Dr.Sandeep Kumar Gupta,C-526, Saraswati Vihar,New Delhi. Vs. Income Tax Officer,Ward-37(4),New Delhi.
July, 02nd 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `G' : NEW DELHI
BEFORE SHRI G.C.GUPTA, VICE PRESIDENT AND
SHRI A.N.PAHUJA, ACCOUNTANT MEMBER
Assessment Year : 2007-08
Dr.Sandeep Kumar Gupta, Vs. Income Tax Officer,
C-526, Saraswati Vihar, Ward-37(4),
New Delhi. New Delhi.
PAN : AAEPG5899P.
Assessee by : Shri R.Mittal,AR.
Revenue by : Smt.Surjani Mohanty,.DR.
Date of hearing 07-06-2012
Date of pronouncement 29-06-2012
A.N.PAHUJA: This appeal filed on 13th April, 2011 by the assessee against
an order dated 5th January, 2011 of the ld. CIT(A)-XXVIII, New Delhi, raises the
"1. Whether the learned CIT(A) is justified to reject the books of
accounts u/s 145(3) which were accepted by the Assessing
2. Whether the learned CIT(A) is justified in estimating the net
profits of the assessee disregarding all the expenditure genuinely
and bonafide claimed by the assessee when the assessee has
maintained proper books of accounts which were not disputed by
the learned Assessing Officer and were subject to tax audit?
3. Whether the learned CIT(A) is justified in confirming the
disallowance of expenditure on canteen amounting to `.69,213/-,
miscellaneous expenditure amounting to `.8,469/-, expenditure on
consumable goods amounting to `.91,293/-, general expenses
amounting to `.27,482/- even after all the relevant books of
2 ITA no.1792/Del/2011
accounts and supporting documents were produced before the
learned CIT(A) and were duly observed by CIT(A) in para 5 on
page 3 of the impugned order?
4. Whether the learned CIT(A) was justified in adding to the
estimated profits a portion of disallowed expenditure on account of
personal use and non-production of supporting vouchers amounting
to double taxation on arbitrary basis?
5. That the learned CIT(A) has erred in law as well as facts in
issuing directions to Addl.CIT Range-37 to consider initiating
penalty proceeding under section 271D against Dr.Ila Gupta for
apparent violation of section 269SS without properly and judiciously
considering the facts of the case. The directions were issued just
for further harassment of the assessee.
6. That the assessee craves leave to add/alter any of the
grounds of appeal before or at the time of hearing."
2. Facts, in brief, as per relevant orders are that e-return declaring income of
``7,72,149/- filed on 30.10.2007 by the assessee, a practicing surgeon, was
selected for scrutiny with the service of a notice u/s 143(2) of the Income-tax
Act, 1961 (hereinafter referred to as "the Act"), issued on 19th September, 2008.
During the course of assessment proceedings, the Assessing Officer ("AO" in
short) noticed that the assessee debited an amount of ``1,42,084/- on account
of expenditure on canteen. To a query by the AO, the assessee did not produce
all the bills and vouchers in support of the expenditure. Since the expenditure
book did not tally with the receipts from the visitors, the AO disallowed a sum of
``69,213/-. Likewise, the AO disallowed an amount of ``8,469/- out of
miscellaneous expenses of ``13,719/-, ``91,293/- out of total expenditure on
consumable goods at ``4,32,575/- and ``27,482/- out of general expenses of
``43,208/-.Besides, the AO disallowed 1/10 th of car & telephone expenses as
also depreciation on car.
