2018 (12) TMI 1688 - AT - Income Tax

Addition made disbelieving the claim of sale proceeds of jewellery belonging to his relatives - HELD THAT - Documents collected during investigation were vouched for the source for invested amount. There is no case for the Revenue that during the course of search, any of the jewellery deposited by the close relatives with the assessee, were found or were available. If it was still with the assessee or such relatives, who were all living with the assessee or in the very next door, it would have been found by the Inspecting Officials. Admittedly, nothing of the sort was found. As mentioned declarations of the relatives has not been doubted by the lower authorities. Their doubt is on claim of the assessee that such jewellery was sold by the assessee. In our opinion, report filed by the Investigating Officer before Principal District and Sessions Judge when seen along with the failure of the Revenue to find any such jewellery at the time of search, clearly indicate that the jewellery deposited by the close relatives with the assessee were sold by the latter. Preponderance of probability, in our opinion, is on the side of the assessee. We are of the opinion that the claim of the assessee that a sum of ₹ 3,14,93,768/- had come out of sale proceeds of jewellery deposited by his relatives with him, ought not have been disbelieved. Addition stands deleted. Grounds of the assessee stand allowed. Addition under the head long term capital gains - HELD THAT - Assessing Officer has given a clear finding that actual sale effected by the assessee was ten plots and its guideline value came to ₹ 16,71,475/-. After giving allowance for indexed cost of land of ₹ 1,72,695/-, ld. Assessing Officer had computed the capital gains at ₹ 14,98,780/-. Assessee had through his letter dated 14.03.2014 agreed for adoption of the guideline value u/s.50C of the Act. Having agreed for adopting guideline value, we are of the opinion that assessee cannot now take a grievance that such Section was wrongly applied. Addition as unexplained cash - HELD THAT - It is not disputed that cash of A4,50,000/- was found at the time of search. Pawn register found at the time of search reflected cash balance of ₹ 1,27,052/- only. In the circumstances, we are of the opinion that lower authorities were justified in ignoring any other books produced by the assessee at a later stage. The addition of ₹ 3,22,948/-, in our opinion was rightly made. Grounds 3 and 4 of the assessee stand dismissed. Addition as unexplained investment in silver bars - HELD THAT - If assessee had with him any silver-ware other than the silver bars, it would have definitely come to the notice of the search officials at the time of the search. It is not disputed that assessee s mother and father lived with the assessee. Hence preponderance of probability is that the bars found at the time of search was represented by conversion of silver-ware of assessee s mother. We are of the opinion that out of 325.334 kgs of silver bars found at the time of search, assessee should be given credit for 243.784 kgs owned by his mother. We therefore set aside the orders of the lower authorities and remit the issue back to the ld. Assessing Officer for giving relief to the assessee proportionate to the value of 243.784 kg of silver out of total 325.334 kgs found at the time of search. Grounds 5 6 of the assessee are treated as partly allowed. Agricultural income not accepted by the lower authorities - HELD THAT - It is not disputed by the Revenue that assessee owned 3.26 acres of land. It might be true that assessee was unable to produce evidence for agricultural cultivation and earning of agricultural income. Nevertheless, we cannot say that assessee could have earned no agricultural income from a holding of 3.26 acres of land. We are of the opinion that assessee ought have been given credit of agricultural income at the rate of A5,000/- per acre. Accordingly, we restrict the addition to A72,874/-. Levy of penalty u/s.271D and 271E - HELD THAT - We find that assessee could not give any reasonable ground for accepting loans in cash and repaying loans in cash. Though assessee argued before lower authorities that amounts were received as advance against sale of agricultural land, no evidence to substantiate such claim was produced. In the absence of any reasonable cause for accepting loans in cash and repaying loans in cash, we are of the opinion that there was clear violation of Section 269SS and Section 269T of the Act. Levy of penalty u/s.271D and 271E in our opinion was justified. We do not find any reason to interfere with the orders of the lower authorities. Capital gains on sale of jewellery - what is claimed as erroneous computation of cost of acquisition of the jewellery - Contention of the ld. Authorised Representative is that Shri. C. Kishanlal had sold the jewellery given to him by the HUF without the permission of the HUF - HELD THAT - We are afraid, we cannot accept the claim of the assessee. This is due to the reason that Shri. C. Kishanlal to whom the jewellery was given was the Kartha of the assessee (HUF). Hence, he cannot say that he was unaware of the sale of jewellery. Hence, ground of the assessee assailing the addition made long term capital gains is dismissed. However viz-a-viz, cost of acquisition, it is an admitted position that ld. Assessing Officer had considered such cost at 50% of the sale value. Contention of the assessee is that the jewellery which was sold was reflected in the Wealth Tax return of the HUF from assessment year 2001-02. We direct the ld. Assessing Officer to verify this claim of the assessee and consider the cost shown by the assessee in the Wealth Tax return for assessment year 2001-02, for the purpose of computing the long term capital gains.

