1997 (11) TMI 123 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 4,250 on account of consumable stores and medicines.
2. Disallowance of Rs. 1,000 out of telephone expenses for personal use.
3. Addition of Rs. 51,600 on account of alleged unexplained investment in jewellery.
4. Timing of addition for unexplained investment in jewellery.
5. Addition of Rs. 1,000 on account of value of Gold - Tax telephone.
6. Disallowance of part of the generator expenses for personal use.

Detailed Analysis:

1. Addition of Rs. 4,250 on account of consumable stores and medicines:
The assessee, a practicing doctor, was subjected to a search on 16-10-1986, revealing consumable stores and medicines valued at Rs. 8,500. The Assessing Officer (AO) added Rs. 4,250 to the assessee's income, representing 50% of the value, considering it unexplained. The CIT(A) upheld this addition. However, the Tribunal found that the assessee and her husband did not show these items as either opening or closing stock but debited them as purchased. The genuineness of the purchases was not doubted. Therefore, the Tribunal directed the deletion of the addition, stating that the departmental authorities were not justified in making any addition.

2. Disallowance of Rs. 1,000 out of telephone expenses for personal use:
The AO disallowed Rs. 1,344 out of Rs. 6,718 debited for telephone expenses, attributing it to personal use. The CIT(A) reduced this disallowance to Rs. 1,000. The Tribunal upheld the CIT(A)'s decision, acknowledging that personal use could not be denied, and the disallowance was not excessive.

3. Addition of Rs. 51,600 on account of alleged unexplained investment in jewellery:
During the search, 582 gms. of jewellery was found. The assessee explained that 485 gms. were received at her marriage and declared in wealth-tax returns filed under the amnesty scheme on 30-9-86. The AO accepted 300 gms. as explained and added Rs. 51,600 for the remaining 282 gms. The CIT(A) upheld this addition. The Tribunal, however, found that the jewellery declared in the wealth-tax returns prior to the search date had been accepted by the AO under section 16(3). The Tribunal noted that it was customary for a lady to receive jewellery at her marriage, and the declared jewellery was not excessive. Therefore, the Tribunal directed the deletion of the addition.

4. Timing of addition for unexplained investment in jewellery:
The Judicial Member disagreed with the deletion of the Rs. 51,600 addition, arguing that the wealth-tax returns filed under the Amnesty Scheme did not bar the AO from making the addition in the assessment year when the jewellery was discovered. The Judicial Member upheld the CIT(A)'s decision. The Third Member, however, agreed with the Accountant Member, noting that the jewellery declared in the wealth-tax returns filed before the search date was accepted by the department, and the addition should not be sustained. The Third Member emphasized that the returns were filed voluntarily before any detection by the department, and the jewellery's existence was accepted in wealth-tax assessments for earlier years.

5. Addition of Rs. 1,000 on account of value of Gold - Tax telephone:
The AO added Rs. 2,500 for the value of a digital telephone, which the CIT(A) reduced to Rs. 1,000, considering it an unexplained investment. The assessee claimed it was a gift from a patient. The Tribunal upheld the addition, noting that no evidence was provided to support the gift claim. Even if it were a gift, it should have been included in professional receipts, which was not done.

6. Disallowance of part of the generator expenses for personal use:
The ground regarding the disallowance of part of the generator expenses for personal use was not pressed by the assessee's counsel and was dismissed by the Tribunal.

Conclusion:
The appeal filed by the assessee was partly allowed, with the Tribunal directing the deletion of the additions related to consumable stores and medicines and unexplained investment in jewellery, while upholding the disallowances related to telephone expenses and the value of the digital telephone. The Tribunal dismissed the ground related to generator expenses as it was not pressed. The Third Member's opinion confirmed the deletion of the Rs. 51,600 addition for unexplained investment in jewellery, resolving the difference of opinion between the Members.