ACIT, CENTRAL CIRCLE-1(1), HYD, HYDERABAD vs. KANDULA VISVESWARA RAO, HYD, HYDERABAD

Per Smt. P. Madhavi Devi, J.M.

This is Revenue’s appeal for the A.Y 2011-12 against the order of the CIT (A)-11, Hyderabad, dated 30.09.2015.

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members and the registered valuer had valued them at Rs.1,29,84,804 and Rs.13,38,750 respectively. After considering the explanation offered by the assessee and after considering the permissible limit of gold and diamond jewellery by an individual as per the CBDT guidelines, it was observed the assessee was in possession of excess gold and diamond jewellery worth Rs.1,05,00,000. When the assessee was asked to show cause as to why it should not be treated as his unexplained investment, the assessee explained that the gold and diamond jewellery found during the course of search belonged to his wife, mother and daughter. The assessee also produced a receipt from Krishna Das & Co. for purchase of gold worth Rs.2.00 lakhs. The assessee had stated that the gold jewellery was gifted to his family members on various occasions and family get-together, such as marriages, birth days etc., and he produced the photographs taken on family occasions to substantiate the said contention. However, the AO was not convinced and he made the addition of Rs.1,05,00,000 to the returned income of the assessee and brought to tax. Aggrieved, the assessee preferred an appeal before the CIT (A), who granted relief to the assessee by observing as under: “06.0 . On the day of search gold jewellery weighing 3730.200 grams (net weight) and silver articles weighing 38.250 kgs. were found in the possession of the assessee and his family members. The gold and diamond jewellery and silver articles found in the residence and in the lockers were and valued by the registered valuer at Rs. 1,29,84,804/- and Rs.13,38,750/-. A substituted seizure of Rs.1,05,OO,OOO/- was made out of the above jewellery found. In the assessment proceedings, the assessee was asked to explain why this amount of Rs.1,05,OO,OOO/- should not be treated as value of unaccounted jewellery. The assessee explained that this jewellery comprises of items belonging to himself, his mother, wife and daughter. In addition it was explained that some jewellery belonging to his mother-in-law was received by his wife and daughter by way of a distribution after her demise. The assessee maintained that he stated this position from the very beginning during the search itself, and that he consented to the seizure under protest. The assessee

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further relied on an affidavit dated 19.4.2010 signed by his father-in-law Sri P.V. Rangaiah Naidu for the distribution of jewellery belonging to his late mother-in- law. He produced a copy of a bill from M/s. Krishna Das & Co as evidence of purchase of jewellery paid for by cheque. He also relied upon photographs taken during family functions to claim that the jewellery was very substantially available in the house since many years going back to his wedding, birth of daughter and other family functions.

06.1 The Assessing Officer did not accept these explanations. Neither the assessee nor the family members had any wealth tax returns evidencing the possession of jewellery and photographs were not acceptable as evidence. The declaration of Sri P.V. Rangaiah Naidu was not a registered document and therefore held to be a self-serving declaration. In respect of the evidence for purchase of jewellery from M/s Krishna Das & Co. the Assessing Officer held that since original bill was not produced for verification a photocopy could not be accepted as evidence. The Assessing Officer therefore noted that the assessee merely repeated his statement before the search team and had no fresh evidence to explain the nature and source of acquisition of jewellery. An amount of Rs.1,05,OO,OOO/- was therefore added to the returned income as unexplained investment in gold jewellery.

06.2 The facts of the case emerging from the oral & written submissions of the Id. AR and the record of the Assessing Officer are carefully considered. In bringing to tax Rs.1,05,00,000/- as unexplained investment in jewellery the Assessing Officer held that the assessee could not produce any evidence that could constitute satisfactory explanation of the jewellery found and seized. The Assessing Officer is right insofar as he concludes that some of the evidence relied upon by the assessee such as photographs cannot be accepted as evidence. photographs can never be conclusive because they don't necessarily indicate, much less establish ownership. However, it is the rest of the reasoning relied upon by the Assessing Officer that merits a closer look.

06.3 Regarding Wealth Tax returns it is stated by the assessee that they were not filed owing to a bonafide belief that the individual assessees in the family were holding assets below the taxable limits. In any case it was maintained that they were explainable with reference to their respective sources for investment. With regard to the purchase effected from M/s Krishnadas & Co. Hyderabad, the Assessing Officer held that a photocopy of the bill is not acceptable unless the original was produced. The payment is seen to have been made by cheque and to that

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extent could not have been un-verifiable. In any case the purchase in question on 28-03-2010 was for a mere Rs 2 lakhs, as against the aggregate amount of jewellery valued at Rs 1,29,84,804/-. The most significant fact, however, is that the seized jewellery valued at Rs 1,05,00,000/and proposed for assessment in the hands of the assessee, is almost entirely claimed to belong to persons other than the assessee in question. This claim of the assessee is not even addressed, much less controverted in the assessment.

