OTHER PERSON, THEN ACTION AGAINST SUCH OTHER PERSON CAN BE TAKEN PROVIDED SUCH UNDISCLOSED INCOME IS REFERABLE IN THE DOCUMENT SEI ZED DURING THE COURSE OF SEARCH. HOWEVER, S. 153C SAYS THAT IF VA LUABLE OR BOOKS OF ACCOUNT OR DOCUMENTS BELONGING TO OTHER PERSONS ARE SEIZED, THEN ACTION U/S. 153C CAN BE TAKEN AGAINST THAT PERSON. IN THE INSTANT CASE, BOOKS OF ACCOUNT OR DOCUMENTS DO NOT BELONG TO THE ASSESSEE AND, THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN INITIATING ACTION U/S. 153A R.W.S. 153C. IN THE CASE OF ANIL KUMAR BHATIA VS. ACIT IN I.T.A. NO. 2660 TO 2665/DEL/2009, ORDER DATED 01-01-2009, THE DELHI BENCH OF THE TRIB UNAL HELD AS FOLLOWS: - WE ARE OF THE CONSIDERED VIEW THAT SINCE FOR ALL T HE ASSESSMENT YEARS IN CONSIDERATION, PROCESSING RETURNS U/S. 143(1)()( A) STOOD COMPLETED, FOR RETURNS FILED IN DUE COURSE BEFORE SEARCH, AND NO MATERIAL BEING FOUND IN SEARCH THEREAFTER, NO ADDITION CAN BE MADE FOR AGRICULTURAL INCOME, GIFTS, UNEXPLAINED DEPOSIT AS STATED IN CHA RT (SUPRA). . 21. WE NOW COME TO THE SECOND CONTENTION OF ABATEME NT. THE UNDISPUTED FACT IS THAT THE DATE ARE AS FOLLOWS :- ASST. YEAR DATE OF FILING RETURN DATE ON WHICH NOTI CE 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 I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 7 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 FA VOUR 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 HE LD 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 UND ER 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 AC T SHALL COME TO AN END, THE ASSESSING OFFICER GETS JURISDICTION FOR SI X ASSESSMENT YEARS REFERRED TO IN SECTION 153A(B) OF THE ACT FOR MAKIN G 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 AC T COMPLETED PRIOR TO SEARCH IN RESPECT OF SIX ASSESSMENT YEARS REFERR ED TO IN SECTION 153A(B) OF THE ACT AND IN THE SECOND PROVISO TO SEC TION 153A, HAD BEEN INCLUDED IN THE ASSESSMENT FRAMED U/S. 153A OF THE ACT. HENCE, THE ASSESSING OFFICER WAS PERFECTLY JUSTIFIED IN FRAMIN G THE ASSESSMENT UNDER SECTION 153A OF THE ACT FOR THE ASSESSMENT YE ARS UNDER CONSIDERATION. 22. IN THE CASE OF M/S. SHYAMLATA KAUSHIK 114 TTJ 9 40, THE DELHI G-BENCH OF THE TRIBUNAL HELD AS FOLLOWS :- THE CONTENTION OF THE ASSESSEE WAS THAT THERE WAS NO SEIZED MATERIAL BASED ON WHICH THE ASSESSMENT WAS COMPLETED BY THE AO IN THE CASE OF THE ASSESSEE, AND, THEREFORE, THE ASSESSMENT FRAMED SHOULD BE HELD TO BE NULL AND VOID. IT WAS ALSO SUBMITTED THAT THE P ROVISIONS OF S. 153A CANNOT BE INVOKED TO MAKE AN ASSESSMENT OR REASSESS MENT OF INCOME JUST BECAUSE A SEARCH HAD TAKEN PLACE IN THE CASE O F AN ASSESSEE. THIS CONTENTION OF THE ASSESSEE CANNOT BE ACCEPTED. THE RE IS NO REQUIREMENT FOR AN ASSESSMENT MADE U/S. 153A BEING BASED ON ANY MATERIAL SEIZED IN THE COURSE OF SEARCH. FURTHER U NDER THE SECOND PROVISO TO S. 153A PENDING ASSESSMENT OR REASSESSME NT PROCEEDINGS IN RELATION TO ANY ASSESSMENT YEAR FALLING WITHIN THE PERIOD OF SIX ASSESSMENT YEARS REFERRED TO IN S. 153A(B) SHALL AB ATE. THUS THE AO GETS JURISDICTION FOR SIX ASSESSMENT YEARS REFERRED TO IN S. 153A(B) FOR MAKING AN ASSESSMENT OR REASSESSMENT. IT IS NOT TH E COMPLAINT OF THE ASSESSEE THAT ANY INCOME, WHICH IS ALREADY SUBJECTE D TO ASSESSMENT U/S. 143(3) OR U/S. 148 COMPLETED PRIOR TO THE SEAR CH IN RESPECT OF SIX ASSESSMENT YEARS REFERRED TO IN S. 153A(B) AND IN T HE SECOND PROVISO TO I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 8 S. 153A, HAS ALSO BEEN INCLUDED IN THE ASSESSMENT F RAMED U/S. 153A. IN SUCH CIRCUMSTANCES THE PLEA OF THE ASSESSEE CANNOT BE ACCEPTED. THERE IS NO DETAILED DISCUSSION ON THE PROVISION IN THIS ORDER . THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF MEGHMANI ORGANIC (SUPRA) CONSIDERED THESE DECISIONS OF THE DELHI BENCH AND D ISTINGUISHED THE SAME. 23. THE LEARNED ACCOUNTANT MEMBER, WHO WAS A PARTY TO THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF SHIVNATH RAI HARNARAIN (INDIA) LTD., 117 ITD 74 HAS, IN THE CASE OF M/S. VIRAJ FORGINGS LTD. VS. DCIT IN I.T.A. NO. L948/M/2008 AND IN THE CASE OF M/S. VIRAJ IMPOEXPO LTD. VS. DCIT IN I.T.A. NO. 1949/M/2008 F-BENCH, ORDER DATED 22-01-2010 HAS DIS TINGUISHED THE DECISION IN THE CASE OF SHIVNATH RAI HARNARAIN (INDIA) LTD. (SU PRA) AND AT PARA 4.2 AND 4.3 HELD AS FOLLOWS :- 4.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED TH E RIVAL CONTENTIONS CAREFULLY. THE LEGAL DISPUTE RAISED IN THIS GROUND IS WHETHER ISSUES CONSIDERED AND DECIDED IN THE REGULAR ASSESSMENT CA N 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 S EARCHED PERSON REQUIRING HIM TO FURNISH THE RETURN OF INCOME IN RE SPECT OF EACH ASSESSMENT YEAR FALLING WITHIN THE SIX ASSESSMENT Y EARS IMMEDIATELY PRECEDING THE ASSESSMENT YEAR RELEVANT TO THE PREV IOUS YEAR IN WHICH SEARCH IS CONDUCTED OR REQUISITION IS MADE. FURTHE R 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 D ATE 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 P ENDING 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 INITIATION OF SEARCH BUT THE CBDT IN THE CIRCULAR NO. 7 OF 2003 DATED 5.9.2003 HAS CL ARIFIED THAT APPEAL, REVISION OR RECTIFICATION PROCEEDINGS PENDING ON TH E DATE OF INITIATION OF SEARCH U/S. 132 WILL NOT ABATE. IN OTHER WORDS, ONLY THE ASSESSMENTS PENDING BEFORE THE ASSESSING OFFICER FO R COMPLETION SHALL ABATE. IN THIS CASE THERE IS NO DISPUTE THAT ON TH E DATE OF SEARCH, THE ASSESSMENT IN THE CASE OF ASSESSEE HAD ALREADY BEE N COMPLETED BY THE I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 9 AO AND IN TERMS OF THE CIRCULAR OF THE CBDT, THE RE GULAR ASSESSMENT MADE IN CASE OF THE ASSESSEE WILL NOT ABATE. THERE FORE, IN OUR VIEW THE POINTS/ISSUES DECIDED IN THE ASSESSMENT CANNOT BE R E-CONSIDERED IN THE PROCEEDINGS U/S. 153A UNLESS THERE IS SOME FRESH MA TERIAL FOUND DURING THE COURSE OF SEARCH IN RELATION TO SUCH PO INTS/ISSUES. 4.3 IN THIS CASE THE CLAIM OF DEDUCTION U/S. 80 HHC HAD ALREADY BEEN DECIDED BY THE TRIBUNAL IN THE APPEAL AGAINST REGU LAR ASSESSMENT FOR A.Y. 2001-02 AND NO FRESH MATERIAL HAD BEEN FOUND D URING THE COURSE OF SEARCH IN RELATION TO ALLOWABILITY OF DEDUCTION U/S . 80HHC. THEREFORE WE AGREE WITH THE SUBMISSION OF THE LEARNED AR THAT THE CLAIM OF DEDUCTION U/S. 80HHC CANNOT BE CONSIDERED AFRESH IN THE PROCEEDINGS U/S. 153A. THE LEARNED DR HAS RELIED ON THE DECISI ON OF THE TRIBUNAL IN THE CASE OF SHIVNATHARAI HARNARAYAN (INDIA) (PVT.) LTD. (SUPRA) BUT THE SAID CASE IN OUR VIEW IS DISTINGUISHABLE. IN THAT CASE, THE TRIBUNAL HELD THAT ANY ASSESSMENT OR REASSESSMENT PROCEEDINGS INI TIATED BY THE AO WHICH ARE PENDING ON THE DATE OF INITIATION OF SEAR CH, THE SAME SHALL ABATE AND AO CANNOT PROCEED WITH SUCH PENDING ASSES SMENT. THUS AS PER THE DECISION OF THE TRIBUNAL, ONLY THE ASSESSME NT/REASSESSMENT PROCEEDINGS PENDING BEFORE AO SHALL ABATE. THE ISS UE WHETHER THE ASSESSMENT ALREADY COMPLETED BY AO AND PENDING IN A PPEAL OR REVISION WILL ALSO ABATE OR REVISION WILL ALSO ABATE WAS NO T BEFORE THE TRIBUNAL. IN VIEW OF THESE DECISIONS OF THE COORDINATE BENCHE S, WE HAVE TO NECESSARILY HOLD THAT ONLY THE ASSESSMENTS PENDING BEFORE THE A O FOR COMPLETION SHALL ABATE AND THAT U/S. 153A THE ISSUES DECIDED IN THE ASSESS MENT CANNOT BE RECONSIDERED AND READJUDIATE, UNLESS THERE IS SOME FRESH MATERIA L FOUND DURING THE COURSE OF SEARCH IN RELATION TO SUCH POINTS. AS IN THIS CASE , THE UNDISPUTED FACT IS THAT, THERE IS NO INCRIMINATING MATERIAL FOUND OR SEIZED IN THE SEARCH, THE GROUND OF THE ASSESSEE HAS TO BE ACCEPTED BY RESPECTFULLY FOL LOWING THE ORDER OF THE COORDINATE BENCH. THUS, WE NOTICE THAT VARIOUS CO-ORDINATE BENCHES HA VE 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 T HAT 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 I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 10 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. HO WEVER, WE FEEL IT PERTINENT TO EXPRESS THE VIEW THAT IF THE AO FINDS OUT ANY DEFEC T 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 COMPLETE D 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 NOT . IN SUCH A SITUATION, IN OUR VIEW, IT IS NOT NECESSARY TO SATISFY THE CONDITION THAT SOME IN CRIMINATING MATERIALS CONCERNING TO THOSE ISSUES SHOULD HAVE NECESSARILY BEEN FOUND OUT IN RESPECT OF THOSE ASSESSMENT YEARS. 