1. This appeal is against the block assessment completed under s.
158BC(c) r/w s. 143(3) of the IT Act, 1961. The assessment has been completed by the Asstt. CIT ((Inv.), Circle 2(1), Hyderabad, vide his order, dated 30th September, 1996, fixing an undisclosed income of Rs. 7,70,639 returned by the appellant for the block period.
2. The appellant is a medical doctor and a radiologist by specialisation. He is running medical diagnostic centres in Hyderabad under the name and style of Vijaya Diagnostic Centre (VDC). Various diagnostic services in bio-chemistry, micro-biology, pathology imaging technology including CT scan, etc. are provided in VDCs.
3. The appellant, Dr. S. Surendra Reddy started his centre in 1981 at Himayatnagar and later in 1991 another one at Ameerpet. He was also running a hospital, Sai Ram Hospital, till 31st December, 1993, thereafter which was leased to his nephew Dr. Ravinder Reddy.
Substantial expansion of the VDCs has taken place in August, 1994 when advanced medical imaging system like CT scan was procured with heavy loan finances availed from financial institution and banks.
4. With reference to this appeal in hand, we are narrating only the very essential facts, but comprehensive enough to read to the adjudication. All the supporting the peripheral facts and details are well narrated in the assessment order and the appeal papers, and therefore, they are not produced again in this order.
5. A search and seizure operation under s. 132 was carried out in the residential and business premises of the appellant which was initiated on 20th September, 1995 and finally concluded on 14th November, 1995.
Documents in the form of account books, daily collection sheets, note-books, etc. and cash worth Rs. 4.5 lakhs were seized. Title documents of properties have also been found. The cash was later found properly accounted. It was adjusted against the tax liability of the appellant's undisclosed income at his request. Properties have been found properly accounted. But the daily collection sheets and the books of accounts gave a picture of suppression of collections at VDCs and the related kick-backs paid to various doctors who referred patients to the VDCs run by the appellant. On a study of the seized collection sheets, the AO made out a case of suppression. This suppression of daily collections is the basis of the computation of undisclosed income determined in the block assessment under appeal.
6. To be very precise, we are concerned about the seizure of collection sheets made from the appellant's residence and VDCs at Ameerpet and Himayatnagar. The AO has given an analysis of the seized materials and quantification of concealment in para 10 of his order. As per this analysis, the concealment details are as follows : For the VDC at Ameerpet, the gross collection as per the seized collection sheets for the financial year 1994-95 is Rs. 8,93,210. This is for 135 days from April to December, 1994. The appellant has accounted Rs. 3,47,945. The concealment being the difference between the above two is Rs. 5,45,265. For the same centre in 1995-96, the gross-collection as per the collection sheets is Rs. 2,31,857. This is for a period of 16 days from 3rd July, 1995 to 15th July, 1995. The appellant has accounted only Rs. 75,335 and the balance concealment is Rs. 1,56,522. In the case of VDC at Himayatnagar, no incriminating materials were available or seized, for the financial year 1994-95 or before. For the financial year 1995-96 collection sheets for three days were seized for 16th September, 1995, 17th September, 1995 and 18th September, 1995 (para 07A of assessment order). In the case of 16th September, 1995, the collection as per the sheet as well as in the books was Rs. 32,120 and hence no concealment. But for other two days, i.e. 17th and 18th of September, 1995, the total collection as per sheets were Rs. 1,40,415 and the collection entered into the books were Rs. 1,10,115. The concealment by way of difference worked out to Rs. 30,300 (para 10 of assessment order). The total of the suppression as above has been worked out by the AO at Rs. 7,32,087.
7. Subject to certain disputes, the appellant has also admitted concealment of collection to the above extent. In the various statements made by the appellant before the IT authorities at the time of search and thereafter, he has admitted that, collections have been concealed for the purpose of giving money to the doctors who refer patients to his diagnostic centres. He admitted concealment, but only to the extent worked out on the basis of collection sheets seized at the time of search and nothing more. He also stated that concealment has been resorted to at VDC, Ameerpet only and there was no suppression in the case of VDC at Himayatnagar. He has stated that he has installed the CT scan in August, 1994 by resorting to loan finance. This has resulted in heavy incidence of interest and other charges. In order to support this increased overheads, he has to generate more business.
