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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI V. DURGA RAO, HON’BLE & SHRI MANJUNATHA. G, HON’BLE
आदेश /O R D E R
PER MANJUNATHA. G, ACCOUNTANT MEMBER:
This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-18, Chennai, dated 18.10.2022 and pertains to assessment year 2013-14.
:-2-: ITA. No: 1096/Chny/2022 2. The assessee has raised the following grounds of appeal:
1. The brief facts of the case is that the Hon'ble 1TAT vide order in ITA 1o.719 to 725/Mds/2017/AYs 2007-08 to 2013-14 dated 16/08/2017, set aside the assessment order as well as the CIT (Appeal) order and restored the matter to the file of the Assessing Officer for re-adjudication afresh.
2. The assessment was completed u/s 143(3) rws 254 of the Income Tax Act, 1961, with the following additions based on the difference between the quantum of jewellery as per Wealth Tax Return and quantum of jewellery found during the search operation: Returned Income Rs.9,39,116 Addition u/s 69A- Excess value Rs.1,28,83,999 Jewellery Addition u/s 69A- Excess value Rs. 32,60,474 Diamond Jewellery Addition due to LTCG on sale of Rs. 21,00,593 articles & jewellery Assessed Income Rs.1,91,84,182
3. The order of the CIT (A) is contrary to law, facts and circumstances of the case.
4. The CIT (A) has erred in rejecting the explanation offered by the appellant as unsatisfactory without giving reasons.
5. The ld. CIT (A) has erred in not considering the panchanama which clearly indicate that only 1,507.20 grams of gold was found during the search.
6. The ld. CIT(A) has erred in ignoring the fact that the sale value of silver during the AY 2011-12 has been utilised for purchase of gold and diamond jewellery during the AY 2011-
12. The ld. AO failed to apply telescopic view on the utilisation of sale proceeds of silver utensils for the computation of unexplained investment in gold and diamond jewellery.
7. The ld. CIT (A) has failed to consider the documentary evidences furnished by the appellant, namely, WT returns, reconciliation statements for the deficit in silver jewellery and other relevant transaction bills (Prakash Gold Palace Pvt Ltd).
8. The ld. AO was not correct in assessing the entire stock of gold and diamond jewellery seized in the hands of appellant as only 1,507.20 grams of gold jewellery and 68.47 carats of diamond jewellery belongs to the appellant and the rest are owned by the other family members of the appellant.
9. For the above reasons and other reasons that may be adduced at the time of hearing, the Order u/s 250 by the CIT(A) may kindly be quashed and justice be rendered.
:-3-: ITA. No: 1096/Chny/2022 10. The appellant craves to amend, alter or delete any of the above grounds of appeal.
3. The brief facts of the case are that, the assessee is an individual and also director in Saravana Global Holdings Limited. The assessee belongs to Challani group of concerns. A search and seizure action u/s. 132 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) was conducted in the Challani Group of Companies on 19.04.2012. During the course of search, gold jewellery of 8611.100 gms, silver articles of 75.805 kgs and diamond of 207.65 carats were found and seized from the bedrooms of Padham Challani, the appellant and Shri. Ajeeth P Challani, son of the appellant and from the locker of Smt. Shobha Challani, wife of the appellant. The details of gold jewellery, diamond jewellery and silver articles found during the course of search was provided in Para 6.2 of appellate order. During the course of assessment, it was noticed that as per wealth tax returns filed before the date of search, the appellant family possessed gold jewellery of 3306.86 gms, silver articles of 118.60 kgs and diamond jewellery of 125.94 carats and details of the same is provided in Para 6.3 of appellate order. The Assessing Officer, therefore found that the appellant had excess jewellery of 5304.24 gms :-4-: ITA. No: 1096/Chny/2022 (8611.100 gms (-) 3306.86 gms), and diamond of 81.71 carats (207.65 carats (-) 125.94 carats) and shortage of silver articles of 97.735 kgs. Before the Assessing Officer, the assessee claimed that gold jewellery, diamond jewellery and silver articles found in the bedroom of Ajeeth Challani and locker of Smt. Shobha Challani cannot be assessed in his hands because they are separate legal entity and assessed to income tax. The assessee further claimed that he had sold silver articles and purchased gold jewellery. Therefore, claimed that telescoping should be given to the extent of long term capital gains computed on sale of silver articles against excess jewellery found during the course of search. The Assessing Officer rejected the arguments and assessed excess gold jewellery of 5304.24 gms, excess diamond of 81.71 carats and made additions of Rs. 1,61,44,473/-. The Assessing Officer had also computed long term capital gains towards sale of silver articles for Rs. 21,00,593/-.
Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee contended that he is liable to explain gold jewellery, diamond jewellery and silver articles found in his possession, :-5-: ITA. No: 1096/Chny/2022 but need not explain gold jewellery, silver articles and diamond jewellery found in the possession of Ajeeth Challani and Smt. Shobha Challani. He further submitted that excess jewellery found in the possession of the assessee was only 693.85 gms and the same is purchased out of sale proceeds of silver articles.
The ld. CIT(A), after considering relevant submissions of the assessee and also taken note of various facts brought on record by the Assessing Officer, rejected arguments of the assessee for credit towards jewellery found in the possession of his wife and son, on the ground that they are living in a joint family in one house and jewellery found during the course of search needs to be explained by the assessee. Therefore, allowed relief to the assessee to the extent of jewellery declared in wealth tax returns filed and also allowed relief towards jewellery of his wife to the extent of 500 gms and jewellery belongs to his son for 100 gms and confirmed balance excess jewellery found during the course of search and assessed in the hands of the assessee including jewellery belongs to his wife and son. The relevant findings of the CIT(A) are as under:
:-6-: ITA. No: 1096/Chny/2022 “6.10 Decision on the excess jewellery; 6.10.1 In the original assessment order u/s 143(3) dated 17.03.2015, the AO has allowed the gold jewellery to the extent appearing in the WT returns of Padam J Challani, Shoba Challani, Jawarilal Padmchand (HUF), Ajith Challani and Late Adharsh Challani (Minor) (Wealth clubbed with Shoba Challani since Adarsh was a minor] for the AY 2001- 02 and as appearing in the WT return of Pooja Challani for the AY 2002-03, all filed before the date of search. Whereas in the impugned assessment order u/s 143(3) r.w.s 254 dated 17.10.2018, the AO has not considered the gold jewellery as appearing in the WT returns of Shoba Challani (including minor Adharsh) and Ajith Challani and the reason stated was no evidence filed and the excess jewellery was arrived at 5304.24 grams. As the same has been allowed in the original assessment, the reason stated does not hold water and it is more so, when the returns are available with the department itself. However, as stated earlier, the issue was remanded to AO and the AO in his remand report agreed that the original assessment order figures may be considered. In view of the above, allowance is given based on the WT returns as in the original assessment and this leads to excess gold jewellery at 4051.34 grams. Similar is the case for excess diamond jewellery and it is 73.23 carats only. 6.10.2 The AR contended that as per the custom the assessee family 5,,, received gift of gold and diamond jewellery at the time of the marriage of his son Ajith with Pooja, total of 1470 gms of gold jewellery and 24.5 carats of diamond jewellery. I have considered this contention of the assessee. Though h2e assessee claims, without any evidence that his family has received ±51A and diamond jewellery during the marriage of his son, from the relatives and friends of both son and the daughter-in-law in 2003- 04, the quantity claimed is huge when compared to the total holdings of the entire family accumulated for over a period of life time of the assessee and his family. Further the assessee has not given any details of jewellery given out to his daughter at the time of her marriage. Further the assessee and his family would hay, attended/invited for many auspicious occasions from 2001 {WT return filed before the search) to 2012 (year of search) and in the reconciliation filed, the assessee has not shown to have given even a single gram of gold or diamond jewellery as gift to others. No corresponding drawings were also shown :-7-: ITA. No: 1096/Chny/2022 in his capital account or bank accounts. However, it is also true that during the course of marriages in the assessee's custom it is possible to have received some gift of gold jewellery. Hence taking this into account, inspite of absence of any evidence I allow 500 grams of gold jewellery totally in both hands-son and daughter-in-law on this count. No such allowance is given for the diamond jewellery as claimed. 