2020 (4) TMI 578 - AT - Income Tax

Addition u/s 68 - Addition of capital gain earned on sale of jewellery in return of income filed with Revenue - assessee is a salaried employee with ICICI Bank - Case of the assessee was selected for framing scrutiny assessment under CASS - HELD THAT - Assessee could not produce purchase bills for purchase of the jewellery to the tune of 382.93 gms - sale of the jewellery as claimed by assessee to have been made during the year under consideration was not to registered gold jewelers but were all claimed to be made to private individuals. The sale consideration for the entire sale of jewellery as claimed by assessee was in cash and none of the party paid sale consideration through banking channel - the entire transaction for sale of gold jewellery is an afterthought and a sham transaction which is claimed by assessee as he was cornered by Revenue. Assessee could not satisfactorily explain transactions for sale of gold jewellery. The amounts were deposited in cash in the bank account maintained by assessee and onus was on assessee to satisfactorily explain sources of cash deposit in his bank account which in the instant case, the assessee failed to satisfactorily explain and Section 68 is clearly applicable. Vide CBDT instruction number 1916 dated 11.05.1994 which stipulates that in case of male member , 100 grams of gold jewellery could be treated as held explained , we give benefit of the aforesaid CBDT instruction to the assessee in terms of aforesaid CBDT instruction, while rest of the sale of jewellery as claimed by assessee could not be accepted and the sale consideration of 282.92 grams of gold jewellery as claimed by assessee is to be held as unexplained as income from undisclosed sources in the hands of assessee which is to brought to tax in the hands of assessee. Assessee will be required to pay tax on capital gain arising from sale of said 100 gm of gold jewellery as per provisions of the 1961 Act. AO is directed to bring capital gains on sale of 100 gm of jewellery to tax in the hands of assessee in accordance with law, while rest of sale consideration is to be brought to tax as unexplained income. The assessee is directed to file before AO computation for working of capital gains on sale of 100 gms of gold jewellery , for verification by the AO. The matter is remanded to AO to that effect. AO shall provide proper and adequate opportunity of being heard to the assessee. - Decided partly in favour of assessee.

Issues Involved:

1. Applicability of Section 68 of the Income-tax Act, 1961.
2. Validity of additions based on cash deposits in bank accounts.
3. Requirement for maintaining books of accounts for salaried employees.
4. Treatment of sale proceeds from gold jewellery.
5. Non-filing of wealth tax returns.
6. Admissibility of evidence and confirmations from alleged buyers.
7. Principles of preponderance of probabilities.
8. Application of CBDT Instruction No. 1916 dated 11/05/94.
9. Computation of capital gains on the sale of gold jewellery.

Issue-wise Detailed Analysis:

1. Applicability of Section 68 of the Income-tax Act, 1961:
The Tribunal examined whether the cash deposits in the assessee's bank account could be treated as unexplained cash credits under Section 68. The assessee argued that as a salaried employee, they were not required to maintain books of accounts, and hence, Section 68 should not apply. However, the Tribunal held that the onus was on the assessee to satisfactorily explain the sources of cash deposits, which the assessee failed to do. Thus, Section 68 was applicable.

2. Validity of additions based on cash deposits in bank accounts:
The AO made additions of ?9,49,200/- as unexplained cash deposits out of total deposits of ?32,52,142/-. The Tribunal noted that the assessee admitted ?2,66,000/- as unexplained income. The AO's enquiries revealed discrepancies and non-confirmations from alleged buyers of jewellery. The Tribunal upheld the AO’s decision to treat the unexplained cash deposits as income from other sources.

3. Requirement for maintaining books of accounts for salaried employees:
The assessee contended that being a salaried employee, there was no requirement to maintain books of accounts. The Tribunal acknowledged this but emphasized that the assessee still needed to explain the sources of significant cash deposits in the bank account, which remained unexplained.

4. Treatment of sale proceeds from gold jewellery:
The assessee claimed that the cash deposits were proceeds from the sale of gold jewellery. The Tribunal found that the assessee could not provide purchase bills or satisfactory evidence of the sale transactions. The sales were made to private individuals, and no payments were made through banking channels, raising doubts about the genuineness of the transactions.

5. Non-filing of wealth tax returns:
The Tribunal noted that the assessee had never filed wealth tax returns and had not declared the gold jewellery in any returns filed with the Revenue. This non-disclosure further supported the AO’s decision to treat the cash deposits as unexplained income.

6. Admissibility of evidence and confirmations from alleged buyers:
The Tribunal observed that the AO’s enquiries with the alleged buyers of jewellery resulted in non-confirmations or denials of transactions. Some notices were returned undelivered, and some buyers denied purchasing jewellery from the assessee. This lack of evidence and confirmation justified the AO’s decision to treat the deposits as unexplained.

7. Principles of preponderance of probabilities:
The Tribunal applied the principles of preponderance of probabilities, citing Supreme Court decisions in CIT Vs. Durga Prasad More, Sumati Dayal Vs. CIT, and CIT Vs. P. Mohanakala. The Tribunal concluded that the claimed sale of jewellery was a sham transaction, and the assessee’s explanation was not credible.

8. Application of CBDT Instruction No. 1916 dated 11/05/94:
The Tribunal referred to CBDT Instruction No. 1916, which allows a male member to possess up to 100 grams of gold jewellery without being questioned. The Tribunal gave the benefit of this instruction to the assessee, treating 100 grams as explained, while the rest of the jewellery sale was treated as unexplained income.

9. Computation of capital gains on the sale of gold jewellery:
The Tribunal directed the AO to compute capital gains on the sale of 100 grams of gold jewellery as per the provisions of the Income-tax Act, 1961. The assessee was instructed to file the necessary computation for verification by the AO. The rest of the sale consideration was to be taxed as unexplained income.

Conclusion:
The Tribunal partly allowed the appeal, giving the benefit of CBDT Instruction No. 1916 for 100 grams of gold jewellery and directing the AO to compute capital gains on its sale. The remaining cash deposits were treated as unexplained income. The matter was remanded to the AO for further verification and computation of capital gains.

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