2013 (1) TMI 206 - AT - Income Tax

Search & Seizure - Scope of assessment u/s 153A A.O. could examine any issue or only issues for which incrimination material has been found during courses of search for assessments which are already completed prior to date of initiation of search Assessments relating to the A.Ys. 2002-03 to 2006-2007 has concluded - Assessments relating to the A.Ys. 2007-08 can be considered as pending on the date of initiation of the search - Held that - The completed assessments, though automatically reopened as per the provisions of sec. 153A, yet they can be disturbed only in respect of those issues for which some incriminating materials requiring such disturbance is unearthed during the course of search proceeding Concluded assessments can be disturbed only if the department has unearthed any incriminating material warranting such disturbance or the any identical issues are available in the concluded assessments as in the case of pending assessments. Suppressed consultation fee - Seized records Entries in booking diary A.O. found details from dairy during search for the A.Ys 2006-07 to 2008-09 A.O made addition for all the 6 A.Ys. on the basis of average number of patients Held that - AO has computed the suppressed consultation fee by taking the details from the books of accounts maintained by the assessee and not on the basis of the seized record. The seized records numbered as MMA-1 and MMA-2 contained patient details for the years relevant to the A.Ys 2006-07 to 2008-09. Thus the department did not unearth any record pertaining to the years relevant to the A.Ys 2002- 03 to 2005-06. In view of the legal position discussed above, the AO could not make any addition for A.Ys 2002-03 to 2005-06. No addition could be made for A.Y. 2008-09 also, as the department has failed to bring on record any actual suppression of consultation fee on the basis of seized record. Partly allowed in favour of assessee Suppression of income from surgeries and sale of lenses Held that - The profit on PMMA lens during the years relevant to the A.Ys. 2007-08 and 2008-09 can only be treated as the suppressed income in the hands of the assessee. It is also quiet common that the businessmen fixes different selling price to different customers. Hence the selling price charged to one customer cannot always be taken as the base for determining the selling price for others. Profit that might have accrued to the assessee on purchase of PMMA lens may be taken at Rs.600/- per lens (30% of the sales value). Partly allowed in favour of assessee Disallowance of salary expenses - Sworn statement - AO computed that the assessee was incurring a sum of Rs.10,000/- per month as salary and accordingly restricted the salary payment to Rs.1,20,000/- per annum for A.Ys. 2008-09 and 2007-08. For other years, he proportionately reduced the allowable salary Held that - Replies given on the basis of memory should have been corroborated with other available evidences before taken any adverse inference. the assessing officer s case would have been stronger, had he called for the break up details like employees name, type of services rendered by him, the hours of work, the salary paid etc. and objectively analysed them to find out any bogus or excess payment. It is not clear whether the AO did call for such kind of details. The annual payment is taken as 14.5 months salary, i.e, 12 months 2 months bonus customary payment month as base to calculate salary. Partly allowed in favour of assessee Disallowance of expenditure of Consumables and medicines - Assessee was collecting payments from the surgery patients towards medicines and consumables A.O. disallowed 80% of the amount claimed Held that - It would be unreasonable to presume that the clinic shall not have any expense on consumables and medicines. Accordingly, the disallowance of 80% made by the AO is on the higher side. Since the assessee has failed to furnish required details, a disallowance of 30% of the expenses claimed by the assessee on consumables and medicines would be reasonable. Partly allowed in favour of assessee Cash Credit u/s 68 Gift - Credit worthiness - Received gifts from close NRI relatives through cheques during A.Ys. 2002-03 to 2007-08 via NRE bank Account Held that - the peculiar characteristics of the NRE bank accounts and the assessee has brought to the notice of the AO that the donors have made gifts from their respective NRE accounts. Thus the material and the attending circumstances show that the assessee could not have funded these donors for making the impugned gifts to the assessee. Assessee has discharged the primary burden of proof placed upon him. In favour of assessee Additions on the basis of fund flow statements Statements are prepared on the basis of books of account - Held that - It is possible that the assessee might have maintained books only for his profession and hence the fund flow statements might have been prepared to combine both professional and non-professional items. Revenue authorities did not properly understood the significance of the financial statements. Accordingly, the additions made on account of cash deficiencies require re-examination. Remand back to AO Unexplained expenditure - Assessee claimed that items were gifted by his father in law - the father in law of the assessee did not declare cost of these items in his cash flow statement Held that - It is the duty of the assessee to substantiate his claim that the imported interior decorated items have actually been gifted by his in laws. From the record, it s notice that the assessee has failed to substantiate his claim. In favour of revenue Addition towards the difference in the purchase cost of property In sworn statement assessee mentioned that he paid the consideration in cash as per the requirement of seller and the purchase consideration was Rs.45 lakhs - actually accounted only Rs.28.25 lakhs in his books Held that - AO did not bring on record any material in this regard except placing heavy reliance on the sworn statement given by the assessee. Assessee had mentioned in the sworn statement that he paid the entire consideration in cash, whereas the AO himself has noticed that a sum of Rs.26 lakhs was paid by way of cheque. This example itself shows that the reply given out of his memory could not be relied upon fully. the assessee has also given explanation with regard to the amount of Rs.45.00 lakhs. Authorities on the basis of surmises and conjectures without placing reliance on any tangible material or without examining the matter further confirm addition. Delete the addition. In favour of assessee Addition of difference in cost of construction of residential building - Declared the cost of construction at Rs.1.10 crores - Department seized a report of registered architect for the purpose of bank, in which the cost of construction was shown at Rs.1.70 crores Held that - The assessee had obtained loan from HDFC bank on the basis of the report of the architect for some other purpose and not for the purpose of construction of residential building and hence the assumption made by the AO was proved to be wrong. In favour of assessee

