TMI Blog1997 (12) TMI 138X X X X Extracts X X X X X X X X Extracts X X X X ..... rm as well as in the residential premises of Dr. Ramamurthy. It has been contended by the learned counsel for the assessee that the search warrant in that regard was in the name of Dr. Ramamurthy, individual only and that there was no search warrant in the name of the assessee-firm. During the course of the above-mentioned search and seizure proceedings, a bank locker No. 14 with Canara Bank, belonging to and also operated by Dr. Ramamurthy was found out in which cash amount of Rs. 9,30,050 was found and also seized. Further-more, in the residence of Dr. Ramamurthy, another amount of Rs. 1,64,400 was also found out of which a sum of Rs. 49,000 was allowed as belonging to the HUF. The balance amount of Rs. 1,15,400 was also seized. The total amount of cash seizure was thus of Rs. 10,45,450, (Rs. 9,30,050 + 1,15,400). Seizure of jewellery were also made as under: (i) Found in the bank locker No. 14 with Canara Bank in the name of Dr. Ramamurthy 510 gms. of gold jewellery valued at Rs. 2,19,271 fully seized. (ii) Gold jewellery at the residence of Dr. Ramamurthy : .. (a) 679 gms. of gold jewellery. (b) 26.22 Carats of diamond. The total valuation of the entire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is furthermore claimed by the learned counsel for the assessee that a penalty of Rs. 20,000 was also levied on Dr. Ramamurthy on this account. It is, furthermore argued that even the partners of the assessee-firm also filed affidavits both before the Settlement Commission as well as the AO to the effect that they had nothing to do with the seized cash and jewelleries. Reliances have been placed in this connection on a number of decisions in support of the contention of the assessee that in the circumstances the cash and the value of the jewelleries cannot be assessed in the hands of the assessee to which we shall advert presently. 5. It is an undisputed fact that the locker belonged to Dr. Ramamurthy in his individual capacity, that he was paying the rent in respect thereof and that he alone was operating the same. The residential premises of Dr. Ramamurthy where he was staying with his wife cannot also be considered to be falling within the description of business premises of the assessee-firm. Hence, the cash and also the jewellery found during the search cannot be considered to have been under the possession of the assessee-firm, in any manner. As such, it is difficult to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing supported by an affidavit of a relative which remained uncontroverted, were finally held to be not belonging to that assessee. In the instant case, it is the contention of the assessee that even at the time of the search, the wife of Dr. Ramamurthy had declared that the gold ornaments belonged to her and that part of the said gold ornaments represented presentations given to the children of Dr. Ramamurthy on different occasions. Furthermore, it has also been represented on behalf of the assessee that the jewellery found in the bank locker was claimed by one old lady viz., Smt. R.A. Rajamma, grandmother of Dr. Ramamurthy as having been belonging to her originally and later on presented by her to the children of Dr. Ramamurthy. An affidavit in that regard was filed by the said old lady before the Settlement Commission and also before the AO. The learned counsel for the assessee contends that this lady was not examined by the AO although she was offered for examination by the assessee. It is also contended that as per CBDT Circular No. 1916 dt. 11th May, 1994, reported at 120 Taxation (St.) 98, existence of gold ornaments upto the extent of 500 gms. in case of married ladies can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same, at the same time brushing aside veracity of this initial statement. 8. When the statement under s. 132(4) at 3.30 p.m. on the same date i.e. 6th Feb., 1992, after counting of the cash found in the locker was taken in answer to question No. 9, Dr. Ramamurthy replied as below: "Yes, the above asset has been earned during the course of my professional practice in Srinivasa Ultra Sound Scanning Centre. I therefore offer the entire income of Rs. 13,20,302 for assessment in the hands of the said firm." The Department takes clue from this particular statement for Dr. Ramamurthy which was later on followed up for some time. It is, however, worth noting in this connection that Dr. Ramamurthy stated that the above asset had been earned during the course of his professional practice. It would, therefore, appear to us that at the initial stage, what was stated by Dr. Ramamurthy that the entire cash and jewellery found in the locker belonged to him was correct. It is at a later stage of the search and seizure proceeding only when he might have been induced by the search party to come up with a disclosure concerning the assessee-firm that he stated that he would offer the entir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ately to be distributed amongst all the partners of the assessee-firm. In this connection, however, we would like to discuss the contention of the learned counsel for the assessee about the amount having been assessed in the hands of Dr. Ramamurthy by an order of the Settlement Commission. The Settlement Commission in its final order dt. 10th Aug., 1994, stated as below: "We would make it clear that by accepting the offer (the offer of income of Rs. 10,45,450 made by Dr. Ramamurthy in his settlement application), we are not giving any finding that the unaccounted cash found with the applicant during the search belonged to the applicant in his individual capacity and does not represent the unaccounted income of the firm of SUSC." So that the decision of the Settlement Commission, the facts stand that the cash of Rs. 9,30,050 was found in the bank locker of Dr. Ramamurthy and so is the position of jewellery worth Rs. 2,19,271. Apart from the version of Dr. Ramamurthy at one stage of the search, there is no other evidence in the hands of the Department to show that this amount actually represented the income of the assessee-firm. Furthermore, even if the source of