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Jewellery found during Search can be treated as unexplained investment if there is no evidence to show source of income for their purchase: ITAT

2019-TIOL-1531-ITAT-MUM

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH ‘SMC’ MUMBAI

ITA No.2842/Mum/2018
Assessment Year: 2014-15

GIRISH KUMAR PUNGALIA
FLAT NO D-11/12, 2ND FLOOR, KRISHNA LEELA SOCIETY
BANGUR NAGAR, GOREGAON (W), MUMBAI – 400090
PAN NO: AABPP4827H

Vs

DEPUTY COMMISSIONER OF INCOME TAX
CENTRAL CIRCLE 5(1), ROOM NO 1928, 19TH FLOOR
AIR INDIA BUILDING, MUMBAI – 400021

Shamim Yahya, AM & Ravish Sood, JM

Date of Hearing: May 02, 2019
Date of Decision: June 13, 2019

Appellant Rep by: Shri A K Ghosh, AR
Respondent Rep by: 
Shri Chaitnya Anjaria, DR

Income Tax – Section 132

Keywords – CBDT Instruction No. 1916 – Documentary evidence – Search and seizure – Unexplained investment

THE assessee had e-filed his return for A.Y 2014-15 declaring total income of Rs 18.36 lacs. During the course of the search and seizure proceedings, diamond/gold jewellery was found/seized from the residential premises and bank lockers belonging to the assessee and his wife. Further during the course of the assessment proceedings the A.O called upon the assessee to explain the source of the jewellery found during the course of the search and seizure proceedings, alongwith supporting documents to substantiate his claim. The claim of the assessee that as the aforesaid jewellery formed part of the “Valuation report” of a government approved valuer for the year 2001 and 2007, hence the same could not be treated as an unexplained investment. However, AO rejected the submissions of the assessee. Therefore, the A.O made an addition of Rs. 29.26 lacs on account of unexplained investment in the hands of the assessee. Further, the CIT(A) dismissed the appeal of the assessee.

On appeal, the Tribunal held that,

Whether Jewellery found during search can be treated as unexplained investment if assessee fails to furnish any documentary evidence to substantiate the source of income for their purchase – YES: ITAT

++ it is to be noted that the A.O in all fairness after considering the CBDT Instruction No. 1916 concluded that gold jewellery of 1450 gms could be held as unexplained in the hand of the assessee and his family members. Apart there from, it is a fact borne from the records, that the assessee had failed to furnish any documentary evidence to support the source of purchase/acquisition of the balance gold/diamond jewellery that was found during the course of the search proceedings. Therefore, Tribunal on this relevant issue is of the view that the unsubstantiated “valuation report” of the government approved valuer, the authenticity of which had never been scrutinised and verified by the department in no way can support the claim of the counsel of the assessee that the jewellery found during the course of the search proceedings was acquired by the assessee from his explained sources. Therefore, Tribunal is of the view, the stand alone and unsubstantiated “valuation report” of the government approved valuer, would in no way assist the assessee for characterising the jewellery found from his residential premises/lockers, as an investment made by him from explained sources. Accordingly, this Tribunal finds no infirmity in the order of the CIT(A).

Assessee’s appeal dismissed

ORDER

Per: Ravish Sood:

The present appeal filed by the assessee is directed against the order passed by CIT(A)-53, Mumbai, which in turn arises from the order passed by the A.O under Sec.143(3) of the Income-Tax Act, 1961 (for short “Act”), dated 22.03.2016. The assessee assailing the order of the CIT(A) has raised before us the following grounds of appeal:

“1. The learned CIT(A) has erred in law and on facts in upholding the order passed by the Assessing Officer u/s. 143(3) of the Income-tax Act, 1961 which is invalid and bad in law.

2. The learned CIT(A) has erred in law and on facts in upholding the addition of Rs.29,26,148/- made by the Assessing Officer on account of alleged unexplained investment in jewellery found during the course of the search.

