Ita/56/2011 Of The Commissioner Of Income Tax,Cochin v. M/S.lakshmi Hospital

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE P.S.GOPINATHAN MONDAY, THE 4TH JULY 2011 / 13TH ASHADHA 1933 ITA.No. 56 of 2011() -------------------- ITA.32/COCH/2008 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/RESPONDENT ------------------ THE COMMISSIONER OF INCOME TAX-II, COCHIN. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S): APPELLANT ------------------------ M/S.LAKSHMI HOSPITAL, DIWAN'S ROAD, M.G.ROAD P.O., COCHIN - 682 016. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 04/07/2011,ALONG WITH I.T.A.Nos.60, 61, 62, 63, 64, 75 & 76 OF 2011, THE COURT ON THESAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR & P.S.GOPINATHAN, JJ.------------------------------------------ I.T.A.Nos.56, 60, 61, 62, 63, 64, 75 AND 76 OF 2011 -------------------------------------------Dated this the 4[th] day of July, 2011 C O M M O N J U D G M E N T ~~~~~~~~~~~ C.N.Ramachandran Nair, J. The appeals are filed by the revenue with a delay of 23days. In the normal course, we should condone the delay onlyafter issuing notice to the respondents and after hearing theirobjections. However, when the delay condonation petition cameup for consideration before us, we heard merits of the case. Forthe reasons discussed below we do not find any ground tointerfere with the orders of the appellate tribunal allowingrespondent's claim. So much so, we condone the delay of 23days in filing the appeals and proceed to consider the case onmerits. 2.The respondent/assessee is a major hospital locatedin the middle of the city. During search conducted by thedepartment, they noticed unaccounted collection of fees in the ITA.Nos.56/2011 etc. name of doctors and distribution of the same to various doctorsserving the hospital whether as regular employees or asconsultants. In the course of enquiry, the respondent/assesseeaccepted the collections but contended before the departmentthat they have distributed the entire amounts to the doctors inwhose name the collections were made and no part of it isretained as their income. However, the department rejected theexplanation offered by the respondent and assessed the entireamount as unexplained expenditure falling under Section 69C ofthe IT Act. On appeal filed by the respondent/assessee the CIT(Appeal) though in principle confirmed the addition, granted areduction of 25% against which the assessee as well as thedepartment filed second appeal. The Tribunal allowed theassessee's appeal completely cancelling the addition anddismissed the department's appeal. It is against the commonorders of the Tribunal passed for the four years 2000-2001 to2003-2004, the department has filed these 8 appeals raising thesame question as to whether the entire amount collected in thename of doctors by the respondent could be assessed asunexplained expenditure under Section 69C, on account of the ITA.Nos.56/2011 etc. failure of the respondent to prove the expenditure. 3.We have heard the standing counsel appearing for theappellant in detail who tried to justify the assessment underSection 69C which is as follows: “69C. Where in any financial year an assesseehas incurred any expenditure and he offers noexplanation about the source of suchexpenditure or part thereof, or the explanation,if any, offered by him is not, in the opinion ofthe Assessing Officer, satisfactory, the amountcovered by such expenditure or part thereof, asthe case may be, may be deemed to be theincome of the assessee for such financial year. Provided that,notwithstanding anythingcontained in any other provision of this Act, suchunexplained expenditure which is deemed to bethe income of the assessee shall not be allowedas a deduction under any head of income.” 3.We have heard the standing counsel appearing for theappellant in detail who tried to justify the assessment underSection 69C which is as follows: “69C. Where in any financial year an assesseehas incurred any expenditure and he offers noexplanation about the source of suchexpenditure or part thereof, or the explanation,if any, offered by him is not, in the opinion ofthe Assessing Officer, satisfactory, the amountcovered by such expenditure or part thereof, asthe case may be, may be deemed to be theincome of the assessee for such financial year. Provided that,notwithstanding anythingcontained in any other provision of this Act, suchunexplained expenditure which is deemed to bethe income of the assessee shall not be allowedas a deduction under any head of income.” 4.After hearing the standing counsel and after goingthrough the records, what we find is that this is not a case offailure of the respondent/assessee to explain the expenditure.Infact the respondent on being confronted with the accountsseized from them conceded that the entire amounts were ITA.Nos.56/2011 etc. collected by them for payment to doctors serving the hospital.Obviously, the payment made to a single doctor in a day does notexceed Rs.20,000/- because in such cases the department couldhave made disallowance of expenditure under Section 40A (3) ofthe IT Act. On the other hand, the entire amount is collectedwithout bringing into the regular accounts and the paymentswere also made by the respondent without accounting the same.When receipt is not accounted obviously payment also cannot beaccounted by the assessee. Cases falling under Section 69C areessentially expenditure accounted as such by the assessee butassessee fails to prove on demand by the department. It may sohappen that when unaccounted income is disclosed in search,the assessee may claim expenditure against the same and ifproved, department will be bound to accept it. In this case alsoassessee conceded that the unaccounted receipts were collectedfor payment to doctors attending to patients in the hospital.What we notice is that the department has not made any effortto confront the doctors with the unaccounted payments stated tohave been made to them by the hospital which engaged them.In our view, the question of addition in the hands of the ITA.Nos.56/2011 etc. respondent/assessee arises only when the doctors deny havingreceived the amount. We do not know, why department did notventure to confront the doctors with the explanation offered bythe respondent/assessee with regard to the payments made tothem. In fact, we notice that the Tribunal while allowing theassessee's claim left freedom to the department to proceedagainst the doctors for assessment. We are in completeagreement with the finding of the Tribunal because additionunder Section 69C in this case can be sustained only in respectof the income not proved to have been received by the doctors.The respondent/assessee, prima facie, discharged their burdenor atleast shifted the same to the Revenue when they gaveparticulars of payments made to the doctors. In our view thedepartment should have issued notice to the doctors forconfirmation of the payments and if they confirm receipts, tomake assessments on doctors and if they deny, to proceedagainst the respondent/assessee and direct them to prove thepayment as having been made and in the absence of proof ofpayment, to make assessment of the amount under Section 69C.Since this exercise has not been done, we do not think the ITA.Nos.56/2011 etc. ITA.Nos.56/2011 etc. assessment is tenable in the hands of the respondent/assesseewhich obviously cannot be expected to give receipt or voucherfrom the doctors to whom unaccounted payments were made.The information received in search enables the department toassess assessees other than the searched assessee both underSection 147 of the Act as well as under Section 153D (previously158BD) i.e., block assessment followed by search. So much so,we feel escapement of income from assessment is essentially onaccount of the lapses on the part of the department.Consequently, we dismiss all the appeals. (C.N.RAMACHANDRAN NAIR, JUDGE) (P.S.GOPINATHAN, JUDGE) ps