2015 (1) TMI 735 - AT - Income Tax

Addition made u/s 69A - unaccounted jewelery - Held that - In this case undisputed facts are that when the jewellary was seized by the Sales Tax Department the company came forward and claimed ownership of the said jewellary as evident from the proceedings before the Sales Tax Authorities and the filing of the writ petition before the Hon ble J&K High Court wherein company D-Mines Trading Co. Pvt. Ltd was the petitioner. On the direction of the Hon ble High Court the company had furnished the bank guarantee and also paid the penalty amount imposed by the STA for the release of the jewellary seized. When company had claimed ownership of the jewellary mere possession of the same by the assessee at the time of its seizure by STA is immaterial as to determine the ownership of jewellary. To determine the ownership of jewellary necessarily the books of account of the company also needs to be examined. It is a fact that the AO had not verified as to whether the company DMines Trading Co. Pvt. Ltd had recorded in its books of account the transaction effected. Taking into account the facts of the matter we are of the view that the issue is to be examined afresh by the AO for the limited purpose to verify as to whether the jewellary seized is recorded in the books of account of D-Mines Trading Co. Pvt. Ltd. If the seized jewellary is recorded in the books of account of the company necessarily assessee s explanation that he is not the owner of the jewellary cannot be said to be false and therefore addition u/s 69A of the Act is not warranted in his hands. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Confirmation of addition of Rs. 1,38,02,690/- made under Section 69A of the Income Tax Act.
2. Partial confirmation of disallowance of expenses made by the Assessing Officer (AO) on an ad-hoc basis.

Detailed Analysis:

Issue 1: Confirmation of Addition under Section 69A of the Income Tax Act

Background:
The assessee, an individual with income from various sources, filed his return for the assessment year 2010-11 admitting an income of Rs. 3,48,556/-. During proceedings initiated under Section 153A, the AO observed that the Special Investigation Unit (SIU) of the Commercial Taxes Department, Jammu, seized jewellery worth Rs. 1.20 crores from the assessee, which was not accompanied by any documents. The jewellery worth Rs. 1,11,89,825/- was handed over to the Income Tax Department, and Rs. 37,06,106/- was retained as security. The AO added the value of the jewellery as unexplained income under Section 69A.

CIT (A) Findings:
The CIT (A) confirmed the addition, stating that the appellant was intercepted without any supporting documents for the jewellery, which was deemed as out of the books. The appellant's claim that the jewellery belonged to M/s. D-Mines Trading Co. Pvt. Ltd., where he was a director, was not substantiated with evidence. The CIT (A) noted contradictions in the affidavits provided and concluded that the appellant failed to prove that he was not the owner of the seized jewellery.

Tribunal's Analysis:
The Tribunal noted that the jewellery was claimed by the company, M/s. D-Mines Trading Co. Pvt. Ltd., which furnished a bank guarantee for its release as per the interim order of the Hon'ble High Court of Jammu & Kashmir. The Tribunal emphasized that the company had claimed ownership, and the AO did not verify if the jewellery was recorded in the company's books of account. The Tribunal referred to various case laws, including Mangilal Agarwal v. ACIT and CIT v. Bal Kishan, which supported the assessee's position that mere possession does not imply ownership if another party claims it.

Decision:
The Tribunal directed the AO to re-examine the issue, specifically to verify if the jewellery was recorded in the company's books of account. If confirmed, the addition under Section 69A should be deleted in the assessee's hands.

Issue 2: Partial Confirmation of Disallowance of Expenses

Background:
The AO made an ad-hoc disallowance of expenses, which was partly confirmed by the CIT (A).

Tribunal's Analysis:
The Tribunal noted that no specific submission was made by the assessee's representative regarding this issue during the hearing.

Decision:
The Tribunal did not adjudicate this issue due to the lack of specific submissions.

Conclusion:
The appeal was partly allowed for statistical purposes, with the matter of the addition under Section 69A being remanded to the AO for fresh examination. The issue of disallowance of expenses was not adjudicated due to the absence of detailed arguments. The order was pronounced on January 9, 2015.