2025 (9) TMI 1440 - AT - Income Tax

Additions under s.69, s.69A and s.69C deleted where documentary evidence and contractor settlement adequately explained investments and expenses

ITAT JAIPUR - AT held that additions made by the AO/CIT(A) for alleged unexplained jewellery (s.69A), house-construction investment (s.69) and household ... Addition u/s 69A - unexplained investment in jewellery - assessee is living in joint family consisting his father-mother, Taiji, family of three brothers in the house and the bank lockers from which jewellery was found are also in the name of various family members. During the course of search from residence/bank lockers total 4984.78 Gms Jewellery was found, out of which jewellery of 1334.141 gram valuing Rs. 41,48,824/- were seized by the search party - HELD THAT:- All the documents submitted by the assessee are validly acceptable documents. We have gone through the statements of various family members recorded by search party and we noted that no one has said that jewellery was purchased from undisclosed source. The assessee has not produced the documents at the time of search but the fact remains that the existence of these documents at the time of search cannot be doubted. The VDIS certificate is dated 24-02-1998 and issued by Income Tax department. Will of Shri Dhanpat Lal Mehta and Smt Sajjan Bai Mehta are on stamp paper duly witnessed and notarised and both the persons have expired much before the date of search. The agreements executed by Shri Umed Singh Dugar were also on stamp paper, duly witnessed and notarised and he has also expired much before the date of search. AO treated the jewellery 1334.141 gram of the value of Rs. 41,48,824/- as unexplained whereas the assessee has explained the jewellery more than 1334.141 gram on the basis of documents filed before the ld AO. Assessee filed his return declaring business income u/s 44AD which has been accepted by ld AO so the assessee is not required to maintain books of account and file copy of Balance sheet as contended by ld DR. Therefore, we hold that the ld AO has not justified in making the addition and we set aside the findings of ld CIT(A) in this regard and direct the A.O. to delete the addition made on account of alleged unexplained jewellery found at the time of search. Addition u/s 69 - unexplained investment in construction of house - We noted that the impugned addition was made solely on the basis of the bill submitted by the contractor. Initially, the contractor made bill for extra work for Rs. 5,10,132/- which was revised to Rs. 4,84,050/-There is no evidence on record, which may show that the bill raised by the contractor was paid. Therefore, the addition made by Ld. A.O. is sheer presumption, whereon the AO presumed that the payment of bill was made in cash and the same is out of unaccounted income of the assessee. On the other hands, the claim of assessee i.e. the bill of Rs. 4,84,050/- was finally settled for Rs. 1,24,000/- only and the payment of the same was made which is duly recorded in books of accounts and supported by the documents and the ld AO has not pointed out any defect in the documents submitted by the assessee. Once the submission of the assessee is supported by the admissible evidence, then there remains no reason to make the addition by disregarding to the same. Therefore, under the facts and in the circumstances of the case, we hold that the ld AO has not justified in making the addition and we set aside the findings of ld CIT(A) in this regard and direct the A.O. to delete the addition made on account of alleged unexplained expenses in house construction. Addition 69C - unexplained household expenses - As undisputed fact that the diary on the basis of which the addition was made was in the handwriting of wife of assessee and in such diary the payment of household expenses was made. The assessee submitted the detail of household withdrawals of the family and such withdrawal are much more than to the payments noted in such diary. Therefore, in absence of any contra material the sheer presumption which one can take is that the payments were made out of withdrawals made by the family for their household expenses. There is no finding or evidence on record that the payment noted in the diary were not meet out from the household withdrawal recorded in books of accounts. Therefore, under the facts and in the circumstances of the case we hold that the ld AO has not justified in making the addition against unexplained household expenses u/s 69C and we set aside the findings of ld CIT(A) in this regard and direct the A.O. to delete the addition made on account of alleged unexplained household expenses u/s 69C of the Act . ISSUES PRESENTED AND CONSIDERED 1. Whether the addition under section 69A for alleged unexplained investment in jewellery found at search can be sustained where the assessee/group produced documentary evidence (VDIS certificate, wills, agreements, affidavits, valuation reports) and no affirmative contradiction or inquiry was made by the Assessing Officer. 