R.P. PATEL Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) These connected appeals filed by die assessee arise from the common order of the Income-tax Appellate Tribunal disposing of assessee's appeals for the assessment years 1991-92 to 1998-99. The assessee is a renowned Homoeo doctor engaged in medical practice at Kottayam. Besides income from profession, the assessee is engaged in sale of medicines and books. Admittedly assessee was not maintaining books of account for his professional income and income was returned on estimation basis. Search was conducted in the professional-cum-residential premises of the assessee on 30-12-1994. During the course of search substantial amount of cash, Indira Vikas Patras (IVP) valued at substantial amount and promissory notes were recovered. From the locker maintained by the assessee in the State Bank of India, Jawahar Nagar, Baroda, the Department seized IVPs of face value Rs. 67.60 lakhs out of which IVPs of Rs. 90,000 was found to be purchased by the assessee's son and balance Rs. 66.70 lakhs was found to be the investment of the assessee. Based on the recovered cash, IVPs and promissory notes and other recovered documents, the Assessing Officer revised assessments already completed under Section 147 of the Income-tax Act, hereinafter called the "Act", and regular assessments were completed for later years. From the records, it was found that the assessee was maintaining Patients Register and assessee charges initial amount of Rs. 30 towards consultation fee and all charges later recovered are towards value of medicines supplied. However, the Department noticed that instead of writing the full amount, the assessee was using N for 90, S for 60, F for 50, etc. After decoding the entries in the seized books, entire amount recovered was found out and the Assessing Officer while assessing the income from profession granted an estimated expenditure of 20 per cent from the total receipts. It was the finding of the Assessing Officer that assessee would have drawn medicines from the trading division maintained by him as proprietor and so much so no deduction is called for towards purchase value of medicines. However, in first appeal, the CIT (Appeals) differed from the view taken by the Assessing Officer and held that assessee would have made unaccounted purchase of medicines and so much so he is entitled to deduction of cost of medicines. He estimated 85 per cent of the total receipt towards cost of medicines and out of the same he permitted addition of only 32 per cent which is gross profit received by the assessee in trading of medicines. When the matter went in appeal before the Tribunal, Tribunal granted further deduction in estimating professional income on the ground that assessee would have incurred overhead expenditure.

(2.) The assessee raised a contention that investment in IVPs is capital in nature and therefore interest in IVPs should be assessed towards capital gain on encashment. This claim was turned down by all the authorities including the Tribunal. The assessee alternatively raised a contention that even if IVPs are not capital in nature, interest should be treated as income only on receipt, that is on encashment of the IVPs and should not be taken on year to year basis, based on accrual of interest. This claim was also rejected by all the authorities, including the Tribunal. The last issue pertains to assessee's challenge against charging of interest under Section 234B of the Act. The assessee pointed out that except for the assessment years 1996-97 and 1998-99, the Assessing Officer has not mentioned anything about chargeability of interest under Section 234B in the body of the order, and for other years he has worked out interest in the last portion of the assessment order. Therefore the demand of interest is unauthorised, is the case of the assessee. However, all the authorities, including the Tribunal, upheld in principle the assessee's liability for interest for default in payment of advance tax under Section 234B of the Act. However, on the quantum of interest, Tribunal took note of the assessee's argument that Post Offices have not deducted tax at source and remanded the matter to determine the quantum of interest. It is against these findings of the Tribunal that the assessee has filed these appeals under Section 260A of the Act raising the following common questions:

(3.) The first question pertains to disallowance of assessee's claim of deduction on salary paid to doctors, staff and depreciation for car, furniture, etc., in the determination of professional income of the assessee. The assessee's grievance is that the Tribunal rejected the claim for the reason that the claim was made for the first time before the Tribunal and the assessee never raised the issue in assessment before the officer or in first appeal before the first appellate authority. Admittedly the assessee did not make such a claim in the assessment or in first appeal. According to the assessee the claim pertains to salary paid to two doctors and staff members and the depreciation allowable on furniture, fixtures, car, etc. However, the assessee's claim before the Tribunal was only on estimation basis and not on actuals. The Tribunal rejected the claim on the ground that the claim made for the first time before it cannot be entertained. The assessee has relied on the decision in P.P. Varkey & Co. v. Dy. CST (Law), Board of Revenue (Taxes), 1992 84 STC 383 and that of the Supreme Court in CIT v. Stepwell Industries Ltd., 1997 228 ITR 171 However we notice that the Tribunal has relied on the Larger Bench decision of the Supreme Court in National Thermal Power Co. Ltd. v. CIT, 1998 229 ITR 383 and held that Tribunal can allow a new legal issue to be raised before it for the first time, if the facts are already available on record. Since facts pertaining to remuneration paid to doctors, staff and claim of depreciation were not available on record, the Tribunal declined to entertain the claim made before it for the first time. The Tribunal in their order noted that assessee has not produced any proof of payment to doctors and staff. We do not think the assessee is entitled to succeed on this issue not only for the reason stated by the Tribunal, but also for the reason that professional income of the assessee is refixed by the Tribunal on estimation basis whercunder over and above the relief granted in first appeal, the Tribunal has granted deduction towards overhead expenditure. Admittedly assessee did not maintain any books of account and assessee himself returned professional income on estimation basis from total receipts. If assessee has regular employees we see no reason why the assessee could not maintain proper accounts showing the payments made to them and to claim eligible deductions, such as remuneration paid to staff, depreciation earned, etc. and return the actual income for assessment. On the other hand, assessee himself returned only estimation of income from gross receipts and therefore he cannot at the second stage of appeal before the Tribunal come forward with claims of deductions towards remuneration paid to employees, including doctors, depreciation for furniture, fixtures, etc. In fact, the officer himself allowed 20 per cent of earnings towards expenditure without any evidence at all and over and above this, the first appellate authority estimated additional expenditure of Rs. 60,000 per year, which was increased by the Tribunal on a percentage basis of the turnover, thereby granting substantial deduction. Therefore this is not a question of law as projected by the assessee, but only a question of fact, that is, whether this Court will be justified in interfering with the order of the Tribunal refixing the income of the assessee on estimation basis after granting further deductions, that too in a case where return of income itself is filed by the assessee on estimation basis. We are of the view that no substantial question of law arises in the claim of deduction made by the assessee towards salary paid to doctors, and staff and depreciation in a case where the assessee has not maintained books of account and has returned his professional income on estimation basis. In our view when assessee returns net income from gross receipts on estimation basis, and the same is substituted by granting deductions on percentage basis in assessment and further deductions of estimated expenditure as granted by first appellate authority and the Tribunal, all such deductions granted cover eligible deductions, allowances, and rebates admissible under the Act in full. In other words, assessees maintaining books of account only can claim deductions, allowances and rebates provided in the Statute. In any case in view of the Larger Bench decision of the Supreme Court in National Thermal Power Co. Ltd's case (supra) relied on by the Tribunal, the Tribunal is perfectly justified in rejecting the claim as the claim was raised for the first time before it. We therefore decide this issue against the assessee.