JUDGMENT Rajes Kumar, J.
1. The Income Tax Appellate Tribunal, Allahabad has referred the following question of law under Section 256(1) of the Income Tax Act, 1961, (hereinafter referred to as "the Act ") for opinion of this Court.
"Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that where proper books of account and documents have been maintained under Rule 6F of the Income-tax Rules, 1962, the income can be properly deduced therefrom and proviso to Section 145(1) of the Income-tax Act, 1961 cannnot be invoked "
2. The present Reference relates to the Assessment Year 1991-92.
3. Brief facts of the case are as follows:
The assessee is an individual having income from carrying on services of pathology, X-ray, and ultrasound tests. The assessing officer noticed that a register of receipts of X-ray tests and Ultrasound tests was maintained. According to him, there were discrepancies in it inasmuch as no stock register of raw material was maintained. The closing stock in consumption record showed some variation with closing stock as per inventory; there was no satisfactory explanation why X-ray films and ultrasound films were more than the number of patients were used, some reports were prepared on the basis of screen display, but cash receipts were not issued, daily balances were not struck in the cash book and separate figures of consumption of ultrasound and X-ray films were not available. The Assessing Officer rejected the book results under proviso to Section 145(1) of the Act and enhanced receipts on estimate resulting in an addition of Rs.9,14,675/-.
4. Assessee filed appeal before the C.I.T. (Appeals). It was submitted before the C.I.T. (Appeals) that the books of account had been maintained in accordance with Section 44AA of the Act and Rule 6F of the Income-tax Rules, 1962. The assessing officer wanted more information than contemplated therein. Some findings were also challenged on fact. The C.I.T.(Appeals), however, accepted the contentions partly, and observed that although books of account were maintained, it was not possible to correlate the total number of films used with the receipts issued. Day to day stock register and daily balancing of cash book were not required under Rule 6F of the Income-tax Rules. More than one film might have been used for one report. She also agreed that the addition resulting in a net profit rate of 47.7%, which was an impossibility. The assessee's results were better than those in a similar concern. However, she held that proviso to Section 145(1) was attracted since the total number of films consumed could not be correlated with the total receipts. The addition was reduced to Rs.2 lacs.
5. Being aggrieved by the order of C.I.T. (Appeals), assessee filed second appeal before the Tribunal. Tribunal allowed the appeal and held as follows:
"Coming to the merits, the assessee was carrying on medical profession and was obliged to maintain account as per Section 44AA of the Act. This provision was introduced by Taxation Laws (Amendment) Act, 1975 with effect from 1.4.1975. Earlier it had been held in certain cases like P. Appavi Pillai v. C.I.T., 58 ITR 622 that adverse inference could not be drawn against in assessee for not having maintained any account of his income. Section 44AA of the Act statutorily supersedes the effect of the earlier decided cases for certain classes of assessee. In case, such accounts are not maintained, Section 271A prescribes penalty provisions.
It is laid down in Section 44AA(1) of the Act that, interalia, every person carrying on medical profession "shall keep and maintain such books of account and other documents as may enable the assessing officer to compute his total income in accordance with the provisions of this Act." Thereafter, it is laid down in Sub-section (3) that the Board may prescribed by rules the books of account and other documents to be kept and maintained under subsection (1) and the particulars contained therein. The relevant rule is Rule 6F of Income-tax Rules, 1962.
Sub Rule (1) of Rule 6F lays down, interalia, that every person carrying on medical profession shall keep and maintain books of accounts and other documents specified in Sub-Rule (2). The books are quite extensive as 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 of counter foils 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 an 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 contains adequate particulars in respect of the expenditure incurred by him.
Sub-Rule (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-rule (2), keep and maintain the following, namely;
(i) 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."
It is the assessee's case that all the prescribed books of account and documents were maintained. The discrepancies pointed out by the Assessing Officer did nto survive before the C.I.T. (A) in this regard. The only reason why the C.I.T. (A) upheld the applicability of proviso to Section 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 Section 44AA of the Act or Rule 6F of Income-tax Rules.
From a reading of Sub-sections (1) and (2) of Section 44AA and Rule 6F of the Income-tax 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 Assessing Officer 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 coroliary that if the prescribed books are maintained properly, then the Assessing Officer can compute his total income in accordance with the provisions of the Act.
In this connection, a reference should also be made to proviso to Section 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 can not properly be deduct therefrom, the computation shall be made upon such basis and in such manner as the Assessing Officer may determine. We hold that where proper books of accounts and documents have been maintained under Rule 6F of the Income-tax Rules, 1962, the income can properly be deduced therefrom and, therefore, proviso to Section 145(1) can not be invoked. No error of discrepancy has been pointed out in the books and documents maintained under Rule 6F of the Rules. He, therefore, hold that sustaining of an addition of Rs.2 lacs is not justified. The addition is deleted."
6. We have heard Sri R.K.Upadhyaya, learned Standing appearing on behalf of the Revenue and Sri S.D.Singh, learned counsel for the assessee respondent.