There is stiff competition in the field. Therefore, he has to incur business promotional expenses including payments to referring doctors for bringing more business. It is only for this purpose, that he was resorting to suppression of collection, that too only from 1994. He also stated that the suppression would be around Rs. 30,000 to Rs. 40,000 per month and that too confined to Ameerpet centre only.
8. It is on the basis of the above statements and admissions the appellant had agreed to offer an undisclosed income of Rs. 7.5 lakhs in his statement made under s. 132(4). But, in his block return, he has returned an undisclosed income of Rs. 7,70,639, a little bit high. The actual suppression alleged and found out in the course of search was Rs. 7,32,087 (please see para. 10.B of assessment order). This undisclosed income admitted by the appellant in his statement under s.
132(4) was Rs. 7,50,000. The undisclosed income returned by the appellant is Rs. 7,70,639. Throughout the search and subsequent proceedings, the statements made and the stand taken by the appellant has been consistent.
9. The AO, however, did not accept the contention of the appellant that the suppression of receipts was confined to seized collection sheets only. Instead, he held that the collection sheets seized and the suppression apparent thereon have clearly made out a pattern of suppression practised by the appellant in the course of his business.
Therefore, he proceeded to estimate the suppression for the period not covered by seized collection sheets.
10. The search was initiated on 20th September, 1995. Therefore, the relevant block period extended from 1st April, 1985 to 20th September, 1995 relating to the financial years from 1985-86 to 1995-96 (till the date of inspection 20th September, 1995) relevant to the asst. yrs.
1986-87 to 1996-97 in part. But, as the seized collection sheets were available only for the period April, 1994 onwards, the AO found it proper to impute suppression only for the period from 1st April, 1994 to 20th January, 1995, and not for the earlier period. The contention of the appellant also was that he had practised suppression of collection only from 1994 onwards. Therefore, without any dispute on this point of period covered by suppression, the AO held that suppression was for the period from 1st April, 1994 to 20th September, 1995 encompassing two financial years 1994-95 in full and 1995-96 in part upto the date of inspection on 20th September, 1995, with corresponding two asst. yrs. 1995-96 in full and 1996-97 in part.
11. Regarding the estimation of suppression, the AO held that independent proof of suppression have been found with reference to VDC at Ameerpet and VDC at Himayatnagar and therefore, the estimation has to be worked out separately (para 10E). In respect of Ameerpet, the total collection as per the seized collection sheets for both the financial years 1994-95 and 1995-96 is Rs. 11,25,067. Out of this what has been accounted is Rs. 4,23,280 and what has been suppressed is Rs. 7,01,787. On the above basis, the AO worked out the ratio of suppressed turnover to the disclosed turnover at 165 per cent. The AO has also found that the appellant has already accounted all the business expenses in his books except the payments made to doctors. Therefore, what is to be additionally allowed is only the business promotion expenses by way of payments to doctors. He also found that the expenses at Ameerpet were only negligible as compared to Himayatnagar.
