Bombay H.C : This appeal is directed against judgment and order passed by the Tribunal, dt. 4th May, 1999, for the block period 1st April, 1986 to 11th Dec., 1996, under Chapter XIV-B of the IT Act, 1961 (‘the Act’).

Counsel Appeared

R.V. Desai & J.P. Deodhar, for the Appellant : Ms. Shobha Jagtiani & Hari Raheja i/b D.M. Harish & Co., for the Respondent

JUDGMENT

S.H. KAPADIA, J. :

On 13th March, 2000, the appeal filed by the Department was dismissed for reasons to be given subsequently. Accordingly we now give reasons. This appeal is directed against judgment and order passed by the Tribunal, dt. 4th May, 1999, for the block period 1st April, 1986 to 11th Dec., 1996, under Chapter XIV-B of the IT Act, 1961 (‘the Act’). The assessee is a doctor by profession. His main source of income has been by way of medical examination and fees charged for issuing medical fitness certificates for candidates going to Gulf countries. On 11th Dec., 1996, there was a search under s. 132 of the IT Act at the clinic and at the residence of the assessee. During the search, registration books were seized for the period November, 1993, onwards. On perusal it was noticed that the fees recorded in the registration books exceeded the fees reflected in the cash book. During the course of search operations, he made a declaration of undisclosed income of Rs. 60 lakhs. In the return filed in reply to notice under s. 158BC of the Act, he offered the undisclosed income of Rs. 75.60 lakhs which comprised of Rs. 13.80 lakhs for the period up to November 1993 and, in respect of the period from November, 1993 to December, 1996 for which the registration book was found, he made disclosure of Rs. 53.22 lakhs(approximately) received by way of medical fees. The AO made the assessment for the entire block period at Rs. 2.33 crores as against undisclosed income by the assessee of the Rs. 75.60 lakhs. The assessee, accordingly, carried the matter in appeal to the Tribunal disputing the additions made by the AO mainly on two grounds addition of Rs. 1.04 crores made by the AO for the period prior to November, 1993, and secondly, the assessee disputed the addition of Rs. 47.28 lakhs made by the AO on the ground that the assessee had refunded the said amount to unfit candidates. The Tribunal accepted both the aforementioned grounds and, the accordingly ordered deletion of Rs. 47,28,150.Hence, the Department has filed this appeal.

At the outset, it may be mentioned that in this appeal we are only concerned with the question of the additions made by the AO under Chapter XIV-B. The assessee has filed returns during the aforestated period. He has been regularly assessed by the Department. In the present case, the Department has rightly invoked Chapter XIV-B of the IT Act. However, the short point which arises for determination is whether the AO was right in estimating the undisclosed income for the above block period at Rs. 2.33 crores as against the undisclosed income of Rs. 75.60 lakhs disclosed subsequently by the assessee. The assessee is a general physician. He is on the panel of the embassies of Saudi Arabia, Qatar and Kuwait. He has a clinic, where the candidates going abroad are registered for medical check-up and then it is his duty is issue fitness certificates. The registration books, which were seized, related to the period November, 1993, onwards. During the course of the search operation it was noticed that the cash book of the assessee was prepared on the basis of the cash deposits in bank and on the basis of paying-in- slips. When the cash book was compared with the registration book, it was noticed that the number of candidates reflected in the cash book and the corresponding fees received were not fully reflected in the cash book. However, in the return of the income filed for the block period, the amount of undisclosed income offered for taxation has been given both for the pre-November, 1993 and post-November, 1993. The question before this Court briefly on the facts which has been raised is whether the AO was right in estimating the undisclosed income by applying the post-1993 weighted average rate of income to the period 1983 upto November, 1993. In this connection it is stated that the assessee was registered as a panel doctor for Saudi Consulate in 1984. In 1986 and 1991, he wasregistered as a panel doctor for Qatar and Kuwait Consulates, respectively. The case of the assessee before the Tribunal was that during the earlier period of his practice the work relating to the medical screening of candidates for the Gulf countries was less as compared to the work which he got after November, 1993. Moreover, the assessee contended before the Tribunal that the Gulf war in 1991 also adversely affected his income. On facts the Tribunal found that the assessee’s income under the above block period increased from November, 1993 onwards and, therefore, the AO was not right in applying the peak income of post-November, 1993 period to the entire period of the block assessment commencing from 1st April, 1986 to 11th Dec., 1996. We agree with the finding of the fact recorded by the Tribunal. While estimating the undisclosed income under Chapter XIV-B, the AO cannot apply a rule of thumb. The AO cannot estimate the undisclosed income on an arbitrary basis.