7. Learned Standing Counsel submitted that the Tribunal has erred in holding that once the assessee is found to have maintained the books of account in accordance to Rule 6F and no defect is found in such books of account, the proviso to Section 145(1) can not be invoked. He submitted that the proviso to Section 145(1) can be invoked even in those cases where books of account is found to be complete and correct but the method is such that in the opinion of the assessing officer the income can not properly be deduced therefrom then the computation shall be upon such basis and in such manner as assessing officer may determine. He submitted that in the present case the proviso to Section 145(1) has been invoked because total number of films could not be correlated with the total receipts. Thus even books of account maintained in accordance with Rule 6 F found to be complete and correct and no defect is found but from the books of account the proper income could not be deduced because assessee has not maintained any account to correlate the total number of films consumed with the total receipts. Learned counsel for the assessee submitted that the proviso to Section 145(1) can be invoked only if it is found that the method employed is such that in the opinion of the assessing officer income can not properly be deduced. He submitted that in the present case there is no objection of the assessing authority with regard to the method employed by the assessee. Therefore, in the absence of any account to correlate total number of films consumed with total receipts the proviso to Section 145(1) can not be invoked. He submitted that once for pathological tests, maintenance of particular books of account are prescribed for the doctor, it is not obligatory for the assessee to maintain any other books of account. He submitted that in the present case it was found that the assessee has maintained complete books of account as required under Rule 6F and no defect in such books of account was found, the assessing officer can not require any other account than the account required under Rule 6F. Raising objection for non-maintenance of account, which is not prescribed under Rule 6F amounts to exceeding to its jurisdiction and exercising its power beyond statutory provisions.
8. Section 145(1), Section 44AA(1) and Rule 6-F (1) reads as follows.
"145(1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall be computed in accordance with the method of accounting regularly employed by the assessee:
Provided that in any case where the accounts are correct and complete to the satisfaction of the Assessing Officer but the method employed is such that, in the opinion of the Assessing Officer, the income cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the Assessing Officer may determine:
Provided further that where no method of accounting is regularly employed by the assessee, any income by way of interest on securities shall be chargeable to tax as the income of the previous year in which such interest is due to the assessee:
Provided also that nothing contained in this subsection shall preclude an assessee from being charged to income-tax in respect of any interest on securities received by him in a previous year if such interest had not been charged to income-tax for any earlier previous year. (2) Where the Assessing Officer is not satisfied about the correctness or the completeness of the accounts of the assessee, or where no method of accounting has been regularly employed by the assessee, the Assessing Officer may make an assessment in the manner provided in Section 144 44AA (1) Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette shall keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of this Act.
"Rule 6F : Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or authorised representative or film artist shall keep and maintain maintain the books of account and other documents specified in Sub-Rule (2).
Provided that nothing in this Sub-rule shall apply in relation to any previous year in the case of any person if his total gross receipts in the profession do not exceed one lakh fifty thousand rupees in any one of the three years immediately preceding the previous year, or, where the profession has been newly set up in the previous year, his total gross receipts in the profession for that year are not likely to exceed the said amount.
(2) The books of account and other documents referred to in Sub-rule (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 an 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."
9. We have given our anxious consideration to the submissions of the learned counsel for the parties and we find force in the argument of the learned counsel for the assessee.
10. Perusal of Section 145(1) of the Act shows that the assessing authority is vested with the power to compute the income on such basis and in such manner as he may determine in a situation when it is found that the method adopted by the assessee is such that the income cannot properly be deduced. There are commonly two methods for the maintenance of the books of account; one is cash and another is mercantile system. However, it is open to opt hybrid system i.e. mixed system of accountancy. In the present case, there is no allegation that method of accountancy adopted by the assessee is such out of which the income cannot properly be deduced. The objection is that the assessee has not maintained any account correlate total number of film consumed with the total receipt. It means that the assessing authority desired that in addition to the books of account maintained by the assessee, some books of account should be maintained in the nature to correlate the total number of film consumed with total receipt. In our opinion, this cannot be the basis for invoking the provision of Section 145(I) of the Act.
11. Section 44AA of the Act has been introduced by Taxation Law Amendment Act, 1975 w.e.f 1.4.1975, which required person carrying on the medical profession to keep and maintain such books of account and other documents as may enable the assessing officer to compute his total income in accordance with the provisions of the Act. Sub-section (3) provides that the Board may prescribe by Rulebooks of account and other documents to be kept and maintained with receipt and the particulars contained therein. The Board by Rule 6-F of the Income Tax Rule, 1962 contemplated certain books of account to be maintained by the medical profession. Thus, once the Board in respect of particular nature of the profession prescribed maintenance of certain books of account, it is not open to the assessing authority to desire some other books of account to be maintained over and above the books of account required by Rule 6-F. Any view to the contrary will defeat the very purpose of introducing Section 44AA and Rule 6-F. However, it is always open to the assessing authority to examine the books of account maintained by the medical professional in accordance to Rule 6-F and to examines correctness. In case, if such books of account are found incomplete or incorrect, it is open to the assessing authority to invoke the provisions of Section 145(2) of the Act and to make a best judgment assessment, but without pointing out any defect in the books of account and without raising any objection that method adopted by the assessee is such by which the correct income cannot be deduced provisions of Sections 145(1) or (2) of the Act cannot invoked.
12. As observed above, in the present case, the books of account maintained by the assessee was not found incomplete or incorrect and it has also not been held that the method adopted by the assessee was such by which the correct income cannot be deduced, the provisions of Section 145(1) of the Act has wrongly been invoked. The Tribunal is also right in holding that where the proper books of account and documents have been maintained under Rule 6-F of the Income Tax Rules, 1962, the income can properly be deduced wherefrom and the provisions of Section 145(1) of the Act cannot be invoked.
13. In view of the aforesaid discussions, the question referred hereinabove is answered in the affirmative i.e. in favour of the assessee and against the Revenue.