M/s. Lakshmi Hospital, Ernakulam V. ACIT, Ernakulam

ITA 310/COCH/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0996 (ITAT-COCHIN)
• Duration Of Justice: 2 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2013
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 20-12-2012
• Assessment Year: 2000-2001
• Appeal Filed On: 10-05-2010
• Court: TRIBUNAL
• Department Lawyers: M ANIL KUMAR
• Assessee Lawyers: C B M WARRIER
• Keywords: Search and seizure
• Section: 153A; 139

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. 309-313/COCH/2010 ASSESSMENT YEARS : 1999-2000-2003-04 M/S. LAKSHMI HOSPITAL, DIWANS ROAD, ERNAKULAM [PAN:AAAFL 4194N] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-1, ERNAKULAM. (ASSESSEE -APPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY SHRI C.B.M. WARRIER, CA REVENUE BY SHRI M. ANIL KUMAR, CIT(DR) DATE OF HEARING 20/12/2012 DATE OF PRONOUNCEMENT 28/02/2013 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: ALL THESE APPEALS, FILED BY THE ASSESSEE, ARE DIRECTED AGAINST THE ORDERS PASSED BY LD CIT(A)-I, KOCHI AND THEY RELATE TO THE ASSESSMENT YEARS 1999-2000 TO 2003-04. THE PENALTY LEVIED BY THE ASSESSING OF FICER U/S 271(1)(C) OF THE ACT IN ALL THESE YEARS WAS CONFIRMED BY THE LD CIT(A). HENCE, THE ASSESSEE HAS FILED THESE APPEALS BEFORE US CHALLENGING THE ORDERS PASS ED BY THE LD CIT(A). 2. THE FACTS THAT LED TO THE IMPOSITION OF PENA LTY ARE DISCUSSED IN BRIEF. THE ASSESSEE IS RUNNING A HOSPITAL. THE DEPARTMENT CAR RIED OUT SEARCH AND SEIZURE OPERATIONS IN THE HANDS OF THE ASSESSEE ON 07.10.20 04. CONSEQUENT THERETO, THE AO ISSUED NOTICE U/S 153A OF THE ACT FOR THE YEARS UNDER CONSIDERATION. IN RESPONSE THERETO, THE ASSESSEE FILED RETURNS OF INC OME OFFERING ADDITIONAL INCOME IN ALL THE YEARS OVER AND ABOVE THE INCOME THAT WER E ALREADY DECLARED IN THE RETURNS OF INCOME FILED U/S 139 OF THE ACT IN THE N ORMAL COURSE. THE ASSESSING OFFICER COMPLETED THE ASSESSMENTS BY MAKING CERTAIN ADDITIONS IN ALL THE YEARS. I.T.A. NOS. 309-313/COCH/2010 2 THE ASSESSEE CARRIED THE MATTER IN APPEALS BEFORE L D CIT(A), WHO GRANTED PARTIAL RELIEF TO THE ASSESSEE. STILL AGGRIEVED, THE ASSES SEE WENT ON FURTHER APPEAL BEFORE THE ITAT AND THE TRIBUNAL DELETED ALL THE AD DITIONS SUSTAINED BY THE LD CIT(A). THE HONBLE HIGH COURT OF KERALA ALSO CONF IRMED THE ORDERS PASSED BY THE TRIBUNAL. THUS, IN EFFECT, THE TOTAL INCOME RET URNED BY THE ASSESSEE IN ITS RETURNS OF INCOME FILED UNDER SEC. 153A OF THE ACT CAME TO BE ASSESSED FINALLY. 3. AFTER THE RECEIPT OF ORDERS PASSED BY LD CIT (A), THE ASSESSING OFFICER COMPLETED PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT BY IMPOSING PENALTY IN ALL THE YEARS ON THE DIFFERENCE BETWEEN THE INCOME CONFIRMED BY THE LD CIT(A) AND THE INCOME THAT WAS ORIGINALLY DECLARED IN THE RETURNS OF INCOME FILED U/S 139 OF THE ACT. THE ASSESSEE CHALLENGED THE SAID PENAL TY ORDERS BEFORE LD CIT(A), BUT COULD NOT SUCCEED. HENCE, THE ASSESSEE HAS