Summary

Issues Involved:
1. Scope of assessment under Section 153A of the Income Tax Act.
2. Estimation of suppressed consultation fee.
3. Suppression of income from surgeries and sale of lenses.
4. Disallowance of salary expenses.
5. Disallowance of expenses under "Consumables and medicines."
6. Assessment of gifts under Section 68 of the Income Tax Act.
7. Additions based on fund flow statements.
8. Addition relating to interior decoration expenses.
9. Addition relating to the difference in the purchase cost of Bangalore property.
10. Telescoping benefit granted by the CIT(A).
11. Addition based on the difference in cost of construction of residential building.

Detailed Analysis:

1. Scope of Assessment under Section 153A:
The Tribunal examined whether the Assessing Officer (AO) can disturb concluded assessments under Section 153A without incriminating material. The Tribunal referred to various case laws and held that only pending assessments abate and concluded assessments can be disturbed only if incriminating material is found during the search. The Tribunal upheld the view that the AO cannot re-open concluded assessments without incriminating evidence.

2. Estimation of Suppressed Consultation Fee:
The AO estimated suppressed consultation fees based on average collection per day, which was not based on seized records. The CIT(A) deleted additions for years without seized material and adjusted the estimation for 2008-09. The Tribunal upheld the CIT(A) for 2002-03 to 2005-06 and deleted the addition for 2008-09, noting the department failed to prove suppression based on seized records.

3. Suppression of Income from Surgeries and Sale of Lenses:
The AO presumed profit on PMMA lenses based on a seized bill and added suppressed income for all years. The CIT(A) adjusted the profit estimation and limited it to PMMA lenses. The Tribunal agreed with the CIT(A) but reduced the profit per lens to Rs.600 for 2007-08 and 2008-09, directing the AO to recalculate the profit.

4. Disallowance of Salary Expenses:
The AO disallowed a portion of salary expenses based on the assessee's sworn statement. The Tribunal found the AO's reliance on the statement without further verification unreasonable and estimated reasonable salary expenses for each year, directing the AO to adjust disallowances accordingly.

5. Disallowance of Expenses under "Consumables and Medicines":
The AO disallowed 80% of expenses under "Consumables and Medicines," assuming surgery patients incurred all costs. The Tribunal found this unreasonable, considering other necessary expenses and reduced the disallowance to 30%.

6. Assessment of Gifts under Section 68:
The AO added gifts from NRIs as income, questioning the donors' creditworthiness. The Tribunal noted the gifts were from NRE accounts, which only accept foreign currency deposits, and the donors confirmed the gifts. The Tribunal found the assessee discharged the primary burden of proof and directed the AO to delete the additions.

7. Additions Based on Fund Flow Statements:
The AO added differences in fund flow statements as income. The Tribunal noted the need for reconciliation of financial statements and set aside the additions, directing the AO to re-examine the issue with proper explanations from the assessee.

8. Addition Relating to Interior Decoration Expenses:
The AO added Rs.15,59,880 for interior decoration, which the assessee claimed as a gift. The Tribunal found the assessee failed to substantiate the gift claim but directed the AO to verify and allow credit for Rs.10 lakhs shown in the fund flow statement.

9. Addition Relating to the Difference in Purchase Cost of Bangalore Property:
The AO added Rs.16.75 lakhs based on the assessee's sworn statement about the purchase price. The Tribunal found no material evidence for the addition and directed the AO to delete it.

10. Telescoping Benefit Granted by the CIT(A):
The CIT(A) allowed telescoping benefits, adjusting additions against unexplained investments/expenses. The Tribunal upheld this, noting it ensures correct income assessment.

11. Addition Based on the Difference in Cost of Construction of Residential Building:
The AO added Rs.59,95,000 based on an architect's report, which was an estimate for a proposed construction. The CIT(A) considered the DVO's report estimating a lower cost and deleted the additions. The Tribunal upheld the CIT(A), noting the architect's report was not for actual construction cost.

Conclusion:
The appeals by the assessee were partly allowed, and those by the revenue were dismissed. The Tribunal provided detailed directions for re-examination and adjustments, ensuring a fair assessment based on available evidence and legal principles.