The Commissioner Of Income Tax-Ii vs M/S.Lakshmi Hospital

For Petitioner :SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES)

For Respondent : No Appearance

The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR The Hon'ble MR. Justice P.S.GOPINATHAN

Dated :04/07/2011

O R D E R

"CR"

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 4th 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 23

days. In the normal course, we should condone the delay only

after issuing notice to the respondents and after hearing their

objections. However, when the delay condonation petition came

up for consideration before us, we heard merits of the case. For

the reasons discussed below we do not find any ground to

interfere with the orders of the appellate tribunal allowing

respondent's claim. So much so, we condone the delay of 23

days in filing the appeals and proceed to consider the case on

merits.

2. The respondent/assessee is a major hospital located

in the middle of the city. During search conducted by the

department, they noticed unaccounted collection of fees in the ITA.Nos.56/2011 etc. 2

name of doctors and distribution of the same to various doctors

serving the hospital whether as regular employees or as

consultants. In the course of enquiry, the respondent/assessee

accepted the collections but contended before the department

that they have distributed the entire amounts to the doctors in

whose name the collections were made and no part of it is

retained as their income. However, the department rejected the

explanation offered by the respondent and assessed the entire

amount as unexplained expenditure falling under Section 69C of

the IT Act. On appeal filed by the respondent/assessee the CIT

(Appeal) though in principle confirmed the addition, granted a

reduction of 25% against which the assessee as well as the

department filed second appeal. The Tribunal allowed the

assessee's appeal completely cancelling the addition and

dismissed the department's appeal. It is against the common

orders of the Tribunal passed for the four years 2000-2001 to

2003-2004, the department has filed these 8 appeals raising the

same question as to whether the entire amount collected in the

name of doctors by the respondent could be assessed as

unexplained expenditure under Section 69C, on account of the ITA.Nos.56/2011 etc. 3

failure of the respondent to prove the expenditure.

3. We have heard the standing counsel appearing for the

appellant in detail who tried to justify the assessment under

Section 69C which is as follows:

"69C. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year.

Provided that,notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income."

4. After hearing the standing counsel and after going

through the records, what we find is that this is not a case of

failure of the respondent/assessee to explain the expenditure.

Infact the respondent on being confronted with the accounts

seized from them conceded that the entire amounts were ITA.Nos.56/2011 etc. 4

collected by them for payment to doctors serving the hospital.

Obviously, the payment made to a single doctor in a day does not

exceed Rs.20,000/- because in such cases the department could

have made disallowance of expenditure under Section 40A (3) of

the IT Act. On the other hand, the entire amount is collected

without bringing into the regular accounts and the payments

were also made by the respondent without accounting the same.

When receipt is not accounted obviously payment also cannot be

accounted by the assessee. Cases falling under Section 69C are

essentially expenditure accounted as such by the assessee but

assessee fails to prove on demand by the department. It may so

happen that when unaccounted income is disclosed in search,

the assessee may claim expenditure against the same and if

proved, department will be bound to accept it. In this case also

assessee conceded that the unaccounted receipts were collected

for payment to doctors attending to patients in the hospital.

What we notice is that the department has not made any effort

to confront the doctors with the unaccounted payments stated to

have 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. 5

respondent/assessee arises only when the doctors deny having

received the amount. We do not know, why department did not

venture to confront the doctors with the explanation offered by

the respondent/assessee with regard to the payments made to

them. In fact, we notice that the Tribunal while allowing the

assessee's claim left freedom to the department to proceed

against the doctors for assessment. We are in complete

agreement with the finding of the Tribunal because addition

under Section 69C in this case can be sustained only in respect

of the income not proved to have been received by the doctors.

The respondent/assessee, prima facie, discharged their burden

or atleast shifted the same to the Revenue when they gave

particulars of payments made to the doctors. In our view the

department should have issued notice to the doctors for

confirmation of the payments and if they confirm receipts, to

make assessments on doctors and if they deny, to proceed

against the respondent/assessee and direct them to prove the

payment as having been made and in the absence of proof of

payment, 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. 6

assessment is tenable in the hands of the respondent/assessee

which obviously cannot be expected to give receipt or voucher

from the doctors to whom unaccounted payments were made.

The information received in search enables the department to

assess assessees other than the searched assessee both under

Section 147 of the Act as well as under Section 153D (previously

158BD) i.e., block assessment followed by search. So much so,

we feel escapement of income from assessment is essentially on

account 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