FIL ED THESE APPEALS BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. FOR THE SAKE OF CONVENIENCE, WE FURNISH BELOW THE DETAI LS OF INCOME OFFERED/ASSESSED IN VARIOUS STAGES IN A TABULAR FOR M. ASST. YEAR INCOME IN 139 RETURN INCOME IN 153A RETURN ADDL. INCOME IN 153A RETURN ASSESSED INCOME INCOME AFTER CIT(A)S ORDER 1999-2000 6,00,040 7,29,360 1,29,320 10,41,860 7,29,360 2000-2001 7,76,490 13,28,060 5,51,570 1,09,94,640 30,81,376 2001-2002 7,56,960 13,82,770 6,25,810 1,26,17,660 39,29,160 2002-2003 8,60,260 17,06,410 8,46,150 78,22,630 32,88,230 2003-2004 21,14,810 35,87,270 14,72,460 69,88,320 50,58,850 AS STATED EARLIER, THE ASSESSING OFFICER LEVIED PEN ALTY ON THE DIFFERENCE BETWEEN THE INCOME AFTER CIT(A)S ORDER AND THE INCOME DECL ARED IN 139 RETURNS. IT IS PERTINENT TO NOTE THAT THE ADDITIONS CONFIRMED BY L D CIT(A) HAS SINCE BEEN DELETED BY THE TRIBUNAL, VIDE ITS ORDER DATED 07.09 .2010 AND THE ORDER OF THE TRIBUNAL WAS ALSO CONFIRMED BY THE HONBLE HIGH COU RT OF KERALA, VIDE ITS ORDER I.T.A. NOS. 309-313/COCH/2010 3 DATED 04.07.2011. HENCE THE PENALTY RELATABLE TO T HE ADDITIONS CONFIRMED BY LD CIT(A) IS LIABLE TO BE DELETED IN THE ORDINARY COUR SE. 5. WE SHALL NOW BRIEFLY DISCUSS ABOUT THE FACTS THAT LED TO THE OFFERING OF ADDITIONAL INCOME BY THE ASSESSEE IN ITS RETURNS OF INCOME FILED U/S 153A OF THE ACT. DURING THE COURSE OF SEARCH PROCEEDINGS, IT W AS NOTICED THAT THE ASSESSEE WAS MAINTAINING ITS ACCOUNTS BOTH MANUALLY AND IN C OMPUTER SYSTEM. IT WAS EXPLAINED THAT THE COMPUTERIZATION PROCESS STARTED DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR 1999-2000. SINCE THE COMPUTER SOFTWARE WAS UNDER TEST AND TRIAL COMBINED WITH THE FACT THAT THE EMPLOYEES WERE INEXPERIENCED IN HANDLING THE COMPUTER SYSTEM, THE ASSESSEE CHOSE TO MAINTAIN ACCOUNTS BOTH UNDER MANUAL SYSTEM AS WELL AS UNDER COMPUTER SYSTE M. THE SEARCH OFFICIALS COMPARED THE DATA AVAILABLE IN THE COMPUTER PRINT O UTS WITH THE MANUAL ACCOUNTS AND NOTICED THAT THERE WERE DIFFERENCES IN BOTH INCOME AND EXPENDITURE ITEMS. ORIGINALLY, THE DEPARTMENT WANTED TO ASSESS THE DIFFERENCE NOTICED IN THE INCOME SIDE ONLY. HOWEVER, ON NOTICING THAT THERE WERE MISTAKES AND DIFFERENCES ON THE EXPENDITURE SIDE ALSO, THE AO AL LOWED THE SAME TO SOME EXTENT. THE LD CIT(A) FURTHER ENHANCED THE DEDUCTI ONS AND THE TRIBUNAL FULLY ALLOWED THE DIFFERENCES NOTICED IN THE EXPENDITURE SIDE ALSO. ACCORDING TO THE ASSESSEE, SINCE CERTAIN DIFFERENCES COULD NOT BE RE CONCILED, SUCH DIFFERENCES WERE OFFERED AS ADDITIONAL INCOME IN THE RETURNS OF INCO ME FILED U/S 153A OF THE ACT, WHICH WAS FINALLY SUSTAINED BY THE TRIBUNAL AND HIG H COURT. 