DCIT CEN CIR 1(3), MUMBAI vs. STUDIO AESTHETIC HEALTH & HOSPITALITY P.LTD, MUMBAI

2. The assessment order passed u/s. 143(3) read with Sec 153C in appellant’s case for A.Y. 2010-11 is bad-in-law because the ld.AO has passed the impugned order after obtaining u/s. 153D the approval of Additional Commissioner of Income-Tax.

Madhu Chopra, Director of the company. In the affidavit, the reasonable cause for the delay has been attributed as under:

T. Act. The assessee company has been incorporated in the month of July, 2009 as an Hospital. Smt. Madhu Ashok Chopra and Shri Ashok Chopra, are the directors of the said company. Administrative aspects are being looked after by Smt. Madhu Chopra and Dr. Ashok Chopra is the performing surgeon. During the course of search and survey based on the impounded/seized material, it was admitted by both the directors that the company accepts cheques as well as cash as per the convenience of the patients and most of the cash receipts are not accounted for and are being utilized for paying incentives and other cash expenses, which are not recorded in the books of accounts.

Madhu Chopra was recorded on 24.01.2011. The statement from her may be referred as under:

Q.2 Please state your business or profession? Ans. I am basically doctor by profession however I have not been doing active practice since the last few years. I am now more of an administrator looking after the overall supervision of Studio Aesthetic including finance administration and day today affairs. I am also in the knowhow of the income C.O. Nos. 232 & 233/Mum/2017 and expenses of both Studio Aesthetic and of Dr. Ashok Chopra. I also oversee the financial matters of my daughter Ms Priyanka Chopra. I am aware of all the receipts and payments of Ms Priyanka Chopra also.

Q.3 Please explain as to how the receipts and payments of Dr. Ashok Chopra recorded in the books of A/c and also as to how do you control the same? Ans. My husband Dr. Ashok Chopra is a surgeon and he has a team of doctors assisting him in the operation. Whatever receipts are received at the front office for the purpose of any surgery etc. are received in My Proprietorship A/c as the credit card swiping machine is linked to my Proprietary Account. Miscellaneous expenditure required for the maintenance of the clinic is paid from this proprietorship A/c directly. Remaining amount is transferred to the A/c of the company from wherein payments pertaining to surgery such as OT cost, surgeon cost etc. is paid. In addition to the same some cash is directly received by Dr. Ashok Chopra as surgery charges. The details of both types of receipts that is received at the front office and that received directly by Dr. Ashok Chopra is known to me. The receipt at the front office are sent to me by way of a list. The cash received directly by Dr. Chopra is handed over to me. The amount received at front office is reflected in the books of accounts. The cash received directly by Dr. Ashpk Chopra and handed over to me is not reflected in the books of account and the same is used for making certain necessary payments in cash such as giving cash incentives to doctors, surgical fees to doctors and cash remaining is unaccounted income. A rough estimate of such unaccounted income has already been done by Dr. Ashok Chopra and the same is to the tune of Rs.1.74 crores for 2 years.

"Q.11 As per Annex A-2, you have performed more than 230 surgeries since July 2009 (Since the formation of above company). Where is it accounted in your books of account? If the average receipt per surgery performed by you is taken at Rs.1.3 lakhs (as per your admission above), then the turnover from surgery comes to Rs.2.99 crores. Apart from these, Rs.50 lakhs turnover is from cosmetic & dermatological procedures. Thus the total receipts come to Rs.3.49 crores. However, the receipts as per books of account are Rs.1.75 Crores (in both the concerns since April, 2009). Kindly explain and reconcile the difference. Ans. We have been accepting the receipts in respect to these liposuction surgeries sometimes in cheque and sometime in cash, as per the convenience of C.O. Nos. 232 & 233/Mum/2017 the patient. I am from medical background and it is possible that certain number of entries of cash receipt has been inadvertently left out, since we do not have a full time accounting staff. Since I am unable to reconcile the exact amount which has been left unaccounted, I am offering the -sum of Rs. 1.74 crores, which is shortfall in the amount of receipts as the unaccounted income of my company for financial year 2009-10 and 2010-11. Q.12. Kindly give the details of how the unaccounted receipts, as admitted above by you in the above question, should be accounted for F.Y. 2009-10 and 2020-11? Ans. As stated earlier, I have not maintained the details of cash receipts and hence cannot exactly account the same as per financial year. I offer that the same may be divided of ratio of months in F.Y.2009-10 and 2010-11 till date (i.e. 8.5 months for F.Y. 2009-10 and n months for F.Y. 2010-11). The working is as under : 8.5__ x 174 lakhs = 75.85 lakhs for F.Y. 2009-10 8.5 + 11 11 x 174 lakhs - 96.15 lakhs for F.Y.2010-11 8.5 + 11 Q.13. I am showing various loose papers impounded vide Annexure A-3. It is seen that your concerns are paying 20% incentive of the profits earned by the cosmetologist and dermatologist in cash (i.e. to Nitu Sharma, Anju Methil, Reshma Hegde, etc,) It is also seen that your concern has made cash made in many other instances also(i.e. 30% of payment made to Milan Doshi is by way of cash). Such incentives and cash payments have not been accounted in books. Kindly explain the same. Ans. We have been paying such incentives and other amounts in cash to rein in the good talents, which is short in our field. / admit that such cash payments are unaccounted and were made from the unaccounted cash receipt of Rs.174 lakhs as I have already admitted above. Q.14. Do you want to state anything else? Ans. I once again reiterate that I am offering unaccounted receipt estimated at Rs.75.85 lakhs for F.Y. 2000-10 and 98.15 lakhs for F.Y. 10-11 as additional income for the said years in the hands of the company Studio Aesthetique Pvt. Ltd. of which I am a Director. I also state that certain unaccounted cash payments have been made from such receipts. The balance has been spent on C.O. Nos. 232 & 233/Mum/2017 various lifestyle and other personal expenses which I am unable to recollect. To sum up I am offering an additional income of Rs. 174 lakhs on account of unaccounted receipts in the hands of the company for the respective financial years. Considering my stand, I pray that no penalty proceedings should be initiated with respect to this additional income offered."

