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Income Tax Appellate Tribunal, DELHI BENCH ‘D’, NEW DELHI
PER J.SUDHAKAR REDDY, A.M. This is an appeal filed by the Assessee directed against the order of the Ld.Commissioner of Income Tax (Appeals), Meerut dated 25.3.2013 pertaining to the Assessment Year (A.Y.) 2008-09.
Facts in brief:- The assessee is a company and is engaged in the business of running of a nursing home and hospital. It also declared income from rent and other sources. It filed its return of income on 26.9.2008 declaring nil income. The Assessing Officer (AO) completed the assessment u/s 143(3) of the Income Tax Act 1961 (the Act) on 16.12.2010 determining the total income at Rs. ‘ nil’ after inter alia making the following disallowances. (a) u/s 40(a)(ia) ) Rs.64,699.00 (b) u/s 36(1)(va) r.w.s. 2(24)(x) at Rs.1,36,422/-. The Ld.CIT, Meerut revised this order on the ground that it is erroneous and prejudicial to the interest of Revenue. The grounds on which the Ld.CIT(A) revised the order are listed below.
Kamna Medical Centre P.Ltd., Meerut A.Y. 2008-09 (a) The assessee did not maintain the books of accounts as prescribed u/s 44AA r.w. rule 6F(3). (b) The AO accepted the negligible profit of Rs.4,35,875/- without making enquiry and verification. (c) The AO did not call for details regarding additions in building of Rs.67,51,365/- and regarding admissibility of depreciation, (d) Sundry creditors of Rs.45,18,908/- and unsecured loans of Rs.47,60,500/- were not enquired into properly. The Ld.CIT concluded as follows. (i) The books of accounts are rejected by invoking the provisions of S.145(3) of the Act and the net receipts are estimated at and net profit estimated @ 18% of receipts i.e. Rs.50.40 lakhs. (ii) The AO should verify the details of claim of depreciation of the assessee on additions to buildings, (iii) The sundry creditors and unsecured loans have to be verified by the AO to ascertain their genuineness.
Aggrieved the assessee is in appeal.
We have heard Ms.Sulekha Verma, Ld.CIT, D.R. on behalf of the Revenue and Shri C.S.Anand, the Ld.Counsel for the assessee.
On a careful consideration of the facts and circumstances of the case, perusal of papers on record, orders of lower authorities and case laws cited, we hold as follows.
As regards the directions of the Ld.CIT to AO to verify details of the claims of depreciation made by the assessee, the AO in the fresh assessment proceedings held that, the assessee made no claim for depreciation. Thus this observation of the Ld.CIT, Meerut is factually in correct. There is neither an error in the original order of the AO passed u/s 143(3) of the Act on 16.12.2010, nor there is any prejudice caused to the Revenue. Hence this ground of revision is devoid of merit.
Kamna Medical Centre P.Ltd., Meerut A.Y. 2008-09 6.1. Similarly on the directions of the Ld.CIT given to the AO to verify the unsecured creditors, unsecured loans, the AO in his fresh assessment order passed u/s 143(3) r.w.s.263 of the Act, did not draw any adverse inference. This direction of the Ld.CIT was in the nature of directing rowing enquiries. No specific finding was arrived at by the Ld.CIT that there was prejudice caused to the Revenue or that there was an error in the original order of the AO passed u/s 143(3) of the Act. Thus this ground of revision is bad in law.
6.2. This leaves us with the grievance against the findings of the Ld.CIT, Meerut that the assessee was in error in not maintaining he records and books of accounts as prescribed u/s 44AA r.w. rule 6F(3) and the action of the Ld.CIT in rejecting the books of accounts and estimating the net receipts as well as the net profits. This finding of the Ld.CIT is wrong. Maintenance of records and books as prescribed u/s 44 (GG)(AA) r.w.s. 6F(3) of the Act is applicable to only professionals. The assessee being a limited company, cannot be said to be carrying on any profession. The assessee company has maintained books of accounts as required under law.
6.3. The Delhi Bench of the ITAT in ITO vs. Asalok Nurshing Home P.Ltd. (2006) 103 TTJ (Del) 820 order dt. 19.5.2006 at page 3 para 10 and 11 held as follows. “10. We have considered the rival submissions. Rule 6(F) r/w Section 44AA(I) of the Act casts an obligation on a person carrying a medical profession to keep and maintain such books of account and other documents which will enable the AO to compute his total income. Sub-section (3) of Section 44AA empowers the Board to prescribe the list of documents to be maintained as per the rules framed in this behalf. Rule 6F(3) mandates for maintenance of daily case register. The assessee in the present case is a private limited company incorporated under the Companies Act. Primary question that arises for our consideration is as to whether a company could carry on a profession. For a person to be engaged in a profession personal Kamna Medical Centre P.Ltd., Meerut A.Y. 2008-09 skill is necessary. A company being an artificial person cannot be said to possess any personal skills. A company being an artificial person does not have a body and, therefore, cannot be engaged in any profession. It can neither have an intellectual skill or any manual skill. We are also of the view that even taking a broader and a more comprehensive meaning of the term profession one cannot extend the same to the case of an incorporated company as being capable of carrying of a profession. The skill involved in carrying out professional activity is predominantly mental or intellectual rather than physical or manual. We are, therefore, of the view that the requirement of Rule 6F(3) cannot apply to a person which is an incorporated company.
