DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 8(3) (ERSTWHILE DCIT, CC-46, MUMBAI), MUMBAI vs. MANEKCHAND KOTHARI, MUMBAI

Appellant by: Shri H.N. Singh, CIT/DR Respondent by: Shri Chetan A Karia, A.R Date of Hearing: 09.12.2019 Date of Pronouncement: 17.01.2020 O R D E R

PER RAVISH SOOD, JM

2. Briefly stated, the assessee had filed his return of income for A.Y 2014-15 on 30-07- 2014, declaring a total income of Rs. 2,00,900/-. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act.

2 DCIT-Central Circle-8(3) Vs. Shri Manekchand Kothari diamond jewellery of an aggregate value of Rs. 2,70,72,253/- was found. As the main persons of the assessee group were not available at the time of the search proceedings, therefore, their statements could not be recorded under Sec. 132(4) of the Act. Statement of Smt. Dimple Mahesh Kothari (daughter-in-law of the assessee) who was available at the time of the search proceedings was recorded under Sec. 132(4) of the Act. However, in her statement she expressed her inability to explain the source of acquisition of the aforesaid diamond jewellery. Subsequently, the statement of Shri Rakesh Manekchand Kothari (son of the assessee) was recorded on 08.08.2013 i.e at the time of revocation of the prohibitory order in the presence of other family members. On being confronted with the details of the diamond jewellery which was found in the course of the search proceedings, it was submitted by him that the same belonged to him and his family members. As regards the source of acquisition of the aforesaid diamond jewellery, it was submitted by him viz. (i) that, diamond jewellery of a value aggregating to Rs. 1,23,95,850/- was sourced out of the cut and polished diamonds which were purchased in the month of May, 2013 in the name of S/smt. Dimple Kothari and Nikki Kothari (daughters-in-law of the assessee) and Smt. Devuben Kothari (wife of the assessee) from certain jewellers viz. M/s Opulent Jewels Pvt. Ltd., M/s H.D.K. international Pvt. Ltd. and M/s Shree Shyam International; (ii) that, the old diamond jewellery found during the search proceedings was duly disclosed in the wealth tax returns of his family members; (iii) that, certain diamond jewellery belonged to Shri Rajesh Kothari and his wife Smt. Shilpa Kothari (non-resident son and daughter-in-law of the assessee), which matched with the respective „valuation reports‟ of the government approved valuers prepared way back in the year 1994 and 2005; (iv) that, the diamond jewellery that was found on the person of Smt. Nikki Kothari during the course of the search proceedings was her stree dhan that was received by her on various occasions; and (v) that, the diamond jewellery that was found in the course of the search proceedings from Shop No. 8 Bapty Road, Daval Bhuvan, Kamathipura, Mumbai was purchased in cash, though no supporting bills as regards the same had been retained. Thereafter, the statement of the assessee was also recorded under Sec. 132(4) on 07.08.2013. In his statement, the assessee also came forth with a similar explanation as regards the source of acquisition of the diamond jewellery that was found in the course of the search proceedings.

