I.T.AS. NOS.927/LB AND 632/LB OF 1998 , DECIDED ON 20TH JUNE, 1998 VS I.T.AS. NOS.927/LB AND 632/LB OF 1998 , DECIDED ON 20TH JUNE, 1998
1999 P T D (Trib.) 4
[Income-tax Appellate Tribunal Pakistan]
Before Nasim Sikandar, Judicial Member and Shariq Mahmood, Accountant Member
I.T.As. Nos.927/LB and 632/LB of 1998 , decided on 20/06/1998.
Income Tax Ordinance (XXXI of 1979)--
----Ss.62 & 32(3)---Assessment---Receipts---Rejection of declared receipts-- Assessee an Association of Persons running a Hospital---Receipts were declared from various heads of accounts---Addition---Assessing Officer rejected the declared version of the assessee and made addition in declared receipts of various heads of account without prior notice under S.62 of the Income Tax Ordinance, 1979 on the ground that full addresses of the private patients were not given---Validity---Mere statement that addresses of clients/ customers were not, available will hardly clothe the Assessing Officer with an authority to make addition---Addition made was deleted.
Kashmir Cap House, Lahore v. C.I.T. 1979 PTD 108; Dawood Corporation v. C.I.T. 1989 PTD 177 and Magna Industries, Gujranwala v. C.I.T., Rawalpindi 1980 PTD 35 ref.
Jamil Hussain for Appellant (in I.T.A. No.927/LB of 1998).
Mrs. Fiza Muzaffar, D.R. for Respondent (in I.T.A. No.927/LB of 1998)
Mrs. Fiza Muzaffar, D.R. for Appellant (in I.T.A. No.632/LB of 1998)
Jamil Hussain for Respondent (in I.T.A. No.632/LB of 1998)
Date of hearing: 21st April, 1998.
ORDER
NASIM SIKANDAR (JUDICIAL MEMBER). ---These, cross appeals arise out of an order recorded by C.I.T.(A), Zone-III, Lahore on 22-12-1997.
2. The assessee-appellant is an A.O.P. and derives income from running a Hospital under the name and style of M/s. Rashid Hospital, Lahore. In the year 1996-97 a return was filed to declare net loss at Rs.23,79,091. Total receipts were disclosed at Rs.50,23,462 which were bifurcated under five heads namely Doctors receipts, medicines receipts, room rent receipts and O.T.M. O.M./Care X-Rays and Laboratory charges receipts. These heads were further sub-divided into two namely private patients and company patients. The Assessing Officer accepted the declared receipts alleged to have been received from companies patients on account of their being verifiable. However, those disclosed under the head private patients were not believed. Accordingly an addition of Rs.4,41,052 under the head Doctors receipts, of Rs.15,55,843 under the head room rent receipts and at Rs.3,15,592 under the head O.T.M. O.M./Care X-Rays and Laboratory Charges was made. Also some profit and loss claims were disallowed partially to assess taxable income at Rs.2,16,955.
3. The assessment order so framed on 27-6-1997 was challenged before the aforesaid Appellate Authority. It succeeded partially inasmuch as learned First Appellate Authority reduced the Doctors receipts from 12,50,000 to Rs.10,50,000. In case of estimation of room rent the basis adopted as 22 rooms was found unjustified and factually incorrect. It was directed to be taken as 14 rooms only while the rest were found to have been under use for other purposes as alleged by the assessee. The number of beds adopted at 15 and vacancy allowance allowed at 30 % and room rent were however found justified. In case of O.T.M. O.M./Care X-Rays receipts or Laboratory Charges the estimated receipts were directed to be reduced to Rs.9,50,000 as against Rs.11,00,000 adopted by the Assessing Officer. In case of profit and loss disallowances a disallowance under the head consultation and operation fee at Rs.75,000 was reduced to Rs.60,000, and the one under the head salary from Rs.65,000 to Rs.35,000. Rest of the disallowances under the head laundry expenses, general purchases, repair electricity, miscellaneous and repair building were maintained. The assessee complains of inadequancy of the relief while the Revenue considers the reduction allowed in Doctors receipts, O.T.M.O.N/Case X-Rays and Laboratory Charges to be untenable at law. Also reduction in the aforesaid two heads of profit and loss account is stated to be unjustified.