With regard to my statement in relation to answer no.3 of Statement dated 25.01.2011 (Raj Classic) in relation to unaccounted income in relation to Studio Aesthetique, it is clarified that the working for the unaccounted Income will be done based on the seized papers and books of accounts and the unaccounted income will be declared as undisclosed income. it is to clarify that an amount of Rs.1.74 crores based on estimates done on the date of search is unjustified.

19.1 In the instant case, survey/ search was conducted & concluded in the presence of the directors Smt.Madhu Chopra and Shri Ashok Chopra and seizures/ impounding was effected. During the search / survey operation the directors were confronted with the documents, but it could not explain the same, therefore, Smt. Madhu Chopra in consultation with Shri Ashok Chopra in his statement under section 132(4), had surrendered the said cash component as undisclosed income for the block period and further expressed his willingness to pay the taxes worked out against the surrendered undisclosed income. Smt. Madhu Chopra had further stated that she was signing her statement after reading and understanding the same without any coercion. The assessee did not retract her statement immediately after the search and seizure / survey was over however in the letter filed in this office on 06-06-2011 Smt. Madhu Chopra had retracted the statement recorded u/s. 132(4) of the I T Act. No explanation was offered for the cash component at the time of survey/ search & seizure operations under section 132(4). The allegation of duress and coercion was made in the above said letter and affidavit filed along with it. The assessee surrendered undisclosed income only when she/ he was not able to explain the sources of payments made to the other doctors as incentive and other documents and loose papers found during search and by voluntary surrender of undisclosed income, it induced the survey / search party not to proceed with collection of other evidence and to accept the surrendered amount and the same was accepted by the Assessing Officer. The assessee had totally failed to discharge the burden of proving that the statement was obtained under coercion or intimidation. C.O. Nos. 232 & 233/Mum/2017 13. He further referred that the statement of Smt. Madhu Chopra showed that she herself had stated in the said statement that she was giving the statement without any undue influence, threat or coercision. He further observed that the other director was confronted with the statement of Smt. Madhu Chopra who had accepted the discrepancy found during the course of survey/search action and consented to the statement given by Smt. Madhu Chopra. That the assessee had not produced any contemporaneous record or evidence, documentary to substantiate the retraction. That the declaration made and answers given by Smt. Madhu Chopra with regard to the cash payments and cash received and subsequently payment of cash to other doctors and other relevant matters were in their specific knowledge and, hence, they could not have been dictated by the survey/search party. The Assessing Officer further observed that Mr. Ashok Chopra along with Smt. Madhu Chopra made the declaration of cash component received and cash payments made subsequently as unaccounted income at the time of search and that too on oath which the departmental authorities accepted and upon which they did not proceed with further investigations. That if they have not made the said declaration or statement, the departmental authorities could have continued the search and could have investigated the entire matter on the basis of the various documents impounded/ seized during the course of survey /search. That by making the disclosure which she offered for taxation on oath, Smt Madhu Chopra stopped the entire of further investigation through survey/ search as the department accepted the disclosure and closed further investigation on the said issue. That it was C.O. Nos. 232 & 233/Mum/2017 not open to the assessee to deny later the truth or the correctness of the declaration made at the time of search. That having made a voluntary declaration on oath and induced the departmental authorities to act upon the same at the time of search, the assessee could not be permitted to turn around later and deny the truth of the aforesaid declarations or the representations made therein. That section 115 of the Indian Evidence Act prevented him/her from doing so.