3 DCIT-Central Circle-8(3) Vs. Shri Manekchand Kothari 4. In the course of the assessment proceedings, the assessee on being called upon to explain the source of acquisition of the diamond jewellery of an aggregate value of Rs.2,70,72,255/- that was found in the course of the search proceedings, therein reiterated his earlier reply. It was the claim of the assessee before the A.O that in May, 2013 i.e prior to the search proceedings cut and polished diamonds were purchased by him (on credit) in the name of his family members viz.(i) Smt. Devuben Kothari: Rs.63,09,275/-; (ii) Smt. Dimple Kothari: Rs.25,18,081/-; and (iii) Smt. Nikki Kothari: Rs.35,68,494/- from certain jewellers viz. M/s Opulent Jewels Pvt. Ltd., M/s H.D.K. international Pvt. Ltd. and M/s Shree Shyam International, which thereafter were given to certain parties for making of diamond jewellery. It was the claim of the assessee that the aforesaid diamond jewellery was found in the course of the search proceedings. On a perusal of the details, it was observed by the A.O that the assessee had claimed to have paid the purchase consideration of the cut and polished diamonds to the aforesaid jewellers on 09.07.2013 i.e subsequent to the search proceedings. On being queried by the A.O that as to whether in the past 10 years he had ever carried out a similar purchase of diamonds, the assessee replied in the negative. On a query raised by the A.O as to what was the occasion for purchasing the diamonds, it was submitted by the assessee that he had made the investment as at the relevant point of time the purchase value of diamonds had witnessed a fall. However, the A.O was not satisfied with the genuineness of the aforesaid claim of the assessee. Observing, that the assessee in his attempt to justify his unexplained investment in the diamond jewellery that was found in the course of the search proceedings had came up with a concocted story, the A.O declined to accept the same. As such, the explanation of the assessee that he had purchased cut and polished diamonds before the search proceedings in the name of his family members viz. (i) Smt. Devuben Kothari: Rs.63,09,275/-; (ii) Smt. Dimple Kothari: Rs.25,18,081/-; and (iii) Smt. Nikki Kothari: Rs.35,68,494/-, which thereafter were given to certain jewellers for making of diamond jewellery was rejected by the A.O. As regards the claim of the assessee that part of the diamond jewellery belonged to his NRI son and daughter- in-law viz. Shri Rajesh Kothari (Rs.10,15,373/-) and Smt. Shilpa Kothari (Rs.12,39,346/-), who in their absence from India had kept their jewellery with him, also did not find favour with the A.O. Further, as the assessee was unable to substantiate on the basis of supporting documentary evidence that the balance diamond jewellery of a value of Rs. 49,37,444/- was acquired by him from his explained sources, the A.O declined to accept the said claim of the 4 DCIT-Central Circle-8(3) Vs. Shri Manekchand Kothari assessee. On the basis of his aforesaid observations, it was concluded by the A.O that the assessee had made an unaccounted investment in diamond jewellery of a value aggregating to Rs.1,95,88,013/-.

8. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. Admittedly, diamond jewellery of a value aggregating to Rs.2,70,72,255/- was found in the course of the search proceedings conducted at the premises of the assessee and his family members. As is discernible from the assessment order, the A.O did not find favour with the explanation of the assessee as regards the source of acquisition of diamond jewellery of a value of Rs. 1,95,88,013/-. As observed by us hereinabove, the explanation of the assessee as regards the source of the aforesaid diamond jewellery of a value of Rs.1,95,88,013/- comprised of three parts viz.(i) that, diamond jewellery of a value of Rs.1,23,95,850/- was sourced out of the cut and polished diamonds which were purchased in the month of May, 2013 in the name of S/ssmt. Devuben Kothari, Dimple Kothari and Nikki Kothari from M/s Opulent Jewellers Pvt. Ltd., M/s H.D.K. International Pvt. Ltd. and M/s Shree Shyam International; (ii) that, the diamond jewellery of a value of Rs.10,15,373/- belonged to Shri Rajesh Kothari (Non-resident son); (iii) that, diamond jewellery of a value of Rs.12,39,346/- belonged to Smt. Shilpa Kothari (Non-resident daughter-in-law); and (iv) that, the balance diamond jewellery of a value of Rs.49,37,444/- was purchased out of withdrawals that were made over the years. As the explanation of the assessee did not find favour with the A.O, therefore, he had held the entire value of the diamond jewellery of Rs.1,95,88,013/- as an unexplained investment of the assessee under Sec. 69A of the Act. On appeal, the CIT(A) accepted the explanation of the assessee insofar the source of acquisition of diamond jewellery of Rs.1,46,50,569/- [Rs.1,23,95,050/- (+)Rs.10,15,373/- (+) Rs.12,39,346/-] was concerned. As 7 DCIT-Central Circle-8(3) Vs. Shri Manekchand Kothari regards the balance addition of Rs.49,37,444/-, the same was restricted by the CIT(A) to the extent of Rs.24,68,722/- [50% of Rs. 49,37,444/-].

