M/s Sairam Multi Speciality Hospital, Hyderabad v. ACIT, Circle -9(1), Hyderabad

ITA 2230/HYD/2011 | 2006-2007
Pronouncement Date: 23-04-2014 | Result: Partly Allowed

Appeal Details

RSA Number 223022514 RSA 2011
Assessee PAN ABBFS8975N
Bench Hyderabad
Appeal Number ITA 2230/HYD/2011
Duration Of Justice 2 year(s) 3 month(s) 23 day(s)
Appellant M/s Sairam Multi Speciality Hospital, Hyderabad
Respondent ACIT, Circle -9(1), Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 23-04-2014
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 23-04-2014
Assessment Year 2006-2007
Appeal Filed On 30-12-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B HYDERABAD BEFORE SHRI CHANDRA POOJARI ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY JUDICIAL MEMBER ITA NO. 2230/HYD/2011 A.Y. 2006-07 ITA NO. 2231/HYD/2011 A.Y. 2007-08 ITA NO. 1134/HYD/2013 A.Y. 2008-09 ITA NO. 1135/HYD/2013 A.Y. 2009-10 M/S. SAIRAM MULTI SPECIALITY HOSPITAL HYDERABAD PAN: ABBFS8975N VS. THE ASST. CIT CIRCLE-9(1) HYDERABAD APPELLANT RESPONDENT APPELLANT BY: SRI A.V. RAGHURAM RESPONDENT BY: SRI SOLGY JOSE T. KOTTARAM DATE OF HEARING: 03 .0 4 .2014 DATE OF PRONOUNCEMENT: 23. 0 4.20 14 ORDER PER CHANDRA POOJARI A.M.: THESE FOUR APPEALS BY THE ASSESSEE ARE DIRECTED AG AINST TWO DIFFERENT COMMON ORDERS OF THE CIT(A)-VI HYDER ABAD DATED 24.10.2011 AND 20.03.2013 FOR ASSESSMENT YEAR S 2006- 07 TO 2009-10. SINCE ISSUES RAISED IN THESE APPEAL S ARE COMMON ALL THESE APPEALS ARE CLUBBED TOGETHER HEA RD TOGETHER AND DISPOSED OF BY THIS COMMON ORDER FOR T HE SAKE OF CONVENIENCE. 2. THE COMMON GROUND IN THESE APPEALS IS WITH REGARD T O CONFIRMING OF DISALLOWANCE OF 2/3 RD OF EXPENSES ON MEDICINES CLAIMED BY THE ASSESSEE ON THE REASON THAT THIS CLA IM OF 2 ITA NO. 2230/HYD/2011 & ORS. M/S. SAIRAM MULTI SPECIALTY HOSPITAL =========================== EXPENDITURE IS AN AFTERTHOUGHT THOUGH ENTIRE SUPPRE SSED TURNOVER COULD NOT BE CONSIDERED AS INCOME AND EXPE NSES ON SUCH TURNOVER ARE TO BE ALLOWED. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM RUNNING A NURSING HOME WITH DR. (M R.) G. VENKATESWARA RAO AND DR. (MRS.) G.S.V. PRASANNA WI FE OF DR. G. VENKATESWARA RAO AS PARTNERS. RETURN OF INCOME WA S FILED FOR A.Y. 2006-07 ON 30.08.2006 WITH TOTAL INCOME OF RS. 3 87 684 AND FOR A.Y. 2007-08 ON 12.11.2007 WITH A TOTAL INC OME OF RS. 3 25 510. SURVEY U/S. 133A WAS CONDUCTED IN THIS C ASE ON 16.02.2010. ON THE BASIS OF THE INFORMATION OBTAIN ED FROM REGISTERS AND CDS FOND DURING THE SURVEY THE GROSS RECEIPTS OF THE FIRM WERE FOUND TO BE RS. 95 98 084 FOR A.Y. 20 06-07 AND RS. 43 96 262 FOR 5 MONTHS FALLING IN THE A.Y. 2007 -08. 