2018 (5) TMI 710 - AT - Income Tax

Unexplained jewellery found in search - jewellery received from inheritance or family tradition - Held that - Since in the instant case the brothers and sisters of the husband of the assessee have confirmed that the mother in law of the assessee had given her jewellery weighing 500 gms before her death since she was staying with her and since the Assessing Officer had also accepted the same, therefore, we find merit in the argument of the ld. counsel for the assessee that order of CIT(A) enhancing the income is not proper. We, therefore, set-aside the order of CIT(A) and allow the jewellery to the extent of 500 gms as explained. The Assessing Officer is directed to delete addition to this extent. Coming to the addition sustained by the AO we find the AO had allowed credit to the tune of 400 gms to the assessee. It is an admitted fact that no wealth-tax return was filed by the assessee to substantiate the acquisition/availability of jewellery. In absence of the same and going by CBDT Instruction No.1916 dated 11.05.1994 we allow 500 gms of jewellery in the hands of the assessee as explained as against 400 gms allowed by the Assessing Officer. Thus, in effect 284 gms of gold remains unexplained the value of which comes to ₹ 2,69,800/- i.e. (950 per gram x 284 gms). AO is directed to restrict the addition to ₹ 2,69,800/-. - Decided partly in favour of assessee.

Issues Involved:
1. Legitimacy of the jewellery found during the search operation.
2. Enhancement of income by CIT(A).
3. Addition of unexplained investment in jewellery.
4. Confirmation of assessment order without following principles of natural justice.
5. Charging of interest under sections 234A and 234B of the Income Tax Act.
6. Initiation of penalty proceedings.

Issue-wise Detailed Analysis:

1. Legitimacy of the Jewellery Found During the Search Operation:
The search and seizure operation conducted at the residence of the assessee on 07.09.2006 resulted in the discovery of cash and jewellery. The jewellery found was valued at ?6,35,847/- at the residence and ?9,68,957/- in a bank locker. The assessee claimed that the jewellery was acquired on various occasions like marriage and cultural ceremonies. The Assessing Officer accepted 1200 gms of jewellery as explained based on social status, culture, and religion prevalent in Hindu society, and treated the remaining 384 gms valued at ?3,64,800/- as unexplained.

2. Enhancement of Income by CIT(A):
The CIT(A) issued an enhancement notice and rejected the claim of jewellery belonging to the mother-in-law of the assessee. The CIT(A) relied on the judgment of the Hon'ble Gujarat High Court and CBDT Instruction No. 1916 dated 10.05.1994, which allows specific quantities of jewellery as explained per family member. The CIT(A) treated 500 gms attributed to the mother-in-law as unexplained investment and enhanced the income by ?3,80,000/-.

3. Addition of Unexplained Investment in Jewellery:
The CIT(A) sustained the addition of ?3,64,800/- made by the Assessing Officer and further enhanced the income by ?3,80,000/-. The tribunal found merit in the assessee's argument that the jewellery given by the mother-in-law should be considered explained, supported by statements and confirmations from family members. The tribunal allowed 500 gms of jewellery as explained, directing the Assessing Officer to delete the addition to this extent. The tribunal also allowed 500 gms of jewellery in the hands of the assessee as explained, reducing the unexplained jewellery to 284 gms valued at ?2,69,800/-.

4. Confirmation of Assessment Order Without Following Principles of Natural Justice:
The assessee contended that the assessment order was confirmed without following the principles of natural justice. The tribunal considered the arguments and found that the CIT(A) did not appropriately consider the explanations and confirmations provided by the assessee.

5. Charging of Interest Under Sections 234A and 234B of the Income Tax Act:
The assessee challenged the charging of interest under sections 234A and 234B. The tribunal's decision on this matter is not explicitly detailed in the provided text.

6. Initiation of Penalty Proceedings:
The assessee also contested the initiation of penalty proceedings. The tribunal's decision on this matter is not explicitly detailed in the provided text.

Conclusion:
The tribunal partly allowed the appeal, directing the Assessing Officer to delete the addition for 500 gms of jewellery attributed to the mother-in-law and restrict the addition to ?2,69,800/- for the remaining unexplained jewellery. The tribunal's decision was pronounced on 08th May 2018.

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