2015 (3) TMI 275 - HC - Income Tax

Undisclosed income - interpretation of Section 158B, 158-BA and 158-BB - Tribunal held that the sum of ₹ 69,298/-was to be assessed under Chapter XI-VB of the Act as undisclosed income of the assessee - whether maximum nontaxable limit of income for each year is not to be included in undisclosed income? - Held that - In the present facts, in view of the law as prevailing prior to the retrospective amendment of 2002 w.e.f. 1995, none of the authorities determined the issue whether the amount of ₹ 69,298/- was arrived at on the basis of entries in the books of account and other documents maintained by the appellant before the search. Therefore though the retrospective amendment to Section 158BB of the Act by the Finance Act, 2002 would be applicable in case of the appellant, the benefit of the same would be available only on the appellant satisfying the authorities that the amount of ₹ 69,298/- is duly supported by entries in books of account or such other memorandum. This exercise could be carried out by the Assessing Officer while giving effect to this order. It is only on satisfaction of the aforesaid condition precedent would the benefit of ₹ 69,298/- be extended to the appellant resulting in reduction of total undisclosed income to the above extent. - Decided in favour of assessee for statistical purposes. Undisclosed jewelery - Unexplained investment under Section 69 - Held that - Explanation offered by the respondentassessee to her possession of jewelery of ₹ 6.57 Lakhs was that the same was gifted to her on occasion of her marriage by her father and fatherinlaw. This explanation was not contested by the father and fatherinlaw. The authorities accepted the source of the jewelery in her possession. However, the Tribunal was not satisfied with the evidence produced by her father and father-in-law. This cannot be lead to be conclusion that the explanation offered by the respondent-assessee in respect of the jewelery in her possession is not satisfactory. In the normal course of human conduct, on occasions such as marriage the parents and parents-in-law of a bride do normally gift jewelery to the bride. On occasion such as this, it is not possible to expect the bride to ask for evidence of bills/invoices to support the purchase of the jewelery. One has to proceed on the basis that it is genuine. Thus her explanation that she received the jewelery as gifts from her father and father-in-law is sufficient explanation of the jewelery in her possession and the gifts are not denied by her father and father-in-law. Thus invocation of Section 69 of the Act is these facts is completely unwarranted. - Decided in favour of assessee

Summary

Issues Involved:
1. Inclusion of maximum non-taxable limit of income for each year in undisclosed income.
2. Taxation of jewelry in appellant's possession as unexplained investment under Section 69 of the Income Tax Act, 1961.

Detailed Analysis:

First Issue: Inclusion of Maximum Non-Taxable Limit of Income
Questions Nos. 1 to 3:

Background and Arguments:
- The appellant argued that the sum of Rs. 69,298/- should not be assessed as undisclosed income since it was below the taxable limit and disclosed in regular books of accounts.
- The appellant referenced the amendment to Section 158BB of the Act by the Finance Act, 2002, which allows for reduction of undisclosed income by amounts not exceeding the maximum amount not chargeable to tax, provided they are supported by entries in the books of account.
- The revenue countered that the retrospective amendment does not apply prior to 1 July 1995 and that the appellant failed to provide supporting entries for Rs. 69,298/-.

Judgment:
- The court acknowledged the retrospective amendment to Section 158BB, which applies from 1 July 1995, allowing reduction of undisclosed income by amounts not chargeable to tax if supported by entries in books of account.
- However, the appellant must satisfy the condition that Rs. 69,298/- is supported by entries in the books of account or other documents maintained before the search.
- The Assessing Officer will verify if the amount is supported by such entries. If satisfied, the benefit of reduction will be extended to the appellant.
- The court rejected the revenue's argument that the retrospective amendment does not apply to periods before 1 July 1995, as Section 158BB was introduced from that date.

Conclusion:
- The court ruled in favor of the appellant, subject to verification by the Assessing Officer that the amount of Rs. 69,298/- is supported by entries in the books of account.

Second Issue: Taxation of Jewelry as Unexplained Investment
Questions Nos. 4 to 8:

Background and Arguments:
- The appellant claimed that jewelry worth Rs. 6.79 Lakhs was received as gifts from her father and father-in-law during her marriage.
- The Assessing Officer did not accept this explanation due to the absence of purchase invoices from the father and father-in-law.
- The appellant argued that the explanation should be accepted as it is customary for parents and in-laws to gift jewelry during marriage, and it is unreasonable to expect invoices for such gifts.

Judgment:
- The court noted that the authorities did not dispute the source of the jewelry but rejected the explanation due to lack of invoices.
- The court emphasized that it is common for parents and in-laws to gift jewelry during marriage without maintaining purchase invoices.
- The court found the appellant's explanation satisfactory and ruled that invoking Section 69 of the Act was unwarranted in this context.

Conclusion:
- The court ruled in favor of the appellant, accepting the explanation for the jewelry and stating that it should not be taxed as undisclosed income.

Final Disposition:
- The appeal was disposed of in favor of the appellant on both issues, with no order as to costs.