PER SAKTIJIT DEY, J.M.: These cross appeals are against order dt. 06/03/2012 of CIT(A)-II, Hyderabad for the block period 01/04/1989 to 04/11/1999. IT(SS)A No. 02/Hyd/2012 IT(SS)A No. 2 & 5/H/12 Dr. Sudhakar Krishnamurti

2. This appeal is by the assessee. Though, assessee has raised ten grounds, basically there are three issues in this appeal.

3. The first issue is in respect of addition of Rs. 2,60,000/- as unexplained expenditure for renovation of flat.

4. Briefly the facts are, the assessee an individual is a doctor by profession. He is also the Managing Director Andromeda Foundation (India) Pvt. Ltd. A search and seizure operation u/s 132 of the Act was conducted in the business premises of the company as well as the residential premises of the assessee on 04/11/1999. Pursuant to the search and seizure operation notice u/s 158BC was issued to the assessee on 20/09/2000 calling for return of income for the block period. In response to the said notice assessee filed his return of income for the block period on 17/01/2001 declaring Nil undisclosed income. During the assessment proceeding, the AO noticed that page no. 34 of the seized material A/SK/6 contained recordings of expenses incurred for civil construction work for a flat purchased. Further, AO noted that at the time of search, while explaining notings in the seized material assessee had stated that he had spent Rs. 2,50,000/- for interior works for his premises at Topaz Building but no reference was given to what these figures relate. In response to query raised by the AO proposing to treat the amount of Rs. 5,20,000/- mentioned in the seized material as investment made in flat, the assessee explained that the notings in the seized material is only an estimate in his wifes handwriting but actually amounts were not spent. However, the AO was not convinced with the explanation of the assessee and was of the view that assessee has incurred these expenditures over and above the cost of acquisition mentioned in the sale deed. As the flat was jointly owned by the assessee and his wife, the AO treated 50% of the amount i.e. Rs. 2,60,000/- as undisclosed income of the assessee for the assessment year 2006-07. IT(SS)A No. 2 & 5/H/12 Dr. Sudhakar Krishnamurti

5. Assessee challenged the addition in appeal before CIT(A). The CIT(A) held that apart from denying incurring of expenditure assessee has not brought any material on record to prove that expenditure as mentioned in the seized material were not actually incurred. The CIT(A) observed that what the assessee has purchased was a bare flat and the nature of expenditure mentioned in the seized material were necessary for making the flat habitable for assessee and his wife both of whom are doctors. Accordingly, the CIT(A) confirmed the addition made by AO.

6. Contesting the finding of the CIT(A) that assessee had purchased an unfinished flat, the learned AR submitted that the assessee and his wife are actually the second purchasers as they purchased the flat not from the builder but a person who had purchased the flat earlier and living there. Therefore, the flat was in a habitable condition and did not require any renovation. Reiterating the stand taken before the departmental authorities, learned AR submitted that the seized material is only an estimate and was never incurred. The learned AR submitted that apart from the seized material, no other material or evidence was found to show that these expenditures were actually incurred by assessee. Ld. AR submitted that addition having been made purely on presumption has to be deleted.

7. Ld. DR supporting the finding of the CIT(A) and AO submitted that the seized material clearly indicated incurring of expenditure over and above the amount mentioned in the sale deed. The assessee having not been able to disprove the seized material with any cogent evidence addition is justified.

8. We have heard the parties. Perused the materials on record as well as orders of the revenue authorities on the issue. Undisputedly, the basis for addition of Rs. 2,60,000/- is the seized material being IT(SS)A No. 2 & 5/H/12 Dr. Sudhakar Krishnamurti page 34 of A/SK/6. A reference to the seized material a copy of which is at page 69 of assessees paper book, would clearly show that it is a page of a diary of February, 1998. It is very much evident from the assessment order that the AO has treated the expenditure to have been incurred in AY 1996-97. It is highly improbable that 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. That apart, it is a fact on record that besides the seized material i.e. page no. 34, there are no other evidence or material on record to show that the assessee has actually incurred the expenditures noted in the seized material. Further, a reference to the seized material will show that though there are twenty seven items of expenditure, however, all of them are in round figures only. This, in our view gives credence to the fact that 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. On a perusal of the assessment order and order of CIT(A) it becomes clear that addition is more on presumption than on evidence. In aforesaid view of the matter, we hold that addition made of Rs. 2,60,000/- is not sustainable, hence, we delete the same.