6. ACCORDING TO THE ASSESSEE, IT TOOK EFFORTS TO COMPARE THE COMPUTER PRINT OUTS WITH THE AVAILABLE BOOKS AND SUBSIDIARY REGI STERS AND FOUND OUT MISTAKES INVOLVING SUBSTANTIAL AMOUNTS BOTH IN THE INCOME SI DE AND IN THE EXPENDITURE SIDE. IT IS PERTINENT TO NOTE THAT THE PARTNER OF THE FIRM HAS STATED THAT SOME OF THE RECORDS HAVE BEEN DESTROYED. ONE OF THE MAJOR ITEMS OF DIFFERENCE WAS THE AMOUNT OF FEE COLLECTIONS. IT WAS CLAIMED THAT THE ASSESSEE FIRM COLLECTED FEES FROM THE PATIENTS ON BEHALF OF THE DOCTORS AND REMI TTED THE SAME TO THEM. THE I.T.A. NOS. 309-313/COCH/2010 4 ASSESSEE DID NOT ACCOUNT FOR BOTH THE FEE COLLECTIO NS AND REMITTANCE. THE ASSESSING OFFICER ASSESSED THE ENTIRE AMOUNT OF DIF FERENCE IN FEE COLLECTIONS AND REFUSED TO GRANT DEDUCTION OF THE AMOUNTS REMITTED TO THE DOCTORS. THE LD CIT(A) ALLOWED 25% OF THE AMOUNT PAID TO THE DOCTOR S AND THE TRIBUNAL ALLOWED FULLY THE AMOUNTS SO PAID. THE ORDER OF THE TRIBUN AL WAS ALSO CONFIRMED BY THE HONBLE HIGH COURT OF KERALA. 7. ACCORDING TO THE ASSESSEE, IT COULD NOT VERI FY OR RECONCILE SOME DIFFERENCES. HENCE, IT WAS CONSTRAINED TO OFFER SUCH DIFFERENCES AS ITS ADDITIONAL INCOME FOR THE YEARS UNDER CONSIDERATION IN ITS RETURNS OF INC OME FILED U/S 153A OF THE ACT. TO SUPPORT ITS CONTENTIONS, THE LD A.R SUBMITTED TH AT THE DEPARTMENT DID NOT UNEARTH ANY UNACCOUNTED CASH, BULLION, JEWELLERY OR ANY OTHER VALUABLES TO JUSTIFY ANY CONCEALMENT OF INCOME. ACCORDINGLY, THE LD A.R CONTENDED THAT THE ADDITIONAL INCOME VOLUNTARILY OFFERED BY THE ASSESS EE COULD NOT BE CONSIDERED AS CONCEALMENT OF PARTICULARS OF INCOME. IN SUPPORT OF HIS CONTENTIONS, THE LD A.R PLACED RELIANCE ON MANY CASE LAWS GIVEN IN THE WRIT TEN SUBMISSIONS. 8. ACCORDING TO LD D.R, THE ASSESSEE HAS OFFERE D THE ADDITIONAL INCOME IN THE RETURNS OF INCOME FILED U/S 153A OF THE ACT ONLY ON ACCOUNT OF THE SEARCH OPERATIONS AND HENCE THE ADDITIONAL INCOME SO OFFER ED CONSTITUTES THE CONCEALED INCOME OF THE ASSESSEE. 9. IT CANNOT BE DENIED THAT THE COMPUTERIZATION OF THE OPERATIONS WILL HAVE INITIAL TEETHING PROBLEM DURING IMPLEMENTATION STAG E. HENCE, EVEN THE SOFTWARE PROFESSIONALS WOULD ADVICE FOR MAINTENANCE OF PARAL LEL ACCOUNTS BOTH MANUALLY AND UNDER COMPUTER SYSTEM. THE MANUAL ACCOUNTS ARE USED TO TEST THE VALIDITY OR AUTHENTICITY OF THE COMPUTERIZATION PROCESS AND ALSO TO DEBUG THE MISTAKES OR ERRORS THAT MAY ARISE IN THE SOFTWARE/COMPUTER SYST EM. IT IS ALSO A FACT THAT THE PERSONS OPERATING THE COMPUTER SYSTEM WOULD ALSO CO MMIT A LOT OF MISTAKES UNTIL THEY UNDERSTAND THE OPERATIONS/SOFTWARE FULLY. HEN CE THERE BOUND TO BE I.T.A. NOS. 309-313/COCH/2010 5 DIFFERENCES/MISTAKES BETWEEN THE MANUAL ACCOUNTS AN D COMPUTER ACCOUNTS UNTIL THE COMPUTER/SOFTWARE SYSTEM GETS STANDARDIZED AND FURTHER THE CONCERNED STAFFS ARE FULLY FAMILIARIZED WITH THE SAME. 10. THE MISTAKES/ERRORS UNDER MANUAL SYSTEM CAN BE LOCATED WITH CERTAIN EFFORTS, SINCE THE BOOKS OF ACCOUNTS ARE WRITTEN MA NUALLY. HOWEVER, THE MISTAKES/ERRORS OCCURRING IN THE ACCOUNTS MAINTAINE D UNDER COMPUTER SYSTEM IS VERY DIFFICULT TO LOCATE SINCE THE MISTAKES LIES IN THE SOFTWARE DUE TO FAULTY PROGRAMMING. THEY ARE CALLED BUGS IN COMPUTER TE RMINOLOGY. UNLESS AND UNTIL SUCH BUGS ARE LOCATED AND RECTIFIED (DEBUGGING), TH E MISTAKES/ERRORS