2011 (7) TMI 231 - HC - Income Tax

Unexplained expenditure versus Unaccounted money - Section 69C - whether the entire amount collected in the name of doctors by the respondent could be assessed as unexplained expenditure under section 69C, on account of the failure of the respondent to prove the expenditure - Held that Cases falling under section 69C are essentially expenditure accounted as such by the assessee but assessee fails to prove on demand by the department. It may so happen that when unaccounted income is disclosed in search, the assessee may claim expenditure against the same and if proved, department will be bound to accept it Assessee, prima facie, discharged their burden or atleast shifted the same to the Revenue when they gave particulars of payments made to the doctors - In our view the department should have issued notice to the doctors for confirmation of the payments and if they confirm receipts, to make assessments on doctors and if they deny, to proceed against the respondent/assessee and direct them to prove the payment as having been made and in the absence of proof of payment, to make assessment of the amount under section 69C. - When unaccounted money is paid, assessee cannot be expected to give receipt or voucer from doctors - Decided in favor of assessee.

Summary

Issues:
1. Delay condonation in filing appeals by the revenue.
2. Assessment of unexplained expenditure under section 69C of the IT Act.
3. Failure of the department to prove unexplained income.
4. Lack of confrontation of doctors with unaccounted payments.
5. Validity of assessment in the hands of the respondent/assessee.

Analysis:
1. The High Court of Kerala addressed the issue of delay condonation in filing appeals by the revenue. Despite the delay of 23 days, the Court proceeded to consider the case on merits due to finding no grounds to interfere with the orders of the appellate Tribunal allowing the respondent's claim.

2. The Court delved into the assessment of unexplained expenditure under section 69C of the IT Act. The respondent, a major hospital, faced allegations of unaccounted collections of fees in the name of doctors. The department assessed the entire amount as unexplained expenditure, but the Tribunal canceled the addition. The Court emphasized that cases under section 69C involve expenditure accounted by the assessee but unproven upon demand by the department. In this case, the department failed to confront the doctors with the unaccounted payments, leading to the dismissal of the appeals.

3. The judgment highlighted the failure of the department to prove unexplained income. The Court noted that the respondent had provided particulars of payments made to the doctors, shifting the burden to the Revenue. The department's lack of effort to confirm payments with the doctors rendered the assessment untenable in the hands of the respondent.

4. Another crucial issue was the lack of confrontation of doctors with unaccounted payments. The Court emphasized that the addition under section 69C could only be sustained if the income was unproven to have been received by the doctors. Not confronting the doctors with the explanation offered by the respondent was deemed a critical lapse on the part of the department.

5. Lastly, the Court discussed the validity of the assessment in the hands of the respondent/assessee. Due to the department's failure to conduct necessary verifications with the doctors regarding payments, the Court concluded that the assessment could not be upheld. The Court dismissed all appeals, attributing the escapement of income from assessment to the department's lapses.