3. On appeal, the ld. CIT(A) asked the assessee to produce the relevant
books of account alongwith bills and vouchers. Since the assessee did not
produce certain bills/vouchers as mentioned in para 5 of the impugned order, the
ld. CIT(A) show caused the assessee as to why provisions of Section 145(3) of
3 ITA no.1792/Del/2011
the Act be not invoked and net profit estimated at the rate of 20% of professional
receipts. In response, the assessee replied that their case was not covered by
the provisions of section 145(3) of the Act and that cash payments were made to
certain supplier of goods in special circumstances, suppliers being new and
purchases made in emergency. While enclosing copies of expenditure
vouchers(six) referred to in respect of bills in para 5 of the impugned order, the
assessee submitted that since employees and workers signed on the
wages/salary register, therefore, additional signatures were not taken on cash
vouchers while all the professional receipts were entered in the books. In the
light of these submissions, the ld. CIT(A), while referring to Rule 6F of the
Income-tax Rules, 1962 and observing that copies of bills under Rule 6F(2)(iv)
were not produced nor patient register, salary and wages register or inventories
of opening and closing stock and the assessee having not maintained/produced
all the books and vouchers prescribed in Rule 6F, invoked the provisions of
section 145(3) of the Act and concluded in the following terms:-
"16. In view of the above facts, the provisions of section 145(3)
are applicable. The books of account and bills etc. required under
Rule 6F are not maintained. A large number of the expenses
claimed are not backed by corresponding bills. Regarding
professional receipts, the appellant has not produced any record
such as bills and receipts. As discussed above, the appellant was
asked to explain why provisions of section 145(3) be not invoked
and net profit estimated however, he has only stated that these
provisions are not applicable without rebutting the deficiencies
discussed above. In view of these facts, the provisions of section
145(3) are applicable in this case and the net profit is required to be
17. As discussed above the appellant was asked to file the
details of net profit rate shown in the last five years. In response
the appellant has filed the following chart and stated as follows:
A.Y. Net profit as Income Net profit Turnover (`.) Net
per profit & from other from profit
loss a/c. (`). sources (`) profession(`) ratio
2007-08 884,725.99 63,363.50 821,362.49 9,016,474.50 9%
4 ITA no.1792/Del/2011
2006-07 824,778.67 65,201.80 759.576.87 8,260,556.10 9%
2005-06 600,829.04 63,854.55 536,974.49 6,645,029.00 8%
2004-05 525,707.08 51,236.11 474,470.97 2,048,125.87 23%
2003-04 575,863,77 112,719.00 463,144.77 1,661,604.00 28%
1. The assessee was working as a consulting doctor in his
Sarthak Clinic and visiting consultants in various hospital till
financial year 2003-04. However, he ventured into Bimal Hospital
from F.Y. 2004-05 onwards whereby his turnover increased
exponentially but also due to huge running and maintenance costs
of the hospital the net profit ratio reduced substantially but still he
was able to generated higher profit as compared to prior years."
18. The above chart shows that in A.Y. 2003-04 and 2004-05,
the appellant was working as a consultant doctor in Sarthak Clinic.
From A.Y. 2005-06 onwards, he took over the management of
Bimal Hospital in addition to his consultancy in Sarthak Clinic.
Since the nature of business of consultancy in a private clinic and
the business of running a hospital are different with different rates
of net profit, they are to be considered separately. In A.Y. 2003-04
and 2004-05 the appellant was only working as a doctor in his
private clinic. The average net profit rate in these two years is
25.5%. Therefore, this is the rate to be adopted in regard to the
receipts from consultancy in Sarthak clinic. In the copy of P&L
account filed by the appellant, these receipts are shown at
Rs.32,27,702/-. At the rate of 25.5%, the net profit works out to
Rs.8,23,064/-. In addition to this, he has also shown income from
bank interest of Rs.3,451/-, dividend Rs.5,002/- and interest from
PPF Rs.54,911/-. No expenditure has been claimed in respect of
these receipts. Therefore, these receipts totaling Rs.63,364/- is to
be added to the net profit from Sarthak Clinic. The net profit from
Sarthak Clinic thus amounts to Rs.8,86,428/- (823064 + 63364).
19. Regarding income from Bimal Hospital, the appellant has
shown net profit rate of 9% in the immediately preceding year.
Considering the facts, the net profit from Bimal Hospital is
estimated at 9% of the gross receipts. In Bimal Hospital, the
appellant has shown gross receipts of Rs.57,88,772/-. At 9%, the
net profit amounts to Rs.5,20,989/-. The total net profit from
Sarthak Clinic and Bimal Hospital amounts to Rs.14,07,417/-
(8,86,428 + 5,20,989).
5 ITA no.1792/Del/2011
20. As the profit has been estimated as per above discussion,
the other disallowance made by the A.O. except disallowances
towards personal use considered in para 3 above, are not required.