Summary

Issues Involved:
1. Sustenance of addition of ?90,62,161/- for AY 2006-07.
2. Levy of penalty of ?10,00,000/- u/s.271D for cash loans.
3. Levy of penalty of ?3,00,000/- u/s.271E for cash loan repayments.
4. Addition of ?3,14,93,768/- for sale proceeds of jewelry.
5. Addition of ?14,98,780/- under long-term capital gains.
6. Addition of ?3,22,948/- as unexplained cash.
7. Addition of ?1,26,76,768/- as unexplained investment in silver bars.
8. Disallowance of agricultural income of ?89,174/-.
9. Addition for capital gains on sale of jewelry for HUF and computation of cost of acquisition.

Detailed Analysis:

1. Sustenance of Addition of ?90,62,161/- for AY 2006-07:
The assessee, a pawn broker, was subjected to a search u/s.132 of the Act, leading to the discovery of an investment of ?4,65,00,000/- in M/s. Surana Corporation Ltd. The assessee claimed the source of funds from 12 persons and sale proceeds of jewels. The Assessing Officer (AO) accepted ?59,40,160/- but disbelieved ?90,66,072/- due to insufficient evidence. The Tribunal accepted the assessee's explanations for amounts received from C. Kishnalal & Sons (HUF), Shivraj Nadar, B.K. Vimalchand, V. Suvitha, and Kanchan Bai, deleting the corresponding additions. However, the sum of ?6,56,232/- claimed as cash balance was disbelieved due to lack of reflection in the capital account, and the balance addition was sustained.

2. Levy of Penalty of ?10,00,000/- u/s.271D for Cash Loans:
The AO levied a penalty for accepting loans in cash exceeding ?20,000/- from six persons. The Tribunal upheld the penalty, noting that the assessee failed to provide a reasonable cause for the cash transactions, thereby violating Section 269SS.

3. Levy of Penalty of ?3,00,000/- u/s.271E for Cash Loan Repayments:
Similarly, the AO levied a penalty for repaying loans in cash to two persons. The Tribunal upheld this penalty as well, citing a violation of Section 269T due to the absence of reasonable cause for the cash repayments.

4. Addition of ?3,14,93,768/- for Sale Proceeds of Jewelry:
The assessee claimed the source for the investment as sale proceeds of jewelry belonging to relatives. The AO disbelieved this due to lack of evidence and a contrary report from the Superintendent of Police. The Tribunal, however, accepted the declarations from the relatives and the preponderance of probability, concluding that the jewelry was indeed sold, and deleted the addition.

5. Addition of ?14,98,780/- under Long-Term Capital Gains:
The AO applied Section 50C to substitute the guideline value for the sale of land, resulting in an addition. The Tribunal noted that the assessee had agreed to the adoption of the guideline value and thus dismissed the grounds against this addition.

6. Addition of ?3,22,948/- as Unexplained Cash:
During the search, cash of ?4,50,000/- was found, but the pawn register reflected only ?1,27,052/-. The Tribunal upheld the addition, finding the assessee's later-produced cash book unreliable.

7. Addition of ?1,26,76,768/- as Unexplained Investment in Silver Bars:
The Tribunal acknowledged that 243.784 kg of the silver bars found were declared by the assessee's mother under VDIS in 1997. It remitted the issue back to the AO to give relief proportionate to this value, partially allowing the grounds.

8. Disallowance of Agricultural Income of ?89,174/-:
The Tribunal recognized the ownership of 3.26 acres of land by the assessee and allowed partial relief, estimating agricultural income at ?5,000/- per acre, thus restricting the addition to ?72,874/-.

9. Addition for Capital Gains on Sale of Jewelry for HUF and Computation of Cost of Acquisition:
The Tribunal dismissed the claim that the HUF was unaware of the sale by its Karta, sustaining the addition. However, it directed the AO to verify and consider the cost of acquisition as shown in the Wealth Tax return for AY 2001-02 for computing long-term capital gains, allowing the ground for statistical purposes.

Conclusion:
The Tribunal partly allowed the appeals regarding the additions for unexplained investments, sale proceeds of jewelry, and agricultural income, while upholding the penalties and certain additions. The appeal for capital gains on jewelry for HUF was partly allowed for statistical purposes.