3. The order passed by the learned CIT(A) is in violation of principles of natural Justice and bad in law.

4. The appellant craves leave to add to, amend, alter or delete all or any of the foregoing grounds of appeal.”

2. Briefly stated, search and seizure proceedings under Sec. 132(1) of the Act, were conducted on 24.09.2013 in the case of Anand Rathi Group and its group concerns. The assessee who is an employee with M/s Amit Capital and Securities Pvt. ltd., which is engaged in the business of share broking, merchant banking activities, financial advisory and depository services was also covered under the said search and seizure operations. The assessee had e-filed his return of income for A.Y 2014-15 on 01.11.2014, declaring total income of Rs.18,36,980/-.

3. During the course of the search and seizure proceedings, diamond/gold jewellery was found/seized from the residential premises and bank lockers belonging to the assessee and his wife, namely Mrs. Poonam Pongalia, as under :

Particulars of premisesGold JewelleryValuation of diamond jewellery (in Rs.0Valuation of silver ware (in Rs.)Total value (in Rs.)
Weight in gramsValuation (in Rs.0
Residence446.0608,98,8813,60,4692,20,00014,79,350
Locker No. 324, SBBJ933.60024,95,22415,61,80068,66141,25,685
Locker No. 1283, Bank of Baroda466.80011,61,1514,35,848Nil15,96,999
Total1846.4645,55,25623,58,1172,88,66172,02,034

Insofar, the jewellery items found from the residence of the assessee were concerned, it was explained by the assessee in his statement recorded on 24.09.2013 that most of the jewellery items were purchased by him out of his personal funds, while for some of those were received as gifts. As regards the jewellery items which were found from the bank locker No. 1283 maintained by the assessee with Bank of Baroda, it was submitted by him that considering his family background the jewellery to the extent found could safely be held to be reasonable. Apart there from, it was submitted by the assessee that the majority of the aforesaid gold jewellery was part of the istridhan of his wife and mother. The assessee tried to impress upon the search officials, that the jewellery found in the aforesaid locker belonged to his mother, which after being remoulded into new designs was lying with him and his wife. Further, it was submitted by the assessee, that as his average salary was more than 20 lacs per year, therefore, he had substantial cash withdrawals which justifiably explained the investment made by him towards purchase of gold jewellery. Insofar the diamond jewellery was concerned, it was submitted by the assessee before the search officials that though he was unable to produce any details or invoices issued by any jeweller, however, he could fully justify the source from where investment towards purchase of the said jewellery was made by him. As regards the jewellery items lying in locker no. 324 with State Bank of Bikaner & Jaipur, the assessee came forth with the same explanation that was advanced by him in respect of the jewellery items that were recovered from his locker No. 1283 with Bank of Baroda. Further, it was submitted by the assessee, that part of the aforesaid jewellery was inherited by him and, also received by way of gifts from friends and relatives at various occasions, viz. birthdays, anniversaries and festivals etc. However, it was admitted by the assessee before the search officials that he was unable to provide any kind of documentary evidence explaining the mode of acquisition and also, the exact source for purchasing the said jewellery items. As is discernible from the orders of the lower authorities, the assessee had failed to produce any credible documentary evidence in support of his claim as regards the source of acquisition of the aforesaid gold jewellery weighing 1846.46 gms that was found from his residence/lockers during the course of the search proceedings. However, the search officials taking cognizance of the fact that there were two married ladies, two male members and one unmarried lady in the assesses family, therefore, in conformity with the CBDT Instruction No. 1916, treating 1450 gms of gold jewellery as acquired by the assessee and his family from their disclosed sources, thus, seized only the balance 564.80 gms of gold jewellery. Also, the entire diamond jewellery of a value of Rs.15,61,800/- that was found from the assesses locker no. 324 with State Bank of Bikaner & Jaipur was also seized.