7. IN THE INSTANT CASE, THE DATES OF FILING OF T HE RETURNS OF INCOME FOR THE YEARS UNDER CONSIDERATION ARE GIVEN BELOW:- ASSESSMENT YEAR DATE OF FILING RETURN DUE DATE FOR ISSUING NOTICE U/S 143(2) 2002-03 30.10.2002 31.10.2003 2003-04 15.10.2003 31.10.2004 2004-05 21.05.2004 31.05.2005 2005-06 29-08-2005 31.08.2006 2006-07 30.10.2006 31.10.2007 2007-08 29.10.2007 31.10.2008 2008-09 10.03.2009 30.09.2009 THE DATE OF INITIATION OF SEARCH IN THE INSTANT CAS E IS 05-12-2007. ACCORDING TO THE ASSESSEE, THE RETURNS OF INCOME FILED BY IT UP TO T HE ASSESSMENT YEAR 2007-08 HAVE BEEN ACCEPTED. IT WAS ALSO SUBMITTED THAT THE ASSE SSMENTS RELATING TO THE ASSESSMENT YEARS 2002-03 TO 2006-2007 SHOULD BE TREATED AS COM PLETED, AS NO NOTICE U/S 143(2) WAS ISSUED FOR THOSE YEARS AND NO PROCEEDING IS PEN DING. ACCORDINGLY, THE ASSESSMENTS RELATING TO THE ASSESSMENT YEARS 2007-08 CAN BE CON SIDERED AS PENDING ON THE DATE OF INITIATION OF THE SEARCH. THE ASSESSMENT RELATING TO THE ASSESSMENT YEAR 2008-09 IS AFTER THE DATE OF SEARCH. THUS IT IS SEEN THAT THE ASSESSMENTS RELATING TO THE ASSESSMENT YEARS 2002-03 TO 2006-07 HAVE BEEN CONCL UDED AND NOT PENDING AS ON THE DATE OF INITIATION OF SEARCH, SINCE NO NOTICE U/S 1 43(2) HAS BEEN ISSUED. ACCORDINGLY, AS I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 11 PER THE PROPOSITION OF LAW DISCUSSED IN THE PRECEDI NG PARAGRAPHS, SUCH CONCLUDED ASSESSMENTS CAN BE DISTURBED ONLY IF THE DEPARTMENT HAS UNEARTHED ANY INCRIMINATING MATERIAL WARRANTING SUCH DISTURBANCE OR THE ANY IDE NTICAL ISSUES ARE AVAILABLE IN THE CONCLUDED ASSESSMENTS AS IN THE CASE OF PENDING ASS ESSMENTS. BY CONSIDERING THIS FACTUAL AND LEGAL POSITION, WE SHALL PROCEED TO EXA MINE VARIOUS ADDITIONS MADE BY THE AO. IN VIEW OF THE LEGAL POSITION DISCUSSED ABOVE, IN OUR VIEW, THE CASE LAW RELIED UPON BY THE LD D.R WITH REGARD TO ESTIMATION AND EXTRAPO LATION OF INCOME DOES NOT HAVE MUCH SIGNIFICANCE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 8. THE FIRST ISSUE RELATES TO THE ESTIMATION OF SUPPRESSED CONSULTATION FEE. THE SEIZED RECORDS FOUND IN RESPECT OF THIS ISSUE ARE BOOKING DIARY NUMBERED AS MMA-1 AND MMA-2. THESE DIARIES CONTAINED THE PATIENTS D ETAILS FOR CERTAIN MONTHS AS DETAILED BELOW:- FOR 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 NUMBE RED AS MMA-7, MMA-8 AND MMA- 9, WHERE IN THE NUMBER OF PATIENTS WERE FOUND RECOR DED 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, MM A-8 AND MMA-9 MIGHT REPRESENT THE DIARIES PREPARED FOR INCOME TAX PURPOSES IN ORDER T O 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 COMPUTIN G 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 ASS ESSEE FOR THE ASSESSMENT YEARS 2006- 07 AND 2007-08. THE ASSESSEE HAD REPORTED THE AVER AGE PER DAY COLLECTION FOR THESE TWO YEARS AT RS.1796/- AND RS.1933/- RESPECTIVELY. THE INCREASE IN THE AVERAGE I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 12 COLLECTION IN THE ASST. YEAR 2007-08 WORKED OUT TO APPROX. 8% VIS--VIS ASST. YEAR 2006- 07. TAKING THESE TWO FIGURES AS THE BASIS, THE AO COMPUTED THE AVERAGE COLLECTION FOR OTHER YEARS BY INCREASING/DECREASING 8% EVERY YEAR. THE AVERAGE COLLECTION SO COMPUTED WAS THEN COMPARED WITH THE CONSULTATION FE E DECLARED BY THE ASSESSEE IN HIS RETURN OF INCOME/BOOKS AND THE DIFFERENCE WAS TREAT ED AS SUPPRESSED CONSULTATION FEE FOR VARIOUS YEARS AS UNDER:- ASST. YEAR SUPPRESSION OF CONSULTATION FEE 2008-09 180339 2007-08 NIL 2006-07 NIL 2005-06 90248 2004-05 217600 2003-04 202556 2002-03 144784 THE LD CIT(A) NOTICED THAT THERE WAS NO SEIZED MATE RIAL TO INDICATE THAT THERE WAS ANY SUPPRESSION OF CONSULTATION FEE FOR ASSESSMENT YEAR S 2002-03 TO 2005-06. HENCE HE DELETED THE ADDITIONS MADE FOR THOSE YEARS. THE AO DID NOT MAKE ANY ADDITION FOR ASSESSMENT YEARS 2006-07 AND 2007-08. IN RESPECT O F THE ASSESSMENT YEAR 2008-09, THE DETAILS OF NUMBER OF PATIENTS WHO VISITED THE D OCTOR WERE AVAILABLE IN THE SEIZED RECORD ONLY FOR NINE MONTHS. BASED ON THOSE FIGURE S, THE LD CIT(A) PROJECTED THE ANNUL NUMBER OF PATIENTS AND THEN CALCULATED THE ANNUAL C OLLECTION ON THE BASIS OF COLLECTIONS REPORTED IN THE IMMEDIATELY PRECEDING YEAR. ACCORD INGLY, HE ARRIVED AT A DIFFERENCE OF RS.1,54,996/- AND SUSTAINED THE SAME IN THE PLACE O F RS.1,80,339/- DETERMINED BY THE AO. 10. WE HAVE ALREADY NOTICED THAT THE AO HAS COM PUTED THE SUPPRESSED CONSULTATION FEE BY TAKING THE DETAILS FROM THE BOOKS OF ACCOUNT S MAINTAINED BY THE ASSESSEE AND NOT ON THE BASIS OF THE SEIZED RECORD. THE SEIZED RECORDS NUMBERED AS MMA-1 AND MMA-2 CONTAINED PATIENT DETAILS FOR THE YEARS RELEV ANT TO THE ASSESSMENT YEARS 2006-07 (PART PERIOD), 2007-08 (FULL YEAR) AND 2008-09 (PAR T PERIOD). THUS THE DEPARTMENT DID NOT UNEARTH ANY RECORD PERTAINING TO THE YEARS RELE VANT TO THE ASSESSMENT YEARS 2002- 03 TO 2005-06. IN VIEW OF THE LEGAL POSITION DISCU SSED IN THE PRECEDING PARAGRAPHS, THE I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 13 AO COULD NOT MAKE ANY ADDITION FOR ASSESSMENT YEARS 2002-03 TO 2005-06. ACCORDINGLY, WE UPHOLD THE DECISION OF LD CIT(A) IN RESPECT OF THESE FOUR YEARS, AS THE SAME IS IN ACCORDANCE WITH LEGAL POSITION DISCUSSED IN THE PRECEDING PARAGRAPHS. 11. FOR ASSESSMENT YEARS 2006-07 AND 2007-08, T HE AO HIMSELF DID NOT MAKE ANY ADDITION AS HE DID NOT FIND ANY SUPPRESSION AS PER HIS COMPUTATIONS. FOR ASSESSMENT YEAR 2008-09, THE SEIZED RECORD WAS AVAILABLE FOR F IRST NINE MONTHS OF THE FINANCIAL YEAR AND THE AVERAGE NUMBER OF PATIENTS PER MONTH VISITE D IN THESE NINE MONTHS WORKED OUT TO 1035. ACCORDINGLY, THE NUMBER OF PATIENTS VISIT ED FOR WHOLE YEAR WAS PROJECTED TO 12,428. THOUGH THE AO DID NOT CONSIDER THIS INFORM ATION FOR ARRIVING AT THE SUPPRESSED FEE, THE LD CIT(A) HAS USED THE SAME FOR COMPUTATIO N 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 DUR ING APRIL 2007 TO DECEMBER 2007 AS PER THE SEIZED RECORD WAS 9321. THE TAX AUTHORITIE S COULD HAVE COMPARED THIS FIGURE WITH THE REGULAR BOOKS MAINTAINED BY THE ASSESSEE A ND ARRIVED AT THE DIFFERENCE, IF ANY. WE ARE UNABLE TO UNDERSTAND, WHY THE TAX AUTHORITIE S 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 VIS IT OF REVIEW PATIENTS FROM WHOM NO FEE IS CHARGED. THE AO HAS RECORDED THAT THE AVERA GE 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 THAT NO SEPARATE CHARGES A RE COLLECTED FROM REVIEW PATIENTS, IF THE VISIT IS WITHIN 6 TO 7 DAYS. THE LD CIT(A) DID NOT CONSIDER THIS IMPORTANT INFORMATION WHILE MAKING THE ESTIMATE. IN ANY CASE , WE NOTICE THAT THE LD CIT(A) HAS ALSO RESORTED TO ESTIMATE THE SUPPRESSED CONSULTATI ON FEE FOR THE ASSESSMENT YEAR 2008-09 AND THE METHODOLOGY ADOPTED BY HIM SUFFERS FROM INFIRMITIES DISCUSSED ABOVE. ACCORDINGLY, WE ARE OF THE VIEW THAT NO ADDITION CO ULD BE MADE FOR ASSESSMENT YEAR 2008-09 ALSO, AS THE DEPARTMENT HAS FAILED TO BRING ON RECORD ANY ACTUAL SUPPRESSION OF CONSULTATION FEE ON THE BASIS OF SEIZED RECORD. TH E VERY FACT THAT THE AO COULD NOT MAKE ANY ADDITION FOR ASSESSMENT YEARS 2006-07 AND 2007-08, IN SPITE OF THE ESTIMATION MADE BY HIM, ONLY SHOW THAT THE QUANTUM OF CONSULTATION FEE REPORTED BY THE ASSESSEE IS CORRECT. ACCORDINGLY, WE SET ASID E THE ORDER OF LD CIT(A) IN RESPECT OF I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 14 THIS ISSUE FOR ASSESSMENT YEAR 2008-09 AND DIRECT T HE AO TO DELETE THE ADDITION MADE ON ACCOUNT OF SUPPRESSED CONSULTATION FEE. 12. THE NEXT ISSUE RELATES TO THE SUPPRESSION O F INCOME FROM SURGERIES AND SALE OF LENSES. AS STATED EARLIER, THE ASSESSEE CARRIES ON SURGERIES BY ADMITTING PATIENTS IN A HOSPITAL NAMED M/S SAI NURSING HOME. THE DEPARTMEN T SEIZED RECORDS NUMBERED AS MMA-3 AND MMA-4, WHICH CONTAINED THE DETAILS OF NUM BER OF SURGERIES PERFORMED BY THE ASSESSEE. THE AO COMPARED THESE RECORDS WITH T HE RECORDS MAINTAINED IN M/S SAI NURSING HOME AND DID NOT FIND ANY DIFFERENCE. IT WA S NOTICED THAT THE ASSESSEE WAS HAVING TWO TYPES OF PACKAGES FOR PERFORMING SURGERI ES. THE FIRST PACKAGE COSTED RS.5800/- IN WHICH PMMA LENS SHALL BE USED. THE SE COND PACKAGE COSTED RS.12,000/- IN WHICH ACRYLIC LENS SHALL BE USED. 13. THE AO TOOK THE VIEW THAT THE COST OF ACRYL IC LENS IS ONLY RS.600/-, APPARENTLY ON THE BASIS OF NOTING FOUND IN SHEET NO.17 OF MMA-24 AND THE ASSESSEE WAS CHARGING RS.8,400/- FROM THE PATIENTS FOR ACRYLIC LENS. HOW EVER, THE LD CIT(A) HAS FOUND OUT THAT THE PRESUMPTION ENTERTAINED BY THE AO WAS WRON G AND THE NOTING FOUND IN SHEET NO.17 OF MMA-24 PERTAINS TO PMMA LENS ONLY. HENCE, IT HAS TO BE CONCLUDED THAT THE ASSESSEE DID NOT MAKE ANY PROFIT ON THE AMOUNT CHAR GED FROM PATIENTS ON ACRYLIC LENS, I.E., THERE IS NO DIFFERENCE BETWEEN THE COST OF PU RCHASE AND THE AMOUNT CHARGED FROM THE PATIENTS. 