2011 (7) TMI 532 - HC - Income Tax

Unexplained expenditure under Section 69C - whether the entire amount collected in the name of doctors by the respondent could be assessed as unexplained expenditure on account of the failure of the respondent to prove the expenditure - Held that - This is not a case of failure of the respondent/assessee to explain the expenditure. Infact the respondent on being confronted with the accounts seized from them conceded that the entire amounts were collected by them for payment to doctors serving the hospital. The assessee, prima facie, discharged their burden or atleast shifted the same to the Revenue when they gave particulars of payments made to the doctors - Hence, 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 - Decided in favour of assessee.

Summary

Issues:
Assessment under Section 69C of the IT Act for unexplained expenditure.

Analysis:
The case involves appeals filed by the revenue with a delay of 23 days, seeking to challenge the orders of the appellate tribunal allowing the respondent's claim regarding unaccounted collections of fees in a hospital. The respondent, a major hospital, distributed collected amounts to doctors but faced an assessment of unexplained expenditure under Section 69C of the IT Act by the department. The CIT (Appeal) partially confirmed the addition, but the Tribunal completely canceled it for the years 2000-2001 to 2003-2004. The main question was whether the entire amount collected in the name of doctors could be assessed as unexplained expenditure. The standing counsel for the appellant tried to justify the assessment under Section 69C, which deems unexplained expenditure as the income of the assessee if not satisfactorily explained. However, the court found that the respondent had explained the expenditure by admitting to collecting amounts for payments to doctors.

The court noted that the respondent had conceded to collecting amounts for doctors without accounting for them, and payments were made without proper records. The department did not confront the doctors regarding the unaccounted payments, which led the court to conclude that the addition under Section 69C could only be sustained if the income was not proved to have been received by the doctors. The burden of proof was deemed to have been shifted to the revenue when the respondent provided details of payments made to the doctors. The court criticized the department for not issuing notices to the doctors to confirm the payments, stating that without such confirmation, the assessment in the hands of the respondent was not tenable.

Moreover, the court highlighted that the department's failure to conduct necessary assessments or confront the doctors with the payments led to the dismissal of all appeals. The court emphasized that the information obtained during the search should have been used to assess other assessees and that any income escapement was due to the lapses on the part of the department. Consequently, all appeals were dismissed based on the lack of proper assessment procedures followed by the department.