Dr Grandhi Aravandam, Rajahmundry V. The ACIT, Central Circle, Rajahmundry

ITA 429/VIZ/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50194 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 30-03-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 01-09-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: TH L PETER
• Keywords: Unexplained cash credit; Gift; Income from undisclosed sources; Search and seizure; Principle of natural justice; Set aside
• Section: 69C; 69A; 68; 132

Judgement Text

ITA NOS.426 TO 429 OF 09 456 TO 459 OF 09 GRANDHI A RAVINDAM, RJY 1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO S . 426 TO 429 /VIZAG/ 20 09 ASSESSMENT YEAR S : 2003 - 04 TO 2006 - 07 RESPECTIVELY DR. GRANDHI ARAVINDAM RAJAHMUNDRY VS. ACIT CENTRAL CIRCLE RAJAHMUNDRY (APPELLANT) (RESPONDENT) PAN NO.ABQPG 1227L ITA NOS.456 TO 459/VIZAG/2009 ASSESSMENT YEARS : 2003 - 04 TO 2006 - 07 RESPECTIVELY DCIT CENTRAL CIRCLE RAJAHMUNDRY VS. DR. GRANDHI ARAVINDAM RAJAHMUNDRY (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI TH.L. PETER, CIT(DR) RESPONDENT BY: SHRI G.V.N. HARI, CA ORDER PER BENCH:- THESE CROSS APPEALS PREFERRED BY THE ASSESSEE AS WELL AS THE REVENUE AGAINST THE CONSOLIDATED ORDER OF THE CIT(A) PERTAI NING TO THE ASSESSMENT YEARS 2003-04 TO 2006-07. SINCE THESE APPEALS WERE HEARD TOGETHER THESE ARE BEING DISPOSED OF THROUGH THIS CONSOLIDATED ORD ER FOR THE SAKE OF CONVENIENCE. 2. BEFORE DEALING WITH THE ISSUES INVOLVED IN THESE APPEALS, IT IS DESIRABLE TO ENUMERATE THE BACKGROUND FACTS IN THE CASE OF TH E ASSESSEE. THE ASSESSEE IS A REPUTED ORTHOPAEDIC SURGEON IN EAST G ODAVARI DISTRICT BASED AT RAJAHMUNDRY AND OWNS A NURSING HOME IN THE NAME OF ARAVINDAM ORTHOPAEDIC AND PHYSIO THERAPY CENTRE WHERE HE TRE ATS THE PATIENTS AND CONDUCT SURGERIES AND ALSO X-RAY AND OTHER PATHOLOG ICAL TEST FACILITIES. A SEARCH AND SEIZURE OPERATION U/S 132 OF THE ACT WAS CARRIED OUT ON 4.8.2005 IN THE RESIDENTIAL AS WELL AS IN THE BUSINESS PREMI SES OF THE ASSESSEES FOLLOWING WHICH CERTAIN INCRIMINATING DOCUMENTS AND MATERIALS WERE FOUND ITA NOS.426 TO 429 OF 09 456 TO 459 OF 09 GRANDHI A RAVINDAM, RJY 2 AND ON THE BASIS OF THE SAME, THE A.O. HAS MADE ADD ITIONS ON ACCOUNT OF ESTIMATED SUPPRESSED INCOME FROM X-RAY AND LABORATO RY TEST CHARGES, ESTIMATED INCOME FROM MEDICAL SHOP, ON ACCOUNT OF S UPPRESSION OF RECEIPTS FROM INPATIENTS, ON ACCOUNT OF BONUS ON INVESTMENT IN CHITS, ON ACCOUNT OF NEGATIVE CASH BALANCES, ON ACCOUNT OF UNEXPLAINED E XPENDITURE IN THE PURCHASE OF MEDICAL ACCESSORIES AND ON ACCOUNT OF C ASH FOUND AND SEIZED. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) AND THE CIT(A) HAS GRANTED PART RELIEF TO THE ASSESSEES. 3. AGGRIEVED WITH THE ORDER OF THE CIT(A), THE ASSE SSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL ON THOSE ADDITIONS WHICH WERE CONFIRMED BY HIM. THE REVENUE HAS ALSO PREFERRED AN APPEAL ON ALL THO SE ISSUES ON WHICH THE CIT(A) HAS GRANTED THE RELIEF TO THE ASSESSEES EITH ER BY REDUCING THE ADDITIONS OR BY DELETING IT. THEREFORE, IN THESE A PPEALS ALMOST ALL ISSUES REQUIRES AN ADJUDICATION AND WE THEREFORE ADJUDICAT E BOTH THE APPEALS OF THE REVENUE AS WELL AS THE ASSESSEE SIMULTANEOUSLY ON I SSUE WISE. ESTIMATED SUPPRESSED INCOME FROM X-RAY AND LABORATO RY TEST:- 4. THE FACTS IN BRIEF IN THIS REGARD BORN OUT FROM THE ORDERS OF THE LOWER AUTHORITIES ARE THAT DURING THE COURSE OF SEARCH OP ERATION, THE SEARCH PARTY CAME ACROSS INTERALIA TWO SETS OF BILL BOOKS FOR TH E SAME PERIOD FOR X-RAY AND LABORATORY TEST WHICH ARE DIFFERENT IN FORMAT. THE FIRST SET IS REFERRED TO AS NAME BOOK AND THE SECOND SET IS REFERRED TO AS R ECEIPT BOOK. ON EXAMINATION OF SUCH BOOKS, IT TRANSPIRED THAT FOR T HE PERIOD FROM 1.4.2005 TO 3.8.2005 APPROXIMATELY 3900 RECEIPTS ARE PREPARED I N THE RECEIPT BOOK AND ONLY AROUND 900 RECEIPTS ARE PREPARED IN THE NAME B OOK AND THAT SOME BILLS PREPARED IN THE RECEIPT BOOK ARE FOUND TO HAVE BEEN DUPLICATED IN THE NAME BOOK. AFTER HAVING EXAMINED THE ASSESSEE ON OATH A ND ON SCRUTINIZING THE SEARCH MATERIAL IN DETAIL, THE SEARCH PARTY OBSERVE D THAT TOTAL QUANTUM OF RECEIPT AS PER THE RECEIPT BOOKS FAR EXCEEDED THAT AS PER THE NAME BOOK, THAT ONLY THOSE RECEIPTS THAT WERE RECORDED IN THE NAME BOOK WERE ENTERED IN THE CASH BOOK AND, AS SUCH, THE TOTAL FIGURES OF RECEIP TS IN THE NAME BOOK EXACTLY TALLIED WITH THOSE ENTERED IN CASH BOOK. THEREFORE , THE ACTUAL RECEIPT IN ITA NOS.426 TO 429 OF 09 456 TO 459 OF 09 GRANDHI A RAVINDAM, RJY 3 RESPECT OF X-RAY AND LABORATORY CHARGES ARE MORE TH AN THE DECLARED IN THE BOOKS OF ACCOUNTS. REVENUE ACCORDINGLY HELD THAT T HE RECEIPTS DECLARED IN THE CASH BOOKS WERE UNDERSTATED. FOLLOWING THE OBS ERVATIONS OF THE INVESTIGATION WING, THE A.O. HELD THAT THE ASSESSEE MAINTAINED TWO SET OF BILL BOOKS IN RESPECT OF X-RAY AND LABORATORY RECEIPTS. ONE FOR COLLECTION OF ACTUAL PAYMENTS FROM PATIENT IN THE REGULAR COURSE OF BUSI NESS AND OTHER FOR THE PURPOSE OF PREPARATION OF BOOKS OF ACCOUNTS FOR PRO DUCTION BEFORE THE INCOME TAX AUTHORITIES. THE A.O. ACCORDINGLY SOUGHT TO ES TIMATE THE INCOME FROM X- RAY AND LABORATORY TESTS BASED ON ALTERNATIVE METHO DOLOGIES. ACCORDING TO THE FIRST METHOD, THE A.O. TOOK INTO ACCOUNT THE TO TAL NUMBER OF PATIENTS FROM APRIL, 2005 TO JULY, 2005 AT 3,015 AGAINST WHOM HE CORRELATED ACTUAL COLLECTION OF X-RAY AND LABORATORY TEST RECEIPTS AT RS.8,93,730/-. EXTRAPOLATING SUCH FIGURE OF PATIENTS AND RECEIPTS FOR THE NEXT T WO QUARTERS, THE ASSESSING OFFICER MULTIPLIED THE ACTUAL COLLECTION FIGURES OF RS.8,93,730/- BY 3 TIMES AND ARRIVED AT THE POSSIBLE RECEIPTS OF RS.26,81,190/- FOR THE ENTIRE FINANCIAL YEAR 2005-06. ACCORDING TO THE ALTERNATIVE METHOD OF EST IMATION, THE A.O. TOOK INTO ACCOUNT THE TOTAL QUANTITY OF X-RAY FILMS PURC HASED FOR THE FINANCIAL YEAR 2004-05 RELEVANT TO THE ASSESSMENT YEAR 2005-06 AND DETERMINED THE TOTAL NUMBER OF ACTUAL BILLS COVERED BY X-RAY AT RS.10,55 6/- TO WHICH HE APPLIED THE MULTIPLICATION FACTOR OF RS.250/- (BEING THE AVERAG E AMOUNT COLLECTED FOR EACH BILL) AND EVENTUALLY ARRIVED AT TOTAL FIGURE OF RS. 26,39,000/- ROUNDED OFF TO RS.26 LAKHS FOR THE ENTIRE FINANCIAL YEAR 2004-05. FROM SUCH AMOUNT THE ASSESSING OFFICER ALLOWED A DEDUCTION OF EXPENDITUR E DEBITED UNDER THE HEAD LAB MAINTENANCE OF RS.4,53,046/- AND ARRIVED AT T HE NET PROFIT FROM X-RAY AND LABORATORY TEST FOR THE FINANCIAL YEAR 2004-05 AT RS.21,46,954/-. THE A.O. ALSO FORWARD-PROJECTED SUCH ESTIMATED INCOME F OR THE FIRST 4 MONTHS UP TO THE DATE OF SEARCH PERTAINING TO THE ASSESSMENT YEAR 2006-07 AND DETERMINED THE PROFIT PROPORTIONAL AT RS.7,15,651/- . HOLDING THAT THE MODUS- OPERANDI OF THE ASSESSEE ALL ALONG WAS SUPPRESSION OF ACTUAL RECEIPTS HE ESTIMATED THE INCOME FROM X-RAY AND LABORATORY TEST AT THE IDENTICAL FIGURE OF RS.21,46,954/- FOR THE EARLIER ASSESSMENT YEARS 200 0-01 TO 2004-05. AFTER GIVING FURTHER CREDIT OF THE RECEIPTS, EXPENDITURES AND PROFITS ALREADY ADMITTED FOR THE RELEVANT ASSESSMENT YEARS, THE ASSESSING OF FICER COMPUTED THE NET UNACCOUNTED INCOME OF RS.20,90,017/-, RS.20,29,231/ -, RS.20,03,900/-, ITA NOS.426 TO 429 OF 09 456 TO 459 OF 09 GRANDHI A RAVINDAM, RJY 4 RS.19,98,730/-, RS.19,69,925/-, RS.21,46,954/- & RS .7,15,651/- FOR THE ASSESSMENT YEARS 2000-01, 2001-02, 2002-03, 2003-04 , 2004-05, 2005-06 & 2006-07 RESPECTIVELY. 5. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT( A) WITH THE SUBMISSION THAT REASONS FOR MAINTENANCE OF TWO SET OF BILL BOOKS WERE EXPLAINED BY THE SUPERVISORY-CUM-RECEPTIONIST SMT. M. NAGAMANI WHILE TENDERING A STATEMENT DURING THE COURSE OF SEARCH T O THE EFFECT THAT BILL BOOK MARKED WITH THE NAME OF ASSESSEE DOCTOR IS REGULARL Y USED IN THE HOSPITAL, HOWEVER, AT A POINT OF TIME, WHEN THE STOCK OF SUCH BOOKS WERE EXHAUSTED, THE BILL BOOKS WITHOUT THE NAME OF DOCTOR WERE BROU GHT TO USE AND SUBSEQUENTLY, WHEN SOME OF THE PATIENT STARTED OBJE CTING TO ACCEPT THE BILLS WITHOUT THE NAME OF THE ASSESSEE DOCTOR, THE NEW SE T OF BOOKS WITH THE NAME OF ASSESSEE DOCTOR GOT PRINTED IMMEDIATELY AND THOSE WHO HAD OBJECTED THE BILLS WITHOUT THE NAME OF THE ASSESSEE DOCTOR WERE RE-ISSUED THE IDENTICAL BILLS CONTAINING THE NAME OF THE ASSESSEE DOCTOR. HENCE, NO FRAUDULENT INTENTION ON THE PART OF THE ASSESSEE DO CTOR AND THE STAFF IN PREPARING 2 SETS OF BILL BOOKS AND THAT TOO FOR A B RIEF PERIOD OF 4 TO 6 MONTHS TO TIDE OVER THE OBJECTIONS RAISED BY SOME OF THE P ATIENTS SHOULD BE IMPUTED. HENCE, A SMALL IRREGULARITY IN RESPECT OF MAINTENAN CE OF BILL BOOKS CANNOT BE PORTRAYED AS A SYSTEMATIC AND PERPETUAL FRAUD COMMI TTED BY THE ASSESEE DOCTOR FOR ALL THE ASSESSMENT YEARS UNDER CONSIDERA TION. IT WAS FURTHER CONTENDED THAT EVEN IF IT IS ASSUMED THAT DUPLICATE SET OF BOOKS MAINTAINED POINTED OUT TOWARDS SUPPRESSION OF RECEIPTS IN RESP ECT OF X-RAY LABORATORY TESTS YET SUCH IRREGULARITY WAS LIMITED ONLY TO A B RIEF PERIOD COVERING ASSESSMENT YEAR 2005-06 AND AS SUCH THE ESTIMATION OF SUPPRESSION OF INCOME IF ANY OUGHT TO HAVE BEEN CONFINED TO SUCH A SSESSMENT YEAR WITHOUT BEING EXTENDED BACK TO COVER EARLIER ASSESSMENT YEA RS UPTO ASSESSMENT YEAR 2000-01. 