Dimple Kothari Premise Sr. No. of diamond jewellery Value (Rs.) valuation report Bed Room of Dimple Kothari Shreepati 1 20116 Arcade, Nana Chowk Safe of Devkumari Kothari, Shreepati 1 189890 Arcade, Safe of Devkumari Kothari, Shreepati 29 886047 Arcade, Safe of Devkumari Kothari, Shreepati 31 749698 Arcade, Safe of Devkumari Kothari, Shreepati 32 491380 Arcade, Total 2518081 Devkumari Kothari Premise Sr. No. of diamond jewellery Value (Rs.) valuation report Bed Room of Dimple Kothari Shreepati 2 109115 Arcade, Nana Chowk -do- 10 457465 -do- 13 199885 -do- 15 104556 -do- 16 99488 -do- 17 149895 -do- 41 116493 Bed Room of Dimple Kothari Shreepati 2 384820 Arcade, Nana Chowk -do- 4 435470 -do- 6 811689 -do- 7 871475 Safe of Devkumari Kothari, Shreepati 2 426424 Arcade,Nana Chowk -do- 3 196530 -do- 5 719130 -do- 12 256840 -do- 16 105880

8 DCIT-Central Circle-8(3) Vs. Shri Manekchand Kothari

-do- 21 711720 -do- 23 152400 Total 6309275 Nikki Kothari Premise Sr. No. of diamond jewellery Value (Rs.) valuation report Bed Room of Dimple Kothari Shreepati 9 78186 Arcade, Nana Chowk -do- 14 78824 Bed Room of Devkumari Kothari 1 903406 Shreepati Arcade, Nana Chowk -do- 5 334813 Safe of Devkumari Kothari, Shreepati 27 293065 Arcade,Nana Chowk Devkumari Kothari, A-43, Bharat Nagar, 4 1880000 Grant Road, Mumbai Total 3568294 It is the claim of the assessee that he had purchased cut and polished diamonds from certain jewellers viz. M/s Opulent Jewellers Pvt. Ltd., M/s H.D.K. International Pvt. Ltd. and M/s Shyam International in the month of May, 2013 i.e prior to the search proceedings, which thereafter were given to certain goldsmiths for making of diamond jewellery. However, as observed by us hereinabove, the aforesaid claim of the assessee was rejected by the A.O for multiple reasons viz. (i) that, the assessee had never in the last 10 years made such alike purchases of cut and polished diamonds; (ii) that, the cut and polished diamonds were claimed to have been purchased by the assessee in the month of May, 2013 while for the search was conducted on 09.07.2013; (iii) that, there was no occasion for making of such purchases by the assessee; (iv) that, the fact that the assessee had made investments in the purchase of diamonds (on credit) was beyond comprehension; (v) that, no payments were made to the jewellers from whom the cut and polished diamonds were claimed to have been purchased till the date of search; and (vi) that, the claim of the assessee of having given the cut and polished diamonds for making of diamond jewellery to the jewellers was an afterthought.

9 DCIT-Central Circle-8(3) Vs. Shri Manekchand Kothari were conducted, their statements could not be then so recorded under Sec. 132(4) of the Act. However, the statement of Shri Rakesh Manekchand Kothari (son of the assessee) was recorded on 08.08.2013 i.e at the time of revocation of the prohibitory order in the presence of other family members. On being called upon to explain the source of acquisition of the diamond jewellery of a value aggregating to Rs.2,70,72,255/- that was found in the course of the search proceedings, as under:

Sr. No. Places where found Diamond jewellery found Gold Diamond Value 1. Residence of Manekchand Kothari at A-43 Bharat 90.5 14.7 2423500 Nagar, Grant Road, Mumbai 2. Residence of Rakesh Kothari and Mukesh Kothari 2032.75 317.64 12089201 at 3001-04, Shreepati Arcade Nana chowk, Mumbai 3. From the safe of debuben at Shreepati Arcade at 1682.464 238.53 9717638 the residence of Mukesh & Rakesh Kothari 4. Locker No. B-442, in the name of Rakesh Kothari, 243.2 19.95 1024215 Shilpa Kothari and Devkumari Kothari at Standards Chartered Bank, Breach candy, Mumbai 5. Locker No. B-452, in the name of Rakesh M. 0 0 0 Kothari, Dimple Kothari, and Mukesh M. Kothari at Standard Chartered Bank, Breach candy Mumbai 6. Locker No. B-160, Crescent Safe deposit vault pvt. 0 0 0 Ltd. Bharat Nagar, M.S. Road, Mumbai 7. Locker No. 56/1 in the name of Manekchand Kothari 0 0 0 at Jalore Nagrik Sahakari Bank Ltd.