14. IN RESPECT OF PMMA LENS, THE AMOUNT CHARGED FROM PATIENTS WAS FOUND TO 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 PERSONA LLY BY M/S J.N. SURGICURE OR SENT BY COURIER. DURING THE COURSE OF SEARCH, THE DEPARTM ENT SEIZED BLANK BILL BOOKS PERTAINING TO M/S J.N SURGICUARE FROM THE PREMISES OF THE ASSE SSEE. 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, I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 15 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 P ROFIT IN THOSE TRANSACTIONS AND ALSO AGREED TO OFFER THE SAME. HOWEVER, IN THE RETURN O F INCOME FILED AFTER THE SEARCH, THE ASSESSEE DID NOT OFFER ANY ADDITIONAL INCOME ON ACC OUNT OF PMMA LENS. 15. THE AO SUMMONED SHRI O.M.OUSEPH, THE PROPRI ETOR OF M/S J.N. SURGICURE AND RECORDED A STATEMENT FROM HIM. SHRI O.M.OUSEPH MAI NTAINED THE STAND THAT HE SUPPLIED THE LENS TO THE PATIENTS OF THE ASSESSEE A T RS.2000/- PER LENSE. IT IS PERTINENT TO NOTE THAT M/S J.N. SURGICURE HAD SHOWN THE SALE VALUE OF PMMA LENS SUPPLIED TO THE PATIENTS OF THE ASSESSEE @ RS.2000/- PER LENS IN HI S BOOKS OF ACCOUNT. THE AO ALSO CONDUCTED ENQUIRIES WITH OTHER CUSTOMERS OF M/S J.N . SURGICARE AND ALL OF THEM STATED THAT THE PURCHASED LENS AT A PRICE BETWEEN RS.100/- TO RS.300/-. THE AO ALSO CONDUCTED ENQUIRIES WITH COMMERCIAL TAX AUTHORITIES AND THEY OBSERVED THAT M/S J.N. SURGICURE DID NOT MAINTAIN BILL BOOKS AND ACCOUNT B OOKS IN ACCORDANCE WITH SALES TAX RULES. THOUGH THE ASSESSEE HAD DECLARED THE SALE P RICE OF LENS SOLD TO THE PATIENTS OF THE ASSESSEE RS.2000/-, YET THE AO TOOK THE VIEW TH AT M/S J.N. SURGICURE HAS COLLUDED WITH THE ASSESSEE TO INFLATE THE SALE PRICE OF LENS AND FURTHER PRESUMED THAT THE ASSESSEE HAS MADE A PROFIT OF ABOUT RS.1,800/- PER LENS. THOUGH THE ASSESSEE STATED THAT M/S J.N. SURGICURE HAS STARTED ITS BUSINESS ON LY IN THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2007-08, YET THE AO PROCEEDED TO CO MPUTE THE SUPPRESSED INCOME FOR ALL THE YEARS UNDER CONSIDERATION UNDER THE PRESUMP TION THAT THE ASSESSEE WOULD HAVE ADOPTED THE SAME METHODOLOGY IN OTHER YEARS ALSO. 16. THE SEIZED RECORD (MMA 3,4, 15 TO 20) SHO WED THAT THE NUMBER OF SURGERIES PERFORMED DURING THE PERIOD FROM APRIL 2007 TO NOVE MBER 2007 WAS 1186 AND THE COLLECTION FROM SURGERIES WAS SHOWN BY THE ASSESSEE AT RS.54,00,200/-. SINCE THE AO TOOK THE VIEW THAT THE ASSESSEE HAD MADE PROFITS ON SALE OF PMMA LENS, HE PROCEEDED TO COMPUTE THE GROSS COLLECTIONS FOR THE YEAR RELEV ANT TO THE ASSESSMENT YEAR 2008-09 IN THE FOLLOWING MANNER. I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 16 RECEIPTS FROM SURGERIES 54,00,200 ADD:- RECEIPT FROM SALE OF PMMA LENS 20,00,000 --------------- 74,00,200 LESS:- THEATRE CHARGES 12,71,000 LESS:- COST OF LENS (ACRYLIC) 1,62,600 ------------------- COLLECTION FOR EIGHT MONTHS 59,66,600 ========= THE AO PROJECTED THIS AMOUNT TO WHOLE YEAR AT RS.89 ,49,900/-. IN THE ABOVE SAID COMPUTATION, THE AO PRESUMED THAT THE COST OF ACRYL IC LENS WAS RS.600/- ONLY. BASED ON THE ANNUAL COLLECTION OF RS.89,49,900/- REFERRED ABOVE, THE AO PROCEEDED TO COMPUTE THE ANNUAL COLLECTION FOR OTHER YEARS. THE AO, ON SOME BASIS, NOTICED THAT THERE WAS AN INCREASE OF 10% ONLY IN THE FEE CHARGE D FOR SURGERIES OVER A PERIOD OF 7 YEARS. ACCORDINGLY, HE PROCEEDED TO COMPUTE THE AN NUAL 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 RECE IPTS. 17. THE LD CIT(A) WAS NOT CONVINCED WITH THE ME THODOLOGY 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 INCORREC T. THIS IS DULY EXPLAINED BY THE APPELLANT IN HIS SUBMISSIONS OF 28 TH 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 LEN S 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 WIT H REFERENCE TO ACRYLIC LENS. THESE OBSERVATIONS OF THE ASSESSING OFFICER ARE N OT FACTUALLY CORRECT IS ALSO EVIDENT FROM THE FACT THAT AFTER MA KING SUCH OBSERVATIONS THE ASSESSING OFFICER DID NOT PROCEED TO COMPUTE ANY UN DISCLOSED INCOME OF THE APPELLANT ON THAT ACCOUNT. I FURTHER FIND THAT THERE WAS NO DISCREPANCY I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 17 FOUND BY THE ASSESSING OFFICER WITH REGARD TO THE N UMBER OF SURGERIES CONDUCTED BY THE APPELLANT. THERE IS ALSO NO EVIDENCE OF ANY SUPPRESSION BY THE APPELLANT WITH REGARD TO PROFESS IONAL CHARGES FOR SURGERIES. THE OBSERVATIONS OF THE ASSESSING OFFICER THAT THER E WAS ONLY 10% INCREASE IN SURGERY CHARGES OVER A PERIOD OF 7 YEAR S IN PARA 8.35 OF THE ASSESSMENT ORDER IS ALSO NOT FACTUALLY CORRECT, FOR THE REASON THAT THE APPELLANT WAS CHARGING RS.2300/- (SCAN-300 + SUTURE-200 + PRO F CHARGES 1800) IN 2000- 01 WHERE AS IN 2007-08, THE APPELLANT WAS CHARGING RS.2900 (SCAN- 400 + SUTURE 500 + PROF CHARGES 2000). THUS, THERE IS A RISE OF AROUND 26% OVER THE YEARS. THE ESTIMATION BY THE ASSESSING OFFICER OF PROFESSI ONAL RECEIPTS FROM SURGERY BY GIVING A 5% REDUCTION FOR EACH PRECEDING YEAR IS NOT BASED ON ANY EVIDENCE AND IS ONLY A GUESS WO RK RESULTING IN ILLOGICAL RESULTS AS UNDER : A.Y. NO. OF SURGERIES GROSS RECEIPTS FROM SURGERIES CONDUCTED ESTIMATED BY A.O. 2008-09 1717 69,74,100 @ 2007-08 1663 85,02,405 2006-07 1854 80,77,284 2005-06 1677 76,73,420 2004-05 1619 72,89,749 2003-04 1473 69,25,261 2002-03 1014 65,78,998 @ RS.48,64,800 BEING RECEIPTS SHOWN BY APPELLANT EX CLUDING COST OF LENS PLUS ADDITION OF RS.21,09,300/- BY THE AO. IT IS APPARENT THAT THE ABOVE ESTIMATION IS WITH T OTAL DISREGARD TO THE NUMBER OF SURGERIES DONE BY THE APPELLANT IN VARIOU S YEARS. EVEN WITH FEWER SURGERIES IN EARLIER YEARS, THE ASSESSING OFFICER H AS ESTIMATED MUCH HIGHER PROFESSIONAL RECEIPTS WITH ABOVE MECHANICAL CALCULA TION, WHICH ARE NOT SUSTAINABLE FOR OBVIOUS REASONS. THE ESTIMATION OF RECEIPTS BY THE ASSESSING OFFICER IN PARA 8.30 IS ALSO NOT FACTUALLY CORRECT. THIS IS FOR THE REASON THAT THE ASSESSING OFFICER HAS WRONGLY REDUCED COST OF ACRYL IC LENS AND ALSO THEATRE I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 18 CHARGES WHICH ARE NOT EXCLUDED BY THE APPELLANT IN GROSS RECEIPTS SHOWN. IN PARA 8.29 THE ASSESSING OFFICER HIMSELF HAS WORKED OUT PROFIT ON PER PMMA LENS OF RS.1800, WHEREAS IN THE CALCULATION IN PARA 8.30 , THE ASSESSING OFFICER HAS ADDED RS.2000 PER PMMA LENS AS PROFIT. THE ASSESSI NG OFFICER HAS COMPARED INCOMPARABLE FIGURES FOR THE REASON THAT IN A.Y 200 8-09, 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 INVESTIGAT IONS CONDUCTED THEREAFTER WAS THAT THE APPELLANT WAS SUPPRESSING P ROFIT MARGIN ON SALE OF PMMA LENSES. 18. THE LD CIT(A) TOOK THE VIEW THAT PROFIT ON S ALE OF PMMA LENS SHOULD BE TAKEN AT RS.1800/- IN THE YEAR RELEVANT TO THE ASSESSMENT YE AR 2008-09 AND FOR OTHER YEARS, THE PROFIT SHOULD BE REDUCED BY RS.50/- PER YEAR. HE R EJECTED 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 THI S 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 CON CERN STARTED THE BUSINESS. HOWEVER, THE PATTERN OF EARNING PROFIT MARGIN ON SU PPLY OF LENS TO THE PATIENT DID EXIST EVEN IN EARLIER YEARS. THE PROFIT MARGIN MIG HT HOWEVER VARY OVER THE YEARS DEPENDING ON VARIOUS TYPES OF LENSES, THE EXISTENCE OF CONVENIENT SUPPLIER AND THE VARIATION IN COST OF THE LENS OVER THE YEARS. WITH ADVANCEMENT OF TECHNOLOGY AND INCREASE IN USE OF SUCH LENSES OVER THE YEARS I N SURGERIES, THE COST TO THE APPELLANT OF SUCH LENS MAY GET CHEAPER OVER THE YEA RS WITH RISE IN PROFIT MARGIN. THIS FACTOR THEREFORE NEEDS TO BE CONSIDERED ON MER ITS. AFTER TAKING INTO ACCOUNT THESE FACTORS, I HOLD THAT THE PROFIT MARGIN OF THE APPELLANT PER PMMA LENS CAN BE DECREASED BY RS.50 IN EVERY PRECEDING YEAR. CON SIDERING THE SAME, PROFIT MARGIN OF THE APPELLANT ON OTHER LENSES, OTHER SURG ERIES AND OTHER MINOR DISCREPANCIES ETC., UNDISCLOSED PROFIT OF THE APPEL LANT IN RESPECT OF RECEIPTS FROM SURGERY CAN BE ESTIMATED FOR VARIOUS ASSESSMENT YEA RS AS UNDER: I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 19 A.Y NO. OF TOTAL NO. OF SURGERIES PROFIT P ER PROFIT ON UNDISCLOSED SURGERIES WITH PMMA LENS PMMA PMMA INCOME 2008-09 1717 1450 1800 26,10,000 26,85,000 2007-08 1663 1414 1750 24,74,500 25,50,000 2006-07 1854 1576 1700 26,79,200 27,70,000 2005-06 1677 1426 1650 23,52,900 24,25,000 2004-05 1619 1377 1600 22,03,200 22,75,000 2003-04 1473 1252 1550 19,40,600 20,10,000 2002-03 1014 862 1500 12,93,000 13,40,000 19. IN ASSESSMENT YEAR 2008-09, THE UNDISCLOSED I NCOME WORKED OUT BY LD CIT(A) WAS RS.26,85,000/-, WHICH WAS MORE THAN THE AMOUNT OF RS.21,09,300/- WORKED OUT BY THE AO. ACCORDINGLY, THE LD CIT(A) ENHANCED THE AD DITION ON ACCOUNT OF SUPPRESSION OF SURGERY RECEIPTS FOR ASSESSMENT YEAR 2008-09 AND SU STAINED THE ADDITION FOR OTHER YEARS TO THE EXTENT WORKED OUT BY HIM. 20. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. AS CONCLUDED BY LD CIT(A), THE SUM TOTAL OF ALL EVIDENCES GATHERED DURING THE COURSE OF SEARCH AND ALSO THE RESULT OF INVESTIGATIONS CONDUCTED THEREAFTER WAS THAT THE APPELLANT WAS MAKING PROFIT ON SALE OF PMMA LENSES. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSESSEE HAS CORRECTLY REPORTED THE NUMBER OF SURGERIES PERFORME D BY HIM AND IT IS ALSO AN UNDISPUTED FACT THAT THERE WAS NO DIFFERENCE IN THE SURGERY FEES CHARGED BY THE ASSESSEE. BOTH THE AO AS WELL AS LD CIT(A) HAS PRO CEEDED TO COMPUTE THE PROFIT ON SALE OF PMMA LENS BY FOLLOWING THEIR OWN METHODS. FROM THE OBSERVATIONS OF LD CIT(A), WHICH WERE EXTRACTED IN THE PRECEDING PARAG RAPHS, WE NOTICE THAT THE METHODOLOGY ADOPTED BY THE AO WAS SUFFERING FROM MA NY DEFECTS AND CONSEQUENTLY IT HAS GIVEN ILLOGICAL RESULTS. BESIDES THE MISTAKES POINTED OUT BY LD CIT(A), WE NOTICE THAT THE AO HAS MADE MANY ASSUMPTIONS WHILE WORKING OUT THE SUPPRESSED RECEIPTS AND SUCH ASSUMPTIONS DID NOT HAVE ANY BASIS. ACCOR DINGLY, WE AGREE WITH THE LD CIT(A) THAT THE METHODOLOGY ADOPTED BY THE AO CANNO T BE CONSIDERED AS CORRECT METHOD OF WORKING OUT THE SUPPRESSED SURGERY RECEIP TS. HOWEVER, WE NOTICE THAT THE LD CIT(A) HAS ALSO MADE CERTAIN ASSUMPTIONS WITHOUT ANY BASIS. THE DEPARTMENT HAS I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 20 NOTICED THE PRICE DIFFERENCE IN SALE OF PMMA LENS O NLY 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 TH E ASSESSMENT YEAR 2007-08. HAVING OBSERVED SO, THE LD CIT(A) WENT ON FURTHER TO OBSER VE 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 AN Y MATERIAL. THUS WE FIND THAT THE FIRST APPELLATE AUTHORITY HAS ALSO PROCEEDED TO COM PUTE THE SUPPRESSED SURGERY RECEIPTS ON SURMISES AND CONJECTURES. 21. THE FACT REMAINS THAT THE ONLY EVIDENCE FOU ND OUT BY THE DEPARTMENT WITH REGARD TO SALE OF PMMA LENS WAS A BILL SENT THROUGH COURIE R. THE SAID BILL SHOWED THE SALE OF VALUE OF LENS AT RS.208/-. APART FROM THIS BILL, N O OTHER EVIDENCE WAS FOUND DURING THE COURSE OF SEARCH. HOWEVER, THE AO HAS TRIED TO COR ROBORATE THIS INFORMATION FROM OTHER CUSTOMERS OF M/S J.N. SURGI CURE AND FOUND OUT THAT THE SALE VALUE OF PMMA LENS SUPPLIED TO THEM WAS IN THE RANGE OF RS.100/- TO RS .300/- PER LENS. IN PAGE 17 OF MMA-24, THE SALE PRICE OF PMMA LENS WAS SHOWN AT RS .600/- PER LENS. THUS THE SALE PRICE OF PMMA LENS WAS IN THE RANGE OF RS.100/- TO RS.600/- AS PER THE EVIDENCES GATHERED BY THE AO. 22. THE AO HAS ALSO CONDUCTED ENQUIRIES WITH SH RI S.M.OUSEPH, THE PROPRIETOR OF M/S J.N. SURGI CURE AND ALSO EXAMINED THE BOOKS OF ACCO UNTS OF THE SAID CONCERN. IT WAS NOTICED THAT THE SAID CONCERN HAS ACCOUNTED THE SAL E PRICE OF THE LENS SUPPLIED TO THE PATIENTS OF THE ASSESSEE AT RS.2000/- ONLY, I.E., A S PER THE BILLS RAISED ON THE PATIENTS. THOUGH THE AO HAS TRIED TO HIGHLIGHT THE VIOLATION OF SALES TAX RULES BY M/S J.N. SURGI CURE, IN OUR VIEW, THEY CANNOT BE TAKEN SUPPORT TO DRAW ADVERSE INFERENCES AGAINST THE ASSESSEE. THE AO HAS ALSO FAILED TO DISPROVE THE C LAIM THAT THE LENS WERE SUPPLIED TO THE PATIENTS DIRECTLY BY M/S J. N SURGICURE. SINCE THE BOOKS OF ACCOUNT MAINTAINED BY M/S J.N. SURGI CURE ALSO TALLIED WITH THE AMOUNT CO LLECTED FROM THE PATIENTS, IN OUR VIEW, EFFECTIVELY, THE AO COULD NOT ESTABLISH THAT THE AS SESSEE HAS ACTUALLY MADE ANY PROFIT ON THE SALE OF LENSES. THE CONCLUSION REACHED BY THE AO THAT THE ASSESSEE HAS MADE A PROFIT OF RS.1800/- PER LENS IS ALSO, IN OUR VIEW, ON THE BASIS OF SURMISES AND I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 21 CONJECTURES, AS THE EVIDENCES FOUND DURING THE COUR SE OF SEARCH ITSELF SHOWED THAT THE COST OF LENS RANGES FROM RS.100/- TO RS.600/-. HEN CE, THE PROFIT, IF ANY, COULD NOT BE RS.1800/- PER LENS, AS WORKED OUT BY THE AO AND LD CIT(A). 23. IN OUR VIEW, THE ONLY POINT WHICH GOES AGAIN ST THE ASSESSEE IS THE REPLY GIVEN BY HIM TO THE QUESTION NO.27 POSED TO HIM, WHEREIN HE HAD ADMITTED THAT THERE WAS SOME PROFIT MARGIN ON SALE OF PMMA LENS TO THE ASSESSEE. SIMILARLY, SHRI S.M. OUSEPH, THE PROPRIETOR OF M/S J.N. SURGI CURE ALSO COULD NOT GI VE ANY CONVINCING EXPLANATION WITH REGARD TO THE DIFFERENCE IN SELLING PRICE OF PMMA L ENS. ACCORDINGLY, SINCE THE DEPARTMENT HAS FOUND SOME EVIDENCE CONCERNING M/S J .N. SURGICURE AND SINCE THE ASSESSEE HAS ALSO ACCEPTED THE EXISTENCE OF SOME PR OFIT ELEMENT IN RESPECT OF SUPPLIES MADE BY THAT CONCERN, WE ARE OF THE VIEW THAT THE E STIMATE, 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 A SSESSMENT YEAR 2007-08, IN OUR VIEW, THE ESTIMATION OF PROFIT COULD BE MADE ONLY FOR ASS ESSMENT 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 MATERI AL 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 ASSE SSMENT YEARS 2002-03 TO 2006-07, TO FIND OUT THE PRACTICE FOLLOWED BY THEM. THUS, IN T HE ABSENCE OF ANY MATERIAL OR ANY INFORMATION SUGGESTING ANY SUPPRESSED PROFIT ELEMEN T IN RESPECT OF PURCHASES MADE IN OTHER YEARS, IN OUR VIEW, IT WOULD NOT BE CORRECT O N 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 SURGERY RECEIPTS FO R ASSESSMENT YEARS 2002-03 TO 2006- 07 AND DIRECT THE AO TO DELETE THE ADDITION MADE ON THIS ISSUE IN THOSE YEARS. 24. IN VIEW OF THE FOREGOING DISCUSSIONS, WE AR E OF THE VIEW THAT THE PROFIT ON PMMA LENS SUPPLIED BY M/S J.N. SURGI CURE DURING THE YEA RS RELEVANT TO THE ASSESSMENT YEARS 2007-08 AND 2008-09 CAN ONLY BE TREATED AS THE SUPP RESSED INCOME IN THE HANDS OF THE I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 22 ASSESSEE. BOTH THE TAX AUTHORITIES HAVE TAKEN THE VIEW THAT THE PROFIT WAS RS.1800/- PER LENS. HOWEVER, WE HAVE ALREADY NOTICED THAT TH E SALE VALUE OF PMMA LENS WAS IN THE RANGE OF RS.100/- TO RS.600/- PER LENS. HENCE THE PRESUMPTION OF THE TAX AUTHORITIES THAT THE PROFIT WAS RS.1800/- PER LENS, IS ALSO IN OUR VIEW, NOT CORRECT. IT IS ALSO NOT ESTABLISHED THAT M/S J.N. SURGI CURE HAS P ARTED THE ENTIRE PROFIT WITH THE ASSESSEE. THE BUSINESS DEAL IS NORMALLY FINALIZED ACCORDING TO THE UNDERSTANDING REACHED BETWEEN THE SELLER AND BUYER. IT IS ALSO Q UIET COMMON THAT THE BUSINESSMEN FIXES DIFFERENT SELLING PRICE TO DIFFERENT CUSTOMER S. HENCE THE SELLING PRICE CHARGED TO ONE CUSTOMER CANNOT ALWAYS BE TAKEN AS THE BASE FOR DETERMINING THE SELLING PRICE FOR OTHERS. HENCE, ON A CONSPECTUS OF THE MATTER, WE AR E OF THE VIEW THAT THE PROFIT THAT MIGHT HAVE ACCRUED TO THE ASSESSEE ON PURCHASE OF P MMA LENS MAY BE TAKEN AT RS.600/- PER LENS (30% OF THE SALES VALUE) AND IN O UR VIEW THE SAME WOULD MEET THE ENDS OF JUSTICE. WE ORDER ACCORDINGLY. THE PMMA L ENS USED BY THE ASSESSEE IN THE YEARS RELEVANT TO THE ASSESSMENT YEARS 2007-08 AND 2008-09 WERE 1414 LENS AND 1450 LENS RESPECTIVELY. ACCORDINGLY, THE AO IS DIRECTED TO CALCULATE THE PROFIT ON THE ABOVE QUANTITIES BY APPLYING A RATE OF RS.600/- PER LENS. THE ORDER OF LD CIT(A) STANDS MODIFIED ACCORDINGLY. 25. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF A PORTION OF SALARY EXPENSES CLAIMED BY THE ASSESSEE. THE DETAILS OF SALARY CLA IMED BY THE ASSESSEE, ALLOWED AND DISALLOWED BY THE AO ARE TABULATED BELOW: ASST. YEAR SALARY ALLOWED DISALLOWED CLAIMED 2008-09 500000 120000 380000 2007-08 500000 120000 380000 2006-07 480000 114000 366000 2005-06 360000 114000 246000 2004-05 360000 108300 251700 2003-04 336000 108300 227700 2002-03 336000 102885 233115 IN THE SWORN DEPOSITION, THE ASSESSEE HAD STATED A S UNDER WITH REGARD TO THE SALARY PAYMENTS:- I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 23 THE ENTIRE CHARGES RECEIVED AS SURGICAL KIT CHARGE S, EYE SCAN CHARGES AND NURSING CHARGES TOTALING RS.1000/- PER SURGERY IS S PENT 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 P AID 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 T O THE CONCLUSION THAT THE ASSESSEE WAS INCURRING A SUM OF RS.10,000/- PER MONTH AS SAL ARY (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 YE ARS, HE PROPORTIONATELY REDUCED THE ALLOWABLE SALARY. THE LD CIT(A) ALSO CONFIRMED THESE ADDITIONS. 