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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM
आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned appeal filed by the Revenue, pertaining to Assessment Year (AY) 2013-14, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals)-4, Surat [in short “the ld. CIT(A)”], in Appeal No.CIT(A),Surat-4/10652/2016-17, dated 09.12.2022, which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), dated 30.11.2016.
The grounds of appeal
raised by the Revenue are as follows:
1. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in holding that the provision of Sec. 115BBE of the Act are not applicable, despite the facts that the addition of Rs.l,95,00,000/- was made of 68 of the I.T. Act as the receipt was not declared in the ROI and the receipt of Rs. 1,95,00,000/- remain unexplained as per the provision of sec.68 of the I.T. Act.
160/SRT/2023/AY.2013-14 M/s Surat Life Care Pvt. Ltd.
2. In addition to ground No.1, on the facts and in the circumstances of the case and in law, the CIT(A) has erred in holding that Rs.1,95,00,000/- is a business income of the assessee as the said income is already offered in the revised return, has to be taxed as income from business despite the fact that the income is not included in the audit report and assessee also has failed to explain the source/nature of income.
3. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in allowing exemption u/s 35AD of the I.T. Act despite the fact that the assessee has not filed required details including From No. 10CCB as per Rule 18BBB of the I.T. Rule, has not claimed such exemption in the ROI filed u/s 139(1) of the I.T. Act and during the course of physical verification has totally failed to prove the condition required for the exemption.
4. Without prejudice and addition to ground No. 1, 2 & 3, on the facts and in the circumstances of the case and in law, the CIT (A) has erred in allowing deduction without appreciating the facts that the revision of return sec. 139(5) of the Act will apply only to cases of 'omission or wrong statements' and not to the cases of intentional mis-statement and false claims.
5. In addition to ground No. 3 & 4, on the facts and in the circumstances of the case and in law, the CIT(A) has ignored the finding and observation of the assessing officer in remand report whereby the statement of supplier of hospital beds was taken on oath u/s 131 during remand proceedings and in response to Question no 9, the supplier stated that during FY 2012- 13, he had raised bills of only 79 beds and supplied 24 beds as complementary which is clearly a make believe story as complementary supplies cannot be around 30 % of billed supplies.
6. In addition to ground No. 3, 4 & 5, on the facts and in the circumstances of the case and in law, the CIT(A) has ignored the findings of assessing officer in the remand report where in it is clearly pointed out that the number of beds in hospital at the time of survey was stated to be 73 by Dr Viradia which is closer to figure of beds (79) whose bills have been raised by the supplier i.e. M/s Yogesh Surgicals and hence the benefit of section 35AD is prima facie as well as factually not available to the assessee for AY 2013-14.
In addition to ground No. 3, 4, 5 & 6, on the facts and in the circumstances of the case and in law, the CIT(A) has failed to appreciate the facts of the case that during the course of survey on 04.03.2014 number of the beds were only 73 and further at a time of physical verification on 23.08.2018 by the Inspector of the department during remand proceedings the no. of beds available with the assessee Company was only 92 i.e. less than the prescribed limit and further the number of beds as on 23.08.2018 can in no way alter the factual position as prevailing during period in question i.e. F.Y. 2012-13.
160/SRT/2023/AY.2013-14 M/s Surat Life Care Pvt. Ltd.
8. On the facts and in the circumstances of the case and in law, the Ld. CIT (A)-4 ought to have upheld the order of the Assessing Officer.
It is, therefore, prayed that the order of the Ld. CIT (A) may be set aside and that the assessing officer may be restored to the above extent.”
