M/s Surya Hospitals, Hyderabad V. ITO,Ward - 4, Karimnagar

ITA 761/HYD/2014

• Counselvise Citation: 76122514 RSA 2014
• Duration Of Justice: 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 28-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Assessee Lawyers: B SHANTI KUMAR
• Keywords: Depreciation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.761/HYD/2014 ASSESSMENT YEAR 2006-2007 M/S. SURYA HOSPITALS GODAVARIKHANI KARIMNAGAR DISTRICT PAN AAGFS3375Q VS. INCOME TAX OFFICER WARD-4 KARIMNAGAR (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. B. SHANTIKUMAR FOR REVENUE : MR. RAJAT MITRA DATE OF HEARING : 17.11.2014 DATE OF PRONOUNCEMENT : 21.11.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS ASSESSEES APPEAL IS AGAINST THE ORDER OF LD . CIT(A)-III, HYDERABAD DATED 10.02.2014 FOR THE A.Y. 2006-07. THE ISSUE IN THIS APPEAL IS WITH REFERENCE TO ALLOW ING PROPORTIONATE EXPENSES TOWARDS VARIABLE EXPENSES AG AINST THE UNDISCLOSED RECEIPTS IDENTIFIED AND ACCEPTED. 2. BRIEFLY STATED, ASSESSEE HAS FILED RETURN OF IN COME FOR A.Y. 2006-07 DECLARING TOTAL INCOME OF RS.3,15, 250. CONSEQUENT TO SURVEY, CERTAIN ADDITIONAL RECEIPTS W ERE IDENTIFIED AND THERE IS NO DISPUTE ON THE FACT THAT AN AMOUNT OF RS.32,67,077 (WRONGLY TAKEN AS RS.35,67,077 IN THE ORIGINAL ASSESSMENT) WERE IDENTIFIED. IT WAS THE CONTENTION OF ASSESSEE THAT EVEN THOUGH THE RECEIPTS ARE UNDISCLOSED, THER E ARE CERTAIN EXPENDITURE ALSO ATTRIBUTABLE TO THE UNDISC LOSED 2 ITA.NO.761/HYD/2014 M/S. SURYA HOSPITALS, GODAVARIKHANI, KARIMNAGAR DIST., AMOUNTS WHICH SHOULD BE ALLOWED. THE A.O. COMPLETED ORIGINAL ASSESSMENT UNDER SECTION 143(3) DATED 26.08.2011 DETERMINING TOTAL INCOME AT RS.38,82,327. CONSEQUEN T TO THE APPEAL BY ASSESSEE, LD. CIT(A) VIDE HIS ORDER DATED 06.03.2009 ALLOWED RELIEF OF RS.21,56,512 TO ASSESSEE. ON FURT HER APPEAL BOTH BY ASSESSEE AND REVENUE, ITAT BENCH B, HYDER ABAD VIDE ORDER DATED 19.03.2010 IN ITA. NO. 657 & 658/H YD/2009 SET ASIDE THE ISSUE TO THE FILE OF A.O. FOR FRESH A DJUDICATION. 3. THE ITAT WHILE ADJUDICATING THE ISSUE N OTICED THAT THERE ARE TWO KINDS OF EXPENDITURE INCURRED BY ASSE SSEE. ONE IS FIXED EXPENDITURE AND OTHER ONE IS VARIABLE EXPE NDITURE. FIXED EXPENDITURE DOES NOT CHANGE DEPENDING ON THE GROSS RECEIPTS. HOWEVER, VARIABLE EXPENDITURE WILL CHANGE DEPENDING UPON THE QUANTUM OF BUSINESS CARRIED ON. THUS, THE ITAT NOTED THAT ONE HAS TO ARRIVE AT A CORRECT PROFIT FR OM THE UNDISCLOSED RECEIPTS. IT IS TO BE NOTED THAT ASSESS EE CLAIMED REGULAR EXPENDITURE WHICH ARE FIXED IN NATURE LIKE SALARY, STATIONERY, POSTAGE, TELEPHONE, TELEGRAM, BANK INTE REST AND