2018 (11) TMI 1252 - AT - Income Tax

Addition on account of jewellery seized - search operations u/s 132 - Held that - Unexplained investment is a small amount vis-a-vis high income declared by the assessee. No other incriminating material was found during the search operation which could evidence that the assessee has any undisclosed sources of income which were hidden from Revenue. No other incriminating material is brought on record by Revenue to contend that these seized jewelleries were purchased out of any undisclosed income except that the assessee could not bring on evidence to justify/substantiate its acquisition. Thus, on the touchstone of preponderance of probabilities keeping in view the cumulative impact of peculiar factual matrix surrounding this case as discussed above and also keeping in view smallness of the amount vis-a-vis income declared by the assessee over a period of time, we hold that the additions as made by the AO and confirmed by CIT(A) towards unexplained investment in jewellery to the tune of ₹ 8,70,740/- is not sustainable in the eyes of law and we order deletion of this addition as was made by the AO and confirmed by learned CIT(A). We adjudicate this ground in favour of the assessee.

Summary

Issues Involved:
1. Addition of ?8,70,740 on account of jewelry seized.
2. Violation of the principles of natural justice.
3. Addition of ?2,67,401 as annual value under the head 'Income from House Property.'
4. Determination of the annual value of the property.
5. Excessiveness of the 8% rate adopted for annual value calculation.
6. Disallowance of ?58,011 out of vehicle/telephone expenses.
7. Excessiveness of the 10% rate adopted for personal use disallowance.
8. General grounds for appeal.

Detailed Analysis:

Ground II: Violation of the Principles of Natural Justice
The assessee's counsel did not press this ground, leading to its dismissal.

Ground III: Addition of ?2,67,401 as Annual Value under the Head 'Income from House Property'
The assessee's counsel conceded this ground, leading to its decision against the assessee.

Grounds IV and V: Determination and Excessiveness of the Annual Value of the Property
The assessee's counsel did not press these grounds, leading to their dismissal.

Grounds VI and VII: Disallowance and Excessiveness of the 10% Rate for Vehicle/Telephone Expenses
The assessee's counsel conceded these grounds based on previous appellate orders, leading to their decision against the assessee.

Ground VIII: General Grounds
This ground was dismissed as it was general in nature and did not require separate adjudication.

Ground I: Addition of ?8,70,740 on Account of Jewelry Seized
The AO seized jewelry worth ?9,10,340 during a search operation, treating it as unexplained investment under Section 69A of the Income-tax Act, 1961. The assessee claimed the jewelry was remade from old items and pointed out discrepancies in the valuation report. The CIT(A) provided partial relief by excluding ?39,600 for artificial jewelry but upheld the addition of ?8,70,740 due to lack of evidence supporting the assessee's claims.

The tribunal considered the assessee's consistent declaration of high income, her profession as a fashion designer, and the cultural context of jewelry recycling in India. Given the high income declared over several years and the relatively small amount of unexplained jewelry, the tribunal found the addition unsustainable on the touchstone of preponderance of probabilities. Therefore, the tribunal ordered the deletion of the ?8,70,740 addition.

Conclusion:
The appeal was partly allowed, with the tribunal deleting the addition of ?8,70,740 on account of jewelry seized while dismissing or deciding against the assessee on other grounds.