9. The second issue is in respect of addition of an amount of Rs. 1,00,000/- as undisclosed income.

10. Briefly, the facts are, page No. 19 of seized document A/SK/6, are copies of demand drafts of Rs. 49,000/-, Rs. 49,000/- and Rs. 2000/- dt. 03/11/1999 totalling to Rs. 1 lakh purchased by assessee in favour of Smt. Suchitra Krishnamurthy, assessees sister. As mentioned by the AO in the assessment order, this amount was neither reflected in the books of account nor during the assessment IT(SS)A No. 2 & 5/H/12 Dr. Sudhakar Krishnamurti proceeding the assessee could explain the source of DDs made by him. Therefore, AO treated it as unexplained income of the assessee.

11. Assessee challenged the addition before CIT(A). Before CIT(A) assessee contended that DDs were purchased out of the cash available with him and also produced a cash flow statement. The CIT(A) after examining the cash flow statement found no cash outflow of Rs. 1 lakh either on the date of purchase of DDs or on the previous day. Accordingly, CIT(A) sustained the addition made by the AO.

12. The learned AR reiterating the stand taken before the departmental authorities, submitted that DDs were purchased out of the cash available with the assessee, his wife and the company. It was submitted that as on the date of search companys cash balance as per the books of account was Rs. 4,90,753/- whereas total cash of Rs. 3,16,290/- was found from all the premises at the time of search which proves that DDs were purchased out of the cash available.

13. The learned DR on the other hand justified the addition made.

14. We have considered the submissions of the parties and perused the orders of the revenue authorities as well as other materials on record. There is no dispute to the fact that assessee had purchased three DDs totaling to Rs. 1 lakh in the name of his sister Smt. Suchitra Krishnamurthy on 03/11/1999. As can be seen from the facts mentioned in the assessment order, assessee while explaining the source of these DDs changed his stand from time to time. Initially, on the date of search he stated that the money was owed to his sister by some event managers. In statement recorded on 20/12/1999 assessee stated that he had taken a loan of Rs. 1 lakh from her sister and the DDs were purchased out of amount received from patients for devices. Subsequently, in statement dated 31/12/2001, it was stated by the assessee that demand drafts were purchased by him out of IT(SS)A No. 2 & 5/H/12 Dr. Sudhakar Krishnamurti cash available from his own income as well as advance payments made by patients for procurement of materials. Again in response to query made by the AO, assessee in his letter dated 31/01/2005 stated that DDs were purchased out of cash available with himself, his wife and the company wherein both he and his wife are Directors. From the above, it is clear that assessee is not consistent with his explanation in respect of the source of DDs purchased. It is a fact on record that 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. Similarly cash flow statement of the assessee, as found by the learned CIT(A), does not show out flow of cash towards purchase of DDs. In these circumstances, assessees explanation that it was out of cash available with him and the company is devoid of merit and cannot be accepted. It is clear from the facts on record that assessee has not been able to explain the source of purchase of DDs with cogent evidence. In the aforesaid circumstances, the addition made, in our view, is justified and needs to be upheld. According this ground of the assessee is dismissed.

15. The next issue relates to addition of the following amounts on account of implant receipts as undisclosed income of the assessee in different assessment years: AY Rs. 1995-96 1,48,000/- 1996-97 7,81,150/- 1997-98 3,14,850/-

16. Briefly, the facts relevant to the issue in dispute are in course of search and seizure operation in the business premises of the company M/s Andromeda Foundation (India) Pvt. Ltd., a register was seized which contained receipts in FY 1994-95, 1995-96 & 1996-97 respectively. When the assessee, who is director of the company, was asked to explain about the receipts recorded in the register, he stated IT(SS)A No. 2 & 5/H/12 Dr. Sudhakar Krishnamurti that they belonged to implant receipts. He further explained that he along with another person formed partnership firm in the name and style of Virility Systems in FY 1994-95 and the transactions relating to the said FY was of the firm. However, subsequently, the firm was dissolved and the assessee continued the business as proprietary concern during the FY 1995-96 and the profit out of implant receipts was shown as income in the return filed by him for the AY 1996-97. So far as assessment year 1997-98 is concerned, it was stated that during the FY 1996-97, the company has taken over the business and the receipts from implant devices were shown by the company in the P&L account. The AO after examining the seized material and assessees statement called upon the assessee to explain receipts found in the seized register. In response to the query made by the AO, assessee reiterated the stand taken by him at the time of search and seizure operation. The AO, however, did not accept explanation of the assessee and observed that the sale of implant devices have not been accounted and disclosed either in the hands of the company or in the name of M/s Virility systems. He further noted that the partnership firm was not assessed to income-tax. Though the AO accepted the fact that the seized maerial was found and seized from the company M/s Andromeda Foundation (India) Pvt. Ltd., but, he was of the opinion that receipts recorded therein should be construed as suppressed income of the assessee who is the director of the company. Accordingly, he treated the amount of Rs. 1,48,000, Rs.7,81,150/- & Rs. 3,14,850/- as undisclosed income of the assessee for the AYs 1995-96, 1996-97 and 1997-98 respectively.

17. Being aggrieved of such additions, assessee challenged the same before the CIT(A). The CIT(A) also upheld the additions made by the AO except granting partial relief by reducing the addition for the AY 1996-97 by an amount of Rs. 5,849/-. IT(SS)A No. 2 & 5/H/12 Dr. Sudhakar Krishnamurti

18. The learned AR, at the outset, submitted before us since the AO admits that the seized material i.e. register was found from the possession of company, any addition in reference to the seized material if at all in any assessment has to be made in case of the company and not in case of assessee. Further, the learned AR submitted that the assessee had explained from the very beginning that the receipts from implant devices for the FY 1994-95 were by the partnership firm Virility Systems and for FY 1995-96, the receipts were shown by the assessee in his individual hands and income was offered to tax. In FY 1996-97, the business was taken over by the company and the receipts reflected in the books of account and P&L account. In support of such contention, learned AR referred to the P&L A/c of Virility Systems as on 31/03/1995 showing under loss of Rs. 22,430/- as against total sale of implants of Rs. 1,81,535/-. Similarly, referring to the return filed by the assessee for the AY 1996-97, a copy of which is placed at page 87 of the paper book, it was submitted that assessee has shown the profit from the sale of implants at Rs. 13,163/- as against total sales of Rs. 4,51,344/-. So far as AY 1997-98 is concerned, learned AR referring to P&L a/c of the company, a copy of which is placed at page 94 of the paper book, stated that implant receipts were shown by the company and income was offered to tax. It was therefore submitted that additions having been made purely on presumption should be deleted.

19. The learned DR, on the other hand, however, strongly supporting the findings of the CIT(A) and AO submitted that as receipts from implant devices were not disclosed by the assessee, they have been rightly treated as business income of the assessee for the block period.

20. We have heard the parties and perused the orders of the revenue authorities as well as the other materials on record. It is clear from the facts on record that the register was seized from the IT(SS)A No. 2 & 5/H/12 Dr. Sudhakar Krishnamurti possession of the company M/s Andromeda Foundation (India) Pvt. Ltd. That being the case, assessment if any in reference to the said seized material should have been made in case of the company and not the assessee. For this reason alone the addition made cannot be sustained. That besides, as can be seen from the facts and materials on record from the stage of search and seizure operation itself it is the consistent stand of the assessee that for AY 1994-95, transaction in implant devices was carried out by the partnership firm, whereas in FY 1995-96 assessee has carried on the business in his proprietary capacity. So far as FY 1996-97 is concerned, business was taken over by the company. It is further evident that in FY 1994-95, there is a loss so far as business in implant devices is concerned. However in FY 1995-96, assessee has disclosed a profit of Rs. 13,215/- and offered it as income in the return of income filed by him in his individual capacity. So far as FY 1996-97 is concerned, it is a fact on record that the receipt from implant devices has been reflected in the books of account of the company and forms part of the P&L account. The department has not brought any material on record to controvert these facts. That being the case, receipts from implant devices as found noted in the seized material cannot be considered as undisclosed income of the assessee. Further, as can be seen, AO has treated the entire receipts as income of the assessee in stead of considering the profit element. In view of the aforesaid fact, we hold that the implant receipts as found in the register seized from the possession of the company cannot be treated as undisclosed income of the assessee. Accordingly, we direct the AO to delete the same.

21. In the result, assessees appeal is partly allowed. IT(SS)A No. 2 & 5/H/12 Dr. Sudhakar Krishnamurti IT(SS)A No. 5/Hyd/2012 revenue appeal

22. The only issue in the aforesaid appeal of the department is in respect of CIT(A) deleting addition of Rs. 21,00,125/-.