COMMISSION, TRAVELLING EXPENSES, ELECTRICITY EXPENS ES, INCIDENTAL CHARGES, RENT, GRATUITY, ADVERTISEMENT, AUDIT FEES, ENTERTAINMENT EXPENSES, DEPRECIATION ETC,. HOWEVER, THERE ARE VARIABLE EXPENSES WHICH ARE INCURRED BY ASSESSEE WI TH REFERENCE TO UNDISCLOSED RECEIPTS. SINCE THE AMOUNT OF EXPENSES HAVE ALREADY BEEN TAKEN CARE IN REGULAR BU SINESS, THERE IS NO QUESTION OF ALLOWING ANY FIXED EXPENSES . HOWEVER, THE VARIABLE EXPENDITURE HAS TO BE ALLOWED IN PROPO RTION AS INCURRED BY ASSESSEE FOR THE DISCLOSED RECEIPTS. TH US, OBSERVING THE ITAT DIRECTED THE A.O. ASCERTAIN THE VARIABLE EXPENSES AND GIVE DEDUCTION FOR THE SAME. THE ISSUE IS SET ASIDE TO THE FILE OF A.O. FOR FRESH ADJUDICATION. 3 ITA.NO.761/HYD/2014 M/S. SURYA HOSPITALS, GODAVARIKHANI, KARIMNAGAR DIST., 4. CONSEQUENT TO THE ABOVE ORDER, A.O. PROCEEDED T O EXAMINE THE NATURE OF VARIABLE EXPENDITURE. ASSESSE E CONTENDED THAT ITEMS LIKE MEDICINES, SURGICAL ITEMS , GAS AND OTHERS ARE VARIABLE IN NATURE WHICH WAS ACCEPTED BY A.O. AND PROPORTIONATE EXPENDITURE WAS ALLOWED. HOWEVER, ASS ESSEES CONTENTION ON STATIONERY, SALARIES, TRAVELLING EXPE NSES, VEHICLE MAINTENANCE, MISCELLANEOUS AND PETROL EXPENSES WERE NOT ACCEPTED. IT WAS THE CONTENTION THAT ASSESSEE HAS I NCURRED RS.12,99,951 ON THE ABOVE ITEMS AND PROPORTIONATE EXPENDITURE TO BE ALLOWED WOULD BE ABOUT RS.20,30,9 78 AS AGAINST THE RECEIPTS OF RS.32,67,077 (RS.12,99,951 X RS.32,67,077 RS.20,91,131). HOWEVER, A.O. HAS AL LOWED ONLY AN AMOUNT OF RS.5,69,570 CONSIDERING THE EXPENDITUR E OF RS.3,64,595 SPENT ON MEDICINES, SURGICAL ITEMS AND OTHERS AGAINST THE DISCLOSED RECEIPTS. THE REST OF THE EXP ENDITURE WAS NOT ALLOWED ON THE REASON THAT ASSESSEE HAS NOT FUR NISHED ANY EVIDENCE IN RESPECT OF ADDITIONAL CLAIM AGAINST THE UNDISCLOSED RECEIPTS. LD. CIT(A) IN HIS WISDOM ALSO UPHELD THE ORDER OF A.O. ON THE SAME REASON THAT ASSESSEE HAS MADE HUGE CLAI MS WITHOUT SUBSTANTIATING AT ALL AND IN THE ABSENCE OF ANY EVIDENCE THE ENTIRE CLAIM CANNOT BE ALLOWED. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND EXAMINE D THE ISSUE IN DETAIL. BOTH THE OFFICERS ARE NOT CORR ECT IN REJECTING ASSESSEES CONTENTIONS ON THE REASON THAT ASSESSEE HAS NOT FURNISHED ANY EVIDENCE IN SUPPORT OF THE EXPENDITUR E. ADMITTEDLY, THE UNDISCLOSED RECEIPTS ARE ALSO NOT R ECORDED IN THE BOOKS OF ACCOUNTS. THEREFORE, WHEN THE RECEIPT ITSELF WAS NOT ACCOUNTED FOR, THE CORRESPONDING EXPENDITURE CA NNOT BE ACCOUNTED FOR OR EVIDENCE BE FURNISHED. ON THAT REA SON, BOTH THE AUTHORITIES, IN OUR VIEW HAD ERRED. FURTHER WHA T WE NOTICED 4 ITA.NO.761/HYD/2014 M/S. SURYA HOSPITALS, GODAVARIKHANI, KARIMNAGAR