6.10.3 As regards the next claim of the assessee that alleged gifts received at the time of birth of two grandsons, for similar reasons stated above, I allow totally about 100 grams of gold jewellery on this count. No such allowance is given for the diamond jewellery as claimed. 6.10.4 As regards the claim of purchase of gold and diamond jewellery of 1950 grams and 35.570 carats out of the sale proceeds of sale of silver (deficit silver between the quantity found when compared to the quantity in the WT returns already filed), though a claim was made before the Assessing Officer (during the course of set aside assessment) no evidence was produced. Further during the course of search or thereafter no claim or evidence was made/produced by the assessee for this purchases. Even the alleged invoices have no evidentiary value as they are not verifiable in the absence of name, etc. I therefore, reject this claim of the assessee. 6.11 Silver: 6.11.1 As regards silver, the deficit was arrived at 97. 7 kg in the original assessment order u/s 143(3) dated 17.3.2015; AO after fairly giving 10 kg allowance on account of personal effects, considered remaining 87.7 kg as deficit stock arisen on account of unaccounted sale of silver and arrived at the LTCG as follows: Price as on 31.03.2001@ Rs.7,215 x 87.7Kgs=Rs.6,32,756/- Price as on 19.04.2012@ Rs.56,300 x 87.7Kgs= Rs.+9,37,510/- Capital gains = Rs.43,04,754/- 6.11.2 However, in the assessment order u/s 143(3) r.w.s 254 dated 17.10.2018, as the AO has not considered the silver as appearing in the WT returns of Shoba Challani (including minor Adharsh) and Ajith Challani (as mentioned for gold and diamond, which the assessee itself asked for), he took the deficit wrongly as 42.795 kg and charged capital gains of Rs.21,00,593 only. 6.11.3 As the actual deficit is 97. 7 kg and after giving allowance to personal effects of 10 kg, the deficit stock is :-8-: ITA. No: 1096/Chny/2022 87.7 kg arising on account of unaccounted sale which is to be subjected to LTCG as done in the original assessment u/s 143(3) dated 17.3.2015. Accordingly, a show cause notice u/s 251(2) was issued to the assessee as to why the silver shortage of 87. 70 kg should not be construed as arisen on account of sale and capital gains of Rs.43,04,755 should not be charged. 6.11.4 To this, the AR raised the following points: (i) The deficit of stock of silver utensils to the tune of 87.7 kg is on account of sale of silver utensils belonging to Jawarilal Padamchand (HUF) during AY 2011-12 and that the same is declared in the WT return filed by the HUF. Hence, capital gains can be charged in the hands of HUF only and not in the hands of the assessee. (ii) The silver utensils are personal effects and will not come under the definition of capital assets. For this proposition, the AR furnished certain decisions. 6.11.5 I have considered the submissions of the AR. There is no dispute on the quantum of 97.7 kg arrived at. The date of search is 19.4.2012. The original assessment order u/s 143(3) charging capital gains of Rs.43,04,755 on 87. 7 kg sale (after giving 10 kg of allowance for personal effects) was passed on 17.3.2015. Thereafter, the assessee filed WT return in the name of HUF for the A Y 2011-12 on 1.7.2016 showing sale of exactly the same amount of 87. 7 kg appearing in the order u/s 143(3) already passed. It is an invalid return. It has been filed after the date of search. The much more valid point to be noted is that it has been filed after the order u/s 143(3) which charged the capital gains on 37.7 kg, by exactly showing the same 87.7 kg as sold in the hands of the HUF, paying just 1% WT of Rs.26,704. All the above clearly shows that this return was filed just to avoid getting it taxed in the hands of assessee as LTCG at 20%. The said HUF has not filed any Income tax return for the claimed A Y 2011-12 paying any L TCG at 20% on the claimed sale of silver within the due dates u/s 139(1)/ 139(4)/ 139(5). But, it filed its income tax return for AY 2011-12 only on 2.6.2016 much after the search date, that too without paying any capital gains tax on the said silver sale, claiming the entire silver as personal effect as exempt, which is an eyewash. Hence, this claim of the assessee deserves to be ignored. 