4. During the course of the assessment proceedings the A.O called upon the assessee to explain the source of the jewellery found during the course of the search and seizure proceedings, alongwith supporting documents to substantiate his claim. In reply, it was submitted by the assessee, as under :

“With regard to Jewellery found, I would like to submit as under :

With regard to Jewellery found of Rs.72,02,683/- found at Flat No. D11/12, 2nd Floor, Krishna Lee/a Society Bangur Nagar, Goregaon (W) Mumbai – 400090 and at bank lockers, I would like to submit as under:

Sr. No.Location of premisesJewellery foundJewellery seized
1.Flat No. D 11/12, 2nd Floor, Krishna Leela Society Bangur Nagar, Goregaon (W) Mumbai – 400 090Rs.14,80,000.00Nil
2.Bank of Baroda Goregaon (W) Locker No. 1283ARs.15,96,998.50Nil
3.State Bank of Bikaner & Jaipur Goregaon (W) Locker No. 324Rs.10,31,742.00Rs.30,93,943.00

With regard to above jewellery found, it is submitted that I am a Chartered Accountant qualified in 1990 and filing income tax returns since last 25 years. It is further submitted that my family is joint family and the staying together as per the Custom. I would like to state that the said Jewellery belongs to my Joint Family. The my family consist of Mrs. Poonam Pungalia (wife), Mrs. Jamku Devi Pungalia (mother), Master Hitesh (son) and Ms. Vidhi (daughter). In this regard we ore enclosing the copy of valuation report of jewellery as on 31.03.2007 of myself , my wi fe and my mother. It is submitted that the jewellery consist of my ancestral jewellery which is belonging to my ancestors which was passed on to my Mother on account of inheritance therefore, question of source of funds for acquisition of such jewellery does not arise. It is further submitted that jewellery also consist of jewellery brought by my father (who was serve as a branch manager in bank) at the time of my marriage as well as acquired out of the drawings from time to time. It is further submitted that the respective individual members were not liable to tax under the Wealth Tax provision and accordingly individual wealth tax returns were not filed. It is further submitted that considering the above fact and the explanation given by me during the post search proceedings, all the jewellery were released except jewellery seized of Rs.30,93,943/- and Rs.4,35,900/- PO was taken by investigation team. It is submitted that there we are five members in the family and considering that the jewellery found is within the limits and earning capacity as chartered accountant for about 25 years. it is further submitted that/do not have any source of earning any unaccounted money. In view of the above, it is prayed that none of the jewellery found in case of my family can be treated as out of undisclosed sources.

Without Prejudice to the above, we would like to rely on the Instruction No. 1916 (F.No.286/63/93 – IT (Inv-II) (copy enclosed), it is submitted that we have prepared a consolidated chart explaining the total Gold Jewellery found during the course of search as shown above.

It is to clarify that the details of my family members are as under:

Girish Pungalia – Self100 gms.
Poonam Pungolia – Wife500 gms.
Jamku devi Pungalia – mother500 gms.
Master Hitesh Pungalia – Son100 gms.
Vidhi Pungalia – Daughter250 gms.
 1450 gms

It is submitted that considering the gold jewellery found at Residence and locker which is aggregating to 1846.46 grams, it is submitted that as per the circular the jewellery is exceeding with 396 grams only which is purchased of out of my taxable income from time to time (bills are enclosed).

In view of above I also pray to release jewellery seized from bank locker at the time of search. I also request you to release a sum of Rs.4,35,900/- and Rs.98,000/- deposited with income tax authorities.”

