2011 (7) TMI 142 - HC - Income Tax

Search and seizure - Undisclosed income - Assessing Officer accepted 400 grams of jewellery as explained and treated jewellery amounting to 506.900 grams as unexplained and made an adhoc addition of 3, 87, 364 under Section 69A of the Act working on unexplained jewellery by applying average rate of the total jewellery found - Held that assessee was married for more than 25-30 years. The jewellery in question is not very substantial. The learned counsel for the appellant/assessee is correct in her submission that it is a normal custom for woman to receive jewellery in the form of stree dhan or on other occasions such as birth of a child etc - Decided in favour of the assessee

Summary

Issues:
1. Whether the order of the Ld. ITAT is perverse in holding that the entire jewellery found during the search belonged to the appellant and not his wife and was undisclosed income of AY 2006-07 without any evidence?
2. Whether the Ld. ITAT erred in wrongly upholding the addition of the entire 506.9 grams of jewellery pertained to AY 1996-97 without appreciating that the said jewellery was acquired at the time of marriage over a period of time?

Analysis:
1. The case involved a search and seizure operation under Section 132 (1) of the Income-Tax Act, 1961, in the case of Dilbagh Rai Group. The appellant's residential premises and locker were searched, leading to the discovery of cash, jewellery, and documents. The appellant filed his income tax return for AY 2006-07, and the Assessing Officer made additions under Section 69 of the Act. The CIT (A) deleted most additions but upheld the addition of Rs. 3,87,364 on account of jewellery found during the search. The appellant challenged this addition, arguing that the jewellery belonged to his wife, acquired over their marriage, and was not undisclosed income. The Assessing Officer accepted 400 grams of jewellery as explained but treated 506.900 grams as unexplained, making an adhoc addition under Section 69A. The CIT (A) and ITAT upheld this addition, but the High Court found it arbitrary and lacking evidence, ruling in favor of the assessee.

2. The appellant contended that the Assessing Officer's acceptance of only 400 grams of jewellery as explained was unjustified, as the remaining jewellery was part of customary acquisitions over a long marriage. The appellant's counsel argued that no evidence indicated the jewellery belonged to the appellant or was undisclosed income. The High Court agreed, stating that the addition was arbitrary and lacked a proper basis or evidence. The Court noted that collecting 906.900 grams of jewellery over 25-30 years of marriage was not abnormal, especially considering customary practices of receiving jewellery. The Court found the ITAT's findings to be perverse and ruled in favor of the assessee, deleting the addition of Rs. 3,87,364.

3. In conclusion, the High Court held that the addition made by the ITAT was arbitrary and not based on cogent evidence. The Court emphasized the normalcy of acquiring jewellery over a long marriage and criticized the lack of a valid yardstick in treating a portion of the jewellery as unexplained. The Court found the ITAT's findings to be divorced from reality and ruled in favor of the assessee, deleting the addition of Rs. 3,87,364. The appeal was allowed in favor of the assessee.