Misra Hospital & Nursing Home Pvt. ... vs Assistant Commissioner Of Income ...
1995 Latest Caselaw 486 Del

ORDER

B. S. SALUJA, J. M. :

The assessee is in appeal against separate orders of CIT(A)-V, New Delhi, dt. 29th Dec., 1989 and 18th Dec., 1989 for the asst. yrs. 1986-87 and 1988-89 on the grounds of carry forward of losses and addition of Rs. 22,955 made on account of incentive paid to doctors.

ITA No. 1616/Del/1990 :

2. The assessee filed a return on 14th Nov., 1986 declaring loss of Rs. 22,138. The Assessing Officer noted that the return of loss was accompanied by copy of audited balance sheet and P&L account and he accepted the loss as returned by the assessee. However, he mentioned in the assessment order that no carry forward of loss was being allowed as the return had been filed late.

2.1 The assessee filed an application dt. 15th July, 1987 made under S. 154 of the IT Act, 1961 claiming that the loss of asst. yr. 1986-87 should be allowed to be carried forward for subsequent years. The Assessing Officer observed that the matter had been considered in the assessment order dt. 28th Jan., 1987 and carry forward of loss and had not been allowed and since there was no mistake apparent from the record, the matter was not rectifiable under S. 154 and thereby rejected the application.

2.2 On appeal before the CIT(A), the learned counsel for the assessee contended that the Asstt. CIT had wrongly rejected the application under S. 154 of the IT Act on the ground that there was no mistake apparent from the record. He submitted that as the assessee was entitled to carry forward of loss, the mistake should have been rectified. The CIT(A) observed that there was no force in the submissions made by the learned counsel. She also observed that the Assessing Officer had rejected the assessees claim after considering the same in the light of the provisions of S. 80 of the IT Act, 1961. She further observed that as there was difference of opinion whether the extension application filed on which no decision had been taken tantamounts to extension of time, as held by the various Courts, the matter was debatable and was not covered under S. 154 of the Act. She also observed that the said matter should have been agitated in an appeal filed against the order passed under S. 143(3) of the Act. The CIT(A), therefore, upheld the order of the Assessing Officer in rejecting the application of the assessee under S. 154 of the Act.

3. The learned counsel for the assessee, Shri S. S. Bhatti, submitted that under the provisions of S. 80, no loss which has not been determined in pursuance of a return filed within the time allowed under sub-s. (1) of S. 139 or within such further time as may be allowed by the ITO shall be carried forward and set off under the provisions of S. 72(1), etc. He further submitted that S. 80 was amended by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1st April, 1989 and that the said amendment is not applicable in the year under consideration, i.e., asst. yr. 1986-87. He further invited our attention to page 6 of the paper book where a copy of acknowledgement for filing Form No. 6 is placed. He submitted that the assessee had filed Form No. 6 on 31st July, 1986 seeking extension of time for filing the return. He further invited our attention to the written submissions filed before the Assessing Officer with reference to the application under S. 154. The said written submissions are placed at pages 9 to 11 of the paper book. In paragraph 2 of the said written submissions, it had been stated that in the case of loss return, the loss will be allowed if the return is filed within time allowed under S. 139(1) or within the extended time allowed by the ITO. The assessee further relied on the decision in the case of Lachhman Chaturbhuj Jawa vs. R. G. Nitsure & Ors. (1981) 132 ITR 631 (Bom) : (1981) 6 Taxman 198 (Bom) where it was held that if the ITO did not reply to the assessees application within the time applied by the assessee, time is deemed to have been extended as prayed by the assessee and assessee was justified in assuming that his application had been granted by the Department. In the light of the said decision, the assessee claimed that since it had not received any communication rejecting the application for extension of time, the extension should be taken as granted and, therefore, the carry forward loss should be allowed. The learned counsel further relied on the decision of the Honble Allahabad High Court in the case of Jan Daood & Co. vs. ITO & Anr. (1978) 113 ITR 772 (All), the decision of the Honble Calcutta High Court in the case of Sunderdass Thackersay & Bros. vs. CIT (1982) 137 ITR 646 (Cal), the decision of the Honble Patna High Court in the case of CIT vs. Bishwanath Khirwal (1986) 161 ITR 382 (Pat). The learned counsel also relied on the decision in the case of Kaloo Ram Tirasilal vs. ITO (1966) 59 ITR 308 (MP) and in the case of CIT vs. Sankaranarayanan Nair (1988) 169 ITR 397 (Ker) for the proposition that a rectification with reference to the carry forward of loss could be made under S. 154 of the IT Act, 1961.