23. Briefly the facts are, during the search and seizure operation in the residential premises of the assessee, a register was found and seized wherein certain credits, deposits in the bank account of the assessee in FY 1993-94 to 1999-2000 in respect of two savings bank accounts were found. Account No 4061 being joint account with wife Dr. Kiran Krishnamurthy and account No. 6383 is a single account in the name of the assessee. The total year-wise deposit which allegedly was not disclosed by the assessee were found to be Rs. 21,00,125/-. Accordingly, AO treated the same as undisclosed income of the assessee for the block period. Being aggrieved of such addition, assessee preferred appeal before the CIT(A). In course of appeal proceeding before the CIT(A), it was contended by the assessee that this addition was not made by the AO in the original assessment. Hence, he cannot make a fresh addition in a reassessment in pursuance to the direction of ITAT. In support of such contention, he relied on a number of decisions. The CIT(A) after considering submissions of the assessee and analyzing the facts and materials on record, held that the AO could not have made fresh additions in reassessment proceeding on the direction of the Tribunal. Even considering the merits of the issue, the CIT(A) held that addition cannot be made. The finding of the CIT(A) in this regard is extracted herein for the sake of convenience:

The assessment order and the submissions of the appellant and the reports of the AO have been carefully considered and it is noted that in the reassessment order, the AO has made a fresh addition of Rs. 21,00,125/- towards unexplained deposits in banks. The AO also in his remand report mentioned that it is a new addition in the reassessment order. On this point, I am inclined to agree with the appellant that this addition has been made without jurisdiction. Reliance is placed on the decision of Honble Punjab & Haryana High Court in the case of Kartar IT(SS)A No. 2 & 5/H/12 Dr. Sudhakar Krishnamurti Singh Vs. CIT (supra), where it has been held that on a remand by the Tribunal the ITO cannot make additions to income as arising from new sources of income, but has to confine himself to the old sources of income which were the subject matter of appeal. Reliance is also placed on the decision of Allahabad High Court in the case of S.P. Kochhar Vs. ITO (supra) where it has been held that while making fresh assessment on remand of a case by appellate authority, the AO cannot travel beyond the directions given by first appellate authority and when the remand is by Tribunal, even when there is no specific direction, the AOs power is confined to the subject matter of appeal before the Tribunal In view of the above, I am constrained to hold that the addition of Rs. 21,00,125/- made by the AO on account of unexplained deposits in the bank account is beyond the scope of the remand proceedings and therefore, the addition cannot be sustained. However, the issue has been examined even on merits. The AO has worked out the addition of Rs. 23,88,062/- as below: AY Deposit in bank a/c No. 4061 (Rs.) Deposit in Bank a/c No. 56230 (Rs.) Total deposits (Rs.) Sources accepted on the basis of the income admitted page 6 of the assessment order (Rs.) Difference /unexplained income as per asst. order (Rs.) Correct difference (Rs.) 94- 95 295621 52000 347621 175000 120212 172621 95- 96 144466 172385 316851 125000 190813 191851 96- 97 340268 79129 419397 33768 253000 385629 97- 98 217000 113960 330960 98041 132000 232919 98- 99 228000 560519 788519 180000 608141 608519 99- 00 228240 219077 447317 200000 247008 247317 00- 01 20535 552618 573153 23967 549151 549186 Total 2100125 2388042 The chart given by the AO shows bank deposits in two bank accounts, viz., A/c No. 4061 and A/c No. 56230. But, from the records, it seen that the bank account No. 56230 belongs to his wife, Dr. Kiran Krishnamurthy and her deposits and the income thereon has been considered in her assessment proceedings by the same AO. When the deposits in Dr. Kirans account, i.e. A.c IT(SS)A No. 2 & 5/H/12 Dr. Sudhakar Krishnamurti No. 56230 belongs to her, it cannot be again considered in the assessees hands. That leaves the bank deposits appearing in A/c No. 4061 which stands at Rs. 14,74,130/-. The AO, while computing the difference between the deposits and the income admitted, has arrived at Rs. 6,38,354/- (Rs. 14,74,130- 8,35,776). This amount has been explained as borrowals taken from friends and relatives which reflected in the loans and advances taken and given details submitted for assessment years 1992-93 to 1999-2000 which appears at page No. 50 to 57 of the paper book and the loan confirmations with their PAN were filed vide letter dated 03/03/2005 which appear at pages 84 to 87 which is as below: S.No. Name of the creditor Amount FY 1 R. Nagarajan 3,00,000 1999-2000 2 Suchitra Krishnamurthy 46,000 1995-96 1,00,000 1996-97 99,619 1998-99 3 B.A. Kumar 50,000 1993-94 1,84,521 1997-98 1,50,000 1999-00 4 Sujatha Kumar 3,25,431 1997-98 The appellant claimed that he had taken total loans of Rs. 12,55,640/- from friends and relatives and Rs. 2,43,000/- from his wife but the difference in bank account after reducing the admitted income was Rs. 6,38,354/-. The AO has not put in any reasons for not accepting these confirmations. If he was not satisfied, he should have asked the assessee to produce the parties but he did not do that and did not even verify the deposits and simply added all the deposits in the assessees bank account and his wifes bank account and worked out the difference by reducing the net income admitted by the appellant. It may be noted that it is a reassessment and the ITAT has categorically asked the AO to verify the claims and make a fresh assessment. Even though this is a new addition made by the AO in the reassessment proceedings, the AO should have examined the details filed and the evidences produced. In stead, made some arithmetical additions and subtractions and added as the unaccounted income of the appellant. Therefore, the action of the AO is not justified even on merits and the addition is therefore order to be deleted.