ARE BOUND TO CONTINUE AND THEY ARE VERY DIFFICULT TO LOCATE A LSO. 11. IN THE INSTANT CASE, THERE WERE HUGE DIFFER ENCES BETWEEN THE COMPUTER PRINT OUTS AND MANUAL ACCOUNTS AND SUCH DIFFERENCES WERE FOUND BOTH IN THE INCOME SIDE AND ALSO IN THE EXPENDITURE SIDE. THE HUGE AMOUNT OF DEDUCTION ALLOWED BY THE LD CIT(A) AND TRIBUNAL ARE RELATED T O SUCH DIFFERENCES ONLY. IT IS PERTINENT TO NOTE THAT BOTH THE LD CIT(A) AND THE T RIBUNAL HAS ALLOWED THE DEDUCTION OF THE DIFFERENCES, WHICH COULD BE LOCATE D AND POINTED OUT BY THE ASSESSEE. 12. THE DIFFERENCE NOTICED IN THE FEE COLLECTIO NS WAS MAINLY ON ACCOUNT OF THE FEE COLLECTED ON BEHALF OF THE DOCTORS, WHICH WERE PAID TO THEM. IT IS PERTINENT TO NOTE THAT THE ASSESSEE DID NOT ACCOUNT BOTH THE FEE COLLECTION AS WELL REMITTANCE. THE TRIBUNAL, IN ITS ORDER DATED 07-09 -2010 PASSED IN THE QUANTUM ASSESSMENT PROCEEDINGS, HAS SPECIFICALLY OBSERVED T HAT THE DEPARTMENT WAS FREE TO REOPEN THE ASSESSMENTS OF THOSE DOCTORS AGAINST WHOM SUCH PAYMENTS WERE CLAIMED TO HAVE BEEN MADE. 13. HOWEVER, ACCORDING TO THE ASSESSEE, THERE W ERE CERTAIN DIFFERENCES WHICH COULD NOT BE LOCATED OR RECONCILED AND HENCE IT CAM E FORWARD TO OFFER THE SAME I.T.A. NOS. 309-313/COCH/2010 6 AS ITS ADDITIONAL INCOME. THUS, IT IS NOTICED THA T THE ADDITIONAL INCOME OFFERED BY THE ASSESSEE RELATED TO THE UN-RECONCILED DIFFER ENCES ONLY AND THE SAID CLAIM OF THE ASSESSEE HAS NOT BEEN FOUND TO BE FALSE BY T HE TAX AUTHORITIES. 14. IN VIEW OF THE FOREGOING DISCUSSIONS, IN OU R VIEW, THE ADDITIONAL INCOME OFFERED BY THE ASSESSEE IN ITS RETURNS OF INCOME FI LED U/S 153A OF THE ACT COULD NOT BE CONSIDERED AS CONCEALED INCOME IN THE PECU LIAR FACTS AND CIRCUMSTANCES OF THE CASE. ACCORDINGLY, IN OUR VIEW, PENALTY U/S 271(1)(C) IS NOT EXIGIBLE UNDER THESE SET OF FACTS. 15. THE ASSESSEE HAS RAISED MANY LEGAL QUESTIONS ON THE VALIDITY OF THE PENALTY PROCEEDINGS BEFORE THE ASSESSING OFFICER AS WELL AS BEFORE THE LD CIT(A). ALL THE LEGAL QUESTIONS WERE DECIDED AGAINST THE ASSESSEE B Y BOTH THE TAX AUTHORITIES. SINCE, WE HAVE TAKEN THE VIEW THAT THE PENALTY U/S 271(1)(C) OF THE ACT IS NOT EXIGIBLE ON THE ADDITIONAL INCOME OFFERED BY THE AS SESSEE UNDER THE PECULIAR FACTS PREVAILING IN THE INSTANT CASE, WE DO NOT FI ND IT NECESSARY TO ADDRESS THE LEGAL ISSUES URGED BY THE ASSESSEE. ACCORDINGLY, W E SET ASIDE ALL THE IMPUGNED ORDERS PASSED BY LD CIT(A) IN THE HANDS OF THE ASSE SSEE AND DIRECT THE ASSESSING OFFICER TO DELETE THE PENALTY LEVIED U/S 271(1)(C) OF THE ACT IN ALL THE YEARS UNDER CONSIDERATION. 16. IN THE RESULT, ALL THE APPEALS FILED BY THE ASSESSEE ARE ALLOWED. PRONOUNCED ACCORDINGLY ON 28- 02-2013. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 28TH FEBRUARY, 2013 I.T.A. NOS. 309-313/COCH/2010 7 GJ COPY TO: 1. M/S. LAKSHMI HOSPITAL, DIWANS ROAD, ERNAKULAM. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRA L CIRCLE-1, ERNAKULAM. 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