Surrendered Income of Doctor is Professional Income unless there is clear contrary Evidence

Bharat Vipan Garg Vs PCIT (ITAT Chandigarh)

Introduction: The Income Tax Appellate Tribunal (ITAT) Chandigarh delivered an essential judgment in the case of Bharat Vipan Garg Vs PCIT. The crux of the issue was how to treat surrendered income, specifically whether it can be treated as income from a medical profession without clear evidence to the contrary.

Background and Facts: Bharat Vipan Garg, a medical professional, appealed against an order from the Pr. Commissioner of Income Tax, Patiala, from March 21, 2022. A survey by the Income Tax Department revealed unaccounted incomes and investments totaling Rs. 70,00,000 by the assessee, which were subsequently surrendered by him.

PCIT’s Observations and Actions: The ld. PCIT pointed out the Assessing Officer’s (AO) oversight in failing to demand necessary documentary proofs that verified the nature of the surrendered income. PCIT suggested that without clear evidence of its source, the surrendered amount could be from an unexplained source, thus warranting a higher tax rate under Section 115BBE.

Assessee’s Defense

The counsel for Bharat Vipan Garg contended that all necessary inquiries were, in fact, made by the AO. They emphasized that there was no evidence suggesting that the assessee had any other income sources besides his medical profession. Notably, the assessee had confirmed to the survey team in writing that the surrendered income derived from his medical profession.

LD. DR’s Counter-Argument

The ld. DR referred to the statement taken during the survey, where the assessee, while offering the Rs.70 lakhs for taxation, admitted his inability at that moment to explain certain sources. Hence, the ld. DR argued that the PCIT was right in noting the AO’s shortcomings in the assessment.

ITAT’s Verdict: After a careful evaluation, ITAT Chandigarh observed that both the statement and surrender letter from the assessee were dated the same day. By reading them together, it was evident that the assessee had offered the Rs.70 lakhs as additional professional income. Given that the Department had no evidence of any other income source for the assessee, and the AO had made sufficient inquiries, ITAT concluded that the PCIT was unjustified in labeling the assessment order as erroneous. Consequently, the revision order under Section 263 of the Act was quashed.

Conclusion: The ITAT Chandigarh’s decision in Bharat Vipan Garg Vs PCIT provides a significant precedent on how surrendered incomes should be treated for taxation purposes. It emphasizes the importance of thorough investigation and the consistency of documentary evidence in making tax-related decisions.

FULL TEXT OF THE ORDER OF ITAT CHANDIGARH

The present appeal has been preferred by the assessee against the order dated 21.03.2022 of the ld. Pr. Commissioner of Income Tax, Patiala [in short ‘ld. PCIT’] pertaining to 2017-18 assessment year.

2. The assessee in this appeal has agitated the invocation of the revised jurisdiction by the ld. PCIT u/s 263 of the Income Tax Act, 1961 (in short ‘the Act’) whereby he has set aside the assessment order passed by the Assessing Officer (in short ‘the AO’) holding the same as erroneous and prejudicial to the interests of the Revenue and has further directed the AO to pass a fresh assessment order.

3. The brief facts of the case are that the assessee is a Doctor/Medical Practitioner by profession and has been returning his income from medical profession. A survey action was carried out by the Income Tax Department on the premises of the assessee u/s 133A of the Act on 26.09.2016. During the survey action, the Survey Party noted that certain income of the assessee was not accounted, the detail of which is as under :

4. The assessee surrendered the aforesaid amount vide his  letter dated 26.09.2016 i.e. at the time of survey only as his additional income and further claimed that the said income has been derived from the same business/profession. Thereafter, the assessment proceedings were carried out u/s 143(3) of the Act whereupon the AO raised certain queries relating to the professional income of the assessee, also including the additional income offered by the assessee on account of discrepancies found during the survey action. Thereafter, the AO accepted the source of the surrendered income as the income from medical profession practiced by the assessee. The ld. PCIT, however, in the impugned order noted that the AO had not called for necessary documentary evidences to examine the nature of the surrendered income. He noted that since the aforesaid income might be from unexplained source of the assessee, therefore, provisions of Section 115BBE were applicable and that the aforesaid surrendered income should have been charged at a higher rate. He, therefore, held the assessment order as erroneous and prejudicial to the interests of the Revenue, ordering denovo assessment on this issue.

