2014 (5) TMI 468 - AT - Income Tax

Attempt to reduce the total income Addition of unexplained jewellery Held that - The Revenue has not controverted the fact that the business premises and the personal residential premises, both, were situated in a single building - why the gold jewellery was taxed in the hands of the assessee-firm and why not in the hands of the respective partners - The partners have declared the value of ornaments as per the respective balance sheet and that fact could have been verified from their assessment records - The assessee has informed the PAN numbers of those partners. Relying upon CIT Vs. Prafulbhai @ Rohitbhai J. Shah 2013 (7) TMI 116 - GUJARAT HIGH COURT - in a situation when the jewellery belonged to different family members and it was a customary of owning the jewellery as permitted by the CBDT circular, the addition was deleted - the provisions of CBDT circular are required to be applied especially when the partners are subject to tax independently - In a situation when the unaccounted stock had been taxed by treating as taxed u/s 69B of IT Act, on one hand, and on the other hand the sale value of the stock was also taxed the correct position ought to be that the difference between the two is required to be taxed in the hands of the assessee - Decided partly in favour of Assessee.

Summary

Issues:
1. Addition of unexplained jewellery
2. Taxation of undisclosed stock

Analysis:

Issue 1: Addition of Unexplained Jewellery
The appeal concerned the addition of Rs.3,38,463 as unexplained jewellery by the Assessing Officer (AO). The Assessee contended that the jewellery found during a survey belonged to family members and was reflected in their balance sheets. The AO, however, taxed the amount invoking Section 69A of the IT Act. The CIT(A) upheld the addition, stating that the jewellery did not match with any individual's belongings. The ITAT, after considering various case laws and submissions, found that the jewellery belonged to different family members and that the addition should be deleted. Citing a decision by the Jurisdictional High Court, the ITAT directed the deletion of the addition, as the weight of the jewellery did not exceed the limit allowed by the CBDT circular.

Issue 2: Taxation of Undisclosed Stock
The AO initially made an addition of Rs.3,38,463 in respect of the sale value of undisclosed stock. Subsequently, a revised order was passed under Section 263, where the total income was computed including the value of unexplained jewellery. The CIT(A) confirmed the AO's action, stating that the unaccounted stock sale was not reflected in the regular books of accounts. The ITAT, after examining the computations, directed that the difference between the taxed unaccounted stock and the sale value should be taxed in the hands of the assessee. Consequently, the ITAT partly allowed the appeal, directing the taxation of Rs.46,707 instead of Rs.3,38,463.

In conclusion, the ITAT partially allowed the appeal, deleting the addition of unexplained jewellery and adjusting the taxation of undisclosed stock. The judgment provides a detailed analysis of the issues raised by the Assessee, considering legal precedents and submissions presented during the proceedings.