IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE K.SURENDRA MOHAN TUESDAY, THE 12TH OCTOBER 2010 / 20TH ASWINA 1932 ITA.No. 251 of 2010() --------------------------- ITA.125/COCH/2005 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT(S): APPELLANT ------------------------------- THE COMMISSIONER OF INCOME TAX, KANNUR. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S): RESPONDENT ------------------------------------ DR.K.KUNHMMED, CHIEF MEDICAL OFFICER, MANZOOR HOSPITAL, KANHANGAD, KASARAGOD. BY ADV. SRI.S.ARUN RAJ THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 12/10/2010, ALONG WITH I.T.A. NO.300/2010 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: SVS/ “CR” C.N.RAMACHANDRAN NAIR & K.SURENDRA MOHAN, JJ. ------------------------------------------ I.T.A.Nos.251 & 300 OF 2010 ------------------------------------------- Dated this the 12th day of October, 2010 J U D G M E N T ~~~~~~~~~~~ C.N.Ramachandran Nair, J. The connected Income Tax Appeals, one filed by the assessee and the other filed by the revenue, arise from the orders of the Tribunal disposing of appeals filed by the assessee as well as the revenue against the block assessment completed in the case of the assessee for the block period commencing from 1.4.1996 to 29.8.2002. 2. We have heard Adv.Sri.T.N.Seetharaman appearing along with Adv.Sri.Arun Raj.S. for the assessee and the Standing Counsel appearing for the department. 3. Assessee is a reputed Gynecologist working in a hospital owned by his wife and managed by his wife's father. During search conducted in the Hospital on 29.8.2002, the department recovered computer statements showing professional charges paid to the assessee for services rendered ITA.Nos.251 & 300/2010 2 to in-patients. Along with recovery of accounts from the hospital, the department also recorded statement from the assessee under Section 132 (4) of the Income Tax Act. Besides the amount paid from the hospital towards professional charges recovered from in-patients the assessee was also allowed to collect consultation fee directly from the out-patients. One of the disputes is on the income of Rs.15,84,814/-, assessed for the assessment year 2003-04 forming part of block period. This is the amount shown in the computer accounts seized from the hospital as payable to the assessee from 1.4.2002 till date of search. Along with this amount the assessing officer further estimated Rs.1,95,937/- towards undisclosed income collected by the assessee during this period for out-patient consultation. Assessee does not deny the receipt of this income. However the assessee contended that time for filing return for the assessment year 2003-2004 was not over as on date of search and assessee had infact later paid advance tax including this amount also as income for the assessment year 2003-2004. Therefore, this income should not be treated as undisclosed income for the block period in terms of Section 158BB(1)(d) of the Act was the ITA.Nos.251 & 300/2010 3 cash of the assessee. The assessing officer rejected the contention and assessed the income as part of undisclosed income for the block period. In the first appeal the addition was confirmed and on second appeal the Tribunal also confirmed it against which the assessee has filed this appeal. 4. Counsel for the assessee contended that the income found from the seized accounts of the hospital should be treated as income accounted in the books of accounts of the assessee and since time for filing return for assessment year 2003-2004 was not over and assessee had infact paid advance tax it should not be treated as undisclosed income. Standing Counsel submitted that Section 158BB(i)(d) has no application because the assessee admittedly has not maintained any books of accounts and the details of his income are collected from computer accounts seized from the hospital. Assessee's counsel contended that assessee had infact made statement to the departmental officer during the course of search stating that accounts are maintained by the hospital run by his father-in-law and so much so such accounts should be treated as his accounts ITA.Nos.251 & 300/2010 4 and therefore, it should be excluded under the provision of the above section. We are unable to accept the contention of the assessee for several reasons. In the first place, assessee admitted that he did not maintain any books of accounts in respect of the professional income received by him. This is conceded by him in the statement given during search. The assessee's contention that books of accounts maintained by his father-in-law should be treated as his accounts is equally unacceptable because seized accounts pertains to the income and expenditure of the hospital wherein assessee is one of the payees. Assessee is admittedly an employee of the hospital and the accounts maintained by the employer that too clandestinely cannot be treated as accounts maintained by the assessee for the purpose of 155BB (i)(d) of the Act. Lastly, the account seized by the department from the hospital pertaining to payments to doctors including the assessee was not intended to be passed on to the department because the assessee never before disclosed income from in-patients received from the hospital comparable to the amount for this year. We are of the view that the Tribunal rightly concluded that, but for the seizure of the account from ITA.Nos.251 & 300/2010 5 the hospital, neither the assessee nor the hospital