ASSISTANT COMMISSIONER OF INCOME TAX ,CENTRAL CIRCLE-3(4), HYDERABAD vs. AZAJ FAROOQI, SECUNDERABAD

The brief facts of the case are that the assessee, Shri Azaj Farooqi is an individual and one of the promoters of KVR Rail Infra Projects Private Limited and Director in other group companies. The assessee had filed his return of income for the A.Y.2018-19 on 24.12.2018, by admitting total income of Rs.1,45,55,500/-. A search and seizure operation u/s 132 of Income Tax Act, 1961 (“the Act”) was conducted on 04.07.2017 in the case of the assessee and his related concerns. During the course of search and seizure operation, cash of Rs.1,68,56,000/- was found at his residential premises. The assessee was called upon to explain the source for cash, for which, he stated that the source for cash found in his residential premises was out of cash loans received from relatives and cash kept by different individuals at his home for safety. Similarly, during the course of search, jewellery worth Rs.2,20,13,880/- was found at the residence and lockers of Shri Azaj Farooqi. The assessee was called upon to explain the source for the jewellery for which, he could not explain the source for the jewellery worth Rs.1,14,91,700/-, except claiming that the jewellery found was acquired through gifts and purchased long back and also the jewellery was declared in the wealth tax returns filed for the A.Y.2010-11 in his individual capacity and in his wife, Smt.Asma Farooqi.

Consequent to search, the case was selected for scrutiny and during the course of assessment proceedings, the Assessing Officer called upon the assessee, to explain the source for cash found during the course of search. In response, the assessee filed copy of balance sheet for the F.Y.2016-17 and claimed that opening cash in hand was at Rs.85,67,124/-, which is the source for cash found during the course of search and further, income declared for the F.Y.2016-17, relevant to A.Y.2017-18. The assessee had also submitted that he has declared additional income of Rs.26,00,00,000/- for the A.Y.2017-18, to cover up various discrepancies and the said income can be telescoped against cash found during the course of search.

The Assessing Officer, after considering the relevant submissions of the assessee and also taking note of cash on hand, declared by the assessee in the return of income filed for the A.Y.2017-18, rejected the explanation of the assessee and made addition of Rs.1,68,43,950/- u/s 69A of the Act as unexplained money. Similarly, in so far as the jewellery found during the course of search, the Assessing Officer observed that although the assessee claims that the jewellery found during the course of search was declared in the wealth tax return filed for the A.Y.2010-11, in his individual capacity and his spouse, Smt.Asma Farooqi, but the fact remains that the value declared in the return was at Rs.1,68,43,950/-, whereas, the value of jewellery found during the course of search was Rs.2,20,13,880/-. Therefore, observed that the assessee could not explain the source for difference in the value of jewellery and rejected the explanation of the assessee and thus, made addition of Rs.1,14,91,700/- u/s 69A of the Act.

Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the Ld.CIT(A), the assessee challenged the additions made by the Assessing Officer towards cash found and seized during the course of search, in light of balance sheet filed for the A.Y.2017-18 and also income declared for the A.Y.2018-19 and argued that the assessee is having sufficient income, to explain the cash found during the course of search. The assessee had also claimed that additional income disclosed on account of search for the A.Y.2017-18 is in excess of cash found during the course of search and if we telescope the income, the source for cash found during the course of search is explained. The assessee had also challenged the additions made by the Assessing Officer towards jewellery found during the course of search, in light of wealth tax returns filed for the A.Y.2010-11, in his individual capacity and his spouse, Smt.Asma Farooqi and argued that there is no difference in quantity of jewellery declared in the wealth tax return and found during the course of search and the difference in value is because of the appreciation in the value over a period of time and therefore, the Assessing Officer is erred in making additions towards jewellery u/s 69A of the Act.

The Ld.CIT(A), after considering the relevant submissions of the assessee and also taking note of relevant facts, deleted the additions made by the Assessing Officer, towards cash found and seized during the course of search, by holding that although, there is inconsistency in the explanation furnished by the assessee, regarding the source for cash found, but the telescopic benefit of Rs.26,00,00,000/- declared for the A.Y.2017-18 cannot be denied and if we allow telescopic benefit, then the assessee is able to explain the source for cash found during the course of search, therefore, directed the Assessing Officer to delete the additions made towards cash found and seized u/s 69A of the Act. Similarly, the Ld.CIT(A) deleted the additions towards jewellery found during the course of search, by holding that the assessee and his spouse have filed wealth tax return for the A.Y.2010-11 on 24.12.2012 and jewellery to the extent of Rs.1,68,43,950/- was declared. The Assessing Officer made additions towards jewellery, without bringing on record any difference in the quantity of jewellery, when compared to the jewellery declared in the wealth tax return, however, considered only the value, but the assessee has explained the reasons for increase in the value of jewellery on account of appreciation in the gold prices over the period. Therefore, observed that the Assessing Officer erred in making additions towards jewellery and accordingly, directed the Assessing Officer to delete the additions made towards jewellery found during the course of search u/s 69A of the Act.

Aggrieved by the order of the Ld.CIT(A), the revenue as well as the assessee are in appeal before the Tribunal.

The Ld.Sr.AR, Shri Srinath Sadanala submitted that the Ld.CIT(A) erred in deleting the addition of Rs.1,68,56,000/- towards unexplained cash, without appreciating the fact that telescopic benefit cannot be given for the income of Rs.26,00,00,000/- admitted for the A.Y.2017-18. The Ld.Sr.AR, further submitted that the Ld.CIT(A) erred in deleting the addition of Rs.1,14,91,700/- made u/s 69A of the Act towards unexplained jewellery, without considering the fact that the assessee failed to submit the evidence like wealth tax returns and purchase bills of jewellery etc. The Ld.Sr.AR further submitted that, when the assessee has filed additional evidence, the Ld.CIT(A) ought to have given opportunity to the Assessing Officer in terms of Rule 46A of Income Tax Rules, 1962, before granting relief to the assessee. Therefore, he submitted that the order of the Ld.CIT(A) should be set aside and additions made by the Assessing Officer should be upheld.