DIST., IS THAT THE AUTHORITIES ARE ALSO NOT CORRECT IN NOT FOLLOWING THE ORDER OF ITAT IN THE CORRECT PERSPECTIVE. THE ITAT HAS DIRECTED TO IDENTIFY THE VARIABLE EXPENDITURE AND ALLOW THE EXPENSES PROPORTIONATE TO THE VARIABLE EXPENSES INCURRED BY ASSESSEE WITH DISCLOSED RECEIPTS. THERE IS NO DISPUTE WITH R EFERENCE TO THE EXPENDITURE INCURRED FOR DISCLOSED RECEIPTS. TH EREFORE, WHAT A.O. IS REQUIRED TO DO IS TO IDENTIFY THE VARI ABLE EXPENDITURE AND ALLOW PROPORTIONATE EXPENDITURE. IN FACT, THE ITAT ORDER ITSELF IDENTIFIES MOST OF THE FIXED EXPE NDITURE. THEREFORE, EVEN THOUGH ASSESSEE CLAIMED STATIONERY, SALARIES, TRAVELLING EXPENSES AS VARIABLE EXPENDITURE, THE IT AT HAS ALREADY CATEGORISED THEM AS FIXED IN NATURE. THEREF ORE, ON THAT PRETEXT ALONE A.O. COULD HAVE DENIED THE CLAIM INST EAD OF REJECTING THEM ON THE PRETEXT OF NOT FURNISHING EVI DENCE OF ADDITIONAL EXPENDITURE. SINCE THE ITAT HAS ALREADY IDENTIFIED EXPENSES WHICH ARE FIXED IN NATURE, NO FURTHER DEDU CTION ON SUCH EXPENDITURE IS REQUIRED TO BE MADE. THEREFORE, WE APPROVE THE CONSIDERATION OF A.O. THAT MEDICINES AN D SURGICAL ITEMS, GAS AND OTHERS WOULD COME UNDER VARIABLE EXP ENDITURE AND ALLOWANCE OF EXPENDITURE ON THAT. LIKEWISE, WE ARE OF THE OPINION THAT VEHICLE MAINTENANCE (RS.90,310), MISCE LLANEOUS EXPENSES (RS.76,056), PETROL (RS.94,760) WOULD ALSO QUALIFY FOR THE PURPOSE OF ALLOWING VARIABLE EXPENDITURE BECAUS E OF USAGE OF AMBULANCE ETC., FOR THE PURPOSE OF HOSPITAL. THE RE IS JUSTIFICATION IN ASSESSEES CONTENTIONS THAT THESE THREE EXPENDITURES ALSO SHOULD BE CONSIDERED AS VARIABLE EXPENDITURE. SINCE, THESE ARE NOT CATEGORISED UNDER FIXED EXPENDITURE BY ITAT, WE ARE OF THE OPINION THAT ASS ESSEES CLAIM ON THE PROPORTIONATE EXPENDITURE ON THE ABOVE THREE ITEMS ARE TO BE ALLOWED. THEREFORE, A.O. IS DIRECTE D TO ALLOW PROPORTIONATE EXPENDITURE BY INCLUDING THE ABOVE TH REE ITEMS 5 ITA.NO.761/HYD/2014 M/S. SURYA HOSPITALS, GODAVARIKHANI, KARIMNAGAR DIST., AS VARIABLE EXPENDITURE AND RE-WORKOUT THE EXPENDIT URE TO BE ALLOWED OUT OF THE RECEIPTS IDENTIFIED AT RS.32,67, 077. WITH THESE DIRECTIONS, GROUNDS RAISED BY ASSESSEE ARE CO NSIDERED AS PARTLY ALLOWED. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21.11.2014. SD/- SD/- (SAKTIJIT DEY) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 21 ST NOVEMBER, 2014 VBP/- COPY TO 1. M/S. SURYA HOSPITALS, GODAVARIKHANI, KARIMANGAR DISTRICT. C/O. MR. B. SHANTHI KUMAR, ADVOCATE, 411, TARAMANDAL COMPLEX, 5-9-13, SAIFABAD, HYDERABAD 500 004. 2. INCOME TAX OFFICER,WARD-4, KARIMNAGAR. 3. CIT(A)-III, HYDERABAD 4. CIT-II, HYDERABAD 5. D.R. ITAT B BENCH, HYDERABAD.