M/S TOVINAKERI JAYARAJU BRAHMARAJU,BANGALORE vs. THE INCOME TAX OFFICER WARD-3(3)(5), BANGALORE

The assessee is an individual. He is a Doctor by profession. He worked as an employee of Red Crescent Hospital, Feroke, Kozhikode, State of Kerala, which is managed by Al Irshad Charitable Society. The assessee derives income under the head salary. There is no dispute that income under the head salary received from employer was offered to tax by the assessee. It appears that there was a survey carried out by the revenue u/s. 133A of the Income-Tax Act, 1961 [“the Act”] on 28.10.2013 in the case of Red Crescent Hospital. It appears that in the course of such survey, it was stated by Red Crescent Hospital that the assessee over and above the income in the form of salary was also in receipt of professional income for all the three assessment years. The assessee had not declared professional income in the returns of income filed for all the three assessment years and therefore proceedings u/s. 148 of the Act was initiated by the AO. It appears that in such assessment, the professional receipts as per statement given at the time of survey in the case of Red Crescent Hospital as received by the assessee from them was brought to tax.

Before the CIT(Appeals) the assessee submitted that he was entitled to claim expenses incurred in earning the professional income. The assessee quantified the expenses for 3 assessment years as follows:-

The plea of the assessee was not accepted by the CIT(Appeals) for the reason that the assessee did not file any documentary evidence either before the AO or before him that expenses were incurred for the purpose of earning professional income. The CIT(Appeals) also observed that the appellant was using facilities provided by the hospital and apart from serving the hospital as its employee, was also earning professional income and therefore there could not have been the possibility of any expenses having been incurred by the assessee. Aggrieved by the order of CITA, the assessee has preferred the present appeals before the Tribunal.

The assessee has filed application under Rule 11 of the ITAT Rules, 1963 seeking to raise the following additional grounds:- “(a) The Ld. Authorities below have erred in not providing the relevant materials said to have been gathered in the course of the Survey conducted u/s. 133A of the Act by ACIT Circle - 2(1), Kozhikode in the case of M/s. Red Crescent Hospital, Kozhikode, relating to the payment of Professional Charges. (b) The Ld. CIT(A) has erred in holding that the Appellant had never sought an opportunity of Cross-examination before the AO on the ground that the details were provided to the Appellant regarding his undisclosed professional receipt from the Trust and the same was accepted and claimed expenditure in relation to such undisclosed professional receipts."

The ld. counsel for the assessee submitted that since the issue is a legal issue, the additional ground should be admitted for adjudication. I am of the view that the additional ground being purely a legal ground, which can be decided on the basis of facts available on record should be admitted, keeping in mind the ruling of Hon'ble Supreme Court in the case of NTPC (229 ITR 283)(SC). Accordingly, the additional grounds are admitted for adjudication.

The ld. counsel for the assessee submitted that statement recorded during the survey cannot be the basis to make any addition and in this regard relied on the decision of the Hon'ble Supreme Court in the case of CIT v. S. Khader Khan Son, 352 ITR 480 (SC) and the decision of the Hon'ble Supreme Court in the case of Andaman Timber Industries v. CCE, Civil Appeal No.4228/2006, judgment dated 2.9.2015. In the first decision cited by the ld. counsel for the assessee, it has been held that statement recorded at the time of survey u/s. 133A of the Act cannot be the sole basis to make an addition in an assessment. In the decision second cited, it has been held that the statement not tested by cross-examination cannot be the basis for making any assessment under the Central Excise Act.

I have considered the submission of the ld. counsel for the assessee and the decisions on which he has placed reliance and are of the view that in the facts and circumstances of the present case, the plea of the assessee cannot be accepted. It has not been denied by the assessee that he was in receipt of professional income. This admission was sufficient to make the assessment in the hands of assessee. In other words, if the assessee had disputed the receipt of professional income, then the onus would have been on the department to show that assessee received professional income and in doing so, the assessee can make a statement that statement recorded at the time of survey u/s. 133A of the Act which has not been subjected to cross-examination, cannot be the basis to come to the conclusion that assessee had earned professional income. Since the assessee admitted receipt of professional income, there is no merit in the additional grounds raised by the assessee and hence the same are dismissed.

The only other argument advanced by the ld. counsel for the assessee was that deduction has to be allowed on account of expenses incurred in earning the professional income. He placed reliance on the provisions of section 44ADA of the Act which lays down a presumptive rate of income for professionals. Though these provisions were inserted by the Finance Act, 2016 w.e.f. 1.4.2017, the ld. counsel for the assessee placed reliance on the above provisions to submit that 50% of the gross receipts from professional alone, has to be taxed. In other words, 50% is regarded as expenses for earning the professional income. According to him, therefore, the legislature itself has laid down such condition and there is no reason why adopting the same principle, deduction of expenses should not be allowed to the assessee.

The ld. DR relied on the order of CIT(Appeals).

I am of the view that there is force in the argument advanced by the ld. counsel for the assessee. I am also of the view that 50% of the gross receipts cannot be allowed on the expenses in view of the specific observations of the CITA that Red Cross Hospital provided all the infrastructure to the assessee to carry on professional practice by the Assessee. Keeping in mind all the circumstances, I am of the view that 25% of the gross receipts can be allowed as expenses. I hold and direct accordingly.

In the result, all the appeals of the assessee are partly allowed.