9. Locker No. 239/5 in the name of Manekchand 0 0 0 Kothari at Jalore nagrik Sahakari Bank Ltd.

10. Locker No.874-B in the name of Manekchand 0 0 0 Kothari at Bank of Baroda, Morland Road Branch, Mumbai 11. Locker No. B-486 in the name of Rakesh M. Kothari 0 0 0 and Nikki Kothari at Standard Chartered Bank. Breach candy Mumbai.

10 DCIT-Central Circle-8(3) Vs. Shri Manekchand Kothari law of the assessee) and Smt. Devuben Kothari (wife of the assessee) from certain jewellers viz. M/s Opulent Jewels Pvt. Ltd., M/s H.D.K. international Pvt. Ltd. and M/s Shree Shyam International; (ii) that, old diamond jewellery found in the course of the search proceedings was duly disclosed in the wealth tax returns of his family members; (iii) that, certain diamond jewellery belonged to Shri Rajesh Kothari and his wife Smt. Shilpa Kothari (non-resident son and daughter-in-law of the assessee), which matched with the respective „valuation reports‟ of government approved valuers that were prepared way back in the year 1994 and 2005; (iv) that, the diamond jewellery that was found on the person of Smt. Nikki Kothari during the course of the search proceedings was the stree dhan that was received by her on various occasions; and (v) that, the diamond jewellery which was found in the course of the search proceedings at Shop No. 8 Bapty Road, Daval Bhuvan, Kamathipura, Mumbai was purchased by him in cash, but no supporting documents as regards the same was retained by him. However, the A.O was not persuaded to accept the claim of the assessee that diamond jewellery of a value of Rs.1,23,95,850/- was sourced out of the cut and polished diamonds which were claimed to have been purchased in the month of May, 2013 in the name of S/smt. Dimple Kothari & Nikki Kothari (daughters in law of the assessee) and Smt. Devuben Kothari (wife of the assessee), from certain jewellers viz. M/s Opulent Jewellers Pvt. ltd., M/s H.D.K. Internationals Pvt. ltd. and M/s Shree Shyam International. As for the reasons for doubting the authenticity of the aforesaid explanation, the same had already been discussed at length by us hereinabove.

12 DCIT-Central Circle-8(3) Vs. Shri Manekchand Kothari bullion, jewellery or other valuable article was found to be false. Now, in the case before us the A.O had merely harped on the fact that as per the principle of preponderance of probability the explanation of the assessee was not free from doubts. However, while concluding as hereinabove, the A.O had lost sight of the statutory obligation which was cast upon him, as per which he was obligated to disprove the authenticity of the explanation of the assessee, which in our considered view could have done only after dislodging the documentary evidence that was furnished by the assessee in support of his claim. As such, the A.O ought to have disproved the claim of the assessee and therein should have established on the basis of necessary verifications that the assessee had not made any genuine purchases of cut and polished diamonds in the month of May,2013 i.e prior to the search proceedings. As the assessee had supported his aforesaid claim on the basis of documentary evidence viz. purchase bills of the aforesaid jewellers, which evidenced that cut and polished diamonds were purchased by him on the dates therein specified, therefore, a very heavy onus was cast upon the A.O to prove the falsity of the aforesaid claim of the assessee, which we are afraid he had failed to do. As such, the aforesaid serious infirmity on the part of the A.O to dislodge the authenticity of the aforesaid claim of the assessee that he had purchased cut and polished diamonds in the month of May, 2013 cannot be subscribed on our part. In fact, the ld. A.R in the course of the proceedings before us had drawn our attention to the aforesaid purchase bills of the jewellers, which duly evidenced the factum of purchase of cut and polished diamonds by the assessee from the aforesaid jewellers. Apart from that, we find, that the assessee had claimed that after purchasing the aforesaid cut and polished diamonds from the aforementioned jewellers he had delivered the same to certain jewellers for making of diamond jewellery. In fact, in order to fortify the aforesaid fact, the assessee had claimed to have made payment of labour charges to the aforesaid parties in cash and had placed on record documentary evidence supporting the same. However, we find, that the A.O had not even considered it apt to verify the authenticity of the aforesaid claim of the assessee by either summoning the aforesaid parties or calling for any confirmations from them. Rather, at no stage in the course of the assessment proceedings the A.O had even asked the assessee to substantiate the veracity of his aforesaid claim by producing the parties to whom the payment of making charges of diamond jewellery were claimed to have been paid. On the basis of the aforesaid facts, we are of a strong conviction that the A.O had without any basis and in fact backed by a pre-determined mind most arbitrarily

