2023 (11) TMI 197 - AT - Income Tax

Unexplained jewellery - wealth tax returns filled to disclose jewellery - CIT(A) noted that out of jewellery found of 18,085.700 gms, most of it in weight was disclosed in wealth tax returns already filed by the assesses, being 15, 341.244 gms. The remaining he noted was either returned to tax as undisclosed in the hands of Rakesh Agarwal 2,026.810 gms, Madhavi Agarwal 1,925.60 gms and the balance to be explained in the hands of Ruchika Agarwal - HELD THAT - Jewellery which matched with wealth tax returns in description weight - For 9,397.650 gms comprising of gold weight 8,016.330 gms and diamond 1,485.900 Ct.and no other jewellery of matching description being found during search, we are in complete agreement with him that that the only logical conclusion was that such jewelleries are to be taken as those disclosed in the Wealth Tax Returns only. We completely agree with ld. CIT(A) that it is preposterous to hold that such identical jewellery found during search as different from that disclosed in the Wealth Tax Returns when there is no jewellery found during search identical in all terms with that disclosed in the Wealth Tax Returns. The finding of the Ld.CIT(A) in this regard is very pertinent that having conducted search and covered multiple premises and numerous receptacles in the group cases, the convenience of balance has to be in favour of the person searched and the inference/ conclusion against the person searched is that nothing more has remained undiscovered by the Department. That any presumption of separate set of similar jewellery should be based on hard undisputed facts. We agree with the CIT(A), that any basis adopted by the AO for treating such matched jewellery as unexplained is unacceptable, be it higher valuation by DVO or non operation of locker in which it was kept. We agree with the reasoning of the CIT(A) for rejecting higher valuation of jewellery by DVO as basis for treating matched jewellery as unexplained. Valuation is not an exact science, and in case of precious gems and stones, being a matter of estimate of size, weight and quality; there may be difference in valuation as submitted by two valuers. Jewellery which did not match with wealth tax returns but was given credit by Ld.CIT(A) of weight of un matched jewellery of wealth tax return - The certificate of the bank submitting the last date of operation of these two lockers along with the daily register of operation of lockers as evidenced clearly demonstrates that locker No.907, which contained the substantial jewelleries, was last operated by Smt. Uma R. Agrawal on 08.02.2011. These facts find mention in the first paragraph of the bank s certificate also. The Assessing Officer, however, has noted the last date of operation of locker No. 907 as 14.11.2007, on which date also this locker was operated by Smt. Uma R. Agrawal. But, the daily attendance register also shows operation of this locker on 08.02.2011. Therefore, incorrectly noting the last date of operation of locker No.907 as in 2007, the Assessing Officer held that the Registered Valuer of the assessee could not have given a report in 2009 after physically examining the contents of the locker. Since, factually this locker was last operated in 2011; therefore, this basis of the Assessing Officer for rejecting the Registered Valuer s Report is rightly found by the CIT(A) to be not correct. On the contrary, the assessee s explanation of the contents in the locker being explained with that returned in the Wealth Tax Returns based on the Registered Valuer s Report prepared in 2009 is substantiated with the fact that the locker was operated during that period. Therefore, with respect to items of jewellery and ornaments which matched with the Wealth tax Returns both in weight and description to the extent of gross weight of 9397.65 gms as found by the Assessing Officer himself during the assessment proceedings, we endorse the finding of the CIT(A) that no addition on account of unexplained investment can be made either on account of huge difference in valuation of the items by the DVO as compared to the Registered Valuer or on account of his conclusion of last operation of two lockers in Bank of Baroda. Jewellery surrendered as unexplained by the assessee's themselves - Disclosure in wealth tax returns coupled with copies of bills of purchase and bank statements showing payment through banking channels furnished by the assessee sufficiently evidence the fact of jewellery purchased over the years from disclosed sources. With nothing found by the department during search of such jewellery being converted into any other asset we do not find any infirmity in the CIT(A) giving credit of the same to the unmatched jewellery found during search. As for the balance unexplained jewellery Ld. CIT(A) has, noted that the assessees themselves have admitted certain jewelleries as unexplained and included in their Income-tax Returns for the impugned year. He noted the same to be of gross weight of 2026.810 gms, comprising of gold weight 2201.528 gms and diamond 82.890 Ct., reducing the same from the balance jewelleries and ornaments required to be explained by the Group which came to gross weight 3,943.260 gms, comprising of gold weight 3,937.147 gms and diamond 2,026.810 Ct., he held that the unexplained jewellery remaining to be explained remained in the hands of Smt. Ruchika Agrawal entirely who is not an assessee before us. This finding of fact by the ld. CIT(A) has also remained uncontroverted before us. We uphold the order of the CIT(A) in the case of all the assessee before us deleting the addition of all the matched jewellery and the unmatched jewellery to the extent of jewellery remaining unmatched as disclosed in the wealth tax returns. Addition on account of unexplained Investments in artwork - 3240 items of artworks were found. The same were valued by the Expert Art Appraiser / Valuer at Rs. 87,29,68,900/-; out of same, seizure of artwork of value Rs. 33,37,30,000/- was made - HELD THAT - As noted the fact the assessee had given all details with respect to the artworks which he claimed to have purchased from outside party, giving names of the parties, the amount paid to him and the cheques through which the payments were made, which details were found with the assessee during search itself, the substitution of the value of artworks with that as valued by the artwork valuer is not acceptable and, in this regard, we agree with CIT(A) that the work of art has no market or exchange for dealing in the same and every art piece has a different value in the eyes of the buyer and the seller. Therefore, there could be no basis in determining the fair market value of artwork. That there can be no parity in determining the fair market value of artwork piece of jewellery or ornaments whose value of capable of being reasonable estimated basis of the weight of precious items used therein, but in the case of artwork its value is not determined on the basis of the cost involved in it, but the basis more on the value placed to its creativity which is immeasurable and varies from person to person and from time to time. We agree with the ld. CIT(A) that the value of artwork is only a notional figure of estimation at a given point of time only and, therefore, cannot be relied upon for determining the cost of investment made in the artwork. No infirmity in the findings of the ld. CIT(A) deleting the addition made on account of unexplained investment in artwork. Unexplained credits in Foreign Bank account and disallowance of set off of business loss - HELD THAT - In view of the same, the issue relating to the addition made on account of unexplained credit in foreign bank account and set off of brought forward business loss having been decided in favour of the assessee in the preceding years by the ITAT, and no distinguishing facts have been brought to our notice, there is no case with the Revenue challenging the same addition and disallowance in the case of the assessee for the impugned year before us i.e. AY 2015-16. Revenue appeal dismissed.