6.11.6 The assessee claims that the entire silver 97.7 kg is personal effect and cannot come under the :-9-: ITA. No: 1096/Chny/2022 definition of capital asset for WT. It is worth mentioning here that a reasonable allowance of 10 kg has been duly given for possible personal effects and remaining 87. 7 kg only has been taken in the calculation and it would be nobody's case that entire 97.7 kg could be personal effect, for which the assessee has not furnished any evidence. As due allowance towards personal effects has already been given, the decisions cited have no relevance here. 6.11.7 The deficit silver has been arrived at based on the search at the assessee's premises. The deficit silver has been quantified after duly taking into account the quantum of silver in the hands of other family members as shown in their wealth tax returns filed before the date of search; thus the silver belonging to other family members have been duly excluded. Hence, the claim of the AR that the deficit and LTCG cannot be considered in the hands of the assessee does not hold water. 6.11.8 The assessee made an alternate claim that the sale proceeds of silver, on which long term capital gains was assessed, ought to have been telescoped for the purchase of gold and diamond jewellery. I have considered the claim. First of all, the assessee has not made any such claim during the course of search. That means initial burden of proof was not discharged by the assessee. Only during the course of assessment (which was set aside) after about 3 years from the date of search the assessee made a futile vague claim without any evidence. The assessment of long term capital gains was due to the deficit stock. Had there really been purchase of gold jewellery out of the sale of silver, it ought to have been reflected in the WT return. The WT return including the alleged gold and diamond purchased out of the sale of silver, as claimed now, was not filed before the date of search. In the absence of any of the relevant evidence, simply because an addition was made, it cannot be taken as available for the purchase (in this case) of jewellery. The sale proceeds could have been spent away for n number of purposes and the onus on the assessee to prove the same has not been discharged. Hence, the telescoping claim cannot be accepted. 6.11.9 In view of the above detailed reasons, the contentions of the assessee are rejected and the LTCG on silver is assessed at Rs.43,04,755 as arrived at above.
:-10-: ITA. No: 1096/Chny/2022 6.12 The AO is directed to recompute the income - unexplained investment and LTCG on the above basis, i.e. excess gold jewellery 3451.348 gms (4051.348- 500- 100), excess diamond jewellery 73.23 carats and LTCG on silver Rs.43,04,755.”
The ld. Counsel for the assessee, submits that the ld. CIT(A) erred in sustaining additions made by the Assessing Officer towards jewellery found in the bedroom of Shri. Ajeeth P Challani, son of the appellant and Smt. Shobha Challani’s locker even though the assessee explained with evidence that those two are separate legal entities and assessed to tax. Therefore, jewellery belongs to them cannot be assessed in the hands of the assessee. The Ld. Counsel for the assessee further submits that if you exclude jewellery belonging to his wife and son, the excess jewellery belongs to the assessee was only 693.85 gms of gold and 35.570 carats of diamond. Further, said gold jewellery and diamond jewellery was purchased out of sale proceeds of silver utensils for which the assessee has computed long term capital gains and paid taxes. Therefore, credit must be given to long term capital gains computed on sale of jewellery.
The ld. DR, on the other hand supporting the order of the CIT(A) submits that during the course of search, jewellery was :-11-: ITA. No: 1096/Chny/2022 found in the premises belonging to the assessee. Although, some of jewellery was found in the bedroom of his son and locker of his wife, since the assessee is a joint family residing in a single house, it is for the assessee to explain total jewellery found during the course of search with his known source of income. Since, the assessee was unable to explain excess jewellery found during the course of search, the CIT(A) rightly sustained additions made by the Assessing Officer by allowing prescribed quantity of jewellery for married women and men as per CBDT Circular and thus, there is no error in the order of the CIT(A) and same should be upheld.
