JIGNA KUNDAN BHATT,VIRAR vs. DCIT, CENTRAL CIRCLE 1(1), MUMBAI, MUMBAI

During the course of search, jewellery valued at Rs. 57,83,972/- weighing approximately 1699.446 grams was found in lockers and at the residence of the assessee. The Assessing Officer noted that the jewellery was found in lockers registered in the name of the assessee. The explanation of the assessee that the jewellery belonged to various family members and was held as family jewellery was not accepted for want of documentary evidence. The Assessing Officer further observed that CBDT Instruction No. 1916 dated 11.05.1994 deals with non-seizure of jewellery and does not dispense with the requirement of explaining the source of acquisition. Accordingly, the jewellery was treated as unexplained investment under section 69A of the Act.

The Assessing Officer observed that the assessee had claimed deduction of Rs. 1,60,000/- under Chapter VI-A but failed to furnish supporting documentary evidence during the assessment proceedings. Accordingly, the claim was disallowed.

The assessment was completed under section 143(3) of the Act determining the total income of the assessee at Rs. 1,03,55,460/- after making above mentioned additions and disallowance.

Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee submitted that the additions were made without proper appreciation of facts and evidence and that sufficient opportunity was not granted during the assessment proceedings.

In respect of the addition under section 68, the assessee furnished confirmations, copies of returns of income, bank statements and other documentary evidences in respect of the loan creditors and sought admission of the same as additional evidence under Rule 46A of the Income-tax Rules, 1962.

In respect of jewellery, the assessee reiterated that the jewellery found during search was family jewellery belonging to various family members and relied upon CBDT Instruction No. 1916 dated 11.05.1994. A detailed explanation identifying ownership among family members was furnished.

With regard to deduction under Chapter VI-A, the assessee submitted documentary evidences such as LIC premium receipts, PPF contribution details and bank interest statements and contended that the deduction was duly allowable.

The CIT(A) admitted additional evidences, called for remand reports from the Assessing Officer and also considered the rejoinders filed by the assessee. The CIT(A) held that in respect of unsecured loans, the assessee satisfactorily explained the loan of Rs. 5,00,000/- received from M/s. Krisha Enterprises and deleted the addition to that extent. However, in respect of loans of Rs. 10,00,000/- each from Shri Sharad Gandhi and Shri Yash Sharad Gandhi, the CIT(A) held that the assessee failed to conclusively establish the creditworthiness and source of funds of the lenders. Accordingly, the addition of Rs. 20,00,000/- under section 68 of the Act was sustained.

The addition of Rs. 57,83,972/- under section 69A on account of unexplained jewellery was confirmed by the CIT(A), holding that the assessee failed to substantiate ownership and source of jewellery by cogent documentary evidence and that CBDT Instruction No. 1916 does not explain the source of investment.

The CIT(A) deleted the disallowance of Rs. 1,60,000/- under Chapter VI-A after holding that the assessee had furnished sufficient documentary evidences in support of the claim. Accordingly, the appeal before the CIT(A) was partly allowed.

Aggrieved by the order of CIT(A), the assessee is in appeal before us raising following grounds of appeal:

The learned AR relied upon the following judicial precedents to submit that the assessee is required to establish only the identity of the creditor, creditworthiness and genuineness of the transaction, and once primary evidences are furnished, no addition can be made merely on suspicion:  CIT v. Orissa Corporation (P.) Ltd. (159 ITR 78) (SC)  PCIT v. Ami Industries (India) Pvt. Ltd. (424 ITR 219) (Bom.)

In respect of addition of Rs. 57,83,972/- under section 69A of the Act on account of jewellery, the learned AR submitted that during the course of search action under section 132 conducted on 19.02.2020, jewellery having a net weight of 1699.446 grams and valued at Rs. 57,83,972/- was found but not seized. The assessee was not examined during the course of search proceedings.It was submitted that immediately after the search, the husband of the assessee, vide letter dated 20.03.2020 addressed to the DDIT (Inv.)-7(2), Mumbai, informed that the jewellery belonged to various family members, namely the mother-in-law, the assessee herself, daughter-in-law, daughter, husband and son. Similar explanation was also furnished before the Assessing Officer during assessment proceedings.

The learned AR further pointed out that even the Panchanama drawn during the course of search, particularly Annexure 3 thereto, records that the jewellery belonged to the female members of the family, namely Smt. Jayashree Bhatt, Mrs. Jigna Kundan Bhatt, Mrs. Ekta Jay Bhatt and Ms. Riddhi Bhatt. It was submitted that all the family members were residing together as a joint family at the bungalow at Virar, District Palghar, and the explanation regarding joint ownership and family jewellery remained consistent throughout.

It was contended that the approach of the lower authorities that not a single gram of jewellery was explainable is contrary to the material on record and ignores the fact that the jewellery was found within the prescribed limits laid down in CBDT Instruction No. 1916 dated 11.05.1994.The learned AR submitted that as per the said Instruction, jewellery to the extent of 500 grams per married lady, 250 grams per unmarried lady and 100 grams per male member is to be treated as reasonable and not liable for seizure. In the present case, considering the number of family members and their status, the jewellery found was well within the permissible limits, and therefore no adverse inference could be drawn.

Reliance was placed on the following judicial precedents to submit that jewellery found within the limits prescribed by CBDT Instruction No. 1916 cannot be treated as unexplained investment:  CIT v. Satya Narain Patni (269 CTR 466) (Raj.)  CIT v. RatanlalVyaparilal Jain (339 ITR 351) (Guj.)  Ashok Jain v. ACIT, (ITAT Mumbai)

It was submitted that the addition under section 69A is based on conjectures and ignores both contemporaneous evidence and settled judicial principles. Accordingly, the learned AR prayed for deletion of the addition of Rs. 57,83,972/-.