The learned counsel for the assessee, Shri P.Murali Mohan, CA, on the other hand supporting the order of the Ld.CIT(A) submitted that, there is no dispute with regard to the fact that, there is inconsistency in the explanation furnished by the assessee, towards cash found during the course of search at the time of search proceedings and at the time of assessment proceedings. However, the fact remains that, the evidence filed by the assessee, including relevant financial statements for the year ending 31.03.2017 clearly establishes, availability of cash in hand and further, the income declared by the assessee, for the year under consideration is also available for the assessee, to explain the source for cash. Further, the assessee has admitted additional income of Rs.26,00,00,000/-, to cover up various discrepancies, which can be telescoped against cash found during the course of search. The Ld.CIT(A), after considering the relevant facts has rightly telescoped the income declared for the A.Y.2017-18 and allowed relief to the assessee.

The learned counsel for the assessee, further submitted that the additions made by the Assessing Officer towards the jewellery found during the course of search, without bringing on record any difference in the quantity of jewellery found during the course of search and declared by the assessee in the wealth tax return for the A.Y.2010-11 is incorrect. The assessee has explained the reasons for difference in the value of jewellery, on account of increase in gold prices over the period. The Ld.CIT(A), after considering the relevant facts has rightly deleted the additions made by the Assessing Officer, therefore, the order of the Ld.CIT(A) should be upheld.

We have heard both the parties, perused the material on record and gone through the orders of the authorities below. There is no dispute with regard to the fact that during the course of search, cash of Rs.1,68,56,000/- was found in the residential premises of the assessee. The assessee was called upon to explain the source, for which, he stated that it is out of loans received from relatives and also cash kept by his relatives for safe keeping. However, during the course of assessment proceedings, the assessee has explained the source for cash, out of opening cash in hand as on 01.04.2017 and also income earned for the F.Y.2017-18, relevant to A.Y.2018-19. Further, the assessee had also explained the source, out of additional income declared for the A.Y.2017-18 for Rs.26,00,00,000/- The Ld.CIT(A), after considering the relevant facts has rightly allowed telescopic benefit, towards cash found during the course of search, out of additional income of Rs.26,00,00,000/- declared by the assessee to cover up various discrepancies for the A.Y.2017-18. The findings and facts recorded by the Ld.CIT(A) is uncontroverted by the revenue with any evidences, except stating that the Assessing Officer has allowed relief by allowing the telescopic benefit. In our considered view, when the assessee declared additional income, which is available for explaining the source, then the same needs to be allowed, unless the Assessing Officer makes out a case, that the said income is represented by any other assets or expenditure of the assessee. Therefore, we are of the considered view that there is no error in the reasons given by the Ld.CIT(A), to delete the additions towards cash found and seized, during the course of search u/s 69A of the Act. Thus, we are inclined to uphold the findings of the Ld.CIT(A) and reject the grounds taken by the Revenue.

Coming back to additions towards jewellery found during the course of search. There is no dispute with regard to the fact that during the course of search, jewellery worth Rs.2,20,13,880/- was found at the residence and lockers of Shri Azaj Farooqi. It is also not in dispute that there is no details as to the quantity of jewellery found during the course of search, either from the assessment order or from the Ld.CIT(A) order. The Assessing Officer made additions of Rs.1,14,91,700/- towards the jewellery found during the course of search, on the ground that the assessee could not explain the source. It was the contention of the assessee that the jewellery found during the course of search was acquired over a period of time by purchase and gifts from friends and relatives on various occasions and the same has been disclosed in the wealth tax returns for the A.Y.2010-11 in his individual capacity and his spouse, Smt. Asma Farooqi. We find that the Assessing Officer has not made out a case of difference in the quantity of jewellery found during the course of search and the jewellery declared by the assessee in the wealth tax return for the A.Y.2010-11. The Assessing Officer made addition only on the basis of value of the jewellery and claimed that there is difference between value of jewellery found during the course of search and the value of jewellery declared in the wealth tax return for the A.Y.2010-11, but the said difference is mainly on account of appreciation in the value of jewellery over a period of time, but not on account of difference in quantity. Therefore, in our considered view, once there is difference in the quantity of jewellery, then there cannot be addition only towards value in jewellery, more particularly, when the assessee is above to explain the value out of appreciation in value of the jewellery. The Ld.CIT(A) after considering the relevant facts has rightly deleted the additions made by the Assessing Officer. Thus, we are inclined to uphold the findings of the Ld.CIT(A) and reject the grounds taken by the Revenue.

In the result, appeal filed by the Revenue is dismissed.

The assessee has filed appeal against the order of the Ld.CIT(A) dated 04.09.2020 and challenged the validity of assessment order, in light of provisions of section 153D of the Act and also supported the order of the Ld.CIT(A) on the issue of deletion of additions towards cash found during the course of search and jewellery found during the course of search u/s 69A of the Act. Since we have upheld the order of the Ld.CIT(A), in allowing relief to the assessee towards additions made on account of cash and jewellery found during the course of search, in our considered view, the appeal filed by the assessee becomes infructuous and thus, the appeal filed by the assessee is dismissed as infructuous.

In the result, appeals filed by the revenue and assessee are dismissed.