2016 (4) TMI 632 - AT - Income Tax

Addition on account of unexplained investment in jewellery - Validity of a search - Held that - Validity of a search and seizure u/s 132 has to have a clear cut nexus with the warrant of authorization, which is the main foundation of entire proceedings on search and seizure. In the present appeal, the warrant of search was in the name of Shri Harish Ashumal Keshwani whereas the locker in which the jewellery was found (Locker No. 270) was in the name of Smt. Poonam H. Keshwani as the first holder and her husband Shri Harish Ashumal Keshwani was only the second holder. Further, the search warrant in the name of the assessee Shri Harish Ashumal Keshwani for the search of residential premises at 14, Triveni Park, Behind Akota Stadium, Baroda as per Panchnama dated 23rd October, 2002 cannot cover search for locker no. 270, UTI Bank, Gotri Road, Baroda and belonging to Smt. Poonam H. Keshwani and Shri Harish A. Keshwani in the joint names. Therefore, since there was no authorization for search for Locker No. 270 situated in altogether different premises and the locker being in the name of Smt. Ponam H. Keshwani as the first holder, the said jewellery cannot be considered in the block assessment of Shri Harish A. Keshwani, the assessee. We, accordingly, order deletion of ₹ 2,21,782/- on account of jewellery and silver utensils found in locker no. 270.- Decided in favour of assessee Addition on account of household goods - Held that - Without any material found during the course of search to show that the assessee had made unexplained investment or had incurred unexplained expenditure, it could not be held that the assessee has earned any undisclosed income which was spent for making such investment or expenditure. In the case of Pooja Bhatt v. Assistant Commissioner (1999 (5) TMI 603 - ITAT MUMBAI ), the Mumbai Bench of the Tribunal has held that block assessment is separate and distinct from regular assessment and in the block assessment, addition can be made only on the basis of material found during the course of search. As such, considering the facts of the case and keeping in view the legal position emanating from the aforesaid judicial pronouncements, we are of the view that the additions made by the assessing officer were outside the purview of the block assessment and the learned Commissioner (Appeals) was not justified in confirming the same. - Decided in favour of assessee

Summary

Issues Involved:
1. Addition on account of household goods found during the search operations.
2. Addition on account of unexplained jewellery.

Issue-wise Detailed Analysis:

1. Addition on Account of Household Goods Found During the Search Operations:

Background: The appeals by the assessees pertain to the block period from assessment year 1997-98 to 2003-04. The search operations led to the discovery of household goods, and the Assessing Officer (AO) made additions assuming these goods were acquired within the block period without considering the relevant assessment year.

Arguments by Assessees: The assessees argued that the household goods were acquired before the block period, specifically at the time of their marriages in 1990. They claimed these items were gifts from their affluent families and provided item-wise explanations for the sources of these goods. They contended that no material found during the search indicated that these goods were acquired during the block period.

Findings by CIT (A): The CIT (A) upheld the AO's additions, stating that the assessees did not provide direct evidence to substantiate their claims regarding the acquisition of the household goods.

Tribunal's Analysis: The Tribunal emphasized that Chapter XIV-B of the Income Tax Act, 1961, pertains to the assessment of undisclosed income based on material found during the search. The Tribunal noted that the AO's additions were not supported by any evidence or material found during the search. The Tribunal cited various judicial pronouncements, including Verma Roadways vs ACIT and David Dhawan v. Dy. CIT, to highlight that block assessments should be based on material found during the search and not on conjectures or estimates.

Conclusion: The Tribunal concluded that the additions made by the AO for household goods amounting to Rs. 1,50,000/- in the case of Haresh Bhai Ashumal Bhai Keshwani and Rs. 1,85,700/- in the case of Vijay Kumar Ashumal Bhai Keshwani were outside the purview of block assessment. The Tribunal directed the AO to delete these additions.

2. Addition on Account of Unexplained Jewellery:

Background: Jewellery amounting to Rs. 4,96,493/- and silver utensils worth Rs. 22,750/- were found in a locker held jointly by the appellant and his wife. The AO made an addition of Rs. 2,21,782/- on account of unexplained investment in jewellery.

Arguments by Assessees: The appellant argued that the locker primarily belonged to his wife, and the contents should not be included in his block assessment. He contended that if the revenue wanted to initiate proceedings, they should have done so against his wife under section 158bd.

Tribunal's Analysis: The Tribunal noted that the search warrant was in the name of the appellant, whereas the locker was primarily in his wife's name. The Tribunal referenced the Allahabad Bench's decision in Verma Roadways vs ACIT, emphasizing that the validity of a search must have a clear nexus with the warrant of authorization. Since the search warrant did not cover the locker held in the wife's name, the jewellery found in the locker could not be included in the appellant's block assessment.

Conclusion: The Tribunal ordered the deletion of Rs. 2,21,782/- on account of jewellery and silver utensils found in the locker, as the search was not authorized for the said locker.

Final Judgment:

The appeals of the assessees were allowed, and the additions made by the AO were directed to be deleted. The order was pronounced in the open court on 4.3.2016.