2023 (2) TMI 507 - AT - Income Tax

Unexplained investment in the jewellery - as jewellery weighted 1,796 grams found during the course of search and seizure from the resident of the assessee - assessee explained the source of acquisition of gold jewellery as it belongs to the assessee, her two daughters and some of the jewellery belongs to her mother Smt. Indra Devi - HELD THAT - We consider the explanation supported by undisputed evidences such as the gold bar weighting 623 grams which were received by the husband of the assessee under tax free Gold Bond Scheme, 1998 for which the assessee has produced a certificate issued by the Reserve Bank of India giving the details of gold bond for 623 grams of 0.995 purity. Therefore, once the assessee explained the acquisition of the gold bar weighting 623 grams belonging to the husband of the assessee received in respect of the Gold Bond Scheme, 1998 then the addition sustained by the CIT(A) in respect of 499.85 grams will not survive. Even otherwise the AO and CIT(A) has allowed the credit of only 500 grams jewellery on account of stridhan of the assessee whereas as per the CBDT Circular No. 1916 dated 11th May, 1994, the gold jewellery and ornaments to the extent of 500 grams per married lady, 250 grams per unmarried lady and 100 grams per male member of the family need not to be seized. While considering this Circular of CBDT the Hon ble Rajasthan High Court in the case of CIT vs. Satya Narain Patni 2014 (5) TMI 1002 - RAJASTHAN HIGH COURT If the full benefit of this Circular is given in the case of the assessee then the gold jewellery of 1100 grams falls in the ambit of the jewellery and ornaments not to be seized and consequentially not required any explanation of source of acquisition. If the undisputed quantity of the jewellery / gold bars of 623 grams as well as the benefit of the CBDT Circular dated 11th May, 1994 in respect of 250 grams Gold jewellery of each daughter and 100 grams for the husband of the assessee is given then no addition on account of unexplained investment in the jewellery is called for. Hence, the addition sustained by the CIT(A) on account of 499.85 grams jewellery is liable to be deleted. Addition made on account of cash found during the search - AO did not accept the explanation of the assessee and after allowing the cash balance as on 25th August, 2009 of Rs. 5475.50/-, as per the books of accounts, made the addition of the balance amount of Rs. 100,625.50/- as income from undisclosed sources - HELD THAT - Though the assessee has explained the source of cash to the extent of the sales of Rs. 28,006/- dated 26.8.2009 and collection from the debtors of Rs. 20,000/-. However, the CIT(A) has rejected the said explanation on the ground that the assessee has not furnished the name of the debtor from whom the collection is made and also did not furnish the copy of the debtors account as well as the books of accounts of M/s Gupta Traders to substantiate this explanation. Accordingly, in the facts and circumstances of the case, we do not find any error or illegality in the impugned order of the CIT(A) except the mistake regarding the quantum of addition sustained by it as already discussed in the foregoing part of this order. Ground no. 5 is dismissed. Excess stock of Kimam - excess stock of 260 kg of kimam found at the time of survey at the factory premises which was out of stock register - AO issued notice under section 142(1) seeking explanation from the assessee about the stock position as found on the date of search in comparison to the stock recorded in the stock register and the books of accounts - HELD THAT - Though, the assessee explained before the AO that the said stock was not finished stock but it was unfinished under process stock and would be recorded in the stock register only when converted into finished product of kimam. Therefore, the assessee submitted that there is no discrepancy in the stock found during the survey as well as recorded in the stock register. The controversy is only regarding whether the 260 kg of kimam was found during the survey was a finished product or unfinished product. The assessee has not produced any material to show that the said stock was not finished product whereas the AO has considered the stock inventory prepared at the time of survey / search which was compared with the stock register maintained by the assessee. Therefore, in the absence of anything contrary to the details recorded in the stock inventory prepared at the time of survey / search, we do not find any reason to interfere with the orders of the authorities below. - Decided against assessee.

Summary

Issues Involved:
1. Validity of the assessment order.
2. Addition on account of unexplained investment in jewellery.
3. Addition on account of unexplained cash found during the search.
4. Addition on account of excess stock of Kimam.

Detailed Analysis:

1. Validity of the Assessment Order:
The appellant challenged the assessment order dated 20.12.2011 passed under section 143(3) of the Income Tax Act, arguing that the mandatory requirements for framing a legal and valid assessment were not complied with. However, during the hearing, the appellant did not press these grounds, and they were dismissed as not pressed.

2. Addition on Account of Unexplained Investment in Jewellery:
The appellant, an individual deriving income from salary and interest from a partnership firm, was subjected to a search and seizure action on 27.08.2009, during which gold jewellery weighing 1,796 grams was found. The appellant explained the source of the jewellery, attributing it to her own stridhan, her two daughters, and her mother. The Assessing Officer (AO) allowed 500 grams as stridhan and treated the remaining 682 grams as acquired from undisclosed income, making an addition of Rs. 9,49,003 under section 69B. The Commissioner of Income Tax (Appeals) [CIT(A)] granted partial relief, sustaining the addition for 499.85 grams.

Before the Tribunal, the appellant's Authorized Representative (AR) argued that the jewellery was explained during the search itself, supported by documentary evidence, including an affidavit from the appellant's mother and a certificate from the Reserve Bank of India regarding the Gold Bond Scheme 1998. The Tribunal considered the CBDT Circular No. 1916 dated 11th May 1994, which provides that jewellery to the extent of 500 grams per married lady, 250 grams per unmarried lady, and 100 grams per male member need not be seized. The Tribunal concluded that the addition sustained by the CIT(A) was not justified and ordered its deletion.

3. Addition on Account of Unexplained Cash Found During the Search:
During the search, cash amounting to Rs. 1,07,651 was found. The appellant explained that Rs. 24,000 belonged to her husband, Rs. 53,451 to her firm M/s Gupta Traders, and Rs. 30,200 to her children. The AO allowed credit for Rs. 5,475.50 as per the books of M/s Gupta Traders and treated the balance as income from undisclosed sources. The CIT(A) confirmed the addition.

Before the Tribunal, the appellant reiterated the explanation, providing details of sales and collections from debtors. However, the Tribunal found that the appellant failed to furnish sufficient evidence to substantiate the explanation and upheld the addition, noting a mistake in the quantum sustained by the CIT(A).

4. Addition on Account of Excess Stock of Kimam:
The AO made an addition of Rs. 56,310 on account of excess stock of Kimam found during the search, which was not recorded in the stock register. The appellant explained that the discrepancy was due to the unfinished product, which would be recorded upon completion. The CIT(A) rejected this explanation and confirmed the addition.

Before the Tribunal, the appellant argued that the stock found was unfinished and should not be treated as finished product. However, the Tribunal upheld the addition, agreeing with the AO's assessment based on the stock inventory and stock register.

Conclusion:
The appeal was partly allowed, with the Tribunal deleting the addition on account of unexplained investment in jewellery while upholding the additions on account of unexplained cash and excess stock of Kimam. The Tribunal emphasized the importance of documentary evidence and adherence to CBDT guidelines in such assessments.