Appeal details
Counselvise Citation
[2013] 140 COUNSELVISE.COM (IT) 71308 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 10 month(s) 3 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
25-09-2013
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
D
Next Hearing Date
20-06-2013
Assessment Year
2008-2009
Appeal Filed On
21-11-2011
Judgement Text
IN THE INCO ME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO , JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ./I.T.A. NO. 7860/M/2011 ( / ASSESSMENT YEAR : 2008 - 20 09 ) DR. DINESH JAIN, 104 , RIZVI CHAMBERS, 2 JAIN MANDIR MARG, BANDRA (W) , MUMBAI 400 050. / VS. ACIT - 11(2), 4TH FLOOR, AAYAKAR BHAVAN, CHURCHGATE, MUMBAI 400020. ./ PAN : AAAPJ 8040 P ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI FIROZE B. ANDHAYARUJING & MR. RAJESH SANGHVI / RESPONDENT BY : SHRI DIPAK RIPOTE, DR / DATE OF HEARING : 21 .8.2013 / DATE OF PRONOUNCEMENT : 25. 9 .2013 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE REVENUE ON 21.11.2011 IS AGAINST THE ORDER OF CIT (A) - 3 , MUMBAI DATED 16.9.2011 FOR THE ASSESSMENT YEAR 2008 - 09 . 2. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WH ICH READ AS UNDER: 1. IN THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN UPHOLDING THE DECISION OF AO OF REJECTING BOOKS OF ACCOUNTS WHICH WAS BASED ON ASSUMPTIONS AND PRESUMPTIONS AND IN THE ABSENCE OF ANY SPECIFIC DEFECT OR LACUNAE IN THE BOOKS OF ACCOUNTS OR FOR ANY OTHER COGENT OR SPEAKING REASONS. 2. IN THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) HAS ERRED IN CONFIRMING THE PROFESSIONAL FEE INCOME ADDITION OF RS. 30,99,690/ - BASED ON SHEER EXT RAPOLATION & ASSUMPTIONS AND: A) BY NOT APPRECIATING THAT OTHER THAN A LOOSE PAPER NAMELY PG NO. 17, IMPOUNDED U/S 133A, NOT EVEN AN IOTA OF ANY OTHER DIRECT CORROBORATING EVIDENCE OR ANY VALUABLES OR PHYSICAL CASH OR ANYTHING UNACCOUNTED OR ANY LIVE - LINK WITH ANY ASSET WAS FOUND TO JUSTIFY THE ADDITIONS DUE TO THE ALLEGED PROFESSIONAL RECEIPTS OF RS. 30,99,690/ - B) BY IGNORING THE FACT THAT THE STATEMENT RECORDED U/S 133A WAS INCORRECTLY DONE ON OATH AS AGAINST THE PROVISIONS OF THE SAID SECTION AND THER EFORE THE STATEMENT LOST EVIDENTIARY VALUE. C) BY NOT APPRECIATING/ACKNOWLEDGING THE SANCTITY OF THE DAILY APPOINTMENT/FEES DIARY MARKED AS A/5 IN THE IMPOUNDED MATERIAL WHICH WAS IN FACT CONTAINING FEE DETAILS FOR A MAJOR PERIOD OF THE YEAR IN QUESTION AND THE SANCTITY OF WHICH WAS RECOGNIZED IN THE REMAND REPORT DT: 5 - 4 - 2010 BY THE AC IN THE APPEAL PROCEEDINGS FOR ASST YEAR: 06 - 07. 2 D) BY NOT APPRECIATING THAT THE STATEMENTS USED OF A THIRD PARTY (THAT OF MS. BRENDA DSOUZA ) WERE REFUTED BY HER & THE A PPELLANT. E) BY NOT APPRECIATING THE AFFIDAVITS FILED BY THE APPELLANT. 3. IN THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW AND IN THE ALTERNATIVE, THE LD CIT (A) HAS ERRED BY UPHOLDING THE DECISION OF THE AC IN TREATING AS TAXABLE INCOME, THE ENTIRE GROSS RECEIPTS OF RS. 30,99,690/ - ESPECIALLY AFTER REJECTING THE BOOKS OF ACCOUNTS AND BY NOT APPLYING ANY NET PROFIT RATI O ON THE GROSS RECEIPTS AND THUS BY TREATING GROSS RECEIPTS AS EQUIVALENT TO TAXABLE INCOME. 4. IN THE FACTS & CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD CIT (A) HAS ERRED IN CONFIRMING AN AD - HOC ADDITION UNDER INCOME FROM HOUSE PROPERTY AT BELLA - VISTA APTS (BANDRA - MUMBAI) OF RS. 1,38,000/ - ON MERE ASSUMPTIONS AND WITHOUT ANY LOGICAL BASIS AND BY GROSSLY IGNORING THAT GROSS RENTAL INC OME OF THAT THE SAID PROPERTY OF RS. 43,000/ - WAS ALREADY DECLARED BY THE APPELLANT IN HIS TAX RETURNS. 5. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN DISALLOWING 10% OUT OF RS. 32,92,065/ - BEING PURCHASE OF DRUGS/CO NSUMABLES BY IGNORING THE NATURE OF THE PROFESSIONAL PRACTICE OF THE APPELLANT AND ON SHEER ASSUMPTION AND BY IGNORING THE EVIDENCES FILED. 6. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF RS. 372,279/ - ON ACCOUNT OF BANK INTERES T. 7. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN DISALLOWING 10% OUT OF RS.1,65,0 75/ - BEING MOTOR CAR, INSURANCE & TELEPHONE EXP. 3. BRIEFLY STATED RELEVANT FACTS OF THE C ASE ARE THAT THE ASSESSEE IS A PRACTICING DENTAL SURGEON , SPECIALIZED IN MAXILLO FACIAL IMPLANT SURGERY AND HAS A CLINIC AT BANDRA (W), MUMBAI. THERE WAS A SURVEY OPERATION ON THE ASSESSEE U/S 133A OF THE ACT WHICH RESULTED IN IMPOUNDING INCRIMINATING DOCU MENTS INVOLVING VARIOUS AYS . THE LOOSE PAPER SL.NO.17 IS ONE SUCH IMPOUNDED INCRIMINATING MATERIAL. OTHER PAPERS IMPOUNDED BY THE REVENUE ARE (I) ANNEXURE - A1 (DAILY CASE REGISTER) CONTAINING 83 LEAVES, OF WHICH PAGES 1 - 15 WERE REMOVED ; (II) ANNEXURE - A5, W HERE PAGES 150 - 174 HAVE BEEN REMOVED . THERE WAS A RECORDING OF STATEMENT DURING THE SURVEY OPERATION AND SUBSEQUENT TO THE SURVEY U/S 131 OF THE ACT. BASING ON THE SAID PAGE 17 OF THE L OOSE PAPERS, THE FOLLOWING DETAILS WERE EXTRACTED FOR THE PURPOSE OF ASSESSMENT OF THE AY 2004 - 05, 2005 - 06, 2006 - 07 AND 2007 - 08 (JUNE, 2006). AY RECEIPTS AS PER PAGE NO.17 (RS.) RECEIPTS DISCLOSED IN THE RETURN OF INCOME (RS.) UNDISCLOSED RECEIPTS (RS.) PERCENTAGE OF UNDISCLOSED RECEIPTS W.R.T. TOTAL RECEIPTS EARNED 2004 - 0 5 55 , 37 , 450 / - 27 , 18 , 814 / - 28 , 18 , 036 / - 50.89% 2005 - 06 57 , 88 , 558 / - 30 , 33 , 855 / - 27 , 54 , 703 / - 47.58 % 2006 - 07 61,90,850/ - 36,73,159/ - 24,36,191/ - 39.35% 2007 - 08 18,82,082/ - UPTO JUNE, 2006 4. FROM THE ABOVE, IT IS EVIDENT TH AT THE ASSESSEE DISCLOSED 49% ( AVERAGE PERCENTAGE OF ( 50.89% + 47.58% + 39.35%) OF THE ACTUAL RECEIPTS AND SUPPRESSED 3 59% ON AN AVERAGE. THE ABOVE FOUR ASSESSMENTS WERE COMPLETED AFTER ADDING THE SUPPRESSED PROFESSIONAL RECEIPTS AND THE ASSESSMENT S WERE FINALIZED. THE MATER TRAVELLED T O THE ITAT FOR THE SAID AY S 2004 - 05 TO 2007 - 08 AND TRIBUNAL CONFIRMED THE ABOVE ADDITIONS VIDE ITS ORDER IN ITA NO S . 6812/M/2011, 6811/M/2011, 8122/M/2010 AND 936/M/2011, DATED 10.4.2012. HOWEVER, THE TRIBUNAL GRANTED PART RELIEF TOWARDS THE EXPENSES RELA TING TO THE SUPPRESSED RECEIPTS AND PARA 12 OF THE TRIBUNALS O RDER IS RELEVANT IN THIS REGARD AND THE SAME READS AS UNDER: 12. AS FAR AS THE ARGUMENT THAT ONLY NET PROFIT CAN BE ASSESSED IN THE CASE OF UNDISCLOSED SOURCE IS CONCERNED, THE LD. COUNSEL OF THE ASSESSEE HAS RELIED ON THE DECISION OF CIT VS. GURUBACHHAN SINGH J JUNEJA [SUPRA]. IN THIS CASE, IT HAS BEEN DEARLY HELD THAT IN THE ABSENCE OF ANY MATERIAL ON RECORD TO SHOW THAT THERE WERE ANY UNEXPLAINED INVESTMENTS, THEN ONLY THE NET PROFIT CAN BE ADDED ON ACCOUNT OF UNDISCLOSED SOURCES. THERE CANNOT BE ANY QUARREL WITH THIS ARGUMENT. BUT THE QUESTION IS WHETHER THIS ARGUMENT CAN BE ADOPTED IN THE CASE OF THE ASSESSEE. THE ANSWER SEEMS TO BE NO. BECAUSE IN THE CASE OF A NORMAL BUSINESSMAN, IF HE SEL LS EXTRA UNITS, THERE HAS TO BE SOME EXTRA COST OF THOSE UNITS AND IF THERE IS EVIDENCE REGARDING UNEXPLAINED INVESTMENTS ON THE COST OF THOSE EXTRA UNITS AND IF THERE IS EVIDENCE REGARDING UNEXPLAINED INVESTMENT ON THE COST OF THOSE EXTRA UNITS, ONLY THEN ADDITION CAN BE MADE FOR THE WHOLE AMOUNT OTHERWISE ONLY THE NET PROFIT CAN BE ASSESSED. BUT IN THE CASE OF THE PROFESSIONAL, THE SITUATION IS TOTALLY DIFFERENT BECAUSE THE PROFESSIONAL IS RECEIVING THE MONEY AS FEE FOR EXERCISE OF HIS PROFESSION AND NO C OST IS INVOLVED. WHATEVER OVERHEADS HAVE BEEN INCURRED FOR ANNUAL EXPENDITURE ARE ALREADY BOOKED BY THE ASSESSEE AND NOWHERE IT HAS BEEN SHOWN THAT THERE WAS ANY EXPENDITURE WHICH WAS NOT BOOKED IN THE BOOKS OF ACCOUNTS. THEREFORE, THE PRINCIPLE LAID DOWN BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF GURUBACHAN SINGH JUNEJA VS. CIT [SUPRA] CANNOT BE FOLLOWED IN THE CASE OF A PROFESSIONAL. HOWEVER, AT THE SAME TIME WE FIND THAT DURING THE COURSE OF THE SURVEY IT WAS DEARLY ADMITTED BY THE ASSESSEE THAT RE CEIPTS HAVE BEEN SUPPRESSED TO TAKE CARE OF VARIOUS CASH COMPONENTS INVOLVED IN THE ESTIMATE AND INCLUDING VARIOUS CORRUPTIONS AT VARIOUS LEVELS WHICH BECOMES CLEAR FROM THE ANSWER TO QUESTION NO.12 REPRODUCED ABOVE. AS FAR AS CORRUPTION IS CONCERNED, WE C AN ONLY SAY THAT EVEN IF ANY CORRUPTION MONEY WAS PAID, SAME CANNOT BE TREATED AS EXPENDITURE IN VIEW OF EXPLANATION SEC.37 WHICH READS AS UNDER: EXPLANATION. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE. THE ABOVE CLEARLY PROHIBITS ALLOW ANCE OF ANY EXPENDITURE INCURRED FOR THE PURPOSE OF ANY OFFENCE WHICH IS PROHIBITED BY LAW. AT THE SAME TIME THERE CAN BE SOME CASH COMPONENTS INVOLVED IN THE CASE OF A DENTIST WHO IS REQUIRED TO USE CERTAIN MATERIALS FOR FILLINGS ETC. THEREFORE TAKING A L ENIENT VIEW, WE ARE OF THE OPINION, THAT IT WOULD MEET THE ENDS OF JUSTICE IF RECEIPTS ARE REDUCED BY 10% OF THE AMOUNT FOR CASH SPENT ON MATERIALS. ACCORDINGLY, WE MODIFY THE ORDER OF THE LD CIT(A) AND DIRECT THE AO TO MAKE AN ADDITION ON ACCOUNT OF SUPPR ESSED SALES AS MADE BY HIM ON THE BASIS OF DOCUMENTS. BUT HE SHOULD GIVE FURTHER RELIEF OF 10% OF THE SUPPRESSED RECEIPTS ON ACCOUNT OF THE MATERIALS USED BY THE ASSESSEE WHICH MIGHT HAVE BEEN PURCHASED OUT OF THE CASH AVAILABLE FROM SUPPRESSED RECEIPTS. 4 5. T HUS, IN PRINCIPLE, T HE TRIBUNAL APPROVED THE REJECTION OF THE BOOKS OF ACCOUNTS FOR THE SAID AYS AND ALSO THE APPLICABILITY OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF COMMISSIONER OF SALES TAX VS. H.M. ESUFALI H.M. ABDULALI [9 0 ITR 2 71], APART FROM ANY OTHER DECISIONS. FURTHER, T HE TRIBUNAL ALSO MADE USE OF THE STATEMENT EXTRACTED AFTER THE SURVEY ACTION FOR CONFIRMING THE ADDITIONS FOR THE AYS 2004 - 05 TO 2007 - 08. IN THE SAID ORDER OF THE ITAT, THE TRIBUNAL HEAVILY RELIED ON THE PAGE 1 - 15 OF THE ANNEXURE - A1 (WHICH ARE ACTUALLY RELEVANT FOR THE IMPUGNED AY) , WHICH CONTAINS DETAILS OF AMOUNTS NOTED IN THE NOTE BOOK AND AMOUNTS RECORDED FOR THE MONTH OF AUGUST, 2007 . T HERE WAS ELABORATE DISCUSSION ON THIS ISSUE VIDE THE PARA 3 TO 10 OF T HE TRIBUNALS ORDER AS TO HOW THE ASSESSEE FAILED TO RECONCILE UNACCOUNTED RECEIPTS FOR THE MONTH OF AUGUST, 2007 QUA THE BOOKS OF ACCOUNTS OF THE ASSESSEE . THIS FINDING IS NOW RELEVANT AS THE BOOKS OF ACCOUNTS ARE REJECTED BY THE ASSESSING OFFICER BY INV OKING THE PROVISIONS OF SECTION 145 OF THE ACT WHILE MAKING ASSESSMENT U/S 143 (3) FOR THE AY 2008 - 2009, WHICH IS UNDER CONSIDERATION. THE STATED UNRECONCILED FIGURES OF PROFESSIONAL FEE COLLECTED AND ACCOUNTED IN THE BOOKS OF ACCOUNTS FOR THE MONTH AUGUST 2007 ARE DISCUSSED ELABORATELY BY THE TRIBUNAL AND RELEVANT TABLE AS APPEARING IN PARA 3 OF THE ORDER OF THE TRIBUNAL IS EXTRACTED AS UNDER: DATE AMOUNT RECORDED IN THE NOTE BOOK AMOUNT RECORDED IN THE BOOKS OF ACCOUNT 1.8.2007 13,100 / - 1 , 100 / - 4.8.2007 18 , 000/ - 12,300/ - 7.8.2007 7,200/ - 1,150/ - 9.8.2007 26,500/ - 4,300/ - 17.8.2007 29,600/ - 11,500/ - 28.8.2007 15,800/ - 1,900/ - 6. THE AMOUNTS OF PROFESSIONAL FEE ACTUALLY FOUND ACCOUNTED IN THE BOOKS OF ACCOUNTS ARE ON THE LOWER SIDE QUA THE FIGURES FO UND IN THE ANNEXURE. IT WAS BROUGHT TO OUR NOTICE THAT THERE WAS A DISCUSSION ABOUT THE NEED FOR RECONCILIATION DURING THE SURVEY ACTION VIDE QUESTI O N NO . 7 AND 8 OF THE STATEMENT RECORDED FROM AND MS. BRENDA M. DSOUZA, RECEPTIONIST OF THE ASSESSEE, AND RE LEVANT QUESTIONS AND ANSWERS IN THIS REGARD ARE AS UNDER , WHICH FORM PART OF PARA 11 OF THE TRIBUNALS ORDER . 11. IN THE CASE BEFORE US A DIARY KNOWN AS FANTASSY WAS FOUND IN WHICH ADDITIONAL RECEIPTS WERE REFLECTED, WHICH ARE AS UNDER: 5 THE STAT EMENT OF THE RECEPTIONIST MS. BRENDA M. DSOUZA WAS RECORDED AND SHE CLEARLY ADMITTED THAT FEES RECEIVED FROM VARIOUS PATIENTS WERE BEING RECORDED IN THE DIARY AND AT THE END OF THE DAY THE FEES COLLECTED AS WELL AS THE DIARY WERE BEING HANDED OVER TO THE ASSESSEE. SOME PAGES WERE FOUND TO BE TORN AND IT WAS STATED BY THE RECEPTIONIST THAT SHE HAS NOT TORN THE PAGES. THOUGH IT WAS STATED THAT ASSESSEE HAS NOT BEEN GIVEN THE COPY OF THE STATEMENT, BUT SIMULTANEOUSLY IT WAS ADMITTED THAT COPY OF THE STATEMENT WAS GIVEN DURING THE APPEAL PROCEEDINGS AND NO COMMENTS HAVE BEEN MADE BEFORE THE FIRST APPELLATE AUTHORITY OR EVEN BEFORE US REGARDING THE STATEMENT OF MS. BRENDA M. DSOUZA. IN ANY CASE, THE CONTENTS OF THIS DIARY WERE CONFRONTED TO THE ASSESSEE ALSO VI DE QUESTION NOS.6, 7, 8, 19 & 20 WHICH HAVE BEEN REPRODUCED BY THE AO AS UNDER: Q.6. PLEASE EXPLAIN HOW THE FEES ARE COLLECTED BY WHOM AND HOW THEY ARE RECORDED IN BOOKS? ANS. WE KEEP THE DAIRY SHOWING NAMES AND AMOUNT RECEIVED. THE MONEY IS COLLECTED BY T HE RECEPTIONIST AS NOTED BY ME OR BY ASSOCIATES AND MAKE NOTE OF IT IN THE DAIRY. THE ACCOUNTANT TAKES TOTAL RECEIPTS FROM THIS. Q. 7. CAN YOU PLEASE GO THROUGH YOUR DIARY FOR AUGUST 2007 AND GIVE FEES DAY WISE? ANS. DATE AMOUNT (RS.) 13100/ - 1.8.07 180 00/ - 4.8.07 7200/ - 7.8.07 26500/ - 9.8.07 29600/ - 17.8.07 15800/ - 28.8.07 15700/ - Q.8 . AS PER THE INFORMATION AVAILABLE IN FEES RECEIVED A/C IN TALLY THE RECEIPTS ARE ACTUALLY SHOWN ARE AS FOLLOWS . DATE AMOUNT (RS.) 1100/ - 1.8.07 12300/ - 4.8.07 1 150/ - 7.8.07 4300/ - 9.8.07 11500 / - 17.8.07 1900 / - 28.8.07 HOW ARE YOU RECONCILING THE DIFFERENCE? ANS. I HAVE TO ASK THE ACCOUNTANT TO KNOW THE DISCREPANCY IF ANY. THE ACCOUNTANT HAS NOT COMING TO JOB SINCE 11.8 . 2007. Q. 1 9 . 1 AM SHOWING YOU THE NOT E BOOK FANTASY WHICH SHOWS RECEIPTS WRITTEN BY RECEPTIONIST FOR 6.8.07 TO 30.08.07. PLEASE STATE WHAT IS THE PURPOSE OF THIS REGISTER? ANS. THE AMOUNT COLLECTED BY THE RECEPTIONIST IS MAINTAINED IN THIS REGISTER FOR THE ACCOUNTANT TO VERIFY AND ENTER IN THE LEDGER. Q.20. AS PER THIS NOTE BOOK THE RECEIPTS ARE MUCH HIGHER THAN WHAT IS ACCOUNTED SAY FOR INSTA NCE O N 7.8.07 AND 17.8.07. PLEASE CLARIFY THE DIFFERENCE. ANS. AS STATED EARLIER THE ACCOUNTANT HAS NOT BEEN COMING , SO ACCOUNTS ARE YET TO BE COMPLETE D . DATE AMOUNT RE CORDED IN THE NOTE BOOK AMOUNT RECORDED IN THE BOOKS OF ACCOUNT 1.8.2007 13,100/ - 1,100/ - 4.8.2007 18,000/ - 12,300/ - 7.8.2007 7,200/ - 1,150/ - 9.8.2007 26,500/ - 4,300/ - 17.8.2007 29,600/ - 11,500/ - 28.8.2007 15,800/ - 15,700/ - 1,900/ - - 6 THE ABOVE CLEARLY SHOWS THAT ASSESSEE IS NOT DENYING THE CONTENTS OF THE DIARY. HE HAS ALSO ADMITTED THAT HE WILL HAVE TO CHECK - UP WITH THE ACCOUNTANT REGAR DING THE DISCREPANCIES. THE LD C I T (A) HAS CLEARLY OBSERVED THAT IF THE ACCOUNTANT WAS NOT COMING THEN HOW VARIOUS AMOUNTS HAVE BEEN ENTERED INTO THE ACCOUNTS BOOK ON 17 - 8 - 07, 20 - 8 - 07 AND 29 - 3 - 07 VIDE OBSERVATION NO.6 WHICH HAS BEEN EXTRACTED BY US ABOVE. THIS DEARLY SHOWS THAT THE ASSESSEE WAS VERY MUCH AWARE OF SUPPRESSION OF RECEIPTS. THE MODUS OPE RANDI IS VERY SIMPLE. THE CORRECT RECEIPTS COL L ECTED FROM THE PATIENTS BY THE RECEPTIONIST ARE MENTIONED IN THE DIA R Y AND THE DIARY ALONG WITH THE MONEY IS HANDED OVER TO THE ASSESSEE - DOCTOR AND LATER ON LESS AMOUNT OF RECEIPTS ARE ENTERED INTO THE BOOKS O F ACCOUNTS MAINTAINED FOR THE PURPOSE OF TAXATION. APART FROM THIS DIARY ANOTHER DOCUMENT NO.17 PLACED AT PAGE 357 OF THE PAPER BOOK WAS FOUND WHICH CONTAINS THE MONTHLY RECEIPTS FROM APRIL 2003 TO JU NE 2006. IT HAS NOT BEEN DENIED AT ANY POINT OF TIME THA T THIS DOCUMENT DOES NOT BELONG TO THE ASSESSEE AND HE HAS SIMPLY STATED IN RESPONSE TO QUESTION NO.35 THAT HE WILL HAVE TO VERIFY. THE QUESTION AND ANSWER IS REPRODUCED BELOW: Q.35 I AM SHOWING YOU A LOOSE PAPER NUMBER 17, PLEASE GO THROUGH IT AND SAY WHA T P & S? ANDS. I WILL HAVE TO VERIFY WITH MY ACCOUNTS. MAY BE IT IS ESTIMATED FIGURE OF RECEIPTS IN THE RESPECTIVE STATED PERIOD. LATER ON DURING THE ASSESSMENT PROCEEDINGS IT WAS REPRESENTED ON BEHALF OF THE ASSESSEE THAT THIS DOCUMENT IS BASICALLY AN E STIMATE PREPARED BY THE CONSULTANT MR. RAMESH SHETTY. THIS CANNOT BE GIVEN ANY CREDENCE BECAUSE AS OBSER VED BY THE LD CI T(A) NO EVIDENCE WAS FURNISHED REGARDING APPOINTMENT OF SHRI RAMESH SHETTY AS CON SULTANT. NO FEES IS STATED TO HA VE BEEN PAID TO SHRI RA RNESH SHETTY AND NO MENTION REGARDING THE PRESENCE OF CONSUL TANT WAS MADE DURING THE SURVEY. IN ANY CASE, THE PERUSAL OF THIS DOCUMENT SHOWS THAT RECEIPTS HAVE BEEN GENERALLY MADE OF MUL TIPLE OF 10, FOR EXAMPLE, RS.3,54,650/ - , RS. 5,69,850/ - IN THE MONTH O F FEBRUARY, 2004 AND MARCH, 2004. EVEN ODD AMOUNTS HAVE BEEN MENTIONED, FOR EXAMPLE, FOR THE MONTH OF MAY, 200 4 RECEIPTS HAVE BEEN SHOWN AT R S.4,40,049/ - , RS.6,99,982/ - FOR THE MONTH OF APRIL, 2006. IT IS HIGHLY IMPROBABLE THAT THESE FIGURES ARE ONLY THE E STIMATE. FIR ST OF ALL AS OBSERVED BY THE LD CIT (A) THERE WAS NO NEED TO MENTION MONTHLY FIGURE FOR PREPARING A ROSY PICTURE FO R THE BANK, BECAUSE BANK WOULD REQUIRE ANNUAL FIGURE AND EVEN IF MONTHLY FIGURES WERE ESTIMATED THEN ODD FIGURES WOULD NOT BE THE RE AND FIGUR ES WOULD HAVE BEEN IN TERMS OF L AKHS OR THOUSANDS. THEREFORE, IT CANNOT BE ACCEPTED THAT THESE FIGURES ARE MERELY ESTIMATES PREPARED BY THE CONSULTANT. IN