Addition U/s. 69A based on part of statement which suited AO not sustainable

Vijay L. Bhawe Vs. Asst. CIT (ITAT Mumbai)

Addition U/s. 69A based on part of statement which suited AO not sustainable

Assessee has been claiming right from the stage of the assessing officer that assessee is having sufficient amount of cash withdrawals since last many years. The point worth noting here is that this fact was stated by the assessee in his statement also at the time of search. Learned assessing officer has chosen to rely only upon that part of statement which suited him and ignored the remaining one. It is well accepted position of law that in the income tax proceedings theory of approbation and re probation is not applicable. The revenue authorities are not expected to blow hot and cold together. The assessing officer appears to have followed the rule of “head I win tail you lose”, whereas the revenue authorities are expected to work in fair and transparent manner. Before making any addition, it is expected from the assessing officer that all the facts and circumstances, pleadings and evidences before the assessing officer would be taken into account. The statement of the assessee should be read in its entirety, particularly when it is being used against the assessee. Thus, in our considered view, the revenue authorities were duty bound to consider the aspect of source of cash claimed to be out of the withdrawal from banks and other means. It is noted from the perusal of the orders of the lower authorities that assessee had submitted that total amounts of withdrawals during the last 7 years by the assessee’s family stood at Rs. 127.25 lakh. Under these circumstances, amount of cash found at the time of search of Rs. 6,36,900 is easily explained and covered therein. The apprehension of the lower authorities that there were huge expenses, other household expenses and marriage expenses which might have been made from these withdrawals is certainly not out of context but no evidences were found during the course of search indicating that entire withdrawals were exhausted in meeting household, marriage and other expenses. Thus, we cannot ignore the availability of cash on account of huge amount of withdrawals from the bank just on the basis of doubts and surmise, especially when no contrary material has been brought on record. In our view, the assessee has duly explained the availability of cash of Rs. 6,36,900 found at the time of search out of the cash available on account of withdrawals made by the assessee and his family members in the current year as well as during the last 7 years. We find that addition made by the assessing officer is not sustainable and therefore same is directed to be deleted.

Addition under section 69A only in assessee’s hands for Unaccounted jewellery found from possession of different family members is not  sustainable

It is noted that jewellery has been found from the separate and personal possession of 8 family members and has been recorded accordingly in the Punchnama as well as Valuation Report prepared by the Departmental Valuer at the time of search. Further, all the family members are major and separately assessed and separate income tax and wealth tax return are filed by the family members. No allegation has been made and no evidences have been brought on record by the assessing officer to show that investment was made by the assessee in acquiring jewellery on behalf of all the family members. Under these circumstances, in our opinion, law does not permit to make entire addition on account of difference found in the jewellery recovered and jewellery disclosed in wealth tax returns/books of accounts, in the hands of assessee only. Under these circumstances, we find it appropriate to send this issue back to the file of the assessing officer with the direction that assessing officer is permitted to make addition only with respect to the jewellery found from the assessee that too only for the amount which remains unexplained. The assessee is free to submit requisite details and documentary evidences to explain the source of the jewellery found from his possession. The assessee is also free to submit before the assessing officer, copies of judgments and CBDT circular which have been relied before us to explain the jewellery found from its possession. The assessing officer shall give adequate opportunity of hearing to the assessee before deciding this issue afresh and shall also consider the submissions, evidences and judgments as may be placed by the assessee before the assessing officer. Thus, with these directions grounds raised by the assessee in this regard are sent back to the file of the assessing officer and may be treated as allowed for statistical purposes.

These are cross appeals filed by the assessee and department against order of learned Commissioner (Appeals), Mumbai, {(in short ‘CIT(A)}, dated 26-3-2009 passed against assessment order under section 143(3) of the Act, dated 28-12-2007.

First we shall take up appeal of the assessee in ITA No. 3296/Mum/2009 for the assessment year 2006-07 on the following grounds :–

“1. The learned Commissioner (Appeals) erred in Law and on facts in confirming the addition of Rs. 5,86,900 made as unaccounted cash despite the fact that at the time of search, the appellant categorically stated under section 132(4) that the said cash is accumulation of funds withdrawn from the bank and evidence for such withdrawals were also placed oil of the authorities below besides explaining the circumstances. Thus, the addition should be deleted.

2. The learned Commissioner (Appeals) erred in Law and on facts in confirming the addition of Rs. 14,07,682 made on accounts of unexplained investments in gold ornaments by ignoring the submission and circumstances . Thus, the addition should be deleted.

3. The learned Commissioner (Appeals) erred in Law and on facts in confirming the addition of Rs. 9,48,867 made on account of diamond jewellery though the source of acquisition of the same were explained and has been accepted for the major items by him in the appellate order. Thus, the addition should be deleted.

