Karnataka H.C : The Tribunal was correct in allowing the relief to the assessee contrary to the provisions contained in section 158BA

High Court Of Karnataka

CIT, Mangalore vs. Dr. K.P. Viswanath Prabhu

Block Assessment Period : 1-4-1988 To 4-2-1999

Section : 158BA

N. Kumar And B. Manohar, JJ.

It Appeal Nos. 986 & 987 Of 2006

March 5, 2013

JUDGMENT

1. These two appeals by the Revenue are preferred against the common order dated 30.12.2005 passed by the Income Tax Appellate Tribunal (hereinafter refer to as the ‘the Tribunal’) granting full benefit to the assessee.

2. The assessee is a leading medical practitioner in Kalasa, Chikmagalur District and he is running a Clinic by name Prabhu’s Clinic and also a Nursing Home by name K.P.M Memorial, of which he is the proprietor. A search under section 132 of the Income Tax Act (hereinafter referred to as ‘the Act’) was conducted in the residential premises of the assessee on 4-2-1999. Subsequently, the assessee filed return of income on 29-4-1999 for the block period of 1-4-1998 to 4-2-1999 declaring Rs. 1,66,66,490/- as undisclosed income in response to the notice dated 17.3.1999. During the search, FDs, CDs and KVPs were seized. While completing the assessment under section 158 BC, the Assessing Officer added a sum of Rs.91,62,048/- apart from the undisclosed income declared by the assessee for a sum of Rs. 1,66,66,490/-. Therefore, the total undisclosed income came to Rs.2,58,28,540/-. A demand was raised for a sum of Rs. 1,54,97,124/- and interest under section 158 BFA(1) of Rs.3,09,942/- was also added. Aggrieved by the said order, the assessee filed an appeal to the Commissioner of Income Tax (Appeals) Mangalore. The Appellate Authority granted reliefs under 5 headings and declined the relief on other grounds. Therefore, both the revenue as well as the assessee preferred appeals against the order of the Appellate Authority to the Tribunal. The Tribunal after hearing both the appeals together granted relief to the assessee to the full extent. Accordingly, the appeal filed by the assessee was allowed and the appeal filed by the revenue came to be dismissed. Aggrieved by the said orders, the present two appeals are filed by the Revenue.

3. In ITA No.986/2006, the following substantial questions of law do arise for consideration.

(i) Whether the Tribunal was correct in allowing the relief to the assessee contrary to the provisions contained in section 158BA of Income Tax Act?

(ii) Whether the Tribunal was correct in allowing the deduction under. section 8-L claimed by the assessee?

4. In ITA No.987/2006, in addition to the aforesaid substantial questions of law, the’ following substantial question of law do arise for consideration:

(i) Whether the Tribunal was correct in accepting the order of the Appellate Commissioner deleting the additions made towards purchase of car, education expenses and stock of medicines in Hospital without there being any documentary evidence available on record?

5. First substantial question of law: The undisclosed income by way of FDs, Kisan Vikas Pathras which is added by the Assessing Authority amounts to Rs. 19,24,190/-. These FDs were made during 1-4-1988 to 4-2-1999. The Block Assessment Period is 1-4-1998 to 4-2-1999. For the financial year 1-4-1998 to 31-3-1999, the last date for filing the returns is July, 1999. Therefore, the assessee could have filed returns by disclosing this income in the said returns and also paid tax. In this context, the Tribunal held that the aforesaid amount cannot be treated as undisclosed income for the reasons that such investments are out of professional receipts recorded in diaries maintained by the assessee which were found during the survey. Such disclosure in the regular returns based on the diaries satisfies the requirement of section 158 BB(1)(C). The assessee had filed returns disclosing the said income along with the audit report. The Assessing Authority had passed the assessment order under section 143(3) of the Act for the assessment year 1999-2000 and in the said order he has not pointed them as receipts. Therefore, the last date for filing returns was not yet over. As he had an opportunity to file returns disclosing the said income, it cannot be said that it constitutes undisclosed income. In fact, in the assessment order, the Department has passed a protective assessment order including the said income. In the light of the aforesaid facts, as the assessee still had the time to file returns and the said income pertains to particular year and he has in fact filed returns and the same is accepted, a protective assessment order is passed. It cannot be said that it constitutes undisclosed income and the Assessing Authority was justified in adding the said income to the undisclosed income. Therefore, the Tribunal was justified in granting relief to the assessee and therefore the said substantial question of law is answered in favour of the assessee and against the revenue.

6. Second substantial question of law: Similarly, the interest accrued on the said FDs cannot be held to be undisclosed income. If the principal amount is not considered as undisclosed income, the interest accrued thereon cannot be construed as undisclosed income and in the returns filed by the assessee, that income is also shown and tax is paid.

7. The benefit given to the assessee under section 80L of the Act was not challenged by the revenue before the Tribunal. Therefore, in the appeal before this court, that cannot be the subject-matter of the appeal. Accordingly, the said issue requires to be deleted and not answered.

8. Third substantial question of law: Insofar as the agricultural income is concerned, the material on record clearly discloses that the assessee owned 10 acres 30 guntas of land along with his brother. The brother was looking after the agricultural operations. Rs. 36,53,333/- is the agricultural income which is converted into FDs in the name of the assessee. In fact, the Assessing Authority before passing the order appointed an Inspector and he was asked to go to the spot and verify the existence of the land and crops which are grown and then submit a report. The said report clearly discloses that the assessee owned the land along with his brother; they were cultivating; the said lands and there exists agricultural income. The pahanies did disclose the name of the assessee and his brother. After being satisfied about the said factual aspect, the Assessing Authority held that the share of the assessee is only 50% and therefore he gave benefit to that extent, but added the remaining 50%, which order was modified to some extent by the lower Appellate Authority because while giving actual deductions, he has not given 50% deduction. But the Tribunal looked into the entire material on record and found that the assessee had no issues. The assessee had adopted the son of his brother, in whose name the land also stands. The brother of the assessee was in-charge of the agricultural operations whereas the assessee was looking after education of his son as well as the financial aspects of the family. In the absence of any evidence to show that the brothers divided the income equally, as the assessee was in the complete financial management of all the assets, it was of the view that it is probable that entire agricultural income was kept in FD in his name as the ultimate beneficiaries of the same would be his brother and his son. In the light of evidence on record, it cannot be said that the said reasoning of the Tribunal is perverse and calls for interference. In that view of the matter, we do not see any justification in the said finding and accordingly, this substantial question of law is also answered in favour of the assessee and against the revenue.

9. Fourth substantial question of law: The Assessing Authority had added the value of car, education expenses and stock of medicines in the hospital, in the absence of documentary evidence. Countering the said argument, the assessee has pointed out the in the accounts prior to 1998, there was huge opening balance from which all these acquisitions were made. In that context, the Tribunal was of the view that merely because the documentary evidence is not produced and those items, such as Car, Education expenses and stock of medicines could have been acquired out of the surplus amount and it cannot be construed as having been acquired out of the undisclosed income and the Assessing Authority was in error in adding the same to the declared undisclosed income. Therefore, he has granted the relief to the assessee. In fact, stock of medicines was not challenged by the revenue before the Tribunal and therefore, they are precluded from challenging the same for the first time before this court. We do not see any ground to interfere with the said considered order passed by the Tribunal. Therefore, the said substantial question of law is also answered in favour of the assessee and against the revenue.

10. For the aforesaid reasons, we do not see any merits in the appeals filed by the revenue. Accordingly, both the appeals are dismissed.

[Citation : 355 ITR 163]

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