2023 (1) TMI 763 - AT - Income Tax

Unexplained jewellery - During the course of gold jewellery and Diamond were found in huge quantity - assessee could not file any evidence to justify the purchase of jewellery by the family members including wealth tax returns filed for the relevant assessment years - CIT-A deleted the addition - HELD THAT - Once the appellant disowned jewellery found during the course of search, it does not belong to him and also the statement of the appellant has been accepted by the family members, then if at all the family members could not explain source for purchase of jewellery, the AO can make addition only in the hands of the family members, but not in the hands of the appellant. When the family members explained the mode and method of acquiring jewellery, the AO cannot disbelieve the statement of the assessee merely for the reason that the assessee could not furnish necessary evidence, because it is customary in Indian society, during marriages ladies will get substantial amount of jewellery from their parents as marriage gift. Family members had also claimed that they have purchased part of jewellery for many years. No doubt, the appellant could not furnish necessary bills, but fact remains that when the appellant claims that jewellery was purchased for many years, the AO cannot insist bills for purchase of jewellery. Further, the family members claimed that they did not file wealth tax returns because taxable wealth in their hands for all these assessment years is below taxable limit. Merely for the reason that there is no wealth tax returns filed by the family members no adverse inference could be drawn against the assessee. Appellant had admitted a sum of Rs. 35 lakhs towards unexplained jewellery. CIT(A) after considering relevant facts has rightly deleted addition towards unexplained jewellery and thus, we are inclined to uphold the findings of the Ld. CIT(A) and reject the ground taken by the revenue. Unexplained expenditure u/s. 69C - AO made addition towards jotting found in loose sheet as unexplained expenditure on the ground that the assessee could not prove the source for repayment of loan - HELD THAT - First of all addition cannot be made on the basis of jottings in loose sheet, unless other corroborative evidence to prove that whatever recorded in loose sheet are correct. Secondly, when the AO treated repayment of loan to his friend as unexplained, he ought to have accepted the explanation of the assessee that he had borrowed loan from his friend. He cannot reject loan borrowed from the friend and at the same time, cannot make addition towards source for repayment of loan. If there is no loan from the friend then the question of repayment of said loan does not arise. If you consider loan taken from his friend is true and correct, then the assessee is having source with him to explain repayment of said loan to his friend. CIT(A) after considering relevant facts had rightly held that the AO cannot ignore loan borrowed from his friend and make addition towards repayment of said loan. Therefore, we are of the considered view that there is no error in the reasons given by the CIT(A) to delete addition made towards unexplained expenditure towards repayment of loan to Shri Shanmugasundaram of Mysore and thus, we are inclined to uphold the findings of the Ld. CIT(A) and reject the ground taken by the revenue. Unexplained investment u/s. 69B of the Act for purchase of property - HELD THAT - Assessee and the ld. DR present for the revenue fairly agreed that, the assessee has settled the dispute with regard to addition on account of unexplained investment under the Direct Tax Vivad Se Vishwas Scheme, 2020 and paid relevant taxes and in this regard, he has filed Form no. 5 issued by the designated authority. Therefore, we are of the considered view that the ground taken by the revenue on this issue becomes infructuous

Summary

Issues Involved:
1. Deletion of addition towards unexplained jewellery (Rs. 1,11,88,324/-) under Section 69A of the IT Act, 1961.
2. Deletion of addition towards unexplained expenditure (Rs. 1,24,40,000/-) under Section 69C of the IT Act, 1961.
3. Deletion of addition towards unexplained investment (Rs. 37,43,000/-) under Section 69B of the IT Act, 1961.

Detailed Analysis:

1. Deletion of Addition towards Unexplained Jewellery (Rs. 1,11,88,324/-) under Section 69A:
The Revenue challenged the deletion of the addition made by the AO for unexplained investment in jewellery found during a search. The jewellery included 3235.620 grams of gold and 78.75 carats of diamonds. The appellant claimed that the jewellery belonged to his wife, daughter-in-law, and daughter, explaining that it was received during marriages and purchased over several years. The AO added the value of the jewellery to the appellant's income due to the lack of purchase bills and wealth tax returns. The CIT(A) deleted the addition, accepting the appellant's explanation and noting that the jewellery was found in the respective family members' rooms and was customary in Indian society to receive jewellery during marriages. The Tribunal upheld the CIT(A)'s decision, stating that the AO should have made the addition in the hands of the family members if they could not explain the source, not the appellant. The Tribunal also emphasized that the absence of wealth tax returns did not justify the addition, as the family members' taxable wealth was below the prescribed limit.

2. Deletion of Addition towards Unexplained Expenditure (Rs. 1,24,40,000/-) under Section 69C:
The Revenue contested the deletion of the addition made by the AO for unexplained expenditure based on loose sheets found during the search, indicating loans borrowed and repaid by the appellant. The appellant explained that the loans were taken from a friend for purchasing land, which did not materialize, and hence repaid. The AO added the amount as unexplained expenditure due to the lack of evidence for the source of repayment. The CIT(A) deleted the addition, reasoning that if the AO did not accept the loan as a source for the property purchase, the question of repayment did not arise. The Tribunal supported the CIT(A)'s view, stating that the AO could not reject the loan and simultaneously add the repayment as unexplained expenditure. The Tribunal concluded that the addition could not be based solely on loose sheet jottings without corroborative evidence.

3. Deletion of Addition towards Unexplained Investment (Rs. 37,43,000/-) under Section 69B:
The Revenue appealed against the deletion of the addition made by the AO for unexplained investment in property. However, both parties agreed that the appellant had settled this issue under the Direct Tax Vivad Se Vishwas Scheme, 2020, and paid the relevant taxes. As a result, the Tribunal dismissed this ground as infructuous.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletions of the additions towards unexplained jewellery and unexplained expenditure, and noting that the issue of unexplained investment had been settled under the Vivad Se Vishwas Scheme. The judgment emphasized the need for corroborative evidence and the proper attribution of unexplained assets to the correct individuals.