ORDER
V.K. Sinha, A. M.
1. This is an appeal filed by the assessee against an order of the CIT(A) sustaining the enhancement of income by Rs. 2 lacs.
2. The assessee is an individual having income from carrying on services of pathology, X-Ray and ultrasound tests. Receipts disclosed during the year were Rs. 15,02,675. The AO noticed a register of receipts of X-Ray tests and ultrasound tests was maintained. Receipts were issued against charges received from the patients. Opening and closing stock inventories were also available. Cash book was maintained. However, according to him, there were following discrepancies :
(i) No stock register of raw material was maintained;
(ii) Day-to day consumption record was not there but a statement of opening stock, purchases, closing stock and consumption was compiled as desired by the Assessing Officer (AO). The closing stock in this chart showed some variations with the closing stock as per inventory as noted in the assessment order.
(iii) The last cash receipt was Sl. No. 6507, which showed that there were 6507 patients, but ultrasound films 5600 and X-Ray films 10,540 were consumed; There was no satisfactory explanation why films more than the number of patients were used;
(iv) Some reports were prepared on the basis of screen display, but cash receipts were not issued in such cases;
(v) Daily balances were not struck in the cash book;
(vi) Separate figures of consumption of ultrasound and X-Ray films were not available.
3. On the basis of the above, the book results were rejected under proviso to s. 145(1) and the receipts of ultrasound receipts and X-Ray tests were estimated at the rate of Rs. 250 per film for ultrasound, Rs. 60 per film for X-Rays and Rs. 15 per film for dental X-Rays, after allowing wastage at the rate of 2.28% as per claim of the assessee. This resulted in estimate of receipts at Rs. 19,74,720 as against Rs. 10,60,045 disclosed by the assessee (for X-Rays and ultrasound tests excluding Pathology and interest). The difference of Rs. 9,14,675 was added to the assessee’s income as supressed receipts.
4. It was submitted before the CIT(A) that books had been maintained in accordance with s. 44AA of the IT Act, 1961, and r. 6F of the IT Rules, 1962. There was no requirement in r. 6F for maintenance of stock register. It was denied that cash receipts in respect of screen display were not issued and relevant record was placed before her. Regarding cash balances, attention was invited to r. 6F in view of which daily cash balance was not necessary and it could be once a month. It was also submitted that more than one film was utilised per patient because ultrasound was not restricted to one organ only. The variations in opening and closing stock were denied and reconciliation chart was placed before her.
5. It was further submitted before the CIT(A) that in a similar concern, namely, Doctor’s X-Ray and Pathology, the results were not as good as the assessee’s case. Further, net profit would work to 47.74% if the AO’s computation was to be accepted. The net profit rate disclosed was better than immediately preceding year. The net profit rate disclosed this year was 15.88% while in the preceding year it was 9.96% only.
6. The CIT(A) accepted the contentions partly. She observed that no doubt books of account were maintained, but it was not possible to correlate the total number of films used with the receipts issued. She accepted that day-to-day stock register and daily balancing of cash book were not required under r. 6F of the IT Rules. She also accepted that more than one film might have been used for one report. She agreed that net profit rate of 47.71% was an impossibility and described it as ridiculous. The results shown by the assessee were better than those in the case of Doctor’s X-Ray and Pathology. However, she held that proviso to s. 145(1) was attracted since the total number of films consumed could not be correlated with total receipts. In the facts and circumstances, the addition was reduced to Rs. 2 lacs, allowing a relief Rs. 7,14,675. The assessee is now in appeal before us.
7. The learned counsel for the assessee submitted that regular books of account had been maintained as laid down in s. 44AA of the Act and prescribed in r. 6F of the IT Rules. The books were also audited under s. 44AB of the Act. According to him, the defects pointed out by the AO could not lead to rejection of the book results under proviso to s. 145(1) of the Act.
8. In this connection, it was further submitted that it was a fact that no stock register of raw material was being maintained, but maintenance of a stock register was not requirement under r. 6F. The variation in opening stock and closing stock of raw material mentioned in the assessment order had been fully reconciled before the CIT(A). Although the number of patients were 6,507, more than one film had been used per patient with the result that 16,140 films had been used. Our attention was invited to a copy of a letter from Indian Radological Association, New Delhi dt. 28th Sept., 1994, which was produced before the CIT(A). It was stated therein that it was not true that during radiological/sonographic examination, we use only one film per case. The use varied and for X-Ray evaluation upto 10-12 films and in sono graphy 2-3 films may be used depending on the clinical problem.
9. It was further submitted that cash receipts were being issued for screen display also and this had been accepted by the CIT(A). Regarding balancing of cash book our attention was invited to Expln. (b) of r. 6F, where balancing at intervals of one month was permissible and this is what the assessee had done. Separate figures of consumption of ultrasound and X-Ray films was not available, but this was not a requirement under r. 6F. As far as separate receipts were concerned, they were available in the Daily Case Register in Form No. 3C under r. 6F(3) of IT Rules, 1962. For these reasons, it was reiterated that the books of account could not be rejected.
10. Alternatively and without prejudice, it was submitted that the results shown by the assessee were better than the preceding years and also better than comparable cases as noted by the CIT(A). It was, therefore, submitted that in any case, the book results deserved to be accepted. Our attention was invited to a decision of the Allahabad High Court in Badri Nath Agarwal vs. CIT (1967) 65 ITR 242 (All) where it was held that in estimating the income, the conditions of trade obtaining and the average margin of profit in the particular line of business are to be borne in mind. The Tribunal had proceeded on the basis of the assessee’s past results in the case of Magatram Khairatilal, Bhilai for asst. yr. 1975-76, (1977) Tax 49(6)-80.