26. WE NOTICE THAT THE TAX AUTHORITIES HAVE ENT IRELY RELIED UPON THE DEPOSITION GIVEN BY THE ASSESSEE AT THE TIME OF HEARING FOR THE PURP OSE 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. R ADHA MAHENDRAN AND SHE STATED THAT SHE WAS GETTING A SALARY OF RS.5500/- PER MONT H, WHERE AS THE ASSESSEE HAS STATED THAT THE SALARY PAID TO HER WAS RS.5000/- PER MONTH . THIS FACT PROVES THAT THE REPLIES GIVEN ON THE BASIS OF MEMORY SHOULD HAVE BEEN CORRO BORATED WITH OTHER AVAILABLE EVIDENCES BEFORE TAKEN ANY ADVERSE INFERENCE. WE A LSO NOTICE THAT THE AO DID NOT CROSS VERIFY THE STATEMENT WITH OTHER EMPLOYEES. THE AO ALSO DID NOT CONSIDER THE BONUS AND CUSTOMARY FESTIVAL PAYMENTS, WHICH ARE QUITE PR EVALENT IN OUR COUNTRY. THE AO HAS ENTIRELY IGNORED THE SALARY PAYMENTS MADE TO THE TW O COUSIN BROTHERS ON THE GROUND THAT THEIR SERVICES OF CANVASSING THE PATIENTS ARE AGAINST THE MEDICAL ETHICS. HOWEVER THE FACT THAT THEIR SERVICES HAVE HELPED THE ASSESS EE TO DERIVE INCOME CANNOT BE DENIED AND IT IS NOT SHOWN THAT SUCH KIND OF SERVICES IS C ONTRAVENTION OF ANY LAW. IN OUR VIEW, THE ASSESSING OFFICERS CASE WOULD HAVE BEEN STRONG ER, HAD HE CALLED FOR THE BREAK UP DETAILS LIKE EMPLOYEES NAME, TYPE OF SERVICES RENDE RED BY HIM, THE HOURS OF WORK, THE SALARY PAID ETC. AND OBJECTIVELY ANALYSED THEM TO F IND OUT ANY BOGUS OR EXCESS PAYMENT. IT IS NOT CLEAR WHETHER THE AO DID CALL F OR SUCH KIND OF DETAILS. IT ALSO APPEARS THAT THE ASSESSEE HAS ALSO FAILED TO FURNIS H SUCH KIND OF DETAILS. UNDER THESE CIRCUMSTANCES, ONE CANNOT HAVE ANY OTHER OPTION BUT TO ESTIMATE THE AMOUNT OF I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 24 REASONABLE SALARY EXPENSES EVERY YEAR. HENCE, ON T HE BASIS OF INFORMATION AVAILABLE ON RECORD, WE ARE OF THE VIEW THAT THIS ISSUE WOULD ME ET THE ENDS OF JUSTICE, IF THE SALARY PAYMENT IS ESTIMATED AS UNDER FOR THE YEARS UNDER C ONSIDERATION. FOR THE PURPOSE OF ESTIMATION, THE MONTHLY SALARY PAYMENT IS ESTIMATED AS UNDER FOR THE ASSESSMENT YEAR 2008-09: MAIN EMPLOYEE 5500 ASSISTANT 2500 SWEEPER 500 DRIVER 3000 TWO OTHER PERSONS 10000 (RS.5000/- EACH) ---------- 21500 ===== THE SALARY FOR ASSISTANT AND DRIVER HAS BEEN INCREA SED BY THE DIFFERENCE AMOUNT OF RS.500/- RELATING TO THE MAIN EMPLOYEE. IT IS CUST OMARY TO PAY TWO MONTHS BONUS AND ALSO TO MAKE PAYMENTS DURING FESTIVAL SEASONS. ACC ORDINGLY, THE ANNUAL PAYMENT IS TAKEN AS 14.5 MONTHS SALARY, I.E, 12 MONTHS + 2 MON THS BONUS + CUSTOMARY PAYMENT MONTH. THE AO HAS REDUCED THE SALARY PAYMENTS BY 5% ONCE IN TWO YEARS. THE SAME METHODOLOGY IS ADOPTED HERE ALSO. THOUGH THE SALARY PAID TO THE COUSINS WAS STATED AS RS.6000/- PER MONTH, SINCE THEIR SERVICES WERE ALSO USED FOR PERSONAL PURPOSES, WE HAVE RESTRICTED THE SALARY PERTAINING TO THE PROFESSION AT RS.5000/- PER EMPLOYEE. ACCORDINGLY, ALLOWABLE 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 WE DIRECT THE ASSESSING OFFICER TO WORK OUT THE DIS ALLOWANCE ON THE BASIS OF THE SALARY AMOUNT ESTIMATED ABOVE. THE ORDER OF LD CIT(A) STA NDS MODIFIED ACCORDINGLY. 27. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF PART OF EXPENDITURE CLAIMED UNDER THE HEAD CONSUMABLES AND MEDICINES. DURING THE C OURSE OF ASSESSMENT PROCEEDING, THE ASSESSEE COULD SUBMIT ONLY THE MONTHLY DETAILS OF THE EXPENSES, BUT NOT THE DAILY EXPENSES DETAILS. SINCE THE ASSESSEE WAS COLLECTIN G PAYMENTS FROM THE SURGERY I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 25 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 A BOVE 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 HAS BOOKED TWO TYPES OF EXPENSES UNDER THIS HEAD, VIZ., CONSUMABLES AND MED ICINES. THE AO HAS ASSUMED THAT THE SURGERY PATIENTS ARE INCURRING ENTIRE EXPENSES ON CONSUMABLES AND MEDICINES. THE SAID PRESUMPTION OF THE AO MAY BE CORRECT ONLY PART IALLY. FOR EXAMPLE, THE COST OF CLEANING MATERIALS IS NOT COLLECTED FROM THE PATIEN TS AND A HOSPITAL IS EXPECTED TO INCUR HEAVILY ON CLEANING MATERIALS, IN ORDER TO AVOID IN FECTIONS. IT IS ON RECORD THAT ABOUT 60 PATIENTS WERE VISITING THE DOCTOR ON CONSULTATION E VERY DAY AND IT IS IN THE COMMON KNOWLEDGE OF EVERY BODY THAT SOME DROPS ARE ADMINIS TERED ON THE PATIENTS BY THE OPHTHALMOLOGISTS, FOR WHICH NO SEPARATE FEE IS COLL ECTED. HENCE, IN OUR VIEW, IT WOULD BE UNREASONABLE TO PRESUME THAT THE CLINIC SHALL NO T HAVE ANY EXPENSE ON CONSUMABLES AND MEDICINES. ACCORDINGLY, WE ARE OF THE VIEW THA T THE DISALLOWANCE OF 80% MADE BY THE AO IS ON THE HIGHER SIDE. SINCE THE ASSESSEE H AS FAILED TO FURNISH REQUIRED DETAILS, IN OUR VIEW, A DISALLOWANCE OF 30% OF THE EXPENSES CLAIMED BY THE ASSESSEE ON CONSUMABLES AND MEDICINES WOULD BE REASONABLE AND I T WOULD MEET THE ENDS OF JUSTICE. ACCORDINGLY, WE DIRECT THE AO DO RESTRICT THE DISAL LOWANCE TO 30% OF THE EXPENSES CLAIMED UNDER THIS HEAD. THE ORDER OF LD CIT(A) ST ANDS MODIFIED ACCORDINGLY. 29. THE NEXT ISSUE RELATES TO THE ASSESSMENT OF GIFTS U/S 68 OF THE ACT. THE ASSESSEE HAS RECEIVED GIFTS FROM THE FOLLOWING CLOSE RELATIV ES DURING THE PERIODS RELEVANT TO THE ASSESSMENT YEARS 2002-03 TO 2007-08 AND THE AO HAS ASSESSED THE AMOUNTS INDICATED AGAINST EACH OF THEM AS THE INCOME OF THE ASSESSEE. THE ADDITIONS HAVE BEEN MADE IN THE YEAR OF RECEIPT OF GIFT. A) SHRI K.V.BALAGANGADHARAN, FATHER IN LAW - RS.77,81,571/- B) SHRI SANTHOSH BALAGANGADHAR, BROTHER IN LAW - RS. 8,96,000/- C) SHRI P. GIRIKUMAR, BROTHER - RS.13,04,030/ - I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 26 D) SMT. DEVI BALAGANGADHAR, MOTHER IN LAW - RS. 2,36,000/- IT IS TO BE NOTED THAT THESE PERSONS HAVE BEEN/ARE NRI AND THEY HAVE ISSUED GIFT CHEQUES FROM THEIR RESPECTIVE NRE BANK ACCOUNT. T HE ASSESSING OFFICER HAS MADE THE ADDITION ON THE GROUND THAT THESE DONORS HAVE FAILE D TO PROVE THEIR RESPECTIVE CREDIT WORTHINESS BY NOT PRODUCING FOLLOWING DOCUMENTS VIZ ., A) FAILURE TO PRODUCE THE BANK ACCOUNT ABROAD. B) FAILURE TO FURNISH REMITTANCE DETAILS. C) FAILURE TO PRODUCE SALARY CERTIFICATE ABROAD. D) FAILURE TO NOTARIZE ALL DOCUMENTS EVIDENCING THE CR EDIT BY AN AUTHORIZED PERSON IN THE INDIAN CONSULATE OF THAT COUNTRY, AS PER JUDICIAL DECISIONS. THE ASSESSING OFFICER PLACED RELIANCE ON THE DECISI ON OF HONBLE 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 MUC H MONEY TO THE EXTENT OF THE GIFTS MADE BY HIM. IN THE CASE OF SMT. DEVI BALAGANGADHA RAN, THE AO CONCLUDED THAT THE SAID DONOR WOULD HAVE SPENT ENTIRE HER SAVINGS IN T HE PURCHASE OF JEWELLERY. THE AO DISBELIEVED THE RECEIPT OF GIFTS FROM OTHER TWO PER SONS, 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 PRIMAR Y BURDEN OF PROOF IN RESPECT OF CASH CREDITS IS PLACED UPON THE ASSESSEE. ONCE THE ASSE SSEE DISCHARGES THE PRIMARY BURDEN PLACED UPON HIM, THEN THE BURDEN TO DISPROVE THE AS SESSEES VERSION SHIFTS UPON THE ASSESSING OFFICER. IN ORDER TO DISCHARGE THE PRIMA RY BURDEN OF PROOF, THE ASSESSEE HAS TO PROVE THE IDENTITY OF THE CREDITOR, GENUINENESS OF THE TRANSACTION AND THE CREDIT WORTHINESS OF THE CREDITOR. I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 27 31. IN THE INSTANT CASES, THERE IS NO DISPUTE A BOUT THE IDENTITY OF THE DONORS, AS THEY ARE THE CLOSE RELATIVES OF THE ASSESSEE. THE GENUI NENESS OF THE TRANSACTIONS ALSO STOOD PROVED, AS THE GIFTS HAVE BEEN RECEIVED THROUGH THE BANKING CHANNELS. THE TAX AUTHORITIES HAVE EXPRESSED DOUBT ABOUT THE CREDIT W ORTHINESS OF THE DONORS. IN RESPECT OF SHRI SANTHOSH BALAGANGADHAR, THE BROTHER-IN-LAW OF THE ASSESSEE AND SHRI P. GIRIKUMAR, BROTHER OF THE ASSESSEE, THEIR RESPECTIV E CREDIT WORTHINESS WAS DISBELIEVED ONLY FOR THE REASON THAT THEY HAVE FAILED TO FURNI SH NOTARIZED COPY OF SALARY CERTIFICATES. FOR OTHER TWO DONORS, THE AO MADE HIS OWN CALCULATI ONS AND CAME TO THE CONCLUSION THAT THEY WOULD NOT HAVE LEFT WITH ANY MONEY TO MAK E GIFTS TO THE ASSESSEE. 32. THE AO HAS PLACED HEAVY RELIANCE ON THE DEC ISION OF THE SUPREME COURT IN THE CASE OF C.P.MOHANAKALA, REFERRED SUPRA. THOUGH THE LD CIT(A) HAS OBSERVED THAT THE PARAMETERS INVOLVED IN THE SAID DECISION WERE NOT P RESENT IN THE INSTANT CASE, YET HE CHOSE TO CONFIRM THE ADDITIONS ON THE GROUND THAT T HE ASSESSEE HAS FAILED TO ESTABLISH THE CAPACITY OF THE DONORS. IN THE CASE OF C.P.MOH ANAKALA, THE ASSESSEES THEREIN RECEIVED GIFTS FROM NRIS NAMED ARIAVAN THOTAN AND S UPROTOMAN. THE GIFTS WERE RECEIVED IN THE FORM OF INSTRUMENTS ISSUED BY A FOR EIGN BANK. DURING THE COURSE OF DETAILED ENQUIRIES CONDUCTED BY THE DEPARTMENT, IT WAS INFORMED BY THE ASSESSEES, BY A LETTER DATED 25 TH APRIL 1996, THAT BOTH ARIAVAN THOTAN AND SUPROTOMA N ARE ONE AND THE SAME PERSON. SUBSEQUENTLY, IN A LETTER DATED 30 TH AUGUST 1996, THE ASSESSEES THEREIN INTRODUCED ANOTHER PERSON NAMED SAMPATH KUMAR AND THEREAFTER IT WAS STATED THAT THE NAMES OF ARIAVAN THOTAN AND SUPROTOMAN ARE THE OTHER NAMES OF SAMPATH KUMAR. TO A POINTED QUERY RAISED TO MR. SAMPATH KUMAR AS T O WHETHER THERE IS ANY EVIDENCE TO SHOW THAT HE WAS ALSO KNOWN BY ANY OTHER NAME OTHE R THAN SAMPATH KUMAR, HE STATED THAT NO EVIDENCE. ONLY MR. SRINIVASAN (ONE OF THE ASSESSEES) USED TO CALL ME AS SUPROTOMAN. THUS IT CAN BE SEEN THAT THE ASSESSEE S IN THE CASE OF C.P.MOHANAKALAS CASE HAVE FAILED TO ESTABLISH THE IDENTITY OF THE D ONORS. FURTHER THE GIFTS WERE RECEIVED IN THE FORM OF FOREIGN BANKS INSTRUMENTS ISSUED AB ROAD. 