6. WITH REGARD TO THE METHODOLOGY ADOPTED BY THE AS SESSING OFFICER, THE ASSESSEE HAS SUBMITTED BEFORE THE CIT(A) THAT THE M ETHODOLOGY OF ESTIMATION ADOPTED BY THE ASSESSING OFFICER HAS DANGEROUS CONS EQUENCES FOR HAVING NOT TAKEN ALL RELEVANT FACTS INTO CONSIDERATIONS AND BY BASING SUCH ESTIMATES ON ITA NOS.426 TO 429 OF 09 456 TO 459 OF 09 GRANDHI A RAVINDAM, RJY 5 CRUDE AVERAGE DERIVED FOR A SMALL SAMPLE HETEROGENE OUS DATA. THE FIRST METHOD OF ESTIMATION BASED ON THE NUMBER OF PATIENT S SUFFERS FROM INADEQUATE DATA ON ACCOUNT OF THE FACT THAT DATA OB TAINED IS FOR 4 MONTHS FROM APRIL, 2005 TO JULY, 2005 WHICH HAS BEEN PROJE CTED FOR NEXT TWO QUARTERS ON AVERAGE BASIS BY ASSUMING THAT NUMBER OF PATIENT S UNDERGOING INVESTIGATION IN A GIVEN PERIOD IS CONSTANT, THAT T HE SAME NUMBER OF PATIENTS HAVE UNDERGONE THE SAME TYPE OF INVESTIGATION AND T HAT THE AMOUNT COLLECTED FROM EACH PATIENT REMAINED CONSTANT FOR ALL THE 6 Y EARS IRRESPECTIVE OF INVESTIGATION HE OR SHE HAS UNDERGONE. HENCE, THE ESTIMATION MADE ON THE GENERALIZATION AND THE CRUDE AVERAGE OF HETEROGENEO US DATA IS FAR DETACHED FROM ACTUAL STATE OF AFFAIRS AND ACCORDINGLY IS NOT FAIR AND REALISTIC ONE. HOWEVER, THE SECOND METHOD BASED ON CONSUMPTION OF X-RAY FILMS PROVIDES A RELATIVELY TANGIBLE BASIS WHEREBY AN ATTEMPT HAS BE EN MADE BY THE ASSESSING OFFICER TO DISTINGUISH BETWEEN THE X-RAY RELATED BI LLS AND NON-XRAY RELATED BILLS. HOWEVER, CERTAIN CRITICAL DATA HAVE NOT BEE N CONSIDERED WITH REGARD TO THE CONSUMPTION OF X-RAY FILMS. THE A.O. HAS NOT T AKEN INTO ACCOUNT A NORMAL PERCENTAGE OF WASTAGE ARISEN FROM INCORRECT EXPOSURE OF X-RAY FILMS IN THE LIGHT OF ORTHOPAEDIC RELATED TREATMENTS. FURTH ER MORE THE EXTENT OF CONSUMPTION OF X-RAY FILMS BY ONGC, BSNL AND IN-PAT IENT SURGERY CASES IN RESPECT OF WHOM THE X-RAY AND LABORATORY TEST RECEI PTS STOOD ACCOUNTED FOR UNDER SEPARATE LEDGER HEADS HAVE NOT BEEN EXCLUDED FOR THE PURPOSE OF ESTIMATION OF RECEIPTS IN RESPECT OF DIFFERENT PATI ENT AND OTHER IN-PATIENTS. IF SUCH CRITICAL FACTS ARE TAKEN INTO ACCOUNT THEN THE SECOND METHOD OF ESTIMATION WOULD YIELD NEAR REAL APPROXIMATE INCOME FOR THE FINANCIAL YEARS 2004-05 RELEVANT TO ASSESSMENT YEAR 2005-06. 7. IT WAS FURTHER CONTENDED BEFORE THE CIT(A) THAT THE NAMEWISE DETAILS OF PATIENTS FROM ONGC, BSNL AND IN PATIENT SURGERY CATEGORY WERE FURNISHED BEFORE THE A.O. THEREFORE, THE CREDIT OF THE SAME OUGHT TO HAVE BEEN GIVEN BY HIM. THE LD. COUNSEL FOR THE ASSESSEE HAS FURNI SHED THE REVISED WORKING SHEET FOR ESTIMATION OF INCOME FOR THE ASSESSMENT Y EAR 2005-06 BASED ON THE FORMULA ADOPTED BY THE A.O. AFTER ALLOWING ALL THE NORMAL WASTAGE AT 5% AND ALSO AFTER EXCLUSION OF THE NUMBER OF X-RAY EXPOSUR E RELATABLE TO ONGC AND BSNL AND IN PATIENT SURGERY CASES WHICH IS REPRODUC ED AS UNDER: ITA NOS.426 TO 429 OF 09 456 TO 459 OF 09 GRANDHI A RAVINDAM, RJY 6 PARTICULARS NO. TOTAL PURCHASES: 10900 LESS: WASTAGE @ 5% 545 BALANCE: 10355 LESS: CONSUMPTION BY ONGC 2664 BSNL 77 IN-PATIENT SURGERY 693 3434 FILMS CONSUMED IN RESPECT OF OUT-PATIENTS AND OTHER IN-PATIENTS 6921 TOTAL X-RAY FILMS CONSUMED 6921 TOTAL NUMBER OF X-RAY RELATED BILLS 5021X65% 4499 NON X-RAY RELATED BILLS 3264 X 49% 2204 TOTAL NUMBER OF ACTUAL BILLS FOR THE FULL YEAR WOUL D BE 6703 8. THE CIT(A) RE-EXAMINED THE ISSUE IN THE LIGHT OF ASSESSEES CONTENTION AND VARIOUS JUDICIAL PRONOUNCEMENTS AND WAS OF THE VIEW THAT ADDITION CAN ONLY BE MADE IN THOSE YEARS FOR WHICH INCRIMINATING MATERIAL WAS FOUND DURING THE COURSE OF SEARCH. HE HAS ALSO EXAMINED THE MODE/FORMULA ADOPTED BY THE ASSESSEE FOR CALCULATION OF THE ESTI MATED INCOME AND WAS OF THE VIEW THAT ADDITION IN THE ASSESSMENT YEAR 2000- 01, 2001-02 & 2002-03 CANNOT BE MADE UNDER THIS HEAD BECAUSE NO INCRIMINA TING MATERIAL RELATING TO THESE YEARS WERE FOUND DURING THE COURSE OF SEARCH PROCEEDINGS. FOR THE ASSESSMENT YEAR 2003-04 TO 2006-07 THE CIT(A) HAS H ELD THAT SINCE THE INCRIMINATING MATERIAL RELATE TO THESE YEARS, THE A DDITION CAN BE MADE UNDER THIS HEAD IN THESE YEARS AND AFTER ACCEPTING THE CA LCULATION MADE BY THE ASSESSEE, THE CIT(A) HELD THAT IN A.Y. 2003-04 TO 2 006-07 THE NET ESTIMATED INCOME PER YEAR WOULD BE OF RS.12,22,704/-. HE HAS ALSO DIRECTED THE A.O. TO ALLOW FURTHER SET OFF THE PROFIT, DECLARED BY TH E ASSESSEE IN THE RETURNS OF THE RESPECTIVE ASSESSMENT YEARS. THE RELEVANT OBSE RVATION OF THE CIT(A) ARE EXTRACTED HEREUNDER: AFTER HEARING THE LEARNED AUTHORIZED REPRESENTATIVE ON A CAREFUL CONSIDERATION OF THE FACTS RELATING TO THE ISSUE, T HE FOLLOWING OBSERVATIONS MADE AND DECISIONS TAKEN:- (I) IT IS WELL SETTLED POSITION OF LAW THAT INCRIMINATI NG MATERIALS CONSTITUTE THE SINE QUA NON FOR DETERMINATION OF UNDISCLOSED I NCOME CONSEQUENT TO SEARCH OPERATION IN A PARTICULAR CASE. HOWEVER, IF COMPLETE INFORMATION IS UNAVAILABLE FOR THE WHOLE PERIOD (AC COUNTING YEAR) WITH ITA NOS.426 TO 429 OF 09 456 TO 459 OF 09 GRANDHI A RAVINDAM, RJY 7 REFERENCE TO WHICH INCRIMINATING MATERIAL IS DETECT ED, IN THAT SITUATION THE ASSESSING OFFICER COULD DETERMINE ANY UNDISCLOS ED INCOME FOR THE WHOLE PERIOD ON ESTIMATE BASIS. [CIT VS. C.J. SHAH AND CO. [2000] (246 ITR 671) (BOMBAY HIGH COURT)]. ESTIMATION NOR MALLY INVOLVES A CERTAIN DEGREE OF LATITUDE TO THE ASSESSING OFFICER . HOWEVER, THE COURTS HAVE GENERALLY HELD THAT POST SEARCH ASSESSM ENTS SHOULD BE MADE WITH REFERENCE TO THE SEIZED ASSETS AND MATERI ALS GATHERED DURING THE SEARCH, AND THAT IT MAY POSSIBLY INCLUDE THE RESULT OF FURTHER POST SEARCH ENQUIRY WITH REFERENCE TO SUCH MATERIAL S, BUT IT CANNOT PROVIDE AN OCCASION TO THE ASSESSING OFFICER TO REA PPRAISE THE MATERIALS ALREADY AVAILABLE ON RECORD AND REVIEW TH E ASSESSMENTS ALREADY MADE. IN OTHER WORDS, THE ESTIMATION OF IN COME IN SEARCH CASES IS NOT TO BE LIGHTLY MADE EXCEPT ON A CLEAR F INDING INDICATING JUSTIFICATION FOR THE SAME WITH REFERENCE TO RETURN FILED ON THE ONE HAND AND THE MATERIALS FOUND ON THE OTHER, AND ALSO SUCH ESTIMATE HAS TO BE BASED ON SOME PLAUSIBLE AND SCIENTIFIC METHOD OLOGY AND, AS SUCH, CANNOT BE ARBITRARY. IN THE CASE OF CIT VS. SMT. USHA TRIPATHI (249 ITR 4) (ALLAHABAD HIGH COURT) IT WAS HELD THAT ESTIMATE OF INCOME WITHOUT REFERENCE TO SEIZED INCRIMINATING DOCUMENTS COULD NOT BE UPHELD. FURTHERMORE, THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DR. M.K.E. MENON (248 ITR 310) HELD THAT WH ERE IN THE CASE OF THE PROFESSIONAL SOURCE OF INCOME, AN ESTIMATE WAS MADE BY MERELY PROJECTING THE PRESENT INCOME TO THE PAST, SUCH EST IMATE HAS TO BE TREATED AS ARTIFICIAL AND, AS SUCH, WOULD NOT BE JU STIFIED. (II) IN THE APPELLANTS CASE, DESPITE HIS PIOUS DE CLARATION TO THE EFFECT THAT HE MAINTAINED TWO SETS OF BILL BOOKS IN RESPECT OF THE RECEIPTS FROM X-RAY & LABORATORY TESTS FOR A BRIEF PERIOD TO TIDE OVER THE TEMPORARY SHORTAGE OF NAME BOOKS WITHOUT ANY FR AUDULENT INTENTION, THE FACT REMAINS IS THAT NO EXPLANATION, WHATSOEVER, HAS BEEN FURNISHED FOR RECORDING IN THE CASH BOOK ONLY THE LIMITED RECEIPTS AS PER THE NAME BOOKS CONTAINING THE NAME OF THE AP PELLANT DOCTOR TO THE EXCLUSION OF MORE AND HIGHER QUANTUM OF RECE IPTS AS RECORDED IN THE RECEIPT BOOKS WITHOUT THE NAME OF THE APPELL ANT DOCTOR. THE FACTS ELOQUENTLY SPEAK FOR THEMSELVES SO AS TO INDI CATE THAT FULL RECEIPTS FOR THE PERIOD 2.4.2005 TO 23.7.2005 HAD N OT BEEN ACCOUNTED FOR IN THE CASH BOOK. THUS, THE RECEIPT BOOKS FOR THE SAID PERIOD DO UNDOUBTEDLY CONSTITUTE INCRIMINATING MATERIAL FOR E NABLING THE ASSESSING OFFICER TO ESTIMATE THE UNDISCLOSED INCOM E FOR THE ASSESSMENT YEAR 2006-07. IT MAY ALSO BE MENTIONED THAT INCRIMINATING MATERIAL RELATING TO SUPPRESSED UNDIS CLOSED RECEIPTS WERE UNEARTHED DURING THE POST SEARCH INVESTIGATION PROC EEDINGS. ON EXAMINING ONE PATIENT NAMELY, SHRI N. JOHN RAJU, HE PRODUCED COPIES OF RECEIPTS FROM RECEIPT BOOKS PERTAINING TO THE PE RIOD 13.2.2003 TO 10.5.2004 COVERING ASSESSMENT YEARS 2003-04 TO 2005 -06 THAT WERE NOT RECORDED IN THE REGULAR BOOKS OF ACCOUNTS. HEN CE, IN THE APPELLANTS CASE INCRIMINATING MATERIAL DO EXISTS F OR THE ASSESSMENT YEARS 2003-04 TO 2006-07 (THE DETAILS HAVE BEEN ENU MERATED IN TABLE NO.1(5) AND TABLE NO.1(6) OF THE ASSESSMENT ORDER) SO AS TO JUSTIFY THE ESTIMATION OF DISCLOSED INCOME FOR SUCH FOUR AS SESSMENT YEARS. ITA NOS.426 TO 429 OF 09 456 TO 459 OF 09 GRANDHI A RAVINDAM, RJY 8 HOWEVER, THERE IS NO SCOPE FOR ESTIMATING ANY UNDIS CLOSED INCOME ON ACCOUNT OF X-RAY & LABORATORY TESTS RECEIPTS FOR TH E EARLIER ASSESSMENT YEARS 2000-01, 2001-02 AND 2002-03 ON THE REASONING THAT NO INCRIMINATING MATERIAL, WHATSOEVER, WAS FOUND DURIN G THE SEARCH OPERATION OR UNEARTHED DURING THE POST SEARCH INVES TIGATION IN RELATION TO THOSE ASSESSMENT YEARS. HENCE, THE ADDITIONS OF NET UNACCOUNTED INCOME FOR THOSE YEARS ARE LIABLE TO BE DELETED WHI CH ARE, HEREBY DELETED. HOWEVER, SO FAR AS THE ESTIMATION OF ANY SUPPRESSED INCOME FOR THE ASSESSMENT YEARS 2003-04 TO 2006-07 IS CONC ERNED, THEY HAVE TO BE ESTIMATED ON REALISTIC BASIS AFTER GIVING CRE DIT FOR THE NORMAL PERCENTAGE