2. Whether jewellery found in joint-family premises/lockers can be treated as the assessee's undisclosed investment without identification of the specific owner. 3. Whether the Assessing Officer was justified in treating jewellery only to the extent of CBDT Instruction as explained and deeming the balance unexplained, when the assessee produced documents explaining additional quantity. 4. Whether an addition under section 69 for alleged unexplained investment in house construction, based on a contractor's bill, is justified where the assessee produced an affidavit of the contractor and payment vouchers showing a lesser settled amount recorded in books. 5. Whether additions under section 69C for alleged unexplained household expenses, calculated from notations in a diary seized in search (maintained by assessee's wife), are sustainable where the assessee/group produced evidence of household withdrawals and the diary comprises rough/memorandum entries without corroborating payment evidence. 6. Whether seized documentary notings that are rough/memorandum entries (kept by a family member) can be treated as speaking documents sufficient to displace the assessee's explanation. 7. Whether the doctrine of burden shifting applies once the assessee furnishes admissible documentary evidence (affidavits, wills, agreements) explaining alleged unexplained assets/expenses. ISSUE-WISE DETAILED ANALYSIS Issue 1-3: Addition under section 69A (unexplained jewellery) Legal framework: Section 69A deems unrecorded money, bullion, jewellery etc. to be income if the assessee is found owner and offers no satisfactory explanation as to source. CBDT Instruction No.1916 provides for treating specified reasonable quantities of jewellery as explained in search cases. Admissibility and evidentiary value of affidavits, wills, notarised agreements and official certificates (VDIS) are recognised in tax jurisprudence; once admissible explanation/evidence is filed, AO bears onus to falsify. Precedent treatment: Tribunal relied on established authorities holding that a sworn affidavit or similar documentary proof not controverted must be accepted unless disproved (Mehta Parikh & Co.; Daulat Ram Rawatmull; decisions of Tribunal and High Courts cited). Prior ITAT decisions (e.g., Ram Prakash Mahawar) establish that CBDT Instruction allowance is without prejudice to separately explained jewellery supported by evidence. Interpretation and reasoning: The Tribunal examined seized inventory (total grams found and grams seized), documentary proofs filed (VDIS certificate for 628 gms, duly executed wills for 611.52 gms, notarised agreements for 550.39 gms, sworn affidavit for 415.86 gms, valuation reports) and statements recorded at search. It observed absence of any contemporaneous contradiction by the AO (no inquiry, no summons to alleged donors/deponents, no proof of falsity) and noted that several documents predate the search and the deponents/executants had deceased where applicable, diminishing risk of afterthought fabrication. The Tribunal applied the principle that once the assessee places on record admissible documentary evidence, the burden shifts to the revenue to disprove or show infirmity in those documents; mere rejection without targeted inquiry or specific defects is impermissible. Tribunal also held that jewellery found in lockers/residence in joint-family name cannot be attributed solely to the assessee without identification of ownership. Ratio vs. Obiter: Ratio-where admissible documentary evidence (VDIS certificate, wills, notarised agreements, affidavits, valuation reports) explains jewellery, and AO fails to contest/verify or point to defects, addition under s.69A cannot be sustained; CBDT Instruction quantums are not exhaustive and do not exclude separately explained jewellery. Obiter-comments on family dynamics, stress during search and practicalities of producing documents at search. Conclusion: On the facts, Tribunal set aside addition of Rs.41,48,824 made u/s 69A and directed deletion; jewellery explained by documents must be treated as explained, and unexplained quantity could not be attributed to assessee alone where found in joint-family premises/lockers without owner identification. Issue 4: Addition under section 69 (construction investment based on contractor bill) Legal framework: Section 69 permits deeming unexplained investments as income where assessee fails to explain source. AO may rely on seized bills/records if they indicate unaccounted payments. Precedent treatment: Admissibility of contractor affidavit and contemporaneous payment vouchers and acceptance of such evidence where not controverted has been recognised (cited ITAT decisions; reliance on Nirmal Kumar Kedia jurisprudence regarding value of affidavits where not disproved or inquired into). Interpretation and reasoning: AO added amount reflected in seized contractor bill (revised figure). Assessee produced sworn affidavit of contractor and payment vouchers evidencing that final settlement was Rs.1,24,000 and that payment was made and recorded. AO did not point defects or conduct verification. Tribunal found AO's assumption of unaccounted payment was speculative in absence of proof of payment of full billed amount, and that the affidavit and vouchers-unrebutted-constituted admissible evidence entitling the assessee to relief. Ratio vs. Obiter: Ratio-where contractor's affidavit and payment vouchers are produced and uncontradicted, AO cannot sustain addition based on a seized bill alone; AO must verify or rebut documentary evidence before making addition. Obiter-observations on potential double addition in other year and on relevance of original versus corrected bills. Conclusion: Addition of Rs.4,84,050 under section 69 was deleted; AO's presumption of payment of gross billed amount was unsustainable in presence of uncontroverted evidence showing lower settled payment. Issue 5-6: Addition under section 69C (household expenses from diary seized) Legal framework: Section 69C deems unexplained expenditure to be income where no satisfactory explanation as to source is offered. Section 132(4A) (referred) permits presumptions about seized books/documents being true and belonging to person from whose custody they are seized, but such presumptions are rebuttable by evidence. Admissibility and weight of memorandum/rough notings depend on probative value and corroboration. Precedent treatment: Jurisprudence recognises that rough memorandum entries may be insufficient to sustain additions absent corroboration; also that presumption under s.132(4A) is rebuttable where evidence (withdrawals, vouchers, family disclosures) explains entries. Interpretation and reasoning: Tribunal noted that the seized diary was in wife's handwriting and comprised rough/memorandum notings, often without dates or showing future/aggregate dues, sometimes pertaining to other years. Assessee produced family household withdrawal records showing total household withdrawals (substantially exceeding the diary-noted amounts), and pointed to multiple earning family members. AO had not produced contrary documentary proof that diary entries were not met from household withdrawals. Tribunal held that in absence of contrary material and where diary entries are not specific/speaking (many undated or memorandum-style notings), it was reasonable to infer payments were met from recorded household withdrawals. The Tribunal emphasised that presumption under s.132(4A) does not permit mechanical additions where the assessee produces plausible and unrefuted explanation and supporting documentation; AO must point to inconsistencies or disprove the evidence. Ratio vs. Obiter: Ratio-memorandum diary entries, especially undated or covering other years and maintained by a family member, cannot alone sustain additions under s.69C where there exists contemporaneous, credible evidence (family withdrawals, books, vouchers) explaining household expenditure and no targeted rebuttal is made. Obiter-detailed page-wise critique of seized diary entries as not pertaining to assessment year. Conclusion: Additions of Rs.3,96,000 (A.Y. 2020-21), Rs.2,10,600 (A.Y. 2014-15) and Rs.4,08,900 (A.Y. 2015-16) under section 69C were deleted; diary-based entries did not establish unexplained expenditure in face of family withdrawal records and absence of contrary proof. Issue 7: Burden shifting and evidentiary obligations of the Assessing Officer Legal framework and precedent: Where assessee files admissible documentary evidence (affidavits, wills, agreements, official certificates), established authorities direct that the burden shifts to the revenue to verify or disprove; mere rejection without inquiry is impermissible. Interpretation and reasoning: Tribunal repeatedly applied this principle across the jewellery, construction and household expense issues-finding that AO/CIT(A) rejected documentary proofs without making requisite enquiries or pointing to specific defects and therefore could not sustain additions. Ratio vs. Obiter: Ratio-once satisfactory documentary evidence explaining alleged unexplained assets/expenses is placed on record, AO must undertake verification or adduce evidence to displace that explanation; failure to do so requires deletion of additions. Obiter-practical observations on search environment and family joint-ownership implications. Conclusion: On the facts, Tribunal applied the burden-shifting principle to set aside impugned additions and directed deletions where the revenue failed to rebut uncontroverted documentary explanations.