Brief facts, as discernible from the orders of lower authorities are that assessee before us is a Private Limited Company. In assessee`s case a notice u/s 148 of the Income Tax Act, 1961 was issued on 09.02.2016 and duly served upon the assessee. In response, the assessee has filed a letter on 09.09.2015 and submitted that the original return was filed on 12.10.2013 and thereafter revised return was filed on 22.09.2014 and again re-revised return of income was filed on 30.03.2015 vide e-filing acknowledgement no.545357981300315. The assessee requested to consider the re- revised return of income filed on 30.03.2015, vide e-filing acknowledgement no.545357981300315, as return of income filed in response to notice u/s 148 of the I.T. Act, 1961 and also requested to provide the reasons recorded for reopening of the case. The reasons recorded for reopening were provided to the assessee, vide letter dated 29.04.2016 and duly served upon the assessee. The assessee, vide its letter dated 14.09.2015 raised objection for initiating proceedings u/s 148 of the Act and same were summarily disposed of by the assessing officer vide assessing officer letter dated 17.11.2015 and same was duly served upon the assessee on 01.12.2015. Thereafter, the notice u/s 143(2) of the Act, was issued 06.05.2016 and duly served upon the assessee. In response to the aforesaid notices, the assessee, attended the hearing.
The assessing officer noted that a survey action u/s 133A of the Income Tax Act was carried out at the business premises of the assessee on 04.03.2014. During the course of the survey, loose papers
160/SRT/2023/AY.2013-14 M/s Surat Life Care Pvt. Ltd. reflecting receipts were found which were not reflected in the books of account of the assessee. The same are inventorised as per “Annexure A-1” and Page no. 71 & 72 of the said loose papers reflected unaccounted receipts in the name of various doctors amounting to Rs.1,95,00,000/-. Dr. Samir Gami, one of the Directors of the assessee, accepted that the alleged receipts reflected in the loose papers are unaccounted. Thus, on the basis of the incriminating materials and the admission to the effect that receipts were unaccounted, the assessee made a voluntary disclosure of Rs.1.95 crore for the F.Y. 2012-13 relevant to assessment year 2013-14.
The assessing officer noted that these loose papers contained details about unaccounted payments amounting to Rs.2,12,99,550/- also. Out of this, part is cash payment and part is cheque payment. The cheque payments made for investment are duly accounted in the books of account of the assessee. Dr. Samir Gami admitted that these cash payments are not reflected in the book of the assessee. Thus, it is evident that the unaccounted income earned by the assessee through undisclosed means has been used for unaccounted investment, as reflected in the loose papers impounded. The assessee filed its return of income for the year under consideration on 12.10.2013, declaring total loss of Rs.76,07,560. The same included business loss of Rs.23,90,076/- and allowed depreciation of 52,17,484/-. However, after the survey proceedings and disclosure of Rs.1.95 Crores, the assessee filed a revised return on 30.03.2015, claiming loss of Rs.3,36,32,117/-, which was not claimed prior to survey proceedings. In the computation of income, the assessee claimed business loss of Rs.23,90,076/-, disclosed income of Rs.1,95,00,000/- and allowable depreciation of Rs. 32, 98,011/-. In the revised return, the assessee
160/SRT/2023/AY.2013-14 M/s Surat Life Care Pvt. Ltd. claimed deduction u/s 35AD of Rs.3,16,29,353/- @ 100% of the expenditure of capital nature incurred. Thereafter, for reasons known to the assessee only, on the return was again revised wherein the assessee claimed deduction u/s 35AD of the Act of Rs.4,74,44,030/- @ 150% of the expenditure. Thereafter, the assessee`s case was reopened u/s 147 of the Act after duly recording reasons and obtaining statutory approval from the competent authority as per the Income Tax Act.