ANY CASE, IN THE STATEMENT RECORDED ON 6 - 9 - 07 IN THE OFFICE OF THE I TO ANSWER TO QUESTION NO.12 READS AS UNDER: Q. 12. DURING THE COURSE OF SURVEY DISCREPANCIES IN FIGURES OF RECEIPTS AS PER YOUR BOOKS AND ACTUAL COLLECTION NOTED IN THE DIARY MAINTAI NED WERE NOTICED. THE ANSWER GIVEN TO THE SAME WAS AS FOLLOWS: T O TAKE CARE O F VARIOUS CASH C OMPONENTS, INVOLVED IN THE SYSTEM WE ARE LEAVING, INCLUDING CORRUPTIONS AT VARIOUS LEVELS. THE RECEIPTS HAVE BEEN ADJUSTED. PLEASE STATE HOW ARE GOING TO RECONCILE THAT UNACCOUNTED RECEIPTS PICKED FOR A MONTH ON RANDOM BASIS? YOU MAY GIVE YOU R REPLY T AKIN G INTO ACCOUNT THE FIGURES O F COLLECTION AS NOTED IN LOOSE PAPER PAGE NO.17 ? ANS. I AM NOT AWARE OF THE TECHNICALITIES. I WILL HAVE TO SHOW THE PAPER TO THE ACCOUNTANT CHARTERED ACCOUNTANT. WHATEVER THE DIFFERENCE THAT MAY COME ON THE BASIS OF THE PAPER, I WILL OFFER THE SAME VOLUNTARILY AS ADDITIONAL INCOME. THE ABOVE CLEARLY SHOWS THAT ASSESSEE HAS ADMITTED AND PROMISED TO DECLARE THE DIFFERENCE IN RECEIPTS VOLUN T ARILY. WE FIND NO FORCE IN THE S UBMISSION THAT NO CASH OR UNDISCL OSED ASSETS WERE FOUND B ECAUSE IT IS MERELY A CASE OF SURVEY AND IN CASE OF PROFESSIONALS OFFICE THE CASH IS BEING COLLECTED ON DAILY BASIS AND THERE IS NO CHANCE OF ANY UNDISCLOSED CASH BEING FOUND AND IN THIS REGARD EVEN AO HAS TRIED TO POINT OUT THAT ASSESSEE HAS MADE CERTAIN UNDISCL OSED INVESTMENTS IN PROPERTY BY POINTING OUT HOW THE STAMP DUTY VALUATIONS WERE MORE THAN THE CONSIDERATION SHOWN BY THE ASSESSEE. THEREFORE, WE ARE OF THE OPINION THAT IN THE LIGHT OF VARIOUS DOCUMENTS FOUND AS WELL AS THE STATEMENT OF THE ASSESSE E RECORDED ON 6 - 9 - 07, IT IS CLEAR THAT 7 ASSESSEE HAD SUPPRESSED HIS RECEIPTS AND HAD NOT DECLARED THE SAME DESPITE PROMISING TO VOLUNTARILY DECLARE THE SAME. 7. AFTER THE SURVEY ACTION, ITO ALSO RECORDED A STATEMENT ON OATH ON 6.9.2007 AND THERE WAS AN EN QUIRY AS TO REQUIREMENT OF RECONCILIATION OF THE STATED FIGURES AND THERE WAS A DEMAND TO THAT EXTENT BY THE ASSESSEE AND THE ASSESSEE PROMISED TO DECLARE THE RECEIPTS VOLUNTARILY. PAGE 17, PARA 11 OF THE ORDER OF THE TRIBUNAL IS RELEVANT IN THIS REGARD. F INALLY, IT IS THE FACT THAT FINALLY THE SAID FIGURES FOR THE MONTH OF AUGUST, 2007 COULD NOT BE RECONCILED . THESE UN RECONCILED FIGURES BEING RELATED TO THE MONTH OF AUGUST, 2007 ARE RELEVANT FOR THE AY 2008 - 2009 WHICH IS UNDER CONSIDERATION. 8. REJECTI ON OF BOOKS OF ACCOUNTS FOR THE AY 2008 - 09: IN THE BACKGROUND OF THESE FACTS, AO REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND WORKED OUT THE AVERAGE DECLARED PROFESSIONS RECEIPTS AT 49% AND BALANCE OF 51% WERE ESTIMATED ONLY UP TO THE DATE OF SURVEY ACTION I.E., 30.08.2007. FOR THE REST OF THE PERIOD, THE BOOKS RESULTS ARE ACCEPTED. FINALLY, THE AO MADE A N ADDITION OF RS. 30,99,690/ - . THIS FIGURE IS DERIVED IN THE MANNER AS DISCUSSED IN PARA 6.2 AND 6.3 OF THE ORDER OF THE ASSESSMENT ORDER . THE ACCOU NTED PROFESSIONAL RECEIPTS UP TO 31.8.2007 WAS WORKED OUT AT RS. 29,78,134/ - B ASED ON THE BOOKS OF ACCOUNTS. THE TOTAL PROFESSIONAL RECEIPTS ARE WORKED OUT TO RS. 60,77,824/ - . RELEVANT DISCUSSION LEADING TO THE SAID ESTIMATION AND FINAL ADDITION ON ACCOU NT OF PROFESSIONAL RECEIPTS OF RS.30,99,690/ - IS DISCUSSED IN PARA 6.2 AND 6.3 OF THE ASSESSMENT ORDER WHICH IS AS UNDER: 6.2. KEEPING IN VIEW THE ABOVE FACTS, IT HAS BECOME CLEAR THAT THE ASSESSEE HAD CONDUCTED 51% PROFESSION OUT OF BOOKS 128,18,036 X 1 00 / 55,37,450 FOR THE A.Y.200405, 47.58% [27,54,703 X 100 /57,88,558 FOR THE A.Y.2005 - 06, 39.35% [24,36,191 X 100 / 61,90,850 FOR THE A.Y.2006 - 07. IT MEANS THAT THE RECEIPTS DISCLOSED IN THE BOOKS OF ACCOUNTS FOR THE AY 2004 - 05 ARE ONLY 49% [100 51], IN AY. 2005 - 06 AT 52.42 % [100 47.58%] AND 60.65% IN AY 2006 - 07. FURTHER THE ACTION OF THE ASSESSEE TO TEAR OUT THE PAGE S 16 TO 83 OF ANNEXURE A - 1 GIVES INDICATION THAT THE RECEIPTS EARNED DURING THE PERIOD FROM 1.4.2007 TO 3.7.2O07 HAVE BEEN ADJUSTED BY T HE ASSESSEE ACCORDING TO HIS WISHES AND THE RECEIPTS DISCLOSED IN THE BOOKS OF ACCOUNT FOR THIS PERIOD ARE NOT TRUE AND CORRECT. THEREFORE, IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, I AM FULLY CONVINCED THAT THE ASSESSEE HAD INDULGED IN CARRYING OUT PR OFESSION OUT OF BOOKS DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR 2008 - 09. IN THESE CIRCUMSTANCES AND AFTER FOLLOWING THE CASE LAWS MENTIONED SUPRA, IT IS HELD THAT THE ASSESSEE IS INDULGED IN 51% PROFESSION OUT OF BOOKS FROM THE PERIOD 1.4.2007 TO 3 1.7. 2007. THE DETAILS OF RECEIPTS SHOWN BY THE ASSESSEE FROM 1.4.2007 TO 3 1.7.2001 ARE AS UNDER: 8 PERIOD RECEIPTS SHOWN IN THE BOOKS OF ACCOUNTS(RS.) 1.4.2007 TO 30.4.07 716626/ - 1.5.2007 TO 31.5.07 920481/ - 1.6.2007 TO 30.6.07 646574/ - 1.7.2007 TO 31.7.0 7 694453/ - 6.3 IT MEANS THAT THE RECEIPTS OF RS.29,78,134/ - CLAIMED BY THE ASSESSEE FROM THE PERIOD 1.4.2007 TO 31.7.2007 ARE ONLY 49% AND 51% ARE OUT OF BOOKS. THEREFORE, THE ASSESSEE HAS CONCEALED THE INCOME OF RS.30,99,690/ - (29,78,134 X 100 / 49% = 60,77,824 - 29,78,134/ - ) AND THE SAME IS ADDED TO THE INCOME OF THE ASSESSEE AS THE ASSESSEE HAS ALREADY INCURRED THE EXPENSES OUT OF BOOKS TO E THE ABOVE INCOME FROM HIS SOURCES. THEREFORE, THE INCOME OF RS.30,99,690/ - IS TREATED AS THE NET INCOME OF THE A SSESSEE FROM UNDISCLOSED SOURCES. SINCE THE ASSESSEE HAS CONCEALED THE PARTICULARS OF HIS INCOME, I AM SATISFIED THAT THIS IS A FIT CASE FOR INITIATING PENALTY PROCEEDINGS WITHIN THE MEANING OF SECTION 271(L)( C) OF THE I.T. ACT, 1961. 9 . IN ADDITION TO T HE ABOVE, AO ALSO MADE OTHER ADDITIONS NAMELY (I) STCG OF RS.6,03,366/ - ON SHARES IS TREATED AS BUSINESS INCOME; (II) LTCG OF RS. 24,88,265/ - TREATED AS BUSINESS INCOME; (III) DISALLOWANCE OF EXPENSES U/S 14A OF THE RS. 59,687/ - ; (IV) INCOME FROM HOUSE PRO PERTY OF RS.1,75,000/ - ; (V) DISALLOWANCE OF INTEREST ON ACCOUNT OF PERSONAL LOAN RS. 3,72,279/ - ; (VI) DIS A LLOWANCE ON ACCOUNT OF DRUGS AND CONSUMABLES OF RS.6,58,413 AND (VII) AD - HOC DISALLOWANCE ON ACCOUNT OF MOTORCAR AND TELEPHONE OF RS. 33,015/ - . FINAL LY, THE ASSESSED INCOME WAS DETERMINED AT RS. 97,89,730/ - . MATTER TRAVELLED TO THE FIRST APPELLATE AUTHORITY. 10 . A. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE, CIT (A) CONFIRMED TH E ADDITIONS MADE BY THE AO WITHOUT ANY AMENDMENTS. IN THE PROCESS, CIT(A) CONFIRMED THE AOS DECISION OF REJECTION OF BOOKS OF ACCOUNTS OF THE ASSESSEE WITH REGARD TO THE TURNOVER OF THE ASSESSEE UP TO JULY, 2007, AS WELL AS ESTIMATION BASED ON THE JUDGME NT OF THE HONBLE SUPREME COURT IN THE CASE OF H.M. ESUFALI H.M. ABDULALI (SUPRA). B. FURTHER, R EGARDING THE CHANGE OF HEAD OF INCOME RELATING TO LONG TERM AND SHORT TERM CAPITAL GAINS, CIT (A) GRANTED RELIEF TO THE ASSESSEE AND DELETED THE ADDITIONS. C. FURTHER ALSO R EGARDING THE DISALLOWANCE U/S 14A OF THE ACT, CIT (A) GRANTED CERTAIN DIRECTIONS TO THE AO AFTER UNDERTAKING THE VERIFICATION OF CERTAIN FIGURES CLAIMED TO HAVE BEEN WRONGLY ADOPTED BY THE AO. IT IS THE CLAIM OF THE ASSESSEE THE AGGREGAT E INVESTMENT FIGURE SHOULD BE RS. 44,40,819/ - AND NOT RS. 1,19,37,422/ - ADOPTED BY THE AO WHILE MAKING DISALLOWANCE UNDER RULE - 8D OF IT RULES, 1963 RELYING ON THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF GODREJ & 9 BOYCE MANUFACTURING CO. LTD. VS. DCIT [ 2010] 328 ITR 81 (BOM.). REGARDING THE INCOME FROM HOUSE PROPERTY , THE CIT (A) GRANTED PART RELIEF. HOWEVER, HE REJECTED THE ASSESSEES COMPUTATION OF INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. AS PER THE ALV OF THE PROPERTY AT BELLA VESTA APART MENTS IS RS. 43,000/ - . AFTER CLAIMING OF STANDARD DEDUCTION AND INTEREST OF RS. 1.5 LACS, THE INCOME FROM HOUSE PROPERTY IS AT RS. 1,19,900/ - . CIT (A) REJECTED THE ABOVE AND DETERMINED THE INCOME FROM BELLA VESTA FLAT AT RS. 1,07,900/ - . CIT (A) ESTIMATE D THE ALV @ 8%, WHICH COMES TO RS. 2,76,001/ - AND THE ASSESSEES SHARE @ 50% COMES TO RS. 1,38,000/ - . D. REGARDING THE DISALLOWANCE OF BANK INTEREST RELATABLE TO THE PERSONAL PURPOSES, IT IS THE SUBMISSION OF THE ASSESSEE THAT THE LOANS FROM VARIOUS BANK S WERE TAKEN AS PERSONAL LOANS BUT THE USE IS FOR THE BUSINESS REASONS AND THE LOANS WERE UTILIZED FOR PURCHASING THE FIXED ASSETS AND ALSO FOR REPAYMENT OF EARLIER LOANS AND FOR PURCHASE OF CONSUMABLES UTILIZED IN THE MEDICAL PRACTICE. CIT (A) REJ ECTED TH E SAME CONSIDERING THE ABSENCE OF THE EVIDENCES AND MANNER OF APPLICATION OF THE IMPUGNED LOANS THAT THEY WERE APPLIED FOR THE BUSINESS PURPOSES. ACCORDINGLY, CIT (A) CONFIRMED THE ADDITIONS. E. REGARDING THE DISALLOWANCE OF CONSUMABLES @ 20% OF THE CLA IM OF THE CIT (A) GAVE A PART RELIEF AND HELD THAT THE DISALLOWANCE @10% OF THE CLAIM IS REASONABLE. THAT IS HOW THE ADDITION OF RS. 6,58,413/ - FROM THE CLAIM OF CONSUMABLE IS REDUCED TO 32,92,065/ - . FINALLY, THE AD - HOC DISALLOWANCE OUT OF MOTORCAR, INSU RANCE AND TELEPHONE, THE AO MADE DISALLOWANCE OF RS. 33,015/ - BEING 20% OF THE GROSS EXPENSES ON THE SAID ACCOUNTS TOWARDS THE PERSONAL USE OF THE ASSETS. ASSESSEE CONTENDED THAT NO SUCH DISALLOWANCE WAS MADE IN THE PAST AND OF COURSE MENTIONED THAT THE D ISALLOWANCE ON ACCOUNT OF TELEPHONE EXPENSES WAS MADE @ 10%. ON HEARING THE ASSESSEE, CIT (A) RESTRICTED THE SAID DISALLOWANCE OUT OF GROSS EXPENSES OF INCOME @ 10% AND GRANTED PART RELIEF. AGGRIEVED WITH THE ORDER OF THE CIT (A), ASSESSEE IS IN APPEAL B EFORE US . 