11. At the end, learned counsel for the assessee also pleaded that the assessment order was barred by limitation. The assessment order was dt. 30th March, 1994, and was served personally on 31st March, 1994, without any demand notice or calculation of tax in ITNS 150, which were received after 19 days. According to him, this showed that the demand notice and ITNS 150 were not ready by 31st March, 1994.
12. The learned Departmental Representative, on the other hand, relied strongly on the order of the CIT(A). He submitted that the CIT(A) had upheld the applicability of proviso to s. 145(1) since the total number of films consumed could not be correlated with the total receipts. Regarding quantum, substantial relief had also been allowed in the addition and an addition of only Rs. 2 lacs had been sustained as against Rs. 9,14,675 made by the AO. He submitted that no further relief was due. Regarding limitation, he relied on the order of the CIT(A), according to which another set of documents were despatched by registered post on 31st March, 1994, and, therefore, it was quite clear that the assessment order had been passed within the limitation period.
13. We have considered the rival submissions carefully. The question of limitation is being taken up first. We find that an assessment order was sent for service personally, but separately an assessment order accompanied by demand notice and ITNS 150 were sent by registered post acknowledgement due on 31st March, 1994, vide receipt No. 4662. In these circumstances, we hold that the CIT(A) has rightly come to the conclusion that the assessment order was passed before the limitation period upto 31st March, 1994. This preliminary objection is, therefore, rejected.
14. Coming to the merits, the assessee was carrying on medical profession and was obliged to maintain accounts as per s. 44AA of the Act. This provision was introduced by Taxation Laws (Amendment) Act, 1975 w.e.f. 1st April, 1976. Earlier it had been held in certain cases like P. Appavu Pillai vs. CIT (1965) 58 ITR 622 (Mad) that adverse inference could not be drawn against an assessee for not having maintained any account of his income. Sec. 44AA of the Act statutorily supersedes the effect of the earlier decided cases for certain classes of assessees. In case, such accounts are not maintained, s. 271A prescribes penalty provisions.
15. It is laid down in s. 44AA(1) of the Act that, inter alia, every person carrying on medical profession “shall keep and maintain such books of account and other documents as may enable the AO to compute his total income in accordance with the provisions of this Act”. Thereafter, it is laid down in sub-s. (3) that the Board may prescribe by rules the books of account and other documents to be kept and maintained under sub-s. (1) and the particulars contained therein. The relevant rule is r. 6F of IT Rules, 1962.
16. Sub-r. (1) of r. 6F lays down, inter alia, that every person carrying on medical profession shall keep and maintain books of accounts and other documents specified in sub-r. (2). The books are quite extensive as the following extract will show :
“Rule 6F(2) The books of account and other documents referred to in sub-r. (1) shall be the following, namely :
(i) a cash book;
(ii) a journal, if the accounts are maintained according to the mercantile system of accounting;
(iii) a ledger;
(iv) carbon copies of bills, whether machine numbered or otherwise serially numbered wherever such bills are issued by the person, and carbon copies or counterfoils of machine numbered or otherwise serially numbered receipts issued by him :
Provided that nothing in this clause shall apply in relation to sums not exceeding twenty-five rupees;
(v) original bills where issued to the person and receipts in respect of expenditure incurred by the person or, where such bills and receipts are not issued and the expenditure incurred does not exceed fifty rupees payment vouchers prepared and signed by the person :
Provided that the requirements as to the preparation and signing of payment vouchers shall not apply in a case where the cash book maintained by the person contains adequate particulars in respect of the expenditure incurred by him.
Sub-r. (3) has prescribed additional books of account for persons carrying on medical profession. Extract is given below :
“(3) A person carrying on medical profession shall, in addition to the books of account and other documents specified in sub-r. (2), keep and maintain the following, namely :
(i) a daily case register in Form No. 3C;
(ii) an inventory under broad heads as on the first and the last day of the previous year, of the stock of drugs, medicines and other consumable accessories used for the purpose of his profession.”
17. It is the assessee’s case that all the prescribed books of account and documents were maintained. The discrepancies pointed out by the AO did not survive before the CIT(A) in this regard. The only reason why the CIT(A) upheld the applicability of proviso to s. 145(1) was that the total number of films consumed could not be correlated with the total receipts. However, such a requirement is not a requirement of s. 44AA of the Act or r. 6F of IT Rules.
18. From a reading of sub-ss. (1) and (2) of s. 44AA and r. 6F of the IT Rules, 1962, it follows that if the prescribed books and documents have been maintained, the assessee has maintained “such books of account and other documents as might enable the AO to compute his total income in accordance with the provisions of this Act”. If a contrary view is taken, then there will be no purpose in keeping the prescribed books. It is only a natural corollary that if the prescribed books are maintained properly, then the AO can compute his total income in accordance with the provisions of the Act.
19. In this connection, a reference should also be made to proviso to s. 145(1) of the Act. It is laid down therein that where the accounts are correct and complete but the method employed is such that the income cannot properly be deduced therefrom, the computation shall be made upon such basis and in such manner as the AO may determine. We hold that where proper books of accounts and documents have been maintained under r. 6F of the IT Rules, 1962, the income can properly be deduced therefrom and, therefore, proviso to s. 145(1) cannot be invoked. No error or discrepancy has been pointed out in the books and documents maintained under r. 6F of the Rules. We, therefore, hold that sustaining of an addition of Rs. 2 lacs is not justified. The addition is deleted.
20. In this view of the matter, it is not necessary to go into further merits and the assessee’s alternative contention that the results disclosed were reasonable.
21. In the result, the assessee’s appeal is partly allowed.