During the course of assessment proceedings it was noticed by the assessing officer that the assessee has filed two revised returns in addition to the original return filed on 12.10.2013.There were some discrepancies in the two returns of incomes. In the original return of income there was no claim of depreciation as well as deduction u/s 35AD of the Act. However, after the survey action, the assessee filed a revised return claiming depreciation of Rs.21,66,727/- as well as deduction u/s 35AD of the Act of Rs.3,16,29,353/- @ 100% of the expenditure. However, the Schedule DPM, forming part of the return, was empty; leaving no details of depreciation. The assessee again filed revised Return of Income in which deduction u/s 35AD of the Act was revised to Rs.4,74,44,030/- @ 150% of the expenditure. However, no documentary evidences viz-a-viz details of expenditure of capital nature incurred, date of commencement of operation of the new hospital, copy of various licenses and permission required and number of beds in the new hospital. In view of the same a letter requesting the assessee to show- cause, as to why its claim u/s 35AD should not be disallowed for want of supporting documents and the unaccounted income disclosed during survey proceedings u/s 133A of the Act on 04.03.2014 of Rs.1,95,00,000/- and should be taxed u/s 160/SRT/2023/AY.2013-14 M/s Surat Life Care Pvt. Ltd. 115BBE of the Act. It was also reminded to the assessee that the benefit of section 139(5) of the Act cannot be claimed by a person who has filed fraudulent returns. The Revision is allowed only if the omission was unintentional. Section 139(5) will apply only to cases of 'omission or wrong statements' and not to cases of concealment or false statements.
7. In response to the show cause notice, the assessee submitted that it has revised the return to claim deduction u/s 35AD of the Act. However, no ‘documentary evidences' have been submitted by the assessee to substantiate its claim. This section has been introduced w.e.f A.Y.2010-11 to provide incentive to those assessee who set up new business units in certain specified areas/ fields. Thus, usually before making huge investments in such specified business the assessee may be well aware of the incentive /benefits available to him. However, in the case of the assessee no such claim has been claimed by the assessee while filing the original return. However, after the survey proceedings and disclosure of Rs.1.95 Crores, the assessee filed a revised return claiming deduction u/s 35AD of the Act, as an afterthought. The accounts of the assessee, have been audited u/s 44AB of the Act, by a qualified Chartered Accountant. In the audit report u/s 44AB of the Act, too there is no mention that the assessee is eligible for deduction u/s 35AD of the Act. Moreover, the assessee failed to furnish any documentary evidence to prove that it satisfies all the conditions laid down in section 35AD(2) of the Act. In the absence of documentary evidences, the claim of the assessee of deduction u/s 35AD of the Act, of Rs.4,74,44,030/- was rejected by the assessing officer.
160/SRT/2023/AY.2013-14 M/s Surat Life Care Pvt. Ltd.
The assessing officer also observed that disclosure of unaccounted income made by Dr. Samir Gami, one of the Directors of the assessee, of Rs.1,95,00,000/-, on the basis of the incriminating details of the unaccounted transactions reflected in the loose papers was not offered for taxation. In the statement recorded Dr. Samir Gami had admitted that Rs.1,95,00,000/- was the unaccounted income of the assessee firm, over and above, it regular income and no expenses /deduction will be claimed against the same. It was also admitted by him that this unaccounted income derived through undisclosed means would be fully offered for taxation. If the assessee is eligible for deduction u/s 35AD of the Act there was no need for it to enter into unaccounted transactions, thereby evading tax. In view of the above, taking into consideration of the incriminating materials impounded during survey action and the statement u/s 131 of the Act of Dr. Samir Gami, one of the Directors of the assessee, the assessing officer held that Rs.1,95,00,000/- is as an unaccounted income of the assessee -firm and was added to the total income of the assessee u/s 68 of the Act and is taxed u/s 115BBE of the Act.
9. Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has deleted the addition made by the Assessing Officer. The ld CIT(A) noted that undisclosed hospital receipts found during the course of Survey need to be taxed as income from business and are to be brought to tax as per the normal provisions of the Act. The said income was already offered in the revised return, hence has to be taxed as income from business, and provisions of section 115BBE of the Act are not applicable, therefore, ld CIT(A) deleted the addition made by the assessing officer of Rs. 1,95,00,000/-. Regarding the other issue,
160/SRT/2023/AY.2013-14 M/s Surat Life Care Pvt. Ltd. whether the claim of deduction u/s 35AD of the Act which is not made in the original return can be made in the revised return filed.The ld CIT(A) held that in the assessee's case, as the assessee has filed the original return in time as per the provisions of Section 139(1) of the Act, the revised return filed as per the provisions of Section 139(5) of the Act, claiming the deduction u/s 35AD of the Act for the first time needs to be allowed to the assessee. Therefore, the deduction u/s 35AD of the Act of Rs.4,74,44,030/- being 150% of the capital expenditure incurred before the commencement of business was allowed to the assessee.