4. RETURN OF INCOME WAS FILED FOR A.Y. 2008-09 ON 29.9.2008 WITH TOTAL INCOME OF RS. 7 62 170 AND FOR A.Y. 2009- 10 ON 29.9.2009 WITH A TOTAL INCOME OF RS. 7 92 480 . THE ASSESSEE FILED REVISED RETURN OF INCOME AFTER SURVE Y AS FOLLOWS: A.Y. TURNOVER AS PER ORIGINAL RETURN (RS.) TURNOVER AS PER REVISED RETURN (RS.) 2008-09 37 78 747 78 03 122 2009-10 35 55 913 86 80 269 5. ON THE BASIS OF INFORMATION OBTAINED FROM REGISTERS AND CDS FOUND DURING THE SURVEY THE GROSS RECEIPTS OF THE FIRM WERE FOUND TO BE IN EXCESS OF WHAT HAD BEEN DECLARE D BY THE ASSESSEE IN THE ORIGINAL RETURN OF INCOME. 3 ITA NO. 2230/HYD/2011 & ORS. M/S. SAIRAM MULTI SPECIALTY HOSPITAL =========================== 6. FURTHER THE DETAILS OF ORIGINAL AND REVISED GROSS RECEIPTS NET INCOME AND EXPENDITURE ARE AS FOLLOWS : A.Y. GROSS RECEIPTS (RS.) EXPENDITURE ON SALARIES (RS.) EXPENDITURE ON MEDICINES (RS.) RETURN OF INCOME (RS.) ORIGINAL REVISED ORIGINAL REVISED ORIGINAL REVISED ORIGINAL REVISED 2006'07 4265106 9598084 337000 1409450 774602 2673156 387684 2173503 2007'08 3944247 10652130 337000 1621157 649105 3380272 325510 2368960 2008'09 3778747 7803112 337000 899435 349780 2064145 762170 2509730 2009'10 3555913 8680269 347000 1221360 302126 2303199 792480 3041410 7. THE ASSESSEE SUBMITTED BEFORE THE LOWER AUTHORITIES THAT THE ASSESSEE HAD MISSED BOTH RECEIPTS AND EXPE NDITURE IN THE ORIGINAL RETURN WHICH WAS CORRECTLY DECLARED I N THE REVISED RETURNS AS THE CONCERNED BOOKS OF ACCOUNT WERE NOT PROPERLY MAINTAINED WHICH WAS OBSERVED DURING THE COURSE OF SURVEY OPERATION. THE ASSESSEE SHALL BE PRODUCING SUPPORTI NG BILLS VOUCHERS TOWARDS INCURRING THESE EXPENDITURES. IN HIS ORDER THE ASSESSING OFFICER HELD THAT EVEN THOUGH THERE W AS NOT MUCH DIFFERENCE IN THE EXPENDITURE FOR THE PRECEDIN G AND SUCCEEDING TWO YEARS AN ABNORMAL INCREASE IN EXPEN DITURE HAD BEEN CLAIMED FOR THE TWO YEARS UNDER CONSIDERAT ION. THE ASSESSEE HAD MADE A REVISED CLAIM OF PAYMENT OF SAL ARIES TO 31 EMPLOYEES AS AGAINST PAYMENT TO 22 EMPLOYEES IN THE ORIGINAL RETURN. THE ASSESSING OFFICER HELD THAT THE REVISE D CLAIM OF SALARY PAYMENT WAS AN AFTERTHOUGHT SINCE THE ASSESS EE'S BOOKS HAD BEEN SUBJECTED TO AUDIT AND IT WAS INCOMPREHENS IBLE THAT SUCH HUGE EXPENSES HAD ESCAPED ITS NOTICE AND MISSE D BEING INCLUDED IN ITS ACCOUNTS AND REJECTED THE ENTIRE CL AIM. WITH REGARD TO THE REVISED CLAIM OF EXPENSES ON MEDICINE S THE ASSESSING OFFICER TOOK INTO ACCOUNT BILLS AND ACCOU NT COPIES FROM CERTAIN CREDITORS PRODUCED BY THE ASSESSEE AND ALLOWED ONE-THIRD OF THE REVISED EXPENDITURE AND DISALLOWED RS. 4 ITA NO. 2230/HYD/2011 & ORS. M/S. SAIRAM MULTI SPECIALTY HOSPITAL =========================== 22 53 515 FOR AY 2007-08 AND RS. 17 82 104/- FOR AY 2006-07. IN THE COURSE OF THE APPELLATE PROCEEDINGS THE AR HAS SUBMITTED THAT WHEN EVIDENCE WAS PRODUCED FOR PAYME NT OF SALARIES BEFORE THE ASSESSING OFFICER THE ASSESSIN G OFFICER REJECTED IT AS AN AFTERTHOUGHT WITHOUT MAKING ANY E FFORT TO CROSS-CHECK IT. THE AR ALSO SUBMITTED THAT THE CLAI M HAD NOT BEEN MADE IN THE ORIGINAL RETURN SINCE