2019 (11) TMI 84 - AT - Income Tax

Long-term capital gain on jewellery - short of the jewellery found during the search - HELD THAT - Assessee has given the explanation that the short of the jewellery found during the search was due to the reason that in a recent time the assessee s daughter got married and some of the jewellery is either with the relatives or with the valuer. These facts were brought on record during the search and in the statement of the assessee taken during the search has given details of the relatives of assessee with whom she has kept the jewellery. It is the fact that the assessee has not filed any confirmation of these relatives but it is also pertinent to note that the Revenue has not issued 133(6) notice for obtaining the real picture of assessee s submissions. There is no mechanism under the provisions of Income Tax Act, if there is short of the jewellery declared by the assessee then the same should be treated as sold and the capital gain is attracted. In the present case the Assessing Officer as merely suspected that the jewellery was sold, but has not brought any material on record - AO as well as CIT(A) overlooked the practical aspect that the jewellery is with relatives / valuer. Hence, Ground No. 1 of the assessee s appeal is allowed. Addition u/s 69A on account of alleged unexplained investment in jewellery - HELD THAT - It is pertinent to note that the diamond jewellery is always studded with gold and it is not a case of revenue that separate diamonds were found during the search operation. Merely because the jewellery is studded with the diamond of 47.18 carat in the instant case, the same cannot be added in the hands of the assessee when such jewellery formed part of the gross weight of the jewellery found from the premises of the assessee. The assessee made full disclosure and has submitted the details of the jewellery which were accepted by both the authorities and was never questioned. Thus, this addition does not sustained. Hence, Ground No. 2 of the assessee is allowed.

Summary

Issues Involved:

1. Addition of ?1,33,61,901 on account of alleged long-term capital gain on jewellery.
2. Addition of ?8,59,018 under section 69A on account of alleged unexplained investment in jewellery.

Issue-Wise Detailed Analysis:

1. Addition of ?1,33,61,901 on Account of Alleged Long-Term Capital Gain on Jewellery:

A search and seizure operation under section 132 of the Income Tax Act was conducted on 16.12.2014, which included the assessee's premises. Jewellery worth ?54,70,566 was found, but the assessee had declared jewellery worth ?1,93,05,359 in the Wealth Tax Return for Assessment Year 2013-14. The Assessing Officer (AO) concluded that the shortfall in jewellery (6267.39 grams) was sold and computed long-term capital gains based on the value declared in the Wealth Tax Return for AY 2013-14. The AO adopted the year 1997 as the purchase year and calculated the capital gain at ?1,33,61,901.

The assessee argued that the jewellery was not sold but was with relatives or a valuer, and provided an affidavit and details of the jewellery. The AO, however, was not convinced and maintained the addition. The CIT(A) upheld the AO's decision.

The Tribunal noted that the AO's conclusion was based on suspicion without any concrete evidence of sale. The assessee's explanation that the jewellery was with relatives or a valuer was not disproven by the Revenue. The Tribunal emphasized that additions cannot be based on mere suspicion and must be supported by evidence. Consequently, the Tribunal allowed the assessee's appeal on this ground, deleting the addition of ?1,33,61,901.

2. Addition of ?8,59,018 under Section 69A on Account of Alleged Unexplained Investment in Jewellery:

During the search, diamond jewellery worth ?8,59,018 was found in a bank locker, which was not declared in the Wealth Tax Returns. The AO treated this as an unexplained investment and added the amount to the assessee's income under section 69A. The assessee contended that the jewellery was part of the total jewellery declared and no separate diamonds were found. The assessee argued that the addition was based on surmises without any tangible evidence.

The Tribunal observed that diamond jewellery is typically part of gold jewellery and no separate diamonds were found. The jewellery was part of the gross weight of the jewellery found during the search. The Tribunal held that the addition was not justified as the jewellery was already disclosed and accepted by the authorities. Therefore, the Tribunal allowed the assessee's appeal on this ground, deleting the addition of ?8,59,018.

Conclusion:

The Tribunal allowed the appeal of the assessee, deleting both the additions of ?1,33,61,901 on account of alleged long-term capital gain on jewellery and ?8,59,018 under section 69A for unexplained investment in jewellery. The stay application was dismissed as it became infructuous. The order was pronounced in the Open Court on 30th October 2019.