2023 (5) TMI 954 - AT - Income Tax

LTCG on deemed sale of jewellery - Shortage in Jewellery detected during search and quantity declared in wealth tax return - whether the AO can resort to determination of notional LTCG or not? - HELD THAT - The shortage of jewellery could have been questioned at the time of search and any evidence with regard to the sale of jewellery should be collected during the search or post search enquiry. Nothing of such investigation has been made by the revenue authorities. The revenue authorities have been failed to invoke the provisions of the Act with regard to search seizure and finding of the jewellery kept in any other premises, have come to presumption of sale of such jewellery and determined capital gains. Absolutely no material to prove that there has been such sale which led to Long Term Capital Gains. There is no provision in the Income Tax Act to deem the difference between value of the jewellery declared (in the Wealth Tax Return) and the value of the jewellery found in the search, in case the jewellery falls short of the amount/quantity declared in the WTR. Hence, we direct that the addition made on account of Long Term Capital Gains on the purported, notional, fictitious sale of jewellery be deleted. Addition u/s 69A - loose diamond as per the WTR and the jewellery seized which has been subsequently treated as unexplained investments - submission of the assessee that the loose diamonds which were part of the Wealth Tax Return were studded in the jewellery subsequently and that was the reason that the description of the jewellery was different - HELD THAT - These three issues need to be examined holistically. Jewellery seized is intra polated in the jewellery found - Hence, entire disclosed jewellery as per the WTR and as found in the premises, we hold that no addition can be made on this account. Appeal of the assessee is allowed.

Summary

Issues involved:
The judgment involves the following issues: Addition of Long Term Capital Gain (LTCG) on alleged sale of jewellery, addition of LTCG on alleged sale of diamond, and addition under section 69A on account of alleged unexplained investment in jewellery.

Addition of Long Term Capital Gain on Sale of Jewellery:
The appeal was filed against the order upholding the addition of Rs.71,86,743 as LTCG on alleged sale of jewellery. The search operation under section 132 of the Income Tax Act, 1961 revealed a discrepancy in the jewellery found compared to the declared amount. The Assessing Officer calculated LTCG based on the presumption of sale of "undetected" jewellery, without concrete evidence. The tribunal ruled that there was no provision in the Act to deem the difference between declared and found jewellery as a sale, leading to LTCG. Therefore, the addition on account of LTCG on the purported sale of jewellery was directed to be deleted.

Addition of Long Term Capital Gain on Sale of Diamond:
Similarly, an addition of Rs.29,19,732 was made as LTCG on the alleged sale of diamond. The tribunal examined the issue holistically, considering the discrepancy in the description of jewellery due to loose diamonds being studded subsequently. It was held that no addition could be made on this account, as the disclosed jewellery as per Wealth Tax Return and found in the premises did not warrant such an addition.

Addition under Section 69A - Unexplained Investment in Jewellery:
An addition of Rs.16,77,368 was made under section 69A on account of alleged unexplained investment in jewellery. The tribunal observed that the seized jewellery was part of the disclosed jewellery, and the description discrepancy arose due to loose diamonds being studded in the jewellery. Considering the entire disclosed jewellery, no addition was deemed necessary under section 69A.

Conclusion:
The tribunal allowed the appeal of the assessee, emphasizing the lack of concrete evidence to support the additions made by the revenue authorities. The judgment was pronounced in the open court on 17/05/2023.