DR. K.E. MOORTHY,PATHANAMTHITTA vs. DCIT, KOLLAM

Per CHANDRA POOJARI, AM:

These appeals filed by the assessee are directed against the different orders of

the CIT(A), Kochi and pertain to the assessment years 2000-01 to 2006-07. The

first set of 7 appeals by the assessee is with regard to quantum additions in these

assessment years. The second set of three appeals by the assessee is related to

sustenance of penalty levied u/s. 271(1)(c) of the Act by the CIT(A) for the

assessment years 2000-01 to 2002-03.

I.T.A. Nos.637 to 643/Coch/2008 and 246 to 248/Coch/2019 ITA Nos. 637 to 643/Coch/2008 : AY’s 2000-01 to 2006-07

the CIT(A)-I, Kochi dated 04/03/2008.

2.1 The assessee has raised the following grounds of appeals:

I.T.A. Nos.637 to 643/Coch/2008 and 246 to 248/Coch/2019 Rs.2,40,000/- is assessable under the head Income from Profession as against Rs.5,23,910/- assessed under the head Salary.

ITA No. 637/Coch/2008. The assessee was working with Chitra Multi Speciality

Hospital, Pandalam. A search under section 132 was conducted in the above

hospital as well as the residential premises of the assessee on 06/09/2005. The

assessee filed the return of income for this assessment year on 27/09/2006

declaring a total income of Rs.4,20,757/- and the Assessing Officer fixed the total

income at Rs.7,24,670/-. The Assessing Officer noticed that in the original return of

income also, the assessee had returned the same amount as salary income from

N.S.S. Medical Mission Hospital, Pandalam and that in the original return, he had

not returned any professional income. In the return of income filed in response to

notice u/s. 153A, the assessee had shown gross professional receipt of

Rs.3,00,000/- from Rs. 60000/- as expenditure and declared net professional

income of Rs.2,40,000/-. The Assessing Officer noticed that document No. KEM-9,

seized from the premises of the assessee as a result of search showed that

assessee had received Rs.5,23,910/- being 20% of Rs.26,19,550/- received from

the above hospital. The Assessing Officer noticed that since the assessee was

employed on a regular basis in the hospital till he left the hospital in March, 2004,

the above receipt of Rs.5,23,910/- also has to be treated as salary income and

therefore, added Rs.5,23,910/- as salary income of the assessee.

I.T.A. Nos.637 to 643/Coch/2008 and 246 to 248/Coch/2019 3.1 However, seized material was available only for 27 months covering the

assessment years 2000-01 to 2002-03. On the basis of total receipts for 27 months,

the Assessing Officer worked out the receipts for each month at Rs.42,803/- and

accordingly, computed the undisclosed income under the head ‘salary’ for the

assessment years 2000-01 to 2002-03, 2003-04 and 2004-05 by changing the head

from ‘income from profession’ to ‘income from salary’.

3.2 For the assessment years 2005-06 and 2006-07, the Assessing Officer stated

that the declaration of income received from Chitra Multi Speciality Hospital under

the head profession is not correct and it is income under the head salary only.

Thus, the Assessing Officer considered salary on the basis of sworn statement

recorded from the assessee on 06/09/2005 wherein he reiterated that he was

getting salary income from Chitra Multi Speciality Hospital, Pandalam in which was

working as Consultant Surgeon. The first part of answer to Question No. 1 of the

sworn statement of the assessee reads as under:

“My name is Dr. K.E. Moorthy. I am working as a Consultant Surgeon of Chitra Multi Speciality Hospital, Pandalam since March 2004. I am getting an amount of Rs.25000/- per month as salary from the hospital……………..”. The answer to Qn. No. 7 of the Sworn statement is that “I am getting Rs.35000/- as unaccounted money other than the salary and perks received from the hospital…………………..”, in answer to Qn. No. 11 Dr. Moorthy admits having received “(i) Salary of Rs.25000/- per month (ii) unaccounted Rs.35000/- per month, (iii) perks from other institutions Rs.8000/-, (iv) House rent of Rs.3500, total Rs.71500/- from Chitra Multi Speciality Hospital, Pandalam.”

