Jayeshbhai M Patel, vs Assessee

सुनवाई क तार ख/ Date of Hea ring : 30 /04/201 5 घोषणा क तार ख /Date of Pronouncement: 9/06/2015

आदेश /O R D E R

PER SHRI S.S. GODARA, JUDICIAL MEMBER

These assessee's appeals for A.Y.2003-04, arise from different orders of CIT(A)-IV, Baroda dated 7.1.2009 and 4.12.2009 passed in case no. CAB/IV-N-337/05-06 and 55/09-10 upholding unexplained cash credit addition of Rs.3 lac u/s.68 and disallowance of Rs.5,76,737/- in former quantum appeal and also affirming penalty arising out of the aforesaid unexplained cash credits, in proceedings u/s.143(3) and section 271(1)(c) of the Income Tax Act in short 'the Act' respectively.

We proceed to deal with assessee's quantum appeal ITA 980/Ahd/2009 first.

ITA No.980/Ahd/2009 & 712/Ahd/2010 Dr. Jayesh Manibhai Patel For A.Y. 2003-04 -2-

2. The assessee is a pediatrician. He runs a hospital by the name of "Reejay Children Hospital" at Dakore. The department conducted a survey in his case on 27.2.2003. The assessee stated to have disclosed unaccounted income in the relevant previous year of Rs.12 lac comprising suppressed professional income as well as that arising from "other sources. He filed return on 30.11.2003 stating income of Rs.6,68,720/-. He credited the impugned sum of Rs.3 lac in capital account as payment for obtaining tenancy right of the hospital premises way back in the year 1993. The assessee would treat the said amount as "goodwill" in the balance sheet. The Assessing Officer refers to his statement stating these payments to have been made out of understatement of professional and other income and sought to invoke section 68 of the Act.

3. The assessee inter alia pleaded his statement to have been made for buying peace, lack of any incriminating evidence found in the course of survey, sought to justify his aforesaid credits by stating that at the time of finalizing books only; he noticed this money paid in the year 1993 for acquiring rented property, placed on record proof of tenancy and justified the survey statement to have been made under mistaken impression. The assessee also submitted that there was no evidence on record forthcoming supporting the survey statement. The Assessing Officer in assessment order dated 30.12.2005 quoted lack of evidence supporting the assessee's plea of having made the impugned payment of Rs.3 lac in the year 1993. He mainly relied on survey statement and added this amount as unexplained credits u/s.68 of the Act.

ITA No.980/Ahd/2009 & 712/Ahd/2010 Dr. Jayesh Manibhai Patel For A.Y. 2003-04 -3-

4. The CIT(A) has upheld the Assessing Officer's findings as under:

"2. I have carefully considered the submissions. Appellant's contention that the Assessing Officer did not have any evidence regarding payment of Rs.3,00,000/- towards tenancy rights to Ranchhodrai Education Trust in the current year, other than statement U/S.133A dated 27.02.2003 is correct. However, it is equally correct that the appellant does not have any evidence in support of his contention that the same was paid in 1993. Merely because the premises were taken on rent since 1993, does not prove payment in 1993. Appellant has not disputed and has rather admitted that payment of Rs.3,00,000/- was made to Ranchhodrai Education Trust out of unaccounted source. Only dispute is regarding the year of payment. In a situation like this and in the absence of any specific proof showing the payment to be in 1993, the first admission that the same was made out of current year's income has to be taken as correct. Regarding appellant's reliance on the decision in the case of Paul Mathew 263 ITR 101, in this decision, the Hon'ble court has held that statement u/s.133A being not on oath does not have evidentiary value. Similar decision is of ITAT Ahmedabad in case of Abhi Builders. In appellant's case, there is no dispute that the payment of Rs. 3,00,000/- was made out of unaccounted sources towards tenancy rights. Thus, the fact of payment of Rs.30,000/-, towards tenancy rights out of unaccounted source admitted by the appellant himself, remains established irrespective of his statement recorded at the time of survey. Even in statement dated 9.4.2003, the fact of payment of Rs.3,00,000/-outside books of account was reconfirmed. In the absence of specific proof regarding the date of payment, the same has to be taken as out of income of the year in which the payment was detected. Similar principle governs section 68, 69, 69A, 69B and 69C. Thus, regardless of the statement recorded at the time of survey and its evidentiary value, in the absence of proof regarding exact date of unaccounted payment of Rs.3 lakh by the appellant to Ranchhodrai Education Trust towards tenancy rights of the hospital building, the same has to be assessed as income of the year during which the fact of incurring unaccounted expense was detected. Addition of Rs.3,00,000/- in A.Y.2003-04 is confirmed."

