2023 (10) TMI 20 - AT - Income Tax

Addition u/s 68 - unexplained cash deposits in the bank account - HELD THAT - AO has made addition towards unexplained cash deposits by ignoring explanation furnished by the assessee with regard to the source for cash deposits and capital introduction. Assessee is a partner in a partnership firm having 50% share of profit. The partnership firm was subjected to Search and Seizure by the Department. On appeal before the tribunal in 2022 (7) TMI 270 - ITAT CHENNAI as directed AO to estimate 8% profit on total turnover and allow 90% of total expenditure claimed in the profit and loss account which results in net profit for assessment years 2015-16 and 2016- 17 to Rs. 1.20 crores, and assessee s share of profit works out to Rs. 59.95 lakhs. If you consider the assessee s share of profit out of income assessed in the hands of the partnership firm, then obviously the assessee can explain source for cash deposits, out of income from partnership firm and rental income. Therefore, considering the fact that the assessee is having source of income to explain unexplained cash deposits and capital introduction, we direct the Assessing Officer to delete addition towards unexplained cash deposit and capital introduction. Unexplained gold jewellery of 1480 gms found during the course of search - explanation of the assessee before the AO and CIT(A) that entire gold jewellery found during the course of search cannot be assessed in his hands, because gold jewellery is belongs to his entire family and was acquired over a period of time from its savings and income of family members - HELD THAT - We find force in the arguments of assessee, for the simple reason when family members are residing in a common house, obviously the jewellery belongs to various family members cannot be assessed in the hands of one person, more particularly when family members includes ladies. It is also an admitted fact that it is customary in India that ladies acquire gold jewellery out of their savings over a period of time. It is also admitted fact that the CBDT itself has directed the Department not to seize jewellery to the extent of 500 gms for married women and 200 gms for unmarried women. If you go by the same, the assessee deserves relief towards jewellery belonging to his family members. Therefore, considering the fact that the jewellery found during the course of search does not belongs to assessee himself and also fact that the assessee is having sufficient source of income to explain source for jewellery found during the course of search, out of income assessed in the hands of his partnership firm, we deem it appropriate to allow relief to the extent of 1000 gms out of total jewellery of 1980 gms found during the course of search. Therefore, we direct the AO to sustain addition of 980 gms in the hands of the assessee and delete remaining 1000 gms of jewellery, which assessee claims to have been belongings of his family members. Addition towards unaccounted cash found during search - It was the explanation of the assessee that out of cash found during the course of search a sum of Rs. 6,66,450/- pertains to partnership firm - HELD THAT - We find force in the arguments of the assessee in so far as arguments with regard to cash pertains to partnership firm, because the partnership firm is having huge turnover and 90% of the total turnover comes from cash sales. Therefore, it is not surprise to find cash to the tune of Rs. 6,66,450/- when search was conducted. Therefore, we are of the considered view that the Assessing Officer is erred in making addition towards cash found during the course of search, to the tune of Rs. 6,66,450/- belonging to partnership firm and thus, we direct the Assessing Officer to delete addition made towards unaccounted cash found during the course of search for Rs. 6,66,450/-. In so far as remaining cash balance, the assessee could not explain source with known source of income. Although, the assessee seeks for telescopic benefit out of income assessed in the hands of the partnership firm, but the benefit of telescopic cannot be given, because it was not the case of the assessee that cash found in the residential premises of the assessee is out of income of partnership firm. Therefore, we reject arguments of the assessee and sustain balance cash found during the course of search and added as unaccounted income of the assessee - out of total addition assessee gets relief to the extent of Rs. 6,66,450/- and balance amount is sustained. Appeal filed by the assessee is partly allowed.

Summary

Issues Involved:
1. Addition towards unexplained cash deposits and capital introduction.
2. Addition towards unexplained gold jewellery found during the course of search.
3. Addition towards unaccounted cash found during search.

Summary:

1. Addition towards unexplained cash deposits and capital introduction:
The assessee challenged the addition of Rs. 6,64,481/- as unexplained cash deposits and capital introduction. The Assessing Officer (AO) noted cash deposits of Rs. 9,43,253/- in the assessee's HDFC Bank account and questioned the source. The assessee claimed these were from current year income, business income, house property income, and savings. The AO rejected this explanation, citing insufficient income sources. However, the Tribunal found that the assessee, a partner in a firm with significant income, could explain the source of cash deposits from his partnership share and rental income. Therefore, the Tribunal directed the AO to delete the addition.

2. Addition towards unexplained gold jewellery:
The assessee contested the addition of Rs. 51,92,944/- for 1980 grams of gold jewellery found during a search, explaining it belonged to his wife, mother, and daughter, acquired over time. The AO added the entire amount as unexplained, but the CIT(A) allowed relief for 500 grams, attributing it to other family members. The Tribunal found merit in the assessee's argument, noting it is customary for families to own jewellery. It also referenced CBDT guidelines on jewellery possession limits. Consequently, the Tribunal directed the AO to sustain the addition for 980 grams and delete the remaining 1000 grams, recognizing it as family-owned.

3. Addition towards unaccounted cash found during search:
The assessee disputed the addition of Rs. 15,70,650/- found during a search, explaining Rs. 6,66,450/- belonged to the partnership firm and the rest was personal and family savings. The AO rejected this, adding the entire amount as unaccounted. The Tribunal found the explanation regarding the partnership firm's cash credible, given its significant cash transactions. It directed the AO to delete the addition for Rs. 6,66,450/-. However, for the remaining Rs. 9,04,200/-, the Tribunal upheld the addition, noting the assessee failed to adequately explain its source.

Conclusion:
The appeal was partly allowed, with the Tribunal directing deletions and sustaining certain additions based on the evidence and explanations provided.