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 HONBLE SUPREME COURT:- I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 28 THE AO WHILE APPRECIATING THE CONTENTS OF THE LETT ERS BROUGHT ON RECORD CAME TO THE CONCLUSION THAT SAMPATHKUMAR HAD OBLIGED IN GIV ING GIFTS TO SRINIVASAN AND HIS FAMILY MEMBERS. IT IS FURTHER HELD THAT IN ALL PROBABILITIES SAMPATHKUMAR MAY HAVE RECEIVED COMPENSATORY PAYMENTS IN LIEU OF GIFT S MADE BY HIM. THE LETTERS ACCORDING TO THE AO SUGGEST THAT SAMPATHKUMAR RESER VED HIS RIGHT TO RECEIVE SUITABLE COMPENSATION FROM THE RESPONDENTS ASSESSEE STHE TRIBUNAL NOTICED THAT THE LETTERS EXCHANGED BY THE PERSON WHO HAD SE NT FOREIGN EXCHANGE TO THE ASSESSEES ONLY INDICATE THAT THERE IS NO LOVE AND A FFECTION 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 ANY THING FREE BUT CLEARLY THE COMPENSATION WAS A ROUNDABOUT MANNER OF SHOWING OF HE HAVING BEEN COMPENSATED EITHER IN INDIA OR ABROAD. 33. NOW, WE SHALL EXAMINE THE FACTS PREVAILING IN THE INSTANT CASE. THERE IS NO DISPUTE WITH REGARD TO THE IDENTITIES OF THE DONORS AND ALL THE DONORS ARE CLOSE RELATIVES OF THE ASSESSEE HEREIN. IN THE INSTANT CASES, THE GIFTS HAVE NOT BEEN RECEIVED IN INSTRUMENTS ISSUED BY THE FOREIGN BANKS. INSTEAD, ALL THE DONORS HAVE ISSUED CHEQUES FROM THEIR RESPECTIVE NON RESIDENT EXTERNAL BANK AC COUNTS MAINTAINED IN THE INDIAN BANKS. THE PECULIAR FEATURE OF THESE BANK ACCOUNTS ARE THAT THE DEPOSITS INTO THESE BANK ACCOUNTS COULD BE MADE ONLY IN FOREIGN CURRENC IES, I.E., THE ACCOUNT HOLDERS CANNOT DEPOSIT INDIAN CURRENCIES INTO THESE BANK AC COUNTS. THESE PECULIAR CHARACTERISTICS OF THE NRE BANK ACCOUNTS HAVE BEEN L OST SIGHT OF BY BOTH THE TAX AUTHORITIES. THE AO, APPARENTLY PLACING RELIANCE O N NOTING MADE IN A SEIZED BOOK (A/TC-32), HAS OBSERVED THAT THE DONORS HAVE RECEIV ED CASH FROM THE ASSESSEE AND GAVE CHEQUES IN RETURN TO HIM, I.E. HE HAS PRESUMED THAT THE DONORS HAVE BEEN COMPENSATED BY THE ASSESSEE. HOWEVER, THE AO HAS F AILED TO SUBSTANTIATE HIS CONCLUSIONS BY COMPARING THE NOTING MADE IN THE ABO VE CITED SEIZED BOOK WITH THE BANK ACCOUNTS OF THE DONORS. ON A PERUSAL OF THE SAID N OTING, IN OUR VIEW, IT IS POSSIBLE TO INTERPRET THAT THEY WERE PERTAINING TO SOME OTHER T RANSACTIONS, ALTOGETHER NOT CONNECTED WITH THE GIFTS. THE AO HAS ALSO FAILED T O UNDERSTAND THAT THE INDIAN CHEQUES OR INDIAN CURRENCIES CANNOT BE DEPOSITED INTO NRE BA NK ACCOUNTS. HENCE, IT CANNOT I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 29 NORMALLY BE PRESUMED THAT THE ASSESSEE HAS FUNDED T HE MONEY REQUIRED FOR ISSUING THE GIFT CHEQUES. THUS, IN OUR VIEW, THE AO HAS REACHE D SUCH CONCLUSIONS ON THE BASIS OF SURMISES AND CONJECTURES. 34. UNDER THE INDIAN TAX LAWS, THE NON RESIDEN T EXTERNAL ACCOUNTS ALWAYS ENJOYED A SPECIAL STATUS. ACCORDING TO SEC. 10(4)(II) OF T HE INCOME TAX ACT, THE INTEREST EARNED ON NRE ACCOUNT IS EXEMPT. UNDER THE OLD SCHEME OF W EALTH TAX ACT, THE BALANCE OUTSTANDING IN THE NRE ACCOUNT WAS EXEMPT FROM WEALT H TAX. SIMILARLY UNDER THE OLD SCHEME OF GIFT TAX ACT, THE GIFTS GIVEN FROM OUT OF NRE ACCOUNT WAS EXEMPT FROM THE GIFT TAX. 35. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE DONORS HAVE MADE DEPOSITS INTO THESE NRE ACCOUNTS BY BRINGING FOREIGN CURRENCI ES FROM ABROAD. THE ASSESSEE HEREIN, BEING RESIDENT INDIAN, COULD NOT HAVE FOREI GN CURRENCIES WITH HIM. THE AO HAS TAKEN ADVERSE VIEW ON THE GROUND THAT THE DONORS HA VE FAILED TO PRODUCE COPIES OF CERTAIN FORMS REQUIRED TO BE FILED UNDER THE FOREIG N EXCHANGE MANAGEMENT ACT. IN OUR VIEW, THE FAILURE ON THE PART OF THE DONORS TO COMP LY WITH THE PROCEDURAL FORMALITIES, IF ANY, UNDER ANY OTHER ACT CANNOT BE USED TO TAKE ADV ERSE VIEW AGAINST THE ASSESSEE. SINCE THE DONORS HAVE MADE DEPOSITS BY BRINGING MON EY FROM ABROAD AND SINCE THE IMPUGNED GIFTS HAVE BEEN MADE FROM THE BALANCE AVAI LABLE WITH THEIR RESPECTIVE NRE BANK ACCOUNTS, IN OUR VIEW, THE CREDIT WORTHINESS O F THE DONORS ALSO STAND PROVED. 36. FURTHER, ALL THE DONORS HAVE CONFIRMED THE P AYMENT OF GIFTS BY GIVING AFFIDAVITS/LETTERS. THE OCCASION FOR MAKING GIFT H AS 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 AUTHORITIE S 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 BURDE N OF PROOF PLACED UPON HIM U/S 68 OF THE ACT. I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 30 37. EVEN IF AN ASSESSEE FAILS TO PROVE THE THREE MAIN INGREDIENTS, VIZ., IDENTIFY OF THE CREDITOR, CREDIT WORTHINESS OF THE CREDITOR AND THE GENUINENESS OF THE TRANSACTIONS, THE HONBLE SUPREME COURT IN THE CASE OF P.MOHANAKALA & ORS HAS HELD THAT THE ASSESSEES CAN STILL CONTEND THAT THE CASH CREDITS CANNOT BE T REATED AS HIS INCOME BY BRINGING ON RECORD THE ATTENDING CIRCUMSTANCES AND OTHER MATERI AL. IN THIS REGARD, WE EXTRACT BELOW THE FOLLOWING OBSERVATIONS MADE BY THE HONBL E APEX COURT IN THE ABOVE CITED CASE:- THE AUTHORITIES UPHELD THE OPINION FORMED BY THE A O THAT THE EXPLANATION OFFERED WAS NOT SATISFACTORY. THE ASSESSEES DID NO T TAKE THE PLEA THAT EVEN IF THE EXPLANATION IS NOT ACCEPTABLE THE MATERIAL AND ATTENDING CIRCUMSTANCES AVAILABLE ON RECORD DO NOT JUSTIFY THE SUM FOUND CR EDITED IN THE BOOKS TO BE TREATED AS A RECEIPT OF AN INCOME NATURE. THE BURD EN IN THIS REGARD WAS ON THE ASSESSEES. WE HAVE ALREADY EXPLAINED THE PECULIAR CHARACTERIST ICS OF THE NRE BANK ACCOUNTS AND THE ASSESSEE HAS BROUGHT TO THE NOTICE OF THE AO TH AT THE DONORS HAVE MADE GIFTS FROM THEIR RESPECTIVE NRE ACCOUNTS. THUS THE MATERIAL AND THE ATTENDING CIRCUMSTANCES SHOW THAT THE ASSESSEE COULD NOT HAVE FUNDED THESE DONOR S FOR MAKING THE IMPUGNED GIFTS TO THE ASSESSEE. 38. IN VIEW OF THE FOREGOING DISCUSSIONS, WE AR E OF THE VIEW THAT THE ASSESSEE HAS DISCHARGED THE PRIMARY BURDEN OF PROOF PLACED UPON HIM AND THE LD CIT(A) WAS NOT RIGHT IN LAW IN CONFIRMING THE ADDITIONS PERTAINING TO THE GIFTS. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ADDITIONS RELATING TO THE GIFTS. 39. THE NEXT ISSUE RELATES TO THE ADDITIONS MAD E IN VARIOUS YEARS ON THE BASIS OF FUND FLOW STATEMENTS SUBMITTED BY THE ASSESSEE UNDER THE HEADING DEFICIENCY IN CASH FLOW. IT APPEARS THAT THE ASSESSEE HAS FILED FUND FLOW/CA SH FLOW STATEMENTS DURING THE COURSE OF HEARING. THE AO COMPARED THE SAID STATEMENTS WI TH THE BALANCE SHEET AND FOUND CERTAIN DIFFERENCES. THOUGH THE ASSESSEE EXPLAINED THAT SOME OF THE ITEMS ARE APPEARING IN THE BOOKS OF ACCOUNTS MAINTAINED BY TH E ASSESSEE AND SOME OF THE I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 31 INVESTMENTS ARE EXPLAINED IN THE ASSESSMENT OF THE ASSESSEES WIFE, YET THE AO WAS NOT CONVINCED WITH THE SAID EXPLANATIONS. THE AO OPINED THAT THE ASSESSEE IS EVADING FROM GIVING SPECIFIC REPLIES. ACCORDINGLY HE ADDED THE DIFFERENCES/DEFICIENCIES NOTICED BY HIM IN VARIOUS ASSESSMENT YEARS. THE LD CIT(A) ALSO CO NFIRMED THE SAID ADDITIONS. 40. WE HAVE HEARD THE PARTIES ON THIS ISSUE. I T IS NOT IN DISPUTE THAT THE ASSESSEE IS MAINTAINING BOOKS OF ACCOUNT. THE FUNDS FLOW STATE MENT, 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. WHI LE 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 BAL ANCE SHEET WOULD DEPICT THE LIABILITIES AND ASSETS OUTSTANDING ON A PARTICU LAR 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, H E TOOK FURTHER LOAN OF RS.10.00 LAKHS FROM X AND REPAID RS.5.00 LAKHS. NOW THE FUND FL OW STATEMENT WOULD DEPICT THE RECEIPT OF LOAN OF RS.10.00 LAKHS IN THE FUNDS INF LOW SIDE AND PAYMENT OF RS.5.00 LAKHS IN THE FUNDS OUTFLOW SIDE. HOWEVER, THE BAL ANCE SHEET WOULD SHOW A BALANCE OF RS.25.00 LAKHS AS AT THE YEAR END, I.E. RS.20.00 LA KHS + RS.10.00 LAKHS (-) RS.5.00 LAKHS. HENCE, IT WOULD NOT BE CORRECT TO COMPARE T HE FUND FLOW STATEMENT WITH THE BALANCE SHEET AND TAKE AN ADVERSE DECISION. 