2013 (6) TMI 522 - AT - Income Tax

Tribunal rules on appeal: undisclosed income & capital gains on gold

The Tribunal partially allowed the appeal, treating Rs.1,68,151/- as undisclosed income from unexplained investments and directing the computation of ... Unexplained investment - cash deposited in bank - Held that:- As from the bank statements & cash flow statements prepared by the assessee, there was a pattern of regular withdrawals in round figures on several occasions. There were huge withdrawals such as, a sum of Rs.1,80,000/- on 29/05/2007, Rs.1 lac on 6/09/2007, Rs.2 lacs on 25/10/2007, then Rs.70,000/- and Rs.1 lac in the month of December-2007. If those withdrawals have not been found utilized by the assessee towards investments, then naturally those were available with the assessee to be used or redeposited in the bank as per his desire/sweet will. The AO conclusion that it was not humanly possible and against the human tendency was merely a supposition and such a presumption has no cogent legal basis. If the Revenue Department has not established that the cash available with the assessee was not utilized elsewhere, then on the basis of the preponderance of probabilities, it can be assumed that that very cash was redeposited in the bank - in favour of the assessee that the cash to the extent of Rs.17,17,794/- available as on 31/03/2008 was redeposited. But still, there was a slight gap in the cash deposit made during the financial year 2008-09 to the extent of Rs.18,85,945/- That gap of Rs.1,68,151/- remained unexplained. Addition as income from undisclosed sources - Long term capital gain on sale of jewellery - Held that:- Statement of wealth relevant for AY 1988-89 wherein there was a disclosure of jewellery and ornaments as per Valuer's Report of Rs.1,01,275/-. Further, there was a disclosure of ornament of 298 grams and the value of the same at that assessment year was disclosed at Rs.88,893/-. The mention of the gold ornaments was also made in the balance-sheets furnished before the Revenue Authorities as evidenced by few letters placed on record. Thus if the AO has disbelieved the explanation of the assessee, then he should have made enquiries with the said jeweller instead of presuming that the sales bills were simply arranged by the assessee. The AO has also not denied the fact that in the past the jewellery was actually disclosed in the wealth tax return, thus hereby direct to compute the capital gain on sale of gold ornaments and tax in the hands of the assessee - in favour of assessee. Issues Involved:1. Addition of Rs.18,85,945/- as unexplained investment.2. Addition of Rs.3,99,991/- as income from undisclosed sources.Detailed Analysis:Issue 1: Addition of Rs.18,85,945/- as unexplained investmentThe first grievance of the assessee concerns the addition of Rs.18,85,945/- by the Assessing Officer (AO), treating cash deposits in the bank account as unexplained investment. The assessee argued that these deposits were from cash balances available and reflected in previous years' balance sheets. The AO, however, was not convinced by the explanation that the deposits were from 'cash on hand' and issued a show-cause notice asking for a cash book to verify the source of the deposits. The assessee provided a cash flow statement from FY 2002-03 to FY 2008-09, showing sufficient cash availability for the deposits. Despite this, the AO noted that the assessee did not maintain regular books of accounts, making the cash availability unverifiable. The AO cited various case laws to support the addition as income from undisclosed sources, ultimately rejecting the cash flow statement as unreliable.Before the Commissioner of Income Tax (Appeals) [CIT(A)], the assessee argued that a significant portion of the cash deposits was from a withdrawal intended for a property purchase that did not materialize. The CIT(A) found the handwritten cash flow statement unreliable due to discrepancies and upheld the AO's decision.The assessee's representative argued that the cash flow statement, though handwritten, was based on bank statements and should not be discredited. The representative detailed the cash withdrawals and subsequent deposits, emphasizing that the cash flow statement was prepared from bank records. The Revenue argued that the cash flow statements were fabricated and questioned the practicality of keeping large cash balances.The Tribunal examined the cash flow statements and noted a pattern of regular withdrawals and deposits. It found that if the cash was not used elsewhere, it could be presumed to have been redeposited. The Tribunal held that the cash balance of Rs.17,17,794/- as of 31/03/2008 was redeposited, but a gap of Rs.1,68,151/- remained unexplained. Thus, the Tribunal granted partial relief to the assessee, treating Rs.1,68,151/- as undisclosed income.Issue 2: Addition of Rs.3,99,991/- as income from undisclosed sourcesThe second grievance concerns the addition of Rs.3,99,991/- claimed as long-term capital gain on the sale of jewelry, which the AO treated as income from undisclosed sources. The AO questioned the ownership of the gold ornaments and suspected the sales bills were arranged. The assessee contended that the sales proceeds were received through cheques and provided the jewelry bill.The CIT(A) upheld the AO's decision, doubting the genuineness of the sale.The Tribunal noted that the assessee had disclosed jewelry in the wealth tax return for AY 1988-89 and provided a valuation report. The assessee also furnished balance sheets and letters to the Revenue Authorities, indicating the existence of the jewelry. The Tribunal found that the AO should have verified the jeweler's records instead of presuming the bills were arranged. Given the evidence and past disclosures, the Tribunal directed the computation of capital gain on the sale of gold ornaments as per law, thereby allowing this ground of the assessee.Conclusion:The Tribunal partly allowed the appeal, providing relief on the unexplained investment issue by treating Rs.1,68,151/- as undisclosed income and directing the computation of capital gain on the sale of gold ornaments as per law.