10 BEFORE THE TRIBUNAL 1 1 . DURING THE PROCEEDINGS BEFORE US, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT GROUND NOS. 1, 2 AND 3 RELATE TO INVOKING OF THE PROVISIONS OF SECTION 145 OF THE ACT TO THE PROFESSIONAL RECEIPTS UP TO JULY, 2008 AND AD DITION OF RS. 30,99,690/ - BASING ON THE ESTIMATIONS. IN ALTERNATE , ASSESSEE SUBMITS THAT THE SAID ADDITION OF RS. 30,99,690/ - IS MADE ON GROSS RECEIPTS BASIS WITHOUT GRANTING ANY RELIEF TOWARDS THE UNACCOUNTED EXPENSES RELATABLE TO THE UNREPORTED PROFESSI ONAL RECEIPTS OF RS. 30,99,690/ - . IN CONNECTION WITH THE INVOKING OF THE PROVISIONS OF SECTION 145 OF THE ACT, LD COUNSEL SUBMITTED THAT THE BOOKS OF ACCOUNT WERE REJECTED WITHOUT RECORDING ANY FINDINGS ON THE CORRECTNESS AND COMPLETENESS OF THE ACCOUNTS. HE ALSO MADE VARIOUS SUBMISSIONS IN WRITING AND THE SAME READS AS UNDER : SUBMISSIONS ON TEARING AWAY OF PAGES 1. BOOKS OF ACCOUNTS WERE GIVEN TO THE ITO ON 24 - 11 - 2010 (COMPILATION PG 36) 2. NO WHISPER OF ANY DEFECTS IN THE AUDITED HOOKS OF ACCOUNTS ARE FOUND IN THE ITO ASST ORDER. 3. IN PANCHNAMA IMPOUNDING ORDER DT: 30 - 8 - 07 (COMPILATION PG 68) IN ANNX - A/1 (PG 1 - 15), NO MENTION OF PAGES 16 TO 83 IS FOUND WHEN THE IT DEPT COULD HAVE WRITTEN IT SINCE THEY THEMSELVES HAD NUMBERED IT. WHEN THE IT DEPT THEM SELVES DIDNT WRITE THE PAGE NOS 16 - 83 IN THE PANCHNAMA HOW CAN THE ASSESSEE BE EXPECTED TO FIND AND THEN ANSWER QUESTIONS ON THE SAME. 4. A LIST OF IMPOUNDED BOOKS/PAPERS AS PER THE IMPOUNDING ORDER DI: 30 - 8 - 07 OF SHOWN AT PARA # 4 OF THE STATEMENT OF FAC TS BEFORE CIT (A) (COMPILATION PG : 92 ). THE ITO PRESUMED THAT A/I (COMPILATION 99 TO 106) CONTAINED FEES DETAILS PRIOR TO 6 - 8 - 07, WHEREAS THE SAME INFORMATION (NAMELY FEES FROM 1 - 1 - 07 TO 30 - 8 - 07) WAS FOUND IN A/4 (COMPILATION 107 TO 127) WHICH WAS ALS O IMPOUNDED. SO WHY WOULD THE ASSESSEE TEAR PAGES WHEN THE SAME INFORMATION WAS AVAILABLE TO THE IT DEPT IN SURVEY. 5. ANNEXURE A/4 (BLACK DIARY) IN THE IMPOUNDED MATERIAL PG : 1 TO 73 HAS COMPLETE RECORDS OF APPOINTMENT/FEES OF PATIENTS FOR THE PERIOD 1 - 1 - 07 TO 30 - 8 - 07. HENCE WHERE IS THE QUESTION OF TEARING PAGES FOR THE PERIOD 1 - 4 - 07 TO 5 - 8 - 07 . 6. OLD RECORDS FROM 5 - 7 - 04 TO 30 - 8 - 07 WERE IMPOUNDED ( A/2, A/3, A/5 ) REF PARA # 4 STATEMENT OF FACTS BEFORE THE CIT(A) COMPILATION PG : 92 LIST OF IMPOUNDED MATERIAL (COMPILATION PG 68). HENCE , THE QUESTION OF DESTROYING DATA WHEN SUCH OLD RECORDS WERE AVAILABLE DEFIES LOGIC. 7. ALLEGATION OF TEARING PAGES BY BRENDA WAS MISQUOTED BY THE IT DEPT AS SEEN BY THE CLARIFICATION GIVEN BY BRENDA TO THE ITO. (COMPILA TION PG 66 READ WITH 63) SUBMISSIONS ON RELATED TO PG # 17 1. PG # 17 (COMPILATION PG : 82) WAS THE SUBJECT MATTER OF ADDITIONS FOR AY : 04 - 05 TO 07 - 08 AS IT CONTAINED SOME INFORMATION FOR THE PERIOD MAY 2003 TO JUNE 2006. IT DID NOT CONTAIN ANY INFORMATI ON OF ASST YEAR: 08 - 09 2. WITHOUT PREJUDICE IT IS SUBMITTED THAT PG # 17 (COMPILATION PG # 82) WAS EXPLAINED AND EVIDENCES LIKE THIRD PARTY AFFIDAVIT ( COMPILATION PG : 83 ) ETC WERE F ILED BEFORE THE ITO BUT WERE NOT APPRECIATED. 3. JUST BECAUSE AN ADDITION IS MADE IN THE PRIOR YEARS, IT DOES NOT BECOME THE BASIS OF REJECTION OF THE BOOKS IN THE CURRENT YEAR. 4. DETAILED EXPLANATION ON PG: 1 - 6 OF COMPILATION (AS GIVEN TO CIT - A) PROPOSITIONS ON REJECTION OF BOOKS OF ACCOUNTS 1. THE FANTASY DIARY A/1 OR THE BL ACK DIARY A/5 WAS NOT BOOKS OF ACCOUNTS. HENCE , REJECTION OF DIARY IS NOT REJECTION OF BOOKS OF ACCOUNTS 2. IF BOOKS OF A/C ARE REJECTED THEN AO IS PRECLUDED TO MAKE AD - HOC ESTIMATION OR PREPARE AN ABRIDGED P & L A/C. BUT HE CANNOT RELY ON BOOKS OF ACCOUNT S FOR MAKING ROUTINE DISALLOWANCES FROM EXISTING FIGURES. 3. ACIT VS NANA PATEKAR [27 SOT 8 (MUM)] 4. ANY ST ATEMENT, DURING SURVEY U/S 133A , TAKEN ON OATH LOSSES ITS EVIDENTIARY VALUE : SUPREME COURT - KHADER KHAN CASE [ 25 TAXMAN 413 (SC) 1 11 CONCLUSION HE NCE REJECTION OF BOOKS OF ACCOUNTS OF THE ASSESSEE WITHOUT RECORDING ANY FINDING ON THE CORRECTNESS AND COMPLETENESS OF THE ACCOUNTS WAS INVALID ASSUMPTION OF JURISDICTION BY ITO. 12 . ON THE OTHER HAND, LD DR BROUGHT OUR ATTENTION TO THE ORDER OF THE TRI BUNAL, WHICH IS PLACED AT PAGE 133 OF THE PAPER BOOK AND NARRATED ABOUT THE BOOKS OF ACCOUNTS AND ASSESSEES CONDUCT IN SUPPRESSION OF THE PROFESSIONAL RECEIPTS FOR THE AY 2004 - 05 TO 2007 - 2008. IN THIS REGARD, LD DR BROUGHT OUR ATTENTION NOTICED THE FACT THAT THE TRIBUNAL CONFIRMED THE ADDITIONS MADE BY THE AO IN ALL THESE AYS V IDE THE ORDER DATED 10.4.2004. HE ALSO MENTIONED THAT THE PAGES 1 - 15, WHICH IS IMPOUNDED BY THE REVENUE DURING THE SURVEY ACTION U/S 133 OF THE ACT RELATE TO THE PERIOD AUGUST, 2007 WHICH IS RELEVANT FOR THE AY 2008 - 2009 UNDER CONSIDERATION. HE ALSO BROUGHT OUT THE FACT THAT THE TRIBUNAL HAS ALREADY COME TO THE CONCLUSION ON THE ASPECTS OF ASSESSEES FAILURE TO RECONCILE THE AMOUNTS FIGURING IN THE NOTE BOOK QUA THE BOOKS OF ACCOUN TS MAINTAINED BY THE ASSESSEE. CONSIDERING THE ASSESSEES FAILURE TO RECONCILE, IT IS THE ARGUMENT OF THE LD DR THAT THE BOOKS MAINTAINED BY THE ASSESSEE ARE INCOMPLETE AND INCORRECT . THEREFORE, CONSIDERING THE ENTRIES WHICH ARE ALREADY EXTRACTED ABOVE IS GOOD ENOUGH TO CALL THE BOOKS OF ACCOUNTS ARE INCOMPLETE AND JUSTIFIED THE INVOK ING OF THE PROVISIONS OF SECTION 145 OF THE ACT. IN THIS REGARD, LD DR BROUGHT OUR ATTENTION TO THE ORDER OF THE TRIBUNAL, IN GENERAL, AND THE CONTENTS OF THE PARA 3 TO 12 OF THE ORDER OF THE TRIBUNAL TRACED AS TO HOW THE TRIBUNAL CAME TO THE CONCLUSION THAT THE ASSESSEES BOOKS ARE NOT RELIABLE AND RELIED HEAVILY ON THE ABOVE RECONCILED ENTRIES PERTAINING TO THE PERIOD 1.8.2007 TO 28.8.2007. HE ALSO RELIED ON VARIOUS DECISIO NS CITED IN THE ORDER OF THE TRIBUNAL IN HIS FAVOUR. 13 . WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE OF REJECTION BOOKS OF ACCOUNTS RAISED IN GROUND NO.1 OF THE APPEAL. WE HAVE PERUSED THE DOCU MENTS IN THIS REGARD NAMELY I.E., THE STATEMENTS OF MS. BREND A M. DSOUZA RECORDED ON 30.8.2007 U/S 133 OF THE ACT DURING SURVEY ; STATEMENT OF DR. DINESH R. JAIN RECORDED ON 31.8.2007; STATEMENT OF DR. DINESH R. JAIN RECORDED ON 3.9.2007; STATEMENT WHICH IS CONTINUED TO 6.9.2007, THE PAGE NO.17, THE AFFIDAVI T FILED BY THE ASSESSEE, OTHER A NNEXURES IMPOUNDED DURING THE SURVEY ACTION , THE ORDER OF THE TRIBUNAL, ASSESSMENT ORDER FOR THE AY 2004 - 2005 TO 2007 - 2008, WRITTEN SUBMISSIONS AND THE LIST OF CASE LAWS FURNISHED BEFORE US ETC. IT IS THE CLAIM OF THE ASSESSEE THAT THE BOOKS OF ACCOUNTS SH OULD NOT HAVE BEEN REJECTED BY INVOKING THE PROVISIONS OF 12 SECTION 145 OF THE ACT, WHEN THE BOOKS DO NOT SUFFER FROM INCOMPLETENESS AND INACCURACY. ON THE OTHER HAND, THE CASE OF THE REVENUE IS THAT BOOKS ARE, OF COURSE, INCOMPLETE AND INACCURATE AND RELIED HEAVILY ON THE RECONCILED PROFESSIONAL RECEIPTS FOR THE MONTH OF AUGUST, 2007 EXTRACTED ABOVE. IT IS THE CLAIM OF THE REVENUE THAT THE ISSUE IS NOW SETTLED AT THE LEVEL OF THE TRIBUNAL THAT THE BOOKS OF ACCOUNTS ARE INCOMPLETE, INACCURATE AND NOT RELATABLE AND RELIED HEAVILY ON THE ORDER OF THE TRIBUNAL DATED 10.4.2012 (SUPRA). ON HEARING BOTH THE PARTIES AND PERUSAL OF THE CORRESPONDENCE PLACED BEFORE US, WE FIND THAT THE TRIBUNAL MADE USE OF THE DATE FOUND IN THE IMPOUNDED MAT ERIAL I.E., PAGES 1 - 15 OF THE ANNEXURE - A1 IN CONFIRMING THE ADDITIONS MADE BY THE AO FOR THE AY 2004 - 2005 TO 2007 - 2008. IT IS ALREADY THE FINDING OF THE TRIBUNAL THAT THE ASSESSEE FAILED TO RECONCILE THAT THE ENTRIES FOUND ON THE IMPOUNDED ACCOUNTS DEALS WITH THE CONCERNED BOOKS OF ACCOUNTS OF THE ASSESSEE . IN THIS REGARD, RELEVANT PARAS OF THE ORDER OF THE TRIBUNAL ARE 3, 11 AND 12 AND THE SAME READ AS UNDER. 