2014 (9) TMI 197 - AT - Income Tax

Unexplained expenditure for renovation of flat Held that - The basis for addition is the seized material - a reference to the seized material a copy of which is assessee s paper book - the AO has treated the expenditure to have been incurred in AY 1996-97 - an expenditure incurred in FY 1995-96 will be noted in February 1998 - For this reason alone the addition made by the AO cannot be sustained - it is a fact on record that besides the seized material, there are no other evidence or material on record to show that the assessee has actually incurred the expenditures noted in the seized material - a reference to the seized material will show that though there are twenty seven items of expenditure, all of them are in round figures only - the seized material is only an estimate - If at all it is to be believed that assessee has actually incurred all these expenditures, it is not at all possible that the department did not come across any bill, voucher or any other material to show incurring of expenditure even in case of a single item mentioned in the seized material - addition is more on presumption than on evidence - addition made is not sustainable - decided in favour of assessee. Addition of undisclosed income Held that - Assessee had purchased three DDs totaling to ₹ 1 lakh in the name of his sister Smt. Suchitra Krishnamurthy on 03/11/1999 - assessee is not consistent with his explanation in respect of the source of DDs purchased - the purchase of DD has not been reflected in the books of account of the company either on the date of purchase or subsequent thereto - cash flow statement of the assessee, as found by the learned CIT(A), does not show out flow of cash towards purchase of DDs - assessee s explanation that it was out of cash available with him and the company is devoid of merit and cannot be accepted - assessee has not been able to explain the source of purchase of DDs with cogent evidence the order of the CIT(A) is upheld - Decided against assessee. Implant receipts as undisclosed income Held that - The register was seized from the possession of the company M/s Andromeda Foundation (India) Pvt. Ltd. - assessment if any in reference to the seized material should have been made in case of the company and not the assessee - The department has not brought any material on record to controvert these facts - receipts from implant devices as found noted in the seized material cannot be considered as undisclosed income of the assessee - AO has treated the entire receipts as income of the assessee instead of considering the profit element - the implant receipts as found in the register seized from the possession of the company cannot be treated as undisclosed income of the assessee the AO is directed to set aside the addition Decided in favour of assessee. Undisclosed income Held that - In a reassessment proceeding on being remanded by the Tribunal the AO cannot consider a issue which was not a subject matter of appeal before the Tribunal relying upon CIT Vs. Late Jawaharlal Nagpal 1987 (8) TMI 41 - MADHYA PRADESH High Court - The powers of the Tribunal are confined to the subject-matter of appeal as constituted by the original grounds of appeal and such additional grounds as may be raised by the leave of the Tribunal - when the Tribunal allows the appeal and sets aside the assessment and remands the case for making a fresh assessment, the power of the ITO is confined to such subject-matter only - He cannot take up the questions which were not the subject-matter of appeal before the Tribunal - This will be so even though no specific direction has been given by the Tribunal Decided against revenue.

Issues Involved:
1. Addition of Rs. 2,60,000 as unexplained expenditure for renovation of flat.
2. Addition of Rs. 1,00,000 as undisclosed income.
3. Addition of implant receipts as undisclosed income for various assessment years.
4. Deletion of addition of Rs. 21,00,125 by CIT(A).

Detailed Analysis:

1. Addition of Rs. 2,60,000 as Unexplained Expenditure for Renovation of Flat:
The first issue revolves around the addition of Rs. 2,60,000 as unexplained expenditure for the renovation of a flat. The assessee, a doctor and Managing Director of Andromeda Foundation (India) Pvt. Ltd., was subjected to a search and seizure operation, which led to the discovery of a diary page indicating expenses for civil construction work. The AO treated Rs. 5,20,000 as investment in the flat and added Rs. 2,60,000 (50%) to the assessee's income. The CIT(A) upheld this addition, stating that the expenditures were necessary to make the flat habitable. However, the Tribunal found that the diary page was dated February 1998, making it improbable that it recorded expenses from FY 1995-96. Additionally, no other evidence was found to support the expenditure claims. Consequently, the Tribunal deleted the addition of Rs. 2,60,000.

2. Addition of Rs. 1,00,000 as Undisclosed Income:
The second issue concerns the addition of Rs. 1,00,000 as undisclosed income based on demand drafts found during the search. The AO added this amount to the assessee's income, as it was not reflected in the books of account. The CIT(A) upheld this addition, noting inconsistencies in the assessee's explanations and the lack of cash outflow in the cash flow statement. The Tribunal agreed with the CIT(A), emphasizing the assessee's inconsistent explanations and the absence of this transaction in the company's books. Therefore, the addition of Rs. 1,00,000 was upheld.

3. Addition of Implant Receipts as Undisclosed Income for Various Assessment Years:
The third issue involves the addition of implant receipts as undisclosed income for AYs 1995-96, 1996-97, and 1997-98. The AO added Rs. 1,48,000, Rs. 7,81,150, and Rs. 3,14,850, respectively, based on a seized register. The CIT(A) upheld these additions, except for a partial reduction for AY 1996-97. The Tribunal noted that the register was seized from the company, and any addition should have been made in the company's case, not the assessee's. The assessee consistently explained that the implant receipts were accounted for in the partnership firm, individual capacity, and the company for the respective years. The Tribunal found no evidence to contradict the assessee's claims and noted that the AO treated the entire receipts as income instead of considering the profit element. Thus, the Tribunal directed the AO to delete these additions.

4. Deletion of Addition of Rs. 21,00,125 by CIT(A):
The fourth issue pertains to the deletion of an addition of Rs. 21,00,125 by the CIT(A). The AO added this amount as unexplained deposits in the assessee's bank accounts. The CIT(A) held that the AO could not make fresh additions in a reassessment proceeding based on ITAT's directions. The Tribunal upheld the CIT(A)'s decision, citing the jurisdictional limits of the AO in reassessment proceedings. The Tribunal also agreed with the CIT(A) on the merits, noting that the deposits in the wife's account were already considered in her assessment, and the assessee provided sufficient evidence for the remaining deposits. Therefore, the Tribunal dismissed the revenue's appeal.

Conclusion:
The Tribunal provided a comprehensive analysis of each issue, resulting in the deletion of certain additions and the upholding of others. The assessee's appeal was partly allowed, and the revenue's appeal was dismissed.

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