1997 (1) TMI 146 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the statement recorded on 6-7-1990 without notice under section 131.
2. Reasonableness of the income estimate from the profession.
3. Applicability of section 44AA for maintenance of accounts.
4. Appropriateness of the estimate of income from major operations.
5. Allowability of 40% deduction for expenses.

Detailed Analysis:

1. Validity of the Statement Recorded on 6-7-1990 Without Notice Under Section 131:
The learned counsel for the assessee raised a preliminary objection that the statement recorded on 6-7-1990 was not a statement on oath since notice under section 131 had not been served. The Departmental Representative countered that the Assessing Officer had inherent power to record statements on oath without issuing a notice under section 131. The tribunal noted that it was not necessary to enter into this controversy as the statement had not been retracted and could form a basis for any estimate to be made.

2. Reasonableness of the Income Estimate from the Profession:
The assessee did not maintain any books of account for the income from the profession, and the claim for receipts and expenses were purely on an estimate basis. The Assessing Officer made a best judgment assessment under section 145(2) of the Act, estimating the professional income based on the statement recorded on 6-7-1990. The CIT(Appeals) confirmed this estimate. The tribunal found that the estimate made by the Assessing Officer was excessive and directed certain reliefs.

3. Applicability of Section 44AA for Maintenance of Accounts:
The assessee argued that since the disclosed professional income did not exceed Rs. 40,000, he was not covered by section 44AA of the Act. The Departmental Representative countered that section 44AA mandated maintenance of accounts for professionals. The tribunal noted that according to the assessed income of Rs. 3,55,968, the assessee was within the purview of section 44AA, but this controversy did not need to be resolved in the present proceedings.

4. Appropriateness of the Estimate of Income from Major Operations:
The Assessing Officer estimated that the assessee conducted one major operation every day, resulting in gross receipts of Rs. 4,32,000 for the year. The learned Accountant Member found this estimate to be excessive and directed that the estimate should be reduced to one major operation every two days, reducing the gross receipts to Rs. 2,16,000. The learned Judicial Member disagreed, finding the estimate of Rs. 4,32,000 to be fair and reasonable. The Third Member agreed with the learned Accountant Member, noting that the assessee's statement indicated one to two operations per day, inclusive of both major and minor operations, and that the assessee was in full-time employment, making it unlikely that he conducted one major operation every day.

5. Allowability of 40% Deduction for Expenses:
The Assessing Officer allowed 40% of the gross receipts as expenses, which was confirmed by the CIT(Appeals). The tribunal noted that the expenses estimated at 40% had not been specifically disputed before them and declined to interfere with this allowance. The learned Judicial Member, however, opined that the deduction of 40% was very lenient and that the assessee did not incur significant expenses for performing operations, as these were typically charged to the patients.

Conclusion:
The tribunal partly allowed the assessee's appeal, directing the Assessing Officer to compute the relief based on their directions and reduce the total income. The Third Member concluded that the estimate of income from major operations should be reduced by half, aligning with the learned Accountant Member's view. The case was referred back to the regular bench for passing an order as per the majority view.