UPASANA HOSPITAL AND NURSING HOME VS COMMISSIONER OF INCOME-TAX
1999 P T D 3027
[229 I T R 220]
[Kerala High Court (India)]
Before Mrs. K.K. Usha and K.A. Mohamed Shafi, JJ
UPASANA HOSPITAL AND NURSING HOME
Versus
COMMISSIONER OF INCOME-TAX
Income-tax References Nos. 185 to 190 of 1991, decided on 10/06/1997.
(a) Income-tax--
---Income from undisclosed sources---Finding that assessee had underestimated cost of construction of hospital ---Agreement between assessee and Revenue that excess cost would be spread over previous four years -- Assessee not entitled to contend that spread over should be over six years-- Indian Income Tax Act, 1961.
(b) Income-tax---
----Income from undisclosed sources---Reference---Powers of High Court-- Tribunal finding that assessee had acquired equipment worth Rs.62,046-- Opportunity to explain source of investment not given to assessee---Tribunal not justified in adding amount as income from undisclosed sources---Matter not remanded as more than fifteen years had elapsed, since relevant accounting year ---Indian Income Tax Act, 1961, Ss.69 & 256.
(c) Income-tax---
----Reference---Income from undisclosed sources--Question not raised before car considered by Tribunal cannot be considered by High Court---Question whether Tribunal was right in including cost of furniture and equipment in cost of construction of building to be spread over not raised before or considered by Tribunal---Question could not be considered by High Court-- Indian Income Tax Act, 1961, S.256.
The assessee, a registered firm, was running a nursing home. On December 19, 1985, a search was conducted in the hospital premises and the residence of the managing director and certain materials were recovered. Within 15 days of the search, the assessee filed returns for the assessment years 1983-84 to 1985-86 disclosing higher income. The assessee had constructed a nursing home, the admitted cost of construction of the same being Rs.53,86,020. According to the assessee, the period covered in respect of the above was the accounting years 1980-81 to 1985-86. The Income-tax Officer completed the assessment estimating the, probable cost of construction at Rs.76,42,000. The Income-tax Officer spread the difference between the estimated cost and the admitted cost in a sum of Rs.22,56,000 over four years. The Commissioner of Income-tax (Appeals) made some marginal deductions and fixed the cost at Rs.63.74 lakhs. The spread over of the period of construction given by the Income-tax Officer was approved. He reduced the estimated cost of medical equipment and furniture and fittings also. Therefore, appeals were filed both by the assessee as well as the Revenue before the Tribunal. The Tribunal did not accept the case put forward by the assessee for spread over for a period of six years. It affirmed the view taken by the Income-tax Officer and the first Appellate Authority on this point. The Tribunal found that there was evidence for acquisition of equipment worth Rs.62,046 outside the books. The Commissioner of Income-tax (Appeals) had estimated the value of the equipment. The Tribunal directed that an amount of Rs.48,246 + 4,800 should be considered for the assessment year 1983-84 and Rs.9,000 for the assessment year 1985-86. On a reference:
Held, (i) that even though it was contended by the assessee that the Tribunal was not right in including the cost of furniture and equipment in the cost of building to be spread over, no such case was put forward by the assessee before the Tribunal. The Tribunal had not considered the question and hence it did not arise from its order. The question could not be considered by the High Court.
(ii) that a perusal of the order passed by the First Appellate Authority showed that the assessee as well as the Income-tax Officer had agreed that assessments prior to 1983-84 which also included the cost of construction of the hospital would not be disturbed. Both the parties had agreed on the method of distributing the deficit cost of construction to be determined in the tax proceedings only over four years, i.e., 1983-84 to 1986-87. The assessee had no specific legal right to claim for spreading over six years instead of four years;
(iii) that a reading of the order passed by the Tribunal would clearly show that the Tribunal had taken a final decision in this matter and had given direction to the assessing authority to add an amount of Rs.4,800 plus Rs.48,246 for the assessment year 1983-84 and Rs.9,000 for the assessment year 1985-86. When investments outside the books of account are found, the assessee is entitled to offer an explanation about the nature and source of the investment. Admittedly, in this, case no such opportunity was granted to the assessee to offer its explanation. It was open to the Court to give a direction to the assessing authority to give an opportunity to the assessee to explain its source regarding the amount of Rs.62,046. However, exercise of such power being discretionary, it would not be used in the facts of this case. More than 15 years had elapsed since the relevant accounting years and at this distance of time, it might not be possible for the assessee to produce materials regarding the source of the investment. No direction would be given to the assessing authority to consider the matter afresh by 'giving an opportunity to the assessee. The Tribunal was not right in sustaining a portion of .the addition to income from other sources.