3. A SURVEY WAS CONDUCTED IN THE PREMISES OF THE ASSESSEE ON 30 - 8 - 2007. THE ASSESSEE IS A PRAC TICING DENTIST AND IS RUNNING A CLINIC WHERE THE SURVEY WAS CONDUCTED. DURING SURVEY SOME DIARIES AND LOOSE DOCUMENTS WERE FOUND WHICH DEPICTED THAT ASSESSEE WAS UNDERSTATING THE REAL PROFESSIONAL RECEIPTS. ONE SUCH TYPE OF DIARY WAS MARKED AS AL FANTASSY . IN THIS DIARY PROFESSIONAL RECEIPTS FROM 6 - 8 - 2007 TO 30 - 8 - 2007 WERE RECORDED. HOWEVER, IT WAS NOTICED THAT PAGES BEFORE 6 - 8 - 2007 WERE TORN. A STATEMENT OF MS. BRENDA M. DSOUZA, RECEPTIONIST OF THE ASSESSEE WAS RECORDED DURING THE SURVEY. IN THIS STATEM ENT IT WAS CLEARLY STATED THAT RECEIPTS FROM EACH PATIENT ARE RECORDED IN THIS DIARY AND BY THE END OF THE DAY THE RECEIPTS ALONG WITH THE DIARY WERE HANDED OVER TO DR. JAM, I.E. THE ASSESSEE. MS. BRENDA M. DSOUZA FURTHER STATED THAT SHE HAS NOT TORN THE PAGES BECAUSE THE NOTE BOOK WAS BEING HANDED OVER TO THE DOCTOR ON DAILY BASIS. IT WAS NOTICED THAT IN THE NOTE BOOK FEE STATED WAS MUCH HIGHER THAN THE FEES RECORDED IN THE BOOKS OF ACCOUNTS AND TALLY AND THROUGH QUESTION NOS.7 & 8 THESE DISCREPANCIES WER E POINTED OUT TO THE ASSESSEE WHICH ARE AS UNDER: DATE AMOUNT RECORDED IN THE NOTE BOOK AMOUNT RECORDED IN THE BOOKS OF ACCOUNT 1.8.2007 13,100/ - 1,100/ - 4.8.2007 18,000/ - 12,300/ - 7.8.2007 7,200/ - 1,150/ - 9.8.2007 26,500/ - 4,300/ - 17.8.2007 29,600/ - 11,500/ - 28.8.2007 15,800/ - 15,700/ - 1,900/ - - IN RESPONSE TO A QUERY REGARDING THE DISCREPANCIES, IT WAS STATED BY THE ASSESSEE THAT HE WILL HAVE TO CHECK OUT WITH THE ACCOUNTANT AND IT WAS ADMITTED THAT THE AMOUNTS WERE BEING COLLECTED BY THE RECEPTION IST AND WERE BEING ENTERED INTO THE NOTE BOOK. IN ADDITION TO THE ABOVE, ANOTHER LOOSE PAPER TITLED AS PAGE NO.17 WAS FOUND IN WHICH MONTHLY RECEIPTS WERE RECORDED FROM APRIL, 2003 TO JUNE 2006. THE ASSESSEE WAS CONFRONTED WITH THIS DOCUMENT DURING THE S URVEY AS WELL AS DURING THE POST SURVEY PROCEEDINGS. INITIALLY ASSESSEE HAD AGREED TO OFFER THE ADDITIONAL RECEIPTS WHICH WERE SHOWN IN THE LOOSE PAPER NO.17 AND LATER ON IT WAS STATED THAT ASSESSEE HAD ENGAGED A FINANCIAL CONSULTANT ONE MR. RAMESH SHETTY WHO WAS TO PREPARE A PROJECT REPORT BECAUSE ASSESSEE WANTED TO INSTALL SOME MAJOR EQUIPMENTS FOR HIS 13 PRACTICE. DURING THE EXERCISE OF PREPARATION OF SUCH PROJECT REPORT THE CONSULTANT HAD ENHANCED THE MONTHLY RECEIPTS AND HAD INCREASED THE FIGURES TO SHOW COSMETIC APPEARANCE BEFORE THE BANKER. 11. IN THE CASE BEFORE US A DIARY KNOWN AS FANTASSY WAS FOUND IN WHICH ADDITIONAL RECEIPTS WERE REFLECTED, WHICH ARE AS UNDER: THE STATEMENT OF THE RECEPTIONIST MS. BRENDA M. DSOUZA WAS RECORDED AND SHE CLEARLY A DMITTED THAT FEES RECEIVED FROM VARIOUS PATIENTS WERE BEING RECORDED IN THE DIARY AND AT THE END OF THE DAY THE FEES COLLECTED AS WELL AS THE DIARY WERE BEING HANDED OVER TO THE ASSESSEE. SOME PAGES WERE FOUND TO BE TORN AND IT WAS STATED BY THE RECEPTIONI ST THAT SHE HAS NOT TORN THE PAGES. THOUGH IT WAS STATED THAT ASSESSEE HAS NOT BEEN GIVEN THE COPY OF THE STATEMENT, BUT SIMULTANEOUSLY IT WAS ADMITTED THAT COPY OF THE STATEMENT WAS GIVEN DURING THE APPEAL PROCEEDINGS AND NO COMMENTS HAVE BEEN MADE BEFORE THE FIRST APPELLATE AUTHORITY OR EVEN BEFORE US REGARDING THE STATEMENT OF MS. BRENDA M. DSOUZA. IN ANY CASE, THE CONTENTS OF THIS DIARY WERE CONFRONTED TO THE ASSESSEE ALSO VIDE QUESTION NOS.6, 7, 8, 19 & 20 WHICH HAVE BEEN REPRODUCED BY THE AO AS UNDER : Q.6. PLEASE EXPLAIN HOW THE FEES ARE COLLECTED BY WHOM AND HOW THEY ARE RECORDED IN BOOKS? ANS. WE KEEP THE DAIRY SHOWING NAMES AND AMOUNT RECEIVED. THE MONEY IS COLLECTED BY THE RECEPTIONIST AS NOTED BY ME OR BY ASSOCIATES AND MAKE NOTE OF IT IN THE DAI RY. THE ACCOUNTANT TAKES TOTAL RECEIPTS FROM THIS. Q. 7. CAN YOU PLEASE GO THROUGH YOUR DIARY FOR AUGUST 2007 AND GIVE FEES DAY WISE? ANS. DATE AMOUNT (RS.) 13100/ - 1.8.07 18000/ - 4.8.07 7200/ - 7.8.07 26500/ - 9.8.07 29600/ - 17.8.07 15800/ - 28.8.07 15700/ - Q.8. AS PER THE INFORMATION AVAILABLE IN FEES RECEIVED A/C IN TALLY THE RECEIPTS ARE ACTUALLY SHOWN ARE AS FOLLOWS. DATE AMOUNT (RS.) 1100/ - 1.8.07 12300/ - 4.8.07 1150/ - 7.8.07 4300/ - 9.8.07 11500/ - 17.8.07 1900/ - 28.8.07 HOW ARE YOU R ECONCILING THE DIFFERENCE? ANS. I HAVE TO ASK THE ACCOUNTANT TO KNOW THE DISCREPANCY IF ANY. THE ACCOUNTANT HAS NOT COMING TO JOB SINCE 11.8.2007. Q. 19. 1 AM SHOWING YOU THE NOTE BOOK FANTASY WHICH SHOWS RECEIPTS WRITTEN BY RECEPTIONIST FOR 6.8.07 TO 30 .08.07. PLEASE STATE WHAT IS THE PURPOSE OF THIS REGISTER? ANS. THE AMOUNT COLLECTED BY THE RECEPTIONIST IS MAINTAINED IN THIS REGISTER FOR THE ACCOUNTANT TO VERIFY AND ENTER IN THE LEDGER. Q.20. AS PER THIS NOTE BOOK THE RECEIPTS ARE MUCH HIGHER THAN WHAT IS ACCOUNTED SAY FOR INSTANCE ON 7.8.07 AND 17.8.07. PLEASE CLARIFY THE DIFFERENCE. ANS. AS STATED EARLIER THE ACCOUNTANT HAS NOT BEEN COMING, SO ACCOUNTS ARE YET TO BE COMPLETED . THE ABOVE CLEARLY SHOWS THAT ASSESSEE IS NOT DENYING THE CONTENTS OF THE DI ARY. HE HAS ALSO ADMITTED THAT HE WILL HAVE TO CHECK - UP WITH THE ACCOUNTANT REGARDING THE DISCREPANCIES. THE LD CIT (A) HAS CLEARLY 14 OBSERVED THAT IF THE ACCOUNTANT WAS NOT COMING THEN HOW VARIOUS AMOUNTS HAVE BEEN ENTERED INTO THE ACCOUNTS BOOK ON 17 - 8 - 07, 20 - 8 - 07 AND 29 - 3 - 07 VIDE OBSERVATION NO.6 WHICH HAS BEEN EXTRACTED BY US ABOVE. THIS DEARLY SHOWS THAT THE ASSESSEE WAS VERY MUCH AWARE OF SUPPRESSION OF RECEIPTS. THE MODUS OPERANDI IS VERY SIMPLE. THE CORRECT RECEIPTS COLLECTED FROM THE PATIENTS BY THE RECEPTIONIST ARE MENTIONED IN THE DIARY AND THE DIARY ALONG WITH THE MONEY IS HANDED OVER TO THE ASSESSEE - DOCTOR AND LATER ON LESS AMOUNT OF RECEIPTS ARE ENTERED INTO THE BOOKS OF ACCOUNTS MAINTAINED FOR THE PURPOSE OF TAXATION. APART FROM THIS DIARY ANOTH ER DOCUMENT NO.17 PLACED AT PAGE 357 OF THE PAPER BOOK WAS FOUND WHICH CONTAINS THE MONTHLY RECEIPTS FROM APRIL 2003 TO JUNE 2006. IT HAS NOT BEEN DENIED AT ANY POINT OF TIME THAT THIS DOCUMENT DOES NOT BELONG TO THE ASSESSEE AND HE HAS SIMPLY STATED IN RE SPONSE TO QUESTION NO.35 THAT HE WILL HAVE TO VERIFY. THE QUESTION AND ANSWER IS REPRODUCED BELOW: Q.35 I AM SHOWING YOU A LOOSE PAPER NUMBER 17, PLEASE GO THROUGH IT AND SAY WHAT P & S? ANDS. I WILL HAVE TO VERIFY WITH MY ACCOUNTS. MAY BE IT IS ESTIMATED FIGURE OF RECEIPTS IN THE RESPECTIVE STATED PERIOD. LATER ON DURING THE ASSESSMENT PROCEEDINGS IT WAS REPRESENTED ON BEHALF OF THE ASSESSEE THAT THIS DOCUMENT IS BASICALLY AN ESTIMATE PREPARED BY THE CONSULTANT MR. RAMESH SHETTY. THIS CANNOT BE GIVEN ANY CREDENCE BECAUSE AS OBSERVED BY THE LD CIT(A) NO EVIDENCE WAS FURNISHED REGARDING APPOINTMENT OF SHRI RAMESH SHETTY AS CONSULTANT. NO FEES IS STATED TO HAVE BEEN PAID TO SHRI RARNESH SHETTY AND NO MENTION REGARDING THE PRESENCE OF CONSULTANT WAS MADE DURI NG THE SURVEY. IN ANY CASE, THE PERUSAL OF THIS DOCUMENT SHOWS THAT RECEIPTS HAVE BEEN GENERALLY MADE OF MULTIPLE OF 10, FOR EXAMPLE, RS.3,54,650/ - , RS. 5,69,850/ - IN THE MONTH OF FEBRUARY, 2004 AND MARCH, 2004. EVEN ODD AMOUNTS HAVE BEEN MENTIONED, FOR EX AMPLE, FOR THE MONTH OF MAY, 2004 RECEIPTS HAVE BEEN SHOWN AT RS.4,40,049/ - , RS.6,99,982/ - FOR THE MONTH OF APRIL, 2006. IT IS HIGHLY IMPROBABLE THAT THESE FIGURES ARE ONLY THE ESTIMATE. FIRST OF ALL AS OBSERVED BY THE LD CIT (A) THERE WAS NO NEED TO MENTI ON MONTHLY FIGURE FOR PREPARING A ROSY PICTURE FOR THE BANK, BECAUSE BANK WOULD REQUIRE ANNUAL FIGURE AND EVEN IF MONTHLY FIGURES WERE ESTIMATED THEN ODD FIGURES WOULD NOT BE THERE AND FIGURES WOULD HAVE BEEN IN TERMS OF LAKHS OR THOUSANDS. THEREFORE, IT C ANNOT BE ACCEPTED THAT THESE FIGURES ARE MERELY ESTIMATES PREPARED BY THE CONSULTANT. IN ANY CASE, IN THE STATEMENT RECORDED ON 6 - 9 - 07 IN THE OFFICE OF THE ITO ANSWER TO QUESTION NO.12 READS AS UNDER: Q. 12. DURING THE COURSE OF SURVEY DISCREPANCIES IN FI GURES OF RECEIPTS AS PER YOUR BOOKS AND ACTUAL COLLECTION NOTED IN THE DIARY MAINTAINED WERE NOTICED. THE ANSWER GIVEN TO THE SAME WAS AS FOLLOWS: TO TAKE CARE OF VARIOUS CASH COMPONENTS, INVOLVED IN THE SYSTEM WE ARE