Summary

Issues Involved:
1. Unexplained Investment in Jewellery
2. Unexplained Investment in Artwork
3. Unexplained Credits in Foreign Bank Account and Disallowance of Set Off of Business Loss

Summary:

Issue No. 1 - Unexplained Investment in Jewellery:

During a search on the Rakesh Agarwal group, jewellery valued at Rs. 32,81,10,985 was found. The jewellery was claimed to belong to various family members and group companies, with most of it disclosed in Wealth Tax Returns. The Assessing Officer (AO) did not accept this explanation, citing discrepancies in weight and valuation, and added the jewellery as unexplained investment. The CIT(A) disagreed, stating that if the jewellery matched in description and weight with Wealth Tax Returns, it should not be treated as undisclosed. The CIT(A) also allowed credit for unmatched jewellery disclosed in Wealth Tax Returns and confirmed the balance as unexplained. The Tribunal upheld the CIT(A)'s decision, agreeing that matched jewellery should not be treated as undisclosed and that valuation differences do not justify treating disclosed jewellery as unexplained.

Issue No. 2 - Unexplained Investment in Artwork:

During the search, 3240 artworks valued at Rs. 87,29,68,900 were found. The AO made additions for unexplained investment in artworks, rejecting the assessee's explanation of purchases and gifts from artists due to lack of evidence. The CIT(A) deleted the additions, noting that artwork valuation is subjective and cannot be the basis for additions under Section 69B of the Act. The CIT(A) found that the assessee maintained detailed records of the artworks, and no incriminating material was found during the search. The Tribunal upheld the CIT(A)'s order, agreeing that artwork valuation is not a reliable basis for determining unexplained investment and that the assessee's records provided a reasonable explanation.

Issue No. 3 - Unexplained Credits in Foreign Bank Account and Disallowance of Set Off of Business Loss:

The AO made additions for unexplained credits in a foreign bank account and disallowed the set-off of business losses. The CIT(A) allowed the set-off of losses and deleted the addition, noting that the assessee provided explanations and evidence for the credits. The Tribunal upheld the CIT(A)'s decision, referencing a prior ITAT order in the assessee's favor for earlier years, which allowed the set-off of losses and deleted similar additions. The Tribunal found no merit in the Revenue's challenge for the current year.

Conclusion:

The Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s decisions on all issues, including unexplained investments in jewellery and artwork, and unexplained credits in the foreign bank account with the set-off of business losses.