4. The appellant craves leave to add, to alter or amend the groups of appeal on or before the hearing of this appeal.

Additional Ground of Appeal taken on 26-10-2010

5. Revenue erred in law in basing assessment order under section 143(3) for assessment year 2006-07 on the outcome of searches conducted under section 132 when warrant was in the name of Vijay L. Bhawe, Pratibha V Bhawe, Aniket Bhawe (as indicated in panchnamas) and when revenue was required to examine the matter in the case of AOP as held by Allahabad High Court in the case of Commissioner of Income Tax v. Smt. Vandana Verma (2009) 227 CTR 388 (All).“

2. During the course of hearing, arguments were made by Shri S.C. Gupta, Authorised Representatives (AR) on behalf of the Assessee and by Shri G.M. Doss, Departmental Representative (CIT-DR) on behalf of the Revenue.

3. The additional ground was not pressed during the course of hearing and therefore, same is dismissed.

4. Ground No. 1: This ground deals with the addition made on account of cash found at the time of search which has been treated as unaccounted cash and therefore added as unexplained income of the assessee.

4.1 Brief background is that a search & seizure operation was carried out at the residence of the assessee under section 132 of the Act. During the course of search, cash amounting to Rs. 6,36,900 was found, out of which Rs. 5,51,000 was seized. The assessee was asked to explain the source of cash found at Rs. 6,36,900. It was explained before the assessing officer that source of cash found at the time of search was out of withdrawals made at different times during the period of’ several years from the bank accounts of the family members. The assessee also submitted a statement giving details of withdrawals made by the assessee and his family members to explain the source of amount of Rs. 6,36,900. The assessing officer was not convinced with the assessee’s reply and relied on the statement of assessee recorded during the course of search on 24-1-2006 wherein the assessee admitted that cash was not accounted for in its books and cash of Rs. 5,51,000 was offered for taxation as income of the impugned year.

4.2 Being aggrieved, the assessee filed before the learned Commissioner (Appeals) wherein assessee furnished details of withdrawals of past various years of all the family members comprising of assessee, his wife, his three daughters, his son, and daughter-in-law and granddaughter. It was submitted that due to confusion and pressure, the assessee could not understand the proper facts at the time of recording of statement and under some misunderstanding of law that if the cash books are not maintained, even by the individual assessee, then, cash cannot be said to be explained under the law and that bowing down to the pressure of the search team, cash was offered as unaccounted income. But, learned Commissioner (Appeals) was not satisfied with the submissions of the assessee and therefore, he confirmed the addition made by the assessing officer by relying upon the statement of the assessee made at the time of search and also on the ground that though the assessee had submitted the details of withdrawals, but the assessee had failed to furnish details of expenses incurred out of these withdrawals.

4.3 Being aggrieved, the assessee filed an appeal before the Tribunal.

4.4 During the course of hearing before us, learned Counsel made his arguments at length and reiterated the submissions made before the lower authorities. Our attention was also drawn upon the statements recorded at the time of search and also upon the details of cash withdrawals and household expenses of assessee and his family members for the assessment years 2000-01 to 2006-07 (i.e. upto date of search). It was also submitted that the statement was made at the time of search under acute pressure and misunderstanding of facts and legal position as was narrated in detail before learned Commissioner (Appeals) also.

4.5 Per contra, learned DR submitted that though the assessee had sufficient withdrawals during the past few year but details of household expenses and other expenses which have been met out of the withdrawals have not been furnished and since assessee had offered that this amount as undisclosed income, therefore, addition was rightly made by the lower authorities and should be upheld.

4.6 We have gone through the entire facts and circumstances of the case. It is noted that primary evidences relied upon by the revenue for making this addition is statement of the assessee recorded at the time of search, and relevant part of the same reads as under :–

“Q. During the course of search under section 132 today at your residence cash of Rs. 6,36,900 were found and out of that Rs. 5,51,000 is seized. Please explain the source of this cash?

Ans. The cash which is found today during the search is in fact accumulated in my house through day to day withdrawals from banks and other means. But the cash is not accounted for in my books as my books is not maintained for this purpose. This cash cannot be explained in books. The seized cash of Rs. 5,51,000 is offered for taxation as income of current financial year.”

4.7 The perusal of the aforesaid answer given by the assessee clearly established that the cash found was out of the withdrawals from the banks and other means. But, the same was not recorded in the books, therefore, same was offered as income. The answer clearly shows that the assessee was under this impression that unless the cash is recorded in the books. It cannot be treated as explained. The assessee is an individual assessee and not required to maintain the books like a firm or a company and therefore, it is not compulsory that the cash has to be necessarily recorded in some books. The cash should be treated as explained if the source of cash is explained to be out of disclosed income or other sources on which taxes have been paid. It appears that, at the time of search, the assessee was not clear about this position of law. Under these circumstances, in our view the assessee cannot be bound with its submissions in all times to come, particularly when the statement was given by him under some confusion, pressure and misunderstanding of facts and legal position.

4.8 The correct legal position in this regard was clarified by Hon’ble Supreme Court way back in its landmark judgment in Pullangode Rubber Produce Co. Ltd. v. State of Kerala (1973) 91 ITR 18 (SC) wherein it was held that an admission is an extremely important piece of evidence, but it cannot be said that it is conclusive, and therefore, it was open to the person who made the admission to show that it was incorrect. The judgment has been followed subsequently by many courts in our country which are not discussed here for the sake of brevity. Thus, the situation that emerges before us for our consideration is that whether the impugned addition could have been made de hors the aforesaid statement of the assessee wherein the assessee had offered the impugned amount of cash for taxation as its income. It is noted that the assessee is living in a joint family comprising of various family members as have been discussed above. Though, the entire house was covered in the search and all the family members were also covered in the search but recovery of cash has been shown in the name of assessee only. It is quite improbable that no cash at all was found from the possession of any other family member(s). This fact is on record that many other family members were also filing their income tax returns as well as wealth tax returns separately. Thus, it appears that entire cash has been wrongly shown as seized from personal possession of assessee and thus, the entire cash has been wrongly added in the hands of assessee only.

4.9 Further, it is noted that assessee has been claiming right from the stage of the assessing officer that assessee is having sufficient amount of cash withdrawals since last many years. The point worth noting here is that this fact was stated by the assessee in his statement also at the time of search. Learned assessing officer has chosen to rely only upon that part of statement which suited him and ignored the remaining one. It is well accepted position of law that in the income tax proceedings theory of approbation and re probation is not applicable. The revenue authorities are not expected to blow hot and cold together. The assessing officer appears to have followed the rule of “head I win tail you lose”, whereas the revenue authorities are expected to work in fair and transparent manner. Before making any addition, it is expected from the assessing officer that all the facts and circumstances, pleadings and evidences before the assessing officer would be taken into account. The statement of the assessee should be read in its entirety, particularly when it is being used against the assessee. Thus, in our considered view, the revenue authorities were duty bound to consider the aspect of source of cash claimed to be out of the withdrawal from banks and other means. It is noted from the perusal of the orders of the lower authorities that assessee had submitted that total amounts of withdrawals during the last 7 years by the assessee’s family stood at Rs. 127.25 lakh. Under these circumstances, amount of cash found at the time of search of Rs. 6,36,900 is easily explained and covered therein. The apprehension of the lower authorities that there were huge expenses, other household expenses and marriage expenses which might have been made from these withdrawals is certainly not out of context but no evidences were found during the course of search indicating that entire withdrawals were exhausted in meeting household, marriage and other expenses. Thus, we cannot ignore the availability of cash on account of huge amount of withdrawals from the bank just on the basis of doubts and surmise, especially when no contrary material has been brought on record. In our view, the assessee has duly explained the availability of cash of Rs. 6,36,900 found at the time of search out of the cash available on account of withdrawals made by the assessee and his family members in the current year as well as during the last 7 years. We find that addition made by the assessing officer is not sustainable and therefore same is directed to be deleted.

5. Ground Nos. 2 & 3: These grounds deal with the grievances of the assessee with regard to addition of Rs. 14,07,682 made on account of unexplained investment in gold ornaments and addition of Rs. 9,48,867 made on account of diamond jewellery.