Further, the assessee vide his letter dated 12.03.2016 relied upon a “valuation report” of a government approved valuer, for the year 2001 and 2007 in respect of diamond and silver jewellery. Apart there from, the assessee also submitted the copy of the pension card of his mother, along with her pass book, in order to substantiate the source of purchase of jewellery by her. Further, it was also submitted by the assessee, that his father who was employed as a branch manager with State Bank of Bikaner & Jaipur used to invest his savings towards purchase of jewellery and other tangible assets. In order to impress upon the A.O that the jewellery that was owned by him, his mother Smt. Jamku Devi and his wife Smt. Poonam Punglia was acquired out of explained sources, the assessee submitted copies of the valuation report in support thereof. Further, the assessee also submitted the copies of “bills” of 3 standard gold bars weighing 166.21 gms, which were claimed by him to have been purchased through banking channels on 3 occasions from a jeweller viz. M/s Sunil Kumar R. Aggarwal, 60-A, Kavi Niravgali, Shop No. 12, Zhaveri Bazar, Mumbai. The assessee in the course of the proceedings before the A.O tried to take support of the fact, that as he was a Chartered Accountant who had qualified 26 years back and, was earning handsome salary since then, coupled with the fact that his father was a branch manager in a nationalised bank, therefore, his family had sufficient financial means to acquire the aforesaid jewellery from explained sources. The A.O after deliberating at length on the contentions advanced by the assessee observed, that as per the CBDT Instruction no. 1916 [file no. 286/63/93-IT (Inv-II)], jewellery weighing 1450 gms could be treated as acquired from explained sources. Further, the three gold bars having aggregate weight of 166.21 gms for which “bills” were submitted by the assessee during the course of the assessment proceedings, were also held by the A.O to have been acquired by the assessee from explained sources. Insofar the balance of the excess jewellery weighing 230.25 gms was concerned, the A.O treated the same as an unexplained investments in the hands of the assessee. The claim of the assessee that as the aforesaid jewellery formed part of the “Valuation report” of a government approved valuer for the year 2001 and 2007, hence the same could not be treated as an unexplained investment, however, did not find favour with the A.O. In fact, the A.O was of the view, that now when the benefit of Instruction no 1916 of CBDT was given to the assessee, therefore, in the absence of any supporting documentary evidence to substantiate the source of acquisition of the balance excess jewellery weighing 230.25 gms no further benefit could be given to him. As regards the diamond jewellery of Rs. 23,58,117/- that was found during the course of the search proceedings, the same was also treated by the A.O as an unexplained investment in the hands of the assessee. On the basis of his aforesaid observations the A.O made an addition of Rs. 29,26,148/-viz. (i) Gold jewellery (230.25 gms) : Rs.5,68,031/-; and (ii) Diamond Jewellery :Rs.23,58,117/-, by treating the same as an unexplained investment in the hands of the assessee.

5. Aggrieved, the assessee carried the matter in appeal before the CIT(A). However, the CIT(A) after deliberating on the contentions advanced by the assessee was not persuaded to accept the same. It was observed by the CIT(A) that the A.O had already granted the requisite benefit and, had held the gold jewellery of 1450 gms as explained in the hands of the assessee and his family members. Further, it was observed by him, that the A.O had also not made any addition insofar the silverware items of Rs. 2.88 lacs that were found during the course of the search proceedings. In the backdrop of his aforesaid observations the CIT(A) dismissed the appeal.

6. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorized Representative (for short “A.R”) for the assessee, took us through the relevant observations of the A.O in context of the issue under consideration. The ld. A.R drew our attention to the details of the gold and diamond jewellery that were found during the course of the search proceedings, at Page 1 of the assesses “Paper Book” (for short “APB”). Further, the ld. A.R drew our attention to the details of the gold & diamond jewellery, which as claimed by him, were duly accounted for as per the “Valuation report” of a government approved registered valuer on 31.03.2007 (Page 14 of APB). The ld. A.R also took us through the “Valuation report”, dated 08.07.2007 of the government appointed valuer viz. Jayant Prafulla Kumar Bhansali, wherein the latter had certified the weight/value of gold and diamond jewellery held by the assessee, his mother and his wife. In the backdrop of the aforesaid facts, it was the claim of the assessee that the A.O had failed to appreciate that as the aforesaid gold & diamond jewellery were duly reported by the registered valuer in his “valuation report”, dated 08.07.2007, therefore, no part of the jewellery found during the course of the search proceedings could be held as an unexplained investment in the hands of the assessee.

7. Per contra, the ld. Departmental Representative (for short “D.R”) relied on the orders of the lower authorities. It was submitted by the ld. D.R, that the A.O had adopted a considerate approach and following the CBDT Instruction No. 1916, had after considering the structure of the assesses family treated 1450 gms of gold jewellery as having been acquired from explained sources. It was submitted by the ld. D.R, that as no infirmity did emerge from the order of the CIT(A), therefore, the appeal of the assessee which was devoid and bereft of any merit was liable to be dismissed.

8. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. Admittedly, the gold jewellery weighing 1846.46 gms was found from the residential premises/lockers of the assessee during the course of the search proceedings. Apart there from, diamond jewellery worth Rs.15,61,800/-was also found and seized from the locker no. 324 of the assessee with State Bank of Bikaner & Jaipur. As regards the source of acquisition of the jewellery was concerned, we find, that the assessee on the basis of supporting purchase bills could substantiate purchase of only three gold bars having an aggregate weight of 166.21 gms, which were purchased by him vide cheque payments on three occasions from a jeweller viz. M/s Suneel Kumar R. Aggarwal, 60A Kavi Nirav Gali, Shop No. 12, Jhavery Bazar, Mumbai. As is discernible from the orders of the lower authorities, the A.O observing that there were two married ladies, two male members and one unmarried lady in the family of the assessee, had thus, by drawing support from the CBDT Instruction No. 1916 observed, that jewellery weighing 1450 gms could safely be held as having been acquired by the assessee and his family members from explained sources. As regards the balance gold jewellery weighing 230.25 gms of a value of Rs.5,68,031/- and, diamond jewellery of Rs.23,58,117/-, it was observed by the A.O that as the assessee had failed to explain the source of acquisition of the same on the basis of any cogent material, therefore, he treated the same as an unexplained investment in his hand.

9. We have deliberated at length on the issue under consideration and, are unable to persuade ourselves to subscribe to the contention of the ld. A.R, that the lower authorities had erred in treating the gold jewellery (wt. 230.25 gms) of a value of Rs.5,68,031/- and, diamond jewellery of Rs.23,58,117/-, as unexplained investment in the hands of the assessee. Admittedly, as is discernible from the orders of the lower authorities, the assessee had only been able to substantiate the source of acquisition of three standard gold bars weighing 166.21 gms that were found during the course of search proceedings. Apart there from, the assessee except for raising unsubstantiated claims, had however failed to place on record any documentary evidence, which would irrefutably explain the source of purchase of the balance gold/diamond jewellery. We are of the considered view, that the A.O had in all fairness after considering the Instruction No. 1916 [F. No.286/63/93-IT (Inv.-II)], concluded that gold jewellery of 1450 gms could be held as explained in the hand of the assessee and his family members. Apart there from, it is a fact borne from the records, that the assessee had failed to furnish any documentary evidence to support the source of purchase/acquisition of the balance gold/diamond jewellery that was found during the course of the search proceedings. As regards the reliance placed by the ld. A.R on the “valuation report”, dated 08.07.2007 of a government approved valuer, in his attempt to impress upon us that the jewellery found during the course of the search proceedings was duly disclosed and, could not be characterised as an unexplained investment, we are unable to comprehend that as to how the said stand alone and unsubstantiated document could support the aforesaid claim of the assessee. On a specific query by the bench, as to on what basis the said “valuation report” would prove that the gold/diamond jewellery found during the course of the search proceedings from the premises of the assessee was acquired by the assessee from his explained sources, the ld. A.R failed to give any plausible reply. We have deliberated at length on the issue under consideration and, are of the considered view that the unsubstantiated “valuation report” of the government approved valuer, the authenticity of which had never been scrutinised and, therein verified by the department, can in no way support the claim of the ld. A.R, that the jewellery found during the course of the search proceedings was acquired by the assessee from his explained sources. The ld. A.R could not draw our attention to any such document/records, which would lend credence and justify the veracity of the said valuation report. It is not the case of the ld. A.R, that the assessee and his family members were being assessed to wealth tax and, the aforesaid “valuation report” containing the details as regards the gold/diamond jewellery held by the assessee and his family members was furnished with the department in the course of any such proceedings. In our considered view, the stand alone and unsubstantiated “valuation report” of the government approved valuer, would in no way assist the assessee for characterising the jewellery found from his residential premises/lockers, as an investment made by him from explained sources. We thus not being able to persuade ourselves to accept the contention advanced by the ld. A.R, that the lower authorities had erred in treating the jewellery found from his premises/lockers during the course of the search proceedings, as an unexplained investment in the hands of the assessee, thus reject the same. Accordingly, finding no infirmity in the order of the CIT(A), we uphold the same and dismiss the appeal of the assessee.

10. The appeal filed by the assessee is dismissed.

(Order pronounced in the open court on 13.06.2019)

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