I.T.A. Nos.637 to 643/Coch/2008 and 246 to 248/Coch/2019 3.3 Thus, for the assessment years 2005-06 and 2006-07, he determined the

undisclosed income at Rs.8,58,000/-. He also changed the head of income from

income from profession to income from salary for all the assessment years.

alia the fees, commissions, perquisites or profits in lieu of or in addition to any

salary or wages. In the case of the assessee, the CIT(A) observed that share of

operation charges calculated at a fixed percentage was paid to the assessee as per

the terms fixed by the employer. Therefore, according to the CIT(A), such receipts

also forms part of salary only/ According to the CIT(A), the assessee has to prove

that the gross receipt of Rs.5,23,910/- included salary portion. Moreover, the

CIT(A) observed that the assessee himself in answer to Question No. 8 in the sworn

statement recorded on 06/09/2005 has stated that “Each doctor is given such kind

of registers so that they can claim 20% of the amount collected as perks in addition

to the salary”. Therefore, the CIT(A) confirmed the addition of the entire receipt to

the salary income of the assessee.

Rs.5,23,910/- was the total receipt of the assessee for this year and out of this Rs.3

lakhs was gross professional income and that after claim of expenditure of

Rs.60,000/-, Rs.2,40,000/- was his net professional income and the assessee was

entitled to only 20% of the fee collected by the hospital in respect of surgeries

rendered by him and that out of the total entitlement of 20%, the amount already 5

I.T.A. Nos.637 to 643/Coch/2008 and 246 to 248/Coch/2019 paid during the year towards salary will be deducted and the balance disbursed as

professional fee and that the action of the Assessing Officer in assessing a sum of

Rs.5,23,910/- over and above the salary income of Rs.1,52,627/- had resulted in

duplication.

assessment year 2000-01 to 2001-02, there was seized material showing the

collection of unaccounted receipts in the form of register found in the document

marked as KEM-9. It showed that the collection of fees for 27 months. The assessee

also confirmed the same by way of statement recorded u/s. 132(4) of the Act on

06/09/2005 to Question No. 8 which reads as follows:

“Qn. 8 During the course of search conducted today in your residential premises, a general surgeon register (marked KEM-9) was found. This register belongs to NSS Medical Mission Hospital, Pandalam. What is the purpose of keeping the register under your custody?”

Ans: Each doctor is given such kind of registers so that they can claim 20% of the amount collected as perks in addition to the salary.”

6.1 Further, the Assessing Officer estimated the income on the basis of seized

material. In our opinion, there is no error in the estimation of income and the

addition is confirmed. The above view is also supported by the judgment of the

jurisdictional High Court in the case of Jurisdictional High Court in the case of CIT

vs. Meriya Hotel (332 ITR 537) wherein there was admission by the managing

partner that 20% of the sales turnover was suppressed and only 80% of the sales

turnover was recorded in the books of account which was the practice from the 6

I.T.A. Nos.637 to 643/Coch/2008 and 246 to 248/Coch/2019 beginning. Hence, in that case, it was presumed that there was willful concealment

of income for all the assessment years. Similarly, we place reliance on the

judgment of the Jurisdictional High Court in the case of Travancore Diagnostics P.

Ltd. vs. ACIT (390 ITR 167) wherein it was held that when suppression had been

found from the documents and the statement on record, the Assessing Officer was

completely justified in adopting those figures for the whole year and for the next

year which was based on sound rationale, since from the statement on behalf of

the assessee, the suppression was found to be continued and there was admission

by the partners of the assessee-firm and the assessee had followed uniform system

of suppression of sales. If the income is to be considered under the head ‘income

from profession’, 25% of the gross income is to be considered as an expenditure to

earn this income.

6.2 On the basis of the seized material supported by statement recorded u/s.

132(4), the Assessing Officer estimated the income for three years. In our opinion,

there is no error in estimating the income o the basis of the seized material.