Thereafter, he allowed a deduction of 5 per cent of the total collection (both accounted and suppressed) as business promotion expenses. On the basis of the above parameters, the AO computed the suppressed turnover for Ameerpet for the period from 1st April 1994 to 20th September, 1995 as follows :"Admitted receipts for financial year 1994-95 12.33 lakhsAdmitted receipts for financial year 1995-96 7.50 lakhs Total admitted receipts 19.83 lakhsAdd : Suppression estimated at 165 per cent of theadmitted receipts 32.71 lakhs5 per cent 2.62 lakhs Gross suppression estimated 2.71 lakhsLess : Deduction on total gross receipts 2.62 lakhsNet suppression at Ameerpet 30.09 lakhs (Refer Para 10.F to 10.1 of asst. order) 12. The seized collection sheets considered in the case of VDC at Himayatnagar are noted in para 07A of the assessment order. The gross collection for the three days was Rs. 1,72,135 against which the appellant has accounted Rs. 1,42,235 leaving a balance of Rs. 30,300 as concealment. This concealment actually relating to two days has been compared by the AO to the disclosed receipts for the three days and worked out a ratio of 20 per cent as suppression to the turnover disclosed. In the case of deduction towards promotion expenses, the AO found that VDC at Himayatnagar is conducting more expensive tests. He also noticed as per the details available in the seized materials in the form of a note-book that the appellant has paid 6.50 per cent of the accounted collections towards referal fees to doctors for August, 1995. After giving a further margin of 3.50 per cent for the reasons stated above, the AO allowed 10 per cent as deduction towards promotion expenses. On the above basis, the AO computed the suppression for the VDC at Himayatnagar as follows :Admitted receipts for 1994-95 143.71 lakhsAdmitted receipts for 1995-96 90.01 lakhs Gross admitted receipts 233.72 lakhsEstimated gross suppression at 20 per cent 46.74 lakhs Gross suppression estimated 46.74 lakhsLess : Deduction on gross total receipts 28.04 lakhs 14. The total suppression worked out by the AO for the period 1st April, 1994 to 20th September, 1995 is as follows :V. D. C. Ameerpet 30.09 lakhsV. D. C. Himayatnagar 18.68 lakhs -------------- 15. This total amount worked out by the AO has been allocated as follows :Undisclosed income for asst. yr. 1995-96 29.26 lakhsUndisclosed income for asst. yr. 1996-97 19.51 lakhslock assessment 48.77 lakhs (Para 10J to 10.0 of assessment order) 16. In the course of the assessment proceedings, the AO has gone into another aspect also. That is in relation to the construction of residential house by the appellant at Dilsukhnagar. The construction cost as per the accounts of the appellant is Rs. 24.36 lakhs, whereas the Departmental Valuation is for Rs. 31.37 lakhs. The AO attributed the difference of Rs. 7.10 lakhs towards unaccounted investment in the construction of building. The appellant contended that the difference is only a question of valuation which has not properly considered many of the objections of the appellant and the alleged valuation difference could not be construed as any undisclosed investment. The AO any how, has not acted upon this issue on the ground that the appellant had enough undisclosed income to cover this differential amount. Therefore, this issue taken note in the assessment order and protested by the appellant has not been considered by us in this appeal.
17. The appellant is contesting the determination of an undisclosed income of Rs. 48.77 lakhs as against Rs. 7,70,639 returned by the appellant. The contentions raised by the appellant are as follows : "(1) The order of the AO is erroneous, unjust, illegal and contrary to the facts of the case.
(2) The AO erred in passing an order under s. 158BC(c) without providing proper opportunity to the appellant.
(3) The order of the AO under s. 158BC(c) passed in not legal as the CIT before approving the order of the Asstt. CIT did not provide an opportunity of being heard to the appellant.
(4) The AO erred in holding that the appellant suppressed any of the fees collected by him. He ought to have realised the fact that the business promotional expenses incurred are like diversion of income by overriding charge and the net income alone represents the appellant's income which was correctly accounted for in the regular books of account.
(5) The AO erred in arriving at the suppression in the receipts of Ameerpet centre at Rs. 5.45,265. He ought not to have included the receipts belonging to Sai Ram Hospitals at Sl. Nos. 1, 2, 28, 50, 96 & 97, as the receipts of the Ameer-per unit. The AO ought to have included the items mentioned at sl. No. 125 to 135 for the purposes of arriving at the undisclosed income of Rs. 5,45,265.
(6) The AO erred in holding that the suppression of gross receipts is a routine daily affair which has been taking place unfailingly.
The comments of the AO are without any basis from the seized material.
(7) The AO erred in holding that estimation is called for per both the years in arriving at the suppressed income.
(8) The AO erred in estimating the undisclosed income particularly in user of the definition of the word 'undisclosed income' contained in s. 158B(b) of the IT Act.
(9) The AO erred in estimating the undisclosed income of Ameerpet centre at 165 per cent of the total admitted receipts and at 20 per cent of the total admitted receipts of the Himayatnagar centre.
(10) The AO erred in limiting the deduction towards referal fees at 5 per cent at Ameerpet centre and at 10 per cent at Himayatnagar centre particularly when seized material show such fees to be about 25 per cent of the fees.
