2017 (10) TMI 65 - AT - Income Tax

Unexplained investment - Sources of cash receipts which were deposited in the bank account to make FDR - assessee during the course of appellate proceeding before learned CIT(A) has explained that ₹ 12.5 lakh in cash was received during the impugned assessment year by selling the gold ornaments - Held that - There is a CBDT instruction/guidelines no. 1916 dated 11th May, 1994 which although relates to non seizure of gold during the course of search operation u/s 132 which has duly considered Indian traditions and culture, wherein it is permitted by CBDT not to seize gold ornaments and jewellery in case of married lady to the tune of 500 gram in the course of search operations where no wealth tax returns are filed by said married lady and hence we are of the view that the explanation of the assessee of holding of the gold ornament/jewellery to the tune of 500 gram stand accepted, while the rest of the theory of selling balance of the gold /silver as put forward by the assessee stood rejected and it is held that the assessee could not substantiate the genuineness of the transaction for the balance quantity of sale of gold ornaments/silver and hence after giving credit for value of gold to the tune of 500 gms, rest of the amount shall be charged to tax in the hands of the assessee as undisclosed income . While for sale of 500 gram of the gold, the same shall be brought to tax by computing income from capital gains for which the assessee shall submit necessary details which shall be verified by the AO in accordance with law. Thus, we confirm the appellate order of learned CIT(A) with above modification wherein the assessee will get part relief as detailed above. We order accordingly. For AY 2005-06 The assessee has also received gift of ₹ 3.0 lacs in cash from Mr Abdul Kader Fakir Mohammed Rakhangi, a close relative. The cash received by the assessee from gits of ₹ 3,00,000/- also did not stood proved as no gift deed/confirmations are produced from donor by the assessee nor genuineness of the gift is proved. The said donor has claimed to have not maintained any bank account . He has claimed to have given gift of ₹ 3,00,000/- as well purchased gold of ₹ 5.62 lacs from the assessee for impugned assessment year out of his total claimed income from agriculture from sale of mangoes of ₹ 6-7.50 lacs. He does not hold any PAN and has never filed return of income .. We have already discussed about creditworthiness of said Mr Abdul Kader Fakir Mohammed Rakhangi while adverting to his purchases of gold from the assessee while adjudicating appeal for AY 2005-06 nor even genuineness of gift in cash from Mr Abdul Kader Fakir Mohammed Rakhangi is proved. It is incomprehensive that he has income of ₹ 6-7.50 lacs for the previous year relevant to assessment year 2007-08 and he has utilised ₹ 8.62 lacs in purchasing gold and giving gift to assessee

Issues Involved:
1. Addition of ?12,50,000 and ?30,00,000 as unexplained investment under Section 69 of the Income Tax Act, 1961.
2. Failure to appreciate the source of investment from the sale of gold ornaments and silver.
3. Lack of evidence to substantiate possession and sale of gold jewellery.
4. Admission and evaluation of additional evidence by the CIT(A).
5. Levy of interest under Sections 234A and 234B of the Income Tax Act, 1961.
6. Treatment of cash gifts as unexplained income.

Issue-wise Detailed Analysis:

1. Addition of ?12,50,000 and ?30,00,000 as Unexplained Investment:
The assessee's appeals for the assessment years 2005-06 and 2007-08 contested the additions made by the Assessing Officer (AO) treating investments in Fixed Deposits (FDs) as unexplained under Section 69 of the Income Tax Act, 1961. The AO observed that the assessee had made deposits in Kokan Mercantile Bank and Bombay Mercantile Bank, which were not declared in the returns. The assessee failed to declare the sources of these investments, leading to the additions.

2. Source of Investment from Sale of Gold Ornaments and Silver:
The assessee claimed that the investments were made from the sale of gold ornaments. However, the CIT(A) noted that the assessee did not file any evidence to substantiate possession of gold jewellery as of 31.03.2004. The CIT(A) also highlighted that the confirmations from buyers were not supported by evidence, and the buyers' agricultural income was not adequately substantiated.

3. Lack of Evidence to Substantiate Possession and Sale of Gold Jewellery:
The CIT(A) found that the assessee failed to provide proof of possession of gold jewellery and corroborating evidence for its sale. The appellate order emphasized that the assessee did not file a balance sheet reflecting the possession of jewellery and did not disclose any capital gain/loss on the sale of gold jewellery in the return of income.

4. Admission and Evaluation of Additional Evidence by the CIT(A):
The CIT(A) admitted additional evidence submitted by the assessee due to her senior age and illness. The additional evidence was forwarded to the AO for comments, resulting in a remand report. Despite the remand report, the CIT(A) upheld the additions, stating that the assessee could not substantiate the source of investment and the transactions were not genuine.

5. Levy of Interest under Sections 234A and 234B:
The CIT(A) confirmed the levy of interest under Sections 234A and 234B of the Income Tax Act, 1961, as the assessee failed to explain the source of investments and did not declare the income from FDs.

6. Treatment of Cash Gifts as Unexplained Income:
For the assessment year 2007-08, the assessee claimed to have received a cash gift of ?3,00,000 from a relative. The CIT(A) found no proof of the gift, such as a gift deed or confirmation from the donor. The donor's financial capacity was also not substantiated, leading to the addition being upheld as unexplained income.

Tribunal's Decision:
The tribunal partly allowed the appeals. It accepted the assessee's explanation for holding 500 grams of gold ornaments based on CBDT Instruction No. 1916, dated 11th May 1994, considering Indian traditions and customs. The tribunal directed the AO to compute capital gains for the sale of 500 grams of gold and bring it to tax. However, the tribunal upheld the additions for the remaining amount as unexplained investment and income, rejecting the assessee's contentions due to lack of credible evidence.

Conclusion:
The tribunal's decision provided partial relief to the assessee by accepting the holding of 500 grams of gold ornaments but upheld the additions for the unexplained investments and income due to insufficient evidence. The appeals for both assessment years were partly allowed, with directions for the AO to compute the capital gains for the sale of 500 grams of gold.

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