2005 (11) TMI 210 - AT - Income Tax

Unexplained Investments in gold ornaments - initiation of assessment proceedings by issuance of notice u/s 148 - whether or not the regular assessment proceedings were stayed by the Hon'ble High Court, when the passing of final order u/s 132(5) was stayed by it? HELD THAT - In our considered opinion, the ld. CIT(A) was justified in accepting the claim of the assessee with regard to the possession of gold jewellery by Smt. Meera Kalwani to the tune of 667.300 gms. of gold jewellery. Insofar as Smt. Indra, the daughter-in-law of the assessee is concerned, she was claimed to be the owner of 350.5 gms. of gold jewellery. It was explained during the assessment proceedings that she received 194 gms. of gold ornaments as wedding gift from her parents and brothers who resided at Dubai and Taiwan. She further claimed that she received four gold bangles from her mother-in-law as pre-nuptial gift and four more bangles on the occasion of Diwali in 1987. Thus, the total possession of gold claimed to be belonging to her is 350.5 gms Since Smt. Indra had claimed jewellery of 350.5 gms. in her possession, which is much below the prescribed limit of 500 gms., we are of the considered opinion that no addition can be held to be sustainable on this count and the ld. CIT(A) was justified in deleting it. As regards the two daughters of the assessee, namely Smt. Krishna and Smt. Usha Khubani for which 101 gms. and 177.2 gms. have been claimed respectively to be belonging to them, we find that both of them had claimed to have left the jewellery with their mother for conversion. It is a common practice in our society that the daughters rely upon the experience and wisdom of their mother with regard to the conversion or purchase of jewellery. Both of them had asserted through affidavits the retention of gold jewellery with their mother to this extent. Not only this, the assessee in his statement recorded during the course of search also accepted this fact that some jewellery, IVPs and KVPs belonging to his daughters was lying with him. Apart from that, another important aspect, which cannot be lost sight of is that the gold jewellery was found in packets bearing the names of the ladies concerned. Copy of Panchnama placed at pages 65 onwards of the PB clearly admits the fact of different boxes containing jewellery belonging to these ladies separately. These facts indicate that the jewellery to the extent claimed did belong to the concerned ladies. In our considered opinion, the ld. CIT(A) was justified in deleting the addition which was erroneously made by the Assessing Officer. We, therefore, uphold his action. We are of the considered opinion that the Assessing Officer was, impliedly precluded from making regular assessment, till the pendency of the matter before the Hon'ble High Court. No sooner did the Hon'ble High Court dismiss the writ petition on 6-7-1999, an order u/s 132(5) was passed on 7-9-1999 and the assessment order u/s 143(3) was passed on 3-11-1999. Thus, the period during which the matter was subjudice before the Hon'ble High Court was required to be excluded for the purpose of calculating the limitation. The ld. A.R. has fairly conceded that if such period is not taken into consideration, then the order so passed cannot be held to be barred by limitation. Issuance of notice - It is no doubt true that notice u/s 143(2) was issued on 14-2-1992 and notice u/s 148 was issued by the Assessing Officer on 23-8-1999, but the crucial distinguishing feature in this case is that the assessment order was passed u/s 143(3). There is no reference whatsoever to the passing of order u/s 147. The position would have been different if the Assessing Officer had framed assessment pursuant to notice u/s 148 after bidding farewell to the earlier notice u/s 143(2). In that situation all the decisions relied upon by the ld. A.R. would have come into force to hold the resultant assessment order u/s 147 to be illegal. Since the situation under consideration is totally different wherein the Assessing Officer realized his folly of issuing notice u/s 148 when the proceedings u/s 143(2) were pending, he set the situation right by ignoring notice u/s 148 and completing the assessment u/s 143(3). The ld. CIT(A) has, though upheld the action of the Assessing Officer, but failed to consider the facts in the right perspective that the Assessing Officer had not passed the order pursuant to notice u/s 148. As the order itself was passed u/s 143(3), in our considered opinion, the challenge to the validity of issuance of notice u/s 148 and thereby contending the assessment order to be void, is alien to the scope of the appeal and hence bereft of any force. This ground is, therefore, not allowed.