(11) The AO erred in arriving at the suppression in the income for the block period at Rs. 48,77,000 as against the admitted amount of Rs. 7,70,639 particularly when the IT authorities did not fixed assets in possession of the assessee entries leading to discovery of concealment to that extent.
(12) The AO erred in observing that the cost of construction of Dilsukhnagar building is Rs. 31,37 lakhs as against the admitted cost of construction of Rs. 24.36 lakhs.
18. The first ground is general contention. The appellant did not press for grounds No. 2 and 3. The Ground No. 12 need not be considered as that was not a live issue before us, as no addition was made by the AO on that ground. The grounds Nos. 4 to 11 relate to the merits of the case and are considered in the ensuring paragraphs at appropriate places.
19. Shri S. Rama Rao, the learned counsel appearing for the appellant argued as follows : (i) That the undisclosed income could not be determined on an estimate basis; that it could be determined only to the extent of material seized at the time of search; (ii) that the AO has erred in estimating the gross receipts as undisclosed income without allowing adequate expenses; that net receipts could only be treated as undisclosed income; (iii) that the actual gross suppression found out at the time of search was Rs. 7,32,087; the alleged differential cost in the construction at Dilsukhnagar is Rs. 7.01 lakhs; the income offered in terms of s. 132(4) statement was Rs. 7.5 lakhs and the undisclosed income returned is Rs. 7.70,639, that there is a clear nexus between these amounts inter se, and therefore, the maximum undisclosed income in this case is what was returned by the appellant and no justification to estimate beyond that; (iv) that no unexplained investment or asset or expenditure has been pointed out against the appellant corresponding to the alleged undisclosed income of Rs. 48.77 lakhs; (v) That the suppression ratio of 165% at Ameerpet and 20% at Himayatnagar calculated by the AO is quite whimsical and arbitrary, (vi) That the deduction of 5% at Ameerpet and 10% at Himayatnagar is quite inadequate (vii) that the estimate of undisclosed income is arbitrary, unreasonable and without any basis.
20. The learned counsel also relied on the following decisions in support of his arguments :State of U.P. vs. Yashpal Singh (d) Sunder Agencies vs. Dy. CIT (1997) 59 TTJ (Mumbai) 610 : (1997) 63 ITD 245 (Mumbai); and 21. Shri C. P. Ramaswamy, the learned Senior Departmental Representative supported the order of the AO. He referred to the caselaws cited by the appellant's counsel and submitted that none of the principles laid down in those decisions has been violated in the impugned assessment. The Bombay Tribunal decision cited by the counsel for the appellant is not applicable to the present case, submitted the learned Departmental Representative. In the Bombay case, the entire estimate was on the basis of presumptions. In the present case, actual suppression has been found out. The frequency of the collection sheets, the regularity in suppression, etc. have made out a case of pattern of suppression. The attempt of Ms. Lalitha, the receptionst at V.D.C., to destroy the collection sheets on seeing the income-tax people, actual destruction of a part of such sheets, her statement, etc. make out a case that the appellant has been practising suppression regularly.
Therefore, an estimate is justified for the period for which collection sheets could not be seized. The learned Departmental Representative relied on the decision of the Hon'ble Supreme Court in the case of CST vs. H. M. Esufali H. M. Abdulali (1973) 90 ITR 271 (SC) to establish that estimation is warranted as part of assessment in appropriate cases. In respect of the Supreme Court decision and Ahmedabad Bench of Tribunal decisions cited by the appellant, the learned Departmental Representative argued that in this case also, the AO has quantified the undisclosed income after providing for business promotion expenses as canvassed by the appellant. The learned Departmental Representative submitted that the appellant has already accounted all the expenses of his business in the regular accounts other than the payments to doctors. Therefore, the AO is justified in limiting the deduction to such payments only. He submitted that the AO has reckoned undisclosed income only for the period from 1st April, 1994 onwards, even though the block period commenced as early as from 1st April, 1985 and the AO was equally fair and reasonable in estimating the gross receipts as well as allowing deductions. Regarding the argument of the appellant that the AO has not pointed out any assets corresponding to the estimated undisclosed income, the learned Departmental Representative submitted that such an exercise is uncalled for on the part of the AO, when direct materials are available to estimate the undisclosed income.
He concluded that the block assessment challenged in this appeal is reasonable and fair and therefore needs to be confirmed.
