Income surrendered in relation to hospital building construction by doctor was not unexplained investment u/s 69 liable to higher tax u/s 115BBE – ITAT
In a recent judgment ITAT has held that the surrender of income by a practicing doctor towards understatement of hospital construction expenses can not be said unexplained investment.
ABCAUS Case Law Citation:
ABCAUS 3871 (2024) (02) ITAT
Important Case Laws relied upon by parties:
M/s Kim Pharma 250 CTR 454
M/s Gaurish Steels Pvt. Ltd. Vs. ACIT
Shri Parmod Singla Vs. ACIT
Shri Jasjot Sigh Garcha Vs. The PCIT
CIT vs. Marshal Machines Pvt. Ltd.
Gandhi Ram, Prop. Gandhi General Store Vs. The Pr. CIT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming surrendered amount on account of construction of hospital building as unexplained investment u/s 69 of the Income Tax Act, 1961 (the Act) and application of the provisions of section 115BBE on the surrendered amount.
The appellant assessee was a practicing physician and a child specialist running his professional practice. A survey operation under section 133A was carried out at the official premises of the assessee wherein the assessee surrendered amount inter alia on account of understated expenditure involved in construction of the hospital building.
Thereafter, the assessee filed his return of income for the impugned assessment year disclosing the income so surrendered as business income. The return of income was selected for scrutiny and notice under section 143(2) and 142(1) were issued and necessary submissions were filed by the assessee.
The AO issued a show cause to the assessee, referring to the surrender letter as to why the unexplained investment in building may not be charged to tax under section 69 r.w.s 115BBE of the Act.
The assessee submitted that the source of investment was out of his unaccounted professional receipts only. However, as per the AO, the unaccounted investment carried out by the assessee came to light only as a result of survey action. Further the assessee had carried out investment in purchase of plot of land and even the said investment has not been recorded in his regular books of account. Thyerefore he treated the said amount as unexplained investment under Section 69 of the Act as against business income shown by the assessee.
Before the Tribunal the assessee submitted that in the statement recorded, the assessee had categorical stated that investment in construction of building was made out of his professional receipts and which was surrendered during the course of survey and the nature
and source of such investment was out of his professional income which was unaccounted and invested in the construction of the hospital building.
It was further submitted that the department during the course of survey had not found any other activity or source of income except the activity of running of clinic and receipts arising therefrom and other than that, there was no other finding recorded by the Survey team as to any other source of income. All the income surrendered was subsequently reflected in the books of account and in the return of income and due taxes have been paid thereon. It was submitted that once a specific surrender is made which had been accepted by the Department and tax has been realized, the department cannot take a different position while finalizing the assessment by taxing the same under the head “income from other sources” under section 69 of the Act.
The assessee contended that he similar matter has been decided in number of judicial decisions by Hon’ble High Court and Co-ordinate Benches wherein the amount surrendered on account of stock, advances / debtors/ investment in building has been treated as income from business and profession.
In particular, the assessee relied on a decision of the Co-ordinate Bench wherein it was held that it is like laying a general rule which is beyond the mandate of law that wherever there is a survey and some income is detected or surrendered by the assessee, the deeming provisions are attracted by default and by virtue of the same, provisions of section 115BBE are attracted.
The Tribunal observed that for the provisions of Section 69 to be invoked in the instant case, there has to be a finding by the AO basis material on record that the assessee has made investment in the hospital building during the financial year and such investment is not recorded in the books of accounts so maintained by the assessee. Further, the assessee offers no explanation about the nature and source of the investments or the explanation so offered is not found satisfactory in the opinion of the AO, the latter can proceed and the value of the investment may be deemed as income of the assessee for such financial year. Therefore, once a finding has been recorded by the Assessing officer regarding investments in the hospital building not recorded in the books of accounts, the explanation of the assessee has to be sought and the explanation so offered by the assessee explaining the nature and source of such undisclosed income and the reasonability of the explanation so offered by the assessee needs to be analysed and examined to draw necessary conclusions and discretion so vested in the AO for invocation of the deeming fiction so envisaged in the statute can be exercised.
The Tribunal noted that as far as nature and source of investment in construction of the hospital building is concerned, the assessee had been asked specific question during the course of survey and the assessee in his statement recorded during the course of survey has clearly stated that the investment in construction of the building has been made out from his professional receipts.
Further, the Tribunal observed that from reading of the survey statement in its entirety, which had, in fact, form the basis for the action by the AO and in absence of anything contrary on record, a picture which is clearly emerging from the record is that the assessee was engaged in running his child care medical practice and the same was the only source of his income as evident from and corroborated by the computerized books of accounts and manual records in terms of OPD register, OPD fee receipts, vaccination register, vaccination fee receipts and other related medical records maintained by him and found during the course of survey.
There was no finding by the survey team that the assessee has any other source of income other than receipts from running his medical practice and operating the child care clinic. Further, nothing was brought on record during the course of assessment proceedings contrary to the findings of the survey team during the course of survey.
The Tribunal opined that the nature and source of such unaccounted investment in the hospital building was arising out of assessee’s unaccounted professional receipts for the year under consideration. No doubt, these transactions were not fully recorded in the books of accounts at the time of survey thus qualify as unrecorded transactions satisfying one of the essential conditions, at the same time, based on appreciation of assessee’s statement, the corroborative material and other attending circumstances available on record, the assessee had provided a reasonable and acceptable explanation about the nature and source of such unrecorded transactions as that of professional receipts and the necessary nexus with assessee’s profession has been established, it cannot be said that these are unexplained transactions, thus, doesn’t satisfy the second condition for invoking the deeming provisions of Section 69 of the Act.
Accordingly, the Tribunal opined that there was no justifiable basis on the part of the AO in applying the provisions of Section 69 r/w Section 115BBE of the Act to the surrendered business income of the assessee which has been duly offered in the return of income.
In result, the Tribunal set-aside the order of the CIT(A) and the AO was directed to tax the surrendered income at normal rates as applicable to the business income.
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