LEAVING, INCLUDING CORRUPTIONS AT VAR IOUS LEVELS. THE RECEIPTS HAVE BEEN ADJUSTED. PLEASE STATE HOW ARE GOING TO RECONCILE THAT UNACCOUNTED RECEIPTS PICKED FOR A MONTH ON RANDOM BASIS? YOU MAY GIVE YOUR REPLY TAKING INTO ACCOUNT THE FIGURES OF COLLECTION AS NOTED IN LOOSE PAPER PAGE NO.17? ANS. I AM NOT AWARE OF THE TECHNICALITIES. I WILL HAVE TO SHOW THE PAPER TO THE ACCOUNTANT CHARTERED ACCOUNTANT. WHATEVER THE DIFFERENCE THAT MAY COME ON THE BASIS OF THE PAPER, I WILL OFFER THE SAME VOLUNTARILY AS ADDITIONAL INCOME. THE ABOVE CLEARLY S HOWS THAT ASSESSEE HAS ADMITTED AND PROMISED TO DECLARE THE DIFFERENCE IN RECEIPTS VOLUNTARILY. WE FIND NO FORCE IN THE SUBMISSION THAT NO CASH OR UNDISCLOSED ASSETS WERE FOUND BECAUSE IT IS MERELY A CASE OF SURVEY AND IN CASE OF PROFESSIONALS OFFICE THE CASH IS BEING COLLECTED ON DAILY BASIS AND THERE IS NO CHANCE OF ANY UNDISCLOSED CASH BEING FOUND AND IN THIS REGARD EVEN AO HAS TRIED TO POINT OUT THAT ASSESSEE HAS MADE CERTAIN UNDISCLOSED INVESTMENTS IN PROPERTY BY POINTING OUT HOW THE STAMP DUTY VALUAT IONS WERE MORE THAN THE CONSIDERATION SHOWN BY THE ASSESSEE. THEREFORE, WE ARE OF THE OPINION THAT IN THE LIGHT OF VARIOUS DOCUMENTS FOUND AS WELL AS THE STATEMENT OF THE ASSESSEE RECORDED ON 6 - 9 - 07, IT IS CLEAR THAT ASSESSEE HAD SUPPRESSED HIS RECEIPTS AN D HAD NOT DECLARED THE SAME DESPITE PROMISING TO VOLUNTARILY DECLARE THE SAME. 15 14 . THUS , THE ABOVE EXTRACTED PORTION CONTAINS RELEVANT DISCUSSION TO PROVE THAT THE ASSESSEES BOOKS OF ACCOUNTS FOR ALL THOSE AYS UNDER CONSIDERATION BEFORE THE TRIBUNAL AR E INCOMPLETE AND INACCURATE. CONSIDERING THE SAID DECISION OF THE TRIBUNAL ON ASSESSEES FAILURE TO RECONCILE THE FIGURES QUA THE INCRIMINATING MATERIAL IMPOUNDED DURING THE SURVEY ACTION, CONCLUSIONS OF THE AO AND CIT(A) GET STRENGTHENED. FOR THIS PURPOSE , THE TRIBUNAL EXTENSIVELY MADE USE OF THE ENTRIES PERTAINING TO THE MONTH OF AUGUST, 2007, HOWEVER FEW THEY MAY BE, WHICH IS DIRECTLY RELATING TO THE AY UNDER CONSIDERATION. THE PROMISED RECONCILIATION HAS NOT BEEN DONE BY THE ASSESSEE EVEN BEFORE US. C ONSIDERING THE FINDINGS OF THE TRIBUNAL, WE ARE OF THE OPINION THAT THE ARGUMENTS OF THE LD DR SHOULD BE SUSTAINED. ACCORDINGLY, GROUND NO.1 RAISED BY THE ASSESSEE IS DISMISSED . 15 . GROUND NO.2 RELATES TO THE MERITS OF ADDITION OF RS. 30,99,690/ - BASED O N THE EXTRAPOLATIONS. IN THIS REGARD, WE HAVE ALREADY DISCUSSED THE FACTS LEADING TO THE SAID ADDITION. BEFORE US, LD COUNSEL MADE VARIOUS SUBMISSIONS AND PROPOSED THAT THE SAID ADDITION WAS MADE MERELY ON ESTIMATIONS BASED ON AVERAGE PERCENTAGE PERTAINI NG TO THE EARLIER ASSESSMENT YEARS. RELEVANT SUBMISSIONS AND PROPOSITIONS OF THE ASSESSEE, WHICH ARE IN WRITING, READ AS UNDER: GROUND NO. 2). ESTIMATION OF INCOME OF RS. 30.99 LACS BASED ON ULE OF PROPORTION: SUBMISSIONS 1. THE ADDITION IS BASED ON THE PROPOSITION THAT IN THE PRIOR 4 YEARS I.E ASST YEAR: 04 - 05 TO 07 - 08, AVERAGE ADDITION ON A/C OF PROFESSIONAL FEES WAS 51%. THE ITO BASED ON RULE OF PROPORTION, STATED THAT THE ASSESSEE DISCLOSES ONLY 49% OF HIS PROFESSIONAL FEES AND 51% IS UNDISCLOSED. HEN CE , AS PER AO, IN 08 - 09, THE FEES SHOWN IN THE BOOKS OF ACCOUNTS FROM 1 - 4 - 07 TO 30 - 8 - 07 WAS 49% AND THAT 51 % IS SUPPOSEDLY UNDISCLOSED. THE PRO O F FEES FIGURES FROM 1 - 4 - 07 TO 30 - 8 - 07 (I.E DATE OF SURVEY ) WAS SHOWN AS R S. 29.78 LACS (ITO ORDER PG # 7 ). HENCE , IF RS. 29.78 LACS IS 49% THEN 51% IS RS. 30.99 LACS AND THIS WAS THE IMPUGNED ADDITION. 2. IN P AGE # 17 (PAPER BOOKLET PG # 82 ) NO FIGURE PERTAINING TO AY : 08 - 09 WAS FOUND. 3. EVEN IF ANY FIGURE OF UNDISCLOSED FEES FOR 08 - 09 WAS FOUND, IT COULD HAVE B EEN POSSIBLY E XTRAPOLATED. BUT NO SUCH FIGURE OF 08 - 09 WAS FOUND. THE BASIS OF 5 1% IS MERELY AVERAGE ADDITIONS OF PRIOR YEARS. HENCE , EXTRAPOLATION DOES NOT ARISE. 4. THAT EXTRAPOLATION CAN ONLY BE WITH REFERENCE TO FIGURES BUT CANNOT BE BASED ON AVERAGE OF PAST PERCENTAGES. (I TO ORDER PARA 6.2 ON PG # 7 AND C1T(A) ORDER PARA#3.3.5 ON PG # 9/10). 5. THE PROF FEES FROM 1 - 9 - 07 TO 3 1 - 3 - 08 FROM THE SAME AUDITED BOOKS AUDITED WERE ACCEPTED & NOT DOUBTED BY THE I TO, THOUGH TECHNICALLY THE BOOKS WERE REJECTED. 6. DETAILED EXPLANATION ON PG: 1 - 6 OF COMPILATION (AS GIVEN TO CI T - A) PROPOSITIONS 1. RELIANCE ON ESUFALI CASE 90 1TR 271(SC) IS NOT AP PLICABLE { CI T - A ORDER PG #10 ) BECAUSE THAT CASE WAS OF SALES - TAX ASST AND WAS OF A R OUTINE ASST. THIS IS A SURVEY ( A LMOST LIKE A SEARCH CASE WHERE THE IT DEPT H AS VISITED THE ASSESSEE PREMISE ). AS OBSERVED IN BOMBAY HIGH COURT CASE OF DR. M K E MEMON 248 ITR 310 (BORN) AO CANNOT APPLY A RULE OF THUMB AND ACT ARBITRARILY WHILE ESTIMATING 16 UNDISCLOSED INCOME ANALYSIS OF ESUFALI CASE FOUND IN PARA # 7 OF THIS JUDG MENT WAS DISTINGUISHED 2. IN THE CASE OF ITAT ALL AHABAD DR. R M L MEHROTRA 68 LTO 288 (ALLAHABAD ITAT) IT WAS OBSERVED IN PARA # 26 THAT IN SEARCH CASES THE SEARCH PARTY IS SUPPOSED AND EXPECTED TO FIND OUT ALL T HE INCRIMINATING DOCUMENTS AS ALSO UNDISCLOSED ASSETS.., HENCE ADDITION CANNOT BE MADE ON MULTIPLICATION FORMULA. THOUGH THIS CASE WAS ON SEARCH, IN SURVEY ALSO THE SURVEY PARTY HAS INVADED ON THE PRIVACY OF THE ASSESSEE AND IS MUCH MORE THAN A ROUTINE ASS ESSMENT. 3. UMACHARAN SHAW CASE 37 ITR 271 (SC) OBSE RVATIONS WERE MADE ON SURMISES, CONJECTURES AND CONCLUSIONS AS THE RESULT OF SUCH SUSPICION CANNOT TAKE THE PLACE OF PROOF. 4. DHAKESWARI COTTON CASE 26 ITR 775 (SC) THE APEX COURT OBSERVED THAT ITO IS NOT ENTITLED TO MAKE PURE GUESS & MAKE AN ASSESSMENT WITHOUT REFERENCE TO ANY EVIDENCE OR ANY MATERIAL AT ALL... THERE MUST BE SOMETHING MORE THAN BARE SUSPICION TO SUPPORT THE ASSESSMENT. CONCLUSION HENCE ADDITION OF RS. 30.99 LACS ON MERE ESTIMATION BAS ED ON AVERAGE PERCENTAGE BASED ADDITIONS OF PRIOR YEARS IS UNSUSTAINABLE AS IT BASED ON SURMISE, CONJECTURE AND PURE GUESS. 16 . ON THE OTHER HAND, LD DR FOR THE REVENUE STATED THAT THE REJECTION OF BOOKS OF ACCOUNTS IS RESTRICTED TO THE PROFESSIONS RECEI PTS UP TO JULY, 2007. RELYING ON THE CONTENTS OF PAGE 17 OF THE ANNEXURE, LD DR MENTIONED THAT ASSESSEE SYSTEMATICALLY SUPPRESSION THE PROFESSIONAL RECEIPTS AND DESTROYING THE RELATABLE EVIDENCES WHICH WAS ALREADY DISCUSSED. HE ALSO MENTIONED THAT THE ASS ESSING OFFICER FAIRLY ARRIVED AT 49% TOWARDS ACCOUNTED RECEIPTS WHICH IS AVERAGE FOR THREE ASSESSMENT YEARS (2004 - 2005, 2005 - 06, 2006 - 2007). HE HAS NOT DEBITED THE HIGH FIGURE BY AVERAGING THE ARREARS OF ESTIMATIONS, IF ANY, SHOULD BE ELIMINATED. THEREFO RE, THE BASIS ADOPTED BY THE AO NEED NOT BE DISTURBED. IT IS THE PRAYER OF THE LD DR THAT RS. 29,78,134/ - IS THE PROFESSIONAL RECEIPTS OF THE ASSESSEE UP TO APRIL - JULY, 2007 AND 51% IS SUPPRESSED AGAINST SUPPRESSION OF 39.35% FOR AY 2006 - 07; 47.58% FOR AY 2005 - 06 AND 50.89% FOR AY 2004 - 05. 66.73% IS THE SUPPRESSION FOR THE AY 2007 - 2008. THEREFORE, THE ADDITION @ 51% IS JUSTIFIABLE AND SHOULD BE SUSTAINED. 17 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES. WE HAVE ALRE ADY UPHELD THE INVOKING OF THE PROVISIONS OF SECTION 145 OF THE ACT. HAVING HELD IT SO, NOW IS THE QUESTION OF MAKING OF BEST JUDGMENT ASSESSMENT BASED ON THE DATE COLLECTED BY THE REVENUE DURING THE SURVEY ACTION. ON THE FINDING OF THE T RIBUNAL THAT THE ASSESSEE HAS RESORTED TO SUPPRESSION OF PROFESSIONAL RECEIPTS AND THE DETAILS AND THE RATES AT WHICH THE SUPPRESSION IS RESORTED WAS ALREADY DISCUSSED. IT IS THE FINDING OF THE TRIBUNAL THAT THE ASSESSEES BOOKS OF ACCOUNTS ARE NOT RELATABLE EVEN FOR THE A Y 2008 - 2009 FOR WHICH 17 UNRECONCILED DATA OF AUGUST, 2007 WAS QUOTED IN THE SAID ORDER OF THE TRIBUNAL. FOR MAKING BEST JUDGMENT ASSESSMENT, AO HAS GIVEN A LOGICAL REASONING LEADING TO THE CONCLUSION OF ADOPTING 51% TOWARDS SUPPRESSED PROFESSIONAL RECEIPTS AGAINST 66.73% FOR THE AY 2007 - 08. IN FACT, SIMILAR SUPPRESSIONS WERE ALREADY DISCUSSED IN THE PARAS ABOVE FOR THE AYS 2004 - 05 TO 2007 - 2008. CONSIDERING THE SAME, WE ARE OF THE OPINION THAT THE ADDITION MADE BY THE AO REQUIRES NO AMENDMENT. ACCORDINGLY, GROUNDS NO.2 RAISED BY THE ASSESSEE IS DISMISSED . 18 . GROUND NO.3 IS RAISED WITHOUT PREJUDICE AND PRAYED FOR TAXING THE SAID RECEIPTS ON NET BASIS . THE GROUND DOES NOT SPEAK OF THE REASONS WHY NET PROFIT RATIO SHOULD BE ADOPTED ON SUCH SUPPRESSED GROSS RECEIPTS. IN THIS REGARD, ASSESSEE RELIED ON THE ORDER OF THE TRIBUNAL VIDE PARA 12 AND STATED THAT THE TRIBUNAL GRANTED ONLY 10% TOWARDS EXPENSES RELATABLE TO THE SUPPRESSED RECEIPTS ON ACCOUNT OF M ATERIALS USED BY THE ASSESSEE. THE TRIBUNAL DID NOT ENTER TAIN THE ASSESSEES REQUEST FOR ADOPTING THE NET PROFIT RATE ON THE SUPPRESSED RECEIPTS. IN THIS REGARD, WE HAVE PERUSED THE SAID RELEVANT PARAS OF THE ORDER OF THE TRIBUNAL AND THE SAME IS EXTRACTED BELOW. 12. AS FAR AS THE ARGUMENT THAT ONLY NET PROF IT CAN BE ASSESSED IN THE CASE OF UNDISCLOSED SOURCE IS CONCERNED, THE LD. COUNSEL OF THE ASSESSEE HAS RELIED ON THE DECISION OF CIT VS. GURUBACHHAN SINGH J JUNEJA [SUPRA]. IN THIS CASE, IT HAS BEEN DEARLY HELD THAT IN THE ABSENCE OF ANY MATERIAL ON RECORD TO SHOW THAT THERE WERE ANY UNEXPLAINED INVESTMENTS, THEN ONLY THE NET PROFIT CAN BE ADDED ON ACCOUNT OF UNDISCLOSED SOURCES. THERE CANNOT BE ANY QUARREL WITH THIS ARGUMENT. BUT THE QUESTION IS WHETHER THIS ARGUMENT CAN BE ADOPTED IN THE CASE OF THE ASSES SEE. THE ANSWER SEEMS TO BE NO. BECAUSE IN THE CASE OF A NORMAL BUSINESSMAN, IF HE SELLS EXTRA UNITS, THERE HAS TO BE SOME EXTRA COST OF THOSE UNITS AND IF THERE IS EVIDENCE REGARDING UNEXPLAINED INVESTMENTS ON THE COST OF THOSE EXTRA UNITS AND IF THERE IS EVIDENCE REGARDING UNEXPLAINED INVESTMENT ON THE COST OF THOSE EXTRA UNITS, ONLY THEN ADDITION CAN BE MADE FOR THE WHOLE AMOUNT OTHERWISE ONLY THE NET PROFIT CAN BE ASSESSED. BUT IN THE CASE OF THE PROFESSIONAL, THE SITUATION IS TOTALLY DIFFERENT BECAUSE THE PROFESSIONAL IS RECEIVING THE MONEY AS FEE FOR EXERCISE OF HIS PROFESSION AND NO COST IS INVOLVED. WHATEVER OVERHEADS HAVE BEEN INCURRED FOR ANNUAL EXPENDITURE ARE ALREADY BOOKED BY THE ASSESSEE AND NOWHERE IT HAS BEEN SHOWN THAT THERE WAS ANY EXPENDIT URE WHICH WAS NOT BOOKED IN THE BOOKS OF ACCOUNTS. THEREFORE, THE PRINCIPLE LAID DOWN BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF GURUBACHAN SINGH JUNEJA VS. CIT [SUPRA] CANNOT BE FOLLOWED IN THE CASE OF A PROFESSIONAL. HOWEVER, AT THE SAME TIME WE FI ND THAT DURING THE COURSE OF THE SURVEY IT WAS DEARLY ADMITTED BY THE ASSESSEE THAT RECEIPTS HAVE BEEN SUPPRESSED TO TAKE CARE OF VARIOUS CASH COMPONENTS INVOLVED IN THE ESTIMATE AND INCLUDING VARIOUS CORRUPTIONS AT VARIOUS LEVELS WHICH BECOMES CLEAR FROM THE ANSWER TO QUESTION NO.12 REPRODUCED ABOVE. AS FAR AS CORRUPTION IS CONCERNED, WE CAN ONLY SAY THAT EVEN IF ANY CORRUPTION MONEY WAS PAID, SAME CANNOT BE TREATED AS EXPENDITURE IN VIEW OF EXPLANATION SEC.37 WHICH READS AS UNDER: EXPLANATION. FOR THE REM OVAL OF DOUBTS, IT IS HEREBY DECLARED THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUCTION OR ALL OWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE. 18 THE ABOVE CLEARLY PROHIBITS ALLOWANCE OF ANY EXPENDITURE INCURRED FOR THE PURPOSE OF ANY OFFENCE WHICH IS PROHIBITED BY LAW. AT THE SAME TIME THERE CAN BE SOME CASH COMPONENTS INVOLVED IN THE CASE OF A D ENTIST WHO IS REQUIRED TO USE CERTAIN MATERIALS FOR FILLINGS ETC. THEREFORE TAKING A LENIENT VIEW, WE ARE OF THE OPINION, THAT IT WOULD MEET THE ENDS OF JUSTICE IF RECEIPTS ARE REDUCED BY 10% OF THE AMOUNT FOR CASH SPENT ON MATERIALS. ACCORDINGLY, WE MODIF Y THE ORDER OF THE LD CIT(A) AND DIRECT THE AO TO MAKE AN ADDITION ON ACCOUNT OF SUPPRESSED SALES AS MADE BY HIM ON THE BASIS OF DOCUMENTS. BUT HE SHOULD GIVE FURTHER RELIEF OF 10% OF THE SUPPRESSED RECEIPTS ON ACCOUNT OF THE MATERIALS USED BY THE ASSESSEE WHICH MIGHT HAVE BEEN PURCHASED OUT OF THE CASH AVAILABLE FROM SUPPRESSED RECEIPTS. 19 . IN THIS REGARD, WE DIRECT THE AO TO RECOMPUTE THE ADDITION ACCORDINGLY. ACCORDINGLY, GROUND NO.3 IS PARTLY ALLOWED . 20 . GROUND NO.4 RELATES TO THE ADDITION ON ACCOU NT OF PROPERTY INCOME RELATING TO THE FLAT AT BELLA VESTA APARTMENT LOCATED AT BANDRA (W), MUMBAI, DETAILS OF WHICH WERE ALREADY DISCUSSED IN THE ABOVE , WHILE SUMMARISING THE ORDER OF THE CIT(A). THE CASE OF THE ASSESSEE IS THAT THE ALV OF THE FLAT IS RS. 43,000/ - AFTER THE CLAIM OF STANDARD DEDUCTION U/S 24 AND INTEREST ON THE BORROWED CAPITAL AMOUNTING TO RS. 1.5 LACS AND THE LOSS FROM THIS PROPERTY IS RS. 1,19,900/ - . IN THE ABSENCE OF LEAVE AND LICENSE AGREEMENT OR THE RELEVANT MUNICIPAL RATABLE VALUES , AO DID NOT ACCEPT THE CLAIM OF THE ASSESSEE. CONSIDERING THE ABSENCE OF EVIDENCES, THE ASSESSING OFFICER RESORTED TO ESTIMATIONS AND DETERMINING THE ALV OF THE SAID PROPERTY NOT LESS THAN RS. 5 LACS AND ADOPTED 50% RELATABLE TO THE ASSESSEE AFTER DEDUCT ION U/S 24 AND THE NET INCOME ON THIS PROPERTY WAS ASSESSED AT RS. 1.5 LACS. DURING THE FIRST APPELLATE PROCEEDINGS, THE CIT (A) REJECTED THE ABOVE ADHOCISM OF THE AO AND ADOPTED NEW METHOD OF ESTIMATING THE ALV, APPLYING THE RATE OF 8% OF THE COST OF THE FLAT I.E., 49,86,611/ - . EVENTUALLY, THE INCOME FROM BELLA VESTA FLAT IS CONSIDERED AT RS. 1,07,900/ - AFTER ALLOWING THE DEDUCTION AND GRANTED PART RELIEF TO THE ASSESSEE. 21 . DURING THE PROCEEDINGS BEFORE US, AS MENTIONED IN THE WRITTEN SUBMISSIONS, LD COUNSEL MENTIONED THAT THE ALV OF THE IMPUGNED FLAT WAS NOT PROPERLY CALCULATED BY THE AO AS WELL AS THE CIT (A). IN THIS REGARD, THE FACT OF FURNISHING A COPY OF THE LEAVE AND LICENSE AGREEMENT WAS BROUGHT TO OUR NOTICE. HE ALSO MENTIONED THAT THE AO H AS NOT DONE ANY INVESTIGATION IN TO THE RELATABLE VALUE OF THE SAID PROPERTY. ESTIMATIONS RESORTED TO BY THE AO IS UNSUSTAINABLE IN LAW. SIMILARLY, THE METHOD OF ESTIMATIONS OF ALS APPLYING THE 8% ON THE COST OF THE FLAT IS EQUALLY UNSUSTAINABLE. 19 22 . ON THE OTHER HAND, LD DR ATTEMPTED TO IDENTIFY THE FAILURES OF THE ASSESSEE IN MATTERS OF FURNISHING OF RELEVANT DETAILS AND EVIDENCES THAT PROVIDES THE INFORMATION ON THE ALV OF THE FLAT AT BELLA VESTA. 23 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE OR DERS OF THE REVENUE AUTHORITIES AS WELL AS THE MATERIAL PLACED BEFORE US. ON HEARING THE PARTIES, WE FIND THAT THE LOWER AUTHORITIES HAVE NOT PROPERLY APPLIED THE LAW OF THE LAND IN ESTIMATING THE ALV OF THE FLAT AT BELLA VESTA. IT IS ALSO EVIDENT TO NOT E THAT THE AGREEMENT WHICH IS ALLEGED TO BE FILED WAS NOT TAKEN INTO ACCOUNT FOR ARRIVING AT THE ALV OF THE SAID FLAT. CONSIDERING THE ABSENCE OF BASIC FACTS RELATING TO THE RENTAL VALUE OF THE PROPERTY AS WELL AS THE RATABLE VALUE OF THE MUNICIPAL AUTHOR ITIES, WE ARE OF THE OPINION THAT THIS ISSUE REQUIRES DETAILED EXAMINATION BY THE AO. ACCORDINGLY, WE SET ASIDE THE CONCLUSIONS OF THE CIT(A) ON THIS ISSUE AND REMAND THE MATTER TO THE FILE OF THE AO F OR FRESH EXAMINATION. DURING THE SET ASIDE PROCEEDINGS , AO SHALL GRANT A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, GROUND NO.4 IS ALLOWED FOR STATISTICAL PURPOSES. 24 . GROUND NO.5 RELATES TO THE AD - HOC DISALLOWANCE @ 20% OUT OF THE CLAIM OF DEDUCTION OF RS. 32,92,065/ - BEING PURC HASE OF DRUGS / CONSUMABLES . ASSESSEE DEBITED THE ABOVE AMOUNT ON ACCOUNT OF PURCHASES OF DRUGS AND CONSUMABLES. ON FINDING THAT THE ASSESSEE FAILED TO FURNISH THE CONSUMPTION OF THE SAID DRUGS AND CONSUMABLES, AO PROPOSED TO MAKE DISALLOWANCE IN PART. IN RESPONSE, ASSESSEE SUBMITTED THAT IT IS NOT POSSIBLE TO MAINTAIN SUCH PARTICULARS. FURTHER, ASSESSEE ARGUED THAT ONCE BOOKS OF ACCOUNTS ARE REJECTED, NO FURTHER ADDITION NEEDS TO BE MADE ON ACCOUNT OF DISALLOWANCE OF OTHER EXPENSES SUCH AS DRUGS AND CO NSUMABLES. IT IS ALSO BROUGHT TO OUR NOTICE THAT THE AO DID NOT MAKE ANY DISALLOWANCE IN THE PAST ON THIS ACCOUNT. ON HEARING THE ASSESSEE, CIT (A) MADE A DISALLOWANCE ADOPTING THE FLAT RATE OF 20% ON RS. 32,92,065/ - . DURING THE FIRST APPELLATE PROCEEDIN GS, ASSESSEE REITERATED THE ARGUMENTS MADE BEFORE THE AO. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CIT (A) RESTRICTED THE DISALLOWANCE TO 10% AND CONFIRMED THE ADDITION OF RS. 3,28,585/ - . PARA 8.3 OF THE CIT (A)S ORDER IS RELEVANT IN THIS REG ARD AND THE SAME READS AS FOLLOWS. 8.3. I HAVE CONSIDERED THE FACTS, I FIND THAT DISALLOWANCE WAS MADE BECAUSE THE APPELLANT COULD NOT ABLE TO PRODUCE CONSUMPTION STOCK REGISTER. NO STOCK REGISTER IS 20 STATED TO HAVE BEEN MAINTAINED. THEREFORE, THE POS SIBLE LEAKAGES AND CORRECTNESS CANNOT BE VERIFIED. THEREFORE, SOME DISALLOWANCE IS CALLED FOR. HOWEVER, CONSIDERING THAT DISALLOWANCE MADE WHILE REJECTING THE BOOKS OF ACCOUNTS AND DISALLOWANCE ON CONSUMABLE APPEARS TO BE ON HIGHER SIDE, THE SAME ARE RES TRICTED TO 10% WHICH COMES TRANSFER RS. 3,28,585/ - . ACCORDINGLY, THE APPELLANT WILL GET RELIEF OF RS. 3,29,560/ - [RS. 6,58,413 RS.3,28,853]. THIS GROUND OF APPEAL IS THEREFORE, PARTLY ALLOWED. 25 . AGGRIEVED WITH THE DECISION OF CIT (A), ASSESSEE FILE D AN APPEAL BEFORE THE TRIBUNAL BY RAISING THE ABOVE MENTIONED GROUND NO.5. 26 . DURING THE PROCEEDINGS BEFORE US LD COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. 27 . ON THE OTHER HAND, LD DR RELIED ON THE ORDER O F THE AO AND THE CIT (A). 28 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE MATERIAL PLACED BEFORE US. IT IS AN UNDISPUTED FACT THAT THE CONSUMPTION REGISTER WAS NOT MAINTAINED BY THE ASSESSEE. IT IS ALS O NOTED FROM THE PAPERS FILED BEFORE US THAT THERE IS CONSUMPTION OF DRUGS AND CONSUMABLES ON THE PATIENTS. WE FI ND, THE AO MADE DISALLOWANCE CONSIDERING THE FAILURE OF THE ASSESSEE IN FU RNISHING SUPPORTING EVIDENCES. NO FURTHER EVIDENCE WAS SUBMITTED EVE N BEFORE US TO ADVANCE THE CASE OF THE ASSESSEE IN THIS REGARD. CONSIDERING THE FACT THAT THERE IS NO CHANGE OF EVIDENCE, IN PRINCIPLE, WE CONFIRM THE ORDER OF THE CIT (A) ON THIS ISSUE. HOWEVER, CONSIDERING THE FACT THAT THE BOOKS OF ACCOUNTS WERE REJEC TED QUA THE PROFESSIONAL RECEIPTS UP TO THE PERIOD OF JULY, 2007, WE ARE OF THE OPINION THAT NO AD - HOC DISALLOWANCE IS CALLED FOR RELATABLE TO THE CONSUMPTION OF THE DRUGS AND CONSUMABLES FOR THE PERIOD FROM 1 ST APRIL, 2007 TO 31.7.2007. AO IS DIRECTED TO REDUCE THE DRUGS AND CONSUMABLES RELATABLE TO THAT PERIOD FROM THE FIGURE OF RS. 32,92,065/ - ONLY WHILE ESTIMATING THE DISALLOWANCE, ADOPTING THE AD - HOC RATE OF 10%. ACCORDINGLY, GROUND NO.5 IS PARTLY ALLOWED . 29 . GROUND NO.6 RELATED TO THE DISALLOWANCE OF BANK INTEREST AMOUNTING TO RS.3,72,279/ - . RELEVANT FACTS IN THIS REGARD ARE DISCUSSED IN PARA 7 OF THE CIT (A)S ORDER. BRIEFLY STATE D, ASSESSEE PAID INTEREST OF RS. 4,19,887/ - AND RS. 1,60,188/ - ON BANK LOANS AND OTHER LOANS. DURING THE ASSESSMENT PROCEEDINGS, AO NOTED THAT THE ASSESSEE HAS PAID INTEREST OF RS. 63,369/ - TO CITIBANK; RS. 45,181/ - ON HDFC LOANS; RS. 74,210/ - ON ICICI BANK LOAN AND RS. 1,52,891/ - ON HDFC BANK LOAN AGGREGATING 21 TO RS. 3,72,279/ - AS LOAN TAKEN FOR PERSONAL PURPOSES. AO CO NSIDERED THE SAID EXPENSES AS NON - BUSINESS EXPENDITURE AND DISALLOWED RS.3,72,279/ - . MATTER TRAVELLED TO THE FIRST APPELLATE AUTHORITY. 30 . DURING THE FIRST APPELLATE PROCEEDINGS, ASSESSEE SUBMITTED THAT SINCE THE BOOKS OF ACCOUNTS ARE REJECTED, NO DISAL LOWANCE IS CALLED FOR. WITHOUT PREJUDICE, THE ASSESSEE SUBMITTED THAT THE IMPUGNED LOANS WERE UTILIZED FOR ACQUIRING THE FIXED ASSETS AND FOR REPAYMENT OF EARLIER LOANS AND FOR PURCHASE OF THE CONSUMABLES. THERE IS NO EVIDENCE TO SUBSTANTIATE THE CLAIM O F THE ASSESEE. ON CONSIDERING THE ABOV E SUBMISSIONS OF THE ASSESSEE, CIT (A) REJECTED THE SAME CONSIDERING THE ABSENCE OF THE EVIDENCES IN SUPPORT OF THE ASSESSEES SUBMISSIONS. ACCORDINGLY, HE HELD THAT THE IMPUGNED LOANS ARE NOT MEANT FOR BUSINESS PURP OSES. HE ACCORDINGLY, CONFIRMED THE DISALLOWANCE MADE BY THE AO. 31 . DURING THE PROCEEDINGS BEFORE US, LD COUNSEL REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. ON THE OBJECTIONS RAISED BY THE ASSESSEE ABOUT THE PERSONAL NATURE OF THE IM PUGNED LOANS, LD COUNSEL ARGUED THAT THE LOANS WERE TAKEN INCLUDES CAR LOAN AND HOUSING LOANS. FURTHER, HE MENTIONED THAT THE IMPUGNED LOANS WERE TAKEN IN THE EARLIER YEARS AND NO DISALLOWANCE WAS MADE ON THIS ACCOUNT IN THOSE ASSESSMENT YEARS. LD COUNSE L ALSO BROUGHT OUR ATTENTION TO THE PAPERS / BANK STATEMENTS FILED IN CONNECTION WITH THE HDFC BANK LOAN OF RS. 20LACS AND RELIED ON THE WRITTEN SUBMISSIONS MADE BY THE ASSESEE BEFORE THE CIT (A) VIDE PAGE 10 OF THE COMPILATION. 32 . ON THE OTHER HAND, LD DR EMPHASIZED THAT THE LOANS UNDER CONSIDERATION ARE NOT ONLY PERSONAL LOANS BUT ALSO THE SAME WERE APPLIED FOR PERSONAL PURPOSES. ASSESSING OFFICER FAILED TO DEMONSTRATE THAT THE IMPUGNED LOANS WERE UTILIZED FOR THE BUSINESS PURPOSES. HE EMPHASIZED THE FACT THAT THE ASSESSEE PURCHASED THE CAR, CONSTRUCTED THE HOUSE WITH THESE LOANS. IN SUCH CIRCUMSTANCES, AO IS RIGHTLY JUSTIFIED IN DEEMING THE SAID EXPENSES AS NON - BUSINESS EXPENDITURE AND MADE DISALLOWANCE OF INTEREST OF RS. 3,72,279/ - AND THE SAME SHOU LD BE SUSTAINED. ON THE ISSUE OF ESTIMATION, NO OTHER ADDITIONS NEED TO BE MADE. LD DR FURTHER SUBMITTED THAT THE CITED DECISIONS IN THE CASE OF TEJA CONSTRUCTIONS VS. ACIT [2010] 5 TAXAMNN.COM 61 (HYD. ITAT) AND INDWELL CONSTRUCTIONS VS. CIT [1998] 232 I TR 22 776 (AP) ARE DISTINGUISHABLE ON FACTS WHEREIN THE INTEREST AND SALARY PAID TO THE PARTNERS WAS THE SUBJECT MATTER OF DISPUTE, WHEREAS, THE PRESENT CASE, THE BOOKS OF ACCOUNTS ARE REJECTED TO THE EXTENT OF PROFESSIONAL RECEIPTS FOR THE MONTHS OF APRIL TO JULY, 2007. 33 . WE HAVE HEARD BOTH THE PARTIES, PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AND THE MATERIAL PLACED BEFORE US LEADING TO THE BANK STATEMENTS RELATING TO THE LOANS. IT IS AN UNDISPUTED FACT THAT THE LOANS TAKEN ARE NAMED AS PERSONAL LO ANS SUCH AS CAR LOAN, HOUSING LOAN ETC. NOMENCLATURE OF THE LOAN IS NOT A CONCLUSIVE SO FAR AS THE ALLOWABILITY OF THE INTEREST IS CONCERNED. THEREFORE, THE APPLICATION OF THE SAID IMPUGNED LOANS BECOMES A RELEVANT FACTOR FROM THE DETAILS FILED BEFORE U S. NO CONCLUSIVE FACTS ARE DRAWN TO DECIPHER THE SO CALLED PERSONAL LOANS WERE UTILIZED FOR PERSONAL PURPOSES. THE ONUS IS ON THE ASSESSEE TO DEMONSTRATE THE APPLICATION OF THE LOAN FUNDS FOR BUSINESS PURPOSES. MERELY BUYING OF A CAR CANNOT BE DEEMED AS A PERSONAL AS THE CAR CAN ALSO BE USED FOR BUSINESS PURPOSES. APPLICATION OF FUNDS FOR HOUSING PURPOSES SHOULD NOT DISQUALIFY THE ASSESSEE FROM CLAIMING THE SO LONG AS THE ASSET IS PUT TO USE FOR BUSINESS PURPOSES AND THE SAME IS FOUND IN THE SCHEDULE OF THE BUSINESS ASSETS. THEREFORE, THE APPLICATION OF FUNDS AND THE USE OF THE ASSETS, BECOMES VERY RELEVANT FACTOR WHICH THE ASSESSEE NEED TO DEMONSTRATE. INSTEAD OF DECIDING THE ISSUE ON THE STAGNATED INFORMATION PLACED BEFORE US, WE ARE OF THE OPINION TH AT THE ISSUE MUST BE REEXAMINED CLOSELY VERIFYING THE FLOW OF FUNDS INTO THE ASSETS AND THE USE OF SUCH ASSETS IF THEY CONSTITUTE BUSINESS INCOME OR OTHERWISE. ACCORDINGLY, GROUND NO.6 IS REQUIRED TO BE EXAMINED AFRESH AFTER GRANTING A REASONABLE OPPORTUN ITY OF BEING HEARD TO THE ASSESSEE. THEREFORE, RELEVANT CONCLUSIONS OF THE CIT (A) ARE SET ASIDE AND THE ISSUE IS REMANDED TO THE FILE OF THE AO . ACCORDINGLY, GROUND NO.6 IS ALLOWED FOR STATISTICAL PURPOSES . 34 . GROUND NO.7 RELATES TO THE DISALLOWANCE @ 10% OF RS. 1,65,075/ - BEING EXPENSES INCURRED TOWARDS MOTOR CAR, INSURANCE & TELEPHONE . THE BRIEF FACTS AND THE CONCLUSION OF THE AO AND THE CIT (A) ARE NARRATED IN PARA 9 OF THE ORDER OF THE CIT (A). AO MADE DISALLOWANCE @ 20% OF THE CLAIM OF EXPENSES O N ACCOUNT OF MOTOR CAR, INSURANCE AND TELEPHONE. THE DISALLOWANCE WORKED OUT TO RS. 33,015/ - . DURING THE FIRST APPELLATE AUTHORITY, ASSESSEE SUBMITTED THAT SINCE THE BOOKS OF 23 ACCOUNTS ARE REJECTED, NO FURTHER DISALLOWANCE IS WARRANTED. AFTER CONSIDERING T HE SUBMISSIONS OF THE ASSESSEE, CIT (A) GRANTED PART RELIEF AND RESTRICTED THE DISALLOWANCE TO 10% OF THE CLAIMS ON THESE THREE ACCOUNTS. THE CONTENTS OF PARA 9.3 ARE RELEVANT IN THIS REGARD AND THE SAME READ AS UNDER: 9.3. I HAVE CONSIDERED THE FACTS. I FIND THAT THE ASSESSEE HAS NOT MAINTAINED ANY LOG BOOK FOR USE OF CAR. THEREFORE, PERSONAL ELEMENT IN USE OF MOTOR CAR IS DENIED. SIMILARLY, PERSONAL USE IN TELEPHONE EXPENSES IS ALSO NOT DENIED. HOWEVER, CONSIDERING THE PAST RECORD, DISALLOWANCE OUT O F MOTOR CAR EXPENSES AND MOTOR CAR INSURANCE AND TELEPHONE EXPENSES ARE RESTRICTED TO 10%. THIS GROUND OF APPEAL IS THEREFORE PARTLY ALLOWED. 35 . CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT THE DECISION TAKEN BY THE CIT (A), IN RESTRICTING THE DISA LLOWANCES ON ACCOUNT OF MOTOR CAR, INSURANCE AND TELEPHONE ON CONSIDERING THE PAST RECORD OF THE ASSESSEE, IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUND NO.7 RAISED BY THE ASSESSEE IS DISMISSED . GROUND NOS. 8 & 9 AR E GENERAL IN NATURE. THEREFORE, THESE GROUNDS ARE DISMISSED . 36 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED PRO - TANTO. ORDER PRONOUNC ED IN THE OPEN COURT ON 25 TH SEPTEMBER, 2013. SD/ - SD/ - (VIJAY PAL RAO) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 25 .9 .2013 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBA I
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