22. We heard both sides in detail and perused the rival contentions in the light of the records and paper-books available before us and the case-laws referred to by the parties. Before examining the method of estimate and quantum of estimate of the undisclosed income, we would rather address the general grounds and objections raised by the appellant, with reference to the grounds of appeal and the arguments of the counsel narrated in para 17 above in this order.
23. The first such contention is found in ground No. 4, which reads as follows : "The AO erred in holding that the appellant suppressed any of the fees collected by him. He ought to have realised the fact that the business promotional expenses incurred are like diversion of income by overriding charge and the net amount alone represents the appellant's income which was correctly accounted for in the regular books of account." 24. It is proved from the seized collection sheets, books of account, payment note books that the appellant does not utilise the entire suppressed collection for making payments to doctors-(sample payment details in para-10J of the assessment order). Moreover, the appellant has not furnished any particulars regarding such payments. Therefore, there is no factual basis for this contention raised by the appellant.
25. The second such contention is made in ground No. 6, which reads as follows : "The AO erred in holding that the suppression of gross receipts is a routine daily affair which has been taking place unfailingly. The comments of the AO are without any basis from the seized material." 26. The seized collection sheets contain the details of actual collections, accounted collections and balance concealments date-wise for quite a long period. In respect of VDC Ameerpet, such details are available for 135 days for the financial year 1994-95 For the financial year 1995-96 details are available for 16 days. In the case of Himayatnagar (VDC) also, details for two days are available for the financial year 1995-96. All the details are in regular pattern. The appellant has stated that he has resorted to such suppression to accommodate the kick-backs paid to doctors from 1994 onwards.
Collections have been accounted daily. At the same time, the appellant has not accounted anything in his books of accounts towards the payment of kick-backs to doctors. Therefore, it is clear that the appellant has made such payments outside the accounts and he has compensated by suppressing collection amounts. At the time of search operations at V.D. C, Ameerpet, Ms. Lalitha, the receptionist employed by the appellant had made an attempt to destroy the collection sheets containing details of suppression. A portion of the collection sheets had actually been destroyed for practical purposes. This is a clear evidence to show that the seized collection sheets alone do not cover the entire suppression made by the appellant. In the facts and circumstances, it could be seen that there is a pattern of suppression regularly employed by the appellant. Therefore, this contention fails.
27. The third one is regarding the question whether the AO is justified in estimating a portion of the suppression. This contention is stated in ground Nos. 7 and 8 of the grounds of appeal and argument. No. 1 of the appellant's counsel as stated in para 17 above. We have considered this issue very carefully in the light of the decisions relied on by both sides. In para 22 above, we have found that the seized materials have clearly made out a case of pattern of suppression. In the case of V.D.C. at Ameerpet, collection sheets were seized for both the financial years 1994-95 and 1995-96. In the case of V.D.C. at Himayatnagar, sheets for 3 days in September, 1995 have been considered. Even though the collection sheets were considered only for three days, the seized note-book revealed unaccounted payments made to doctors for the months of July, August and September, 1995. The details of accounted collections and unaccounted payments have established a case of suppression in the case of Himayatnagar V.D.C. for the financial year 1995-96. When actual details of suppression are available and a pattern of suppression is established, the AO has to make an estimate for the entire assessment year on the basis of the material available on record. This principle is upheld by the Hon'ble Supreme Court in the case (1973) 90 ITR 271 (SC) (supra). The provisions contained in Chapter-XIV-B of the Act provide rules of special procedure for assessment of search cases. Those provisions do not exclude the principles of assessment generally applicable to regular assessments. In a case where a regular pattern of suppression is established, the lawful presumption is that there is suppression for whole of the assessment year, but subject to adjustment of special factors. When there is such a lawful presumption, the AO has to work out the suppression for whole of the year. The materials and direct evidence in respect of the suppression are available only for a portion of the year. In such a case, the suppression for that period for which materials and direct evidences are not available, shall be worked out on the basis of estimate. This is an accepted principle of assessment.
This principle is applicable to block assessment also. In regular assessment as well as in block assessment, what is assessed is 'income' construed in the IT Act. The only difference is that in block assessment, the income is the one undisclosed by the assessee.