Aggrieved by the order of ld. CIT(A), the Revenue is in appeal before us.
The Learned Senior Departmental Representative (ld. Sr. DR) for the Revenue, argued that in the original return filed u/s 139(1) of the Act, by the assessee, there was no claim of deduction u/s 35AD of the Act. Further, while filling the revised return u/s 139(5) of the Act, the assessee has claimed deduction u/s 35AD of Rs.4,74,44,030/-. During the course of assessment proceedings, the assessee had failed to submit any document which may require to substantiate his claim. The section 35AD has been introduced w.e.f. F.Y. 2009-10 to provide incentive to the assessee who set up new business units in certain specified areas, thus usually before making huge investments in such specified business, the assessee may be well aware of the incentive/benefits available to him. However, in the case of the assessee, no such claim was made in the original return filed. Further, the accounts of the assessee have been audited u/s 44AB of the Act, by the qualified Chartered Accountant. In the audit report too there
160/SRT/2023/AY.2013-14 M/s Surat Life Care Pvt. Ltd. was no mention about the eligibility of deduction u/s 35AD of the Act.
The ld DR further stated, the assessee has not explained the nature of the amount disclosed at Rs.1,95,00,000/- therefore, it should be taxed under the head income from other sources at the rates prescribed under section 115BBE of the Act.
On the other hands, Shri P. M. Jagasheth, Learned Counsel for the assessee begins by pointing out regarding the taxation of additional income, under section 115BBE of the Act, of Rs.1,95,00,000/-, as offered by the assessee during the course of survey. The ld Counsel stated that assessee did not have any other source of income other than the income which is generated from the hospital owned by the assessee company. The assessing officer has not given any finding that the assessee company has any other source of income other than from the hospital. The ld Counsel, relied upon the following judicial pronouncement to prove that the income declared during Survey is a business income and cannot be taxed as per the provisions of section 68 of the Act. (i) “CIT V/s. Shilpa Dyeing & Printing Mills (P) Ltd (219 Taxman 279) (Guj.). The ld Counsel further submitted that assessee had declared the additional income on the basis of loose papers found during the course of Survey which showed that the receipts were pertaining to the hospital received in the names of various doctors attached to the hospital.
About claim of deduction under section 35AD of the Act, the ld Counsel, argued that the assessing officer during remand proceedings
160/SRT/2023/AY.2013-14 M/s Surat Life Care Pvt. Ltd. has recorded the statement of Mr. Kirit N. Panchal, from Yogesh Surgicals, the firm which has supplied the beds and other equipments to the assessee's hospital. In the said statement, Mr. Kirit Panchal has stated that he has supplied 64 semifaller beds and 36 ICU beds and 3 hydraulic emergency trolley beds. Thus, the supplier has also confirmed that he has supplied more than 100 (64+36+3) beds to the assessee hospital which fulfills the eligibility that the assessee has more than 100 beds to claim deduction u/s 35AD of the Act. The assessing officer vide letter dated 05.09.2018 has submitted the remand report wherein he has stated that the assessee has only 92 beds as against 100 beds as required for eligibility u/s 35AD of the Act. In this regard, Ld Counsel submitted that the Inspector from the assessing officer's office who visited the hospital has not counted the second beds in the twin sharing rooms under the presumption that the second bed is for the patient's attendant. This way, ld Counsel defended the order passed by ld CIT(A) and stated that ld CIT(A) has passed the speaking order considering all facts, therefore, conclusion reached by ld CIT(A) may be upheld.
