No addition in individual family member, for Gold and Silver belonging to entire family in Income Tax Search

Introduction

According to Section 132 of the Income Tax Act, where the Director of Inspection or the Commissioner, in consequence of information in his possession has reason to believe that:-

1. any person to whom a summons or a notice was issued to produce, or cause to be produced, any books of account, or other documents has omitted or failed to produce, or cause to be produced, such books of account or other documents as required by summons or notice, or
2. any person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property which has not been disclosed,

he may authorise any Deputy Director of Inspection, Inspecting Assistant Commissioner, Assistant Director of Inspection or Income-tax Officer to:-

1. enter and search any building or place where he has reason to suspect that such books of account, other documents, money, bullion, jewellery, or other valuable article or thing are kept;
2. break open the lock of any door, box, locker, safe, almirah or other receptacle where the keys thereof are not available;
3. seize any such books of account, other document, money, bullion, jewellery or other valuable article or thing found as a result of such search;
4. place marks of identification on any books of account or other documents or make or cause to be made extracts of copies there from;
5. make a note or an inventory of any such money, bullion, jewellery or other valuable article or thing.

During search procedures if the AO finds undisclosed income he may add back the same to the income of the assessee to be taxed along with certain penalties. “Undisclosed income” means:-

1.any income of the specified previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 132, which has—

i. not been recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year; or

ii. otherwise not been disclosed to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner before the date of search; or

2. any income of the specified previous year represented, either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the specified previous year which is found to be false and would not have been found to be so had the search not been conducted.

Whether the addition can be made against an individual member of the family, even if that gold in possession belongs to entire family as computed during a search procedure under Income Tax?

Let us refer to the case of Shri Pankaj Ladha vs DCIT where the above  issue was taken under consideration.

The assessee had filed an appeal against the order of CIT wherein the assessee appealed that the CIT(A) had erred in law as well as on the facts of the case in confirming the addition of Rs. 1,50,000 made by the AO on account of unexplained jewellery. It was pleaded that the addition so made and confirmed by the CIT(A) being contrary to the provisions of law and facts, be deleted.

Facts of the Case:-

1. The assessee submitted that a search and seizure operation U/s 132(1) of the Act was carried out at the residential premises of the assessee.
2. During the search operations, jewellery including gold and silver items, silver coins, etc. were found in the locker being operated by the mother of the assessee and inventoried by the Income Tax Department.
3. When the assessee was asked for the source of jewelry found, the assessee stated that the impugned jewellery belonged to the family members and also submitted the wealth tax returns filed by appellant and the mother of assessee along with a chart of ownership of such jewellery to the AO.
4. The AO was however not satisfied with the reply of the assessee and hence made addition in the name of the assessee

Appeal to CIT(A)

In the appeal, CIT(A) deleted the addition relating to the gold jewellery, however, the impugned addition relating to silver ornaments jewellery and coins was confirmed by the CIT(A) as the assessee had not given any reply regarding source of investment therein. Aggrieved with the order of CIT(A), assessee appealed before the ITAT

Observations of ITAT

1. In the statement recorded u/s 132(4), the assessee in response to question where he was asked to explain the source of gold jewellery and silver jewellery/utensils had stated that gold and silver jewellery and utensils so found during the course of search had been received/purchased on the occasion of marriage of his parents, his own marriage and thereafter, on birth of his children and various other social occasions from time to time.
2. The registered valuer in his report had valued the same at Rs 3,22,108.
3. The Assessing officer sought assessee’s explanation during the course of reassessment proceedings and thereafter, arrived at a figure of Rs 1,50,000 as unexplained investment in silver items and jewellery and brought the same to tax.
4. The AO has not specified the basis of arriving at the said figure, however, on referring the Valuer’s report and other material on record, ITAT found that he had given credit of Rs 143,650 in respect of 221 silver coins as well as Rs 28,325 towards silver utensils and has thereafter, arrived at a figure of Rs 150,133 and held the said figure (after rounding off) as unexplained investment in the hands of the assessee.

ITAT found that the AO had failed to consider two key aspects.

1.Firstly, the silver jewellery so found belongs to all the family members as stated by the assessee in his statement recorded u/s 132(4) of the Act and the same was fairly accepted by the AO

2. Therefore, once it was accepted that these items belonged to all family members and where the assessee has thereafter given specific details regarding such items identified to each of the individual members in his submissions then the remaining items should therefore be accepted as belonging to respective family members and not just that of the assessee only.

3. Secondly, the assessee and his mother had already declared silver jewellery items in their respective wealth tax returns which were needed to be considered.

4. In case of assessee, he has declared 0.5 kgs of silver in his wealth tax return for A.Y 92-93 and therefore the same stood explained.

5. Therefore, as against 1.480 kgs of silver items belonging to the assessee, he had already declared 0.5 kgs of silver in his wealth tax return for A.Y 92-93.

6. The possession of remaining 0.98 kgs of silver items over the period of 24 years and given the societal customs of accepting/buying such items on occasion of birth and other social functions seemed reasonable.

7. Therefore the addition sustained by the CIT(A) were deleted.

In simple words there can be no Addition against an individual family member for Gold/ Silver jewellery or utensils belonging to the entire family.

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