OF WASTAGE OF X-RAY FILMS IN THE LINE OF ORTHOPAEDIC TREATMENT AND ALSO AFTER GIVING REDUCTION OF THE NU MBER OF X-RAY EXPOSURES ATTRIBUTABLE TO ONGC, BSNL, AND IN-PATIEN T SURGERY CASES ON THE REASONING THAT THE RECEIPTS FROM SUCH CATEGORY OF PATIENTS STAND ALREADY DISCLOSED VIDE SEPARATE LEDGER HEAD ACCOUNT S. IT IS UNFORTUNATE THAT BEFORE FORMULATING THE ADDITIONS O N THIS ISSUE, THE ASSESSING OFFICER HAD NOT GIVEN AN OPPORTUNITY TO T HE APPELLANT TO EXPLAIN HIS CASE, AS A CONSEQUENCE OF WHICH, THE AP PELLANT WAS CONSTRAINED TO EXPLAIN DURING THE APPELLATE PROCEED INGS HIS VIEW POINT ABOUT THE MODALITIES OF THE ESTIMATION ON THE BASIS OF THE CONSUMPTION OF X-RAY FILMS RELATABLE ONLY TO OUT-PATIENTS AND O THER IN-PATIENTS. THE APPELLANT HAS ALSO NOT DISPUTED THE FORMULA ADOPTED FOR COMPUTATION OF THE ESTIMATED INCOME FROM X-RAY & LABORATORY TES TS, ACCORDING TO WHICH, THE ESTIMATED INCOME PER YEAR WORKS OUT TO R S.16,75,750/-. AFTER REDUCING THE EXPENDITURE DEBITED UNDER THE HE AD LABORATORY MAINTENANCE OF RS.4,53,046/-, THE NET ESTIMATED IN COME PER YEAR WOULD WORK OUT TO RS.12,22,704/-. ACCORDINGLY, THE ESTIMATED INCOME PER YEAR WOULD WORK OUT TO RS.12,22,704/-. ACCORDI NGLY, THE ESTIMATED INCOME FOR THE PART-PERIOD FALLING UNDER THE ASSESS MENT YEAR 2006-07 WOULD WORK OUT TO RS.4,07,568/-. HOWEVER, WHILE GI VING EFFECT TO THIS APPELLATE ORDER, THE ASSESSING OFFICER WOULD DO WEL L TO ALLOW FURTHER SET OFF OF THE DECLARED PROFITS IN THE RETURNS OF T HE RESPECTIVE ASSESSMENT YEARS FROM ASSESSMENT YEAR 2003-04 TO 20 06-07 AND, THEREAFTER, COMPUTE THE NET ASSESSMENT YEAR-WISE AD DITIONS. ACCORDINGLY, THE BALANCE ASSESSMENT YEAR-WISE ADDIT IONS SHALL STAND DELETED. 9. AGGRIEVED, THE ASSESSEE AS WELL AS THE REVENUE H AS PREFERRED THEIR APPEALS. THE LD. COUNSEL FOR THE ASSESSEE HAS CONT ENDED THAT THE ASSESSEE HAS GIVEN THE EXAMPLE OF WORKING OF CALCULATION OF THE ESTIMATED INCOME ONLY FOR ONE YEAR. THE CIT(A) ADOPTED THAT FIGURE IN ALL ASSESSMENT YEARS INSTEAD OF ADOPTING THE FORMULA TO COMPUTE THE ESTI MATED INCOME FOR OTHER YEARS. THE LD. COUNSEL FOR THE ASSESSEE FURTHER CO NTENDED THAT THE ADDITION CAN ONLY BE MADE WITH RESPECT TO THE INCRIMINATING MATERIAL FOUND DURING THE COURSE OF SEARCH IF THE ASSESSEE IS NOT ABLE TO EXP LAIN THE SEARCH MATERIAL WITH RESPECT TO THE REGULAR BOOKS MAINTAINED BY IT. WHATEVER EXPLANATIONS ITA NOS.426 TO 429 OF 09 456 TO 459 OF 09 GRANDHI A RAVINDAM, RJY 9 WERE FURNISHED BY THE ASSESSEE, THEY WERE NOT PROPE RLY LOOKED INTO BY THE CIT(A) WHILE MAKING AN ADDITION. 10. THE LD. D.R. ON THE OTHER HAND HAS PLACED A HEA VY RELIANCE UPON THE ORDER OF THE A.O. 11. HAVING HEARD THE RIVAL SUBMISSIONS AND FROM A C AREFUL PERUSAL OF THE RECORD, WE FIND THAT DURING THE COURSE OF SEARCH TW O SETS OF BOOKS OF ACCOUNTS WERE FOUND AND THE RECEIPTS SHOWN IN THE R ECEIPT BOOK WERE MORE THAN THE OTHER SET OF BOOKS OF ACCOUNTS KNOWN AS N AME BOOK. THE A.O. HAS WORKED OUT THE EXCESS RECEIPTS OF A PARTICULAR PERIOD THEN EXTRAPOLATED THE SAME FOR COMPUTING THE SUPPRESSED INCOME FOR OT HER ASSESSMENT YEARS. IT IS A SETTLED POSITION OF LAW THAT WHILE FRAMING THE ASSESSMENT CONSEQUENT TO THE SEARCH, THE ADDITION SHOULD BE CONFINED ON T HE BASIS OF THE INCRIMINATING EVIDENCE FOUND DURING THE COURSE OF S EARCH. THE ADDITIONS COMPUTED ON THE BASIS OF SEIZED MATERIAL SHOULD NOT BE EXTRAPOLATED TO ESTIMATE THE INCOME FOR OTHER ASSESSMENT YEARS. TH E A.O. HAS ADOPTED TWO MODE OF CALCULATION TO ESTIMATE INCOME BUT BOTH OF THEM WERE PURELY ON ESTIMATE BASIS AND THAT CANNOT BE CALLED TO BE A RE ALISTIC APPROACH. DURING THE COURSE OF HEARING BEFORE THE CIT(A), THE ASSESS EE HAS FURNISHED THE MODE OF CALCULATION OF ESTIMATED INCOME ON THE BASI S OF SEIZED MATERIAL AND CALCULATED THE INCOME UNDER THIS HEAD AT RS.16,75,7 15/- FOR THE FINANCIAL YEAR 2004-05. THE MODE OF CALCULATION FURNISHED BY THE ASSESSEE APPEARS US TO BE MORE REALISTIC. THE CIT (A) HAS ACCEPTED THE SAME AND CALCULATED THE INCOME FROM X-RAY AND LABORATORY TEST AT RS.12, 22,704/- AFTER REDUCING IT BY THE EXPENDITURE DEBITED UNDER THE HEAD LABORATOR Y MAINTENANCE. THE CIT(A) FURTHER DIRECTED THE A.O. TO ALLOW A FURTHER SET OFF OF THE DECLARED PROFIT IN THE RETURN OF INCOME. THE CIT(A) HAS EST IMATED THE SAME FIGURE OF ESTIMATED INCOME AT RS.12,22,704/- FOR THE ASSESSME NT YEAR 2003-04 TO 2006-07 WITHOUT VERIFYING THAT NUMBER OF PURCHASED OR THE CONSUMED OF X-RAY FILMS ARE SAME OR DIFFERENT. WE THEREFORE, S LIGHTLY MODIFY THE ORDER OF THE CIT(A) AND HOLD THAT WHILE ESTIMATING THE INCOM E FOR THE ASSESSMENT YEARS 2003-04 TO 2006-07 AN OPPORTUNITY SHOULD ALSO BE AFFORDED TO THE ASSESSEE TO VERIFY THE NUMBER OF FILMS PURCHASED AN D CONSUMED BY IT. THE ITA NOS.426 TO 429 OF 09 456 TO 459 OF 09 GRANDHI A RAVINDAM, RJY 10 CIT(A) HAS RIGHTLY DELETED THE ADDITION FOR THE ASS ESSMENT YEAR 2000-01 TO 2002-03 ON THE GROUND THAT NO INCRIMINATING MATERIA L WAS FOUND DURING THE COURSE OF SEARCH. NOTHING HAS BEEN BROUGHT ON RECO RD BY THE REVENUE TO CONTRADICT THESE OBSERVATIONS OF THE CIT(A). WE TH EREFORE, CONFIRM HIS ORDER IN THIS REGARD ALSO. SINCE CIT(A) HAS EXAMINED THI S ISSUE IN THE RIGHT PERSPECTIVE AND ALSO IN THE LIGHT OF VARIOUS JUDGEM ENTS, WE FIND NO INFIRMITY IN IT, WE THEREFORE, CONFIRM THE SAME WITH SLIGHT M ODIFICATION AS INDICATED ABOVE. ESTIMATED ADDITIONS ON ACCOUNT OF SUPPRESSION OF RE CEIPT ON TREATMENT OF IN-PATIENTS:- 12. THE FACTS IN BRIEF BORNE OUT FROM THE RECORD AR E THAT DURING THE COURSE OF SEARCH OPERATION, THE SEARCH PARTY FOUND REGISTE RS, DOCUMENTS AND COMPUTERIZED ACCOUNTS RELATING TO THE YEARWISE RECE IPTS IN RESPECT OF IN PATIENTS AND ON EXAMINATION OF THE SAME, IT WAS CON CLUDED THAT IN PATIENT REGISTER HAS NOT BEEN PROPERLY MAINTAINED AND ALSO THE RECEIPT/BILL BOOKS HAD NOT BEEN MAINTAINED IN A CHRONOLOGICAL ORDER AND AL SO THAT CERTAIN DUPLICATE SET OF RECEIPTS/BOOKS HAVE BEEN MAINTAINED. THE PA YMENT RECEIVED IN CASH HAVE NOT BEEN FULLY ACCOUNTED FOR IN THE COMPUTERIZ ED ACCOUNTS. ON EXAMINATION OF THE SEIZED MATERIAL, THE SEARCH PART Y OBSERVED VARIOUS INFIRMITIES THEREIN. TAKING INTO ACCOUNT ALL THE A BOVE INFIRMITIES THE ASSESSING OFFICER HELD THAT BOOKS OF ACCOUNTS WERE FABRICATED ON A LARGE SCALE BY INCORPORATING BOGUS ENTRIES AT LATER DATES FOR THE PURPOSE OF SUPPRESSION OF THE IN-PATIENT RECEIPTS, THEREBY MAKING THE COMPUTE RIZED BOOKS OF ACCOUNTS WITH REGARD TO THE IN-PATIENT RECEIPTS UNRELIABLE. AFTER REJECTING THE SAME, THE A.O. ESTIMATED THE IN-PATIENT RECEIPTS FOR ALL THE ASSESSMENT YEARS UNDER CONSIDERATION BASED ON THE NUMBER OF PATIENTS TREAT ED FOR THE PERIOD 23.8.2004 TO 2.8.2005 AS PER THE WARD BOOK WITH REF ERENCE TO AVERAGE RECEIPT VALUE PER PATIENT PER DAY AS MULTIPLIED BY THE TOTA L NUMBER OF DAYS OCCUPIED BY ALL THE PATIENTS DURING THE RELEVANT PERIOD. TH E ASSESSING OFFICER FURTHER TRIED TO ESTIMATE THE AVERAGE NUMBER OF SURGERIES A ND NON-SURGERY RELATED IN- PATIENTS BASED ON THE PROPORTION OF SUCH PATIENTS F OR THE FINANCIAL YEAR 2003- 04, THE INFORMATION IN RESPECT OF WHICH STOOD ALREA DY FILED BEFORE THE DEPARTMENT. ITA NOS.426 TO 429 OF 09 456 TO 459 OF 09 GRANDHI A RAVINDAM, RJY 11 13. THE ASSESSING OFFICER CONSIDERED THE TOTAL NUMB ER OF PATIENTS 495 BETWEEN THE PERIOD 23.8.2004 TO 2.8.2005 AS THE AVE RAGE NUMBER OF PATIENTS WHO MUST HAVE BEEN TREATED FOR EACH OF THE ASSESSME NT YEAR UNDER CONSIDERATION AND THERE AFTER, HE APPLIED THE RATIO TO 73% FOR THE SURGERY CASES AND ARRIVED AT NUMBER OF PATIENTS AT 361 AND NON-SURGERY CASES OF 27% AND ARRIVED AT THE NUMBER PATIENTS AT 134. THE REAFTER HE MULTIPLIED THE ESTIMATED RECEIPT FROM SURGERY CASES AT RS.13,000/- AND FROM NON-SURGERY CASES AT RS.1400/- PER PATIENT AND COMPUTED THE APP ROXIMATE TOTAL RECEIPTS OF 495 PATIENTS IN AN YEAR AT RS.45,55,600/-. THE ASSESSING OFFICER SOUGHT TO ALSO RELY ON A SECOND METHOD OF ESTIMATION ON THE B ASIS OF DATA RELATING TO THE FINANCIAL YEAR 2003-04 COVERING INFORMATION REG ARDING THE NUMBER OF PATIENTS TREATED ALONG WITH THE DETAILS OF PAYMENTS COLLECTED AND THERE AFTER ARRIVED AT THE APPROXIMATE FIGURE OF 46 LAKH PER YE AR. THUS THE ASSESSING OFFICER CONSIDERED THE ESTIMATED RECEIPT FROM THE P ATIENTS FOR THE ASSESSMENT YEAR 2000-01 TO 2005-06 AT RS.46 LAKHS FOR EACH OF SUCH ASSESSMENT YEAR AND FOR THE ASSESSMENT YEAR 2006-07 COVERING A PART PERIOD UPTO THE DATE OF SEARCH HE ESTIMATED THE RECEIPT AT RS.15,30,000/-. AFTER GIVING A CREDIT FOR THE ALREADY ADMITTED RECEIPTS HE DETERMINED THE BAL ANCE UNACCOUNTED RECEIPT AT RS.41,48,813/-, RS.39,59,691/-, RS.38,41,218/-, RS.35,70,285/-, RS.32,53,092/-, RS.46 LAKHS AND RS.15,30,000/- FOR THE ASSESSMENT YEAR 2000-01, 2001-02, 2002-03, 2003-04, 2004-05, 2005-0 6 & 2006-07 RESPECTIVELY. 14. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) WITH THE SUBMISSION THAT WHILE MAKING THE ESTIMATED ADDITION S FOR ALL THE ASSESSMENT YEARS UNDER CONSIDERATION NO OPPORTUNITY WHATSOEVER WAS AFFORDED TO THE ASSESSEE TO SUBMIT HIS CLARIFICATION AND CONTENTION AGAINST ANY PROPOSED ADDITIONS. EVEN OTHERWISE, THE BASIS OF THE ESTIMA TION FOR A PARTICULAR YEAR IN RESPECT OF WHICH DEFICIENCY OR DISCREPANCIES HAVE BEEN NOTICED COULD NOT BE CORRELATED WITH THE FACTS OF DIFFERENT ASSESSMENT Y EARS IN RESPECT OF WHICH NO MATERIAL WAS FOUND DURING THE SEARCH OPERATION. TH E NUMBER OF PATIENTS SHOWN IN THE WARD BOOK PERTAINING TO THE MAJOR PART OF THE FINANCIAL YEAR 2004-05 AND A MINOR PART OF THE FINANCIAL YEAR 2005 -06. AS SUCH THE IDENTICAL ITA NOS.426 TO 429 OF 09 456 TO 459 OF 09 GRANDHI A RAVINDAM, RJY 12 NUMBER OF PATIENTS CANNOT BE PROJECTED BACK FOR THE EARLIER ASSESSMENT YEARS IN A STRAIGHT JACKET MANNER ON THE GROUND THAT NUMB ER OF PATIENTS TREATED DIFFER FROM YEAR TO YEAR AND ASSESSING OFFICER WAS NOT EQUIPPED WITH ANY SPECIFIC FIGURE FOR EACH OF THE RELEVANT ASSESSMENT YEARS. IT WAS FURTHER CONTENDED THAT IT WAS IMPROPER AND UNFAIR ON THE PA RT OF THE A.O. TO HAVE USED THE DATA ARISING OUT OF THE OMISSIONS, COMMISS IONS AND ERRORS RELEVANT TO THE PARTICULAR ASSESSMENT YEAR AS THE BASIS TO E STIMATE THE INCOME OF OTHER YEARS IN RESPECT OF WHICH NO MATERIAL EVIDENCING AN Y SUPPRESSION OF RECEIPTS OR OTHER IRREGULARITIES HAVE BEEN FOUND DURING THE SEARCH OR ASSESSMENT PROCEEDINGS. 15. WITH REGARD TO THE OBSERVATION OF THE A.O. THAT THE RECORDING OF TWO IN-PATIENT RECEIPTS IN CASH BOOK PRE-DATES THE RESP ECTIVE DATES OF DISCHARGE OF THE PATIENTS BY A YEARS TIME AND ONE IN-PATIENT RE CEIPT POST DATES DISCHARGE OF A PATIENT BY A YEARS TIME, IT WAS SUBMITTED THA T THERE ARE ONLY 3 ENTRIES OF SUCH ERROR WHICH HAS ARISEN ON ACCOUNT OF KEYING ER ROR BY THE ACCOUNTANT OF THE ASSESSEES WHILE USING THE TALLY-PACKAGE OF ACCO UNTING FOR RECORDING ENTRIES. HENCE, NO MALAFIDE INTENTION SHOULD BE AT TRIBUTABLE TO SUCH TECHNICAL ERROR WHICH OFTEN ARISE ON USE OF TALLY-PACKAGE OF ACCOUNTING. WITH REGARD TO THE OBSERVATIONS OF A.O. IN RESPECT OF SUPPRESSION OF IN-PATIENT RECEIPT IN SOME CASES, IT WAS CONTENDED THAT FIGURES RECORDED IN THE RELEVANT SEIZED MATERIAL WERE NOT ACTUALLY IN PATIENT BILLS, BUT ME RE ROUGH ESTIMATES WHICH DO NOT REFLECT THE ACTUAL COLLECTION FROM THE PATIENTS . 16. THE METHOD OF ESTIMATION ADOPTED BY THE A.O. WA S ALSO QUESTIONED BY THE ASSESEE THAT IN THIS METHOD CERTAIN CRITICAL FA CTS WERE NOT TAKEN INTO CONSIDERATION. FIRSTLY, THE ANALYSIS OF 495 PATIEN TS CULLED OUT FROM THE WARD BOOK PERTAINING TO THE PERIOD AUGUST, 2004 AND JULY , 2005 WHICH COVERS TWO FINANCIAL YEARS. BESIDES, THE ASSESSING OFFICER IN CORRECTLY TAKEN ALL PATIENTS IN THE WARD BOOK AS REGULAR IN PATIENT WITH ACTUAL AMO UNT OF BILLING. EVEN THE DIVISION BETWEEN THE SURGERY AND NON-SURGERY CASES HAS BEEN TAKEN ON THE BASIS OF PROPORTION AS PREVAILING FOR THE FINANCIAL YEAR 2003-04 WHICH IS NOT CORRECT SINCE THE SURGERY AND NON-SURGERY ARE NOT C ONSTANT BUT COULD VARY UPWARDLY AND DOWNWARDLY FROM PERIOD TO PERIOD. ITA NOS.426 TO 429 OF 09 456 TO 459 OF 09 GRANDHI A RAVINDAM, RJY 13 17. IN ORDER TO PRESENT A PROPER PICTURE OF THE PAT IENTS, THE ASSESSEE HAS DEVISED SEVEN CATEGORIES OF PATIENTS I.E. (A) DAY C ARE (B) LAMA (C) MLC (D) ONGC (E) BSNL (F) FREE AND (G) IN-PATIENTS-OTHERS. HE HAS ALSO CALCULATED THE NUMBER OF PATIENTS ON THE BASIS OF MATERIAL AVA ILABLE AND THE TABLE PREPARED BY THE ASSESSEE IS EXTRACTED HEREUNDER: 18. THE LD. COUNSEL FOR THE ASSESSEE FURTHER EXPLAI NED THAT DAY CARE PATIENTS ARE LIKE OUT-PATIENTS WHO COME FOR CONSULT ATION AND LEAVE IMMEDIATELY AFTER PAYING MINIMUM CONSULTATION FEES. THE PATIENT UNDER THE SECOND CATEGORY NAMELY LAMA REFERS TO CASES LEFT A GAINST MEDICAL ADVICE IN RESPECT OF WHOM NO FEES ARE COLLECTED. THE PATIENT S SHOWN UNDER THE CATEGORY MLC, ONGC, BSNL, FREE AND OTHERS ARE IN-PA TIENTS IN REAL TERMS FROM OUT OF WHICH NO FEES ARE COLLECTED IN RESPECT OF FEE CATEGORY. AS REGARDS THE ONGC AND BSNL CATEGORY OF PATIENTS, THE PAYMENT S ARE RECEIVED ONLY THROUGH CHEQUE AND THUS THEY STAND ALREADY ACCOUNTE D FOR AND HENCE THERE IS NO QUESTION OF ANY SUPPRESSION OF IN-PATIENT RECEIP TS FROM SUCH PATIENTS. AS REGARDS, THE MLCS (MEDICO LEGAL CASES) IN MOST OF S UCH CASES, THE FINAL PAYMENTS ARE RECEIVED ONLY AFTER SOME TIME GAP AND JUST ON THE EVE OF SETTLEMENT OF CASES BEFORE LOK ADALAT AND COURTS OF LAW. THE LAST CATEGORY OF PATIENTS FROM WHOM IN PATIENT RECEIPTS ARE COLLE CTED FOR OTHER TREATMENT OR SURGERY DEPENDING ON THE FACTS OF EACH CASES AND IT WAS PROBABLY SUCH CATEGORY OF PATIENTS THAT WAS IN THE MIND OF THE AS SESSING OFFICER WHICH PROMPTED HIM TO APPLY HIS FORMULA TO THE TOTAL NUMB ER OF PATIENTS IN THE WARD BOOK, WHEREAS SUCH PATIENTS ARE FEW AND FAR IN BETWEEN AND A MINOR S.NO. CATEGORY F.Y. 2004 - 05 A.Y. 2005-06 F.Y. 2005 - 06 UPTO 03-08-05 TOTAL 1 DAY CARE 85 48 133 2 LAMA 10 4 14 3 MLC 34 11 45 4 ONGC 27 7 34 5 BSNL 11 9 20 6 FREE 8 4 12 7 IN - PATIENTS - OTHERS 141 96 237 TOTAL 495 ITA NOS.426 TO 429 OF 09 456 TO 459 OF 09 GRANDHI A RAVINDAM, RJY 14 PERCENTAGE OF SUCH PATIENTS UNDERGOES SURGERY. THE REFORE, THE METHOD OF ESTIMATION ADOPTED BY THE A.O. IS ALSO NOT VALID. 19. THE LD. COUNSEL FOR THE ASSESSEE FURTHER CLARIF IED THAT AS PER THE TABULAR CHART, THE OTHER IN-PATIENTS AND MEDICO LEG AL CASES AGGREGATE TO 282 PATIENTS. APPLYING THE FORMULA ADOPTED BY THE A.O. OF 73% TOWARDS SURGICAL CASES, THE NUMBER OF PATIENTS WORKS OUT TO AROUND 2 06 CASES WHICH WHEN MULTIPLIED BY THE APPROXIMATE EXPENSES PER PATIENT AS DETERMINED BY THE A.O. OF RS.13,000/- WORKED OUT TO RS.25,78,000/-. SINCE DAY CARE PATIENTS ARE CONSULTATION OUT PATIENTS NUMBERING 133 BY ADOP TING THE MINIMUM CONSULTATION FEE DETERMINED BY THE A.O. OF RS.300/- PER PATIENT, THE TOTAL FEES WORKS OUT TO RS.39,900/-. THE ONGC AND BSNL CASES AGGREGATE INTO 54 CASES QUALIFIES TO BE EXCLUDED FROM THE ESTIMATION SINCE RECEIPT FROM SUCH CASES STAND ALREADY ACCOUNTED FOR BY WAY OF CHEQUE PAYMENTS. THE LAMA AND FREE CATEGORY OF CASES AGGREGATE INTO 26 CASES ARE ALSO REQUIRED TO BE OUT OF THE SCOPE OF ESTIMATION. ACCORDINGLY, THE M AXIMUM INCOME THAT COULD BE ESTIMATED AS PER THE FORMULA ADOPTED BY THE A.O. WORKS OUT TO A SUM OF RS.27,17,900/- IN A.Y. 2005-06 AND 2006-07. 20. IN RESPECT OF OTHER ASSESSMENT YEARS NO INCRIMI NATING MATERIAL WAS FOUND. THEREFORE, NO ADVERSE CONCLUSION CAN BE DRA WN. 21. THE CIT(A) RE-EXAMINED THE ISSUE AND PARTLY CON VINCED WITH THE EXPLANATIONS OF THE ASSESSEES AND THEREAFTER RESTRI CTED THE ADDITION OF RS.29,41,100/- FOR THE ASSESSMENT YEAR 2005-06 AND RS.9,80,367/- FOR THE ASSESSMENT YEAR 2006-07. THE ENTIRE ADDITIONS PERT AINING TO ASSESSMENT YEAR 2000-01 TO 2004-05 HAS BEEN DELETED. THE RELE VANT OBSERVATION OF THE CIT(A) ARE EXTRACTED HEREUNDER: AFTER HEARING THE LEARNED AUTHORIZED REPRESENTATIVE AND ON A CAREFUL CONSIDERATION OF THE FACTS RELATING TO THE ISSUE, THE FOLLOWING O BSERVATIONS MADE AND DECISIONS TAKEN:- (I) THIS BEING A SEARCH ASSESSMENT CASE, IT WOULD HAVE BEEN APPROPRIATE ON THE PART OF THE ASSESSING OFFICER TO HAVE AFFORDED AN OPPORTUNITY BY PROPOSING THE QUANTUM OF THE ADDITIONS AND DISALLOWANCES TOGETHER WITH THE METHO D OF ITA NOS.426 TO 429 OF 09 456 TO 459 OF 09 GRANDHI A RAVINDAM, RJY 15 QUANTIFICATION OF SUCH ADDITIONS AND DISALLOWANCES BEFORE EFFECTING THEM. SUCH ACTION ON THE PART OF THE ASS ESSING OFFICER HAS RESULTED IN A TOTAL DENIAL OF THE PRINCIPLES OF NATURAL JUSTICE OF BEING HEARD, NOTWITHSTANDING THE FACT THAT VARIO US IRREGULARITIES, OMISSIONS AND COMMISSIONS WERE DETE CTED DURING THE SEARCH PROCEEDINGS IN THE APPELLANTS CASE. AL THOUGH THE APPELLANT HAS TRIED TO EXPLAIN DURING THE APPELLATE PROCEEDINGS HIS POINT OF VIEW ON CERTAIN CRITICAL OBSERVATIONS OF THE ASSESSING OFFICER WITH REGARD TO THE DEFECTS IN THE MAINTENAN CE OF BOOKS OF ACCOUNTS, YET IT IS AN UNDENIABLE FACT THAT NOT ONLY THERE EXIST IRREGULARITIES, OMISSIONS AND COMMISSIONS IN THE MA INTENANCE OF THE BOOKS OF ACCOUNTS, BUT DOCUMENTS CONTAINING THE INFORMATION ABOUT IN-PATIENT RECEIPTS THAT HAVE NOT BEEN RECORDED IN THE REGULAR BOOKS OF ACCOUNTS MAINTAINE D IN THE TALLY-PACKAGE OF ACCOUNTING HAVE BEEN DETECTED WHIC H CLEARLY INDICATE THAT IN-PATIENT RECEIPTS IN SOME CASES HAV E NOT BEEN ACCOUNTED FOR BY THE APPELLANT DURING THE PERIOD CO VERING PART OF THE ACCOUNTING YEARS 2004-05 AND 2005-06, SUCH IRREGULARITIES, OMISSIONS AND COMMISSIONS DO CLEARL Y INDICATE THAT THINGS ARE NOT NORMAL AND FAIR WITH REGARD TO MAINTENANCE OF ACCOUNTS IN GENERAL AND ADMISSION OF IN-PATIENT RECEIPTS IN PARTICULAR. HENCE, THE DETERMINATION OF INCOMES FO R THE RELEVANT ASSESSMENT YEARS IN RESPECT OF WHICH SEARCH MATERIA L EXIST WHICH POINT TO THE FULL SUPPRESSION AND PARTIAL SUP PRESSION OF IN- PATIENT RECEIPTS IS IMPERATIVE. HOWEVER, THE METHO D OF ESTIMATION ADOPTED BY THE ASSESSING OFFICER CLEARLY SUFFERS FROM LACUNA AS SUBMITTED BY THE LEARNED AUTHORIZED REPRE SENTATIVE DURING THE APPELLATE PROCEEDINGS, IN AS MUCH AS, TH E WARD BOOK REGISTER CONTAINS NOT ONLY THE PATIENTS IN RESPECT OF WHOM CONSULTATION AND SURGERY CHARGES HAVE BEEN COLLECTE D BUT ALSO VARIOUS OTHER CATEGORIES OF PATIENTS FROM WHOM NO R ECEIPTS ARE COLLECTED AND ALSO THOSE FROM WHOM RECEIPTS STOOD A CCOUNTED FOR THROUGH CHEQUE