2012 (12) TMI 893 - AT - Income Tax

Unexplained investment Search and seizure u/s 132(1) - Addition on account of diamond jewelry - Found at the residence and from the bank locker Assessee claimed most of the items were gifted / purchased from drawings Held that - As the assessee had given the explanation with regard to all the another jewelleries found at the time of search along with the evidences and details as were available. Assessee has filed details of cheque payments for the purchase of jewellery and the bank statement along with the summary of purchases made through jewelers, date, cheque number and amount, right from the assessment year 2002-03 up to the date of search. There was no occasion for the CIT(A) to go into such a theoretical concepts laid down by various High Courts / Supreme Court, he should have confined himself to the findings given by the AO and the contentions of the assessee about the evidence and explanation furnished in support of jewellery found. Gifted jewelleries cannot be treated as unexplained as the same is duly supported by such corroborative evidence like gift certificate issued by the mother of daughter-in-law and photographs of marriages shown before the investigation unit. Issue decides in favour of assessee Addition on account of art work and painting - Unexplained investment Search and seizure u/s 132(1) - Valuation of art work and painting - AO noted that some of the art works could not be explained properly by the assessee with regard to the source of acquisition Held that - There could be possibility that the assessee may have acquired certain painting at a very low cost either from a flea market or from abroad or by way of gift from friend or relative for which such a high valuation cannot be taken. Issue of unexplained investment in art works / painting is restored to the file of the AO for denovo adjudication. Issue remand back to AO

Summary

Issues Involved:
1. Addition on account of unexplained investment in diamond jewelry.
2. Addition on account of unexplained investment in artwork and paintings.

Detailed Analysis:

1. Addition on account of unexplained investment in diamond jewelry:

The appeals were directed against the orders passed by the Commissioner (Appeals) for the assessment year 2008-09. The primary issue involved the addition of unexplained investments in diamond jewelry found during a search and seizure operation under section 132(1) of the Income Tax Act, 1961. The search covered the residences of the assessees and a locker belonging to a family member. The jewelry found was valued at Rs. 92,32,470 for Padma, Rs. 29,42,210 for Dinesh, and Rs. 18,64,660 for Minal.

During the search, the assessees claimed that the jewelry was purchased through cheques or received as gifts. They provided reconciliation statements, purchase details, and gift confirmation letters. However, the Assessing Officer found that certain purchases and gifts were not adequately substantiated, leading to additions of Rs. 12,34,370 for Padma and Rs. 4,63,750 for Dinesh.

The Commissioner (Appeals) upheld these additions, noting the lack of wealth tax returns, valuation reports, purchase bills, and gift deeds. The Tribunal, however, found that the assessees had provided substantial evidence, including valuation reports, purchase bills, and gift certificates, which were not adequately considered by the lower authorities. The Tribunal emphasized that in Indian customs, jewelry is commonly gifted at weddings and other occasions, and direct evidence may not always be available. The Tribunal concluded that the jewelry was adequately explained and deleted the additions.

2. Addition on account of unexplained investment in artwork and paintings:

The second issue involved the addition of unexplained investments in artwork and paintings found during the search. The Assessing Officer noted that some artworks could not be properly explained by the assessees, leading to additions of Rs. 6,05,000 for Padma and Rs. 14,17,700 for Dinesh. The assessees contended that the artworks were either gifted or purchased for nominal amounts, and the valuations were excessively high.

The Tribunal observed that the valuation of certain items, such as a sketch by M.F. Hussain on a napkin and paintings purchased from China, seemed arbitrary and excessive. The Tribunal decided to restore the issue to the Assessing Officer for re-evaluation by an independent valuer, considering the source of acquisition and the explanations provided by the assessees.

Conclusion:

The Tribunal allowed the appeals partly for statistical purposes, deleting the additions related to unexplained investments in diamond jewelry and restoring the issue of artwork and paintings to the Assessing Officer for fresh adjudication. The Tribunal emphasized the need for a fair and thorough evaluation of the evidence provided by the assessees.