13 DCIT-Central Circle-8(3) Vs. Shri Manekchand Kothari concluded that the assessee had made an unexplained investment within the meaning of Sec. 69A in diamond jewellery of a value aggregating to Rs.1,23,95,850/-. On the basis of our aforesaid deliberations, we are unable to persuade ourselves to accept the view taken by the A.O. Apart from that, we find that involving identical facts the co-ordinate bench of the Tribunal viz. ITAT “B” Bench, Mumbai had in the case of the related parties of the assessee deleted similar additions which were made by the A.O without dislodging the factual claim of the assessee viz. (i) DCIT, CC-8(3), Mumbai Vs. Shri Bhawarlal S. Kothari, dated 19.08.2019; and (ii) DCIT, CC-8(3), Mumbai Vs. Shri Prithviraj Kothari, ITA No. 196/Mum/2018, dated 09.04.2019 (copy of orders placed on record). As such, finding no infirmity in the view taken by the CIT(A) who in our considered view had rightly concluded that as the assessee by placing on record supporting documentary evidence viz. purchase bills of diamonds, remaking bills for conversion of diamonds into jewellery and payment details in respect of its acquisition, both at the time of post-search proceedings and the assessment proceedings had duly explained the source of acquisition of the diamond jewellery of a value of Rs. 1,23,95,850/-, therefore, the A.O was in error in treating the same as an unexplained investment of the assessee under Sec. 69A of the Act, we uphold his order to the said extent.

12. We shall now advert to the claim of the assessee that part of the diamond jewellery found in the course of the search proceedings belonged to his NRI son and daughter-in-law viz. Shri Rajesh Kothari (Rs.10,15,373/-) and Smt. Shilpa Kothari (Rs.1,39,346/-), who had kept the same with him for safe custody during their absence from India. As observed by us hereinabove, the aforesaid explanation of the assessee did not find favour with the A.O and was rejected by him. On appeal, the CIT(A) had observed that the assessee on the basis of the respective valuation reports of wealth that were prepared way back in the year 1994 and 2005 of Shri Rajesh Kothari (NRI Son) and Smt. Shilpa Kothari (NRI Daughter-in-law), respectively, had substantiated the fact that certain jewellery found in the course of the search proceedings belonged to the aforesaid persons. On the basis of the aforesaid facts the CIT(A) held a conviction that now when the assessee had duly evidenced his aforesaid claim, therefore, the A.O was in error in dislodging the same without proving to the contrary. We have given a thoughtful consideration and find no infirmity in the view taken by the CIT(A). In our considered

14 DCIT-Central Circle-8(3) Vs. Shri Manekchand Kothari view, though the assessee had placed on record supporting documentary evidence in the form of „valuation reports‟ pertaining to the jewellery owned by Shri Rajesh Kothari (NRI son) and Smt. Shilpa Kothari (NRI daughter-in-law) which was stated to have been kept by the said respective persons with him for safe custody during their absence from India, the A.O on the other hand had summarily discarded the said claim of the assessee and had without placing on record any material which could evidence the falsity of the said claim, had drawn adverse inferences. In fact, we find that the A.O had not even recorded any reasoning for disbelieving the aforesaid claim of the assessee. As such, we are unable to persuade ourselves to subscribe to the aforesaid view taken by the A.O and uphold the observations of the CIT(A) in context of the issue under consideration.