IF THE ASSES SEE HAD DONE SO THE EXPENDITURE WOULD NOT HAVE BEEN COMMENSURAT E WITH THE RECEIPTS AND THE CLAIM WOULD HAVE BEEN REJECTED . THE AR ALSO OBJECTED TO THE ASSESSING OFFICER'S OBSERVATIO N THAT THE CLAIM WAS NOT SUPPORTED BY PF OR ESI RECORDS BY STA TING THAT THESE PROVISIONS APPLY ONLY WITH THE EMPLOYMENT OF A MINIMUM NUMBER OF PERSONNEL AND THE ASSESSEE COULD NOT BE FAULTED FOR NOT COMPLYING WITH THE PF OR ESI PROVIS IONS WHEN SUCH PROVISIONS WERE NOT AT ALL APPLICABLE TO THE A SSESSEE. WITH REGARD TO THE CLAIM FOR MEDICINES THE AR SUBMITTED THAT THE CLAIM HAD BEEN DISBELIEVED DESPITE PRODUCTION OF AL L RELEVANT DETAILS LIKE SHOP NAME DATE OF PURCHASE ETC. 8. ON APPEAL THE CIT(A) OBSERVED THAT T HE RATIO OF SALARY AND OF MEDICINE TO TURNOVER JUMPS TO AN ABNORMALLY HIGH LEVEL FOR THE TWO YEARS IN APPEAL IF THE ASSESSEE'S CLAIM IS ACCEPTED. THE CLAIM IS NOT IN ACCORDANCE WITH THE TRENDS FOR THE OTHER YEARS EITHER BEFORE OR AFTER THESE TWO YEARS. IN T HE ORIGINAL RETURNS THE ASSESSEE HAD CLAIMED RS. 3 37 000 AS E XPENSES ON SALARY FOR THREE YEARS FROM A.YS. 2006-07 TO 2008-09 AND RS. 3 47 000 FOR A.Y. 2009-10. THE CLAIM WAS REVISED ONLY FOR TWO YEARS A.Y. 2006-07 AND 2007-08 AND NOT FOR THE SUBSEQUENT 5 ITA NO. 2230/HYD/2011 & ORS. M/S. SAIRAM MULTI SPECIALTY HOSPITAL =========================== YEARS. SALARY IS NOT AN ITEM OF EXPENDITURE DIRECTLY PROPORTIONATE TO EVERY FLUCTUATION IN THE TURNOVER IN THE SENSE THAT THE EMPLOYEES ARE NOT LIKELY TO BE HIRED OR RE TRENCHED IN THIS FASHION. THIS IS AN UNUSUAL VARIATION IN THE E XPENSES ON SALARY AND LEADS TO THE INFERENCE THAT THE CLAIM HA D BEEN REVISED ONLY TO SET OFF THE HIGHER TURNOVERS. THE S ALARY OF RS. 3.37 LAKHS/3.47 LAKHS WAS CLAIMED INITIALLY FOR 4 Y EARS BUT THE ASSESSEE CLAIMS THAT THIS WAS AN ERRONEOUS FIGURE F OR MERELY 2 OUT OF THOSE 4 YEARS. IF INDEED THE ASSESSEE HAD ERRONEOUSLY CLAIMED A LOWER FIGURE IT WOULD HAVE BEEN LOGICAL TO EXPECT THAT SUCH AN ERROR WOULD EXIST FOR THE OTHER YEARS AS WELL AND ALSO THAT THE ASSESSEE WHILE RECTIFYING THE ERROR F OR TWO YEARS WOULD RECTIFY THE ERRORS FOR THE OTHER YEARS AS WEL L. 9. HE FURTHER OBSERVED THAT THE ASSESSEE HAS CLAIMED FIRSTLY THAT IT HAD 'MISSED' RECORDING THE EXPENDI TURE IN THE ORIGINAL RETURN AND SECONDLY THAT THE CLAIM HAD NO T BEEN MADE IN THE ORIGINAL RETURN IN ORDER TO REFLECT THE EXPENDITURE 'COMMENSURATE' WITH THE RECEIPTS FAILING WHICH THE CLAIM WOULD HAVE BEEN REJECTED BY THE ASSESSING OFFICER. BOTH OF THESE ARE SPECIOUS ARGUMENTS NOT IN CONFORMITY WITH THE NORMAL AND REASONABLE EXPECTATIONS FROM ANY ASSESSE E PARTICULARLY AN ASSESSEE WHOSE ACCOUNTS ARE SUBJECT TO STATUTORY AUDIT UNDER THE INCOME TAX ACT. WHILE THE ASSESSEE MAY BE RIGHT IN CLAIMING THAT IT WAS NOT SUBJECT TO PF AND ESI REGULATIONS AND THEREFORE UNABLE TO PRODUCE THE E VIDENCE UNDER THOSE PROVISIONS