06.4 The jewellery found is 3800 gms. Approx. out of which 2210 gms. were claimed to belong to his wife Smt K. SeshuKumari, 940 gms. to daughter Miss K Priyanka, 500 gms to assessee's mother, and 150 gms to the assessee. The stated distribution of jewellery found is recorded in the assessment order without question or comment, which indicates that the Assessing Officer did not come across any material to question the same. The assessee had stated so on the date of search (06-10- 2010), in the course of the search proceedings on the date (03-12-2010) of lifting the prohibitory order placed u/s 132(3), as well as on 06-02-2013 during the assessment proceedings. Far from failing to produce "an iota of fresh evidence" and merely reiterating himself as held by the Assessing Officer, it has to be appreciated that the assessee has consistently denied any liability to be taxed, particularly his liability to be taxed on the jewellery found at his residence. The assessment order does not make out any case to the effect that the jewellery either belongs to the assessee or has been purchased by the assessee. It does not repudiate the fact that there were other assessees in the household to whom the ownership of the jewellery was being attributed.

06.5. The taxability of the value of jewellery added in the assessee's hand has been denied because of three reasons which have not been addressed or appreciated by the Assessing Officer. Firstly, for reasons of their antiquity; secondly on account of identified purchases from accounted sources; and, thirdly, because the jewellery belongs to other assessees in the household, viz spouse, daughter and mother. 06.5.1 Regarding the antiquity of the jewellery, it is claimed that much of it goes back to 1982 being the year of his marriage, or little later when his daughter was born. Similarly, it is urged that jewellery belonging to his deceased mother-in-law (and therefore of similar, if not greater antiquity) to the extent of 1432 gms was part of the total jewellery found. In support, a declaration on a Rs 100 Non Judicial stamp paper made by his father-in-law Shri P.V. Rangayya Naidu on 19-04-2010 has been filed. The Assessing Officer dismisses this document as a "self- serving declaration" because it is not a registered

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document. This document is apparently not part of the seized material though dated 19-04-2010. It is not properly verified or notarised, and therefore, may be lacking the evldentlarv value of an affidavit, but it is a claim nevertheless, calling for an evaluation on probabilities at least.

06.5.2 The claim of purchase from accounted sources was a single bill for a mere Rs.2 lakhs. This is not a very significant determinant of outcomes for three reasons. Firstly, as noticed earlier, notwithstanding the fact that the original bill was not available a photocopy was available with details of cheque payment and for this reason alone this cannot be seen as an unverifiable claim. Secondly, this is an insignificant component of the total jewellery found. Thirdly, it would be highly improbable that the assessee did not effect any purchases other than this.

06.5.3 It is seen from the records of the Assessing Officer that the inventory of jewellery found and valued comprises of 23 items valued at Rs 1,01,80,770/- in the name of Smt. Seshu Kumari, w/o Sri K Visweswara Rao (the assessee), and 9 items valued at Rs 28,04,034/- in the name of Miss K. Priyanka, D/o Sri K Visweswara Rao, aggregating to Rs 1,29,84,804. This inventory made on the date of search is the earliest document of stated ownership on record, and has not been faulted. Their inter se attribution to mother and self is a part of the assessee's submissions. Suffice it to note that this has not been questioned by the Assessing Officer. Secondly, both the spouse as well as the daughter of the assessee are return-filing independent assessees under the Income tax Act.

06.6 In arguing for antiquity of the jewellery, the assessee is seeking to place it beyond the range of assessable years on the Assessing Officer's horizon. The claim that the jewellery belonged to spouse going back to date of marriage, gifts received on festive occasions by spouse & daughter, receiving a share of deceased mother-in-law's jewellery are perfectly plausible, particularly in the societal context. Purchase of specific items from accounted sources is equally plausible. The difficulty, however, is the inability of the assessee to lead with any itemised listing of such items, particularly when assessee-wise Wealth Tax returns for successive assessment years are not available. The significant issue, however, is that ownership, source of acquisition, and taxability are issues that should be considered in the hands of the assessee concerned. In the explanation furnished before the Assessing Officer, as well as in appellate proceedings, the jewellery claimed to belong to the assessee is only 150 gms. While this is a mere claim that does not bind the

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Department insofar as identification of an investment is concerned, the fact nevertheless is that it has not been called into question by the Assessing Officer. A finding that certain jewellery is deemed to have been acquired from unaccounted sources has to be made in the hands of person to whom it can be ascribed with reasonable certainty. Faced with a denial that the jewellery belonged to him, in the absence of any finding that it has been purchased by assessee during the year of account, or a finding of the improbability of such other person(s) acquiring or owning some or any of the impugned assets, the Assessing Officer has misdirected himself in seeking an explanation for sources from the assessee for assets claimed to belong to another person(s). 06.7. The assessee's contention that the jewellery very substantially belonged to his spouse and daughter has never been tested with reference to their respective sources. In the absence of books of account or wealth tax returns the assessee's claim that these jewels belonged largely to spouse and daughter rests merely on photographs and the 'affidavit'. Both these 'proofs' are not evidence which by itself permits any itemised deduction from the amount assessed in the hands of the assessee. They are at best an attestation of probabilities.