However, whenever the Assessing Officer estimated the income, the gross income

cannot be added to the assessee’s undisclosed income of the assessee. There is

expenditure to earn the income. Accordingly, we estimate it reasonably at 25% as

expenditure to earn the income and it is also professional income and cannot be

considered as income from salary. Accordingly, we direct the Assessing Officer to

give deduction towards expenditure to earn undisclosed professional income at 25%

and balance 75% of it is to be charged as ‘income from profession’. 7

I.T.A. Nos.637 to 643/Coch/2008 and 246 to 248/Coch/2019 6.3 Coming to the assessment years 2005-06 and 2006-07, the Assessing Officer

estimated the income on the basis of sworn statement recorded u/s. 132(4) of the

Act which reads as under:

“My name is Dr. K.E. Moorthy. I am working as a Consultant Surgeon of Chitra Multi Speciality Hospital, Pandalam since March 2004. I am getting an amount of Rs.25000/- per month as salary from the hospital……………..”. The answer to Qn. No. 7 of the Sworn statement is that “I am getting Rs.35000/- as unaccounted money other than the salary and perks received from the hospital…………………..”, in answer to Qn. No. 11 Dr. Moorthy admits having received “(i) Salary of Rs.25000/- per month (ii) unaccounted Rs.35000/- per month, (iii) perks from other institutions Rs.8000/-, (iv) House rent of Rs.3500, total Rs.71500/- from Chitra Multi Speciality Hospital, Pandalam.”

In our opinion, the undisclosed income of Rs.8,58,000/- considered by the Assessing

Officer for the assessment years 2005-06 and 2006-07 is to be treated as ‘income

from profession’ instead of ‘salary income’ and out of this, the assessee is entitled to

25% towards expenditure incurred for earning this income as in other assessment

years. Thus, the appeals of the assessee in ITA Nos. 637 to 643/Coch/2008 are

partly allowed.

I.T.A. Nos. 246-248/Coch/2019 : AY.’s 2000-01 to 2002-03

the CIT(A)-III, Kochi dated 11/01/2019 confirming the penalty levied u/s. 271(1)(c)

of the Act and pertain to the assessment years 2000-01 to 2002-03.

7.1 There was a delay of 04 days in filing these appeals before the Tribunal. The

ld. AR has filed condonation petition accompanied by affidavit wherein it was stated 8

I.T.A. Nos.637 to 643/Coch/2008 and 246 to 248/Coch/2019 that the order of the CIT(A) dated 11/01/2019 was received by him on 03/02/2019

and as such he should have filed the appeal on or before 03/04/2019. The Ld. AR

submitted that since the Authorized Representative of the assessee was busy with

filing of returns, advance tax work etc., there was some delay. Moreover, he had

lost his brother on 23/03/2019 and he has only two daughters and his father was

over 84 years. He had to be away at Thirunelveli in connection with various rituals

connected with his brother’s death and hence, there was delay of four days. It was

therefore requested that the delay be condoned and the appeals may be admitted.

7.2 We have heard the rival submissions and gone through the reasons advanced

by the assessee for filing the appeals belatedly before this Tribunal. We are

satisfied with the reasons explained by the assessee for filing the appeal belatedly.

Accordingly, we condone the delay of four days in filing the appeals and admit the

appeals for adjudication.

I.T.A. Nos.637 to 643/Coch/2008 and 246 to 248/Coch/2019 8. The assessee has raised the following common grounds of appeals:

Multi Speciality Hospital, Pandalam when a consequential search took place on the

residential premises of the assessee. Some materials were seized based on which a

notice U/s 153A was issued. The assessee had filed his return of income on

18.09.2000 declaring an income of Rs.1,80,757/- and on receipt of the notice the

assessee filed a return of income declaring a sum of Rs. 4,20,757/- and the tax due

thereon was paid. The assessment was taken up for scrutiny and the Assessing

Officer completed u/s. 153 by making an addition of Rs.2,83,910/- and denied the

claim for standard deduction amounting to Rs.20,000/-. The assessee had filed an

appeal against the order of assessment and order of CIT(A) before the Tribunal and

the same is pending. In the meantime, the Assessing Officer issued notice u/s.