We cannot loose sight of the fact that the assessee is a professional. It is highly improbable that his professional income remained constant from 1983-84 (when he was put on the panel) right upto 1996. It is highly improbable that the fees which he was charging in 1993 were the same also during the period 1984 upto November, 1993. We agree with the contention advanced on behalf of the Department that in matters under Chapter XIV-B the AO is required to estimate the undisclosed income. We agree with the contention of the Department that this estimation involves guess work. However, the AO under Chapter XIV-B cannot act arbitrarily, while estimating the undisclosed income. In the present case, the AO has not considered the adverse impact of the Gulf war. In the present matter the AO has not considered the fact that the fees of the professional in ordinary course could not have remained static for the entire period commencing from 1st April, 1986 to 11th Dec., 1996. The AO has also not considered that the assessee used to take a deposit of a fixed amount from each candidate. That on screening, if the assessee found the candidate to be unfit he used to retain Rs. 100 and return the balance amount. It is pointed out to us that if on preliminary examination a candidate was suffering from a serious ailment then there was no necessity of the candidate undergoing further tests and in which event the assessee used to retain Rs. 100 and return the balance amount. None of the explanations have been considered by the AO and therefore, the Tribunal held that the estimation of income by the AO was without any evidence/basis. This is a pure finding of fact. We also agree with the said finding. Before concluding we may mention that in all matters of block assessment, the Department heavily relies upon the judgment of the Supreme Court in the case of CST vs. H.M. Esufali H.M. Abdulali 1973 CTR (SC) 317 : (1973) 90 ITR 271 (SC). That was a case in which unreported sales were detected for a period of 19 days in a year. The AO estimated the turnover for the entire period of one year on the basis of the unreported sales for the period of 19 days. The question that arose before the Supreme Court is as to whether the AO was right in doing so. It was held by the apex Court that in a matter involving unreported sales, the AO has to proceed on the basis of estimation which involves some amount of guess work. The apex Court, accordingly, upheld the order of the AO in estimating the turnover on the basis of the unreported sales for a shorter period. However, in the present matter, we are concerned with the block assessment of ten years.

Ultimately, the said judgment of the Supreme Court must be seen in the context of the facts of each case. In the present matter, the assessee is a professional. It is highly improbable that the rate of the fees charged by a professional in 1983 would remain static for the entire block period of 10 years. The proportionate amount of refund also could not have remained static for the entire period of ten years. The assessee further pointed out that during the Gulf war the number of persons who went to the Gulf countries stood substantially reduced. These facts should have been considered by the Department. On the other hand, in the present matter, the Department has applied the peak income rate of post-1993 period to the entire block period commencing from 1st April, 1986 up to 11th Dec., 1996. Hence, the Tribunal was right in coming to the conclusion that an arbitrary method has been adopted by the AO in estimating the income of the assessee under Chapter XIV-B. In conclusion, we would also like to mention that Chapter XIV-B lays down a special procedure for the assessment of search cases and provides for assessment of undisclosed income as a result of the search. Under s. 158BB, r/w s. 158BC of the Act, what is assessed is the undisclosed income of the block period and not the total income or loss of the previous year required to be assessed under the regular assessment vide s. 143(3). This exercise under s. 143(3) of the Act for regular assessment stands on a different footing in contrast to the exercise undertaken by the AO under Chapter XIV-B where the AO has to assess only the undisclosed income. Therefore, the scope of regular assessment is quite different from the scope of assessment under Chapter XIV-B. The regular assessment is to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner whereas what is assessed under Chapter XIV-B is only the undisclosed income for the block period and not the income or loss of the previous year which is only done in the normal regular assessment under s. 143(3). In large number of cases we find that the above distinction is not kept in mind by the AO. It is for this reason that we have spelt out the difference between the regular assessment and the block assessment under Chapter XIV-B of the IT Act.

9. As stated hereinabove, the decision of the Tribunal is based on the facts of this case. No substantial question of law arises. Hence, appeal is dismissed. No order as to costs.

[Citation : 248 ITR 310]