IT WAS STILL REQUIRED TO MA INTAIN PROPER RECORDS OF SALARY PAYMENT. THE JURISDICTIONAL ITAT HAD OCCASION 6 ITA NO. 2230/HYD/2011 & ORS. M/S. SAIRAM MULTI SPECIALTY HOSPITAL =========================== TO EXAMINE A SIMILAR SITUATION IN THE CASE OF G. NA RSING RAO IN ITA NO. 540/HYD/2009 DATED 14.8.2009. THE ASSESSEE IN THAT CASE HAD CLAIMED EXPENSES AGAINST UNDISCLOSED TURNO VER FOUND IN A SEARCH. THESE EXPENSES HAD NOT BEEN RECORDED I N THE BOOKS. NO EVIDENCE HAD BEEN FOUND DURING THE SEARCH FOR THE EXPENSES CLAIMED. THE ITAT HELD THAT THE ENTIRE TUR NOVER WAS TO BE ASSESSED AS THE INCOME OF THE ASSESSEE AND TH E CLAIM OF ADDITIONAL EXPENSES COULD NOT BE ALLOWED. 10. THE CIT(A) OBSERVED THAT EVIDENCE OF THE ADDITIONAL SUPPRESSED TURNOVER WAS FOUND DURING THE SURVEY NO SIMILAR EVIDENCE WAS FOUND FOR THE ADDITIONAL EXPENSE CLAIM ED. A STATEMENT WAS RECORDED FROM DR. G. VENAKATESWARA RA O PARTNER OF THE FIRM U/S 131 ON 18.2.2010. VIDE QUE STION NO. 6 DR. G. VENAKATES-WARA RAO WAS CONFRONTED WITH THE D IFFERENCE IN TURNOVER AS REFLECTED IN THE RETURNS OF INCOME A ND AS FOUND DURING THE SURVEY AND WAS ASKED TO EXPLAIN WHY THE DIFFERENCE IN GROSS RECEIPTS FOR THE TWO YEARS IN QUESTION SHO ULD NOT BE BROUGHT TO TAX. IN REPLY DR. G. VENAKATESWARA RAO STATED: 'AFTER RECONCILIATION OF THE DATA I WILL OFFER THE DIFFERENCE IN GROSS RECEIPTS AS INCOME OF THE FIRM AND PAY THE TAXES BY FILING REVISED RETURNS' 11. THE CIT(A) OBSERVED THAT T HE PARTNER HAD ACCEPTED IN THE STATEMENT THAT THE ENTIRE SUPPRESSED TURNOVER REPRE SENTED THE INCOME OF THE FIRM. MORE SPECIFICALLY HE DID NOT M AKE ANY REFERENCE AT ALL AT THIS STAGE TO THE CLAIM OF SUPP RESSED EXPENDITURES ON SALARY AND MEDICINES. UNDER THE 7 ITA NO. 2230/HYD/2011 & ORS. M/S. SAIRAM MULTI SPECIALTY HOSPITAL =========================== CIRCUMSTANCES AND FOLLOWING THE RATIO OF THE DECISI ON OF THE ITAT IN THE CASE OF G. NARSING RAO (CITED SUPRA) T HE CLAIM OF THE ASSESSEE CANNOT BE ACCEPTED. IT WOULD ALSO BE I NSTRUCTIVE TO ANALYZE THE STATISTICAL IMPLICATIONS HOWSOEVER LIMITED THEY MAY BE OF THE ASSESSEE'S C L AIMS. THE DATA FOR THE EXPENDITURE ON SALARIES IS AS FOLLOWS: A.Y. TURNOVER (RS.) SALARY (ORIGINAL) (RS.) SALARY (REVISED) (RS.) RATIO TO T/O (%) 2004-05 48 66 560 3 28 674 3 28 674 6.80 2005-06 38 96 543 1 56 690 1 56 690 4.00 2006-07 95 98 084 3 37 000 14 09 450 14.68 2007-08 1 06 52 130 3 37 000 16 21 157 15.00 2008-09 37 78 747 3 37 000 3 37 000 8.90 2009-10 35 55 913 3 47 000 3 47 000 9.70 SIMILARLY THE DATA FOR EXPENDITURE ON MEDICINES IS AS FOLLOWS: A.Y. TURNOVER (RS.) EXP. ON MEDICINES (ORIGINAL) (RS.) EXP. ON MEDICINES (REVISED) (RS.) RATIO TO T/O (%) 2004-05 38 96 543 4 96 308 4 96 308 10.0 2005-06 38 96 543 6 52 822 6 52 822 16.7 2006-07 95 98 084 7 74 602 26 73 156 27.0 2007-08 1 06 52 130 6 49 105 33 80 272 32.0 2008-09 37 78 747 3 49 780 3 49 780 9.2 2009-10 35 55 913 3 02 136 3 02 136 8.4 ACCORDINGLY THE CIT(A) REJECTED THE CLAIM OF THE A SSESSEE. AGAINST THIS THE ASSESSEE IS IN APPEAL BEFORE US. 