The A.O. has also disallowed donation of Rs.2,601/- but no reason
for this disallowance has been given therefore, it is not required to
be considered separately. The disallowances towards personal
use are to be added to the net profit estimated above because they
are over and above the income estimated. The disallowances
towards personal use amount to Rs.55,149/- (24604 _+ 22983 +
7562). This amount is to be added to the net profit estimated
above. The gross total income thus amounts to Rs.14,62,566/-
(14,07,417 + 55,149). After reducing the deduction u/s 80C and
80-D allowed by the A.O. amounting to Rs.1,07,815/-, the total
income amounts to Rs.13,54,751/-. The total income computed by
the A.O. is Rs.9,92,701/-. The income is thus enhanced by
Rs.3,62,050/-. As discussed above, the appellant has been asked
in the course of appellate proceedings on 24.12.10 why the
provisions of section 145(3) be not invoked and net profit estimated
at 20% of receipts. The reply filed by the appellant has duly been
considered. Thus, necessary opportunity to the appellant has been
given in terms of section 251(2) for showing cause against
enhancement of income."
4. The assessee is now in appeal before us against upholding of
disallowance out of canteen expenses, miscellaneous expenditure, expenditure
on consumable goods and general expenses and rejection of books of accounts,
having recourse to provisions of sec. 145(3) of the Act and estimation of net
profits. The ld. AR on behalf of the assessee while inviting our attention to
affidavits dated 6.6.2012 of shri R.Mittal, CA and Dr. Illa Gupta submitted that the
all the books of accounts and vouchers were produced before the AO and the ld.
CIT(A) and thus, observations of the ld. CIT(A) in para 5(7),5(8),5(9),para 7 &
para 10 of the impugned order are not correct and are denied..On the other
hand, the ld. DR supported the findings of the ld. CIT(A) in the impugned order.
5. We have heard both the parties and gone through the facts of the case.
As is apparent from the aforesaid findings of the ld. CIT(A), especially in para 10
of the impugned order ,the assessee did not produce relevant registers, bills and
vouchers or inventories before the ld. CIT(A),resulting in rejection of book results
and estimation of net profits. Now the learned AR on behalf of the assessee filed
an affidavit of Shri R.Mittal, Chartered Accountant that all the books of account
6 ITA no.1792/Del/2011
as prescribed in Rule 6F were produced before the ld. CIT(A) and denied the
observations of the ld. CIT(A) in para 5(7),5(8),5(9),para 7 & para 10 of the
impugned order. Another affidavit was filed of Dr. Ila Gupta mentioning that
professional charges were paid in cash on 20th June, 2006-`2850/-, 26th
February, 2007-`20,000/- and 31st March, 2007-`20,000/- for hire charges of OT
including cost of consumable items to Dr. Sandeep Kumar Gupta i.e. the
assessee.. Since the ld. DR did not place any material before us, controverting
the averments in these affidavits and merely supported the findings of the ld.
CIT(A) ,after discussion with both the representatives, we consider it appropriate
to vacate the findings of the ld. CIT(A) on the issues raised in ground nos.1 to 4
in the appeal before us and restore these issues to his file for deciding the
matter afresh in accordance with law, after verifying the genuineness of
averments made in the aforesaid two affidavits and allowing sufficient opportunity
to both the parties. Needless to say that while redeciding the appeal, the ld.
CIT(A) shall pass a speaking order after cross examining shri R Mittal,CA & Dr.
Illa Gupta, keeping in mind, inter alia, the mandate of provisions of sec. 250(6) of
the Act. The ld. CIT(A) is free to undertake any independent enquiries, found
necessary in the case and shall also examine all the relevant books of accounts
and vouchers. The assessee is also directed to produce all the books of
accounts and vouchers ,particularly those mentioned in the affidavit of the CA
before the ld. CIT(A) for expeditious disposal of the case. With these
observations, ground nos. 1 to 4 in the appeal are disposed of.
6. Ground no.5 in the appeal relates to initiation of penalty proceedings
under section 271D of the Act. Since mere initiation of penalty proceedings is
not appealable, accordingly, this ground is dismissed.
7. No additional ground having been raised before us in terms of residuary
ground no.6 in the appeal, accordingly, this ground is dismissed.
8. No other plea or argument was made before us.
7 ITA no.1792/Del/2011
9. In the result, appeal is partly allowed, but for statistical purposes.
VICE PRESIDENT ACCOUNTANT MEMBER
Copy forwarded to: -
1. Appellant : Dr.Sandeep Kumar Gupta,
C-526, Saraswati Vihar,
2. Respondent : Income Tax Officer,
3. CIT concerned
4. CIT(A)-XXVIII,New Delhi
5. DR, ITAT,'G' Bench, New Delhi
6. Guard File.