2017 (12) TMI 680 - HC - Income Tax

Rejection of books of account - estimation of income from the profession of surgery and consultancy - Whether there exist any basis for estimating the income from the medical profession as carried on by the assessee @ 50% of the receipts, as enhanced? - Held that - No evidence exists to doubt the correctness or completeness of the books of account of the assessee. In the instant case, books of account of the assessee were rejected unfounded suspicion. Absence of vouchers, in the peculiar facts of this case did not give rise to any presumption that there was any non-disclosure of income inasmuch as there is no evidence to doubt the correctness of the entries made in the OPD register as also Indoor Patient register. For the A.Y. 2008-09 the assessee had been assessed under Section 143(3) of the Act at a total income of ₹ 2,84,371/-. In that assessment the books of account of the assessee were also accepted. It clearly appears that the income disclosed by the assessee in the present year is similar or comparable to the income which the department assessed at the hands of the assessee five years later. This fact itself indicates that the rejection of books of account and the consequential best judgment assessment made by the assessing officer in the present year is wholly excessive, arbitrary and unfounded. Thus answer question no.1 in favour of the assessee and against the revenue. We have found that the rejection of books of account of the assessee was unfounded. Consequently the estimation and enhancement of income that followed also cannot be sustained - Decided in favour of assessee.

Summary

Issues:
- Interpretation of Section 145 for rejection of books of account
- Basis for estimating income from medical profession

Interpretation of Section 145 for rejection of books of account:
The case involved an appeal under Section 260-A of the Income Tax Act against the order passed by the Income Tax Appellate Tribunal regarding the rejection of the assessee's books of account for the Assessment Year 2003-04. The assessing officer rejected the books of account under Section 145(3) of the Act due to discrepancies noted during a survey conducted at the nursing home of the assessee. The Tribunal upheld this rejection based on the lack of vouchers and missing patient addresses in the records. The appellant argued that the rejection was arbitrary as there was no evidence of undisclosed income and that the entries were correct and complete. The High Court found that the rejection was unfounded as the assessing officer did not specify the discrepancies and the assessee had maintained proper records of professional receipts. The Court emphasized that absence of vouchers did not automatically imply non-disclosure of income, especially when no evidence suggested such discrepancies.

Basis for estimating income from medical profession:
The assessing officer estimated the income of the assessee at a higher amount due to the rejection of books of account. The appellant contended that the enhancement made on estimate was arbitrary. The revenue argued that the burden to establish the correctness and completeness of the books of account was on the assessee, and since vouchers were not produced, the rejection was justified. However, the High Court disagreed, stating that the rejection of books was unfounded, and hence, the estimation and enhancement of income could not be sustained. The Court highlighted that the income disclosed by the assessee in subsequent years was comparable to the present year, indicating that the rejection and subsequent assessment were excessive, arbitrary, and unfounded. Consequently, the appeal was allowed in favor of the assessee.

In conclusion, the High Court ruled in favor of the assessee, stating that the rejection of books of account was unfounded, leading to the dismissal of the estimation and enhancement of income. The Court emphasized the importance of proper evidence and specified discrepancies before rejecting books of account, highlighting the need for a valid basis for estimations in such cases.