06.8 Any argument on probabilities cannot be divorced from the societal context, particularly the social structure and the Indian family context in which jewellery is customarily lavished upon the bride at her wedding and the child at birth, and in the course of family functions. Similarly, incidental gifts during the various rites of passage marking an individual's Iife-cycle are also part of the local tradition. The scale, extent and value will vary in proportion to relative affluence and adherence to social mores by the family, but by no means can they be seen as uncommon events. In this light of the matter, to' overlook entirely the assessee's claim that the jewellery belonged to other persons in the household is not correct. In the given situation, however, this amount(s) is not capable of precise quantification. The matter, therefore, has to be ascertained by evaluating reasonable probabilities and cannot be wished away.

06.9 From the assessee's perspective it has to be seen that the entire jewellery valued at Rs.1,05,00,000/- has been assessed in his hands without heeding the inventory or the averment that the jewellery was not his. Even if several items did not belong to the assessee (as would be obvious from the description in the inventory), the assessee could have purchased jewellery from time to time in his capacity as head of the family, for which he alone could be asked to explain. The solitary instance of this nature detected was a payment for purchase of jewellery

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worth Rs.2.00 lakhs from M/s Krishnadas & Co. It is a very reasonable probability that the assessee would have effected other purchases for which there is no verifiable record. The question therefore, is what part of the jewellery found on 06-10-2010 can be reasonably attributed to purchases effected by the assessee after 01- 04-2004, in respect of which alone, an imputation of unexplained investment in jewellery can be fastened on the' assessee. Having regard to the probability of family jewellery handed down being part of the jewellery found on 06-10-2010 it would be reasonable to assume 30% of this accumulation, inclusive of the 150 gms claimed to belong to him, to ' be the aggregate investment by the assessee. Valued pro rata, this amounts to about Rs 39 lakhs. This amount has to be explained with reference to available sources- in the year of detection, only for want of year-wise purchase details. It has to be recalled in this context that the returned income of the assessee in his individual capacity from AY 2005-06 to AY 2011-12 aggregates to a little under Rs 4 crores. The returned income in AYs 2008-09, 2009-10, 2010-11 and 201112 is Rs 64.97 lakhs, Rs 101 lakhs, Rs 101 lakhs, and Rs 109 lakhs respectively. This is a significant multiple of the amount that the assessee can be reasonably called upon to explain.

06.10 To conclude, entire jewellery found cannot be considered explainable by the assessee. The jewellery to be attributed to others in the household- and therefore excluded from consideration in the hands of the assessee, has to be estimated based on reasonable probabilities because of the non- filing of wealth tax returns. Such an assessment of probabilities has to give due weightage to social tradition and family bonds. The residuary amount is what the assessee should to be held to account for, and with reference to his disclosed sources of income. On a consideration of the balance of probabilities in the above manner, it would be difficult to sustain the view that any part of the jewellery found on 0610-2010 represents unexplained investment taxable in the hands of the assessee. 06.11 The Assessing Officer is, therefore, directed to delete the addition of Rs.1,05,00,000/-.”

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societal pattern in India and also that the jewellery was claimed to be belonging to other family members of the assessee who are also Income Tax Assessees. Therefore, he has rightly held that the entire jewellery found during the course of search cannot be considered as explainable by the assessee alone and also that the assessee had resources over the past years to explain the sources for investment in jewellery as not explained; and to be belonging to the family members. We find that the CIT (A) has appreciated the factual aspect of the issue at length and the learned DR has not been able to rebut these findings of the CIT (A) with any material to the contrary. In view of the same, we do not see any reason to interfere with the order of the CIT (A). Revenue’s appeal is accordingly dismissed. 5. In the result, Revenue’s appeal is dismissed. Order pronounced in the Open Court on 28th March, 2018.

Sd/- Sd/- (B. Ramakotaiah) (P. Madhavi Devi) Accountant Member Judicial Member

Hyderabad, dated 28th March 2018. Vinodan/sps Copy to: 1 Asstt. Commissioner of Income Tax, Central Circle 1(1) 3rd Floor, Posnett Bhavan, Tilak Road, Ramkoti, Hyderabad 500001 2 Shri Kandula Visveswara Rao, Plot No.324, Road No.79, Jubilee Hills, Hyderabad 3 CIT (A)-11, Hyderabad 4 Pr. CIT – Central, Hyderabad 5 The DR, ITAT Hyderabad 6 Guard File

By Order

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