2012 (7) TMI 405 - AT - Income Tax

Additions on account of unexplained advances received - CIT(A)deleted the additions - Held that - Since the amount was found at the time of search on 18/4/2007 the amount was pertaining to the assessment year 2008-09 and it cannot be added in assessment year 2007-08 - the status and background of the assessee and his family sufficiently proved that assessee s father in law could have saved Rs. 75,000/- and in the affidavit, he has confirmed that he has handed over the cash to the assessee and was still lying with her unutilized - in favour of assessee. Addition on account of investment in painting - CIT(A)deleted the additions - Held that - The valuation has done by the AO, who is not an expert in this regard and the contention of the assessee is cogent enough that AO should engage expert in this regard to make the valuation of these paintings - the declaration of gifts were not originally produced before the AO as it was not raised by the AO and the same were produced as additional evidence at the time of appellate proceedings, thus proving the authenticity of the gift declaration and no reason or evidence to disbelief the content thereof - that the paintings were received as gifts during the course of search, no documents have been found to indicate that the painting were received otherwise - no dispute regarding the value of the painting which has already been disclosed by the assessee in her return of income filed in response to notice u/s. 153A - in favour of assessee. Addition on account of commission on sale of painting - CIT(A)deleted the additions - Held that - As assessee has not denied the fact that the sale of paintings to the tune of Rs. 42,12,595/- was effected through her, hand written page on the letter head of Artist seized at the time of search clearly shows that the assessee was getting commission @ 4% of the value of each art work transacted. Under the circumstances CIT(A) has erred in deleting the addition in this regard merely on the basis of the confirmation from Shakshi Art Gallery, that no commission was paid by them - in favour of Revenue.

Summary

Issues Involved:
1. Addition of Rs. 75,000/- on account of unexplained advances received.
2. Addition of Rs. 3,00,88,566/- on account of investment in paintings.
3. Addition of Rs. 1,68,504/- on account of commission on the sale of paintings.

Issue-Wise Detailed Analysis:

1. Addition of Rs. 75,000/- on account of unexplained advances received:

During a search, Rs. 2,92,000/- was found at the assessee's residence. The assessee declared Rs. 1,88,000/- in her return for AY 2007-08, explaining that Rs. 14,000/- was her savings, Rs. 15,000/- belonged to her husband, and Rs. 75,000/- belonged to her father-in-law for medical expenses. The AO added Rs. 75,000/- as income, doubting the source. The Ld. CIT(A) accepted the assessee's explanation, noting the search occurred in AY 2008-09, and the addition should be made in that year. Considering the family's financial status, the Ld. CIT(A) found the explanation plausible and deleted the addition. The Tribunal upheld the Ld. CIT(A)'s decision, agreeing that the addition should be made in AY 2008-09 and acknowledging the family's ability to save Rs. 75,000/-.

2. Addition of Rs. 3,00,88,566/- on account of investment in paintings:

The AO valued paintings found during the search at Rs. 3,02,88,556/- based on market values and added Rs. 3,00,88,566/- after crediting Rs. 2,00,000/- shown in the assessee's balance sheet. The assessee claimed the paintings were gifts, providing gift declarations during the appellate proceedings. The Ld. CIT(A) accepted these declarations, noting the AO did not comment on their authenticity and deleted the addition. The Tribunal agreed, emphasizing the AO's lack of expertise in art valuation and the absence of incriminating evidence during the search. They upheld the Ld. CIT(A)'s decision, confirming the paintings were received as gifts and not undisclosed purchases.

3. Addition of Rs. 1,68,504/- on account of commission on the sale of paintings:

The AO added Rs. 1,68,504/- as commission income based on a handwritten note indicating a 4% commission on art sales. The Ld. CIT(A) deleted the addition, citing a confirmation from Sakshi Gallery that no commission was paid. The Tribunal, however, found the AO's addition justified, noting the handwritten note and the assessee's involvement in art sales. They set aside the Ld. CIT(A)'s order and confirmed the AO's addition.

Conclusion:

The Tribunal upheld the Ld. CIT(A)'s decisions on the addition of Rs. 75,000/- and Rs. 3,00,88,566/-, agreeing with the explanations provided and the lack of evidence to the contrary. However, they reversed the Ld. CIT(A)'s decision on the Rs. 1,68,504/- commission, finding the AO's addition based on substantial evidence. The appeal by the Revenue was partly allowed.