Therefore, the AO in this case is justified to estimate the suppression and thereby the undisclosed income. The other aspects like method of estimate, period and quantum of estimate are issues which would be considered later. In the circumstances, the argument of the appellant regarding the legality of making an estimate of suppression is rejected.
28. Another objection raised by the learned counsel is that the authorities have not found out any assets corresponding to the undisclosed income estimated to the extent of Rs. 48.77 lakhs. Broadly, there are two categories of undisclosed income. The first one is direct method in which undisclosed income could be worked out of the seized materials and records as those materials and records contain particulars of undisclosed income itself. The second one is the one in which the seized materials and records contain particulars of explained assets, investments and expenses only. The undisclosed income has to be worked out on the basis of these particulars. The present case falls under first category. When undisclosed income by itself is discernible from the seized material, there is no need for the AO to find out the corresponding assets or expenses, if any. Therefore, this objection also fails.
29. All the other grounds and arguments relate to the reasonableness of the quantum of undisclosed income estimated by the AO and related issues. They are considered in the course of examining the estimate and its reasonableness in the paragraphs to follow.
30. We have found that an estimate is justified in this case. The method of estimation is also found reasonable. Now, we may examine the aspects and reasonableness of the quantum of suppression worked out by the AO on an estimate basis, in the light of the grounds of appeal and the arguments advanced. The AO is para 10E of his order has observed that independent proof of suppression has been found at both the places. Therefore, estimation has to be done separately for the two centres. This position has to be accepted. It is also true that the estimation has to be made assessment year-wise. It is fair that the AO has not gone prior to the dated 1st April, 1994, as no material was found or seized for the period prior to 1st April, 1994. Accordingly, the estimate of suppression and the quantum thereof has to be examined centrewise and assessment year-wise.
31. In the case of V.D.C. at Ameerpet, the AO has worked out the ratio of suppression to the disclosed turnover at 165 per cent. This is on the basis of seized collection sheets from 1st April 1994 to 20th September, 1995. But, this ratio could be considered only as a starting point or as a rough standard, and it will not be fair to apply the same ratio to estimate the suppression for the whole year. This maximum ratio does not take care of the ups and downs in the rates of suppression throughout the year. For the financial year 1994-95, collection sheets were seized for five months only. Suppression for the remaining seven months has to be estimated. These aspects are not easily quantifiable. They are quantifiable only after great pain and efforts. But these aspects are relevant for making a fair and conservative estimate rather than aggressive and arbitrary estimates.
In the financial year 1994-95, six collection sheets considered for V.D.C. at Ameerpet seems to be related to Sai Ram Hospital (marked as SRH/A/). The total of these sheets comes to Rs. 30,775. The AO has not made out any case to implicate these sheets into the account of V.D.C.at Ameerpet. At the same time, he has not excluded this amount, even though the appellant has repeatedly brought this matter to his attention. This has to be considered in favour of the appellant.
Likewise, the last elevan collection sheets noted for financial year 1994-95, do not bear any date. It is not safe, therefore, to say that those sheets related to financial year 1994-95. The total of these eleven sheets comes to about Rs. 50,000. This point also has to be discounted in favour of the appellant. Taking into account, all these material aspects, we find that a substantial reduction in the ratio of suppression worked out by the AO at 165 per cent has to be given.
Therefore, to be fair and reasonable, the ratio of suppression to the disclosed turnover in respect of VDC at Ameerpet for the financial year 1994-95, relevant to asst. yr. 1995-96, in our considered view, should be taken at 100 per cent i.e. the addition towards suppression by way of estimation shall be an amount equal to the turnover disclosed in the accounts.