271(1)(c) of the Act dt.30.03.2009 and imposed a penalty of Rs. 1,00,290/- being

100% of the tax alleged to be evaded. 10

I.T.A. Nos.637 to 643/Coch/2008 and 246 to 248/Coch/2019

Assessing Officer for A.Y.’s 2001-02 and 2002-03. The CIT(A) observed that during

the course of search two important documents KEM-17 and KEM-9 were seized

which relate to the period from November 1998 to June 2001 which clearly

established that 20% of the total receipts of the hospital were passed on to the

assessee as remuneration. However, according to the CIT(A), for A.Y.’s 2003-04 &

2004-05 the remuneration received by the assessee on account of working in the

NSS Medical Mission Hospital Pandalam was computed at 20% of the receipts of the

hospital as in the earlier three Assessment Years. The AO's contention has been

further supplemented by the statement of the assessee recorded on 06.09.2005,

wherein the assessee had explicitly stated that he was claiming 20% of the

hospital's receipts as perks in addition to salary. The CIT(A) confirmed the

estimation of this remuneration by the Assessing Officer as a perquisite in the hands

of the assessee and treated the same as a part of the salary income because of the

employer- employee relationship existing between the hospital and the assessee.

Though the additions had been upheld in first appeal, the CIT(A) held that imposing

of penalty u/s 271(1)© for A.Y.’s 2003-04 & 2004-05 was not legally maintainable

as it was based on the estimation arising out of the extrapolation of the undisclosed

income in the earlier years. Hence, the CIT(A) deleted the penalty for A.Y.’s 2003-

04 & 2004-05 and confirmed the imposition of penalty for A.Y.’s 2000-01 to 2002-

03.

I.T.A. Nos.637 to 643/Coch/2008 and 246 to 248/Coch/2019 11. Against this, the assessee is in appeal before us. The Ld. AR submitted that

the sworn statement was taken from the assessee on 6.9.2005, when the assessee

had left NSS Medical Mission Hospital. The statement given by the assessee does

not specify that the assessee was entitled to 20% of collection over and above the

salary for asst. years 2000-01 to 2004-05. It was submitted that in the assessment

order, the assessing officer had only presumed that the assessee would have

received 20% of the gross collections over and above the salary in all the years and

completed the assessments meaning thereby the additions made in the assessments

are only an estimate. The Ld. AR submitted that if the seized material marked 'KEM

9' is to be taken as the collection of the hospital relatable to the assessee, then the

said collection will have to be segregated as one attributable to the service of the

assessee himself and the balance attributable to the service of the hospital in

providing para medical services, ICU charges, operation theatre charges and a host

of other services and only on that portion of the professional service of the

assessee, percentage of the same should be taken as his income and not a

percentage of the total collection as has been done by assessing officer in the

instant case. The assessment order is passed without verification of the same.

11.1 According to the Ld. AR, there was not much increase in the salary of the

assessee. Salary of Rs. 12000 per month in the asst. year 2000-01 plus some

allowances which increased to 12300 plus surrender leave plus allowance in 2001-

02, Rs. 12600 in 2002-03 and so on. This means the assessee was compensated by

gradual increase in percentage of gross collection which was 20% in 2005 or in 12

I.T.A. Nos.637 to 643/Coch/2008 and 246 to 248/Coch/2019 March 2004 at the time of leaving NSS Medical Mission. It was submitted that when

this be the factual position to make an assessment @20% since 2001-02 exclusive

of salary is only a high pitched estimate and levy of penalty based on the said order

is not factually correct.

11.2 Moreover, it was submitted that the percentage of collection due to the

doctor which was originally inclusive of salary, has over a period of years been,

made in addition to salary which was the position at the time of search or at best at

the time of leaving the hospital in February 2004. It was submitted that usually

some professionals were paid initially by way of a fixed sum as salary and the

balance as percentage of collections, so that the hospital made sure that he was

worth the sum paid, and at the same time the professional is sure of getting a fixed

sum for his monthly maintenance. This should be the case with the assessee also,

going by the salary paid to the assessee remaining almost constant over the period

under consideration.