The learned Departmental Representative Smt. Surabhi Sinha relied on the orders of the tax authorities and further submitted that the issue regarding deemed extension of time where the application for extension of time is not rejected by the Assessing Officer, is a debatable issue and the assessment order cannot be rectified on the said basis under S. 154 and that the proper course for the assessee was to agitate the matter in the appeal filed against the said assessment order. In this connection, she relied on the decision in the case of T. S. Balaram, ITO vs. Volkart Bros. & Ors. (1971) 82 ITR 50 (SC) in the case of T. Venkata Krishnaiah & Co. vs. CIT (1974) 93 ITR 297 (AP) and CIT vs. S. P. Viz Construction Co. (1987) 165 ITR 732 (Pat). In view of the foregoing, she submitted that no interference is called for in the order of the learned CIT(A).

4. We have carefully considered the submissions made by both the parties in the light of the case laws relied upon by them and have also perused the relevant record to which our attention has been invited. It is observed that in the case of Jan Daood & Co. vs. ITO & Anr. (supra), the Allahabad High Court held that "every assessee does not retain copies of applications made by him to the IT authorities and non-production of such copy cannot be regarded as a ground for disbelieving the petitioners assertion that he had made such an application, when such assertion is supported by the acknowledgement issued by the office of the ITO. That the petitioner firm was not likely to have requested for further extension of time by 7-1/2 months was a mere "conjecture". Similarly in the case of CIT vs. Bishwanath Khirwal (supra) the Honble Patna High Court held that "once assessee applies for extension of time and the ITO does not reject the prayer for extension of time for filing the return and does not communicate it to the assessee, then it has to be presumed that the assessee is right in assuming that extension of time has been granted". The decision of the Honble Calcutta High Court in the case of Sunderdass Thackersay & Bros. vs. CIT (supra), is distinguishable on facts as the said case related to penalty under S. 271(1)(a) of the Act and the application for extension of time in Form No. 6 had been filed after the expiry of time for furnishing the return. It is also observed that the Madhya Pradesh High Court in the case of Kalooram Tirasilal vs. ITO (supra) had held that the ITO acted within his powers and jurisdiction in passing the order of rectification and that in setting off the business loss of the year 1955-56 against income from undisclosed sources, the ITO acted contrary to S. 24(2) of the IT Act, 1922 and committed a mistake which was apparent from the record. Similarly, in the case of CIT vs. M. N. Sankaranarayanan (supra), the Assessing Officer rectified the orders by setting off the business loss limited to income under the head "Business" and no objection was raised by the assessee to rectification proceedings to the effect that income from lorry charges should be assessed as business income. It was also held that the ITO was not obliged to demonstrate that income against which loss was set of was indisputably "Income from other sources" and the rectification order was held valid under S. 154 of the IT Act.

4.1 The decision of the Honble Supreme Court in the case of T. S. Balaram, ITO vs. Volkart Bros. & Ors. (supra), lays down the general proposition that a decision on a debatable point of law is not a mistake apparent from the record and is strictly not on the point involved in this appeal. Similarly the decision of the Honble Andhra Pradesh High Court in the case of T. Venkata Krishnaiah & Co. vs. CIT (supra) relates to a situation where the application for extension of time was made after the issue of notice by the ITO under S. 139(2) calling upon the assessee to file its return on or before 16th Sept., 1963 and the said application had been received by the ITO on 18th Sept., 1963 and it was held in that case that the ITO was not bound under the provisions of the IT Act or any Rules made thereunder to pass any order thereon. Similarly in the case of CIT vs. S. P. Viz Construction Co. (supra), the application for extension of time was filed after the due date for filing of the return and the said case is distinguishable on facts.

4.2 In view of the foregoing discussion, we feel that where the assessee has filed an application for extension of time within the due date for filing of the return and the Assessing Officer has not passed any order on the said application, the assessee is correct in assuming that the extension of time for filing the return within the time applied for has been granted and any return filed within such extended time should be taken into consideration by the Assessing Officer while allowing carry forward of losses under S. 80 of the IT Act, 1961. Further in view of the decisions reported in (1966) 59 ITR 308 (MP) and (1988) 169 ITR 397 (Ker) (supra) we feel that a rectification order could be passed under S. 154 allowing the claim of the assessee for carry forward of losses if he meets with the requirement of S. 80. In the present case, the assessee has filed the application for extension of time on 31st July, 1986 i.e. on the due date for filing of the return. However, it is not clear from the written submissions filed by the assessee before the ITO as to up to what period the extension of time was applied for. Further, a copy of the application for extension of time is also not available on the record. In the circumstances, the case is restored to the file of the ITO with a direction that he may rectify the assessment order under S. 154 of the IT Act, after giving an opportunity of being heard to the assessee and after satisfying himself that the return has been filed within the period of extension applied for by the assessee.