32. The AO has adopted the same rate of 165 per cent to estimate the suppression for the next financial year, viz., 1995-96 also. The period considered for that year is 1st April, 1995 to 20th September, 1995, viz., the date of search. During the course of search, daily collection sheets giving case-by-case details for about 50 days from 31st July, 1995 to 20th September, 1995 were seized. The AO found that the appellant has written his accounts after the search, on the basis of these sheets (see para 7H of the assessment order). It is therefore, clear that no suppression can be alleged for this period, which is about 30 per cent of the period considered for the financial year 1995-96. It is not therefore, just and proper to adopt a ratio of 165 per cent to estimate the suppression. The above factum of non-suppression for the period from 31st July, 1995 to 20th September, 1995 has to be reflected in the ratio of suppression, by reducing the same proportionately. The general reasons considered for the financial year 1994-95 are applicable to this year as well. The collection sheets of only 16 days are available for this year as a basis for the estimation of suppression and estimate is called only for about four months from 1st April, 1995 to 30th July, 1995, as the seized collection sheets relating to the balance period have already been reflected in the accounts of the appellant after the date of search. In view of these appealing facts, we find that the proper ratio of suppression to the disclosed turnover for the financial year 1995-96 should be less than the ratio adopted for the financial year 1994-95.
We have modified the ratio of suppression for financial year 1994-95 to 100 per cent to the disclosed turnover, and therefore, in fairness, for the financial year 1995-96, we revise the ratio of suppression to 70 per cent of the disclosed turnover.
33. The deduction towards promotional expenses has been allowed by the AO at 5 per cent for both the years, for the VDC at Ameerpet. The same has been allowed at 10 per cent for VDC at Himayatnagar. There is no reason to hold that the VDC at Ameerpet is paying less amount as referal commission to doctors than at Himayatnagar. The rate of alleged suppression of turnover at Ameerpet is much higher than the one at Himayatnagar. The main purpose of suppression, allegedly, is to cover payment of commission made to doctors. Therefore, when the suppression rate is higher, the corresponding commission payment would also be higher. The details provided by the AO in para 7D of the assessment order, show that the commission payments would go upto 15 per cent to 20 per cent in certain cases. Therefore, it would be only just and fair to modify the rate of deduction for promotional expenses to 10 per cent for both the years for V.D.C., Ameerpet, as allowed by the AO in the case of V.D.C. at Himayatnagar. This deduction should be allowed on both admitted and suppressed collections determined for both the years in respect of V.D.C., Ameerpet.
34. In the case of V.D.C. at Himayatnagar, the AO has fixed the ratio of suppression at 20 per cent for both the years, viz. financial years 1994-95 and 1995-96. The analysis of the collection sheets made by the AO in para 10 of the assessment order shows that such materials are seized and available only for the financial year 1995-96. No materials have been seized for the financial year 1994-95. No instance of suppression has been found in the case of financial year 1994-95, as far as the V.D.C. at Himayatnagar is concerned. The details of commission payments found in the note-book seized also related to the financial year 1995-96 only. When no evidence or material regarding suppression either in income or in expense was found out for the financial year 1994-95, it would not be proper on the part of the AO to estimate any suppression for the financial year 1994-95, relating to asst. yr. 1995-96. We have already held in para 26 above that suppression has to be estimated centre-wise as well as assessment year-wise. When such independent and separate estimation of suppression is called for, there should be corresponding materials for such estimation center-wise and assessment year-wise. The AO himself has found independent proof of suppression and proceeded to estimate suppression at both places for both the years. While he has correctly estimated suppression for both the places separately, he was not justified in adopting the same ratio of suppression for both the years.
The ratio of suppression has to be worked out for each assessment year separately on the basis of evidence of suppression for that year. For estimating the suppression, there should be some substance of suppression available for each assessment year independently. For the financial year 1994-95, relating to asst. yr. 1995-96, in respect of V.D.C. at Himayatnagar, no such material is available to establish the suppression of turnover by the assessee.
35. Sec. 158BB of the IT Act lays down the rules of computation of undisclosed income of the block period, sub-s. (1) reads as follows : "Undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed in accordance with the provisions of Chapter IV of the basis of evidence found as a result of search." 36. Even though undisclosed income assessed is for the block period, that undisclosed income shall be the aggregate of total income of the previous years falling within the block period, of course, subject to the adjustments of income or loss already returned or assessed. Even though aggregate of income is taken, income has to be computed for each previous year separately, and that income has to be computed on the basis of evidence found out as a result of search. The law stated in this provision is that undisclosed income has to be computed for the previous years separately on the basis of evidence found as a result of search. In order to compute the income separately for each previous year, under these provisions, there has to be evidence found out as a result of search for each previous year falling within the block separately. In order to determine the undisclosed income of a previous year falling within the block period, there should be a corresponding and matching materials available for that previous year. This matching principle is very important.
