ORDER :

The Commissioner of Income Tax has filed this writ petition to quash the impugned order dated 5.8.2013 passed by the 1st respondent Settlement Commission under Section 245D(4) of the Income Tax Act, 196 settling the case of the 2nd respondent under Chapter XIX A in Section 245D(4) of the Income Tax Act, 1961.

2. By the impugned order, the 1st respondent Settlement Commission has allowed the application filed under Section 245C of the Income Tax Act, 1961by the 2nd respondent assessee by adding a further sum of Rs.11,44,97,620/- to the additional income of Rs.15,88,70,598/- offered by the 2nd respondent income taxes assessee for the assessment years 2006-07 to 2011-12 for settling the dispute under Chapter XIX A of the Income Tax Act, 1961.

3. For the assessment year 2012-13, the 1st respondent has added a further sum of Rs.5,20,92,283/- though no additional amount was offered over and the amount declared as the taxable income in the return filed by the 2nd respondent. It is submitted that the 2nd respondent failed to make true and full declaration for the assessment years 2006-07 to 2011-12 and had not offered any amount for the assessment year 2012-13. It is therefore submitted that the 1st respondent ought to have dismissed the application filed by the 2nd respondent assessee before it under Chapter XIX A of the Income Tax Act, 1961.

4. The operative portion of the impugned order reads as:-

7.2 We find that it is true that no evidence was found during the search to indicate that the applicant had incurred any expenditure over and above what was recorded in the books. The applicant has stated that, in the books, only that expenditure is reflected which has been incurred for the day to day running of the Hospital. Since she is the sole proprietrix, all the daily receipts are handed over to her and this fact is supported by the handwritten diary, which was seized from her possession. She has stated there are certain expenses which are directly incurred by her and for which no records are kept by the accounting staff. She has explained the nature of such expenses. We find that the explanation given by her is acceptable. We find it to be a fact that it is a normal practice that the specialist doctor gives a ‘cut’ to the general practitioner or any other doctor who has referred the patient. Such practice may be unethical or unprofessional but it cannot be denied that a specialist would stand; to lose substantial clientele if he or she refuses to be a part of the system. We therefore, agree that the Applicant would have incurred some expenditure towards, what is euphemistically termed as ‘referral fees’. We also find that it is common practice amongst employers that, in order to avoid PF, ESI etc., many of the employees are not shown in the official payrolls. Such employees are paid in cash. We are of the opinion that the Applicant would have also incurred some expenditure of this nature. Similarly, as is the prevalent (though not legal or desirable) practice, a part of the salary might have been paid in cash to the doctors employed by her. Having accepted the fact that some expenditure in cash was incurred out of the unaccounted receipts, the next question which arises is as to how much could have been the quantum of such unaccounted expenditure. The Applicant has claimed 55% of the total unaccounted receipts as expenditure towards the heads discussed above. We find this claim to be excessive. After a careful consideration of all aspects, we are of the view that such expenditure could at best be 7% of the total turnover. By total turnover, we mean the disclosed receipts as well as the suppressed receipts. We, therefore, find that 7% of the total turnover should be reduced from the suppressed receipts to arrive at the undisclosed income for A.Ys.2006-07 to 2011-12. The position which will emerge as a result of our directions