ITA No. 1617/Del/1990 :

5. In this case the Assessing Officer noted during the assessment proceedings that an amount of Rs. 22,955 had been debited under the head other expenses as incentives to doctors. He observed that the vouchers issued for the said payments did not bear the signature of the alleged recipients. He asked the assessee to explain as to why the said amount should not be added back as its income. The assessee replied on 7th Feb., 1989 that it was the general practice in almost all the nursing homes to given incentives to doctors who recommended patients to the nursing home. It further stated that the doctors did not acknowledge the payments because of their professional reasons. The assessee also relied on the orders of the Tribunal, Delhi Bench, in ITO vs. Rajendra Tractors House in support of its stand. The Assessing Officer observed that the case cited by the assessee was distinguishable on facts as in that case the commission had been paid to mechanics who may not have been IT assessees. In the present case, the payments had been made to doctors who may be having their own practice and may also be IT assessees. The Assessing Officer further observed that commission payments to doctors would mean that they were also acting as commission agents apart from doing medical practise and that was prohibited by law. The Assessing Officer relied on the case of Goodlass Nerolac Paint Ltd. vs. CIT (1982) 137 ITR 58 (Bom) wherein it was held that the secret commission paid by the assessee company to promote its sales could not be regarded as expenses deductible under S. 37(1) of the IT Act and made an addition of Rs. 22,955 towards the income of the assessee.

On appeal, the CIT(A) noted that there was no direct evidence with regard to the payment having been made to various doctors for having sent their patients to the assessees nursing home and further the vouchers issued for the payment did not show the signature of the alleged recipients. In the absence of any evidence with regard to the services rendered, she upheld the addition made by the Assessing Officer.

6. The learned counsel for the assessee submitted before us that the Assessing Officer had made the addition while relying on the decision of the Bombay High Court in the case of Goodlass Nerolac Paints Ltd. vs. CIT (supra) but the said decision has been reversed by the Honble Bombay High Court in the case of CIT vs. Goodlass Nerolac Paints Ltd. in (1991) 188 ITR 1 (Bom), wherein it has been held that failure to furnish information regarding names and addresses of recipients of commission under S. 133(4) would entail penalty only and that the commission cannot be disallowed. It was also held that the Tribunal concluded that the fact of payment of commission was established even though the names and addresses of the recipients were not given and that the payments were made for the purposes of business. The Honble High Court held that this was a finding of fact by the Tribunal which could not be interfered with by the High Court. In view of the foregoing the learned counsel urged that the commission had been paid for purposes of business and the addition ought to be deleted.

6.1 The learned Departmental Representative relied on the orders of the tax authorities and submitted that the decision of the Honble Bombay High Court reported in (1991) 188 ITR 1 (Bom) (supra) was not a case of reversal of the earlier decision reported in (1982) 137 ITR 58 (Bom) (supra) but was only a case of difference of opinion. She further submitted that in the latter case the High Court had held that the Tribunal had given a finding of fact that the payment of commission was established and that the High Court could not interfere. In reply the learned counsel submitted that the latter case should prevail and be considered for deleting the said addition.

7. We have carefully considered the submissions made by both the learned representatives in the light of the decisions relied upon by them. We feel that the decision of Honble Bombay High Court in the case of CIT vs. Goodlass Nerolac Paints Ltd. (supra) is distinguishable on facts as in that case the Tribunal had found that the payments of commission had been made under the instructions and directions of the top executives of the company and were approved by the board of directors at the end of every month. The Tribunal had also taken into account that the assessee in that case was a public limited company, that the accounts were not merely audited but were also placed before the general body of shareholders, that the assessees turnover was increasing year after year and that such payments claimed as deduction has dropped from 1.34% for one of the years to 0.22% in the year in question, before concluding that the fact of payment of commission was established even though the names and addresses of the recipients were not given and that the payments were made for the purposes of business. In view of the said finding of fact by the Tribunal, the High Court declined to interfere. As against this, the decision of the Honble Bombay High Court in the case of Goodlass Nerolac Paints Ltd. vs. CIT (supra) is relevant to the issue under consideration. In the said case, the Tribunal had found that the payments were nothing but secret commission and disallowed the claim for deduction on the ground that the secret commission which was paid to the employees of the customers would be liable to be taxed in the hands of the recipients and it would be against public policy to allow the recipients to escape tax, which would necessarily result if the assessee was allowed the deduction in respect of the commission without disclosing the names and addresses of persons to whom the same were alleged to have been paid, that in the absence of the names and addresses of the recipients of the commission, it could not be said that the expenditure was laid out wholly and exclusively for the purposes of business of the assessee and that, therefore, the assessee could not be said to have discharged the burden of proving that the expenses claimed to have been paid as secret commission were, in fact, paid. On a reference to the Honble Bombay High Court, it held that the Tribunal was right in disallowing the claim for deduction of selling expenses paid by way of secret commission. We feel that the issue in the present case is squarely covered by the said decision in (1982) 137 ITR 58 (Bom) (supra) and respectfully following that decision, we decline to interfere with the order of the CIT(A).

8. In the result, appeal in ITA No. 1616/Del/90 is allowed for statistical purposes and appeal in ITA No. 1617/Del/1990 is dismissed.