5. We have heard both sides and perused the case file. There is no dispute about facts narrated hereinabove. The assessee nowhere disputes contents of the survey statement. He seeks to justify his credits in question by claiming impugned payments of Rs.3 lac to have been made ITA No.980/Ahd/2009 & 712/Ahd/2010 Dr. Jayesh Manibhai Patel For A.Y. 2003-04 -4-

while acquiring the rented hospital building in the year 1993. However, there is no evidence forthcoming from the case file whatsoever in support thereof. It is made clear that once the assessee has raised this plea of very old payment, it was incumbent for him to place on record sufficient material. His claim does not inspire confidence in these circumstances. We uphold the action of the lower authorities accordingly and reject the first substantive ground raised in this appeal.

6. The assessee's second ground challenges lower authorities action in treating his claim of expenditure incurred on hospital building repairs of Rs.5,76,737/- as "capital" in nature. The assessee has taken his hospital building on rent. He stated that its lessor/landlord was not maintaining it properly. He would accordingly spend the impugned sum and claimed it to be a revenue expenditure in the nature of building repair and renovation. The assessment order reads that a sum of Rs.5 lac was incurred on purchase of hardware material, tiling, misc. repair and masonary work. The remaining balance of Rs.76,737/- related to labour charges and hospital repair. The same totaled to Rs.5,76.737/- The Assessing Officer observed that the quantum and extent of the expenditure proved the repair work's nature as an enduring and extensive work. He further stated that the same was overdue and accumulating one not in the nature of current repair within the purview of section 30 of the Act. He also took notice of the fact that the assessee had himself capitalized similar expenses in preceding assessment years. He treated the assessee's claim as capital expenditure accordingly not coming u/s.30 of the Act. The Assessing Officer went on to hold that even if the assessee's expenses were held to be "revenue" in nature, the same would ITA No.980/Ahd/2009 & 712/Ahd/2010 Dr. Jayesh Manibhai Patel For A.Y. 2003-04 -5-

attract section 40A(3) disallowance of Rs.58,003/- for having made cash payments exceeding Rs.20,000/-. The assessee's claim of Revenue expenditure accordingly stood declined.

7. The CIT(A) rejects assessee's corresponding ground as follows:

"3.2. I have considered the submissions. From the nature of expenditure and the bifurcation of the same, it is very clear that expenditure is for substantially renovating the hospital and is clearly of capital nature. Claim of such an expenditure would not be admissible u/s.30, since the expenditure cannot be said to be towards current repairs. The Explanation inserted by Finance-Act, 2003 w.e.f. 1.4.2004 is only, clarificatory, as clear from use of phrase "For removal of doubts....." in the same. Appellant has submitted that since the landlord was not in a. position to carry out the renovation, it was carried out by the appellant. It was not a case where cost of repairs was undertaken to be borne by the appellant. The expenditure incurred by the appellant for renovating the hospital was thus of his own volition and was not obligatory under the tenancy. Appellant's contention that all repairs are allowable, if incurred by a tenant, even when the same are of capital nature is in contradiction to Explanation 2 below section 32(ii) allowing depreciation to the lessor on capital expenditure on renovation of leased premises. This explanation is on statute book since 1.4.1988. It is therefore, held that the expenditure of Rs.5,76,737/-, by its nature was not on current repairs but was of capital nature, being renovation and could therefore not be claimed u/s.30. Section 37 also does not allow capital expenditure and hence this expenditure is not admissible u/s.37 as well. In the earlier years, appellant himself categorized similar expenditure, though of much lesser quantum, to be of capital nature. In view of this, it is held that the expenditure of Rs.5,76,737/- was of capital nature and the addition made by the Assessing Officer on this ground is confirmed."