We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee. We note that assessee submitted before us the following documents and evidences, viz: (1) Reason recording for the approval for initiating proceedings u/s 147 of the Income Tax Act, 1961 (vide Pb.1 to 3), (2) Acknowledgement of ROI, computation of Income and Tax Audit Report for AY. 2013-14 (vide Pb.4 to 7), (3) Reply submitted by Yogesh Surgical Works, Surat dated 30.08.2018 to the summons u/s 131 of the Income Tax Act, 1961 (vide Pb.18 to 24), (4) Submission and Explanation filed during the remand proceedings (vide Pb.25 to 41), (5) Approval of 160/SRT/2023/AY.2013-14 M/s Surat Life Care Pvt. Ltd. Hospital under sub-clause (b) of clause (ii) of proviso to sub-clause (viii) of clause (2) of section 17 of the I.T. Act, 1961 (vide Pb.42 to 43), (6) Application for renewal of Income tax Exemption Certificate under sub-clause (b) of clause (ii) of the proviso to sub-clause (viii) of clause (2) of section 17 of the I.T. Act, 1961 (vide Pb.44 to 50).
We have gone through the above documents and evidences and noted that in the computation of income the assessee has offered the additional income of Rs.1,95,00,000/-, as offered during the course of Survey. In spite of offering this additional income found undisclosed during the course of Survey, the assessee returned loss in both the revised returns only because of claim of deduction u/s 35AD of the Act. Thus, if the assessee has already offered the additional income disclosed during the course of Survey in the revised return filed, there was no reason to add the same again in the assessment. Further, the assessing officer has brought it to tax u/s 68 r.w.s 115BBE of the Act. During the course of Survey in the hospital premises, unaccounted receipts of the hospital in the name of certain doctors were found. As the receipts in question are relating to the business operations of the assessee's hospital. Therefore, such income should be brought to tax as the business income u/s 28 of the Act. Therefore, we note that additional income earned in the course of business ought to be taxed as regular income and not u/s 68 of the Act. We note that in the assessee`s case, the entire profit including additional income of Rs.1.95 Crores has been shown in the return of income as part of profit or gain of business of hospital. Therefore, the provisions of section 115BBE of the Act ought not to be invoked by the assessing officer. We note that ld Counsel relied upon the decision of Hon'ble Gujarat High Court in the case of Shilpa Dyeing & Printing Mills (P)
160/SRT/2023/AY.2013-14 M/s Surat Life Care Pvt. Ltd. Ltd (Supra), wherein the Hon'ble Court had considered income disclosed in the survey proceedings as business income and not income from unexplained sources. Hence, it was submitted that there is no evidence with the assessing officer as to earning of income from any other source rather there was evidence as to earning from hospital business as found during the survey proceedings.
Therefore, ld CIT(A) has rightly noted that the assessee is in the business of running of the hospital. During the course of survey under section 133A of the Act, some loose papers were found showing unaccounted hospital receipts. Since the hospital receipts are part of the business receipts, therefore ld CIT(A) held that the provisions of section 68 cannot be made applicable, in view of the decision of the jurisdictional High Court in the case of Shilpa Dying & Printing Mills Pvt. Ltd. (Supra). Section 68 of the Act can be invoked only if no explanation is offered by the assessee about the nature and source of income / receipts and such explanation is not found to be satisfactory in the opinion of the Assessing Officer. However, in the instant case, the loose papers found during the course of Survey and the statements of the directors recorded during the course of Survey showed that the undisclosed receipts were pertaining to the undisclosed income of the hospital ran by the assessee- company. Therefore, ld CIT(A) held that the undisclosed hospital receipts found during the course of Survey need to be taxed as income from business and are to be brought to tax as per the normal provisions of the Act. The said income is already offered in the revised return, therefore has to be taxed as income from business, and therefore the provisions of section 115BBE of the Act are not applicable with reference to the said income. Based on above reasoning, the ld CIT(A) deleted the addition made by the assessing
160/SRT/2023/AY.2013-14 M/s Surat Life Care Pvt. Ltd. officer of Rs. 1,95,00,000/-. We have gone through the above findings of ld CIT(A) and noted that there is no infirmity in the order of ld CIT(A). That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal Nos.1 and 2 of the Revenue are dismissed.