20. From the above facts, judicial pronouncements and the discussion the retraction made by Smt.Madhu Chopra is not acceptable and as admitted the assessee company is receiving cash receipts and most of them are riot accounted for in its books of account. Therefore, as admitted by Smt. Madhu Chopra and Shri Ashok Chopra the directors of assessee company, the income undisclosed income of Rs. 1.74 crores is distributed to A.Y.2010-11 and A.Y. 2011-12 as under:

8.5 x 174 lakhs = 75.85 lakhs for F.Y. 2009-10 a. + 11 11 x 174 lakhs = 98.15 lakhs for F.Y. 2010-11 8.5 For the year under consideration the, undisclosed income is determined at Rs.75,85,000 and the same is added the income of the assessee. Penalty proceedings u/s.271(l)(c) of the I T Act are initiated for furnishing inaccurate particulars of income and thereby concealing the said income.

The ld. CIT(A) further referred to CBDT Circular that the ld. Departmental Representative should not rely solely on the confession obtained without credible evidence. The ld. CIT(A) opined that the assessee’s director had mistaken belief of facts. Hence, the ld. CIT(A) placed reliance and accepted the retraction statement. He also observed that the Assessing Officer’s observation that the Revenue’s authorities have stopped further enquiry after the acceptance to be wrong. He observed that nobody can stop ld. Departmental Representative from search operations unless it is to their satisfaction. He further observed that no undisclosed income was found by the search authorities that no incriminating materials were found showing the receipt of cash income. He held that the declaration made by Smt. Madhu Chopra was under pressure, mental stress. The ld. CIT(A) concluded as under:

It is held that the assessing officer has erred and has merely relied on the admission made during the search proceedings ignoring the clarification statements filed by the director of the appellant Mrs. Madhu Chopra. It is seen that all the surgeries are being conducted at the premises of the appellant and that the cash collected on consultancy or over the counter is being deposited in C.O. Nos. 232 & 233/Mum/2017 the bank account. The ledger of the income from consultancy services has been enclosed during appellate hearings. It is further seen that all the cash income earned by the appellant has been duly recorded in the books of account. It is also seen that the search authorities has arbitrarily calculated the amount or undisclosed income which is without base. Calculating on the average cost basis is vague, based on conjectures and surmises, and therefore the same is not justified and against the basic principal of natural justice. It is seen that the undisclosed income calculated by the search party is on the- basis of register maintained at the operation theatre containing the details of operations performed. It is seen that at the premises of the appellant company various types of surgeries are performed and applying an average rate for all the surgeries is absurd and not acceptable. It is held that since the appellant company had already offered the income in the respective years, there is no question of any undisclosed income earned by appellant company fur this year.

Since the Assessing Officer has made the addition of Rs.75,85,000/- based on the declaration made at the time of search action without considering the clarificatory statements filed subsequently and completely ignoring the submissions made during the assessment proceedings, the addition made is deleted. 4.6 No addition can be made on basis of loose papers found or register found which is further not corroborated by evidence. In support of the same I rely on the decision of CIT vs F.V.Kalyanasundaram (2007) 294 ITR 49 (SC), wherein the Hon'ble Supreme Court upheld the findings of the High Court and the Tribunal that loose pieces of paper on the basis of which the initial suspicion with regard to the undervaluation had been raised are vague. Furthermore, in the case of CIT vs A tarn Valves P Ltd ( 2009) "184 Taxman 6 (P&H), it has been held that the A.O. was not justified in estimating sales on the basis of loose slips without substantiating and without having any iota of evidence. A similar view has also been taken by the Mumbai Bench of the Tribunal in the case of S.P.Goyal v DC1T ( 2002) 82 ITD 85 (Mum) (TM), wherein it has been held that in the absence of evidence to show that the assessee invested in any property or any corroborative evidence, addition cannot be sustained on the basis of mere rough noting on loose sheets. Uncorroborated loose sheets or registers found during the search addition is deleted. Therefore the addition is deleted.