37. Further, for the purposes of income-tax assessment, the unit of assessment is one year covered by the previous year relevant to the assessment year. This is a specific and independent unit of assessment for income-tax purposes. That principle of unit of assessment year is not diluted in block assessments also. In block assessments also, the unit of computation is the previous year covered by the corresponding assessment year falling within the block period. The undisclosed income computed unit-wise, on the basis of evidence collected as a result of search for each unit, is aggregated upto a period of 10 years, for the purpose of block assessment. So, the additional feature of block assessment is only the facility of aggregation, but the basic unit of assessment remains unchanged. Therefore, the undisclosed income has to be invariably determined with reference to each previous year included in the block period on the basis of matching evidence collected as a result of search for the year. When there is no material at all in relation to a particular previous year falling within the block, no undisclosed income could be determined for that year, in the light of the matching principle disclosed above.
38. In the light of the above discussion, as there is no evidence of undisclosed income for the previous year 1994-95 in relation to V.D.C.at Himayatnagar, no undisclosed income could be computed for that centre for the asst. yr. 1995-96. It is for that reason only that the AO has not gone beyond the financial year 1994-95, and computed undisclosed income from 1994-95 only, since there was no evidence or suppression for the earlier years. In all fairness, that rule should apply to V.D.C. at Himayatnagar for the financial year 1994-95.
Therefore, we delete the suppression estimated and added by the AO for the financial year 1994-95 in the case of V.D.C. at Himayatnagar.
39. For the financial year 1995-96, there cannot be any case of suppression for about 50 days from 30th July, 1995 to 20th September, 1995. The collection sheets were seized at the time of search for these days. Subsequent to the search, the appellant has accounted the collections as noted in these collection sheets. Therefore, no suppression could be made out for that period, which comes to about 30 per cent of the previous year period of the financial year 1995-96 (para 0.70 of the assessment order). Further, collection sheets in support of suppression are available only for two days, i.e. 17th July, 1995 and 18th July, 1995 (para 10 of the assessment order). This sample may not be fully representative for the whole previous year period. The general reasons stated in the case of V.D.C. Ameerpet apply here also.
For these specific and sufficient reasons, it is not just and proper to adopt the ratio of suppression at 20 per cent as such. Instead, we modify the ratio to 15 per cent for the financial year 1995-96 in the case of V.D.C. at Himayatnagar.
40. As already noted above, the AO has allowed a 10 per cent deduction towards promotional expenses. We find that the rate of deduction granted is reasonable. Therefore, for the financial year 1995-96, the AO may grant a deduction of 10 per cent of the admitted and suppressed turnovers, towards business promotional expenses. As we have not estimated any undisclosed income for the financial year 1994-95, there is no warrant for any deduction from out of such income towards business promotional expenses.
41. In the circumstances, the rate of suppression in the case of V.D.C.at Ameerpet is modified to 100 per cent of the total collections for the financial year 1994-95, and it is estimated at 70 per cent of the total collections for the financial year 1995-96 (vide paras 27 and 28 above); and deduction towards promotional expenses is modified to 10 per cent of the total collections comprising of admitted as well as suppressed collections for both the financial years, viz., 1994-95 and 1995-96 (upto 20th September, 1995) (vice para 29 above).
42. In the case of V.D.C. at Himayatnagar, we found no suppression of collections for the asst. yr. 1995-96, viz., for financial year 1994-95, in the absence of matching evidence for that year (vide para 33 above), and for the financial year 1995-96 upto 20th September, 1995 relevant for the asst. yr. 1996-97, we have determined the suppressed collections at 15 per cent of the disclosed collections. Para 34 above.
As for deduction towards business promotional expenses, we have not allowed any such deduction for the financial year 1994-95, as no undisclosed income was determined for that year; and we have directed the allowance of the same at 10 per cent of the total collections comprising of admitted as well as suppressed collections, for the financial year 1995-96, in respect of this centre (vide para 35 above).
43. In the result, the AO is directed to modify the assessment accordingly, and the appeal of the assessee is treated as allowed in part.