M/S. SAI MEDISOULTION PRIVATE LIMITED ,MUMBAI vs. ITO CIRCLE -3, THANE

During the reassessment proceedings, notices under section 142(1) dated 18/11/2021 were issued calling for various details, the particulars of which are incorporated in the assessment order at pages 3 to 5. According to the Assessing Officer, the assessee did not initially furnish replies to the said notices; however, thereafter, a further notice under section 142(1) was issued, in response to which the assessee submitted that it was incorporated for running the business of a multi-specialty hospital in the name of “Neway Chemist” at Kavesar, Thane. It was further submitted that the accounts were duly audited and that along with the reply, computation of income, profit and loss account, balance sheet and other details were furnished. The assessee also stated that it maintained a regular cash book reflecting daily closing balances.

In so far as the source of cash deposits was concerned, it was categorically stated by the assessee that the deposits were made out of cash collected from patients against bills raised by the hospital from time to time and also out of withdrawals made from the banks. It was specifically explained that the bills raised on patients were duly recognised as sales in the regular books of account. The Assessing Officer, however, observed that the assessee had not furnished relevant supporting details such as

The learned CIT(A) confirmed the addition after observing and holding as under:- “7. I have considered the assessment order. Statement of Facts submitted by the appellant along with Form 35 and the material on record and find that the AO has given complete reasoning in the assessment order for making an addition of Rs 1,77,05,155/- under the provision of the IT Act 1961 for the Financial Year 2013- 14 relevant to Assessment Year 2014-15. As per assessment order, the appellant company was running the business of Multi- specialty Hospital in the name and style of "Neway Hospital" registered and situated at B-14/44, Vijay Nagar Annex, Ghodbandar Road, Kavesar, Thane and earned business income during the relevant year As per the information received, during the assessment proceedings in the case of one Shri Gautam S. Nadkanri who was director in the said company, it was observed that there were cash deposits made totalling to Rs. 1,77,05,155/- in the bank accounts of the appellant company during the year under consideration. During the assessment proceedings, on analysis of return of income of the appellant, the Ld. AO observed that there were cash deposits totalling to Rs. 1,77,05,155/- made in the two bank accounts of the appellant company during the FY 2013-14, but the same was not in tune with the activities of the appellant company and also could not be properly explained. The Ld. AO relied that the deposits were not commensurate with the activities of the appellant as there were total receipts of Rs. 2,02,39,982/-however, cash in hand was Rs. 6,26,098/- only. During the assessment proceedings, the appellant failed to explain about the cash deposits ie. Rs. 1,77,05,155/-along with any supporting documents before the AO, hence the same were remained unexplained in the hand of the appellant. Therefore, the amount of unexplained cash deposits ie. Rs 1,77,05,155/- was added back in the income of the appellant by the AO treating the

Before us, the learned counsel for the assessee submitted that, in reply to the notices issued by the Assessing Officer, the assessee had furnished the entire audited accounts as well as detailed particulars of IPD and OPD patients and the amounts received from them during the year, clearly evidencing that the cash deposits represented hospital receipts duly recorded in the books of account. Month & Year IPD Income OPD Income Jul-13 942,601.00 1,00,453.00 Aug-13 1544,688.30 2,96,155.00 Sep-13 23,19,967.20 2,73,218.00 Oct-13 22,40,136.58 2,76,661.50 Nov-13 1844,428.38 2,76,192.00 Dec-13 17,12,549.52 2,54,528.00 Jan-14 20,40,618.35 2,34,935.00 Feb-14 27,08,682.59 2,20,848.00 Mar-14 29,28,091.08 2,26,328.00 Total 1,81,91,763.00 21,59,318.50 2,03,51,081.00 Gross Total

On the strength of the aforesaid material, the learned counsel submitted that the entire source of the cash deposits stood fully explained, as the fees received from various patients were clearly evidenced from the patient registers, audited cash book and corresponding bank statements.

On the other hand, the learned Departmental Representative submitted that none of these detailed documents were furnished before the Assessing Officer during the reassessment proceedings and, therefore, contended that the matter should be restored to the file of the Assessing Officer for proper verification.

At the outset, it is an undisputed position emerging from the record that the assessee is a private limited company which commenced the business of running a multi-specialty hospital during the relevant previous year. It is also not in dispute that the assessee maintained regular books of account, which were duly audited, on the basis of which the profit and loss account and balance sheet were prepared and filed. Significantly, there is no finding by the Assessing Officer or the first appellate authority rejecting the books of account under section 145 of the Act, nor is there any adverse observation pointing out any inherent defect, inconsistency, or manipulation in the maintenance of such books.

The assessee has disclosed gross receipts from hospital operations exceeding ₹2.02 crores during the year. In support of the said receipts, the assessee has furnished detailed summaries of IPD and OPD income, patient-wise registers, cash book

The month-wise details of IPD and OPD collections further reveal that a substantial portion of the receipts was in cash and largely comprised of relatively small amounts. Such a pattern of receipts is neither unusual nor implausible in the case of a hospital or medical establishment, particularly during the initial phase of its operations, where outpatient consultations and emergency services often involve cash payments. When these contemporaneous records are examined holistically, they prima facie lend credence to the explanation of the assessee that the cash deposits represent hospital fees collected from patients and duly recorded as revenue in the regular books of account.

The Assessing Officer has proceeded to treat the entire cash deposits as unexplained primarily on the ground that the assessee did not furnish the relevant supporting documents during the reassessment proceedings. However, the existence of such documents and their maintenance as part of the regular accounting system of the assessee is not in dispute. The assessee

In our considered view, the material on record prima facie establishes that the source of the cash deposits is attributable to fees collected from patients, duly recorded in the cash book and supported by IPD and OPD patient details. At the same time, since these documents were admittedly not examined by the Assessing Officer at the assessment stage, and since the verification of such records falls within the domain of the fact- finding authority, it would be appropriate, in the interest of justice, to restore the matter to the file of the Assessing Officer for a limited and focused verification.

Accordingly, while we hold that the source of cash deposits stands prima facie explained on the basis of the records produced, the issue is restored to the file of the Assessing Officer to verify the cash book, bank statements and IPD/OPD patient registers and to ascertain whether the cash deposits are duly reflected in the regular books of account and are referable to disclosed hospital receipts. The Assessing Officer shall carry out this verification after affording due opportunity of being heard to

In the result, the appeal of the assessee is partly allowed for statistical purposes.