41. THE UNDENIABLE FACT IS THAT ALL THESE STATE MENTS ARE PREPARED ON THE BASIS OF BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE AND OTH ER FINANCIAL TRANSACTIONS CARRIED OUT BY HIM. IN THE INSTANT CASE, THE REASON AND TH E NECESSITY OF PREPARING FUND FLOW STATEMENT IS NOT CLEAR DISCUSSED IN THE ASSESSMENT ORDER, PARTICULARLY, WHEN THE BOOKS OF ACCOUNTS WERE AVAILABLE. IT IS POSSIBLE THAT TH E ASSESSEE MIGHT HAVE MAINTAINED BOOKS ONLY FOR HIS PROFESSION AND HENCE THE FUND FL OW STATEMENTS MIGHT HAVE BEEN PREPARED TO COMBINE BOTH PROFESSIONAL AND NON-PROFE SSIONAL ITEMS. IN ANY CASE, THE DIFFERENCE, IF ANY, IN THE FINANCIAL STATEMENTS REQ UIRES ONLY RECONCILIATION. IT IS ALSO THE I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 32 DUTY OF THE ASSESSEE TO FURNISH SPECIFIC REPLIES TO THE QUERIES RAISED BY THE AO. AS STATED EARLIER, THE AO AS WELL AS THE LD CIT(A) ALS O APPEARS TO HAVE NOT PROPERLY UNDERSTOOD THE SIGNIFICANCE OF THE FINANCIAL STATEM ENTS. ACCORDINGLY, WE ARE OF THE VIEW THAT THE ADDITIONS MADE ON ACCOUNT OF CASH DEFICIEN CIES REQUIRE RE-EXAMINATION. ACCORDINGLY, WE SET ASIDE THE ORDERS OF LD CIT(A) O N THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE TH E ISSUE AFRESH. THE ASSESSEE IS ALSO DIRECTED TO FURNISH PROPER REPLY AND IF NECESSARY, HE MAY ALSO CORRECT THE MISTAKES, IF ANY, COMMITTED IN PREPARING THE FUND FLOW STATEMENT S. THE AO SHOULD OBJECTIVELY CONSIDER THE RECONCILIATIONS AND EXPLANATIONS FURNI SHED BY THE ASSESSEE AND THEN DECIDE THE ISSUES IN ACCORDANCE WITH LAW. 42. NOW WE SHALL DEAL WITH SPECIFIC ISSUES. IN TH E APPEAL RELATING TO THE ASSESSMENT YEAR 2005-06 FILED BY THE ASSESSEE, THE ADDITION OF RS.15,59,880/- RELATING TO THE INTERIOR DECORATION IS BEING CONTESTED. THE AO NOT ICED FROM THE SEIZED MATERIALS NUMBERED AS PCA-1, PCA-2 AND PCA-4 THAT THE ASSESSE E HAS SPENT A SUM OF RS.15,59,880/- ON FURNITURE, ELECTRONIC ITEMS, KITC HEN EQUIPMENTS, SWIMMING POOL EQUIPMENT ETC. IT WAS SEEN THAT ITEMS COSTING RS.3 ,59,880/- WAS PURCHASED IN INDIA AND OTHER ITEMS COSTING RS.12.00 LAKHS WERE FOUND T O HAVE BEEN IMPORTED. THE ASSESSEE INITIALLY CLAIMED THAT THESE ITEMS WERE GI FTED 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. BEFO RE LD CIT(A), THE ASSESSEE REPRESENTED THAT HE HAS SHOWN A SUM OF RS.10.00 LAK HS TOWARDS INTERIOR DECORATION IN THE FUND FLOW STATEMENT FILED BEFORE THE AO AND ACC ORDINGLY PLEADED THAT CREDIT SHOULD BE GIVEN FOR THE SAME. THE ASSESSEE STILL MAINTAIN ED 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 CONTENTION S ON THIS ISSUE. IT IS THE DUTY OF THE ASSESSEE TO SUBSTANTIATE HIS CLAIM THAT THE IMPORTE D INTERIOR DECORATED ITEMS HAVE I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 33 ACTUALLY BEEN GIFTED BY HIS IN LAWS. FROM THE RECO RD, WE NOTICE THAT THE ASSESSEE HAS FAILED TO SUBSTANTIATE HIS CLAIM. HENCE, WE ARE AL SO OF THE VIEW THAT THE THEORY OF GIFT NEEDS TO BE REJECTED. HOWEVER, WE DO NOT FIND ANY JUSTIFICATION IN REFUSING THE CREDIT FOR RS.10.00 LAKHS SHOWN BY THE ASSESSEE IN THE FUN D FLOW STATEMENT, SINCE THE ASSESSEE SHOULD HAVE SHOWN THE SOURCES FOR THE SAME IN THAT STATEMENT. HOWEVER, IN THE EARLIER PARAGRAPHS, WE HAD SET ASIDE THE ISSUE OF VERIFICATION OF FUND FLOW STATEMENT TO THE FILE OF THE AO. CONSEQUENTLY, THE PRESENT I SSUE ALSO NEEDS TO BE REMANDED TO HIS FILE. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CI T(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF AO WITH THE DIRECTION TO EXAMINE THE CLAIM OF THE ASSESSEE WITH REGARD TO RS.10.00 LAKHS STATED ABOVE AND ALLOW CREDIT FOR TH E SAME AFTER DULY VERIFYING THE FUND FLOW STATEMENTS. 44. THE NEXT SPECIFIC ISSUE IN THE APPEAL OF TH E ASSESSEE RELATES TO THE ADDITION OF RS.16.75 LAKHS MADE TOWARDS THE DIFFERENCE IN THE P URCHASE COST OF BANGALORE PROPERTY. THE SAID PROPERTY WAS PURCHASED BY THE ASSESSEE IN DECEMBER, 2006. HOWEVER, THE AO HAD WRONGLY MADE THE ADDITION IN THE ASSESSMENT YEAR 2006-07. THE LD CIT(A) CORRECTED THE MISTAKE AND SUSTAINED THE ADDITION IN THE ASSESSMENT YEA 2007-08. THE FACTS RELATING TO THE SAME ARE STATED IN BRIEF. TH E ASSESSEE PURCHASED A HOUSE PROPERTY IN BANGALORE IN DEC. 2006. IN THE SWORN STATEMENT HE MENTIONED THAT HE PAID THE CONSIDERATION IN CASH AS PER THE REQUIREMENT OF SEL LER AND THE PURCHASE CONSIDERATION WAS R.45.00 LAKHS. HOWEVER, IT WAS NOTICED THAT TH E ASSESSEE HAS ACTUALLY ACCOUNTED ONLY RS.28.25 LAKHS IN HIS BOOKS. THE AO ALSO NOTI CED THAT HE HAD WITHDRAWN A SUM OF RS.14.50 LAKHS ON THE SAME DAY THROUGH TWO CHEQUES. WHEN QUESTIONED ABOUT THE CONTRADICTIONS BETWEEN HIS REPLY GIVEN IN THE SWORN STATEMENT AND THE BOOKS OF ACCOUNT, THE ASSESSEE SUBMITTED THAT HE ORIGINALLY CONTEMPLATED TO PURCHASE A PROPERTY JOINTLY WITH ANOTHER PERSON NAMED SHRI MICHAEL OF ER NAKULAM FOR A SUM OF RS.50.00 LAKHS. SUBSEQUENTLY, THEY DECIDED TO REGISTER THE PROPERTY SEPARATELY IN THEIR RESPECTIVE NAMES. ACCORDINGLY, THE ASSESSEE PURCHASED HIS PRO PERTY BY PAYING THE CONSIDERATION BY WAY OF CHEQUE. WITH REGARD TO THE CASH WITHDRAW AL, HE SUBMITTED THAT THE SAME WAS WITHDRAWN AT THE REQUEST OF SHRI MICHAEL, BUT C OULD NOT BE UTILIZED BY HIM AS HE DID NOT PURCHASE HIS PROPERTY. I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 34 45. THE SAID EXPLANATION WAS NOT CONVINCING TO THE AO AND ACCORDINGLY HE MADE AN ADDITION OF RS.16.50 LAKHS AS DIFFERENCE IN CONSIDE RATION. THE LD CIT(A) ALSO CONFIRMED THE SAID ADDITION. THE CASE OF THE ASSESSEE IS TH AT THE AO DID NOT FIND ANY MATERIAL TO SHOW THAT THE ASSESSEE HAS ACTUALLY PAID RS.45.00 L AKHS FOR PURCHASE OF BANGALORE PROPERTY. 46. WE ALSO NOTICE THAT THE AO DID NOT BRING O N RECORD ANY MATERIAL IN THIS REGARD EXCEPT PLACING HEAVY RELIANCE ON THE SWORN STATEMEN T GIVEN BY THE ASSESSEE. IT IS PERTINENT TO NOTE THAT THE ASSESSEE HAD MENTIONED I N THE SWORN STATEMENT THAT HE PAID THE ENTIRE CONSIDERATION IN CASH, WHERE AS THE AO H IMSELF HAS NOTICED THAT A SUM OF RS.26,02,080/- WAS PAID BY WAY OF CHEQUE. THIS EXA MPLE ITSELF SHOWS THAT THE REPLY GIVEN OUT OF HIS MEMORY COULD NOT BE RELIED UPON FU LLY. THEY HAVE TO BE CORROBORATED WITH OTHER MATERIAL. IN THE INSTANT CASE, THE ASSE SSEE HAS ALSO GIVEN EXPLANATION WITH REGARD TO THE AMOUNT OF RS.45.00 LAKHS. HOWEVER, W E 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 T HE VERACITY OF THE EXPLANATION. THUS, IN OUR VIEW, BOTH THE TAX AUTHORITIES HAVE TAKEN ADVER SE VIEW ON THE BASIS OF SURMISES AND CONJECTURES WITHOUT PLACING RELIANCE ON ANY TANGIBL E MATERIAL OR WITHOUT EXAMINING THE MATTER FURTHER. UNDER THESE CIRCUMSTANCES, WE DO N OT FIND ANY MERIT IN THIS ADDITION. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ADDITION OF RS.16.75 LAKHS RELATING TO T HE BANGALORE PROPERTY. 47. NOW WE SHALL TAKE UP THE SPECIFIC ISSUES RA ISED IN THE APPEALS FILED BY THE REVENUE. THE REVENUE IS CHALLENGING THE TELESCOPIN G BENEFIT GIVEN BY THE LD CIT(A). IN THE APPELLATE PROCEEDINGS, THE LD CIT(A) GRANTED TH E TELESCOPING BENEFIT TO THE ADDITIONS MADE UNDER THE HEAD GIFTS RECEIVED AND DEFICIENCY IN CASH AGAINST THE ADDITION MADE ON ACCOUNT OF UNEXPLAINED INVESTMENTS /EXPENSES. SIMILARLY, THE ADDITIONS MADE ON ACCOUNT CONSULTING INCOME, SURGER Y INCOME HAVE BEEN TELESCOPED AGAINST THE GIFTS, CASH DEFICIENCY AND OTHER INVEST MENTS. THE REVENUE IS FINDING FAULT WITH IT. IN OUR VIEW, THE LD CIT(A) WAS JUSTIFIED IN GRANTING TELESCOPING BENEFIT, THE I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 35 PURPOSE OF WHICH IS TO ASSESS ONLY THE CORRECT INCO ME. WE SHALL EXAMINE THIS CONCEPT WITH AN EXAMPLE. LET US ASSUME THAT THE INCOME SUP PRESSED BY THE ASSESSEE IS ASCERTAINED AT RS.10.00 LAKHS. LET US FURTHER ASSU ME THAT THE ASSESSEE HAS PURCHASED A PROPERTY FOR RS.12.00 LAKHS WITHOUT RECORDING THE SAME IN HIS BOOKS OF ACCOUNT. IT WOULD BE NATURAL TO PRESUME THAT THE ASSESSEE HAS U TILIZED HIS SUPPRESSED INCOME FOR MAKING INVESTMENT IN THE PURCHASE OF PROPERTY. IN THAT CASE, IT WOULD NOT BE PROPER TO ASSESS BOTH RS.10.00 LAKHS AS WELL AS RS.12.00 LAKH S AS HIS INCOME. THE CORRECT METHOD, IN OUR VIEW WOULD BE TO ASSESS THE SUPPRESS ED INCOME OF RS.10.00 LAKHS AND UNEXPLAINED INVESTMENT IN PROPERTY AT RS.2.00 LAKHS (RS.12.00 LAKHS LESS RS.10.00 LAKHS). SIMILARLY, THE INFLATION OF EXPENSES ALSO WOULD GIVE RISE TO UNACCOUNTED CASH AND THE SAME MAY BE USED BY AN ASSESSEE TO FUND HIS UNACCOUNTED INVESTMENTS/EXPENSES. THUS, IN PRINCIPLE, THE LD C IT(A) WAS JUSTIFIED IN ALLOWING TELESCOPING BENEFIT TO THE ASSESSEE. 