24. We have considered the submissions of the parties and perused the materials on record. There is no dispute to the fact that in the original assessment order, this particular addition was not made by the AO. Therefore, the same was neither subject matter of appeal before the CIT(A) nor before the ITAT. The directions of the ITAT IT(SS)A No. 2 & 5/H/12 Dr. Sudhakar Krishnamurti while remitting the matter back to the AO is only confined to the subject matter of appeal before the Tribunal. Hence, 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. In this regard we refer to the decision of Honble M.P. High Court in case of CIT Vs. Late Jawaharlal Nagpal, 171 ITR 136 and Honble Allahabad High court in case of S.P. Kochhar Vs. ITO, 145 ITR 255. The Honble Allahabad High court in the cited case has held as under:

What thus comes out is that the powers of the AAC are wider than those of the Tribunal. The AAC while hearing an appeal under s. 251 of the Act can examine all matters covered by the assessment order and correct the assessment in respect of all such matters even to the prejudice of the assessee. He may remand the case to the ITO for enquiring into the items which were not the subject-matter of appeal also. If he sets aside an assessment and remands the case to the ITO for making a fresh assessment, the powers of the ITO while making the fresh assessment are the same as if he were making an original assessment under s. 143(3) of the Act. The AAC can, however, limit the powers of the ITO by giving suitable directions in regard to the scope of enquiry by the ITO. In the absence of such direction or restriction on the power of the ITO, while making a fresh assessment, the ITO is not bound by anything that had happened either when he made the original assessment or when the appeal was heard. When the remand is made by the Tribunal the position is different. 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. Thus, 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. If a specific direction is given, then there is no scope whatsoever for the ITO to travel beyond those directions or restrictions.

(Emphasis by us).

25. Though, a contrary view has been taken by the Honble Madras High Court in case of CIT Vs. Sri D. Veerapan (215 ITR 533), but, since learned CIT(A) has followed the decision of Honble Allahabad High Court in case of S.P. Kochhar Vs. ITO (supra), which is in favour IT(SS)A No. 2 & 5/H/12 Dr. Sudhakar Krishnamurti of the assessee, we do not find any infirmity in the order passed by her. Accordingly, we uphold the order of the CIT(A) by dismissing the grounds raised by the revenue.

26. In the result, appeal of the revenue is dismissed.

27. To sum up, assessees appeal is partly allowed and revenues appeal is dismissed. Pronounced in the open court on 06/08/2014. Sd/- Sd/- (B. RAMAKOTAIAH) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER Hyderabad, Dated: 6 th August, 2014 kv Copy to:-

1) Dr. Sudhakar Krishnamurthi, C/o Gandhi & Gandhi, CAs., 1002, Paigah Plaza, Basheerbagh, Hyderabad 500 063.

2) DCIT, Circle 1(1), Hyderabad.

3) CIT(A)-II, Hyderabad.

4) The CIT-I, Hyderabad 5)The Departmental Representative, I.T.A.T., Hyderabad. Description Date Intls

1. Draft dictated on Sr.P.S.

2. Draft placed before author Sr.P.S 3 Draft proposed & placed before the second Member AM 4 Draft discussed/approved by second Member VP 5 Approved Draft comes to the Sr.P.S./PS Sr.P.S.

6. Kept for pronouncement on Sr.P S.

7. File sent to the Bench Clerk Sr.P.S. 8 Date on which file goes to the Head Clerk 9 Date of Dispatch of order