PAYMENTS. EVEN THE BIFURCATION O F SURGERY AND NON-SURGERY CASES BY ADOPTING THE PROPORTION AS APPEARING FOR THE ACCOUNTING YEAR 2003-04 IS NOT SCIENTIFIC A ND APPROXIMATE FOR THE REASON THAT THE NUMBER OF SURGE RY CASES AND NON-SURGERY CASES DIFFER FROM YEAR TO YEAR. (II) NEVERTHELESS, EVEN WHILE ACCEPTING THE METHODOLOGY OF BIFURCATION BETWEEN SURGERY AND NON-SURGERY CASES O N PERCENTAGE BASIS AND THE DETERMINATION OF APPROXIMA TE RECEIPTS FROM SURGERY AND NON-SURGERY CASES, AS ADOPTED BY T HE ASSESSING OFFICER, YET THE ESTIMATION OF THE APPROX IMATE IN- PATIENT RECEIPTS FOR A YEAR COVERED BY THE INCRIMIN ATING MATERIALS WOULD WORK OUT TO A SUBSTANTIAL LOWER FIG URE IF THE INFORMATION REGARDING THE CATEGORY-WISE NUMBER OF C ASES AS RECORDED IN THE WARD BOOK ARE TAKEN INTO CONSIDERAT ION. AS PER THE CHART FURNISHED ON BEHALF OF THE APPELLANT ON T HE BASIS OF THE WARD BOOK FOUND DURING THE SEARCH OPERATION AS SUPPORTED BY CASE SHEET REPORTS, THERE ARE 133 DAY CARE CASES , 45 MEDICO LEGAL CASES, 237 OTHER IN-PATIENT CASES, 34 ONGC CA SES, 20 ITA NOS.426 TO 429 OF 09 456 TO 459 OF 09 GRANDHI A RAVINDAM, RJY 16 BSNL CASES, 14 LAMA CASES AND 12 FREE CASES. OUT O F THESE CATEGORIES, ONGC AND BSNL CASES HAVE TO BE EXCLUDED SINCE THE RECEIPTS FROM SUCH PATIENTS HAVE ALREADY BEEN A CCOUNTED FOR SEPARATELY BY WAY OF CHEQUE PAYMENTS. THE OTHER IN -PATIENT CASES AND MEDICO LEGAL CASES AGGREGATE TO 282 CASES , 73% OF WHICH COULD BE ATTRIBUTABLE TO SURGERY CASES. IT H AS BEEN CLAIMED THAT 12 CASES HAVE BEEN DEALT WITH FREE OF COST. HOWEVER, IN THE ABSENCE OF ANY CONVINCING SUPPORTIN G EVIDENCE, SUCH 12 CASES ARE ALSO REQUIRED TO BE CLUBBED WITH MEDICO LEGAL CASES AND OTHER IN-PATIENT CASES WHICH WOULD WORK O UT TO A TOTAL OF 294 CASES. ON SUCH TOTAL FIGURE THE RATIO OF 73% AND 27% IN RESPECT OF SURGERY & NON-SURGERY CASES, RESP ECTIVELY, NEED TO BE APPLIED. (III) APPLYING THE DETERMINANT SUMS OF RS.13,000 AND RS.1 ,400 TOWARDS SURGERY AND NON-SURGERY CASES, RESPECTIVELY , THE 214.62 IN-PATIENT SURGERY CASES WOULD WORK OUT TO A SUM OF RS.27,90,060/- AND THE 79.38 IN-PATIENT NON-SURGERY CASES WOULD WORK OUT TO A SUM OF RS.11,11,32, RESPECTIVEL Y. IT HAS BEEN PLEADED THAT THE DAY-CARE CASES ARE OUT-PATIEN T TYPE OF PATIENTS IN RESPECT OF WHOM MERE CONSULTATION AND T HE NURSING CHARGES ARE RECEIVED @RS.300 PER PATIENT SO THAT TH E ESTIMATE COULD BE MADE WITH REFERENCE TO RS.300 PER PATIENT. IN THIS REGARD, IT MAY BE STATED THAT THE CONSULTATION AND NURSING CHARGES AGGREGATING TO RS.300 CONFORM TO THE FIGURE OF MINIMUM CONSULTATION FEES DETERMINED BY THE ASSESSI NG OFFICER VIDE TABLE 3(12) OF THE ASSESSMENT ORDER. HENCE, T HE APPROXIMATE IN-PATIENT RECEIPTS IN RESPECT OF DAY-C ARE PATIENTS OF 133 CASES WORKS OUT TO A SUM OF RS.39,900/-. TH IS LEAVES 14 LAMA CASES OUT OF THE PURVIEW OF ANY ESTIMATED IN-P ATIENT RECEIPTS FOR THE REASON THAT IN SUCH CASES THE PATI ENTS AFTER PRELIMINARY EXAMINATION, ARE FOUND TO BE NOT SUFFER ING FROM ANY MEDICAL PROBLEM AND, HENCE, LEFT UNTREATED. THUS, THE ESTIMATED APPROXIMATE IN-PATIENT RECEIPTS FOR A FUL L YEAR BASED ON THE METHODOLOGY AND PARAMETERS ADOPTED BY THE AS SESSING OFFICER WORKS OUT TO A SUM OF RS.29,41,092 ROUNDED OFF TO RS.29,41,100/-. HENCE, FOR THE ASSESSMENT YEAR 200 5-06 IN RESPECT OF WHICH PARTIAL OR FULL SUPPRESSION OF IN- PATIENT RECEIPTS HAVE BEEN DETECTED, THE INCOME THEREOF IS REQUIRED TO BE ESTIMATED AT RS.29,41,100/-. FURTHERMORE, SINCE TH E INCRIMINATING MATERIALS ALSO COVER A PORTION OF THE SUBSEQUENT ASSESSMENT YEAR 2006-07 BY ABOUT FOUR MONTHS UPTO T HE DATE OF SEARCH OPERATION, THE IN-PATIENT RECEIPTS THEREO F COULD ALSO BE ESTIMATED PROPORTIONATELY AT RS.9,80,367/-. AS NO DIRECT INCRIMINATING MATERIALS HAVE BEEN FOUND IN RESPECT OF THE EARLIER ASSESSMENT YEARS EXCEPT FOR CERTAIN CONDONABLE MINO R IRREGULARITIES, THERE IS NO SCOPE FOR ESTIMATION OF RECEIPTS FROM IN-PATIENTS OVER AND ABOVE THE ADMITTED RECEIPTS FO R THE ASSESSMENT YEARS 2000-01 TO 2004-05. HENCE, EXCEPT FOR THE ESTIMATED INCOME IN THE AFORESTATED MANNER OF RS.29 ,41,100/- FOR THE ASSESSMENT YEAR 2005-06 AND RS.9,80,367/- F OR THE ITA NOS.426 TO 429 OF 09 456 TO 459 OF 09 GRANDHI A RAVINDAM, RJY 17 ASSESSMENT YEAR 2006-07 WHICH ARE, HEREBY, SUSTAINE D, THE ENTIRE ADDITIONS PERTAINING TO THE ASSESSMENT YEARS 2000-01 TO 2004-05, AND BALANCE ADDITIONS IN RESPECT OF THE AS SESSMENT YEARS 2005-06 AND 2006-07 STAND DELETED. HOWEVER, THE ASSESSING OFFICER SHALL ALLOW SET OFF OF THE ADMITT ED INCOMES FOR THE ASSESSMENT YEAR 2005-06 AND PART OF THE ASSESSM ENT YEAR 2006-07 UP TO THE DATE OF SEARCH WHILE COMPUTING TH E NET ADDITIONS FOR SUCH ASSESSMENT YEARS RELATING TO THE ISSUE. 22. AGGRIEVED, THE ASSESSEE AS WELL AS THE REVENUE HAVE PREFERRED AN APPEAL BEFORE THE TRIBUNAL. THE LD. COUNSEL FOR TH E ASSESSEE HAS CONTENDED THAT THE CIT(A) HAS WRONGLY ESTIMATED THE INCOME AT RS.29,41,100/-, FOR THE ASSESSMENT YEAR 2005-06 ALONE, WHEREAS THIS INCOME MUST HAVE BEEN BIFURCATED IN THE TWO ASSESSMENT YEARS I.E. 2005-06 AND 2006-07 BECAUSE THE TOTAL NUMBER OF PATIENTS FOUND FROM THE SEIZED MATE RIAL PERTAINS TO BOTH THE ASSESSMENT YEARS AS PER THE DETAILS FURNISHED BY TH E ASSESSEES. THE SEPARATE ESTIMATION OF RS.9,80,361/- IN ASSESSMENT YEAR 2006-07 ALONE IS WITHOUT ANY BASIS. THE LD. D.R. ON THE OTHER HAND PLACED A HEAVY RELIANCE UPON THE ORDER OF THE A.O. WITH THE SUBMISSIONS THA T HE HAS RIGHTLY ESTIMATED THE INCOME ON THE BASIS OF THE INCRIMINATING MATERI AL FOUND DURING THE COURSE OF SEARCH. 23. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE ORDERS OF AUTHORITIES BELOW AND DOCUMENTS PLACED ON RECORD . IT IS OBVIOUS FROM THE ORDERS OF THE LOWER AUTHORITIES THAT INCRIMINATING MATERIALS FOUND DURING THE COURSE OF SEARCH IN WHICH DETAILS OF PATIENTS WERE AVAILABLE PERTAINS TO THE ASSESSMENT YEAR 2005-06 AND 2006-07 ONLY. THE ASSES SING OFFICER AFTER COMPUTING THE ESTIMATED INCOME HAS EXTRAPOLATED THE SAID FIGURE TO ESTIMATE THE INCOME OF OTHER ASSESSMENT YEARS WHICH IS NOT P ROPER ACCORDING TO US AS ON THE BASIS OF INCRIMINATING MATERIAL, THE ADDITIO N CAN ONLY BE MADE IN THOSE ASSESSMENT YEARS TO WHICH IT RELATES. THE CIT(A) H AS RIGHTLY DELETED THE ADDITIONS FOR THE ASSESSMENT YEAR 2000-01 TO 2004-0 5 FOR THE REASONS THAT NO INCRIMINATING MATERIAL WAS FOUND ON THE BASIS OF WH ICH IT CAN BE INFERRED THAT THERE IS A SUPPRESSED INCOME ON RECEIPT OF TREATMEN T OF IN-PATIENTS. THEREFORE, WE AGREE WITH THE FINDING OF THE CIT(A) IN THIS REGARD. THE CIT(A) HAS ALSO DENIED THE BENEFIT OF 12 FREE CASES CLAIME D BY THE ASSESSEES FOR WANT OF DOCUMENTARY EVIDENCE AND TREATED THE SAME I N THE CATEGORY OF IN- ITA NOS.426 TO 429 OF 09 456 TO 459 OF 09 GRANDHI A RAVINDAM, RJY 18 PATIENT. EVEN BEFORE US NO EVIDENCE WAS PLACED BY THE ASSESSEE IN SUPPORT OF HIS CONTENTION THAT 12 CASES WERE TREATED AT FRE E OF THE COST. THEREFORE, WE FIND NO INFIRMITY OF INCLUSION OF THESE 12 CASES IN THE CATEGORY OF IN- PATIENT. THE CIT(A) FOLLOWING THE FORMULA AS SUGGE STED BY THE ASSESSEE ESTIMATED IN-PATIENT SURGERY CASES AT RS.27,90,060/ - AND THE REMAINING PATIENTS WERE TREATED TO BE A NON-SURGERY CASES AND FOR THEM CIT(A) HAS APPLIED CHARGES OF RS.1400/- AS SUGGESTED BY THE AS SESSEE AND CONCLUDED THE RECEIPT FROM NON-SURGERY CASES AT RS.1,11,032/- AND FOR THE TREATMENT OF DAY CARE HE HAS ADOPTED THE SAME FIGURE AS SUGGESTE D BY THE ASSESSEE. HE ACCORDINGLY ESTIMATED THE IN-PATIENT RECEIPTS FOR A FULL YEAR AT RS.29,41,092/- ROUNDED OFF TO RS.29,41,100/- BASED ON THE METHODOL OGY AND PARAMETERS ADOPTED BY THE A.O. BESIDES, HE HAS ALSO ESTIMATED THE IN-PATIENT RECEIPT FOR 4 MONTHS (1.4.2005 TO TILL THE DATE OF SURGERY). T HIS CALCULATION OF THE CIT(A) DO NOT APPEAR TO BE CORRECT BECAUSE IN THE TABLE TH E ASSESSEE HAVE GIVEN THE DETAILS OF DIFFERENT NUMBER OF PATIENTS IN DIFFEREN T ASSESSMENT YEARS. THE TOTAL NUMBER OF IN-PATIENTS SHOWN IN A.Y. 2005-06 I NCLUDING THE FREE PATIENTS AND MLCS THE FIGURE COMES TO ONLY 183 BUT IT WAS AD OPTED BY THE CIT(A) AT 294. SIMILAR WAS THE POSITION WITH REGARD TO THE D AY CARE PATIENTS. THE CIT(A) HAS ADOPTED THE DAY CARE PATIENTS AT 133 IN A.Y. 2005-06 WHEREAS AS PER THE RECORD SHOWN IN THE TABLE, IT WAS ONLY OF 8 5. SINCE THERE IS A CALCULATION MISTAKE IN THE ESTIMATION OF THE CIT(A) , WE SET ASIDE HIS ORDER AND RESTORE THE MATTER TO THE FILE OF THE A.O. WITH A D IRECTION TO RECALCULATE THE RECEIPTS BY ADOPTING THE SAME FORMULA AS FOLLOWED B Y CIT(A) ON THE BASIS OF THE FIGURES OF PATIENTS SHOWN IN THE TABLE MENTIONE D ABOVE. WITH REGARD TO THE DELETION OF THE ADDITION IN A.Y. 2000-01 TO 200 4-05, WE SUBSCRIBE THE ORDER OF THE CIT(A) AS NO ADDITION CAN BE MADE IN T HE ABSENCE OF ANY INCRIMINATING EVIDENCE FOUND DURING THE COURSE OF S EARCH. ADDITION OF ESTIMATED PROFIT FROM MEDICAL SHOPS:- 24. PURSUANT TO THE OBSERVATIONS MADE BY THE INVEST IGATION WING THAT THE ASSESSEE IS A DEFACTO OWNER OF A MEDICAL SHOP BY TH E NAME ARAVINDAM ORTHOPAEDIC MEDICALS WITH THE OSTENSIBLE PROPRIETO R SHRI GRANDHI SATYANARAYANA MURTHY AS HIS BENAMIDAR, THE A.O. DUR ING THE ASSESSMENT ITA NOS.426 TO 429 OF 09 456 TO 459 OF 09 GRANDHI A RAVINDAM, RJY 19 PROCEEDINGS FOLLOWED THE SUIT AND HELD THAT INCOME FROM SAID MEDICAL SHOP HAS BEEN UNDER STATED AND THAT A HIGHER ESTIMATED I NCOME THERE OF IS REQUIRED TO BE ASSESSED IN THE HANDS OF THE ASSESSE ES FOR THE REASONS THAT HE KEEPS DAILY TRACK OF THE SALES AND CUSTODY OF MEDIC INES. THE PURCHASE BILLS OF MEDICINES ARE ALSO DRAWN EITHER IN THE NAME OF THE ASSESSEES OR ARAVINDAM ORTHOPAEDIC MEDICALS. DURING THE COURSE OF SEARCH, CERTAIN NOTE BOOKS WERE SEIZED, WHERE FROM IT WAS NOTICED THAT THE DAILY SA LES RECORDED IN THESE NOTE BOOKS WAS FAR HIGHER THAN THE FIGURES OF DAILY SALE S RECORDED IN THE CASH BOOK. THE A.O. ACCORDINGLY ESTIMATED THE TOTAL SALE PER ANNUM AND ESTIMATED THE INCOME FROM THE ASSESSMENT YEAR 2000-01 TO 2005 -06 BY ADOPTING A RATE AT 22% OF GROSS PROFIT. 25. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) WITH THE SUBMISSION THAT THE MEDICAL SHOP BY THE NAME ARAVI NDAM ORTHOPAEDIC MEDICALS THOUGH LOCATED IN THE COMMON PREMISES FRO M WHICH THE ASSESSEE CARRIES OUT HIS BUSINESS IS OWNED BY SHRI GRANDHI S ATYANARAYANA MURTHY, FATHER OF THE ASSESSEES. SRI G. SATYANARAYANA MURT HY HOLDS A LICENSE/CERTIFICATE OF COMMERCIAL TAX REGISTRATION SINCE 1.1.1989. IN FACT SHRI GRANDHI SATYANARAYANA MURTHY IS IN THE MEDICAL BUSI NESS SINCE 1954 LONG BEFORE THE ASSESSEE COMMENCED ITS PRACTICE. HE USE D TO RUN A MEDICAL SHOP BY THE NAME MEDICAL STORES AT ALCOT GARDENS, RAJA HMUNDRY. CONSIDERING THE COMMERCIAL VIABILITY SHRI G. SATYANARAYANA MURT HY OBTAINED A NEW LICENSE IN THE YEAR 1999 AND SINCE THEN OPERATED M/S. ARAVI NDAM ORTHOPAEDIC MEDICAL SHOP AS A PROPRIETORY BUSINESS. IT WAS FUR THER CONTENDED THAT NO MATERIAL WAS FOUND DURING THE SEARCH OPERATION THAT SUBSEQUENTLY TO INDICATE THAT THE ASSESSEE IS A REAL OWNER OR THE BENEFICIAR Y OF THE MEDICAL SHOP. THE CIT(A) RE-EXAMINED THE ISSUE AND BEING CONVINCED WI TH THE EXPLANATIONS OF THE ASSESSEE HE DELETED THE ADDITIONS. THE RELEVAN T OBSERVATION OF THE CIT(A) IS EXTRACTED HEREUNDER: AFTER HEARING THE LEARNED AUTHORIZED REPRESENTATIV E AND ON A CAREFUL CONSIDERATION OF THE FACTS RELATING TO THE ISSUE, T HE FOLLOWING OBSERVATIONS MADE AND DECISIONS TAKEN:- (I) BEFORE DEALING WITH THE ISSUE OF DETERMINATION OF R EAL OWNER OF THE MEDICAL SHOP ARAVINDAM ORTHOPAEDIC MEDICALS, IT WOULD BE DESIRABLE TO EXAMINE WHETHER FROM THE SEARCH MAT ERIAL FOUND ITA NOS.426 TO 429 OF 09 456 TO 459 OF 09 GRANDHI A RAVINDAM, RJY 20 WHICH CONTAIN THE FIGURES OF DATE-WISE SALES FROM 2 8.1.2005 TO 3.5.2005 THAT DO NOT MATCH WITH THE FIGURES OF SALE S RECORDED AGAINST SUCH DATES IN THE CASH BOOK, DETERMINATION OF SUPPRESSED INCOME FOR THE RELEVANT PERIOD IS EXIGIB LE OR NOT. SINCE THERE IS NO EXPLANATION FROM THE SIDE OF THE APPELLANT CHALLENGING THE RECORDINGS MADE IN THE SEIZED MATER IAL REFLECTING HIGHER DAILY SALES FIGURES COMPARED TO T HOSE RECORDED IN THE REGULAR CASH BOOK, THE DETERMINATION OF SUPP RESSED INCOME TO THAT EXTENT FOR THE RELEVANT PERIOD IS EX IGIBLE. HOWEVER, ANY ESTIMATION ON THE BASIS OF AVERAGE SAL ES PER DAY SWELLING UP TO AVERAGE SALES PER ANNUM WITHOUT CONS IDERING THE VARIABLE FACTORS IS NOT SCIENTIFIC, AND, THEREFORE, NOT PROPER. FURTHERMORE, THE ESTIMATION OF INCOME ON SUCH PARAM ETERS FOR THE EARLIER ASSESSMENT YEARS IN RESPECT OF WHICH NO INCRIMINATING MATERIAL EXISTS IS NOT EXIGIBLE. (II) HAVING SAID SO, IT NEEDS TO BE EXAMINED WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE APPELLANT COULD BE TERMED AS THE REAL OWNER AND BENEFICIARY OF THE MEDICAL SHOP OR NOT. AS RIGHTLY STATED ON BEHALF OF THE APPELLANT, NOT AN I OTA OF EVIDENCE WAS DETECTED DURING THE SEARCH OPERATIONS NOR GATHE RED DURING THE ASSESSMENT PROCEEDINGS SO AS TO SHOW THAT THE A PPELLANT IS THE REAL OWNER OF THE MEDICAL SHOP. ON THE OTHER H AND, THERE IS A PLETHORA OF INCONTROVERTIBLE EVIDENCES BY WAY OF REGISTRATION CERTIFICATES FROM COMMERCIAL-TAX DEPARTMENT AND DRU GS CONTROLLING AUTHORITIES, AND COPIES OF COMMERCIAL T AX ASSESSMENT ORDERS AND INCOME-TAX ASSESSMENT ORDERS IN THE NAME OF SHRI GRANDHI SATYANARAYANA MURTHY TO INDICA TE THAT HE IS THE OWNER OF THE MEDICAL SHOP BY THE NAME ARAVI NDAM ORTHOPAEDIC MEDICALS. INTER TRANSACTIONS BETWEEN THE APPELLANT AND THE MEDICAL SHOP REGARDING PURCHASE A ND TRANSFER OF MEDICINES AND SETTLEMENT OF ACCOUNTS BETWEEN THE MEDICAL SHOP AND THE APPELLANT, THE APPELLANTS RENDERING A SSISTANCE TO SHRI GRANDHI SATYANARAYANA MURTHY IN THE CAPACITY O F A SON FOR MAINTENANCE OF THE ACCOUNTS OF THE MEDICAL SHOP IN HIS COMPUTER, KEEPING SECURE CUSTODY OF THE DAILY CASH BALANCE AND ALSO KEEPING TRACK OF THE SALES AND OTHER EXPENSES OF THE MEDICAL SHOP BY THEMSELVES DO NOT CONCLUSIVELY ESTA BLISH THAT THE APPELLANT IS THE REAL OWNER OF THE MEDICAL SHOP . THE TRUE TEST OF THE OWNERSHIP LIES IN THE NEXUS BETWEEN THE MEDICAL SHOP AND THE SOURCES/OWNERSHIP OF FUNDS ON THE BASI S OF WHICH SUCH MEDICAL SHOP BUSINESS HAS BEEN SET UP AND RUN. THE INVESTIGATION WING OF THE DEPARTMENT HAS NOT COME A CROSS ANY EVIDENCE NOR ANY INVESTIGATION UNDERTAKEN DURING TH E ASSESSMENT PROCEEDINGS TO SHOW THAT IT WAS THE APPE LLANTS OWN MONEY WHICH HAD BEEN UTILIZED FOR ESTABLISHING AND RUNNING OF THE MEDICAL SHOP, IN THE ABSENCE OF WHICH IT WOULD BE FRIVOLOUS AND PREPOSTEROUS TO ATTRIBUTE ITS OWNERSHIP TOP THE APPELLANT. UNDER SUCH CIRCUMSTANCES, NO INCOME WHETHER ADMITTE D OR SUPPRESSED, FROM THE MEDICAL SHOP COULD BE ASSESSAB LE IN THE HANDS OF THE APPELLANT, AND, AS SUCH, THE YEAR-WISE ADDITIONS OF ITA NOS.426 TO 429 OF 09 456 TO 459 OF 09 GRANDHI A RAVINDAM, RJY 21 RS.16,46,000/-, RS.16,46,000/-, RS.13,95,042/-, RS. 13,53,442/-, RS.13,33,288/-, RS.13,32,487/- AND RS.4,41,760/- FO R THE ASSESSMENT YEARS 2000-01, 2001-02, 2002-03, 2003-04 , 2004- 05, 2005-06 AND 2006-07, RESPECTIVELY, ARE, HEREBY, DELETED. 26. AGGRIEVED, THE REVENUE IS BEFORE US AND PLACED A HEAVY RELIANCE UPON THE ORDER OF THE A.O. HE HOWEVER, COULD NOT POINT OUT A SPECIFIC DEFECT IN THE ORDER OF THE CIT(A). 27. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND DOCUMENTS PLACED ON RE CORD. UNDISPUTEDLY DURING THE COURSE OF SEARCH SOME NOTE BOOKS WERE FO UND FROM THE MEDICAL SHOP IN WHICH HIGHER SALE THAN DECLARED IN THE REGU LAR BOOKS OF ACCOUNTS WERE RECORDED. THE REVENUE AUTHORITIES HAS SIMPLY DRAWN INFERENCE THAT THE MEDICAL SHOP IS OWNED BY THE ASSESSEES AND ACCORDIN GLY THE A.O. HAS TREATED THE UNDECLARED INCOME FROM THE MEDICAL SHOP IN THE HANDS OF THE ASSESSEES WITHOUT NOTICING THAT NO INCRIMINATING MATERIAL WAS FOUND DURING THE COURSE OF SEARCH WHICH SUGGEST THAT MEDICAL SHOP IS BEING RUN BY THE ASSESSEES. ON THE BASIS OF THE LOCATION OF THE SHOP IT MAY NOT BE ASSUMED AND PRESUMED THAT IT IS OWNED BY THE ASSESSEE. IN ALL NURSING H OMES OR HOSPITALS, MEDICAL SHOPS ARE THERE BUT THAT DOES NOT MEAN THE MEDICAL SHOP IS ALWAYS OWNED BY THE PERSON WHO OWN THE NURSING HOME OR THE HOSPITAL . UNDISPUTEDLY, THE LICENSE TO RUN THIS SHOP WAS OBTAINED IN THE NAME O F G. SATYANARAYANA MURTHY WHO HAPPENED TO BE THE FATHER OF THE ASSESSE E AND THE SAME WAS ALSO ASSESSED TO TAX. NOTHING HAS BEEN BROUGHT ON RECORD THAT REVENUE HAS EVER EXAMINED G. SATYANARAYANA MURTHY WITH REGARD T O THE OWNERSHIP OF THE MEDICAL SHOP. THEREFORE, ON THE BASIS OF PRESUMPTI ON ESTIMATION OF INCOME FROM THE SHOP CANNOT BE DONE IN THE HANDS OF THE AS SESSEES. 28. THE CIT(A) HAS HOWEVER PROPERLY EXAMINED THIS I SSUE AND WE DO NOT FIND ANY INFIRMITY THEREIN AND WE ACCORDINGLY CONFI RM THE SAME. ITA NOS.426 TO 429 OF 09 456 TO 459 OF 09 GRANDHI A RAVINDAM, RJY 22 THE ADDITION ON ACCOUNT OF BONUS ON INVESTMENT IN C HITS:- 29. THE BRIEF FACTS BORNE OUT FROM THE RECORD ARE T HAT DURING THE SEARCH OPERATION AT RESIDENTIAL AND BUSINESS PREMISES OF T HE ASSESSEES, LOOSE SHEETS WERE FOUND, WHICH, PRIMA FACIE INDICATED THE INVEST MENT IN CHITS WITH M/S. CHAMUNDESWARI CHIT FUNDS, M/S. JAGADESHWARI CHIT FU NDS, M/S. CHITRA CHITS ETC. IN THE NAME OF ONE SHRI K. VENKATA RAYUDU AND SOME OTHER PERSONS. IT WAS ALSO FOUND THAT CONTRIBUTION TOWARDS THE CHITS WERE MADE FROM OUT OF THE FUNDS OF THE MEDICAL SHOP ON A PERIODICAL BASIS. W HEN THE ASSESSEE WAS REQUIRED TO EXPLAIN AS TO WHY THE CHIT CONTRIBUTION DOCUMENTS PERTAINING TO THE OTHER PERSONS WERE FOUND IN PREMISES IT WAS EXP LAINED INTERALIA THAT SHRI K. VENKATA RAYUDU IS KNOWN TO HIM AND HIS FATHER SH RI G. SATYANARAYANA MURTHY WHO WAS THE PROPRIETOR OF MEDICAL SHOP AND A S PER THE DIRECTIONS OF SHRI K. VENKATA RAYUDU HIS INCOME FROM AGRICULTURAL OPERATIONS AT KADIYAPULANKA VILLAGE WERE INVESTED IN VARIOUS CHIT S AND NOTHING WAS CONTRIBUTED BY THE ASSESSEES TO ANY CHIT FUND IN HI S NAME OR IN THE NAME OF HIS FAMILY MEMBERS. THE CHIT RELATED PAPERS AND DO CUMENTS WERE KEPT IN THE ASSESSEES HOUSE FOR SAFE CUSTODY AT THE REQUEST OF HIS FATHER. ON EXAMINATION OF ALL THESE PROPRIETORS AND DIRECTORS OF THE CHIT COMPANIES AND ON FURTHER INVESTIGATIONS, THE INVESTIGATION WING D REW THE CONCLUSION THAT THE CONTRIBUTION TO CHIT FUNDS WERE COLLECTED FROM MEDI CAL SHOPS ARAVINDAM ORTHOPAEDIC MEDICALS AND REPAYMENT UPON BIDDING OF THE CHITS MADE BY THE COMPANIES TO THE MEDICAL SHOP. SINCE THE ASSESSING OFFICER HAS TREATED THE ASSESSEE TO BE THE DE FACTO OWNER OF THE SHOP, HE T REATED THE ENTIRE CONTRIBUTION IN THE HANDS OF THE ASSESSEES. 30. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) WITH THE SUBMISSION THAT HE HAS NEVER MADE ANY INVESTMENT IN THE CHITS EITHER IN HIS OWN NAME OR IN THE NAME OF THE FAMILY MEMBERS. IF THE ASSESSING OFFICER WAS OF THE VIEW THAT MEDICAL SHOP IS INVOLVED IN TH E CONTRIBUTION OF CHITS, THE PROPRIETOR OF THE SAME MR. G. SATYANARAYANA MURTHY OUGHT TO HAVE BEEN EXAMINED WITH REGARD TO THE SOURCE OF INVESTMENT OR AT THE MOST MR. K. VENKATA RAYUDU OUGHT TO HAVE BEEN EXAMINED TO FIND OUT AS TO WHO HAS MADE THE CONTRIBUTION ON HIS BEHALF. THE CIT(A) EX AMINED THE ISSUE IN DETAIL ITA NOS.426 TO 429 OF 09 456 TO 459 OF 09 GRANDHI A RAVINDAM, RJY 23 IN HIS ORDER AND BEING CONVINCED WITH THE EXPLANATI ONS OF THE ASSESSEE, HE DELETED THE ADDITIONS. THE RELEVANT OBSERVATION OF THE CIT(A) IS ALSO EXTRACTED HEREUNDER: AFTER HEARING THE LEARNED AUTHORIZED REPRESENTATIVE AND ON A CAREFUL CONSIDERATION OF THE FACTS RELATING TO THE ISSUE, T HE FOLLOWING OBSERVATIONS MADE AND DECISIONS TAKEN:- (I) NO DOUBT, THE INVESTIGATION WING OF THE DEPARTMENT HAS UNDERTAKEN A VERY PAINSTAKING EFFORT OF EXAMINING T HE PROPRIETORS/DIRECTORS OF VARIOUS CHIT FUNDS CONCERN S TO UNEARTH CERTAIN FACTS THAT APPARENTLY GIVE THE IMPRESSION T HAT THE APPELLANT IS THE REAL CONTRIBUTOR TO VARIOUS CHIT F UNDS AND, HENCE, LOGICALLY THE CHITS BONUS INCOME SHOULD BE A SSESSED IN HIS HANDS ALONE. IT IS AN UNDISPUTED FACT THAT THE CONTRIBUTIONS TOWARDS VARIOUS CHIT FUNDS EMANATED FROM THE MEDICA L SHOPS AND ALSO CHIT BID AMOUNTS AND BONUS AMOUNTS WERE DE LIVERED AT THE MEDICAL SHOP WHICH IS OWNED BY SHRI GRANDHI SATYANARAYANA MURTHY, THE FATHER OF THE APPELLANT. IN THE ENTIRE SCENARIO, THE APPELLANT MIGHT HAVE FACILITATED THE PROCESS OF CHIT CONTRIBUTIONS BY EITHER SIGNING CERTAIN DOCUMENTS, CERTAIN PRO- NOTES AS THE GUARANTOR OF THE ALLEGED BENAMIDARS IN WHOSE NAMES THE VARIOUS CONTRIBUTIONS STAND, BUT THEN THE SHOW APPEARS TO HAVE BEEN APPARENTLY RUN AT THE BEHEST O F SHRI GRANDHI SATYANARAYANA MURTHY WITH THE FUNDS FROM TH E MEDICAL SHOP OWNED BY HIM. UNDER SUCH CIRCUMSTANCES, IT IS NOT UNDERSTOOD AS TO WHY THE INVESTIGATION WING OF THE DEPARTMENT DID NOT EXAMINE SHRI GRANDHI SATYANARAYANA MURTHY O R FOR THAT MATTER SHRI K. VENKATARAYUDU ON OATH SO AS TO GET T O THE ROOT OF THE MATTER. AT ANY RATE, PRECIOUS LITTLE HAS BEEN DONE TO SHOW THAT IT IS THE FUNDS OF THE APPELLANT WHICH HAD GON E INTO THE VARIOUS CHIT CONTRIBUTIONS, AND HAVING NOT ESTABLIS HED THE NEXUS BETWEEN THE CHIT CONTRIBUTIONS AND ANY DISCLOSED OR UNDISCLOSED FUNDS OF THE APPELLANT, IT WOULD BE UNFAIR AND UNJU ST TO HOLD THAT THE APPELLANT IS THE REAL CHIT FUNDS CONTRIBUTOR AN D, HENCE, THE CHITS BONUS IS ASSESSABLE IN HIS HANDS. IN THE FA CTS AND CIRCUMSTANCES RELATING TO THE ISSUE, ALTHOUGH THE N EEDLE OF THE SUSPICION INITIALLY POINTED TOWARDS THE APPELLANT, YET SUBSEQUENTLY THE SAME MOVED TOWARDS THE OWNER OF TH E MEDICAL SHOP FROM WHICH ALL THE FUNDS APPEAR TO HAV E EMANATED FOR CHIT CONTRIBUTIONS, AND THE DEPARTMENT HAVING N OT EXAMINED ITS PROPRIETOR, SHRI GRANDHI SATYANARAYANA MURTHY O N THE ISSUE, AND NO LINK HAVING BEEN ESTABLISHED BETWEEN ANY APP ELLANTS FUNDS AND THE CHIT CONTRIBUTIONS, THE YEAR-WISE ADD ITIONS ON ACCOUNT OF CHITS BONUS IN THE HANDS OF THE APPELLAN T ARE NOT SUSTAINABLE, WHICH ARE, HEREBY, DELETED. ITA NOS.426 TO 429 OF 09 456 TO 459 OF 09 GRANDHI A RAVINDAM, RJY 24 31. NOW THE REVENUE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL BUT COULD NOT POINT OUT A SPECIFIC DEFECT IN THE ORDER OF THE CIT(A). HE HOWEVER, PLACED A HEAVY RELIANCE UPON THE ORDER OF THE A.O. 32. WE HAVE CAREFULLY EXAMINED THE ORDER OF THE LOW ER AUTHORITIES IN THE LIGHT OF RIVAL SUBMISSIONS AND WE FIND THAT THE A.O . HAS TREATED THE CONTRIBUTION IN THE CHITS ON THE PRESUMPTION THAT T HE CONTRIBUTION WAS MADE BY THE MEDICAL SHOPS AND MEDICAL SHOP IS OWNED BY T HE ASSESSEES. WHEREAS IN THE FOREGOING PARAS, WE HAVE ALREADY HELD THAT M EDICAL SHOP WAS OWNED BY HIS FATHER GRANDHI SATYANARAYANA MURTHY AND NOT THE ASSESSEES. EVEN IF THE CONTRIBUTION IS MADE BY THE MEDICAL SHOP, THE C ONTRIBUTION CAN ONLY BE ADDED IN THE HANDS OF THE PROPRIETOR OF THE MEDICAL SHOP AND NOT THE ASSESSEES. BUT BEFORE DOING SO, THE CONCERNED PERS ON IN WHOSE NAME THE CHITS WERE PURCHASED AND SHRI GRANDHI SATYANARAYANA MURTHY OUGHT TO HAVE BEEN EXAMINED BY THE REVENUE AUTHORITIES. BUT IT W AS NOT DONE. THEREFORE, WE FIND NO MERIT IN THE ADDITIONS IN THE HANDS OF T HE ASSESSEES. WE HAVE ALSO EXAMINED THE ORDER OF THE CIT(A) AND WE FIND N O INFIRMITY THEREIN. WE ACCORDINGLY CONFIRM THE SAME. ADDITION ON ACCOUNT OF NEGATIVE CASH BALANCE IN THE BOOKS OF ACCOUNTS:- 33. THE FACTS BORNE OUT IN THIS REGARD ARE THAT ON PERUSAL OF COMPUTERIZED ACCOUNTS MAINTAINED IN TALLY-PACKAGE OF ACCOUNTING DURING THE SEARCH OPERATION, THE SEARCH PARTY NOTICED PERIODIC NEGATI VE CASH BALANCE STRETCHING FROM THE FINANCIAL YEAR 2002-03 TO 2005-06. ACCORD INGLY, IT CONCLUDED THAT HUGE AMOUNT OF UNACCOUNTED CASH WAS GENERATED BY TH E ASSESSEE TO MEET THE EXPENDITURE IN EXCESS OF FUNDS AVAILABLE IN THE BOOKS OF ACCOUNTS. THE A.O. ACCORDINGLY PREPARED A TABULAR CHART OF NEGATI VE CASH BALANCE ON VARIOUS DATES FOR THE ASSESSMENT YEAR 2003-04 TO 2006-07 AN D DETERMINED THE YEARWISE AGGREGATE NEGATIVE CASH BALANCE AT RS.1,87 ,434/-, RS.1,01,046/-, RS.8,99,703/- AND RS.27,90,957/- FOR THE ASSESSMENT YEARS 2003-04, 2004- 05, 2005-06 & 2006-07 RESPECTIVELY. ITA NOS.426 TO 429 OF 09 456 TO 459 OF 09 GRANDHI A RAVINDAM, RJY 25 34. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) WITH THE SUBMISSION THAT THOUGH THERE WAS A NEGATIVE CASH BA LANCE ON VARIOUS DATES IN THE CASH BOOK IN TALLY-PACKAGE OF ACCOUNTING BUT THE ASSESSING OFFICER HAS GROSSLY ERRED IN HAVING TAKEN THE FIGURES OF SUCCES SIVE CUMULATIVE NEGATIVE CASH BALANCES ON VARIOUS DATES IN A SPECIFIC ACCOUN TING YEAR WHICH IS NOT A CORRECT APPROACH FOR DEALING WITH THE ISSUE. THE A .O. OUGHT TO HAVE ADOPTED THE PEAK CUMULATIVE NEGATIVE CASH BALANCE FIGURE FO R EACH YEAR. INSTEAD, HE KEPT ON ADDING SUCCESSIVE CUMULATIVE NEGATIVE CASH BALANCE FIGURES IN EACH OF THE ASSESSMENT YEAR WHICH RESULTED IN REFLECTION OF UNREAL AND EXAGGERATED AGGREGATE FIGURE OF NEGATIVE CASH BALANCES FOR EACH OF THE ASSESSMENT YEAR UNDER CONSIDERATION. BESIDES, THERE WAS A NEED TO GIVE CREDIT FOR THE OPENING CASH BALANCE AS ON 1.4.2005 FOR DETERMINATION OF TH E PEAK FIGURES OF THE CUMULATIVE NEGATIVE CASH BALANCE FOR THE ASSESSMENT YEAR 2006-07. THE CASH BOOK AND THE LEDGER FOR ACCOUNTING YEAR 2004-0 5 WHICH IS IN THE POSSESSION OF THE DEPARTMENT REFLECTS A CLOSING CAS H BALANCE OF RS.2,41,160.98 WHICH NEEDS TO BE SET OFF AGAINST TH E PEAK CUMULATIVE NEGATIVE CASH BALANCE FOR THE ACCOUNTING YEAR 2005- 06 RELEVANT TO THE ASSESSMENT YEAR 2006-07. 35. THE CIT(A) RE-EXAMINED THE ISSUE AND COMES TO T HE CONCLUSION THAT SINCE IT IS AN ADMITTED FACT THAT THE BOOKS OF ACCO UNTS KEPT UNDER THE CUSTODY OF DEPARTMENT IT REFLECT NEGATIVE CASH BALANCE, THE REBY IMPLYING EXPENDITURE MET FROM UNEXPLAINED SOURCES, THE YEARWISE NEGATIVE CASH BALANCE ARE REQUIRED TO BE BROUGHT TO TAX AS PER PROVISIONS OF SECTION 69C OF THE ACT. CIT(A) FURTHER OBSERVED THAT HOWEVER THE ASSESSING OFFICER HAS COMMITTED A GROSS ERROR IN NOT COMPUTING THE CORRECT FIGURES YE ARWISE NEGATIVE CASH BALANCES, IN AS MUCH AS, HAVING CHOSEN TO ADOPT THE CUMULATIVE NEGATIVE CASH BALANCE METHOD TO COMPUTE THE NET NEGATIVE BAL ANCE ACCOUNTING YEARWISE, THERE WAS NO REASON TO AGAIN KEEP ON ADDI NG THE FIGURES OF SUBSEQUENT CUMULATIVE NEGATIVE CASH BALANCES APPEAR ING IN A SPECIFIC ACCOUNTING YEAR, WHICH HAS RESULTED UNREAL, ABSURD AND EXAGGERATED NEGATIVE CASH BALANCE FIGURES. ACCEPTING THE CONTENTION OF THE ASSESSEE, THE CIT(A) CONCLUDED THAT IT WOULD NOT BE APPROPRIATE TO CONSI DER THE PEAK FIGURES OF CUMULATIVE NEGATIVE CASH BALANCE FOR EACH ASSESSMEN T YEAR UNDER ITA NOS.426 TO 429 OF 09 456 TO 459 OF 09 GRANDHI A RAVINDAM, RJY 26 CONSIDERATION AND AS REGARDS ASSESSMENT YEAR 2006-0 7, THE CLOSING BALANCE AS ON 31.3.2005 OF RS.2,41,160.98 ROUNDED OFF TO 2, 41,161 NEEDS TO BE GIVEN CREDIT TO ARRIVE AT THE NET PEAK CUMULATIVE NEGATIV E BALANCE FIGURE FOR THAT YEAR. ACCORDINGLY, THE YEARWISE ADDITIONS WERE MAD E BY THE CIT(A) WHICH ARE AS UNDER: ASSESSMENT YEAR AMOUNT 2003-04 RS.53,421 2004-05 RS.58,416 2005-06 RS.4,84,192 2006-07 RS.7,68,150 36. AGGRIEVED, THE REVENUE AND THE ASSESSEE ARE IN APPEAL BEFORE THE TRIBUNAL. THE LD. D.R. HOWEVER PLACED A RELIANCE U PON THE ORDER OF THE A.O. BUT COULD NOT POINT OUT ANY DEFECT IN THE ORDER OF THE CIT(A). 