48. THE SPECIFIC ISSUE RAISED IN THE APPEAL OF THE REVENUE RELATES TO THE ADDITION OF DIFFERENCE IN COST OF CONSTRUCTION OF RESIDENTIAL B UILDING MADE IN THE ASSESSMENT YEARS 2004-05 TO 2006-07. THE FACTS RELATING TO THE SAME ARE STATED IN BRIEF. THE ASSESSEE CONSTRUCTED A RESIDENTIAL BUILDING AND DECLARED THE COST OF CONSTRUCTION AT RS.1,10,05,000/-. DURING THE COURSE OF SEARCH, THE DEPARTMENT SEIZED A REPORT GIVEN BY A REGISTERED ARCHITECT FOR THE PURPOSE OF BANK, IN WHICH THE COST OF CONSTRUCTION WAS SHOWN AT RS.1,70,00,000/-. THE AO TREATED THE DIFF ERENCE OF RS.59,95,000/- BETWEEN THE TWO FIGURES CITED ABOVE AS THE INCOME OF THE AS SESSEE 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 TH E 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. I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 36 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 DVOS REP ORT 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 REGIST ERED ARCHITECTS REPORT AND NOT THE DVOS REPORT. THE AO CONTENDED SO ON THE GROUND TH AT THE REPORT OF THE ARCHITECT WAS SUBMITTED TO THE BANK AND IT WAS ALSO COUNTER SIGNE D BY THE ASSESSEE. THE AO FURTHER SUBMITTED THAT THE REPORT OF THE DVO COULD BE REJEC TED IN FAVOUR OF MORE RELIABLE EVIDENCE, I.E., ARCHITECTS REPORT SEIZED BY THE DE PARTMENT. 50. HOWEVER, THE ASSESSEE BROUGHT TO THE NOTICE OF LD CIT(A) THAT THE REPORT PREPARED BY THE ARCHITECT WAS ONLY AN ESTIMATE FOR THE PROPOSED CONSTRUCTION AND NOT THE ESTIMATE OF COST OF ACTUAL CONSTRUCTION. THE A SSESSEE HIGHLIGHTED THE FOLLOWING OBSERVATION MADE BY THE ARCHITECT IN HIS REPORT. ALMOST 80 LAKHS WORK COMPLETED. THE BALANCE 90 LA KHS CONSIDERED FOR PERSONAL LOAN (SD.) 17.11.06 THE ASSESSEE, BY PLACING RELIANCE ON THE FOLLOWING CASE LAW, FURTHER SUBMITTED THAT THE LD CIT(A) WAS EMPOWERED TO CONSIDER FRESH EVIDENCES AND CAN ALSO CONSIDER THE ISSUES NOT SPECIFICALLY RAISED BEFORE THE LD CIT(A). A) CIT VS. KASHI NATH CHANDIWALA 92006)(228 ITR 318)(A LL) B) CIT VS. MCMILLAN & CO (1958) (33 ITR 182)(SC) C) CIT VS. SHAPOORFI PALLONJI MISTRY (1962)(44 ITR 891 )(SC) D) CIT VS. KANPUR COAL SYNDICATE (1964)(53 ITR 225)(CA L) E) CIT VS. HARDUTORY MOTILAL CHAMAIA (1967)(66 ITR 443 )(SC) THE ASSESSEE FURTHER SUBMITTED THAT THE REPORT OF T HE ARCHITECT DO NOT CERTIFY THAT HE HAS INSPECTED THE PREMISES. ACCORDINGLY HE SUBMITT ED THAT THE REPORT OF THE DVO HAS MORE EVIDENTIARY VALUE THAN THAT OF THE ARCHITECT I N THE FACTS AND CIRCUMSTANCES OF THE CASE. IT WAS ALSO BROUGHT TO THE NOTICE OF LD CIT( A) THAT THE LOAN WAS OBTAINED ON THE BASIS OF ARCHITECTS REPORT AND THE SAID LOAN WAS N OT USED FOR CONSTRUCTION PURPOSE, BUT SOME OTHER PURPOSE. I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 37 51. THE LD CIT(A) CONSIDERED THE MATTER AND FOUND MERIT IN THE ARGUMENTS OF THE ASSESSEE. ACCORDINGLY, HE DELETED THE ADDITIONS RE LATING TO THE COST OF CONSTRUCTION OF THE RESIDENTIAL BUILDING IN ALL THE THREE YEARS WIT H THE FOLLOWING OBSERVATION. 29. I HAVE CONSIDERED THE RELEVANT FACTS AND PROV ISIONS OF LAW WITH REGARD TO THE ISSUE INVOLVED. I FIND THAT THE ADDITION BASED BY THE ASSESSING OFFICER ON THE BASIS OF CERTIFICATE OF REGISTERED ARCHITECT SEIZED DURING THE COURSE OF SEARCH ACTION WHICH ESTIMATED THE COST OF CONSTRUCTION OF RESIDENCE OF THE APPELLANT AT RS. 1.7 CR AS AGAINST RS. 1,00,05,000 DISCLOSED BY THE APPELLANT DURING PERIOD RELEVANT TO A.YRS. 2004-05 TO 2006-07. THE ASSESS ING OFFICER ACCORDINGLY MADE ADDITION IN RESPECTIVE ASSESSMENT YEARS IN PRO PORTION TO THE INVESTMENTS SHOWN BY THE APPELLANT IN THESE YEARS. I FIND THAT THE PROPERTY WAS REFERRED BY THE ASSESSING OFFICER FOR VALUATION TO THE DVO, WHO VALUED THE COST OF CONSTRUCTION AT RS. 99.94 LAKHS AS AGAINST INVESTM ENT OF RS. 1.05 CRORE SHOWN BY THE APPELLANT. THE ARGUMENT PUT FORTH BY THE AS SESSIGN OFFICER IS THAT THE VALUATION OF DVO WAS NOT BINDING AN THEREFORE, SHOU LD NOT BE RELIED UPON IN PREFERENCE TO THE SEIZED DOCUMENT WHEREIN HIGHER ES TIMATION 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 DEPEND ED UPON TO DEAL WITH THIS ADDITION. IT IS SEEN THAT THE SEIZED DOCUMENT ON W HICH THE ASSESSING OFFICER RELIED UPON IS NOT THE VALUATION OF COST OF CONSTRU CTION BUT AN ESTIMATE PREPARED BY AN ARCHITECT FOR THE PROPOSED COST OF CONSTRUCTI ON OF THE RESIDENCE OF THE APPELLANT. THE TITLE OF THIS DOCUMENT ITSELF READS AS UNDER:- COST ESTIMATE FOR THE PROPOSED RESIDENCE OF DR. S ASI 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 WA S PROPOSED AND WAS TO BE CONSIDERED FOR FURTHER LOAN. ON THE STRENGTH OF TH IS DOCUMENT, THE APPELLANT WAS SEEKING TO PROCURE A LOAN FROM THE BANK. I THEREFO RE, FIND THAT THE ADDITIONS MADE BY THE ASSESSING OFFICER IN A.YRS. 2004-05 TO 2006-07 WERE NOT SUSTAINABLE EVEN ON THE BASIS OF THE ABOVE SEIZED DOCUMENT WHIC H ESTIMATES THE COST OF CONSTRUCTION COMPLETED UP TO 17.11.2006 TO BE ONLY OF RS. 80 LAKHS AS AGAINST OVER RS. 1 CRORE DECLARED BY THE APPELLANT. I, THE REFORE, FIND THAT NO UNACCOUNTED INVESTMENT CAN BE DETERMINED EVEN ON TH E BASIS OF SPECIFIC SEIZED DOCUMENT RELIED UPON BY THE ASSESSING OFFICER FOR M AKING THE ADDITION. FOR THIS REASON ITSELF, IT WAS ESSENTIAL TO KNOW THE ACTUAL COST OF CONSTRUCTION OF THE APPELLANTS RESIDENCE. THE REPORT OF THE DVO WAS A N IMPORTANT AND CRUCIAL DOCUMENT FOR THE PURPOSE AND THEREFORE, WAS REQUIRE D TO BE CONSIDERED AS AN IMPORTANT, VITAL AND RELIABLE PIECE OF EVIDENCE TO ASCERTAIN THE TRUTH AND IMPART JUSTICE EVEN THOUGH THE SAME WAS NOT USED BY THE AS SESSING OFFICER FOR MAKING THE ADDITION. IT WAS A MATERIAL FACT ON RECORD AND APPELLANT WAS FULLY AWARE OF THE SAME AS HIS PROPERTY WAS INSPECTED AND HE RESPO NDED TO THE PROCEEDINGS I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 38 BEFORE DVO. THE REPORT OF THE DVO IN ALL FAIRNESS, THEREFORE, OUGHT TO HAVE BEEN SUPPLIED TO THE APPELLANT AS IT WAS HIS NORMAL RIGH T TO KNOW THE OUTCOME OF PROCEEDINGS BEFORE DVO AND MORE PARTICULARLY SO WHE N A HUGE ADDITION HAD BEEN SLAPPED ON HIM ALLEGING UNACCOUNTED INVESTMENT IN THE CONSTRUCTION OF HOUSE. THE DECISION OF GUWAHATI HIGH COURT (SUPRA) RELIED UPON BY THE ASSESSING OFFICER WAS NOT RELEVANT IN THE MATTER BECAUSE RIGH T OF THE ASSESSING OFFICER TO REFER THE MATTER TO THE DVO WAS NOT UNDER DISPUTE. THE DVO WAS A TECHNICAL PERSON OF THE DEPARTMENT AND THERE WAS NO REASON TO DISBELIEVE THE VALUATION DONE BY THE DVO WITH DETAILED REASONING AND ON THE BASIS OF ACTUAL MEASUREMENT OF CONSTRUCTION WORK AND INSPECTION OF THE PROPERTY ON 29.10.2009. NO DEFECT IN THE REPORT OF THE DVO HAS BEEN BROUGHT ON RECORD TO JUSTIFIABLY DISCARD THE SAME. IT IS AN ADMITTED PO SITION THAT THE CONSTRUCTION OF RESIDENTIAL BUILDING OF THE APPELLANT WAS COMPLETED IN MARCH 2006 AND THEREFORE, THE SEIZED DOCUMENT DATED 17.11.2006 PREPARED FOR P ROCURING A BANK LOAN FROM HDFC BANK WAS ONLY PROJECTING FURTHER CONSTRUCTION OF RS. 90 LAKHS. SUCH CONSTRUCTION WAS NOT DONE BY THE APPELLANT UPTO 29. 10.2009 WHEN HIS PROPERTY WAS INSPECTED BY THE DVO. THE APPELLANT ALSO INFOR MED TO THE ASSESSING OFFICER VIDE LETTER OF 15.12.2009 THAT NO PART OF THIS 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 ADDITI ON MADE BY THE ASSESSING OFFICER ON THIS ACCOUNT WAS NOT SUSTAINABLE. THE S AME IS THEREFORE, DIRECTED TO BE WITHDRAWN. THIS GROUND OF APPEAL IS THEREFORE, ALLOWED .. WE HAVE CAREFULLY CONSIDERED THE FACTS AND CIRCUMST ANCES 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 T HE FINAL OBSERVATIONS MADE BY THE ARCHITECT AND CAME TO THE CONCLUSION TH AT THE REPORT OF THE ARCHITECT DOES NOT RELATE TO THE ESTIMATE OF ACTUAL COST OF CONSTR UCTION. 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 CONST RUCTION. THUS, IT IS SEEN THAT THE ASSESSEE HAD OBTAINED LOAN FROM HDFC BANK ON THE BA SIS OF THE REPORT OF THE ARCHITECT FOR SOME OTHER PURPOSE AND NOT FOR THE PURPOSE OF C ONSTRUCTION OF RESIDENTIAL BUILDING AND HENCE THE ASSUMPTION MADE BY THE AO WAS PROVED TO BE WRONG. UNDER THESE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE LD C IT(A) HAS TAKEN A CONSCIOUS VIEW ON THIS ISSUE BY PROPERLY APPRECIATING THE AVAILABL E EVIDENCES AND ACCORDINGLY GRANTED I.T.A.NOS.252 TO 257 /COCH/2011 & 268 TO 274/COCH/2011 39 RELIEF. HENCE, WE DO NOT FIND ANY INFIRMITY IN HIS DECISION ON THIS ISSUE AND ACCORDINGLY UPHOLD THE SAME. 53 IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E FOR THE ASSESSMENT YEAR 2002-03 IS PARTLY ALLOWED AND OTHER APPEALS OF THE ASSESSEE AR E TREATED AS PARTLY ALLOWED. ALL THE APPEALS OF THE REVENUE ARE DISMISSED. PRONOUNCED ACCORDINGLY ON 29-06-2012 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 29TH JUNE, 2012 GJ COPY TO: 1. DR. P. SASIKUMAR, POOJASREE, VALIYAPADAM, P.O. CHOKKANATHAPURAM, PALAKKAD-678 005. 2.THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CI RCLE, THRISSUR. 3.THE COMMISSIONER OF INCOME-TAX(APPEALS)-I, KOCHI 4.THE COMMISSIONER OF INCOME-TAX, CENTRAL, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN