2025 (3) TMI 806 - AT - Income Tax

ITAT deletes additions under Section 69A finding no proper inquiry and accepting documentary evidence over search statements

M/s. Kiran Fine Jewellers Pvt. Ltd. Versus The DCIT Central Circle-2 Jaipur

M/s. Kiran Fine Jewellers Pvt. Ltd. Versus The DCIT Central Circle-2 Jaipur - TMI 1. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment are:1. Whether the addition of Rs. 11,76,838/- as unexplained cash under Section 69A of the Income Tax Act, 1961, is justified.2. Whether the addition of Rs. 6,57,672/- as unexplained investment in silver jewellery is justified.3. Whether the addition of Rs. 41,48,637/- as unexplained investment in excess gold jewellery is justified.4. Whether the addition of Rs. 3,67,688/- as profit on unaccounted sale of gold jewellery is justified.5. Whether the application of provisions of Section 115BBE of the Income Tax Act, 1961, on the additions sustained is justified.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Unexplained Cash AdditionRelevant legal framework and precedents: Section 69A of the Income Tax Act, 1961, pertains to unexplained money, where any money found and not recorded in the books of account is deemed to be the income of the assessee for that financial year.Court's interpretation and reasoning: The Tribunal noted that the assessee claimed a higher cash balance than recorded by the Assessing Officer (AO). The AO relied on the statement made by the Director during the search, which did not object to the cash in hand figure determined by the AO.Key evidence and findings: The Tribunal found that the AO did not provide the working details of the cash in hand figure, and the Director's statement was not retracted. The Tribunal also noted that the cash book maintained by the assessee was not found to have any defects.Application of law to facts: The Tribunal applied the legal principle that statements recorded during search have evidentiary value but are not conclusive. The Tribunal found the AO's reliance on the statement without considering the cash book and other evidence was unjustified.Treatment of competing arguments: The Tribunal considered the assessee's argument about the cash book and advance payments from customers, which were not adequately addressed by the AO.Conclusions: The Tribunal allowed the assessee's appeal on this ground, finding the addition of Rs. 11,76,838/- as unexplained cash unjustified.Issue 2: Unexplained Investment in Silver JewelleryRelevant legal framework and precedents: Section 69A of the Income Tax Act, 1961, was again relevant for unexplained investments.Court's interpretation and reasoning: The Tribunal found that the AO did not seek details regarding the silver jewellery claimed to be received on approval from M/s Sangam Handicrafts.Key evidence and findings: The Tribunal noted the absence of evidence from the AO's side to counter the assessee's claim that the silver items were received on approval.Application of law to facts: The Tribunal found that the AO's decision was not supported by any inquiry or evidence, and the assessee's claim was backed by documentary evidence.Treatment of competing arguments: The Tribunal considered the assessee's documentation and explanations, which were not refuted by the AO with evidence.Conclusions: The Tribunal allowed the appeal, finding the addition of Rs. 6,57,672/- as unexplained investment unjustified.Issue 3 & 4: Unexplained Investment in Gold Jewellery and Unaccounted SaleRelevant legal framework and precedents: Section 69A of the Income Tax Act, 1961, was relevant for unexplained investments and profit from unaccounted sales.Court's interpretation and reasoning: The Tribunal found discrepancies in the weight of gold jewellery as recorded by the AO and the actual stock as per the books. The Tribunal also considered the explanation that the jewellery was mixed up during the search.Key evidence and findings: The Tribunal noted that the AO's calculation of excess and shortage was incorrect due to a mix-up of jewellery tags during the search.Application of law to facts: The Tribunal applied the principle that minor discrepancies in stock due to handling during search should not lead to significant additions without concrete evidence.Treatment of competing arguments: The Tribunal considered the assessee's explanation of the mix-up and the negligible difference in total weight, which was not refuted by the AO with evidence.Conclusions: The Tribunal allowed the appeal, finding the additions of Rs. 41,48,637/- and Rs. 3,67,688/- unjustified.Issue 5: Application of Section 115BBERelevant legal framework and precedents: Section 115BBE of the Income Tax Act, 1961, pertains to the tax rate on income referred to in Sections 68, 69, 69A, 69B, 69C, or 69D.Court's interpretation and reasoning: Since the additions under Sections 69A were deleted, the application of Section 115BBE became academic.Conclusions: The Tribunal found the issue academic and disposed of it accordingly.3. SIGNIFICANT HOLDINGSThe Tribunal established that statements recorded during search operations have significant evidentiary value but are not conclusive. The burden of proof lies on the assessee to demonstrate inaccuracies in such statements, but the AO must also consider all available evidence, including books of accounts.The Tribunal emphasized the importance of accurate calculations and evidence-based assessments in determining unexplained investments and cash. The Tribunal's decision underscores the need for the AO to substantiate additions with concrete evidence and not solely rely on statements made during searches.The Tribunal's final determination was to allow the appeal of the assessee, deleting all the additions made by the AO and confirmed by the CIT(A), and finding the application of Section 115BBE academic given the deletions.