would have disclosed this income. In our view, inorder to qualify for exemption under section 158BB(1)(d) what is required is that the assessee should produce records showing that he has accounted the income in the books of accounts and other documents maintained by him in the normal course relating business or profession. The assessee's contention that the clandestine accounts maintained by the hospital and seized by the department during search should be treated as the account maintained by him lacks any merit and all the authorities including the Tribunal rightly rejected the same. Further the findings of the Tribunal as to whether certain amount of income was accounted by the assessee in his books of accounts is only a finding on facts. Therefore, we do not find any merit in the assessee's appeal and no substantial question of law also is involved. We therefore reject the appeal. 5. In the departmental appeal, the only question raised is whether the Tribunal was justified in confirming the order the CIT (Appeal) cancelling the addition of Rs. 28 lakhs assessed for ITA.Nos.251 & 300/2010 6 various years in the block period towards NRI gifts accounted by the assessee. Standing counsel pointed out that the only reason why the CIT (Appeal) deleted the addition is that the assessee has in the returns filed for all the years disclosed amount of NRI gifts received the total of which is assessed as disclosed income for the block period. The Standing Counsel referred to the statement given by the assessee during search under Section 132(4), the relevant portion of which is extracted herein. “Qn.(56). For the assessment year 1996-97, you have declared that you have received a gift of Rs.3 lakhs from abroad, for 1997-98, you have declared receipt of 2 lakhs and for 1998-99, you have declared a sum of Rs. 3 lakhs and for 1999-2000, you have declared a receipt of 23 lakhs as gift from abroad. Do you admit these statements were wrong. Ans. These statements are wrong. Qn.(57). You please explain how these gifts were managed as stated in the Income tax statements. Ans. These gifts were managed by paying the amount in cash after receiving the demand drafts in India to the respective persons.” ITA.Nos.251 & 300/2010 7 6. Relying on the above statement counsel for the department submitted that neither the CIT (Appeal) nor the Tribunal considered the relevance of the above statement based on which the gifts though returned in the income tax returns and claimed as exempt were treated as part of disclosed income. The Standing Counsel has relied on the decision in the judgment of this Court in I.T.A.No.551 of 2009, wherein the Division Bench held that the statement given under Section 132(4) of the I.T.Act has evidentiary value and can be relied on in block assessment. He has also referred to the decision of the Supreme Court reported in [291 ITR 278], wherein the Supreme Court has held that payments through banks have no consequence, if the transactions are not proved as genuine. Counsel for the assessee relied on the decision of the Delhi High Court in Commissioner of Income-tax v. Vishal Aggarwal [283(ITR) 326] and contended that gifts declared in the regular income tax returns filed cannot be treated as undisclosed income for the block period. ITA.Nos.251 & 300/2010 8 7. We are of the view that the findings of the Tribunal cannot be sustained because Tribunal has not considered the significance of the above statement given by the assessee in the course of search wherein the assessee conceded that gifts are not genuine and on the other hand gifts were received after making cash payments. Eventhough counsel appearing for the assessee submitted that assessee should be given an opportunity to substantiate that the statement made is not true and correct, we do not think we should decide the issue because neither the Tribunal nor the CIT (Appeal) has considered the reason which is the statement given by the assessee based on which the gifts originally returned in the regular returns were treated as undisclosed income for the block period. The assessee's contention accepted by the Tribunal is the disclosure of the amount as gift in the regular income tax returns filed which according to the Tribunal is sufficient to treat the income as declared income. However assessee has stated in the statement given during search that gifts were received against consideration given in cash. In our view it was the duty of the 1st appellate authority and the Tribunal to go through the statement ITA.Nos.251 & 300/2010 9 recorded from the assessee and such statements being evidence by itself under Section 132(4) of the Act to consider whether the inclusion of the gifts originally returned were not genuine and was rightly treated as undisclosed income. Since both the appellate authorities did not consider the matter in the correct perspective based on the findings recorded in the assessment order and grounds raised by the department, we allow the department's appeal by setting aside the orders of the Tribunal in I.T.A.No.125/2005 and that of the first appellate authority on this issue and we restore the appeal to the 1st appellate authority to reconsider the correctness of the assessment based on the evidence available including the statement recorded from the assessee and after giving an opportunity to the assessee and also to the assessing officer to present the case. (C.N.RAMACHANDRAN NAIR, JUDGE) (K.SURENDRA MOHAN, JUDGE) ps