The learned Departmental Representative, on the other hand, supported the orders of the lower authorities. The learned DR pointed out that the jewellery in question was found in the drawer of the assessee during the course of search proceedings and, therefore, the onus was squarely upon the assessee to satisfactorily explain the ownership and source thereof. He accordingly contended that the explanation offered by the assessee was rightly rejected by the lower authorities and the addition made under section 69A of the Act deserves to be sustained.

We have carefully considered the rival submissions, perused the orders of the lower authorities, examined the material placed on record, and deliberated upon the judicial precedents relied upon by the assessee. It is an undisputed fact that during the year under consideration, the assessee received unsecured loans of Rs. 10,00,000/- each from Shri Sharad Gandhi and Shri Yash Sharad Gandhi. The record shows that the assessee furnished Written confirmations from both the lenders, Copies of acknowledgements of returns of income of the lenders and Bank statements of the lenders evidencing advancement of loans through banking channels in support of the said loan transactions. These evidences were placed on record during appellate proceedings and were also available before the Assessing Officer during remand proceedings. The addition has been sustained solely on the ground that the assessee did not produce proof of business activity and books of account of the lenders. In our considered view, such an approach is not in consonance with the settled legal position governing section 68 of the Act.

The law is well settled that for the purpose of section 68, the assessee is required to establish only three ingredients namely, identity of the creditor, genuineness of the transaction and creditworthiness of the creditor. Once the assessee discharges this primary onus by placing basic documentary evidence on record, the burden shifts upon the Assessing Officer to rebut the same by bringing cogent material on record.

In the present case, neither the Assessing Officer nor the CIT(A) has brought on record any material to demonstrate that the evidences furnished by the assessee were false, unreliable or fabricated. No enquiry was conducted under section 133(6) of the Act, nor were the lenders summoned under section 131 of the Act. The addition has thus been sustained merely on the basis of perceived inadequacy of evidence, without any adverse material.

The Hon’ble Supreme Court in CIT v. Orissa Corporation (P.) Ltd. (159 ITR 78) has clearly held that where the assessee furnishes names and addresses of creditors along with confirmations and the Revenue does not pursue the matter further, no adverse inference can be drawn merely because the creditors were not produced. The relevant principle laid down is that once the assessee has done what is reasonably expected, the onus shifts to the Revenue. Similarly, the Hon’ble Bombay High Court in PCIT v. Ami Industries (India) Pvt. Ltd. (424 ITR 219) has reiterated that once identity, genuineness and creditworthiness are established through documentary evidence such as PAN, returns of income and bank statements, no addition under section 68 can be sustained, and the assessee is not required to prove the source of source.

We also find force in the submission of the assessee that a similar addition made in the hands of her son in respect of borrowings from the same lender family has already been deleted by the Co-ordinate Bench. Though the said order is not binding, it lends persuasive value and reinforces the absence of any distinguishing adverse material in the present case.

In view of the above factual and legal position, we are of the considered opinion that the assessee has discharged the onus cast upon her under section 68 of the Act and the addition of Rs. 20,00,000/- sustained by the CIT(A) is not justified. The addition of Rs. 20,00,000/- made under section 68 of the Act is deleted.

In case of addition of Rs. 57,83,972/- under section 69A of the Act on account of jewellery, the facts relating to this issue are largely undisputed. During the course of search under section 132 conducted on 19.02.2020, jewellery weighing 1699.446 grams valued at Rs. 57,83,972/- was found. It is also undisputed that the said jewellery was not seized. The assessee’s consistent explanation, both during post-search proceedings and assessment proceedings, has been that the jewellery belonged to various family members, namely the mother-in-law, the assessee herself, daughter-in-law, daughter, husband and son, all of whom were residing together as a joint family. Significantly, even the Panchanama drawn during the course of search records that the jewellery belonged to the female members of the family. This contemporaneous document has not been rebutted by the Revenue.

The learned DR has relied upon the fact that the jewellery was found in the drawer of the assessee. However, mere physical location of jewellery, particularly in a joint family household, cannot by itself be decisive of ownership, especially when the search record itself acknowledges family ownership.

The lower authorities have proceeded on the premise that CBDT Instruction No. 1916 dated 11.05.1994 applies only for the purpose of non-seizure and not for explaining the source. This contention, in our view, is no longer res integra. The Hon’ble Gujarat High Court in CIT v. Ratanlal Vyaparilal Jain (339 ITR 351) has categorically held that although the Instruction was issued for the purpose of non-seizure, it takes into account the quantity of jewellery normally held by family members in an ordinary Hindu household, and unless the Revenue shows anything to the contrary, the jewellery to that extent can be presumed to be explained. The Court approved the approach of the Tribunal in treating the quantity specified in the Instruction as reasonable even for the purpose of explanation.

The Hon’ble Rajasthan High Court in CIT v. Satya Narain Patni (269 CTR 466) has gone a step further and held that where jewellery found is within the limits prescribed by CBDT Instruction No. 1916 and the same is accepted as reasonable at the time of search, no addition under section 69A is justified. The Court also emphasized that Indian customs, traditions and social practices relating to acquisition of jewellery cannot be ignored.

In the present case, considering the number of family members and their status, the quantity of jewellery found is well within the limits prescribed under the CBDT Instruction. There is no material brought on record by the Revenue to show that the jewellery represented undisclosed investment made by the assessee during the year under consideration. The addition has thus been made on presumptions and conjectures, ignoring binding judicial precedents and contemporaneous search records. The addition of Rs. 57,83,972/- made under section 69A of the Act is deleted.

In the result, the appeal filed by the assessee is allowed.