Mere mismatch of description cannot be a reason to treat the same as unexplained

Brief of the case:

• The ITAT Mumbai in the case of M/s Parle Bottling Pvt. Ltd. held that the mismatch in description of jewellery as recorded vis a vis as found by valuer cannot be in its own a sole basis for treating mismatched jewellery as unexplained particularly when minor difference in carat weight.
• The description changes due to conversion or remaking of jewellery as it is very common and merely because the assessee fails to produce bills for remaking cannot be taken as basis for treating the jewellery as unexplained.

Facts of the case:

• A search action u/s 132 of the I.T. Act was carried out in the case of Acme Group Companies and related persons. The assessee being a partner in various firms engaged in business of builder and developer. During the course of the search operation, total jewellery valued at Rs.1,73,30,641/- was found from the premises of the assessee, out of which jewellery valued at Rs.36,93,026/- was seized.
• During the course of the assessment proceedings, the AO asked the assessee to show cause why Jewellery to the extent which has not been reflected in the return of income should not be treated as unexplained and added to the income of the assessee.

• After hearing the explanations made by the assessee AO found that the jewellery valuing Rs.21,58,524/- had remained unexplained and accordingly he added the said amount into the income of the assessee u/s 69A of the Act. Aggrieved by the addition made by the AO, the assessee preferred appeal before the Ld. CIT(A).

• CIT(A) also upheld additions in respect of jewellery which were not matching with the description made in the approved valuers’ reports. Aggrieved by the order of CIT (A) , assessee is in further appeal before the tribunal.
  

Contention of the Assessee:

• The assessee submitted that the gross gold weight of the items matches with that of the description mentioned in the valuation reports submitted by the assessee and even number of pieces of diamonds in the jewellery also matched. However, there was minor difference in estimation of carat weight.

• The possibility that some of the items could have been remade cannot be ruled out. Reliance was placed on the decision of Jodhpur bench of ITAT wherein it was held that simply because the assessee furnish evidence for conversion or remaking of the jewellery, possession of which was otherwise accepted, it could not be said that holding of gold jewellery to that extent was unexplained, especially when evidence was available that the assessee had already been assessed at much more jewellery in earlier assessment year.

Issue before the ITAT:

• Whether the mismatch of description of jewellery as recorded in books vis a vis as found by valuer on physical examination could solely be the basis of treating such unmatched jewellery as unexplained when there is minor difference in weight as recorded vis a vis as estimated by valuer?
  

Held by ITAT Mumbai:

• The total gold jewellery shown by the assessee and his family members in the books was of 9919.790 gms. whereas the jewellery found and valued by the Departmental Valuer was of 9145.380 gms. which was less than the jewellery already declared by the family members of the assessee in the books of account. Similarly, in respect of diamond jewellery, the assessee family has already declared 222.80 carats of diamond, whereas, the Departmental Valuer had estimated only 203.29 carat of the diamonds.
• The addition was made by the department on the ground of non-matching of description of jewellery as recorded in books vis a vis as that of identified by the approved valuer. Addition due to difference in quantities cannot be sustained as the difference is minor. Identical issue has been examined by number of tribunals as well as some High Courts and Supreme Courts also.
• In the case of Mrs. Vinita S. Jhunjhunwala vs. ACIT the co-ordinate bench of this tribunal held that when quantity of jewellery disclosed by the assessee is more or less same (i.e leaving the minor differences) as the quantity of jewellery found during the course of search then   addition merely because the description is not matching cannot be sustained.
• It is quite normal that some of the ornaments are dismantled and remade, and merely because the assessee has not preserved the bill of remaking charges, it would be unreasonable to take a stand that such ornaments were unexplained investments.
• It is because the most critical aspect to be examined that the ornaments found should not be in excess in quantity as compared to the ornaments.
• Considering the above observations , the tribunal held that it cannot be said in this case that the jewellery found during the search action was unexplained and accordingly the additions made and penalty levied for concealment of income was deleted.