CIT v. Sreedharan (M.) (1991) 190 ITR 604 (Ker.) and Guduthur Bros. v. ITO (1960) 40 ITR 298 (SC) ref.
C. Kochunni Nair for the Assessee.
PKR. Menon and N.R.K. Nair for the Commissioner
JUDGMENT
MRS. K.K. USHA, J.---These reference cases are at the instance of the assessee. They arise out of a common order passed by the Income-tax Appellate Tribunal, Cochin Bench, in I.T.As. Nos.975 to 977/Cock of 1987, appeals filed by the assessee, and I.T.As. Nos.1106 to 1108/Coch of 1987, appeals filed by the Revenue. The relevant assessment years are 1983-84, 1984-85 and 1985-86. The following are the questions referred for the opinion of this Court:
"(i) Whether the Tribunal was right in limiting the spread over of addition proposed to four years instead of the full period of construction of six years?
(ii) Whether the Tribunal was right in including the cost of furniture and equipment in the cost of building to be spread over?
(iii) Whether the Tribunal was right in sustaining a portion of the addition to income from other sources?"
The facts relevant are as follows:
The assessee, a registered firm, was running a nursing home at Quilon. On December 19, 1985, a search was conducted in the hospital premises and the residence of the managing director and certain materials were recovered. Within 15 days of the search, the assessee filed returns for the assessment years 1983-84 to 1985-86 disclosing higher income. The assessee had constructed a nursing home, the admitted cost of construction of the same being Rs.53,86,020. According to the assessee, the period covered in respect of the above was the accounting years 1980-81 to 1985-86. The Income-tax Officer completed the assessment estimating the probable cost of construction at Rs.76,42,000 as follows:
| | Rs. |
| "Cost of construction of building | 60,72,000 |
| Medical equipment | 8,00,000 |
| Furniture and fittings. | 4,70,000 |
| Lift | 3 00,000 |
| Total | 76.42,000. |
The Income-tax Officer gave a spread over to the difference between the estimated cost and the admitted cost in a sum of Rs.22,56,000 for four years.
Aggrieved by the above assessment order., appeals were filed by the assessee. The Commissioner ,of Income-tax (Appeals) made some marginal deductions and fixed the cost at Rs.63.74 lakhs. The spread over of the period of construction given by the Income-tax Officer was approved. He reduced the estimated cost of medical equipment and furniture and fittings also. Therefore, appeals were filed both by the assessee as well as the Revenue before the Tribunal. The Tribunal did not accept the case put forward by the assessee for spread over for a period of six years. It affirmed the view taken by the Income-tax Officer and the first appellate authority on this point.
The Tribunal found that there is evidence for acquisition of equipment worth Rs.62,046 outside the books. The Commissioner of Income-tax (Appeals) had estimated, the value of the equipment at Rs.5,00,000, since the admitted investment was Rs.48,09,948. The Tribunal directed that the amount of Rs.62,046 should be added to it. The addition must be assessed in the years of investment. Therefore, the Tribunal, directed that an amount of Rs.48,246 + Rs.4,800 should be considered for the assessment year 1983-84 and Rs.9,000 for the assessment year 1985-86. Thus, in para. 39, the Tribunal directed that the Income-tax Officer must deduct from the addition upheld by the Tribunal Rs.62,046 representing medical equipment cost and it had to be assessed in the appropriate years of acquisition as indicated in the order of the Tribunal.