37. THE LD. COUNSEL FOR THE ASSESSEE HAD DISPUTED T HE ADDITION OF RS.7,68,150/- MADE IN THE ASSESSMENT YEAR 2006-07 O F WHICH BOOKS OF ACCOUNTS WERE NOT COMPLETED AT THE TIME OF THE SEAR CH. THEREFORE, THERE WAS NO EVIDENCE TO SUGGEST THAT THERE WAS NEGATIVE CASH BALANCE IN THE ASSESSMENT YEAR 2006-07. MORE OVER, THE LOWER AUTH ORITIES HAVE SIMPLY MADE AN ADDITION ON THE BASIS OF ESTIMATE IN THIS Y EAR WITHOUT POINTING OUT THE PARTICULAR ENTRIES OF NEGATIVE CASH BALANCE IN THE ASSESSMENT YEAR 2006- 07. THEREFORE, IT REQUIRES A FRESH ADJUDICATION OF THE ISSUE. 38. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY EXAMINED THE ORDER OF THE LOWER AUTHORITIES AND WE FIND THAT CIT(A) HA S EXAMINED THE ISSUE IN THE LIGHT OF EXPLANATIONS FURNISHED BY THE ASSESSEE AND WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) WITH REGARD TO THE ADDITION S PERTAINING TO THE ASSESSMENT YEAR 2003-04 TO 2005-06. THE DISPUTE WA S RAISED WITH REGARD TO THE ADDITION OF RS.7,58,150/- FOR THE ASSESSMENT YE AR 2006-07. IN THIS REGARD, IT WAS POINTED OUT THAT THE SEARCH WAS COND UCTED ON 4.8.2005 AND BY THAT TIME, THE BOOKS OF ACCOUNTS WERE NOT COMPLETED . THEREFORE, IT IS NOT PROPER TO SAY THERE WAS A NEGATIVE BALANCE IN THIS YEAR WHICH CALLS FOR AN ADDITION. BUT FROM A PERUSAL OF THE ORDER OF THE C IT(A), WE FIND THAT THE ITA NOS.426 TO 429 OF 09 456 TO 459 OF 09 GRANDHI A RAVINDAM, RJY 27 CIT(A) HAS OBSERVED THAT NEGATIVE CASH BALANCE IN T HE FINANCIAL YEAR 2005-06 AT RS.10,09,311/- AGAINST WHICH THE CREDIT OF OPENI NG BALANCE OF RS.2,14,161/- WAS GIVEN. BUT IN ANY CASE, THE BOOK S OF ACCOUNTS FOR THIS YEAR WAS NOT COMPLETE AND THE ASSESSEE BE ALLOWED TO EXP LAIN THE NEGATIVE BALANCE AS ON 1.4.2005. THEREFORE, ACCORDING TO US THIS ISSUE REQUIRES A FRESH ADJUDICATION BY THE A.O. IN THE LIGHT OF EXPLANATIO NS OF THE ASSESSEES. WE ACCORDINGLY SET ASIDE THE ORDER OF THE CIT(A) IN TH IS REGARD AND RESTORE THE ISSUE TO THE FILE OF THE A.O. WITH A DIRECTION TO E XAMINE THE NEGATIVE CASH BALANCE AS ON 1.4.2005 IN THE LIGHT OF EXPLANATIONS OF THE ASSESSEES. ADDITION ON ACCOUNT OF SEIZED UNEXPLAINED CASH:- 39. DURING THE SEARCH OPERATION ONE SET OF CASH AMO UNTING TO RS.10,45,005/- AND ANOTHER SET OF CASH AMOUNTING RS .17,28,420/- WERE FOUND AT THE BUSINESS PREMISES AND RESIDENTIAL PREMISES R ESPECTIVELY OF THE ASSESSEES. WHEN REQUIRED TO EXPLAIN THE NATURE OF SOURCE OF CASH FOUND, THE ASSESSEE EXPLAINED INTERALIA THAT SUCH CASH BALANCE COMPRISES OF HIS DAILY INCOME IN THE FORM OF COLLECTION FROM IN-PATIENTS A ND OUT-PATIENTS AND LABORATORY TEST CHARGES, AMOUNTS DRAWN FROM VARIOUS AGRICULTURAL COMPANIES OWNED BY HIM AND HIS FAMILY MEMBERS, AMOUNTS OF SAL E PROCEEDS OF EUCALYPTUS AND NEEM TREES ETC., THE AMOUNT RECEIVED FROM PATIENTS WHO NEEDED LIMB RECONSTRUCTION SYSTEM FOR PURCHASE OF T HE NECESSARY EQUIPMENTS AND IMPLANTS FROM A COMPANY AT CHENNAI AND ALSO AN AMOUNT RECEIVED BY HIS WIFE SMT. GRANDHI LALITHA FROM THE LIONS CLUB. AS THE ASSESSEE COULD NOT PRODUCE THE EVIDENCE IN RESPECT OF HIS EXPLANATION DURING THE COURSE OF SEARCH OPERATION CASH TO THE EXTENT OF RS.25 LAKHS WAS TREATED AS UNEXPLAINED AND SEIZED BY THE DEPARTMENT. SUBSEQUE NTLY, ON 5.12.2005, THE ASSESSEE FURNISHED THE WRITTEN REPLY TO THE ADI(INV ESTIGATION) STATING INTERALIA THE SOURCE OF CASH AVAILABLE AS COMPRISING OF CASH BALANCE AS ON 3.8.2005 AS PER HIS DAY BOOK AT RS.28,86,150/- AND AS PER HIS W IFE SMT. GRANDHI LALITHAS DAY BOOK AT RS.6,69,000/- AND THE MISCELLANEOUS REC EIPTS. BEING NOT CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEES, T HE ASSESSING OFFICER HAS MADE AN ADDITION OF RS.25 LAKHS AS UNEXPLAINED CASH IN TERMS OF SECTION 69A OF THE ACT. ITA NOS.426 TO 429 OF 09 456 TO 459 OF 09 GRANDHI A RAVINDAM, RJY 28 40. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) WITH THE SUBMISSION THAT THE CASH BALANCE AS PER THE CASH BO OK OF THE ASSESSEE WRITTEN UP TO AND AS ON 25.7.2005 (ALREADY IN THE P OSSESSION OF THE DEPARTMENT) BE CONSIDERED FOR SET OFF AGAINST ANY U NEXPLAINED CASH WHICH HAS BEEN SUBJECT TO THE ADDITION U/S 69A OF THE ACT . THE ASSESSEE FURTHER SUBMITTED THAT DIFFERENTIAL FIGURE OF RECEIPTS FROM X-RAY AND LABORATORY TESTS TO RS.5,90,270/- BETWEEN THE AGGREGATE FIGURES RECORDE D IN THE LABORATORY RECEIPTS BOOKS AND THOSE RECORDED IN THE NAME RECEI PT BOOK AND CASH BOOK COVERING THE PERIOD 2.4.2005 TO 23.7.2005 THAT HAS BEEN VOLUNTARILY DECLARED AFTER THE SEARCH OPERATION IN THE RETURN FILED FOR THE ASSESSMENT YEAR 2006-07 MAY KINDLY BE TELESCOPED INTO THE BALANCE CASH FUND S SO AS TO DRAW A NEXUS BETWEEN THE ADDITIONAL INCOME ADMITTED AND THE CASH FOUND TO THE EXTENT. 41. THE CIT(A) RE-EXAMINED THE ISSUE AND AFTER HAVI NG NOTICED FROM THE CASH BOOK IN WHICH CASH BALANCE OF RS.9,35,146/- WA S AVAILABLE AS ON 25.7.2005 HE HAS GIVEN THE CREDIT OF THE SAME. THE CIT(A) HAS ALSO TAKEN INTO ACCOUNT THE CONTENTION OF THE ASSESSEE THAT AD DITIONAL SUPPRESSED INCOME ON ACCOUNT OF X-RAY AND LABORATORY TEST OF R S.5,90,270/- WHICH HAS BEEN OFFERED IN THE RETURN FOR THE ASSESSMENT YEAR 2006-07 IS REQUIRED TO BE TELESCOPED IN THE UNEXPLAINED CASH. THE CIT(A) ACC ORDINGLY ALLOWED THE BENEFIT OF RS.5,90,270/- AND ACCORDINGLY RESTRICTED THE ADDITIONS TO RS.9,74,583/- AFTER DELETING THE ADDITION OF RS.15, 25,417/-. 42. AGGRIEVED, THE ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE THE TRIBUNAL. 43. THE LD. D.R. HAS PLACED A RELIANCE UPON THE ORD ER OF THE A.O., WHEREAS THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE CIT(A) HAS NOT GIVEN A CREDIT OF THE AVAILABILITY OF THE FUNDS BETWEEN T HE PERIOD FROM 25.7.2005 TILL THE DATE OF SEARCH ON 4.8.2005. THEREFORE, THE MAT TER MAY BE RESTORED BACK TO THE FILE OF THE A.O. TO RE-EXAMINE THE AVAILABIL ITY OF THE FUNDS DURING THAT PERIOD. ITA NOS.426 TO 429 OF 09 456 TO 459 OF 09 GRANDHI A RAVINDAM, RJY 29 44. WE HAVE CAREFULLY EXAMINED THE ORDER OF THE LOW ER AUTHORITIES IN THE LIGHT OF ASSESSEES CONTENTIONS AND WE FIND THAT TH E CIT(A) HAS ALLOWED THE BENEFIT OF CASH AVAILABLE AS ON 25.7.2005 IN THE CA SH BOOK AND ALSO THE SUPPRESSED INCOME OFFERED BY THE ASSESSEE DURING TH E ASSESSMENT YEAR 2006-07. BUT HE HAS NOT TAKEN INTO ACCOUNT THE AMO UNT RECEIVED BY THE ASSESSEES ON THE BASIS OF THE RECEIPT BOOK WHICH IS ALREADY DECLARED BY THE ASSESSEE. THEREFORE, THIS ISSUE REQUIRES A PROPER VERIFICATION OF THE AVAILABILITY OF FUNDS BETWEEN THE PERIOD OF 25.7.20 05 TO 4.8.2005. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE CIT(A) WITH REGARD TO THE ADDITION OF RS.9,74,583/- AND RESTORE THE MATTER TO THE FILE OF THE A.O. WITH A DIRECTION TO RE-EXAMINE IT IN THE LIGHT OF THE GENERATION OF FUNDS BETWEEN THE PERIOD 25.7.2005 TO 4.8.2005. ADDITION ON ACCOUNT OF UNEXPLAINED GIFT:- 45. THE FACTS BORNE OUT FROM THE RECORD ARE THAT IT WAS OBSERVED BY THE A.O. THAT DURING THE FINANCIAL YEAR 2003-04 RELEVAN T TO THE ASSESSMENT YEAR 2004-05 THE ASSESSEE HAS RECEIVED A CASH GIFT OF RS .7 LAKHS FROM ONE SHRI M. SRIRAM BY CHEQUE. WHEN ENQUIRED INTO THE SOURCE OF SUCH GIFT, IT WAS FOUND THAT AN AMOUNT OF RS.7 LAKHS WAS DEPOSITED IN CASH ON PREVIOUS DAY OF THE DATE ON WHICH TWO CHEQUES WERE ISSUED TO THE ASSESS EE AS GIFT. ON VERIFICATION, IT WAS FOUND THAT SHRI M. SRIRAM FILE D A RETURN OF INCOME DECLARING RENTAL INCOME OF RS.7,000/- P.M. THE A.O. DOUBTED THE CREDITWORTHINESS OF THE DONOR AND ACCORDINGLY MADE THE ADDITION OF RS.7 LAKHS AS UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT. 46. BEFORE THE CIT(A), IT WAS CONTENDED THAT M. SRI RAM IS THE MATERNAL UNCLE OF THE ASSESSEE AND OUT OF LOVE AND AFFECTION , HE HAS GIFTED THE SAID AMOUNT. THE SOURCE OF THE SAID AMOUNT WAS STATED T O BE A RECEIPT OF PAGADI (RENT ADVANCE) FROM THE TENANT. THE CIT(A) RE-EXAM INED THE ISSUE BUT WAS NOT CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEE S. 47. NOW THE ASSESSEE IS IN APPEAL BEFORE US AND IN SUPPORT OF HIS CONTENTION, THE LD. COUNSEL FOR THE ASSESSEE HAS IN VITED OUR ATTENTION TO THE ITA NOS.426 TO 429 OF 09 456 TO 459 OF 09 GRANDHI A RAVINDAM, RJY 30 AFFIDAVIT OF THE DONOR APPEARING AT PG.NO.294 AND 2 95 OF THE COMPILATION OF THE ASSESSEES IN WHICH IT IS STATED THAT THIS AMOUN T WAS RECEIVED FROM HIS TENANT AS PAGADI AND THE GIFT WAS GIVEN ON ACCOUNT OF LOVE AND AFFECTION. BESIDES, HE HAS ALSO INVITED OUR ATTENTION TO THE B ALANCE SHEET OF SHRI S. PRABHUDAS AS ON 31.3.2003 IN WHICH HE HAS DECLARED THAT AN ADVANCE OF RS.7 LAKHS WAS GIVEN TO M. SRIRAM. IN THE LIGHT OF THE EVIDENCE IT APPEARS THAT THIS ISSUE WAS NOT PROPERLY EXAMINED BY THE LOWER AUTHOR ITIES. WE THEREFORE SET ASIDE THE ORDER OF THE CIT(A) IN THIS REGARD AND RE STORE THE MATTER TO THE FILE OF THE A.O. WITH A DIRECTION READJUDICATE THE ISSUE IN THE LIGHT OF THE AFORESAID EVIDENCE. 48. IN THE RESULT, THE APPEALS OF THE REVENUE ARE DISMISSED AND THAT OF THE ASSESSEES ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 10.5.2011 SD/- SD/- (BR BASKARAN) (SUNIL KUMAR YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM, DATED 10 TH MAY, 2011 COPY TO 1 DR. G. ARAVINDAM D.NO.6 - 18 - 3, KOKKONDAVARI STREET, RAJAHMUNDRY 2 ACIT, CENTRAL CIRCLE, RAJAHMUNDRY 3 DCIT , CENTRAL CIRCLE, RAJAHMUNDRY 3 THE CI T, RAJAHMUNDRY 4 THE CIT (A) , RAJAHMUNDRY 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM