Mere Absence of Bills for Wrist Watches Not Grounds for Section 69A Addition

Narinder Singh Punihani Vs DCIT (ITAT Delhi)

Introduction: In a recent case, Narinder Singh Punihani Vs. DCIT, the Income Tax Appellate Tribunal (ITAT) Delhi delivered a noteworthy judgment, emphasizing that the absence of bills and invoices for wrist watches found during a search operation is not a valid reason for addition under Section 69A of the Income Tax Act. The case revolves around the assessment year 2019-20, where the assessee contested the addition of Rs.21 lakhs made by the Assessing Officer.

Detailed Analysis:

1. Background of the Case: The dispute arose during a search and seizure operation conducted on the assessee and family members. Jewelleries and three wrist watches were sent for valuation, with the watches valued at Rs.21 lakhs. The Assessing Officer, citing the absence of bills and vouchers, added the entire amount under Section 69A of the Income Tax Act.

2. Assessee’s Explanation: The assessee contended that the watches were purchased over time, predating the block period, and no bills or invoices were available. The assessee provided a cash flow statement and credit card transaction details to substantiate the availability of funds.

3. Valuation Report Scrutiny: The Valuation Report lacked details about the make and year of manufacture of the watches. No bills or warranty cards were found during the search operation. The credit card statements also did not disclose relevant information about the purchase of the watches.

4. Financial Capacity of the Assessee: The assessee’s financial capacity was highlighted, showcasing significant assets and consistent means of funds available over different assessment years. Credit card expenses totaling Rs. 2,53,32,395 further established the financial capability to invest in the wrist watches.

5. ITAT Delhi’s Decision: The ITAT Delhi, considering the overall facts and circumstances, held that Section 69A would not apply. The explanation offered by the assessee was deemed plausible, and the addition was considered unsustainable. The decision drew support from precedent, specifically citing ACIT Vs. Gurnam Arora.

Conclusion: The ITAT Delhi’s decision in the Narinder Singh Punihani case sets a precedent, clarifying that the absence of bills and invoices for wrist watches found during a search operation does not warrant an addition under Section 69A of the Income Tax Act. The emphasis on the assessee’s plausible explanation, backed by financial capacity evidence, reinforces the importance of considering the overall context in such cases. This ruling provides clarity for taxpayers facing similar circumstances and underscores the need for a thorough examination of facts before making additions under relevant sections of the Income Tax Act.

FULL TEXT OF THE ORDER OF ITAT DELHI

This is an appeal by the assessee against order dated 24.06.2022 of learned Commissioner of Income Tax (Appeals)-27, New Delhi, for the assessment year 2019-20.

2. The dispute in the present appeal is confined to addition of an amount of Rs.2 1 lakhs made under section 69A of the Income-tax Act, 1961 (in short ‘the Act’)

3. Briefly the facts are, the assessee is a resident individual. A search and seizure and survey operation under section 132/ 133A of the Act was conducted on the assessee and other family members as well as the entire group on 04.01.2019. In course of search and seizure operations, jewelleries and three watches were sent for valuation to a registered Valuer. The registered Valuer determined the value of three watches at Rs.21 lakhs. Whereas, jewelleries were valued at Rs.9,49,405/-. Apparently, assessee’s explanation regarding source of jewelleries was accepted by the Assessing Officer. Insofar as the three wrist watches are concerned, the Assessing Officer called upon the assessee to explain the source of investment made in them. In response, it was submitted by the assessee that the wrist watches were purchased by him and his wife over a period of time from disclosed sources of income. It was submitted that since the watches were purchased long back prior to the block period, the details of investment in such watches, such as, invoices, mode of payments etc. are not available. However, to prove the availability of fund, the assessee furnished cash flow statement and details of credit card transactions made from assessment years 2013-14 to 20 19-20 aggregating to Rs.2,53,32,395/-. It was submitted by the assessee that since the assessee had sufficient fund available with him, being a member of a highly reputed and renowned family, neither the holding of such watches, nor the capacity to invest in them can be doubted. The Assessing Officer, however, was not convinced with the submission of the assessee. Alleging that the assessee failed to furnish proper evidence, such as, bills/vouchers, the Assessing Officer treated the amount of Rs.21 lakhs as unexplained money under section 69A of the Act and added back to the income of the assessee. Learned first appellate authority upheld the addition.

4. We have considered rival submissions and perused the materials on record. Undisputed facts are, in course of a search and seizure operation, along with jewelleries, three wrist watches were found and seized, which as per description of the Assessing Officer are as under:

5. The jewelleries and watches were sent for valuation by a Government registered Valuer, who determined the value of watches aggregating to Rs.2 1 lakhs. It is apparent, before the Assessing Officer as well as before learned first appellate authority, the assessee has furnished explanation stating that the watches were purchased by them over a period of time and they belong to him and his wife.

6. On a perusal of the Valuation Report, copy of which was placed on record, it is observed that the date of valuation is 0 1.2019. It is further observed, in the Valuation Report, the Valuer has not described anything about the make and year of manufacture of the watches. He has simply valued them at round figures. It is also a fact that in course of search and seizure operation, no bills/invoices or even warranty cards relating to these wrist watches were found. That being the factual position, it cannot be said with certainty that the watches were purchased in the previous year relevant to the impugned assessment year. This is so because, the assessee has consistently taken a stand before the departmental authorities that the watches were purchased over a period of time prior to the block period, hence, neither any bills/invoices are available nor even the credit card statements, through which payments have been made, are available.

7. The explanation of the assessee assumes significance in view of the fact that no evidence was found in course of search and seizure operation indicating purchase of watches in the year under consideration. Even, the credit card statements do not disclose any such fact. Therefore, in our view, it cannot be said that the investment in watches were made in the impugned assessment year. Even otherwise also, on perusal of facts and materials available on record, it is observed that the assessee is a man of means. The copy of the capital account statement furnished before us demonstrate that as on 3 1.03.2018, he had assets of Rs.29,86,09,418/-. Whereas, on 31.03.2019, he had assets of Rs.31,77, 16,426/- The funds available with the assessee in different assessment years are as under:

8. Credit card expenses incurred by the assessee in different assessment years, are as under:

9. The aforesaid facts and figures make it abundantly clear that the assessee had enough means to invest in the wrist It will be pertinent to mention that the departmental authorities have accepted the source of investment in jewelleries found at the time of search and seizure operation. Only because bills and invoices of the wrist watches were not found at the time of search, the addition has been made.

10. Looking into the overall facts and circumstances of the case, we are of the view that the provisions of section 69A will not be attracted as the explanation offered by the assessee regarding the source of investment in the wrist watches, by no means, can be considered to be unsatisfactory.

11. On the contrary, the explanation offered by the assessee appears to be plausible. Thus, in our view, the addition made under section 69A of the Act is unsustainable. While coming to such conclusion, we have drawn support from the decision of the Coordinate Bench in case of ACIT Vs. Gurnam Arora, ITA 616/Del/2012, dated 01.03.2016. Accordingly, we delete the addition. Grounds are allowed.

12. In the result, appeal is allowed.

Order pronounced in the open court on 9^th November, 2023