Apart from the above, we also find the AO has not given any basis whatsoever for rejecting, the books of account of the assessee. There is no specific finding or reasons for rejecting the books of the assessee. The books of account of the assessee are duly audited and it was incumbent on the part of the AO before rejecting the books of accounts to point out specific defects therein. We are, therefore, of the view that the CIT(A) was fully justified in deleting this addition made by the AO. We, therefore, confirm the order of the CIT(A) and dismiss this appeal by the Revenue.”
6.4. Similarly is the decision of Hyderabad Bench of the Tribunal in Shalini Hospitals vs. ACIT 108 ITD 534 Hyd. wherein at para 5.12 held as follows. “In the light of the above discussion, we hold that the activities of the nursing home in the instant case constitute business activity, and since the turnover of the assessee during the years under appeal was below the limit of Rs.40 lakhs prescribed in Clause (a) of S.44 AB, the assessee was not required for the years under appeal, to get its accounts audited in terms of S.44AB.”
6.5. Thus the foundation on which the Ld.CIT, Meerut came to a conclusion that the books of accounts of the assessee have to be rejected by invoking the provisions of S.145(3) is not legally tenable. This is a case where Ld.CIT has rejected the books of accounts, without even examining
Kamna Medical Centre P.Ltd., Meerut A.Y. 2008-09 the same. The turnover as well as profits are estimated on surmises and conjectures. This cannot be sustained as it is totally arbitrary and illegal.
6.6. In the case of M/s Spectra Sahres and Scrips (P) Ltd. vs. CIT, 354 ITR 35 (AP) the Hon’ble A.P. High Court had considered a number of judgements of the Hon’ble Supreme Court as well as various High Courts and culled out the following principles that govern the powers of the Ld.CIT u/s 263 of the Act.
“From the above decisions, the following principles as to exercise of jurisdiction by the Commissioner under section 263 of the Act can be culled out: (a) The Commissioner has to be satisfied of twin conditions namely : (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) ) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but it is prejudicial to the Revenue-recourse cannot be had to section 263(1) of the Act. (b) Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue: or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. (c) To invoke the suo motu revision powers to reopen a concluded assessment under section 263, the Commissioner must give reasons; that a bare reiteration by him that the order of the -Income-Ta x Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, will not suffice; that the reasons must be such as to show that the enhancement or modification of the assessment or cancellation of the assessment or directions issued for a fresh assessment were called for, and must irresistibly lead to the conclusion that Kamna Medical Centre P.Ltd., Meerut A.Y. 2008-09 the order of the Income-tax Officer was not only erroneous but was prejudicial to the interests of the Revenue. Thus, while the Income-tax Officer is not called upon to write an elaborate judgement giving detailed reasons in respect of each and every disallowance, deduction, etc., it is incumbent upon the Commissioner not to exercise his suo motu revisional powers unless supported by adequate reasons for doing so ; that if a query is raised during the course of the scrutiny by the Assessing Officer, which was was answered to the satisfaction of the Assessing Officer, but neither the query nor the answer were reflected in the assessment order, this would not by itself lead to the conclusion that the order of the Assessing Officer called for interference and revision. (e) The Commissioner cannot initiate proceedings with a view to start Fishing and roving inquiries in matters or orders which are already concluded; that the Department cannot be permitted to begin fresh litigation because of new views they entertain on facts or new versions which they present as to what should be the inference or proper inference either of the facts disclosed or the weight of the circumstance; that if this is permitted, litigation would have no end except when legal ingenuity is exhausted. (f) Whether there was application of mind before allowing the expenditure in question has to be seen; that if there was an inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders u/s 263 merely because he has a different opinion in the matter; that it is only in cases of lack of inquiry that such a course of action would be open; that an assessment order made by the Income-tax Officer cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately; there must be some prima facie material on record to show that the tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation, a lesser tax than what was just, has been imposed. (g) The power of the Commissioner u/s 263(1) is not limited only to the material which was available before the AO and, in order to protect the interests of the Revenue, the Commissioner is entitled to examine any other
Kamna Medical Centre P.Ltd., Meerut A.Y. 2008-09 records which are available at the time of examination by him and to take into consideration even those events which arose subsequent to the order of assessment.”
6.7. Applying these propositions to the facts of the case, we have to necessarily hold that the revision made by the Ld.CIT by invoking her powers u/s 263 is bad in law. In the result the order passed u/s 263 of the Act on 25.3.2013 for the A.Y. 2008-09 is quashed as bad in law.
In the result the assessee’s appeal is allowed. Order pronounced in the Open Court on 27th January, 2016.