We have heard both the parties, perused materials available on record and gone through orders of the authorities below. There is no dispute with regard to the quantity of gold jewellery, diamond jewellery and silver articles found during the course of search and declared for taxation in the wealth tax return filed by the assessee and his family members. The only dispute is with regard to the excess jewellery found during the course of search and person to whom said jewellery belongs and also additions if any can be made, then in whose hands said additions can be made for excess jewellery found :-12-: ITA. No: 1096/Chny/2022 during the course of search. There is no dispute with regard to the fact that the appellant, his wife and son are independent assessee’s and filing regular income tax returns and also wealth tax returns before the search. It is also admitted fact that the appellant and his family members had filed wealth tax returns even before the date of search. Therefore, the issue needs to be resolved in the given facts and circumstances of the case that whether the assessee is liable to pay tax on jewellery belonging to his wife and son, even though they are separate and independent assessee’s having taxable income. Each person is a separate legal entity for the purpose of taxation, unless he/she is a minor having no source of income. If a person is major and having known source of income and also filing income tax returns, then the assets including jewellery if any belongs to said person needs to be assessed in the hands of the person, who filed return of income even though jewellery found during the course of search is in a common premises. In this case, admittedly jewellery belongs to Shri. Ajeeth Challani, son of the appellant was found in his bedroom, but not in the appellant’s bedroom. Similarly, jewellery belongs to Smt. Shobha Challani, wife of the assessee found in the locker belongs to her. Therefore, in our :-13-: ITA. No: 1096/Chny/2022 considered view excess jewellery found in the name of Ajeeth Challani and Shobha Challani cannot be assessed in the hands of the assessee. Therefore, we direct the Assessing Officer to delete additions made towards excess gold jewellery, diamond jewellery and silver articles found in the possession of Shri. Ajeeth Challani and Smt. Shobha Challani.
Further, if you exclude jewellery belonging to assessee’s wife and son, then the remaining excess jewellery found in the name of the appellant was only 693.85 gms of gold jewellery and 35.570 carats of diamond jewellery. The claim of the assessee was that there is a shortage of 97.735 kg of silver articles during the course of search, when compared to silver articles declared in the wealth tax returns and the same has been sold by the assessee. The assessee further claimed that he had purchased gold jewellery and diamond jewellery out of sale proceeds of silver utensils. According to the assessee, he had purchased 1950 gms of gold jewellery and 35.570 carats of diamond jewellery out of sale proceeds of silver articles. If you allow credit for jewellery purchased out of sale proceeds of silver articles, then there would be no excess gold jewellery and diamond jewellery in the hands of the appellant. The :-14-: ITA. No: 1096/Chny/2022 Assessing Officer is not disputed these facts, but not allowed the claim for deduction towards new jewellery purchased out of sale proceeds of silver articles only for the reason that the assessee could not produce bills and vouchers. We find that the Assessing Officer is completely erred in disregarding arguments of the assessee for the simple reason that when the Assessing Officer has taxed capital gains arising out of sale of silver articles, then the Assessing Officer must allow telescopic benefit towards source available in the form of sale consideration received towards sale of silver articles for excess gold jewellery and diamond jewellery found during the course of search. Therefore, we are of the considered view that, if you consider the explanation of the assessee towards excess gold jewellery and diamond jewellery found during the course of search, it appears that the assessee has acquired gold jewellery and diamond jewellery out of sale of silver articles because there is a shortage of silver articles when compared to wealth tax returns filed by the assessee to physical silver articles found during the course of search. In our considered view, when the assessee has explained source for purchase of new gold jewellery and diamond jewellery and such source is available to explain the shortage or excess gold jewellery and :-15-: ITA. No: 1096/Chny/2022 diamond jewellery found during the course of search, the Assessing Officer ought to have allowed telescopic benefit towards excess jewellery. The CIT(A), without appreciating relevant facts simply sustained additions made by the Assessing Officer. Therefore, we direct the Assessing Officer to delete additions made towards excess gold jewellery and diamond jewellery found during the course of search and assessed in the hands of the assessee.