2016 (4) TMI 1093 - AT - Income Tax

Addition on unexplained jewellery u/s 69A - Held that - In the present case, it is undisputed fact that the AO nowhere stated that the jewellery found during the course of search was more than what was declared by the assessee in the regular wealth tax return furnished much earlier to the search. As regards to the addition sustained by the ld. CIT(A) by presuming that the assessee might have incurred certain expenses for making the jewellery is concerned, it is noticed that nothing is brought on record to substantiate that all the jewellery was got remade during the year under consideration. In this regard, the explanation of the assessee was that the source of remaking in the earlier years was from household withdrawals. In our opinion, the ld. CIT(A) sustained the addition only on the basis of presumption which is not tenable particularly when no evidence was brought on record to disprove this contention of the assessee that the remaking charges were incurred out of household withdrawals made from time to time in earlier years. We, therefore, do not see any justification on the part of the ld. CIT(A) in sustaining the addition which was made on the basis of surmises and conjecture. Accordingly, the addition sustained by the ld. CIT(A) is deleted. - Decided in favour of assessee

Summary

Issues Involved:
1. Addition of ?3,34,98,409/- on account of alleged unexplained jewellery under Section 69A.
2. Validity of the assessment order and principles of natural justice.
3. Legality of the assessment order and jurisdictional issues.
4. Incriminating material found during the search.
5. Charging of interest under Section 234B of the Income Tax Act, 1961.
6. Right to modify grounds of appeal.

Detailed Analysis:

1. Addition of ?3,34,98,409/- on Account of Alleged Unexplained Jewellery under Section 69A:
The core issue revolves around the addition made by the AO on account of unexplained jewellery. During the search conducted on 21.01.2011, jewellery worth ?6,05,33,471/- was found, out of which jewellery worth ?3,34,98,409/- was seized. The AO treated this as unexplained investment under Section 69A, as the jewellery items did not match the descriptions in the wealth tax returns. The assessee contended that the total jewellery declared in the wealth tax returns exceeded the jewellery found during the search and that any discrepancies were due to remaking of jewellery. The CIT(A) partially agreed with the assessee, reducing the addition to ?33,49,840/- for remaking charges. However, the Tribunal found the assessee's explanation plausible, noting that the total jewellery declared was more than the jewellery found and that remaking charges were covered by household withdrawals. The Tribunal deleted the entire addition, finding no justification for the AO's and CIT(A)'s conclusions.

2. Validity of the Assessment Order and Principles of Natural Justice:
The assessee argued that the assessment order was bad in law, unjustified, and violated principles of natural justice due to inadequate opportunity of hearing. The Tribunal did not specifically address this issue in its final decision, as the primary focus was on the unexplained jewellery addition.

3. Legality of the Assessment Order and Jurisdictional Issues:
The assessee claimed that the assessment order was void ab initio and beyond jurisdiction. Similar to the previous issue, the Tribunal did not explicitly address these claims, focusing instead on the substantive issue of the jewellery addition.

4. Incriminating Material Found During the Search:
The assessee argued that no incriminating material was found during the search to justify the addition. The Tribunal’s decision implicitly supports this argument by deleting the addition, suggesting that the evidence presented by the assessee was sufficient to explain the jewellery found.

5. Charging of Interest under Section 234B of the Income Tax Act, 1961:
The assessee contested the charging of interest under Section 234B. This issue was not specifically addressed in the Tribunal’s detailed analysis, as the primary focus remained on the addition of unexplained jewellery.

6. Right to Modify Grounds of Appeal:
The assessee reserved the right to add, modify, amend, or delete any grounds of appeal. This procedural point was acknowledged but not specifically addressed in the Tribunal’s final decision.

Conclusion:
The Tribunal allowed the assessee's appeal, deleting the addition of ?3,34,98,409/- and dismissing the department's appeal. The Tribunal found the assessee's explanation regarding the jewellery plausible and noted that the total declared jewellery exceeded the amount found during the search. The addition sustained by the CIT(A) for remaking charges was also deleted, as it was based on presumptions without concrete evidence. The decision underscores the importance of substantiating claims with evidence and the Tribunal’s reliance on the declared wealth tax returns.