4.7 It is seen that this addition is made on the basis of a single register which is also not further corroborated by evidence by the A.O. Uncorroborated registers or loose papers found during; search cannot be made basis for making C.O. Nos. 232 & 233/Mum/2017 addition by the A.O. The A.O. has not brought anything on record to substantiate the addition. Therefore, the appellant's explanation is acceptable in the light of the Honourable Supreme Court decision in CIT vs Kalyanasundaram ( 2007) 294 1TR 49 (SC) and Honourable Mumbai Tribunal decision in SP Goyal vs DCIT ( 2002) 82 ITD 85 ( Mum Tribunal). Therefore, this ground of appeal is allowed

Hence, the ld. Departmental Representative submitted that this is clearly an afterthought by the assessee, not emanating out of the records. Furthermore, the ld. Departmental Representative submitted that the addition is not based upon any arbitrary reasoning. He submitted that a register was duly found which clearly mentioned surgeries were formed by Dr. Ashok Chopra and cash receipts which were not entered into the books of the account. It was on the basis of this register seized that Dr. Ashok Chopra declared the income of Rs.1.74 crores, which was also accepted by Smt. Madhu Chopra. Thus, it was only due to the incriminating material found, the assessee agreed for disclosure of Rs.1.74 crores as undisclosed income. The ld. Departmental Representative submitted that the said retraction was made by Smt.

Madhu Chopra after 4 months and it cannot be a basis for deleting the addition.

Madhu Chopra has clearly admitted the modus operandi and the fact of cash receipt in Q. No. 3 to the search. The same may gainfully be repeated hereunder:

Q.3 Please explain as to how the receipts and payments of Dr. Ashok Chopra recorded in the books ofA/c and also as to how do you control the same ?

Ans. My husband Dr. Ashok Chopra is a surgeon and he has a team of doctors assisting him in the operation. Whatever receipts are received at the front office for the purpose of any surgery etc. are received in My Proprietorship A/c as the credit card swiping machine is linked to my Proprietor^ Account. Miscellaneous expenditure required for the •maintenance of the clinic is paid from this proprietorship A/c directly. Remaining amount is transferred to the A/c of the company from wherein payments pertaining to surgery such as OT cost, surgeon cost etc. is paid. In addition to the same some cash is directly received by Dr. Ashok Chopra as surgery charges. The details of both types of receipts that is received at the front office and that received directly by Dr. Ashok Chopra is known to me. The receipt at the front office are sent to me by way of a list. The cash received directly by Dr. Chopra is handed over to me. The amount received at front office is reflected in the books of accounts. The cash received directly by Dr. Ashok Chopra and handed over to me is not reflected in the books of account and the same is used for making certain necessary payments in cash such as giving cash incentives to doctors, surgical fees to doctors and cash remaining is unaccounted income. A rough estimate of such unaccounted income has already been done by Dr. Ashok Chopra and the same is to the tune of Rs. 1.74 crores for 2 years.

There was clear admission u/s. 132(4). Hence, it cannot be said that the addition in the present case is not based upon incriminating material found during search. Hence, the cross objection filed by the assessee challenging the validity of the jurisdiction, is dismissed. C.O. Nos. 232 & 233/Mum/2017 24. Now we come to the merits of the case. In this regard, it is noted that in the statement of oath u/s. 132(4) of the Act recorded on 24.1.2011, i.e., the date of search, Smt. Madhu Chopra, the director of the company has clearly admitted to the estimate of such unaccounted income already made by Dr. Ashok Chopra said to be to the tune of Rs.1.74 crores for two years. This admission during search corroborates the statement given by Dr. Ashok Chopra the performing surgeon which was duly based upon register found by the Revenue which disclosed surgeries performed and unaccounted cash payments. The statement of Dr. Ashok Chopra in this regard may be gainfully referred as under:

"Q.11 As per Annex A-2, you have performed more than 230 surgeries since July 2009 (Since the formation of above company). Where is it accounted in your books of account? If the average receipt per surgery performed by you is taken at Rs.1.3 lakhs (as per your admission above), then the turnover from surgery comes to Rs.2.99 crores. Apart from these, Rs.50 lakhs turnover is from cosmetic & dermatological procedures. Thus the total receipts come to Rs.3.49 crores. However, the receipts as per books of account are Rs.1.75 Crores (in both the concerns since April, 2OOg).Kindly explain and reconcile the difference.