18. Coming to ground Nos. 3 to 8 raised by the Revenue, which relate to disallowance of deduction of capital expenditure u/s 35AD of the IT Act. Learned DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. On the other hand, ld Counsel defended the order passed by the ld CIT(A). We have already narrated the facts of the assessee`s case in above para hence we do not repeat them.We note that during the course of Appellate Proceedings, the assessee submitted all the details of capital expenditure. As the capital expenditure details were not furnished before the assessing officer, the details furnished during Appellate Proceedings were in the nature of additional evidence under Rule 46A and hence, were forwarded by ld CIT(A) to the assessing officer for verification and remand report. The assessing officer vide letter dated 05.09.2018 has submitted the remand report wherein he has stated that the assessee has only 92 beds as against 100 beds as required for eligibility u/s 35AD of the Act. The assessee submitted a rejoinder dated 10.10.2022 before ld CIT(A). In the said rejoinder, the assessee has stated that the Inspector from the assessing officer's office who visited the hospital has not counted the second beds in the twin sharing rooms under the presumption that the second bed is for the patient's attendant. The assessee has also submitted before ld
160/SRT/2023/AY.2013-14 M/s Surat Life Care Pvt. Ltd. CIT(A), the photographs of the twin sharing rooms with bed numbers in support of his claim. It was further submitted sharing rooms the attendants are provided small sofas and not the beds. The assessing officer during remand proceedings has recorded the statement of Mr. Kirit N Panchal, from Yogesh Surgicals, the firm which has supplied the beds and other equipments to the assessee's hospital. In the said statement, Mr. Kirit Panchal has stated that he has supplied 64 semifaller beds and 36 ICU beds and 3 hydraulic emergency trolley beds. Thus, the supplier has also confirmed that he has supplied more than 100 beds to the assessee hospital which fulfills the eligibility that the assessee has more than 100 beds to claim deduction u/s 35AD of the Act. All these beds and other capital goods to the tune of Rs.3,16,29,353/- were purchased by the assessee before the date of commencement of the hospital and hence, was found to be eligible for deduction u/s 35AD of the Act.
The ld CIT(A) had also examined the other aspect, which was whether the claim of deduction u/s 35AD of the Act, which is not made in the original return can be made in the revised return filed. The assessee submitted during appellate proceedings, that the said claim can be made in the revised return as per the ratio of decision of jurisdictional High Court in the case of PCIT Vs Babubhai Ramanbhai Patel reported in 84 Taxmann.com 32 (Guj.) 2017. In the said decision, the Hon'ble High Court held that where the assesse having filed the original return u/s 139(1) of the Act, revises the same within the period prescribed u/s 139(5) of the Act, the original return would not survive and thus, the claim as well as carry forward of any loss which is raised for the first time in revised return has to be allowed. In the assessee's case, as the assessee has filed the original
160/SRT/2023/AY.2013-14 M/s Surat Life Care Pvt. Ltd. return in time as per the provisions of section 139(1) of the Act, the revised return filed as per the provisions of section 139(5) of the Act, claiming the deduction u/s 35AD of the Act for the first time needs to be allowed to the assessee. Therefore, the deduction u/s 35AD of the Act of Rs.4,74,44,030/- being 150% of the capital expenditure incurred before the commencement of business has to be allowed to the assessee. Therefore, ld CIT(A) has allowed the deduction u/s 35AD of the Act. On a careful reading of the Ld.CIT(A)`s order and the findings thereon, as noted above, we do not find any valid reason to interfere with the decision and findings of the Ld.CIT(A), hence we dismiss ground Nos. 3 to 8 raised by the Revenue.
In combined result, appeal filed by the Revenue is dismissed.
Order is pronounced on 21/12/2023 in the open court.