2017 (8) TMI 165 - AT - Income Tax

Addition of gift - unexplained source - ingenuity of transaction - Held that - The assessee has filed complete details in respect of the gift of 1, 00, 000/- which was received by the assessee from the donor Shri. Sanjay Jethava by account payee cheque. It is also a fact that the assessee as well as the donor Shri. Sanjay Jethava both are assessed to tax and this gift is reflected in the respective capital account and balance sheet which are enclosed with the return of income filed in with the department. Once this is the position the issue is clearly covered in favour of assessee and against the Revenue by the decision of Hon ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (2015 (5) TMI 656 - BOMBAY HIGH COURT ). Unexplained investment/expenditure in renovation /purchasing of Flat - Held that - Almost profit to the extent of 14, 00, 000/- is earned in A.Y. 2004-05 because the year mentioned is 2004 while distributing the profit as per the capital account seized. Anyhow the assessee has earned the total profit of 30, 25, 282/- in a benami firm M/s Nimbeshwar Creation and admittedly the assessee s share to the extent of 67% and the profit accordingly workout is 20, 26, 938/-. The assessee admitted and offered a sum of 15, 26, 938/- in the relevant A.Y. 2004-05 and remaining sum of 5, 00, 000/- in A.Y.2005-06. As the facts gathered from seized material we are of the view that a reasonable view is to be adopted and reasonable view seems that the profit of 15, 26, 939/- declared by assessee is to be assessed in 2004-05 and this is to be telescoped against the investment in renovation/ acquisition of house property of 15, 00, 000/- i.e. House No. 601 6th Floor A-Wing Suparshava Apts. opp. Orbit Towers Raamchandra Sudkoji Sawant Chowk Elphistone Road Mumbai. Accordingly we direct the AO to re-compute the income and assessee the income as declared by the assessee being profit earned from M/s Nimbeshwar Creation amounting to 15, 26, 939/- and give telescoping effect to the same against the investment in purchase / renovation of House. This issue of assessee s appeal is allowed. Undisclosed jewelry found from the assessee - Stridhan of the wife - Held that - There is a small amount of jewelry of 1, 79, 560/-. Value of total jewelry found is 1, 79, 560/- which is much less than 500 gram of the jewelry according to the value as on the date of search. The assessee claimed that this is Stridhan and we have no reason to disbelieve the same for the reason that the quantum of jewelry is very less. Accordingly we delete the addition in entirety and allowed this issue of assessee s appeal.

Issues Involved:
1. Treatment of gift received as unexplained income under Section 69A.
2. Exclusion of income from a firm and addition as unexplained investment/expenditure.
3. Assessment of unaccounted profit in the wrong assessment year.
4. Addition of unexplained investment in stock under Section 69.
5. Addition of undisclosed jewelry as unexplained investment under Section 69A.
6. Application of gross profit rate instead of net profit rate on unaccounted sales.

Detailed Analysis:

1. Treatment of Gift Received as Unexplained Income Under Section 69A:
The first issue pertains to the treatment of a ?1,00,000 gift received by the assessee, which the AO treated as unexplained investment under Section 69A. The assessee argued that this gift was disclosed in the return of income for A.Y. 2004-05 and was reflected in the balance sheet. The assessee provided complete documentation, including the donor's declaration and bank details. The Tribunal found that the issue was covered in favor of the assessee by the Bombay High Court's decision in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd., which clarified that completed assessments cannot be disturbed unless new material is found during a search. The Tribunal concluded that the gift was genuine and deleted the addition.

2. Exclusion of Income from a Firm and Addition as Unexplained Investment/Expenditure:
The second issue involved the exclusion of ?15,26,938 income from the assessee’s firm, M/s Nimbeshwar Creation, and the addition of ?15,00,000 as unexplained investment in a property. The AO and CIT(A) did not accept the assessee's explanation that the investment was made from the firm's profits. The Tribunal examined the seized documents and found that the profits were indeed earned and declared by the assessee. It directed the AO to assess the declared profit in A.Y. 2004-05 and give telescoping effect to the investment in the property, thereby allowing the assessee's appeal.

3. Assessment of Unaccounted Profit in the Wrong Assessment Year:
The third issue was regarding the assessment of ?15,26,938 unaccounted profit of Nimbeshwar Creation in A.Y. 2005-06 instead of A.Y. 2004-05. The Tribunal, having already directed the AO to assess this income in A.Y. 2004-05, deleted the addition for A.Y. 2005-06, thereby allowing the assessee's appeal.

4. Addition of Unexplained Investment in Stock Under Section 69:
The fourth issue concerned the addition of ?54,080 as unexplained investment in stock. The assessee argued that the direct and indirect expenses were available in the seized records but were not considered. The Tribunal remanded the matter back to the AO for verification of these expenses, directing that if such expenses are found, they should be allowed.

5. Addition of Undisclosed Jewelry as Unexplained Investment Under Section 69A:
The fifth issue involved the addition of ?50,000 as unexplained investment in jewelry. The assessee claimed that the jewelry was Stridhan and within the permissible limit as per CBDT circulars. The Tribunal noted that the total jewelry value was ?1,79,560, less than the 500 grams limit, and accepted the assessee's claim, deleting the addition.

6. Application of Gross Profit Rate Instead of Net Profit Rate on Unaccounted Sales:
The sixth issue was about the application of the gross profit rate instead of the net profit rate on unaccounted sales, resulting in an addition of ?3,64,620. The Tribunal, consistent with its decision for A.Y. 2006-07, remanded the matter back to the AO to verify the direct and indirect expenses recorded in the seized documents and allow them if found valid.

Conclusion:
The Tribunal allowed the assessee's appeals for A.Y. 2004-05 and A.Y. 2005-06, and partly allowed the appeals for A.Y. 2006-07 and A.Y. 2007-08 for statistical purposes, directing the AO to reassess based on the Tribunal's findings and directions.

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