2022 (10) TMI 604 - AT - Income Tax

Taxability of the referral fees - underreporting of referral fee from Vijetha Hospitals - appellant has been following cash system of accounting consistently and admitted the referral fee to tax in the AY 2014-15 i.e. in the year in which the appellant received the amount - HELD THAT - As the referral fee received by the assessee has been offered to taxation in the FY 2013-14 relevant to the AY 2014-15. It is well settled principle that the assessee can chose his method of accounting either cash or mercantile basis which cannot be disputed by the Revenue. Accordingly the assessee has declared the amount received from M/s. Vijetha Hospitals during the FY 2013-14 while filing his return of income for the AY 2014-15. Merely based on the fact that M/s. Vijetha Hospitals who has accrued the expenses in their books of account cannot be the criteria to tax the income during the AY 2013-14 in the hands of the assessee who is maintaining the books of account on cash basis. DR has also conceded that there is no difference in the tax rates for the AY 2013-14 and AY 2014-15. In view of the above discussions we are of the considered view that since the assessee is maintaining the books of account on cash basis the assessee has rightly disclosed his income when the Referral fee is received from M/s. Vijetha Hospitals during the FY 2013-14 and hence has rightly filed his return of income disclosing the same in the AY 2014-15. We therefore quash the orders of the Ld. Revenue Authorities and allow the appeal of the assessee. Unexplained unsecured loan - appellant was unable to furnish confirmation letter in this case - though the appellant had established the identity creditworthiness and genuineness was not established in the case of loan creditors the appellant needs to establish all the three ingredients. Failure to establish any ingredient will render the loan / credit non-genuine - HELD THAT - CIT(A) has rightly considered the issue and has sustained the addition made by the Ld. AO. We therefore find no error in the order of the Ld. CIT(A) and hence no interference is required on this issue. Thus the Ground raised by the assessee is dismissed. Reopening of assessment u/s 147 - unsecured loans confirmation from the loan creditors and also the income tax returns and the bank statements of the loan creditors - HELD THAT - Admittedly the assessee in order to correct the errors while filing the original return has filed the revised return of income on 2/12/2015. The contention of the DR could not be accepted that the revised return is filed subsequent to the date of search of 12/5/2015. We find force in the argument of the Ld. AR that the revised return was filed before the due date specified u/s. 139(5) of the Act and before the issue of notice U/s. 148 of the Act on 24/2/2016. As observed that the assessee has corrected the accounting errors while filing the revised return of income. Further we also find from the paper book that the assessee has submitted the details of unsecured loans confirmation from the loan creditors and also the income tax returns and the bank statements of the loan creditors. Further we find that the assessee and also its partners are assessed by the same Assessing Officer viz. ITO Ward-1(4). The Ld. AO if not relying on the documents produced by the assessee could have verified the creditworthiness based on the filing of returns of the partners available in his records. CIT(A) has rightly verified the loans and the sources of loans of the creditors and rightly deleted the addition made by the AO. We therefore find no error in the order of the Ld. CIT(A) on this ground and therefore no interference is required. Violation of the provisions of section 269SS - HELD THAT - We find that the assessee has proved the creditworthiness of the loan creditors which is recorded in the books of accounts of the assessee as well as loan creditors. As relying on case of ADA Investigation vs. Kumar A B Shanti 2002 (5) TMI 4 - SUPREME COURT . We are of the considered view that the facts of the present case does not attract the provisions of section 269SS of the Act. We therefore find no error in order of the Ld. CIT(A) and hence no interference is required in the order of the Ld. CIT(A) and dismiss the grounds raised by the Revenue. Accordingly we are of the considered view that there is no merit on this ground and therefore this ground raised by the Revenue is dismissed. Disallowance of various expenses - HELD THAT - We find that voluminous documentary evidences have been produced before the Ld. AO for verification however the Ld. AO not relying on the self-made vouchers and other documents estimated the disallowance @ 20% of certain expenses as detailed in the order of the Ld. AO. We also find no fresh evidence has been produced before the CIT(A) to provide one more opportunity to the Ld. AO to verify the same. We therefore find no error in the order of the Ld. CIT(A) who was estimated 10% as against 20% of the disallowances made by the Ld. AO. We are therefore of the considered view that the there is no need to interfere with the order of the Ld. CIT(A) on this issue. Assessee has not retracted the sworn in statement who has accepted the disclosure made during the survey operations by offering Rs. 1, 09, 54, 885/- to tax. The assessee has only corrected the hospital receipts which were wrongly accounted as income instead of unsecured loans from partners. We therefore dismiss this ground raised by the Revenue.

2002 (5) TMI 4 - SC

Issues Involved:
1. Year of taxability of referral fees.
2. Addition of unexplained unsecured loan.
3. Acceptance of revised return of income.
4. Disallowance of various expenses on an ad-hoc basis.
5. Violation of provisions of section 269SS.

Issue-wise Detailed Analysis:

1. Year of Taxability of Referral Fees:

The core issue pertains to the year in which the referral fees should be taxed. The assessee, a partner in M/s. Vijetha Hospitals, received Rs. 13,78,200/- as referral fees during FY 2012-13 but did not disclose it in the original return for AY 2013-14. The assessee argued that the referral fee was received in cash during FY 2013-14 and thus declared it in AY 2014-15, following a cash system of accounting. The Tribunal upheld the assessee's method of accounting, stating that the referral fee should be taxed in the year it was received, i.e., AY 2014-15, and quashed the orders of the Revenue Authorities.

2. Addition of Unexplained Unsecured Loan:

For AY 2014-15, the assessee declared an unsecured loan of Rs. 10 lakhs. The Revenue Authorities demanded proof of creditworthiness and genuineness of the loan creditor, which the assessee failed to provide. The Tribunal upheld the CIT(A)'s decision to sustain the addition of Rs. 10 lakhs as unexplained unsecured loan due to the lack of sufficient evidence from the assessee.

3. Acceptance of Revised Return of Income:

The assessee hospital filed a revised return for AY 2014-15, correcting errors from the original return and declaring additional income admitted during a survey. The Revenue argued that the revised return was filed to accommodate the survey's findings. The Tribunal found that the revised return was filed within the due date specified under section 139(5) and before the notice under section 148. The Tribunal upheld the CIT(A)'s decision to accept the revised return, noting that the assessee provided adequate documentation to support the corrections.

4. Disallowance of Various Expenses on an Ad-hoc Basis:

The AO disallowed 20% of certain expenses due to unverifiability, which the CIT(A) reduced to 10%. The Tribunal found no error in the CIT(A)'s decision, noting that the assessee had already admitted additional income and that the disallowances were not based on credible material. The Tribunal upheld the CIT(A)'s reduction of the disallowance rate to 10% for certain expenses and deleted the disallowance for others.

5. Violation of Provisions of Section 269SS:

The Revenue argued that the assessee violated section 269SS by receiving unsecured loans in cash. The Tribunal found that the assessee provided sufficient evidence of the creditworthiness of the loan creditors and that the transactions were recorded in both the assessee's and creditors' books. The Tribunal concluded that the facts of the case did not attract the provisions of section 269SS and upheld the CIT(A)'s decision.

Separate Judgments Delivered:

None of the judges delivered separate judgments; the order was delivered per bench.

Conclusion:

In summary, the Tribunal allowed the assessee's appeal regarding the year of taxability of referral fees, partially allowed the appeal concerning the addition of unexplained unsecured loans, accepted the revised return of income, upheld the CIT(A)'s decision on the disallowance of expenses, and dismissed the Revenue's appeal regarding the violation of section 269SS. The cross-objection filed by the assessee was also dismissed.

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