It is contended on behalf of the assessee before us that since the construction of the building was going on for a period of six years from 1981-82 onwards, the addition could have been allocated not for four years but for six years. Merely because the assessments for the years 1981-82 and 1982-83 were completed it is no reason to deny spreading over six years to the addition. We do not find any merit in this contention. From para. 3 of the order passed by the first appellate authority it is seen that the assessee as well as the Income-tax Officer had agreed that assessments prior to 1983-84 which also included the cost of construction of the hospital would not be disturbed. Both parties had agreed on the method of distributing the deficit cost of construction and to be determined in the tax proceedings only over four years, i.e., 1983-84 to 1986-87. This was the agreed formula between the parties as seen from para. 38 of the order of the Tribunal also. Since the assessee has no specific legal right to claim spreading over six years instead of four years, we do not find any merit in this contention. Even though learned counsel for the assessee contended before us that the Tribunal was not right in including the cost of furniture and equipment in the cost of building to be spread over, we do not find any such case put forward by the assessee and considered by the Tribunal from its order.
Then, the only other question to be considered is whether the Tribunal had failed to give an opportunity to the assessee as contemplated under section 69 of the Income-tax Act, while sustaining an addition of Rs.62,046 to the income as from other sources. Admittedly, it was for the first time before the Tribunal it was found out that the assessee had acquired equipment worth Rs.62,046 outside the books. The Tribunal directed addition of this amount spreading it over two years. The complaint is that before taking such a view no opportunity was given to the assessee to show the source.
Section 69 of the Income Tax Act, 1961, reads as follows:
"69. Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year."
The above would show that when investments outside the books of account are found, the assessee is entitled to offer an explanation about the nature and source of the investment. Admittedly, in this case no such opportunity was granted to the assessee to offer its explanation. In the light of the clear legal provisions, learned standing counsel for the Revenue also agreed that the assessee is entitled to an opportunity under the circumstances to explain the source. But learned counsel would further contend that a final decision has not been taken by the Tribunal on this aspect, on the other hand, the Tribunal has directed the assessing authority to consider the matter and take a final decision. Even if there is no specific direction given, according to learned counsel, such a direction should be read in the order. We find it difficult to accept the above contention. A reading of the order passed by the Tribunal would clearly show that the Tribunal has taken a final decision in this matter and has given directions to the assessee authority to add an amount of Rs.4,800 + Rs.48,246 for the assessment year 1983-84 and Rs.9,000 for the assessment year 1985-86. This is not a case where addition is left open for consideration of the assessing authority. It is true that the Tribunal is empowered to give such directions, but the fact is that in this case no such direction is given. The !earned standing counsel for the Revenue contends that it is open to this Court to give a direction to the assessing authority to give an opportunity to the assessee to explain its source regarding the amount of Rs.62,046. To the above argument it is submitted on behalf of the assessee that there is no quarrel over the power of this Court to give such direction, but the exercise of such power being only discretionary, it shall not be used in the facts of this case. More than 15 years have elapsed since the relevant accounting years and at this distance of time, it may not be possible for the assessee to produce materials regarding
the source of the investments. We find merit in the apprehension expressed by learned counsel for the assessee.
The decisions referred to by learned standing counsel for the Revenue, viz., CIT v. M. Sreedharan (1991) 190 ITR 604 (Ker) and Guduthur Bros. v. ITO (1960) 401TR 298 (SC), have no application to the contentions raised in this. case. Taking into consideration all the facts and circumstances of the case, we are not inclined to give any direction to the assessing authority to consider, the matter afresh. by giving an opportunity to the assessee.
In the light of the above, we answer question No.l in the affirmative, in favour of the Revenue and against the assessee. We decline to answer question No.2 as it does not arise in this case. Question No.3 is answered in the negative, in favour of the assessee and against the Revenue.
A copy of this judgment under the seal of this Court and the signature of the Registrar will be sent to the Income-tax Appellate Tribunal, Cochin Bench.
M.B.A./3081/FC Reference answered.