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THE PRESENT CASE THERE WAS SURVEY U/S. 133A OF THE ACT. NO DETAILS WERE FOUND REGARDING S UPPRESSED EXPENDITURE TOWARDS SALARY AND WAGES AND MEDICINES PURCHASED. HOWEVER THE ASSESSEE MADE A PLEA BEFOR E THE AO THAT THERE WAS SUPPRESSED EXPENDITURE TOWARDS SALAR Y AND WAGES AND MEDICINES. THE AO CONSIDERED THE PLEA OF THE 8 ITA NO. 2230/HYD/2011 & ORS. M/S. SAIRAM MULTI SPECIALTY HOSPITAL =========================== ASSESSEE TO THE EXTENT OF 1/3 RD OF THE EXPENDITURE IN RESPECT OF EXPENDITURE ON MEDICINES. HOWEVER HE HAS NOT GIVE N ANY CREDIT TOWARDS ADDITIONAL SALARIES AND WAGES CLAIME D BY THE ASSESSEE. THE CIT(A) DECIDED THE ISSUE AGAINST THE ASSESSEE BY PLACING RELIANCE ON THE ORDER OF THE TRIBUNAL IN TH E CASE OF G. NARSING RAO IN ITA NO. 540/HYD/2009 DATED 14.8.2009 WHEREIN THE TRIBUNAL HELD THAT : '4. THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE AND THE LEARNED DEPARTMENTAL REPRESENTATIV E HAVE BEEN CONSIDERED IN THE LIGHT OF THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE ADMITTEDLY DISCL OSED TOTAL TURNOVER OF RS. 64 66 386 AND PROFIT AT RS. 8 8 330. ADMITTEDLY THE TURNOVER OF RS. 4 02 818 WAS NOT RECORDED IN THE BOOKS OF ACCOUNT. THE EXPLANATION OF THE ASSESSEE IS THAT IT WAS DUE TO DISPUTES AMONG T HE PARTNERS. THE QUESTION THAT ARISES FOR CONSIDERATI ON IS WHETHER THE ENTIRE UNDISCLOSED TURNOVER HAS TO BE T AKEN INTO CONSIDERATION WHILE COMPUTING THE TOTAL INCOME OR THE PROFIT ELEMENT EMBEDDED IN IT SHOULD BE TAKEN. THE REVENUE CONTENDS THAT THE EXPENDITURE ON THE UNRECORDED RECEIPTS WAS ALREADY CLAIMED BY THE ASSESSEE. THE CIT(A) FOUND THAT BY INCREASING THE RECEIPTS THE NET PROFIT OF THE FIRM IS CORRESPONDI NGLY INCREASED. UNDER THE INCOME-TAX ACT TAX HAS TO BE LEVIED ON THE INCOME ACCRUED TO OR RECEIVED BY THE ASSESSEE. WHEN THE CONTRACT RECEIPTS TO THE EXTENT OF RS. 4 02 818 WERE NOT RECORDED IN THE BOOKS OF ACCOUNT AND THE ASSESSEE CLAIMS THAT THE ENTIRE EXPENDITURE WAS RECORDED IN THE BOOKS OF ACCOUNT NATURALLY THE ENT IRE RECEIPT WOULD BE THE ASSESSEE'S INCOME. THEREFORE THE UNDISCLOSED CONTRACT RECEIPTS OF RS. 4 02 818 HAS T O BE CONSIDERED FOR TAXATION. ACCORDINGLY THERE IS NO INFIRMITY IN THE ORDERS OF THE LOWER AUTHORITIES AN D THE SAME IS CONFIRMED.' 