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Facts
During a search and seizure operation, unexplained jewellery was found. The assessee contended that the jewellery was purchased using funds withdrawn from M/s Sheetal Industries, where a significant sum was declared as surrendered income. The Assessing Officer (AO) added the value of the jewellery to the assessee's income, but the Commissioner of Income Tax (Appeals) deleted the addition.
Held
The Tribunal held that income cannot be assumed without basis and must be represented by assets or expenditure. Since no unexplained expenditure or assets were found during the search, and the surrendered income from M/s Sheetal Industries was allocated to various items including partner withdrawals, the addition made by the AO was not justified. The funds withdrawn by partners were available to the assessee. The deletion of the addition by the CIT(A) was upheld.
Key Issues
Whether the addition of the value of jewellery found during search, allegedly purchased from surrendered income and partner withdrawals, is justified without discovery of any unexplained expenditure or assets during the search.
Sections Cited
132(1), 139(1), 143(2), 142(1)
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Income Tax Appellate Tribunal, DIVISION BENCH, ‘B’ CHANDIGARH
Before: SHRI RAJPAL YADAV & SHRI KRINWANT SAHAY
the order of the Commissioner of Income Tax (Appeals) [in short ‘the CIT (A)’] dated 11.08.2023 passed for assessment year 2018-19.
Though the Revenue has taken three grounds of appeal
but its substantial grievance is confined to one issue namely, A.Y.2018-19
2. CIT(A) has erred in deleting the addition of Rs.83,72,312/- which was added by the AO on the ground that unexplained jewellery having value equivalent to this amount was found during the course of search.
3. The brief facts of the case are that a search & seizure operation was carried out at the residential premises of the assessee and business premises of the Group under Section 132(1) of the Income Tax Act, 1961 on 25.04.2018. The assessee has filed her return of income under Section 139(1) on 19.06.2018 declaring total income of Rs.2,11,160/-. The case of the assessee was selected for scrutiny and a notice under Section 143(2) was issued on 17.09.2020. The AO thereafter issued number of questionnaires vide notice under Section 142(1). The AO has observed that during the course of search, a locker was opened out of which gold and diamond jewellery was found. While explaining the source of acquisition, assessee had contended that Shri Abhishek Singla has withdrawn a sum of Rs.83,80,000/- from M/s Sheetal Industries. It was further submitted that in the hands of M/s Sheetal Industries, the income of A.Y.2018-19 3 Rs.2,80,00,000/- was surrendered which has been assessed to tax. Shri Anmol Singla withdrew Rs.10,70,000/-, thus this amount was available with the assessee for application against recovery of jewellery. The ld. CIT(A) has noticed the details regarding surrendered amount in the hands of M/s Sheetal Industries and as to how such amount has been allocated towards different items, which read as under :
A.Y. Income Surrendered Particulars Amount (in Rs.) (in Rs.) 2018-19 2,80,00,000/- Building 26,60,998.00 Land 72,43,000.00 Withdrawals by partners 94,50,000.00 Anmol Singla= 1070000/- Abhishek Singla=8380000/- Difference in stock 84,30,002.00 Miscellaneous fixed assets 2,16,000.00
The stand of the assessee was that Rs.83,80,000/- was withdrawn from M/s Sheetal Industries and it was available with her and out of that, this jewellery was purchased. The AO did not accept this contention of the assessee and made the addition.
Dissatisfied with the above, the assessee carried the matter in appeal before CIT(A). Assessee has demonstrated the details vide which amount was surrendered and how that A.Y.2018-19 4 income was allocated to different items of assets. The ld. CIT(A) was satisfied with the explanation of the assessee and deleted it. The First Appellate Authority has reproduced all the seized material and discussed the issue elaborately. Her finding is contained in page No. 16 to 22 of the impugned order.
With the assistance of ld. Representative we have gone through the record carefully. It is pertinent to note that income cannot be assumed in the air. It is always to be represented, either by assets or by expenditure. If during the course of search, neither unexplained expenditure was found nor any asset was found, then there could not be any assumption of unexplained income. In the present case, M/s Sheetal Industries is one of the stakeholder, has declared an extra income of Rs.2,80,00,000/-. This Rs.2,80,00,000/- is to be represented either by unexplained expenditure or by unexplained assets. The assessee has allocated this against the building, land, withdrawals by partners, difference stock etc. This amount which was withdrawn by the partners, it is available in their hands. The Department cannot lay its A.Y.2018-19 5 hand on discovery of cash to the extent of Rs.94,50,000/-.
We could appreciate the case of the AO had a cash was recovered or unexplained expenditure was discovered during the search. If both things are not there, then what happened to that cash which has been declared extra in M/s Sheetal Industries. It is to be set off against the unexplained jewellery as submitted by the assessee. Therefore, ld. First Appellate Authority has rightly deleted the addition and no interference is called for.
In the result, appeal of the Revenue is dismissed.
Order pronounced on 09.01.2025.