Ans. We have been accepting the receipts in respect to these liposuction surgeries sometimes in cheque and sometime in cash, as per the convenience of the patient. I am from medical background and it is possible that certain number of entries of cash receipt has been inadvertently left out, since we do not have a full time accounting staff. Since I am unable to reconcile the exact amount which has been left unaccounted, I am offering the sum of Rs.1.74 crores, which is shortfall in the amount of receipts as the unaccounted income of my company for financial year 2009-10 and 2010-11. Q.12 Kindly give the details of how the unaccounted receipts, as admitted above by you in the above question, should be accounted for F.Y. 2009-10 and 2010-11? C.O. Nos. 232 & 233/Mum/2017 Ans. As stated earlier, I have not maintained the details of cash receipts and hence cannot exactly account the same as per financial year. I offer that the same may be divided of ratio of months in F.Y.2009-10 and 2010-11 till date (i.e. 8.5 months for F.Y.2009-10 and n months for F.Y. 2010-11). The working is as under: __8.5__ x 174 lakhs ~ 75.85 lakhs for F.Y.2009-10 8.5 + 11 _11_ x 174 lakhs = 98.15 lakhs for F.Y.2010-11 8.5 + 11 Q.13. I am showing various loose papers impounded vide Annexure A-3. It is seen that your concerns are paying 20% incentive of the profits earned by the cosmetologist and dermatologist in cash (i.e. to Nitu Sharma, Anju Methil, Reshma Hegde, etc,) It is also seen that your concern has made cash made in many other instances also(i.e. 30% of payment made to Milan Doshi is by way of cash). Such incentives and cash payments have not been accounted in books. Kindly explain the same.

Ans. We have been paying such incentives and other amounts in cash to rein in the good talents, which is short in our field. / admit that such cash payments are unaccounted and were made from the unaccounted cash receipt of Rs.174 lakhs as I have already admitted above. Q.14. Do you want to state anything else? Ans. I once again reiterate that I am offering unaccounted receipt estimated at Rs.75.85 lakhs for F.Y. 2009-10 and 98.15 lakhs for F.Y.10-11 as additional income for the said years in the hands of the company Studio Aesthetique Put. Ltd, of which I am a Director. I also state that certain unaccounted cash payments have been made from such receipts. The balance has been spent on various lifestyle and other personal expenses which I am unable to recollect. To sum up I am offering an additional income of Rs.174 lakhs on account of unaccounted receipts in the hands of the company for the respective financial years. Considering my stand, I pray that no penalty proceedings should be initiated with respect to this additional income offered."

With regard to my statement in relation to answer no. 3 of Statement dated 25.01.2011 (Raj Classic) in relating to unaccounted income in relation to Studio Aesthtique, it is clarified that the working for the unaccounted income will be done based on the seized papers and books of accounts and the unaccounted income will be declared as undisclosed income. it is to clarify that an amount of Rs.1.74 crores based on estimates done on the date of search is unjustified.

She had only disputed the estimate of Rs.1.74 crores and she had unambiguously submitted that the working of unaccounted income will be done based upon the seized materials and books of account. Later on, the Assessing Officer has clearly noted that the ld. Counsel of the assessee was provided with document seized on 03.11.2012 and no submission whatsoever was made by the assessee. As evident from the above, the above can by no stretch of imagination be treated as retraction of income already offered by the assessee. In the said retraction filed after 5 months, the director of the C.O. Nos. 232 & 233/Mum/2017 assessee company is only stating that the estimate is not correct and that the working of unaccounted income will be done based on the seized materials and books of account. Despite being provided with the copy of seized documents, etc, there was no submission by the assessee. Hence, it can clearly be said that the assessee’s dispute of the quantification of amount of Rs.1.74 crores is not cogent. By accepting that the unaccounted income has been received and by not submitting the working as per her despite being provided with the seized materials, Smt. Madhu Chopra is clearly accepting that the disclosure of Rs.1.74 crores by Dr. Ashok Chopra and which was subsequently confirmed by her also, is cogent and there is no infirmity in the same.

Moreover, we also note that there is no retraction whatsoever by Dr. Ashok Chopra.

He was a director of the assessee company and also the performing surgeon. As per admission by both the directors, it was Dr. Ashok Chopra who performed the unaccounted surgeries and received cash. It was Dr. Ashok Chopra who gave the detailed working of the undisclosed income.

Kalyanasundaram [2007] 294 ITR 49 (SC). In our considered opinion, the said case law is not at all applicable on the facts of the present case. In the said case, i.e., P.V.

Kalyanasundaram (supra), the issue was relating to jottings in loose sheets and contradictory statement of the seller with regard to on-money in the case of sale of immovable property. We find that in the present case, facts are clearly distinguishable.

The ld. Commissioner of Income Tax (Appeals) has mentioned that register or loose papers cannot be made basis for the addition. That the Assessing Officer has not brought anything on record to substantiate the addition. We find this clearly contradictionary. The register detailing surgeries performed and cash receipt was very C.O. Nos. 232 & 233/Mum/2017 much found. It was based upon this register, that Dr. Ashok Chopra has given his admission which was subsequently corroborated and admitted by Smt. Madhu Chopra.