Summary

Issues Involved:
1. Deletion of addition of Rs. 4,25,437 on account of unexplained investment in gold ornaments.
2. Jurisdiction for issuance of notice under section 148 and the passing of the consequential order.
3. Estimate of Dalali receipts at Rs. 1 lakh.
4. Addition of Rs. 27,000 representing IVPs and KVPs in the name of the assessee's daughter as unexplained investment.
5. Estimation of household expenses at Rs. 60,000, leading to the addition of Rs. 16,200.

Issue 1: Deletion of Addition of Rs. 4,25,437 on Account of Unexplained Investment in Gold Ornaments
The facts reveal that during a search under section 132(1), gold ornaments totaling 1296 gms were found. The assessee claimed these belonged to various family members. The Assessing Officer (AO) accepted only 94.2 gms as explained and added Rs. 4,25,437 under section 69 for the unexplained balance. The CIT(A) deleted this addition, which was upheld by the Tribunal. The Tribunal noted that the wife of the assessee had been assessed for 1100 gms in earlier years and had claimed possession from periods prior to the 1983 search. For the daughter-in-law, the Tribunal referenced CBDT Instruction No. F.288/63/93-IT(Inv.)-II, dated 11-5-1994, which allows married ladies to possess up to 500 gms without seizure, justifying the deletion of the addition for her 350.5 gms. For the daughters, the Tribunal accepted the affidavits and the common practice of leaving jewelry with their mother for conversion, thus justifying the deletion for their respective claims of 101 gms and 177.2 gms.

Issue 2: Jurisdiction for Issuance of Notice Under Section 148 and the Passing of Consequential Order
The assessee contended that the assessment proceedings should have been completed within two years per section 153. The High Court had stayed proceedings under section 132(5), which the assessee argued did not bar completion of regular assessment under section 143(3). The Tribunal found that the stay on section 132(5) implied a stay on regular assessment proceedings. The AO was correct in waiting until the High Court dismissed the writ petition before proceeding with the regular assessment. The Tribunal held that the AO was justified in issuing notice under section 148 after the stay was lifted and the assessment was not barred by limitation.

Issue 3: Estimate of Dalali Receipts at Rs. 1 Lakh
The AO estimated the dalali receipts at Rs. 1 lakh due to the lack of substantiating evidence for the declared Rs. 81,605. The CIT(A) upheld this estimate, allowing a set-off for household expenses, resulting in an addition of Rs. 2,196. The Tribunal found the estimate reasonable given the absence of verifiable evidence and upheld the CIT(A)'s decision.

Issue 4: Addition of Rs. 27,000 Representing IVPs and KVPs in the Name of Assessee's Daughter as Unexplained Investment
The AO added Rs. 27,000 under section 69 for IVPs and KVPs found in the name of the assessee's daughter, Smt. Usha Khubani. The Tribunal found that the daughter had withdrawn Rs. 15,000 from her capital account and used the maturity amount of an FDR for these investments. The Tribunal held that the assessee had discharged the onus of proving the source of these investments, thus deleting the addition.

Issue 5: Estimation of Household Expenses at Rs. 60,000 Leading to the Addition of Rs. 16,200
The AO estimated household expenses at Rs. 60,000 based on the statement of the assessee's wife, who indicated monthly expenses between Rs. 4,000 and Rs. 5,000. The Tribunal found this estimate reasonable and upheld the addition, noting that the CIT(A) had already allowed the benefit of telescoping this amount against the estimated dalali income.

Conclusion:
The Tribunal dismissed the revenue's appeal and partly allowed the assessee's cross-objection, providing detailed justifications for each issue based on the evidence and legal precedents.