5.1 The brief background and the facts as culled out from the orders of the lower authorities are that during the course of search, gold jewellery of Rs. 47,07,818, Diamond jewellery of Rs. 35,35,166 and silver articles of Rs. 70,902 were found, out of which gold jewellery of Rs. 14,84,600 and Diamond jewellery of Rs. 21,32,958 were seized. The assessee explained that out of 5266.490 gms. of gold jewellery, 3485 gms. was either ancestral or purchased sometime prior to 1970, 3485 gms. of gold jewellery was shown in the valuation report prepared for filing wealth tax returns in respect of the members of assessee’s family, about 350 gms. of gold jewellery was purchased sometime around 1997 at the time of wedding of assessee’s daughter, about 500 gms. were purchased in the year 2000 at the time of the wedding of assessee’s son and balance of about 931.49 gms. were purchased sometime in the year 2002. It was submitted that all the jewellery was purchased out of cash withdrawals from the bank. The assessee claimed that his two unmarried sisters were staying with him and one married sister was also residing at his house, jewellery of all the sisters were placed in assessee’s house. It was also contended that jewellery of assessee’s daughter gifted to her by her grandfather was also placed at assessee’s residence. The assessing officer held that the assessee did not submit any documentary evidence in support of his contentions and only copies of valuation report of jewellery and computation of wealth along with acknowledgements for filing of returns were submitted. The assessing officer examined the valuation report and found that in case of Mrs Pratibha V.Bhawe gold jewellery was 450.45 gms. and not of 473.7 gms. as claimed by the assessee. The assessing officer was not convinced with the claim of the assessee that balance gold jewellery weighing 350 gms. was purchased in 1997, 500 gms. in 2000 and 931.49 gms. in 2002 out of cash withdrawals. The assessing officer observed that at the time of giving details of withdrawals made by the assessee and his family members they did not state that out of withdrawals, some amount was saved and was utilized for purchase of jewellery nor any documentary evidence in support of purchase of jewellery weighing 350 gms. was submitted. Accordingly, the assessing officer treated the balance 1781.49 gms. (350gms. + 500 gms. + 931.49 gms) as unexplained. Besides, there was a difference of 23.25 gms. of gold jewellery in the case of Mrs. Pratibha V.Bhawe. Therefore, total jewellery weighing 1804.74 gms. (23.25 gms. + 1781.49 gms.) was treated as unexplained jewellery and was added to the total income of the assessee which resulted in addition of Rs. 14,07,682.

5.2 Similarly, addition of Rs. 21,32,958 was made on account of unaccounted diamond jewellery. The addition was made for the amount of different between the value shown as per wealth tax returns and value adopted by the Departmental Valuer arising on account of mismatch in the items as shown in the wealth tax returns and as described by the Valuer in its valuation report. The assessee made detailed submissions before the learned Commissioner (Appeals). But, the addition on account of unaccounted gold jewellery was confirmed and part relief was given of Rs. 11,84,091 on account of diamond jewellery. Before us, learned Counsel made detailed submissions. His primary objection was that in this case jewellery has been recovered from individual and personal possession of various family members and has been accordingly recorded in the Panchnama and accordingly valued by the Departmental Valuer separately at the time of search. Our attention was drawn on the valuation report showing value of the jewellery done separately for the jewellery found from the personal possession of the each of the family members. But, the entire addition has been wrongly made in the hands of the assessee. Learned Counsel submitted that substantial part of the jewellery has been disclosed by the family members in their respective wealth tax returns since last many years and subsequently, there has been addition in the number of family members and the some Jewellery has been added on account of fresh purchases made from the disclosed sources.

5.3 Per contra, learned DR relied upon the orders of the lower authorities.

5.4 We have gone through the orders of the lower authorities. We have first of all considered the primary objection of the assessee. It is noted that jewellery has been found from the separate and personal possession of 8 family members and has been recorded accordingly in the Punchnama as well as Valuation Report prepared by the Departmental Valuer at the time of search. Further, all the family members are major and separately assessed and separate income tax and wealth tax return are filed by the family members. No allegation has been made and no evidences have been brought on record by the assessing officer to show that investment was made by the assessee in acquiring jewellery on behalf of all the family members. Under these circumstances, in our opinion, law does not permit to make entire addition on account of difference found in the jewellery recovered and jewellery disclosed in wealth tax returns/books of accounts, in the hands of assessee only. Under these circumstances, we find it appropriate to send this issue back to the file of the assessing officer with the direction that assessing officer is permitted to make addition only with respect to the jewellery found from the assessee that too only for the amount which remains unexplained. The assessee is free to submit requisite details and documentary evidences to explain the source of the jewellery found from his possession. The assessee is also free to submit before the assessing officer, copies of judgments and CBDT circular which have been relied before us to explain the jewellery found from its possession. The assessing officer shall give adequate opportunity of hearing to the assessee before deciding this issue afresh and shall also consider the submissions, evidences and judgments as may be placed by the assessee before the assessing officer. Thus, with these directions grounds raised by the assessee in this regard are sent back to the file of the assessing officer and may be treated as allowed for statistical purposes.

Now, we shall take up Revenue’s appeal in ITA No. 3650/Mum/2009:

6. The only ground raised by the revenue is with regard to relief given by the learned Commissioner (Appeals) on account of diamond jewellery found at the time of search. Since, we have remitted the issue with regard to gold jewellery as well as diamond jewellery by the assessing officer to decide the same afresh with our direction as given above, the grounds raised by the revenue also sent back to the assessing officer with similar directions. Under these circumstances, appeal filed by the revenue is treated as allowed for statistical purposes.

7. In the result, the appeal filed by the assessee is partly allowed and appeal filed by the revenue is allowed for statistical purposes.