2016 (11) TMI 1035 - AT - Income Tax

Addition made on account of cash found at the time of search - Held that - The Revenue authorities were duty bound to consider the aspect of source of cash claimed to be out of the withdrawal from banks and other means. It is noted from the perusal of the orders of the lower authorities that the assessee had submitted that total amounts of withdrawals during the last seven years by the assessee s family stood at ₹ 127.25 lakhs. Thus amount of cash found at the time of search of ₹ 6,36,900 is easily explained and covered therein. The apprehension of the lower authorities that there were huge expenses, other household expenses and marriage expenses which might have been made from these withdrawals is certainly not out of context but no evidences were found during the course of search indicating that entire withdrawals were exhausted in meeting household, marriage and other expenses. Thus assessee has duly explained the availability of cash found at the time of search out of the cash available on account of withdrawals made by the assessee and his family members in the current year as well as during the last seven years - Decided in favour of assessee Addition on account of unexplained investment in gold ornaments and diamond jewellery - Held that - law does not permit to make entire addition on account of difference found in the jewellery recovered and the jewellery disclosed in wealth-tax returns/ books of account, in the hands of the assessee only. Under these circumstances, we find it appropriate to send this issue back to the file of the Assessing Officer with the direction that the Assessing Officer is permitted to make addition only with respect to the jewellery found from the assessee that too only for the amount which remains unexplained. The assessee is free to submit requisite details and documentary evidences to explain the source of the jewellery found from his possession. The assessee is also free to submit before the Assessing Officer, copies of judgments and Central Board of Direct Taxes circular which have been relied on before us to explain the jewellery found from its possession

Issues Involved:
1. Addition of ?5,86,900 as unaccounted cash.
2. Addition of ?14,07,682 as unexplained investments in gold ornaments.
3. Addition of ?9,48,867 as unexplained investments in diamond jewelry.
4. Validity of assessment based on searches conducted under section 132.

Issue-wise Detailed Analysis:

1. Addition of ?5,86,900 as Unaccounted Cash:
The primary issue was the addition of ?5,86,900 as unaccounted cash found during a search operation. The assessee explained that the cash was accumulated from bank withdrawals over several years. However, the Assessing Officer (AO) was not convinced and relied on the assessee's statement during the search, where the assessee admitted the cash was not recorded in the books and offered ?5,51,000 for taxation. The Commissioner of Income-tax (Appeals) [CIT(A)] confirmed the addition, stating that the assessee failed to furnish details of expenses incurred from these withdrawals.

Upon appeal, the Tribunal noted that the assessee was under pressure and misunderstood the legal position during the search. It was highlighted that the assessee, an individual, was not required to maintain books like a firm or company. The Tribunal cited the Supreme Court's judgment in Pullan Gode Rubber Produce Co. Ltd. v. State of Kerala, which stated that an admission is important but not conclusive. The Tribunal found that the cash withdrawals over the years sufficiently explained the cash found and directed the deletion of the addition.

2. Addition of ?14,07,682 as Unexplained Investments in Gold Ornaments:
During the search, gold jewelry worth ?47,07,818 was found, out of which ?14,84,600 was seized. The assessee claimed the jewelry was either ancestral or purchased over several years, supported by wealth-tax returns and valuation reports. The AO, however, found discrepancies and treated 1804.74 grams of gold as unexplained, resulting in an addition of ?14,07,682.

The Tribunal noted that the jewelry was found in the possession of various family members, who were separately assessed and filed individual returns. It was inappropriate to attribute the entire addition to the assessee. The Tribunal remitted the issue back to the AO to make additions only for unexplained jewelry found in the assessee's possession, allowing the assessee to provide further evidence.

3. Addition of ?9,48,867 as Unexplained Investments in Diamond Jewelry:
Similarly, diamond jewelry worth ?35,35,166 was found, with ?21,32,958 seized. The AO made an addition based on discrepancies between the wealth-tax returns and the valuation report. The CIT(A) provided partial relief, reducing the addition to ?9,48,867.

The Tribunal remitted this issue back to the AO, similar to the gold jewelry issue, directing the AO to consider only the unexplained jewelry found in the assessee's possession and allowing the assessee to submit additional evidence.

4. Validity of Assessment Based on Searches Conducted Under Section 132:
The assessee raised an additional ground challenging the validity of the assessment based on searches conducted under section 132. However, this ground was not pressed during the hearing and was dismissed.

Revenue's Appeal:
The only ground raised by the Revenue was regarding the relief given by the CIT(A) on the diamond jewelry. Since the Tribunal had remitted the issues related to both gold and diamond jewelry back to the AO, the Revenue's appeal was also treated as allowed for statistical purposes.

Conclusion:
The Tribunal partly allowed the assessee's appeal by directing the deletion of the addition of ?5,86,900 and remitting the issues related to gold and diamond jewelry back to the AO for fresh consideration. The Revenue's appeal was allowed for statistical purposes. The order was pronounced in the open court on August 5, 2016.

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