2017 (11) TMI 910 - AT - Income Tax

Unexplained cash found during the course of search - whether the cash found from the residence of two directors is from the source of cash-in-hand of the company M/s.Nirala Developers Pvt. Ltd. in which these two person were directors? - Held that - The payment of advance tax on 6.8.2011 is merely utilisation of cash for the payment of tax for the amount offered by the company during the course of the search. He has not rebutted that on date of search, whether this much amount of cash was available in the cash book or not; and whether at the time of search the cash recorded in the cash book was either found from the premises of the company or from somewhere else, especially when global search was carried out at various places of the Nirala group. So far as his allegation that assessee has been giving varied explanation that, firstly, the said cash found should be included in the disclosure of ₹ 1,95,47,000/-; and secondly, the source of cash is explained from cash-in-hand of the company, in our opinion it does not tantamount to changing of stand, albeit the assessee has explained that whatever cash has been found, the same should be considered to be covered under the huge disclosure made by the company as ultimately the cash found belong to the company only. Nowhere the assessee had stated that the cash belongs to the assessee and then he has changed the stand that it is out of the cash book of the company. Consistently assessee has been stating that the cash found is from the company s account which is duly recorded in its book. Thus, we do not find any reason to disbelief the assessee that the source of the cash found is out of the cash-in10 hand of the company as recorded in its books of account. Accordingly, the addition of ₹ 5 lacs is directed to be deleted. So far as the cash amounting of ₹ 34,000/- is concerned which is not part of the imprest account, we are of the opinion that since it is very small amount of cash and which could be out of personal savings etc. from the source of income earned by the assessee, no adverse inference should be drawn. Thus, we direct the deletion of entire cash of ₹ 5,34,000/-. Addition on account of alleged unexplained jewellery found during search - sridhan provisions applicability - Held that - Looking to the assessee s family consisting of assessee himself, his wife, his mother, one major unmarried daughter, one minor daughter and one minor son and the status of the assessee being owner and director of various companies then it has to be presumed that certain amount of jewellery would be available.If the availability of jewellery especially in the concept of Indian tradition and general practice in Hindu families whereby jewellery is gifted by the relatives and friends at the time of social functions, viz. marriages, birthdays, marriage anniversary and other festivals, such gifts in the form of jewellery are customary and such practice prevailing in our society cannot be ignored. It was for this prevalent norm and practice in the Indian families where jewelleries are gifted at time of marriage and birth of children and the married ladies receiving stridhan from both side of the family, it is presumed that family having certain status will have some jewellery. That is why, CBDT vide it aforesaid instruction, has laid down a criteria of availability of jewellery with various category of family members. Here in this case total jewellery weighing of 1236.24 grams was found and if one goes by the quantity laid/ prescribed per category of family members by the CBDT Instruction, then it works out to 1700 grams, which is lower than the total jewellery found. We therefore, following the ratio laid down in the case of CIT vs. Ratan Lal Vyapari Lal Jain 2010 (7) TMI 769 - Gujarat High Court hold that the jewellery of 1236.24 cannot be treated as unexplained. Thus, we hold that the jewellery treated to unexplained jewellery of ₹ 10,52,124/- is directed to be deleted. Assessee appeal allowed.

Issues Involved:
1. Addition of ?5,34,000/- on account of unexplained cash found during the search.
2. Addition of ?10,52,124/- on account of alleged unexplained jewellery found during the search.

Detailed Analysis:

Issue 1: Addition of ?5,34,000/- on account of unexplained cash found during the search

The appeals were filed against the orders dated 7th October 2014 and 17th March 2015, concerning the quantum of assessment for the assessment year 2012-13. The primary issue involved was the addition of ?5,34,000/- as unexplained cash found during a search operation on 4.8.2011 at the business and residential premises of Nirala group, which included the premises of the assessee. The assessee claimed that the cash was received as imprest from M/s. Nirala Developers Pvt. Ltd. on 3.8.2011, supported by a copy of the cash book. However, the AO noted discrepancies in the cash book entries and treated the cash as unexplained money under section 69A.

Before the CIT(A), the assessee explained that the cash found and seized from the group was part of the cash-in-hand as on 3.8.2011 in the company’s cash book. Despite this, the CIT(A) rejected the explanation due to contradictory claims, lack of linkage, and discrepancies in the cash book entries, concluding that the document relied upon was fabricated.

Upon appeal, the Tribunal observed that the cash book showed a balance of ?53,98,000/- as on 3.8.2011, which was stated to be with the directors. The Tribunal found that the cash recorded in the company’s books was not found at the company’s premises but was with the directors. Given the explanation and the absence of contrary material, the Tribunal inferred that the cash found was from the company’s cash-in-hand, directing the deletion of the ?5 lacs addition. The remaining ?34,000/- was considered a small amount possibly from personal savings, leading to the deletion of the entire ?5,34,000/-.

Issue 2: Addition of ?10,52,124/- on account of alleged unexplained jewellery found during the search

During the search, jewellery weighing 1182 grams valued at ?30,80,840/- was found. The assessee claimed that the jewellery belonged to his family and was acquired over time through social ceremonies. The AO considered ?10,52,124/- as unexplained after giving partial benefit based on CBDT Instruction No. 1916. The CIT(A) upheld the addition, stating that the instruction was for seizure purposes, not for explaining the source.

The Tribunal, however, referred to the Gujarat High Court judgment in CIT vs. Ratan Lal Vyapari Lal Jain, which recognized customs in Hindu families regarding jewellery gifts during social functions. The Tribunal noted that the total jewellery found was 1236.24 grams, which was less than the 1700 grams presumed under the CBDT instruction for the assessee’s family members. Applying the Gujarat High Court’s ratio, the Tribunal held that the jewellery could not be treated as unexplained and directed the deletion of the ?10,52,124/- addition.

Appeal of Shri Iftikhar Ahmed:

For Shri Iftikhar Ahmed, the addition of ?42,50,000/- as unexplained cash was challenged. The Tribunal applied the same reasoning as in Shri Rakesh Mahajan’s case, concluding that the cash found was explained by the company’s cash book. Thus, the addition was deleted, and the appeal was allowed.

Conclusion:

Both appeals were allowed, with the Tribunal directing the deletion of the additions related to unexplained cash and jewellery. The judgments emphasized the importance of considering customary practices and the evidence provided in the company’s cash book.

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