the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this is the position with regard to the jewellery found in the bank locker of Dr. Ramamurthy, the Departmental case with regard to the jewellery found in the residential premises of Dr. Ramamurthy is even weaker. All along and even during the course of the search and seizure proceedings also, the wife of Dr. Ramamurthy had been contending that the jewellery belonged to her. She also offered certain explanation about the ownership of the jewellery like some portion of it being belonging to her children. We are not going into the controversy of whether the jewellery really belongs to the wife of Dr. Ramamurthy or her children or even whether the jewellery stands explained in her hands. In any case, we find that there is no connection between the jewellery found in the residential premises of Dr. Ramamurthy and the assessee-firm and, therefore, the question of including the value of the jewellery in the assessment of the assessee-firm cannot arise at all. 12. On these grounds therefore, we delete the entire addition of Rs. 10,45,450 being cash found and seized at different places and also in respect of the amount of Rs. 9,45,856 being the value of jewellery found in the bank locker ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the hands of the firm on account of finding of this loose sheet. We therefore, delete the addition of this amount of Rs. 2 lakhs from the assessment of the assessee-firm for the asst. yr. 1991-92. 14. The AO found out that scanning charges accounted for by the assessee-firm for asst. yr. 1991-92 were to the extent of Rs. 8,53,620 which included Rs. 1,40,335 received from two nursing homes which Dr. Ramamurthy, partner of the assessee-firm, visited during business hours on behalf of the assessee-firm. Excluding this amount, the collections from scanning worked out to Rs. 7,13,285 i.e., approximately at the figure of Rs. 1,950 per day. The AO considered this to be too low, as against their reputation of the assessee-firm and the brisk business it had developed for the last two years. During the source of his deposition on the date of the search, being 6th Feb., 1992, Dr. Ramamurthy, the managing partner of the assessee-firm replied in answer to question No. 5 as below: "Srinivasa Ultrasound Scanning Centre was started on 12th March, 1986. Initially for about three years the business was not that brisk and I was issuing receipts to all patients for the fees received. For th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the patients did not turn up at all for collection of the report and ultimately no payments were received in such cases. The AO did not accept this contention by stating that in a private nursing home like the assessee's, scanning is done only after fees are fully paid. Ultimately the AO placed much emphasis on the statement made by Dr. Ramamurthy on 6th Feb., 1992, that during the last two years, collections to the extent of Rs. 60,000 to Rs. 70,000 per month had not been accounted for. He also stated that this was corroborated by the statement of Smt. B.S. Gayathri. He relied on a judgment of Patna High Court in the case of Bhimraj Pannalal vs. CIT (1957) 32 ITR 289 (Pat) in which it was observed that even an isolated transaction might show the kind of things which were going on and hence the Tribunal was entitled to come to the conclusion from that incident, though only one, that there must have been other similar incidents. Finally, the AO concluded that the assessee had not disclosed an amount of Rs. 8 lakhs in its books and made addition of this amount of Rs. 8 lakhs to the business income of the assessee for asst. yr. 1991-92. 16. In the assessment order for asst. yr. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion that both these judgments as above relate to the power of the CWT/CIT in terms of the provisions of s. 25(2) of the WT Act or 263 of the IT Act to revise WT and IT assessments. Hence, these judgments cannot be considered to be authorities on the issue whether the findings with respect to the business affairs of an assessee can be taken into consideration for determining its income in an earlier year. The learned counsel for the assessee has also relied on a judgment of the Allahabad High Court in the case of Dehli Iron Syndicate (P) Ltd. vs. CST (1969) Tax LR 1775. In that case, it was decided that suppression detected in a subsequent year cannot be made the basis for an addition in an earlier year on presumed similar suppression. The learned counsel for the assessee has furthermore contended that addition cannot be made on the basis of a statement of the receptionist viz., Smt. Gayathri who was not allowed to be examined by the AO at the assessment stage. In this connection, two further judgments have also been relied upon by the learned counsel for the assessee in trying to argue that even if some amount of unaccounted receipts be found out by the Department, it does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and inquiries on this issue after affording the assessee appropriate opportunities to represent its case. 19. For asst. yr. 1991-92 inauguration expenses of Rs. 58,653 have been disallowed and also added back. The expenses were incurred in connection with setting up of the business of the assessee at its new premises at Shankarmutt Road. The learned counsel for the assessee relies on the following two decisions to justify the case of allowance of such inauguration expenses: (i) Delhi Cloth General Mills Co. Ltd. vs. CIT (1994) 118 CTR (Del) 109 : (1994) 208 ITR 785 (Del); and (ii) CIT vs. Aluminium Industries Ltd. (1995) 126 CTR (Ker) 150 : (1995) 214 ITR 541 (Ker). We agree with the contentions of the assessee on this issue in principle that inauguration expenses have got to be considered to be part of the normal business expenses of the assessee and are to be allowed. However, the detailed break-up of the expenses as given in the assessment order shows that an amount of Rs. 37,700 related to catering expenses. Such expenses are clearly of the nature of entertainment expenses and are, therefore, required to be disallowed, except for the amount of Rs. 5,000. We, ther ..... 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