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TMI Blog2014 (4) TMI 1232X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the case are that the assessee is a partnership firm running a Nursing Home with Dr. (Mr.) G. Venkateswara Rao and Dr. (Mrs.) G.S.V. Prasanna, wife of Dr. G. Venkateswara Rao, as partners. Return of income was filed for A.Y. 2006-07 on 30.08.2006 with total income of Rs. 3,87,684 and for A.Y. 2007-08 on 12.11.2007 with a total income of Rs. 3,25,510. Survey u/s. 133A was conducted in this case on 16.02.2010. On the basis of the information obtained from registers and CDs fond during the survey, the gross receipts of the firm were found to be Rs. 95,98,084 for A.Y. 2006-07 and Rs. 43,96,262 for 5 months falling in the A.Y. 2007-08. 4. Return of income was filed for A.Y. 2008-09 on 29.9.2008 with total income of Rs. 7,62,170 and for A.Y. 2009- 10 on 29.9.2009 with a total income of Rs. 7,92,480. The assessee filed revised return of income after survey as follows: A.Y. Turnover as per original return (Rs.) Turnover as per revised return (Rs.) 2008-09 37,78,747 78,03,122 2009-10 35,55,913 86,80,269 5. On the basis of information obtained from registers and CDs found during the survey, the gross receipts of the firm were found to be in excess of what had been declared by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he original return since if the assessee had done so, the expenditure would not have been commensurate with the receipts and the claim would have been rejected. The AR also objected to the Assessing Officer's observation that the claim was not supported by PF or ESI records by stating that these provisions apply only with the employment of a minimum number of personnel and the assessee could not be faulted for not complying with the PF or ESI provisions when such provisions were not at all applicable to the assessee. With regard to the claim for medicines, the AR submitted that the claim had been disbelieved despite production of all relevant details like shop name, date of purchase etc. 8. On appeal the CIT(A) observed that the ratio of salary and of medicine to turnover jumps to an abnormally high level for the two years in appeal if the assessee's claim is accepted. The claim is not in accordance with the trends for the other years, either before or after these two years. In the original returns, the assessee had claimed Rs. 3,37,000 as expenses on salary for three years, from A.Ys. 2006-07 to 2008-09 and Rs. 3,47,000 for A.Y. 2009-10. The claim was revised only for two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtner of the firm, u/s 131 on 18.2.2010. Vide question no. 6, Dr. G. Venakates-wara Rao was confronted with the difference in turnover as reflected in the returns of income and as found during the survey and was asked to explain why the difference in gross receipts for the two years in question should not be brought to tax. In reply, Dr. G. Venakateswara Rao stated: "After reconciliation of the data, I will offer the difference in gross receipts as income of the firm and pay the taxes by filing revised returns" 11. The CIT(A) observed that the partner had accepted in the statement that the entire suppressed turnover represented the income of the firm. More specifically, he did not make any reference at all at this stage to the claim of suppressed expenditures on salary and medicines. Under the circumstances and following the ratio of the decision of the ITAT in the case of G. Narsing Rao (cited supra), the claim of the assessee cannot be accepted. It would also be instructive to analyze the statistical implications, howsoever limited they may be, of the assessee's claims. The data for the expenditure on salaries is as follows: A.Y. Turnover (Rs.) Salary (original) (Rs.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rded receipts was already claimed by the assessee. The CIT(A) found that by increasing the receipts, the net profit of the firm is correspondingly increased. Under the Income-tax Act, tax has to be levied on the income accrued to or received by the assessee. When the contract receipts to the extent of Rs. 4,02,818 were not recorded in the books of account and the assessee claims that the entire expenditure was recorded in the books of account naturally, the entire receipt would be the assessee's income. Therefore, the undisclosed contract receipts of Rs. 4,02,818 has to be considered for taxation. Accordingly, there is no infirmity in the orders of the lower authorities and the same is confirmed." 13. In our opinion, the ratio laid down by the Tribunal in the case of Sri G. Narsing Rao (cited supra) cannot be applied to the facts of the present case. In the present case, the AO accepted that there is existence of undisclosed expenditure in the form of medicines and given credit at 1/3rd of that expenditure and rejected 2/3rd of the same. In these circumstances, the AO only doubted the quantum of expenditure. We have gone through the details of suppressed expenditure. We have a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition of the entire sum of the said undisclosed sales as income of the assessee for the assessment year 1994-95. Such addition was confirmed by the Commissioner (Appeals). The Tribunal, however, held that the entire sales could not have been added as income of the assessee, but only to the extent the estimated profits embedded in the sales for which the net profit rate was adopted entailing addition of income on the suppressed amount of sales. Such decision was carried in appeal by the revenue before the High Court. The High Court rejected the appeal, observing that unless there is a finding to the effect that investment by way of incurring the cost in acquiring the goods which have been sold has been made by the assessee and that has also not been disclosed, such addition could not be sustained. It was observed that in absence of such findings of fact, the question whether the entire sum of undisclosed sale proceeds can be treated as income of the relevant assessment year answers by itself in the negative. The High Court rejected the appeal holding that no question of law which requires to be referred arises. 11. In the case of Commissioner of Income Tax v. Gurubachhan Singh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n his case, unaccounted receipt of Rs. 1.47 crores was detected. In this background, the Division Bench confirmed the view of the Tribunal and did not accept the contention of the revenue that as no accounts had been maintained to substantiate the expenditure incurred by the assessee, the entire amount received by the respondent should be treated as income. The Court concluded that the Tribunal was justified in considering that the respondent - assessee ought to have spent reasonable amount for the purpose of receiving such gross receipt. 15. It can, thus, be seen that consistently, this Court and some other Courts have been following the principle that even upon detection of on money receipt or unaccounted cash receipt, what can be brought to tax is the profit embedded in such receipts and not the entire receipts themselves. If that be the legal position, what should be estimated as a reasonable profit out of such receipts, must bear an element of estimation. 16. In view of the legal position that not the entire receipts, but the profit element embedded in such receipts can be brought to tax, in our view, no interference is called for in the decision of the Tribunal accepting ..... X X X X Extracts X X X X X X X X Extracts X X X X
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