2021 (1) TMI 1079 - AT - Income Tax

Unexplained jewelery - Search and seizure operations u/s 132 - gold ornaments weighing 7442.30 grams was found, which included bullion of 1500 grams - HELD THAT - Since there was variation between the copy of stock register taken during the course of search and the copy submitted during the course of search, the AO has rejected the above said explanations. In our view, before rejecting the explanations of the assessee, the AO should have conducted necessary with regard to the veracity of the suspected entries made in the stock register. However, the AO did not conduct any enquiry to find out the veracity of alleged modifications made in the stock register. Accordingly, we are of the view that the AO was not justified in making this addition and the Ld CIT(A) was also not justified in confirming the same. If the stock register of M/s B B Jewellers and Finance Ltd has been accepted in its assessment by the concerned assessing officer and further, in the absence of any other credible material to support the view of the AO, we are of the opinion that there is no reason to take a different view in the hands of the assessee. Since this fact requires verification, we restore this issue to the file of the AO for the limited purpose of examining the view taken by the AO in the hands of M/s B B Jewellers and Finance Ltd. If the AO of the above said company has accepted the stock register, then we direct that the present addition should be deleted. Addition relating to 2668.390 grams of jewellery found during the course of search - assessee explained that they belong to his wife Smt. Teena Bethala and they were purchased in 2004 - HELD THAT - In the instant case, the jewelleries have been found during the course of search. Hence it cannot be considered as a case of accommodation entry, as presumed by the AO. In any case, as rightly pointed out by Ld A.R, the AO has entertained this presumption only on surmises and conjectures. The evidence furnished by the assessee proves the factum of purchase of jewellery. Absence of description of jewelleries, in our view, cannot be ground to suspect the nature of transaction, since the bill could have been prepared on the basis of understanding of the parties and further other factors support the genuineness of the transactions. We notice that the AO has not conducted any enquiry with Smt Teena Bethala and hence he could not have drawn any conclusion on the basis of return of income filed by her. AO has not brought on record any credible material to disprove the explanations of the assessee and accordingly we are of the view that this addition could not be made in the hands of the assessee. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this addition Addition relating to 2308 grams relating to undisclosed investment in jewellery - assessee submitted that these jewelleries belong to various members of the family - HELD THAT - When the assessee, his parents and brother are living in joint family, in our view, the credit should be given for all the members of the joint family. CIT(A) should have given credit for all the family members (including parents and brother s family) as per the CBDT instructions. Accordingly, we direct the AO to give credit for the parents and family members of assessee s brother also. In case, any jewellery still remains, the AO may consider giving further credit on the basis of family status of the assessee. With these directions, we modify the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO to follow the discussions made supra.

Summary

Issues Involved:
1. Addition of ? 43,08,000/- relating to 1500 grams of bullion found during the course of search.
2. Addition of ? 69,91,181/- relating to 2668.39 grams of jewellery found during the course of search.
3. Addition of ? 38,19,960/- relating to 2308 grams of undisclosed investment in jewellery sustained by Ld CIT(A).

Detailed Analysis:

1. Addition of ? 43,08,000/- Relating to 1500 Grams of Bullion:

The assessee argued that the 1500 grams of bullion did not belong to him but to M/s B & B Jewellers and Finance Ltd, where he is a director. The bullion was allegedly brought home for safe custody. The assessee presented a stock register to support this claim. However, the AO observed discrepancies between the stock register obtained during the search and the one presented later, suspecting manipulation. Consequently, the AO assessed the value of the bullion as unexplained investment. The CIT(A) upheld this view.

Upon hearing both parties, the Tribunal noted that M/s B & B Jewellers and Finance Ltd is a limited company with audited accounts accepted by VAT authorities, indicating credibility. The Tribunal found that the AO did not conduct sufficient enquiry to verify the stock register's entries. Thus, the Tribunal restored the issue to the AO to verify if the stock register was accepted in the company's assessment. If accepted, the addition should be deleted.

2. Addition of ? 69,91,181/- Relating to 2668.39 Grams of Jewellery:

The assessee claimed that the jewellery belonged to his wife and was purchased in 2004, providing a purchase bill from M/s B B Jewellers & Finance (P) Ltd. The AO rejected this explanation, citing the lack of detailed descriptions and the possibility of an accommodative entry due to the familial connection. The CIT(A) confirmed this addition.

The Tribunal found that the purchase bill, which included VAT payment, was not proven to be bogus. The jewellery was physically found during the search, indicating a genuine transaction. The AO's rejection was based on surmises without credible evidence. Therefore, the Tribunal directed the AO to delete this addition.

3. Addition of ? 38,19,960/- Relating to 2308 Grams of Undisclosed Investment in Jewellery:

The assessee contended that the jewellery belonged to various family members and cited CBDT Instruction No.1916, which prescribes tolerable limits for jewellery possession. The AO argued that these instructions do not imply the source of investment is explained. The CIT(A) partially accepted the assessee's claim, granting credit for 850 grams but denying credit for jewellery found in the bedroom of the assessee.

The Tribunal noted that the family is engaged in jewellery business, making it plausible for family members to possess jewellery. The Tribunal referenced the Rajasthan High Court's decision in CIT vs. Satya Narain Patni, which supports not questioning the source of jewellery within the prescribed limits. The Tribunal directed the AO to give credit for all family members, including parents and the brother's family, and to consider further credit based on the family's status if needed. The issue was restored to the AO for compliance with these directions.

Conclusion:

The Tribunal allowed the appeal for statistical purposes, directing the AO to verify and adjust the additions based on the Tribunal's detailed instructions and the evidence presented.