5. Before us, ld. Counsel for the assessee has invited our attention to various letters issued by the AO and the reply thereof, filed by the assessee before the AO to submit that the necessary enquiries were made by the AO before accepting the surrendered income as professional income of the assessee. He has further submitted that there was no evidence or allegation that the assessee has any other source of income apart from the medical profession. The ld. counsel, in this respect has relied upon page 34 of the Paper Book to submit that the assessee has explained before AO that net profit rate of the assessee had increased from year to year. That it was duly explained to the AO that the cash found and the amount of Rs.25 lacs incurred on the addition of the building were out of the additional professional income surrendered by the assessee.

6. The ld. counsel has also relied upon page 60-61 to submit that a Show Cause Notice was also issued by the AO to the assessee to furnish his accounts and documents and queries were also raised relating to documents/discrepancies found during the survey action which were duly replied by the assessee.

7. The ld. DR, on the other hand has relied upon the statement recorded of the assessee during the survey action to submit that the assessee during his statement, though offered the aforesaid amount of Rs.70 lacs for taxation, however, the assessee during the course of statement, had stated that at that time, he was unable to explain the source of the cash found of Rs.9,30,000/-and further, the unaccounted entries of the amount of Rs.37,50,000/- and unaccounted expenditure of Rs.24,98,200/-, totaling Rs.70 lacs. The ld. DR, therefore, has submitted that assessee in his statement has not clearly mentioned that the aforesaid surrendered income was out of his professional income. That he has just offered the surrendered income as his additional income over and above his normal income. He, therefore, has stressed that ld. PCIT rightly noted that the AO had failed to make necessary enquiries and take note of the aforesaid statements of the assessee made during the survey action. That the ld. PCIT, therefore, has rightly exercised his revisionary jurisdiction u/s 263 of the Act.

8. We have considered the rival contentions and have gone through the record. Firstly, it is to be noted that statement relied upon by the ld. DR of the assessee is dated 26.09.2016. We find, though, the assessee in answer to the relevant queries has stated that “At present, I am unable to explain the source of said cash” and further, “At present, I am not in a position to explain the discrepancies confronted to me”, however, the assessee in the said statement finally offered the said amount as his additional income over and above his normal income of the current Financial Year. Further, the assessee at the same time, also confirmed to the Survey Team by writing a letter of the same date i.e. 26.09.2016 whereby, he has specifically mentioned that the source of the entire surrendered income was out of his medical professional income and that he was offering this sum as over and above his normal business/professional income recorded in the books of account. We find that the statement of the assessee as well as the said surrender letter of the assessee, are of the same date i.e. 26.09.2016, therefore, it cannot be said that the said letter issued by the assessee is an after-thought. Rather, if we read both the statement as well as letter together, the sum and substance of the entire conversation would be that the assessee had offered the said amount of Rs.70 lacs as his additional professional income. There is no case of the Department that the assessee has any other source of income. Moreover, the AO during the assessment proceedings, had made adequate enquiries in this respect and accepted the explanation offered by the assessee. We, therefore, do not find any justification on the part of the ld. PCIT in holding the assessment order as erroneous and prejudicial to the interests of the Revenue. The exercise of revisionary jurisdiction u/s 263 of the Act, in this case is held to be not justified and therefore, the revision order passed u/s 263 of the Act is hereby quashed.

9. In the result, appeal of the assessee stands allowed.

Order pronounced in the Open Court on 21^st July, 2023.