2021 (10) TMI 266 - AT - Income Tax

Legality of Search proceedings - Unexplained jewellery found from the locker - addition on account of jewellery - board circular VDIS disclosure - HELD THAT - Legal challenges are concerned, first of all jewellery was found from the locker which is co-owned by assessee and her husband during search operations on Kesarwani Zarda Bhandar, Sahson , Allahabad, and jewellery weighing 1725.040 gms was owned up by the assessee. It is an admitted fact that the assessee has not declared this jewellery in her income-tax returns , filed prior to date of search. Further, the assessee has admittedly not filed any wealth tax return prior to the date of search - jewellery found from the locker, under these circumstances, itself is , prima-facie, incriminating material and there is no bar on revenue to use incriminating material found for framing assessment and bringing to tax total income including undisclosed income - assessee has not made any arguments before us challenging the legality of the search or assessment framed by Revenue - search took place on 27.08.2009 and the ay under consideration is ay 2010-11 viz. the assessment year relevant to the previous year in which search took place. The assessment for year under consideration was framed u/s 143(3), and the year under consideration is the year when the search took place , and the mandate under the instant case is to assess the total income. Thus, we decide this issue against the assessee. Unexplained jewellery - Circular refers to the jewellery which should not be seized during search operations and not with the assessments to be framed. One of the relevant factor for identifying the Stridhan of a women is her and her family (both parents and in-law) social and financial status/background, which cannot be ignored keeping in view the prevalent practices as per Hindu customs. It is also observed that no elaborate reasons have been given by authorities below rejecting the aforesaid contentions raised by the assessee. The matter need to be restored back to the file of the AO for fresh determination and the AO is directed to pass reasoned and speaking orders. We set aside the appellate order passed by ld. CIT(A) and restore the matter back to the file of the AO for fresh determination on merits in accordance with law.We clarify that the jewellery was found from the locker owned by the assessee, and the onus/burden is on the assessee to explain satisfactorily the jewellery found from the locker. We clarify that we have not commented on the merits of the issue. Needless to say that proper and adequate opportunity of being heard shall be provided by the AO to the assessee in set aside remand proceedings. The evidences/explanations filed by assessee in her defense shall be admitted by the AO and shall be adjudicated by AO on merits in accordance with law. The appeal of the assessee is allowed for statistical purposes.

Issues:
1. Validity of the assessment order passed by the AO.
2. Treatment of jewellery as undisclosed income.
3. Legal challenges to the search conducted under section 132 of the Income-tax Act.
4. Determination of jewellery as 'Stridhan' and its taxability.
5. Relief sought by the assessee on various grounds.

Issue 1: Validity of the assessment order passed by the AO:
The appeal was filed by the assessee against the appellate order dated 27.06.2014 by the Commissioner of Income Tax (Appeals) for the assessment year 2010-11. The AO passed the assessment order under section 143(3) of the Income-tax Act. The Tribunal heard the appeal through video conferencing. The assessee challenged the income determined by the AO and the actions taken by the CIT(A) as unjustified and illegal, seeking acceptance of the declared income.

Issue 2: Treatment of jewellery as undisclosed income:
The Revenue conducted search operations against a firm in which the assessee was a partner. During the search, jewellery owned by the assessee was found in a locker co-owned by her and her husband. The AO treated a portion of the jewellery as purchased from undisclosed sources, leading to additions in the assessment. The CIT(A) partly allowed the appeal, confirming additions under Section 69A. The Tribunal observed that the jewellery found from the locker was incriminating material, justifying its inclusion as undisclosed income.

Issue 3: Legal challenges to the search conducted under section 132:
The assessee challenged the validity of the search conducted under section 132 of the Income-tax Act, claiming it was not valid and that mandatory requirements were not complied with for a legal assessment. However, the Tribunal held that the jewellery found during the search, which the assessee had not declared in previous tax returns, constituted incriminating material. The Tribunal ruled against the assessee on this issue.

Issue 4: Determination of jewellery as 'Stridhan' and its taxability:
The assessee argued that the jewellery found from the locker was her 'Stridhan' acquired at the time of her marriage, exempt from taxation. The AO and CIT(A) allowed relief on a portion of the jewellery based on certain guidelines. The Tribunal directed a fresh determination by the AO, emphasizing the importance of the social and financial status of the assessee and her family in deciding the taxability of the jewellery as 'Stridhan'.

Issue 5: Relief sought by the assessee on various grounds:
The assessee raised multiple grounds challenging the additions made by the authorities. While the Tribunal dismissed some general grounds, it allowed the appeal for statistical purposes, directing a fresh determination by the AO on the taxability of the jewellery. The Tribunal emphasized providing the assessee with a proper opportunity to present her defense in the remand proceedings.

In conclusion, the Tribunal allowed the appeal for statistical purposes, setting aside the appellate order and remanding the matter to the AO for a fresh determination on the taxability of the jewellery found during the search operations.

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