Whether in block assessment case any legally sustainable addition can be made based on cash memo seized for broken period - NO: HC

THE issue before the Bench is - Whether in block assessment case any legally sustainable addition can be made based on cash memo seized for broken period. No is the answer.

Facts of the case

The assessee is an individual. Consequent to filing of her return, a search was carried out by the CIT at the Nursing Home of the assessee, during which, several books of account and loose papers were seized. Narration of the seized documents revealed that few registers, which were marked as TKS-51, 52, 53 and 56 as also TKS 2, 5 & 4 were seized, which were pertaining to A.Y 1989-90 for which addition of Rs. 56800/- was made by the AO. Similarly, for the A.Y 1990-91, addition of Rs. 28826/- was made on the basis of cash memos, which were seized and marked as TKS-53, 54, 55, 56, 57, 59 and 60. On the basis of the registers, which were seized from the Nursing Home, it had been stated by the assessee that medical treatment was given to several patients at the nursing home of the assessee and the registers revealed only the registration fees, but, the actual bill amount must have been paid in cash and, therefore, per patient of Rs. 2000/- was calculated and, this amount of Rs. 2000/- was multiplied by number of patients, mentioned in registers and this was how huge income was added, which was at Rs. 1,14,86,000/-. This was a total amount calculated by AO and the net profit was taken at the rate of 20%, which comes to Rs.22,97,200/-. This amount was added back to the total income of the assessee as an undisclosed income for the block period.

On appeal, the CIT(A) deleted the additions made by AO on the ground that the whole calculation was made on the basis of presumption and surmises and so far as cash-memos and registers were concerned, the said amount was inclusive of other payments and also the payments towards the medicine. On further appeal, the Tribunal upheld the order of the CIT(A).

Having heard the parties, the High Court held that,

++ it appears that the AO has committed an error in calculation of income of the assessee and the additions have been made on the basis of presumption and surmises and without any evidences on record. In the registers, which were seized, some amount has been mentioned, which is received by the assessee. The AO has presumed that still further amount must have been paid by the patients, in cash. There is no evidence taken by the AO, by examining any of the patients that he has paid any amount, in cash, over and above what is stated in the register. Not a single patient has been examined by the CIT for any of the block years or for the broken period. Moreover, the AO has presumed the number of patients also for two A.Ys i.e. 1995-96 and 1996-97 as 1000. The AO has also presumed the average rate of Rs. 2000/- per case, on the basis of cash memo seized for broken period running from 1st April, 1997 to 21st October, 1997. For this broken period the total receipt comes to Rs.10,20,600/- and the total number of cases were 541 and, therefore, average comes to Rs. 2000/- per patient. Thus, the rate which was found out by the AO in the year, 1997 has also been made applicable in the year 1988-89 and, that too, on the presumed number of patients. This is not permissible in the eyes of law. The total calculation of receipts of the assessee, which worked out at Rs.11,48,600/- is absolutely a baseless calculation;

++ it further appears that no error has been committed by CIT(A) and ITAT in deleting these additions. Such type of additions cannot be permitted, because it is absolutely a baseless calculation and without any evidence. It is further appears that the AO has made addition of Rs.56,800/- for the A.Y 1989-90. Similarly, for the A.Y 1990-91 an addition was made at Rs.28,826/- and for the A.Y 1992-93 addition was made at Rs.74,341/-. It appears that these additions also could not have been made by the AO, because the amount mentioned is inclusive of payment to be made to the others for medicines etc. This is not a gross receipt of the assessee. These aspects of the matter have been properly appreciated by the CIT(A) and ITAT. The amount received by the assessee for the aforesaid A.Ys cannot be added to the income of the assessee, because the same is inclusive of the payment to be made to the others and for other purposes like medicines etc. Thus, we see no reason to entertain this appeal as no substantive question of law is involved.