13. IN OUR OPINION THE RATIO LAID DOWN BY THE TRIBUNAL IN THE CASE OF SRI G. NARSING RAO (CITED SUPRA) CANNOT BE APPLIED TO THE FACTS OF THE PRESENT CASE. IN THE PRESENT CASE THE AO ACCEPTED THAT THERE IS EXISTENCE OF UNDISCLOSED EXP ENDITURE IN THE FORM OF MEDICINES AND GIVEN CREDIT AT 1/3 RD OF THAT 9 ITA NO. 2230/HYD/2011 & ORS. M/S. SAIRAM MULTI SPECIALTY HOSPITAL =========================== EXPENDITURE AND REJECTED 2/3 RD OF THE SAME. IN THESE CIRCUMSTANCES THE AO ONLY DOUBTED THE QUANTUM OF EXPENDITURE. WE HAVE GONE THROUGH THE DETAILS OF SUPPRESSED EXPENDITURE. WE HAVE ALSO GONE THROUGH THE NET PRO FIT RATE AS PER ORIGINAL AND REVISED RETURN OF INCOME WHICH IS AS FOLLOWS: A.Y. ORIGINAL NP RATE REVISED NP RATE 2006-07 09.09 22.65 2007-08 08.25 22.24 2008-09 20.16 32.16 2009-10 22.29 35.03 14. WHEN WE COMPARE THE ORIGINAL RATE OF NET PROFIT WIT H REVISED RATE OF NET PROFIT THE REVISED RATE OF NET PROFIT IS VERY HIGH. FROM THAT WE CAN INFER THAT EVEN AFTER CONSI DERING THE SUPPRESSED EXPENDITURE THE NET PROFIT IS VERY HIGH WHICH IS HIGHER THAN THE NORMAL NET PROFIT IN THIS LINE OF B USINESS. THE AVERAGE NET PROFIT FOR THE LAST FOUR YEARS IS WORKE D OUT AT 23.02%. BEING SO IN OUR OPINION TO SETTLE THE DI SPUTE IT IS APPROPRIATE TO CONSIDER THE AVERAGE NET PROFIT TO W ORK OUT THE INCOME OF THESE ASSESSMENT YEARS WHICH IS BELOW THE AVERAGE RATE. THUS FOR A.YS. 2006-07 AND 2007-08 INCOME IS TO BE ESTIMATED AT 22.02% OF THE GROSS RECEIPTS AND THERE IS NO CHANGE IN THE A.YS. 2008-09 AND 2009-10 AS THE DECL ARED RATE OF NET PROFIT IS HIGHER THAN THE AVERAGE NET PROFIT RATE. ACCORDINGLY WE ARE OF THE OPINION THAT ENTIRE GROS S RECEIPTS CANNOT BE CONSIDERED AS INCOME OF THE ASSESSEE. TH IS VIEW OF OURS IS ALSO SUPPORTED BY THE JUDGEMENT OF GUJARAT HIGH COURT IN THE CASE OF DCIT VS. PANNA CORPORATION (82 CCH 2 66) WHEREIN THE HONBLE GUJARAT HIGH COURT HELD AS FOLL OWS: 10 ITA NO. 2230/HYD/2011 & ORS. M/S. SAIRAM MULTI SPECIALTY HOSPITAL =========================== '9. HAVING HEARD THE LEARNED COUNSEL FOR THE PARTIE S AND HAVING PERUSED THE ORDERS UNDER CONSIDERATION WHAT EMERGES IS THAT THE FINDINGS ARRIVED AT BY THE ASSE SSING OFFICER THAT THE RESPONDENT - PARTNERSHIP FIRM RECE IVED ON MONEY OF RS. 62 LAKHS DURING THE BLOCK PERIOD FOR S ALE OF THE FLATS IS NOT SERIOUSLY IN DISPUTE. THE TRIBUNA L CONFIRMED SUCH FINDINGS ARRIVED AT BY THE ASSESSING OFFICER. HOWEVER THE TRIBUNAL DID NOT PERMIT THE R EVENUE TO COLLECT THE TAX ON THE ENTIRE RECEIPT BELIEVING THE IT WAS ONLY THE INCOME EMBEDDED IN SUCH RECEIPT WHICH CAN BE SUBJECTED TO TAX. 10. AS POINTED OUT BY THE COUNSEL FOR THE RESPONDEN T THIS COURT IN THE CASE OF COMMISSIONER OF INCOME TAX V. PRESIDENT INDUSTRIES REPORTED IN (2002) 258 ITR 65 4 HAD TAKEN A SIMILAR VIEW. IN THE SAID CASE DURING THE COURSE OF SURVEY CONDUCTED ON THE PREMISES OF THE ASSESSEE F ROM THE EXCISE RECORDS FOUND AN INFERENCE WAS DRAWN BY THE ASSESSING OFFICER THAT SALES ACCOUNTING TO RS. 29 L AKHS AND ODD HAD NOT BEEN DISCLOSED IN THE BOOKS OF ACCO UNT. THE ASSESSING OFFICER MADE ADDITION OF THE ENTIRE S UM OF THE SAID UNDISCLOSED SALES AS INCOME OF THE ASSESSE E FOR THE ASSESSMENT YEAR 1994-95. SUCH ADDITION WAS CONFIRMED BY THE COMMISSIONER (APPEALS). THE TRIBUN AL HOWEVER HELD