4. Parties have been heard. Learned counsel for the assessee vehemently contends that the Assessing Officer made the aforesaid additions in a total void and in contravention of the procedure as laid down in section 62 of the Ordinance. It is claimed that it was an account case and the Assessing Officer was required to confront the assessee by way of a specific notice and to express his intention to disbelieve any part of the disclosed version as contemplated in first proviso to section 62 of the Ordinance introduced by Finance Act, 1993. This proviso requires that where an assessee produces books of accounts the Assessing Officer shall before disagreeing with such accounts, give a notice to the assessee of the defects in the accounts and provide an opportunity to explain his point of view about such defects. Also that the Assessing Officer shall record the explanation of the assessee and the basis of computation of total income by the assessee in the assessment order. According to the learned counsel the procedure contemplated in this proviso is mandatory before making of any addition in account cases. Also states that even as a general proposition of law the Assessing Officer could not reject the returned receipts from private patients by using stock phrases of unverifiability. The observations of the Assessing Officer that complete addresses of private patients were not produced is also challenged. In support of the proposition that in such situation the returned version could not be rejected learned counsel places reliance upon reported judgment of the Lahore High Court cited as 1979 PTD 108 re: Kashmir Cap House, Lahore v. C.I.T.
5. On facts he stresses that full addresses of private patients were available on record and were so produced before the Assessing Officer. Further that only 10 rooms were being used by patients and that rest of the rooms were in use of the paramedical staff, Doctors and storing of equipments etc. In case of profit and loss account disallowances it is stated that no specific defect was pointed out to disallow them.
6. Learned D.R. in terms of grounds of the departmental appeal assails the relief allowed by the First Appellate Authority.
7. Having considered the submissions made at the bar for the assessee we are persuaded to agree that the Assessing Officer did not act in accordance with law while discarding the declared receipts from private patients under the aforesaid four heads. Though in the body of the assessment order a mentioning has been made to say that full addresses of the private patients were required yet a specific notice as contemplated in proviso to section 62 does not appear to have been given. It is a settled principle that when law requires a thing to be done in a particular manner then it must be done in that manner or it should not be done at all. The aforesaid proviso to section 62 requires that in accounts cases the Assessing Officer will give a notice to the assessee pointing out the defects in the accounts and will also rule upon the explanation made in reply to such notice. In the case before us, in the first instance no notice under section 62 appears to have been given. A simple reference that the assessee was required to produce complete addresses of private patients can hardly be said to have fulfilled the legal requirements. The observation that complete addresses of the private patients were not available again falls short of the required inquiry and ruling upon the submissions made in this regard. Also as a general rule mere statement that addresses of some of the clients/customers were not available will hardly clothe the Assessing Officer with an authority to make huge additions. In order to justify such an action he was required to bring some material on record to establish that the disclosed version in fact was incorrect or that accounts were not maintained faithfully. Even before introduction of a proviso under section 62 of the Ordinance as noted earlier the view of superior Courts has always been that after rejecting a returned version the Assessing Officer is required to establish his own estimate. Further that in absence of proper basis the estimate made by the Assessing Officer could not stand at a better footing than the returned version. In 1989 PTD 177 re: Dawood Corporation v. C.I.T. their Lordships found that an estimate of the Assessing Officer must be based upon facts and circumstances of the case as borne out from the record and not on the basis of whims and desires. In another case re: Magna Industries, Gujranwala v. C.I.T., Rawalpindi cited as 1980 PTD 35 it was held that after rejection of accounts the Assessing Officer should evolve reasonable basis for making an estimate and that basis of estimate should be disclosed to the assessee.
8. In the case before us no basis whatsoever were evolved muchless to say of their confrontation to the assessee. The manner in which the Assessing Officer proceeded does not find support from the aforesaid provisions of the Ordinance. Also we have noted that where an Assessing Officer disbelieves part of the disclosed version he is required to establish beyond any doubt that the volume of business of the assessee had been much more than the one disclosed through the books of accounts. To establish this aspect not only an in depth probe is required it is equally important that the result of such probe or inquiry should be revealed to the assessee before drawing an adverse inference. Instead, as usual the Assessing Officer made resort to vague terms and in reality appears to have recorded an incorrect statement of fact that the addresses of private patients provided by the assessee were incomplete. No private hospital can possibly take a risk of admitting a person in one of its rooms without proper addresses, identification and the whereabouts of his kith and kin. To us it appears that the Assessing Officer in fact wanted to say that the assessee had entertained more patients than those disclosed through the books of accounts. Since such finding required a long and tiresome exercise to establish he proceeded to believe his doubt and required the assessee to produce full addresses of the patients. This way of legitimising one's doubt cannot be approved. Particularly when it comes to judge the action of a person exercising judicial or quasi, judicial authority.
9. Therefore, the estimation made in the aforesaid four heads by I discarding the declared version shall stand deleted. In case of profit and loss disallowances however, we find that the assessee has not been able to make out a case for interference. In absence of a claim of total verifiability of the expenses in the aforesaid heads, we will find the relief already allowed by the First Appellate. Authority to be reasonable and in accordance with the facts prevailing on record.
10. The assessee succeeds in the aforesaid terms while the departmental appeal, as a result thereof shall be dismissed.
C.M.A./579/Trib. Order accordingly.