11.3 . It was submitted that for Asst. year 2002-03 to 2004-05 assessing officer has

calculated a figure based on an average worked out from the collection of

November 1998 to June 2001. Here again, according to the Ld. AR, the addition

made by the assessing office calculated based on collection during the period from

November 1998 to June 2001 for assessment of income of 2002-03 to 2004-05 was

not based on any conclusive evidence but is only an estimate and hence the levy of

penalty was not warranted 13

I.T.A. Nos.637 to 643/Coch/2008 and 246 to 248/Coch/2019

11.4 It was submitted that the assessee in addition to his normal duty had done

some more professional assignments for which he was paid a percentage of the

collection, which is only a professional income. But the assessing officer had for

some reason considered it as salary and that on this count had deprived the benefit

of standard deduction allowable u/s 16(iii) amounting to Rs. 20000, in assessment

years 2000-01, 2001 -02 and Rs. 25000 in 2002-03 and 2003-04 and Rs. 30000 in

asst. year 2004-05 which has also been considered by assessing officer as

concealment for levy of penalty which is against the provision section 271 (1) (c).

11.5 It was submitted that the assessee had in addition to the claim for standard

deduction also made claim for normal expenses on a very conservative basis for an

amount of Rs. 60000 in each assessment years and an amount of Rs. 164250 and

93400 as depreciation in assessment years 2003-04 and 2004-05 which was

deprived by the assessing officer and this was also considered as concealment for

levy of penalty which is not warranted.

11.6 The Ld. AR submitted that the assessee had filed cash flow statement and

provided all the details called for by the assessing officer at the time of assessment

and at the time of levy of penalty. Neither during search, nor at the time of

assessment proceedings, the assessing officer had come out with a case of an asset

or an expenditure not recorded or not explained in the cash flow statement. It was

submitted that what was declared by the assessee was fully borne out of the cash 14

I.T.A. Nos.637 to 643/Coch/2008 and 246 to 248/Coch/2019 flow statements and the bank pass books submitted/ seized. According to the Ld.

AR when no defect was pointed out by the assessing officer at the time of the

assessment, the addition made was only on an estimate basis and when addition

itself is based on estimate, the levy of penalty based on the said addition is not

within the provisions of section 271 (1) (c) of the IT ACT as laid down by various

Courts/ Tribunals.

11.7 In view of the above, it was submitted as follows:

i) The answer given to Question No. 8 and 11 of sworn statement of 6.9.2015 cannot be taken for assessment of income of asst. years 2000-01 to 2004-05.

ii) In the said answer or in any other question, there was no question in the sworn statement as to what was the proportion of gross receipt which the appellant was entitled to in each of the earlier years under consideration.

iii) The AO has not done the exercise of segregating that position of the gross receipts attributable to the appellant service on which he is entitled to a percentage or clearly established that the entire receipt is attributable to his appellant only. The appellant's answer to question No.8 does not speak of it, nor was any question asked about it. On the contrary the AO should have corroborated with the hospital records, which was also not done. Hence the presumption that the entire collection is attributable to the appellant's service is wrong.

iv) The AO should have obtained from the hospital which was also searched at the time of search on the appellant the percentage of collection attributable to the appellant, amount paid etc for each year. In the absence of such an exercise, the addition made based on some inconclusive enquiry is wrong and levy of penalty based on the same is not warranted.

v) The AO has not verified whether the percentage collection paid to the appellant was inclusive of or exclusive of salary in all the years.

vi) The addition made by AO for asst.year 2001-02 to 2004-05 are only on an estimate basis and it is based on the said addition the AO has levied penalty which is not envisaged U/s. 271 (1) (c).

I.T.A. Nos.637 to 643/Coch/2008 and 246 to 248/Coch/2019 vii) The AO has not considered that the enhancement in the income of the appellant as per assessment order are also out of:

(i) Denial standard deduction under section 16(1) for Rs.20000 each in asst.years 2000-01 and 2001-02,Rs 25000 each in asst years 2003-04 and Rs.30000 in asst year 2004-05.

(ii) Denial of claim for genuine expenditure of Rs.60000 each in all asst. years and for depreciation of Rs.164250 and 93400 in asst years 2003-04 and 2004-05.

