2017 (4) TMI 414 - HC - Income Tax

Undisclosed income in the form of cash & jewellery found & seized from various bank lockers - Held that - Lack of the capacity to possess cash could not be a reason to discard the ownership, in the facts of the case, is wholly erroneous as in the instant case there was a complete lack of any plausible explanation as to the source of acquisition of money either by the assessee s wife or by his two sons from any source and in any case, the first, and at times the only presumption that may arise upon lack of financial capacity of a person being proven be that such a person was not at all possessed of the money being claimed by him. A very heavy burden would then be on such persons to explain the source of money being claimed by them. It was never discharged in the instant case. The said three persons only sought to explain the source through their own earning and from no other source which issue stood determined against them upon finding of lack of financial capacity recorded by the all members of the Tribunal. From perusal of their returns as also from their status namely Smt. Vijay Dhir being a partner in a partnership firm with declared income of ₹ 2 lacs per annum and the assessee s two sons being student at the relevant time, it is clear that they had no means to come in possession of such large amount of cash or jewellery. Clearly they had claimed the money and jewellery only to cover the unexplained income of the assessee. The judicial member had rightly rejected the explanation of the claim and accountant member and third member accepted the claim on no evidence. Their findings to that effect are clearly perverse. - Decided against assessee. cash found from the lockers - Held that - It is an admitted case between the parties that no cash book was found during the course of search and it was not produced in the course of investigation following the search, though again it is a common case between the parties that the search and survey conducted in the case of assessee was quite extensive. The cash book was produced for the first time in the block assessment proceedings itself and it was not the case of the assesse that the cash book had been produced during the search and survey proceedings. This act appears, to us, to be clearly a case of poor afterthought after considerable lapse of time of almost one year or more. - Decided against assessee Dis-allowance of agricultural income of the assessee - Held that - The finding of the third member of the Tribunal and the accountant member do not suffer from any infirmity inasmuch as, the ownership of agricultural land about seven acres is undisputed. Besides the observation that there was no evidence of the assessee having carried out any agricultural activities, there is nothing on record to disbelieve the claim made by the assessee. We do not find any infirmity in such finding keeping in mind the total amount of agricultural income (accumulated) claimed by the assessee, being about seven lacs, such income in any case being a matter of estimation. Accordingly, question no.4 is answered in favour of the assessee

Summary

Issues Involved:
1. Ownership and taxation of undisclosed income in the form of cash and jewelry found in bank lockers.
2. Validity of proceedings under Section 158BC and cooperation of alleged owners.
3. Justification of deletion of addition on account of cash found from lockers.
4. Justification of deletion of addition on account of alleged agricultural income of HUF.

Issue 1: Ownership and Taxation of Undisclosed Income in the Form of Cash and Jewelry Found in Bank Lockers
The court addressed whether the ITAT erred in law by attributing undisclosed income found in various bank lockers to the wife and sons of the assessee, despite their lack of known sources of income. The Assessing Officer (AO) found that the wife and sons of the assessee had no financial capacity to possess such large amounts of cash and jewelry. The AO added the amounts to the assessee's income on a substantive basis and on a protective basis for the wife and sons. The CIT (Appeals) upheld the AO's decision, but the ITAT's accountant member and third member disagreed, attributing the amounts to the wife and sons. The High Court found the ITAT's decision perverse, emphasizing the lack of plausible explanation and financial capacity of the wife and sons. The court ruled in favor of the department, affirming the addition of ?65,15,371 in the hands of the assessee.

Issue 2: Validity of Proceedings Under Section 158BC and Cooperation of Alleged Owners
The AO initiated proceedings under Section 158BC to determine the capacity of the alleged owners to accumulate undisclosed income. The alleged owners did not cooperate, despite specific directions from the High Court to continue assessment proceedings without passing the final order. The High Court found that the lack of cooperation and financial capacity of the alleged owners justified the AO's decision to attribute the undisclosed income to the assessee. The court ruled in favor of the department on this issue as well.

Issue 3: Justification of Deletion of Addition on Account of Cash Found from Lockers
The AO found no regular books of account during the search and survey proceedings. The assessee later produced a computer-printed cash book during block assessment proceedings, which the AO and CIT (Appeals) found to be an afterthought and not supported by vouchers. The ITAT's accountant member and third member accepted the cash book, but the High Court found their decision perverse. The court noted that the cash book was produced belatedly, and the entries were self-serving statements. The court ruled in favor of the department, affirming the addition of ?8,44,294.

Issue 4: Justification of Deletion of Addition on Account of Alleged Agricultural Income of HUF
The assessee claimed accumulated agricultural income from about seven acres of agricultural land. The AO and CIT (Appeals) rejected the claim due to lack of evidence of agricultural activities. The ITAT's accountant member and third member accepted the claim, noting the ownership of the land and the estimation of agricultural income. The High Court found no infirmity in the ITAT's decision, ruling in favor of the assessee on this issue.

Conclusion:
The High Court ruled in favor of the department on issues 1, 2, and 3, affirming the additions made by the AO and CIT (Appeals). On issue 4, the court ruled in favor of the assessee, affirming the ITAT's decision on the agricultural income claim. The appeal was partly allowed.