THAT THE ENTIRE SALES COULD NOT HAVE BEEN ADDED AS INCOME OF THE ASSESSEE BUT ONLY TO THE EX TENT THE ESTIMATED PROFITS EMBEDDED IN THE SALES FOR WHICH T HE NET PROFIT RATE WAS ADOPTED ENTAILING ADDITION OF INCOM E ON THE SUPPRESSED AMOUNT OF SALES. SUCH DECISION WAS C ARRIED IN APPEAL BY THE REVENUE BEFORE THE HIGH COURT. THE HIGH COURT REJECTED THE APPEAL OBSERVING THAT UNLESS TH ERE IS A FINDING TO THE EFFECT THAT INVESTMENT BY WAY OF INC URRING THE COST IN ACQUIRING THE GOODS WHICH HAVE BEEN SOL D HAS BEEN MADE BY THE ASSESSEE AND THAT HAS ALSO NOT BEE N DISCLOSED SUCH ADDITION COULD NOT BE SUSTAINED. IT WAS OBSERVED THAT IN ABSENCE OF SUCH FINDINGS OF FACT THE QUESTION WHETHER THE ENTIRE SUM OF UNDISCLOSED SALE PROCEEDS CAN BE TREATED AS INCOME OF THE RELEVANT ASSESSMENT YEAR ANSWERS BY ITSELF IN THE NEGATIVE. THE HIGH COURT REJECTED THE APPEAL HOLDING THAT NO QUES TION OF LAW WHICH REQUIRES TO BE REFERRED ARISES. 11. IN THE CASE OF COMMISSIONER OF INCOME TAX V. GURUBACHHAN SINGH J. JUNEJA REPORTED IN (2008) 302 ITR 63 (GUJ.) ONCE AGAIN A SOMEWHAT SIMILAR ISSUE CAME UP BEFORE THIS COURT. IN THE SAID CASE THE ASSESSEE W AS ENGAGED IN THE BUSINESS OF TRADING OF TYRES. SEARCH PROCEEDINGS WERE CARRIED OUT AT THE RESIDENTIAL AND BUSINESS PREMISES OF THE ASSESSEE. ON THE BASIS OF LOOSE SHEETS WHICH WERE SEIZED DURING SUCH SEARCH OPERATI ON 11 ITA NO. 2230/HYD/2011 & ORS. M/S. SAIRAM MULTI SPECIALTY HOSPITAL =========================== THE ASSESSING OFFICER HELD THAT SALES TO THE EXTENT OF RS. 10.85 LAKHS WAS NOT FOUND IN THE BOOKS OF ACCOUNT. SUCH AMOUNT WAS INCLUDED IN THE TOTAL INCOME OF THE ASSE SSEE. THE COMMISSIONER (APPEALS) GAVE SUBSTANTIAL RELIEF TO THE ASSESSEE AND REDUCED THE INCOME ON THE BASIS OF GRO SS PROFIT RATE. THE TRIBUNAL CONFIRMED THE ORDER OF TH E COMMISSIONER (APPEALS). ON FURTHER APPEAL BEFORE TH E HIGH COURT BY THE REVENUE THE HIGH COURT REFUSED T O REFER ANY QUESTION HOLDING THAT IN ABSENCE OF ANY M ATERIAL ON RECORD TO SHOW THAT THERE WAS ANY UNEXPLAINED INVESTMENT MADE BY THE ASSESSEE WHICH WAS REFLECTED BY THE ALLEGED UNDISCLOSED SALES THE FINDING OF THE T RIBUNAL THAT ONLY THE GROSS PROFIT ON THE SAID AMOUNT CAN B E BROUGHT TO TAX DOES NOT CALL FOR ANY INTERFERENCE. 12. COUNSEL ALSO RELIED ON THE DECISION IN THE CASE OF COMMISSIONER OF INCOME TAX V. SAMIR SYNTHETICS MILL REPORTED IN (2010) 326 ITR 410 WHEREIN THE HIGH CO URT CONFIRMED THE VIEW OF THE TRIBUNAL ACCEPTING ONLY T HE PROFIT OF UNACCOUNTED SALE FOR THE PURPOSE OF COLLE CTING TAX. 13. OUR ATTENTION WAS ALSO DRAWN TO THE DECISION OF THE M. P. HIGH COURT IN THE CASE OF MAN MOHAN SADANI V. COMMISSIONER OF INCOME TAX REPORTED IN (2008) 304 ITR 52 WHEREIN REFERRING TO AND RELYING UPON THE DECIS ION OF THIS COURT IN THE CASE OF COMMISSIONER OF INCOME TA X V. PRESIDENT INDUSTRIES (SUPRA) AND OTHER DECISIONS OF OTHER