8. Heard both sides. Records perused. There is no dispute on the facts narrated hereinabove. The lower authorities do not raise any issue about genuineness of the expenditure claim in question. They hold it to be capital in nature only. The assessee is a tenant of the hospital building. The hospital building work undertaken has not ITA No.980/Ahd/2009 & 712/Ahd/2010 Dr. Jayesh Manibhai Patel For A.Y. 2003-04 -6-

created any increase in the already existing capacity or a new capital asset giving enduring advantage. The findings under challenge nowhere hold so. That being the case, it is evident that the assessee/lessee has undertaken the building repair relating to functioning of hospital business without any addition or expansion of the profit making apparatus. In these circumstances, we draw support from the hon'ble jurisdictional high court in Indian Ginning and Pressing Co. Ltd. Vs. CIT (2001) 252 ITR 77 (Guj.) and accept the assessee's arguments. We deem it fit to observe that quantum and extent of repair in absence of the abovesaid factors would not convert the impugned revenue expenditure to that of capital in nature. Thus, the assessee's claim is liable to be entertained u/s.30 of the Act under the head "current repairs" in the nature of revenue expenditure. Our this finding also takes care of the CIT(A) order invoking section 32 of the Act. So far as the principle of estoppel (supra) in capitalizing an identical expenditure in previous assessment years is concerned, we hold that the same does not apply against the law. If the very expenditure is revenue in nature and capitalizes the same, the same cannot bar the higher authorities in taking an independent view as per law in succeeding assessment years.

This leaves us with the Assessing Officer's hypothetical assumption that section 40A(3) disallowance of Rs.58,003/- would apply in this case if the assessee's claim is accepted as revenue expenditure. We find that the statutory expression in the said ITA No.980/Ahd/2009 & 712/Ahd/2010 Dr. Jayesh Manibhai Patel For A.Y. 2003-04 -7-

provision reads "where the assessee incurs any expenditure in respect of which payment is made in a sum exceeding twenty thousand rupees". This is not the Revenue's case that the impugned payments have been made "in a sum". It is not clear as to whether these payments are made on separate occasions or in a single instance. The Assessing Officer simply observes that these payments exceeds Rs.20,000/-. We reiterate that the present is a disallowance provision in a fiscal statute to be literally interpreted. Thus, we reverse the lower authorities findings invoking this hypothetical disallowance. The assessee succeeds in this second ground of appeal.

Assessee's appeal ITA 980/Ahd/2009 is partly allowed.

9. This leaves us with the assessee's appeal ITA 712/Ahd/2010 challenging levy of penalty at the Assessing Officer' hand confirmed by the CIT(A) arising from the aforesaid section 68 addition of Rs.3 lac. Both the lower authorities have been swayed by quantum findings. The impugned addition has arisen out of a survey action. The Revenue treats the same as an instance of concealment and furnishing of inaccurate particulars of income u/s.271(1)(c) of the Act. However, we do not find any supportive evidence except assessee's statement for making the impugned addition. We reiterate the settled law that quantum and penalty proceedings are altogether separate. Each and every addition does not lead to automatic imposition of penalty. We look back in the facts of the case and find ITA No.980/Ahd/2009 & 712/Ahd/2010 Dr. Jayesh Manibhai Patel For A.Y. 2003-04 -8-

that the assessee has merely failed in proving the factum of having paid impugned sum of Rs.3 lac at the time of tenancy rights way back in the year 1993.Therefore, the same cannot be treated to be an instance of concealment and inaccurate particulars of income u/s.271(1)(c) of the Act. The impugned penalty is deleted accordingly.

ITA 712/Ahd/2010 succeeds.

10. Assessee's appeal ITA 980/Ahd/2009 is partly allowed and ITA 712/Ahd/2010 is allowed.

Order pronounced in the Court on this day, the 9 th June, 2015 at Ahmedabad.

Sd/- Sd/- (PRAMOD KUMAR) (S.S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated /05/2015 Prabhat Kr. Kesarwani, Sr. P.S. आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आयु त / Concerned CIT 4. आयकर आयु त(अपील) / The CIT(A)-III, Ahmedabad 5. वभागीय त न ध, आयकर अपील य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड फाईल / Guard file. आदेशानुस ार / BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad