2016 (4) TMI 249 - AT - Income Tax

Estimation of watches - estimation of on average cost - search and seizure operation - Held that - In the impugned order the withdrawals of the assessee is sufficient in the previous assessment years and assessee has also purchased some of the watches over a period of time from his personal drawings and also some watches were received by him on various occasions from his friends and relatives as gift. After going through the impugned order, we are of the considered view that the estimation made by the AO on the cost of 50 wrist watches found during the search and seizure operation is on the assumption and presumption basis and without supporting any evidence and hence, is not sustainable in the eyes of law. Secondly, the estimation made by the AO on average cost is also baseless and without any evidence and is not judicious. Subsequent to such estimation the AO has proceeded to estimate the 50 watches based on average cost of 25 watches which is essentially estimated over earlier estimation. Thus there is no basis of estimation of 50 watches of ₹ 1,00,64,000/- in spite of the fact that he himself accepted the withdrawal made by the assessee during the block period of around ₹ 3.5 Crores which is over and above the contribution made towards the LIC Premium etc. Keeping in view of the facts and circumstances explained above, we are of the considered view that Ld. CIT(A) has rightly deleted the addition in dispute by passing a well reasoned order, which does need any interference on our part, hence, we uphold the same by dismissing the Appeal filed by the Revenue. - Decided against revenue

Summary

Issues:
1. Addition of unexplained investment in wrist watches under section 69A of the Income Tax Act, 1961.
2. Addition of unexplained cash found during search action.

Analysis:
1. The first issue pertains to the addition of unexplained investment in wrist watches. The assessee had purchased precious and branded wrist watches over a period of time, some received as gifts. The Assessing Officer (AO) estimated the total cost of 50 watches without providing any evidence or basis for the valuation. The AO questioned the source of investment, and the assessee explained that most watches were purchased from personal drawings and some received as gifts. The AO, however, did not accept this explanation fully, allowing a partial relief of Rs. 20 lakhs and adding Rs. 80.64 lakhs to the total income. The Commissioner of Income Tax (Appeals) deleted this addition, noting that the AO's estimation lacked basis and supporting material, and the assessee was not provided with the Inquiry Report. The ITAT upheld the CIT(A)'s decision, emphasizing the lack of evidence for the AO's estimation and the sufficiency of the assessee's explanation regarding the source of investment.

2. The second issue concerns unexplained cash found during the search action. An amount of Rs. 6.26 lakhs was found, out of which Rs. 5 lakhs was seized. The assessee explained withdrawals prior to the search date, but the AO added Rs. 3.16 lakhs as unexplained investment. The CIT(A) deleted this addition as well, considering the explanations provided and the lack of evidence supporting the AO's decision. The ITAT concurred with the CIT(A), highlighting the need for a valid basis for additions and the importance of providing the assessee with relevant reports and opportunities to respond. The ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s reasoned decision in both instances.

In conclusion, the ITAT upheld the CIT(A)'s decision to delete the additions related to unexplained investment in wrist watches and unexplained cash, emphasizing the lack of basis and evidence for the AO's estimations and the importance of providing the assessee with fair opportunities to respond.