HIGH COURTS THE M. P. HIGH COURT HAD ALSO TAKEN A SIMILAR VIEW. IT WAS OBSERVED THAT ENTIRE SALE PROC EEDS OF THE ASSESSEE SHOULD NOT BE ADDED IN HIS INCOME AND THAT THE TRIBUNAL HAS ERRED IN DOING SO. 14. WE MAY RECALL THAT THE TRIBUNAL IN THE IMPUGNE D JUDGEMENT RELIED ON ITS PREVIOUS JUDGEMENT IN CASE OF KISHOR MOHANLAL TELWALA. THE SAID JUDGEMENT OF THE TRIBUNAL WAS APPARENTLY CARRIED IN APPEAL BY THE RE VENUE. THE HIGH COURT BY A SPEAKING ORDER DATED 24.4.2000 DISMISSED THE APPEAL HOLDING THAT NO QUESTION OF LA W WAS INVOLVED. SIGNIFICANTLY IN CASE OR KISHOR MOHANLAL TELWALA THE ASSESSEE WAS ENGAGED IN THE BUSINESS O F CONSTRUCTION. IN HIS CASE UNACCOUNTED RECEIPT OF R S. 1.47 CRORES WAS DETECTED. IN THIS BACKGROUND THE DIVISI ON BENCH CONFIRMED THE VIEW OF THE TRIBUNAL AND DID NO T ACCEPT THE CONTENTION OF THE REVENUE THAT AS NO ACC OUNTS HAD BEEN MAINTAINED TO SUBSTANTIATE THE EXPENDITURE INCURRED BY THE ASSESSEE THE ENTIRE AMOUNT RECEIVE D BY THE RESPONDENT SHOULD BE TREATED AS INCOME. THE COU RT CONCLUDED THAT THE TRIBUNAL WAS JUSTIFIED IN CONSID ERING THAT THE RESPONDENT - ASSESSEE OUGHT TO HAVE SPENT 12 ITA NO. 2230/HYD/2011 & ORS. M/S. SAIRAM MULTI SPECIALTY HOSPITAL =========================== REASONABLE AMOUNT FOR THE PURPOSE OF RECEIVING SUCH GROSS RECEIPT. 15. IT CAN THUS BE SEEN THAT CONSISTENTLY THIS C OURT AND SOME OTHER COURTS HAVE BEEN FOLLOWING THE PRINCIPLE THAT EVEN UPON DETECTION OF ON MONEY RECEIPT OR UNACCOUN TED CASH RECEIPT WHAT CAN BE BROUGHT TO TAX IS THE PRO FIT EMBEDDED IN SUCH RECEIPTS AND NOT THE ENTIRE RECEIP TS THEMSELVES. IF THAT BE THE LEGAL POSITION WHAT SHO ULD BE ESTIMATED AS A REASONABLE PROFIT OUT OF SUCH RECEIP TS MUST BEAR AN ELEMENT OF ESTIMATION. 16. IN VIEW OF THE LEGAL POSITION THAT NOT THE ENTI RE RECEIPTS BUT THE PROFIT ELEMENT EMBEDDED IN SUCH R ECEIPTS CAN BE BROUGHT TO TAX IN OUR VIEW NO INTERFERENCE IS CALLED FOR IN THE DECISION OF THE TRIBUNAL ACCEPTIN G SUCH ELEMENT OF PROFIT AT RS. 26 LAKHS OUT OF TOTAL UNDI SCLOSED RECEIPT OF RS. 62 LAKHS. IN OTHER WORDS WE ACCEPT THE LEGAL PROPOSITION THE TRIBUNAL ACCEPTING RS. 26 LAKHS DI SCLOSED BY THE ASSESSEE AS PROFIT OUT OF TOTAL UNDISCLOSED RECEIPT OF RS. 62 LAKHS WOULD NOT GIVE RISE TO ANY QUESTION O F LAW. 15. IN THE RESULT ASSESSEE'S APPEALS FOR A.YS. 2006-07 AND 2007-08 ARE PARTLY ALLOWED AND FOR A.YS. 2008-09 AN D 2009-10 ARE ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 23 RD APRIL 2014 SD/- (SAKTIJIT DEY) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD DATED THE 23 RD APRIL 2014 TPRAO COPY TO: 1. M/S. SAIRAM MULTI SPECIALTY HOSPITAL C/O. M/S. K. VASANTKUMAR & A.V. RAGHURAM ADVOCATES 610 6 TH FLOOR BABUKHAN ESTATE BASHEERBAGH HYDERABAD-1. 2. THE ASST. CIT CIRCLE-9(1) IT TOWERS AC GUARDS H YDERABAD. 3. THE CIT(A)-VI HYDERABAD. 4. THE CIT-VI HYDERABAD 5. THE DR B BENCH ITAT HYDERABAD.