Without considering the above the AO has levied penalty on the above disallowance which also does not invite the rigour of section 271(1) (c).

viii) The AO has not come out with a single mistake in the cash flow statements filed based on which the return was filed and also the wealth statement filed at the time of asst, meaning thereby the addition is based on estimate. It was based on this the AO has levied penalty which is not envisaged in Section 271 (1) (c).

ix) The various courts including the apex court has held in various cases that there cannot be a levy of penalty u/s 271(1)(c) in the case of an addition based on estimate and disallowance. In the appellant's case it is only a levy of penalty made on estimate/disallowance and hence requires to squashed.

It was therefore prayed that the additions made on certain presumption, denied the

claim for standard deduction, property tax payment, expenses to be deleted and the

order imposing penalty may be squashed.

contention of the Ld. AR is that the additions in these cases were made only on

estimate basis and there is no seized material brought on record during the penalty

I.T.A. Nos.637 to 643/Coch/2008 and 246 to 248/Coch/2019 proceedings so as to levy penalty u/s. 271(1)(c) of the Act. According to the ld. AR,

there is difference of opinion with regard to the estimated income of the assessee

and therefore, it could not be said that the assessee had categorically concealed the

particulars of income so as to evade tax. But in our opinion, the assessee was

found to be in possession of register which showed collection of receipts for

conducting surgery. Out of the seized material KEM-9 found during the search

which was supported by the sworn statement of assessee recorded u/s. 132(4) of

the Act, the Assessing Officer estimated the income of the assessee at 20% of gross

reciepts for these assessment years. In other words, there was seized material

covering the period of 27 months and on that basis, the income of the assessee was

estimated by the Assessing Officer after confronting the same to the assessee while

recording sworn statement u/s. 132(4) of the Act. Being so, it cannot be said that

the additions were made on estimate basis. The assessee herein has systematically

disclosed lower income thereby concealed his actual income. In fact, he planned

and executed the tax evasion so as to reduce tax liability. Because of such

information gathered by the Department during search, the undisclosed income

came to light and evasion of tax was found out. The Ld. AR pleaded before us that

the assessee has not concealed income and the register found with him did not

belong to him. We find no merit in that argument as in the sworn statement

recorded u/s. 132(4) to Question No. 8, as discussed earlier in quantum appeals,

the assessee admitted that there was concealment of income. Under these

circumstances, the explanation offered by the assessee regarding non disclosure of

income relating to collection of professional charges from Hospital is not bona fide 17

I.T.A. Nos.637 to 643/Coch/2008 and 246 to 248/Coch/2019 and it cannot be said that the assessee had disclosed all material facts relating to

his income for these assessment years. In fact, the conduct of the assessee has

been such that it certainly calls for levying of penalty and in our opinion, clearly calls

for confirmation of penalty. However, since we have given certain relief towards

expenditure to earn professional income at 25%, penalty is required to be re-

calculated by the Assessing Officer. Accordingly, for the limited purpose of

recalculation of penalty in terms of our order in quantum appeals, we remit this

issue to the file of the Assessing Officer. The Assessing Officer is directed to re-

calculate penalty after passing giving effect order to our order in quantum appeals.

Thus, these three appeals of the assessee are partly allowed.

and in ITA Nos. 246 to 248/Coch/2019 are partly allowed. Order pronounced in the open Court on this 18th July, 2019

sd/- sd/- (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Place: Kochi Dated: 18th July, 2019 GJ Copy to: 1. Dr. K.E. Moorthy, Thunga, CM Hospital Road, Pandalam-689 501. 2. The Deputy Commissioner of Income-tax, Central Circle, Kollam. 3. The Commissioner of Income-tax(Appeals)-I, Kochi. 4. The Commissioner of Income-tax(Appeals)-III, Kochi.

I.T.A. Nos.637 to 643/Coch/2008 and 246 to 248/Coch/2019 5. The Pr. Commissioner of Income-tax, Central, Kochi. 6. D.R., I.T.A.T., Cochin Bench, Cochin. 7. Guard File. By Order

(ASSISTANT REGISTRAR) I.T.A.T., Cochin